Archives for December 2012

European PMI Retail Sales Collapse: Near-Record Drop in Italy Retail Sales; French Retail Sales Drop 9th Consecutive Month; Germany Retail Sales Back in Contraction

Courtesy of Mish.

Inquiring minds are noting the expected (at least in this corner) collapse in European retail sales as measured by PMI indices in Italy, France, and Germany, the three largest Eurozone economies.

Earlier today I took a look at France. For details, please see France Economic Implosion Underway; French Retail Sales Contract 9th Consecutive Month as Cost Inflation Surges.

This article will look at Germany and Italy, the first and third biggest eurozone economies.

Italy

The Markit Italy Retail PMI® shows Steep downturn in high street spending continues in December.

Key points:

  • Near survey-record year-on-year fall in retail sales
  • Rate of job losses fastest since July
  • Business sentiment weakens to series low

Summary:

Italy’s retail sector remained in a steep downturn in December, with sales dropping sharply according to both monthly and yearly measures. Gross margins decreased amid a further rise in average wholesale prices, while firms cut employment and purchasing activity in line with lower sales. The month also saw business sentiment hit a record low.

December data pointed to another sharp month-on-month drop in Italian retail sales. This was signalled by Italian Retail PMI® registering 36.8, up from November’s seven-month low of 35.5 but slightly below its average over the year as a whole of 37.2. The latest decrease in high street spending was the twenty-second in consecutive months, and attributed by panellists to greater tax burdens, weak consumer sentiment and media scaremongering.

When measured on a year-on-year basis, the decline in retail sales was one of the most marked since data collection began in January 2004. In fact, only in December 2008 and May 2012 have faster annual rates of decline been recorded.

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Four Strikes Is An Out; Obama Proposes Last Minute “Mini Deal” Essentially Scrapping All Cutbacks, While Adding Milk Lobby Bonus

Courtesy of Mish.

The one thing I am always afraid of in budget negotiations is that virtually nothing is done, or worse yet, something counterproductive is done.

Obama’s latest Fiscal Cliff “Mini-Deal” Proposal is exactly the kind of counterproductive nonsense I am talking about.

Assuming the above Atlantic Wire article is correct …

  1. The deal would delay or replace the vast majority of spending cuts called for in the automatic sequester.
  2. The deal would extend unemployment benefits
  3. The deal would stop planned cuts to Medicare reimbursements
  4. Out of the blue, and probably an attempt to buy farm-state votes, the deal purportedly would include a “milk fix” that allegedly would avoid a dairy market catastrophe created by the failure to renew the farm bill

Four Strikes Is An Out

I am against all four ideas and it’s hard to say which one is worse. Certainly we need to scrap all farm subsidies, not put back those that have been scrapped.

Hopefully the House punts this ball a mile high, or better yet, let’s hope this does not clear the Senate in the first place.

Purportedly the deal would only be for 60-90 days which would in all likelihood do nothing but allow further watering down of the proposal in yet another can-kicking exercise at that time.

Since the market is not blasting higher on this preposterous idea, it’s safe to assume this deal is Dead-on-Arrival in the House, if it were to get there.

As I have said on numerous occasions, the best offer on the table is to let the alleged “fiscal cliff” happen.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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Sense on Cents 2012 Halls of Fame and Shame

Courtesy of Larry Doyle.

As I reflect on the year 2012 I am compelled to bring honor and fame on many individuals who brought real distinction upon themselves while upholding and promoting our prized virtues of truth, transparency, and integrity. This year’s inductees into the Sense on Cents Hall of Fame is obviously incomplete.

I remain eternally hopeful and optimistic for our nation knowing that there are individuals such as these in our midst who are willing to stand up and speak out for virtues all too often overwhelmed by those more driven by self-interest and cronyism. For those whom I consider more an embodiment of these character traits, the doors to the Sense on Cents Hall of Shame are also opened today and we will find a special spot for them inside.

I do find it particularly interesting that much of the fame is relegated to individuals, while the shame is often directed at organizations and institutions. I link to prior year’s inductees at the end of this commentary. On that note and with no further adieu, let’s commence with the induction ceremonies: 

Sense on Cents 2012 Hall of Shame Inductees
1. Jon Corzine….still counting the returns but this is a landslide…

2. Supreme Court of the United States for failing to hear the Standard Charted vs FINRA case and exposing how Mary Schapiro et al lied in the proxy statement used for the merger that created FINRA.

3. CitiMortgage: after having taken hundreds of billions in bailout funds and still perpetrating mortgage fraud….truly shameful

4. Joe Nocera: reporter for The New York Times who revictimized Madoff investors

5. Al Loewenthal: CEO of Oppenheimer for STILL not repaying investors holding ARS

6. FINRA arbitration aka Kangaroo Court

7. LIBOR Scandal Perpetrators: those involved in this scandal could fill an entirely new wing of our Hall of Shame …special recognition for the senior executives at Barclays, UBS, and elsewhere who “aided, abetted, and supervised ” this RACKETEERING . .

8. Larry Doyle …no not me…the writer Larry Doyle who penned a heinous commentary in The Huffington Post attacking Rick Santorum specifically and people of faith generally . . .

9. Naked Short Sellers: all the firms on Wall Street engaged in this practice over the years that made a mockery of free markets…

10. Hilary Rosen: taking potshots at Ann Romney

11. JP Morgan’s London Whale

12. Preet Bharara: for taking on small time insider trading cases and letting the big fish swim free . . .

13. Mary Schapiro: getting inducted for the third time…wouldn’t it be great if we could hypnotize her and get her to talk??

14. Russell Wasendorf: ran the scandal at Peregrine Financial

15. National Futures Association: duped by Wasendorf for years…

16. Jerry Sandusky and all those at Penn State who stood by while young children were victimized

17. Standard Investment Chartered, HSBC, Wachovia, and every other financial institution that engaged in massive money laundering scandals

18. The media in our country who have long since ceded their responsibility to pursue the truth and uphold the public interest

19. Teachers unions that put their interests ahead of the children whom they are charged to educate

20. Candy Crowley for interjecting herself into a Presidential debate in a blatantly biased fashion

21. Eric Holder…reasons too many to mention

22. Leaders who do not lead . . .

23. JoAnn Watson: Detroit City Councilwoman calling for a bailout of Detroit by Uncle Barack

The gold, silver, and bronze medals for the 2012 Sense on Cents Hall of Shame all go to the same individual….drum roll please...(little surprise here) ….Jon Corzine….we bestow a special platinum award on the recently departed SEC chair Mary Schapiro…(do not worry Mary, we will not soon forget you in the years ahead) 

Let’s lift the dark shroud of doom that prevailed over our opening ceremony and honor those who bring light and truth into our world. With no further adieu . . .

2012 Sense on Cents Hall of Fame Inductees 

1. Gretchen Morgenson: co-author of the fabulous book Reckless Endangerment, she also writes fabulous weekly commentaries in The New York Times that bring transparency to many parts of our financial and economic landscape that others would rather keep dark and opaque . . .

2. Jeremy Grantham of Grantham Mayo, a true giant among giants in the world of financial management

3. Lucas van Praag of Goldman Sachs who near retirement offered the following wisdom, “you can’t legislate and regulate for greed and stupidity.”  

4. Sherry Hunt: whistleblower at CitiMortgage who exposed the fraud within that business . . .

5. Kenneth Rogoff: the best economist in the world today. . .

6. Helen Metchikoff and Dean Tofteland: customers of MF Global who had the courage to stand up and speak out about the injustice  perpetrated upon them and others….juxtapose these individuals next to one Jon Corzine…

7. Al Lewis: writer for Dow Jones who speaks truth to power like few other writers. . .

8. Ray Dalio, Jeff Gundlach, Bob Rodriguez: along with Jeremy Grantham, these three giants are perhaps the finest money managers in the world today and have the character to share their wisdom with the world at large . . .

9. Niall Ferguson:  Harvard University professor who always speaks the truth in bold and daring fashion…

10. Robert Wenzel: editor and publisher of Economic Policy Journal. He was anything but demure in writing, My Speech at the New York Fed and more (must reads)

11. Robert Wilmers: CEO of M&T Bank also penned a fabulous commentary Wall Street vs Main Street

12. Michael Roth: president of Wesleyan University for promoting a program that will help students graduate in 3 years and thus save about 20% of the cost of the education …a real visionary…

13. Tom Coburn (R-OK): in the midst of an interview, Coburn spoke loudly while laying out what all too many in America know all too well. Coburn said, “We have NO leadership.”

14. Rudi K: radio host of Main Street Out Loud a fabulous program that also speaks truth to power and endorses those that do the same …a truly great American. . .

15. Michael Burry: delivered a phenomenal commencement address at UCLA …

16. Jim Bullard: St. Louis Federal Reserve President … a truth teller

17. Neil Barofsky: former Inspector General overseeing the TARP delivered special venom directed at Treasury Secretary Tim Geithner

18. David Skeel: University of Pennsylvania law professor penned a fabulous commentary on the breakdown and lack of respect and practice of the rule of law in our nation

19. Eric Schneiderman: New York Attorney General is a driving force in the pursuit of the ongoing case addressing the manipulation of Libor

20. Benjamin Lawsky: superintendent of the New York State Department of Finance who led the pursuit of the money laundering case against Standard Investment Chartered while the more well known regulators in Washington slow walked this case and others…

21. Joel Thurtell: blogger who exposed the racket embedded in municipal bond transactions for public school financings in California

22. Chris Whalen: THE top banking analyst on Wall Street . . . not even a close second . . .

23. David Weber: formerly the assistant Inspector General at the SEC who is now suing the regulator for a myriad of reasons…

24. All those who comment at Sense on Cents and bring real life to my blog as I try to promote the virtues of truth, transparency, and integrity in the process. I THANK YOU!!

I will defer to you the readers as to whom you believe is deserving of further distinction within the Hall of Fame.

Additionally, I am sure you have your own ideas as to whom I may have overlooked this year and should certainly be inducted into these respective halls. For those who would like to stay a little while longer and review prior year’s inductees, I welcome providing the following links:

2009 Sense on Cents Hall of Fame and Shame

2010 Sense on Cents Hall of Fame and Shame

2011 Sense on Cents Hal of Fame and Shame

Happy New Year to all.

Larry Doyle

Isn’t it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

France Economic Implosion Underway; French Retail Sales Contract 9th Consecutive Month as Cost Inflation Surges

Courtesy of Mish.

Inquiring minds are noting the expected (at least in this corner) collapse in European retail sales as measured by PMI indices.

The spotlight for this post is France, the second largest Eurozone economy following Germany.

The Markit France Retail PMI® shows French retail sales fall for ninth consecutive month.

Key points:

  • Sales fall at sharper pace on both monthly and annual measures
  • Purchasing costs rise at strongest rate in ten months
  • Stocks of goods for resale decline at faster pace

Summary:

French retailers reported another month-on-month decline in sales during December – the ninth in succession which is a survey record. Sales were also down on an annual basis, and fell well short of retailers’ plans. Gross margins remained under considerable pressure, partly reflecting a strong and accelerated rise in purchasing costs.

The headline Retail PMI® slipped to 46.8 in December, from 48.8 in November. The latest reading was indicative of a solid rate of contraction. Anecdotal evidence suggested that a difficult economic climate and low customer footfall had contributed to the drop in sales.

Actual sales at French retailers once again disappointed relative to previously set plans in December. The degree of undershoot was the greatest since August. Survey respondents are also pessimistic regarding the one-month outlook for sales.

Factors expected by retailers to boost sales over the coming three months include cold weather, new product launches and promotions. Those factors expected to depress sales include a weak economy, depressed consumer confidence and increased taxes.

Latest data indicated that French retailers’ gross margins remained under strong pressure in December. Margins have declined in every month since February 2008.

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Presenting Abe’s ‘Super-Secret’ Devaluation Plan – Double-Down

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Much has been made of newly appointed uber-easer Abe's plans to weaken the JPY by any means possible. Since the global financial crisis began in early 2008, USDJPY has tracked remarkably closely with the ratio of Federal Reserve assets to Bank of Japan assets – as the currency wars escalated.

Assuming the Fed proceeds with its planned QE3/4 $1tn expansion, then BoJ assets would need to expand by around JPY100tn to meet this target. The current BoJ holdings of JGBs just crossed JPY100tn – so this new printing is double the current holdings and considerably more than double the planned JPY44tn purchases for the year. Good luck with that given the expected JGB issuance this year is only around JPY44tn and good luck persuading anyone that the BoJ is not directly funding the government in the ultimate reacharound. As the Fed monetizes 1 year of Treasury issuance so the BoJ has to monetize over 2 years of JGB issuance – sustainable?

The current collapse in USDJPY to 86 has actually recoupled with the ratio at around 0.0184x (Fed 2.92tn / BoJ 157.833tn). This implies the market is priced for around JPY56tn of JPY printing already (25% more than planned); but, given the USDJPY target of 90 that has been implicitly discussed, this would mean the ratio of Fed/BoJ would need to drop to 0.0165x.

The recent drop in USDJPY has recoupled with the current Fed/BoJ ratio once again…

 

 

but given the Fed's grand QE3/4 plan, the BoJ will have to be very aggressive to weaken the JPY – obviously – though monetizing double the planned JGB issuance this year seems like a stretch for even Abe (if he hopes to maintain any semblance of market confidence).

 

Chart: Bloomberg

Japan Manufacturing PMI Downturn Accelerates; Output and New Orders Suffer Sharpest Contractions for 20 Months; Cheaper Yen Cannot Save Japan

Courtesy of Mish.

The Markit/JMMA Japan Manufacturing PMI™ shows Downturn of manufacturing sector accelerated during December.

Key points:

Output and new orders register sharpest contractions for 20 months
Employment, purchasing and stocks all continue to be cut
Output charges lowered further as input prices remain unchanged

Summary:

Latest data from Markit/JMMA indicated that the performance of the Japanese manufacturing sector continued to deteriorate in December. Output, new orders and employment all fell compared to one month ago while margins remained under pressure as output charges declined amid ongoing price competition.

After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers’ Index™ (PMI™) registered a level of 45.0 in December. Down from 46.5, the PMI subsequently posted a 44-month low.

Output continued to decline markedly, with the sharpest contraction again seen in the capital goods producing sector. Total manufacturing production has now fallen for seven months in a row, with the latest reduction the sharpest seen since April 2011.

Falling volumes of incoming new business was the primary factor driving manufacturing output lower in December. As was the case with output, the fall in new order volumes was the steepest since April 2011, although the rate of decline was considerably sharper than seen for production.

New export order volumes also continued to fall in December, with companies reporting that demand from Chinese and European markets remained sluggish. The fall in orders from abroad was the steepest since July, with investment goods producers recording the steepest reduction.

Cheaper Yen Cannot Save Japan

Nearly every day someone sends me an email stating Japan’s manufacturing and export machine will pick up with a falling yen….

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The Ultimate Buy (Votes) Now, Pay Later (with OPM) Presidency

The Ultimate Buy (Votes) Now, Pay Later (with OPM) Presidency

Courtesy of Paul Price

America has never before had a leader who was more willing to spend other people’s money (OPM) to fund his own agenda. By invoking the “Never let a crisis go to waste” doctrine, President Obama has embarked, unfettered, on a progression of non-congressionally debated programs.

Each of these programs has gone a long way towards implementing Obama’s vision for our nation. The basic principles revolve around one theme.

Redistribution of Wealth

Details have varied but the end results point in the same direction. None of this could have happened if the media was not complicit in its adoration and deferential treatment of our newly re-empowered king.

This year’s presidential race employed class warfare as a talking point to an unprecedented extreme. Obama’s campaign hinged on refocusing America’s collective psyche away from four years of a horrible economy. Instead, Democrats directed the media and the public towards simply loathing those who were unusually productive or successful, or who just happened to be members of the ‘lucky sperm’ club.

History will show that the political strategy worked. Obama’s economic policies and a huge slug of working-age Americans didn’t. 

The Great Recession was an excuse for more than $4 trillion in new deficit spending during Obama’s first term. Yet presidential candidate Obama was outraged G.W. Bush’s $9 trillion national debt. President Obama is insulted by any debt limits, even after running up the national debt to north of $16 trillion!

It was easy to get the masses to agree that taxes should be much higher, as long those higher levies would be paid strictly by somebody else.

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We are already starting to see the lies concerning the true costs of ObamaCare. Those with decent incomes will now be paying for their own policies plus the costs for another, anonymous family. The phased-in time frame will hide the extent of the ultimate obligations until Obama’s out of office.

College loans? In the old days, students borrowed as little as was necessary. They repaid it quickly to save on interest expense. Today’s Federal student loans incentivize borrowing the maximum amount available. They also reward delaying repayment for as long as legally permissible.

Graduates who get jobs deemed ‘good for society’ (like congressional aides) might have their balances written off outright. Others will have them forgiven after 10 – 20 years. The ‘gifts’ come now from a benevolent Obama; the taxpayer burden of loan forgiveness will hit long after Obama’s tenure.

The way to eliminate unemployment is to eliminate unemployment insurancePay people to stay at home and they will. Extensions in unemployment insurance foster ‘off the books’ work.  This keeps more “unemployed” voters indebted to their enablers. Disability eliminates the charade of even looking for work by making things permanent plus adding Medicaid coverage.

Housing subsidies and food stamps give working people a disincentive to earn more. Why bust your ass only to forfeit the ability to live cheaply or free?

Refi’s and Cram-downs steal money from those who made the loans while shifting default risk to those suckers who actually still pay federal income taxes.

The 2% FICA tax holiday funded consumer spending during the two-years prior to presidential election. The $120 billion yearly bill must be made up through increased non-FICA taxation. This shifts the burden further onto the ‘lucky few’ and away from ‘working people’.

If any part of tax relief does not get extended this 2% temporary cut might be sacrificed as it brings in big money and there are no more big elections for two years.

Bernanke’s ZIRP (zero interest rate policy) helps debtors while killing any chance for risk-free returns for savers and investors. ZIRP rewards bad behavior (borrowing) while penalizing good behavior.

If we trained our pets and children that way, we’d get bad dogs and lazy kids. This, however, has become Washington’s standard operating procedure.

Democracy has morphed into, “Two wolves and a lamb voting on what to have for dinner.” The voting results will not necessarily be moral, but they will always reflect a solid majority. Those hungry wolves can then correctly claim they had an electoral mandate.

The Real Crisis: “People Have Lost Trust In The Government And The Market”

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The death of the 'cult of equities' was a popular topic this year among both fringe blogs and the best-known institutional asset managers and sell-side strategists. As AP discusses in this excellent article, ordinary Americans – defying decades of investment history – are selling stocks for a fifth year in a row. It's the first time ordinary folks have sold during a sustained bull market since relevant records were first kept during World War II. The answer is both complex and simple but summed up best by a former stock analyst's comment that in order to buy stocks "You have to trust your government. You have to trust other governments. You have to trust Wall Street, and I don't trust any of these." With Fed policy trying to force investors back into stocks (at any cost), a former fund manager notes, presciently that, "When this policy fails, as it will, baby boomers will pay the cost in their 401(k)s." Are we the new 'Depression Babies'? We suspect so.

Investors, as you well know, are leaving the equity markets in droves…

Based on AP's calculations, individuals accounted for 40 percent to 50 percent of money going to U.S. stock ETFs in recent years.

If you assume 50 percent, individual investors have put $194 billion into U.S. stock ETFs since April 2007. But they've also pulled out much more from mutual funds – $580 billion. The difference is $386 billion, the amount individuals have pulled out of stock funds in all.

If you include the sale of stocks by individuals from brokerage accounts, which is not included in the fund data, the outflow could be much higher.

But why are investors not buying the propaganda this time and jumping in with both hands and feet…

"You have to trust your government. You have to trust other governments. You have to trust Wall Street," says Neitlich, 47. "And I don't trust any of these."

Defying decades of investment history, ordinary Americans are selling stocks for a fifth year in a row. The selling has not let up despite unprecedented measures by the Federal Reserve to persuade people to buy and the come-hither allure of a levitating market. Stock prices have doubled from March 2009, their low point during the Great Recession.

It's the first time ordinary folks have sold during a sustained bull market since relevant records were first kept during World War II, an examination by The Associated Press has found.

and…

"People don't trust the market anymore," says financial historian Charles Geisst of Manhattan College. He says a "crisis of confidence" similar to one after the Crash of 1929 will keep people away from stocks for a generation or more.

What is at the core of this mistrust or doubt?

People who think the market will snap back to normal are underestimating how much the Great Recession scared investors, says Ulrike Malmendier, an economist who has studied the effect of the Great Depression on attitudes toward stocks.

She says people are ignoring something called the "experience effect," or the tendency to place great weight on what you most recently went through in deciding how much financial risk to take, even if it runs counter to logic. Extrapolating from her research on "Depression Babies," the title of a 2010 paper (embedded below) she co-wrote, she says many young investors won't fully embrace stocks again for another two decades.

"The Great Recession will have a lasting impact beyond what a standard economic model would predict,"

But it's not just ordinary folks, its professional investors too…

Public pension funds have cut stocks from 71 percent of their holdings before the recession to 66 percent last year, breaking at least 40 years of generally rising stock allocations

as old 'lessons' or myths are dismissed…

And old assumptions about stocks are being tested. One investing gospel is that because stocks generally rise in price, companies don't need to raise their quarterly cash dividends much to attract buyers. But companies are increasing them lately.

Dividends in the S&P 500 rose 11 percent in the 12 months through September, and the number of companies choosing to raise them is the highest in at least 20 years, according to FactSet, a financial data provider. Stocks now throw off more cash in dividends than U.S. government bonds do in interest.

Many on Wall Street think this is an unnatural state that cannot last.

As it seems, for once, a positive lesson is being learned…

"People aren't looking to swing for the fences anymore," says Gary Goldstein, an executive recruiter on Wall Street, referring to the bankers and traders he helps get jobs. "They're getting less greedy."

The lack of greed is remarkable given how much official U.S. policy is designed to stoke it.

But the powers that be are not happy about it…

"Fed policy is trying to suck people into risky assets when they shouldn't be there," says Michael Harrington, 58, a former investment fund manager who says he is largely out of stocks. "When this policy fails, as it will, baby boomers will pay the cost in their 401(k)s."

So, what are 'smart' retail investors doing with their money?

Instead of using extra cash to buy stocks, he is buying houses near his home in Sarasota, Fla., and renting them. He says he prefers real estate because it's local and is something he can "control." He says stocks make up 12 percent his $800,000 investment portfolio, down from nearly 100 percent a few years ago.

After the dot-com crash, it seemed as if "things would turn around. Now, I don't know," Neitlich says. "The risks are bigger than before."

Source: AP

Depression Babies paper embedded below:

malmendier

Last Ditch Efforts

Fiscal Thursday – Last Ditch Efforts

Courtesy of Phil of Phil’s Stock World 

4 more days!

This is much more exciting than Christmas. So exciting that President Obama and Congress have cut short their winter vacations to give us hope – right before they snatch it away again.  Will it be a bad plan or no plan?  I can hardly wait to find out…

We have a bit of data today with the usual Jobless Claims, Bloomberg’s Consumer (dis)Comfort Index, New Home Sales, Consumer (lack of) Confidence, Oil Inventories and even a look at the Fed’s Balance Sheet and the Money Supply after the markets close.  Tomorrow we get the Chicago PMI and Pending Home Sales but none of it matters compared to whatever rumor comes out of Washington over the next 48 hours.

 

 

Meanwhile, we’re focused on our technical levels and, as you can see from the Big Chart (above), we are right on the 50 dma of the Dow (13,083) and the Nasdaq (2,991) and not too far on the S&P (1,413) with the NYSE (8,400) and the Russell (840) testing (and failing, so far), their 5% lines.

See my additional comments to Members in morning chat but, suffice to say, we need to watch these levels very carefully as well as the Dollar – which is right on the 79.50 line as the Euro attempts to get back over $1.33 and the Pound goes for $1.62 while the Yen remains extremely weak (and supportive of the Dollar) at 85.76 to the Dollar. As I said to Members:

Obama and Congress are back today. I don’t expect an announcement this afternoon but, possibly, this evening or tomorrow if they are serious about not looking like they let the economy die. We also hit the mystical debt ceiling on Monday so much silliness over the next couple of days but, if there is a rumor of a solution – the markets could jump very sharply so be careful.

 

 

We also have an adjusted TZA spread – just in case those levels don’t hold up. Our HLF play from last week really kicked into gear as the stock has already jumped back from $25 to $27.50.  That trade idea was from last Friday and made for a nice Christmas present as I said in Member Chat:

HLF May $30/40 bull call spread at $3.30, selling 2014 $22.50 puts for $6.40 for a net $3.10 credit for a net $19.40 entry on the $27.18 stock. Not that it means much as they’ve already fallen from $74 in April but I think it’s a fun play and we could make $13.10 on a $3.10 credit with just $2.70 in net margin (according to TOS) for a better than 4x return in 12 months if HLF comes back to $40 by May.

Our aggressive play paid off already with the May $22.50 puts falling to $4.30 and the $30/40 spread holding $2.70 for a quick $1.50 profit off the net $3.10 credit (48%).  As noted yesterday, this is how we trade the news and it looks like we caught a good bottom on that one!

 

Screen Shot 2012-12-21 at 12.20.50 PM.png

 

The Atlantic agrees with me on household formation, calling it “The Most Overlooked Statistic in Economics” and furthers my case that it’s poised for a comeback in 2013.  This chart from that article illustrates the tremendous amount of money that can be pumped into the economy if we do get a strong recovery but, even a mild recovery will be quite a boost (grey dots).

Barry Ritholtz pointed out two good reads this morning – We know nothing because we read newspapers (Fabius Maximus) and The media – a broken component of America’s machinery to observe and understand the world (Fabius Maximus) – both are good reads if you are in the mood to do some thinking.

Be very careful out there as the markets are in no mood for thinking – they are simply reacting (or over-reacting) to whatever the latest rumor is out of Washington.  We should take our levels seriously and hedge if we need to, but cashy and cautious is the watch-word coming into the long weekend as this thing could go either way – sharply!

Click on this link to try Phil’s Stock World FREE! 

Jobless Claims Not Translating Into Full-Time Jobs

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Lance Roberts of Street Talk Live blog,

The Biggest Health Stories of 2012

Here are a couple:

Screen Shot 2012-12-27 at 11.32.07 AM

 

We’ve heard many times before that too much red meat is bad for us, but this study of more than 100,000 people still got the nation’s attention. For the first time, researchers estimated the effect of red meat on a person’s lifespan—and the news wasn’t good.

On average, each additional serving of saturated fat-filled red meat was associated with a 13% higher risk of dying during the 28-year study. Processed meat products such as hot dogs, bacon, and salami were especially hazardous…

 

Source: Uploaded by user via Joan on Pinterest

 

Is coffee good for our health? Although the research on America’s favorite morning beverage has been mixed overall, coffee drinkers received a big boost when the prestigious New England Journal of Medicine published the largest-ever study on the topic in May.

A daily cup (or cups) of coffee, the study found, appears to be harmless and may even lower the risk of dying from chronic diseases such as diabetes. People who drank six or more cups of coffee per day were up to 15% less likely than non-coffee drinkers to die during the study, and even a one-cup-a-day habit was associated with a 5% to 6% lower risk.

For more: The Biggest Health Stories of 2012 > 

Lock Congress Up Until They Deal?

Courtesy of Mish.

Stocks staged a late day rally because the Senate is prepared to kick the can down the road, avoiding any chance of fiscal sanity this year or next.

Whether or not the House will go along is another matter, but unfortunately Speaker Boehner calls House back to Washington on Sunday

The House of Representatives will reconvene on Sunday evening, just less than 30 hours before the United States reaches the fiscal cliff.

House Speaker John Boehner, R-Ohio, notified lawmakers that the House would come to order at 6:30 p.m. ET on Sunday in hopes of averting the end-of-year combination of tax hikes and spending cuts that constitute the fiscal cliff.

The lawmaker on Thursday’s call told NBC News that any Senate plan Boehner puts on the House floor (of which there is no guarantee) would only receive as few as 40 Republican votes, making Democratic help necessary.

“If the Senate will not approve these bills and send them to the president to be signed into law in their current form, they must be amended and returned to the House,” Boehner told Republicans Thursday, according to a source on the call. “Once this has occurred, the House will then consider whether to accept the bills as amended, or to send them back to the Senate with additional amendments. The House will take this action on whatever the Senate can pass — but the Senate must act.”

Flagpole Rally S&P 500 Futures

The moment I saw that second green candle and volume spike on the S&P 500 futures I knew a deal was in the works even though I could not find any news for a half hour.

Magic Number is 60

MarketWatch reports Senate Republicans open to new cliff deal

Senate Republican Leader Mitch McConnell said late Thursday that Senate Republicans are open to any White House proposal to avert the fiscal cliff.

Reid urged the House to pass a Senate bill extending Bush-era tax cuts for those earning $250,000 a year or less. The Nevada Democrat said the House is being operated under “a dictatorship of the speaker.”

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Savings Deposits Soar By Most Since Lehman And First Debt Ceiling Crisis

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

A month ago, we showed something disturbing: the weekly increase in savings deposits held at Commercial banks soared by a record $132 billion, more than the comparable surge during the Lehman Failure, the First Debt Ceiling Fiasco (not to be confused with the upcoming second one), and the First Greek Insolvency. And while there were certainly macro factors behind the move which usually indicates a spike in risk-aversion (and at least in the old days was accompanied by a plunge in stocks), a large reason for the surge was the unexpected rotation of some $70 billion in savings deposits at Thrift institutions leading to a combined increase in Savings accounts of some $60 billion.

Moments ago the Fed released its weekly H.6 update where we find that while the relentless increase in savings accounts at commercial banks has continued, rising by another $70 billion in the past week, this time there was no offsetting drop in Savings deposits at Thrift Institutions, which also increased by $10.0 billion. The end result: an increase of $79.3 billion in total saving deposits at both commercial banks and thrifts, or an amount that is only the third largest weekly jump ever following the $102 billion surge following Lehman and the $92.4 billion rotation into savings following the first US debt ceiling debacle and US downgrade in August 2011.

In total, there has been an increase of $112 billion in deposits in savings accounts in the past month alone, roughly the same as the total non-M1 M2 money stock in circulation.

Ironically, it was only yesterday that we demonstrated the relentless surge in bank deposits despite the ongoing contraction in total bank loans, and explained how it is possible that using repo and rehypothecation pathways, that banks are abusing the endless influx of deposits into banks and using this money merely as unregulated prop-trading funds, a la JPM's CIO. In other words the "money on the sidelines" now at all time record highs, is anything but, and is in fact about $2 trillion in dry powder to be used by the banks as they see fit.

But most importantly, we showed how even as those happy few who can still afford to save, are fooling themselves int believing that they are pulling money out of other assets and storing it in what they perceive to be electronic mattreses at their friendly neighborhood JPM, Wells or Citi branch, and thinking this money is safe and sound. Alas, nothing could be further from the truth.

Because by depositing money into banks, ordinary Americans (and companies) are merely providing even more dry powder for the banks to trade on a prop, discretionary basis, either as directly investable capital or as asset collateral, and by handing over their hard earned cash to the banks are assuring that the scramble to bid up any and all risk assets continues indefinitely.

Yes, dear saver: the reason why stocks continue to soar above any fundamentally-driven level, is because you just made that bank deposit.

It also means, that come the New Year, and the unlimited insurance of various deposits comes to an end, and when banks once again represent a counterparty danger to savers (where they will be merely a general unsecured claim over and above any FDIC insured limit, be it $250,000 or less), should said deposits be pulled out of banks (and according to the WSJ there is about $1.5 trillion in deposits that may be impacted), the net result of such capital reallocation would be far more disastrous to stock markets than anything the fiscal cliff and/or debt ceiling theater could possibly do as it would mean unwinding an ungodly amount of trades that have had $1.5 trillion as real assets, with subsequent repo and re-repo leverage applied to them.

Source: H.6, St Louis Fed

No More Industrial Revolutions, No More Growth?

No More Industrial Revolutions, No More Growth?

 

Source: ge.com via Laura on Pinterest

 

Courtesy of Charles Hugh-Smith of OfTwoMinds blog

The common feature of the transformative technologies of the 20th and 21st centuries is that they were one-offs that cannot be duplicated.

What if the engines of global growth that worked for 65 years (since 1945) have not just stalled but broken down? The primary "engines" have been productivity gains from industrialization, real estate development and expansion of consumption based on the continual expansion of debt and leverage–in short-hand, financialization.
 
The Status Quo around the globe has responded to the obvious endgame of financialization (the 2008 financial crisis) by doing more of what has failed: expanding credit and leverage, flooding the global economy with liquidity (money available for borrowing), credits and subsidies for real estate development and a near-religious belief in "the next industrial revolution" that will spark rapid growth in employment, profits and productivity.
 
"The usual suspects" for the next engine of growth include nanotechnology, biotechnology, unconventional energy and Digital Fabrication, i.e. 3-D printing and desktop foundries. But are any of these capable of not just replacing jobs and revenues in existing industries, but creating more jobs and expanding revenues and profits?
 
There is a growing literature on this very topic, as many start questioning the quasi-religious faith that there will "always" be another driver of growth, i.e. the expansion of wealth, profit, employment and assets.
 
The Status Quo dares not even entertain this question because the only way to service the fast-rising mountain of debt that is sustaining the Status Quo is to "grow our way out of debt," i.e. expand the real economy faster than debt.
 
The past 250 years has been one long "proof" that we can indeed "grow our way out of debt" because the low-hanging fruit of industrialization and cheap, abundant energy enabled wealth to be created at a faster pace than debt.
 
Clueless Keynesians mock those questioning the possibility that the low-hanging fruit has been plucked by noting that doomsdayers were actively decrying the ballooning debt of the British Empire in the mid-1700s. We all know how that story ended: what looked like crushingly massive debt in 1780 was reduced to a trivial sum by the rapid expansion of industrialization.
 
But suppose the end of cheap, abundant energy (replaced by abundant, costly energy) and the Internet spells the end of centralized models of growth? What if all the innovation currently bubbling away only produces marginal returns?
 
Take biotechnology for example. Those with little actual knowledge of biotech are quick to latch onto the potential for genetic engineered medications, biofuels, etc. What they don't ask is if these technologies can scale up while costs decline, i.e. the computer technology model where everything progressively gets cheaper and more powerful.
 
Biofuels may have promise, but it still takes "old fashioned" energy to collect the feedstock, and it is a non-trivial task to keep micro-organisms alive on the scale that would be needed to produce a useful amount of liquid fuels, i.e. a few million barrels every day. Some processes may not scale up, and others may not see any significant reduction in fuel costs once the full input costs are calculated.
 
Genetic engineering also may not scale up–it may be limited by key barriers of individual patient complexity and by intrinsic costs that do not drop enough to make a difference.
 
Consider the diseases that have almost been eradicated–polio, for example–and the lifestyle diseases such as diabesity. The wave of diseases that were eradicated were caused by bacteria or viruses: a vaccine or agent that disabled or killed the bacteria/virus wiped out the disease.
 
Diabesity, cancer and heart disease are not caused by a single virus or bacteria. The "one med/vaccine works for all" model has failed and will always fail because diabesity and other lifestyle diseases have multiple, non-linear causes that are beyond the reach of a single "solution." These diseases may well be tied to epigenetic factors, for example, the interaction of "junk DNA" with environmental stresses that extend back into the individual genome.
 
What we face is the confusion of symptoms and effects with causes. Lowering cholesterol is not the "magic bullet" many hoped for, and neither was hormone therapy.
 
In the technology sector, it is clear that the Internet is destroying entire sectors of employment. The jobs that have been lost for good have not been replaced by jobs created by the Internet, nor is there any credible evidence to support this hope: automated software continues chewing up one industry after another, and the politically protected fiefdoms of healthcare (sickcare), education and government have yet to taste the whip of real innovation.
 
Rather than add jobs, we will lose tens of millions of jobs as faster-better-cheaper breaches the walls of these massive politically protected fiefdoms.
 
Healthcare spending is clearly in terminal marginal return: our collective health continues to decline in key metrics even as spending doubles, triples and quadruples. The same can be said of defense, education and many other industries.
 
Sectors such as agriculture have already seen employment decline by 98% even as production rose; there are still improvements in agriculture (robotic milking machine, for example) but the low-hanging fruit in agriculture as well as in medicine, education, etc. have all been picked.
 
The next wave of innovation will destroy protected profit centers and employment; even the Armed Forces are not immune, as the "ships of the future" will have relatively small crews and robotic drones will replace high-cost, high-employment weapons systems.
 
The semi-magical belief that technological innovation will create wealth in such quantities that all other problems become solvable may well be false. We may have entered an era of marginal returns, where innovations destroy jobs, wealth, assets and debt–the very foundations of "growth."
 
I have begun to speculate about a future where energy might be abundant but few can afford to consume much: money and income may be scarcer than energy.
 
The one innovation that might energize an entirely new field of employment is digital fabrication, the decentralization and distribution of production. But this will also creatively destroy jobs dependent on the present supply chain.
 
National governments have over-promised entitlements to their citizens on a vast scale, and the current "solution" to the mismatch of promises to national surplus is to borrow monumental sums to fund the promises. If innovations actually shrinks employment, incomes and wealth, then the base for taxes and debt will quickly shrink to the point that the debt is unserviceable. The Status Quo will collapse financially, even if energy and labor are both abundant.
 
Consider END OF GROWTH – six headwinds: demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt (via Zero Hedge)
 
The point made in this lengthy essay is a powerful one: the common feature of the transformative technologies of the 20th and 21st centuries is that they could only happen once. They are one-offs that cannot be duplicated. Doing more of what has failed will only set up a grander failure as returns on all our debt-based "investments" become ever more marginal and the return on increasing complexity drops into negative territory. Once complexity yields negative returns, the systems that depend on complexity quickly destabilize and implode.
 
The Collapse of Complex Business Models

This essay was drawn from Musings Report 48. The Musings are sent weekly to subscribers and major financial contributors (those who contribute $50 or more annually).
 


My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions–10% to 20% discounts.

Initial Claims Down 11% Vs. Same Week in 2011

Courtesy of Lee Adler of the Wall Street Examiner

The Labor Department reported that the seasonally adjusted (SA) representation of first time claims for unemployment declined by 12,000 to 350,000 from a revised 362,000 (was 361,000) in the advance report for the week ended December 22, 2012. The number was much batter the consensus median estimate of 375,000 reported by Briefing.com in a survey of economists. Bloomberg reported a median estimate of 360,000. Dow Jones, which uses Econoday, had it at 365,000.

They were all wrong, as usual.  It’s not really their fault. The seasonally adjusted estimates are the problem, because they attempt to represent data that is extremely volatile as an idealized smoothed version.

Along with the headline seasonally adjusted data, which is the only data the media reports, the Department of Labor (DOL) reports the not seasonally adjusted data. The actual data was indeed very good for this week of the year. The DOL said in today’s press release, “The advance number of actual initial claims under state programs, unadjusted, totaled 440,887 in the week ending December 22, an increase of 39,458 from the previous week. There were 497,689 initial claims in the comparable week in 2011.”  [Added emphasis mine] The year to year decline was at the rate of -11.2%. In the prior week the year to year rate of decline was -4.7%.

Immediately after Superstorm Sandy, there was an extraordinary increase in the data going against a persistent 3 year trend of improvement.  That was largely reversed in the week ended November 17. For the next several weeks the rate of year to year improvement slowed. While this may have been partly due to the aftereffects of the storm, it also appeared to be part of a trend of slightly slowing improvement that has been underway since 2011.  However, this week’s rate of change was the best since May and among the best of the past two years.

Note: The DOL specifically warns that this is an advance number and states that not seasonally adjusted numbers are the actual number of claimants from summed state claims data. The advance number is virtually always adjusted upward the following week because interstate claims from many states are not included in the advance number. The final number is usually 2,000 to 4,000 higher than the advance estimate. I adjust for this in analyzing the data.

Normally the increase between the advance number and the final number the following week has been around 2,000-4,000. For the past two weeks it has been around 1,000. Accordingly, I adjusted this week’s reported number up by 1,000. The adjusted number that I used in the data calculations is 442,000, rounded. On this basis, the year to year decrease in initial claims was approximately -56,000 or -11.2% versus a drop of 4.7% last week.

Note: To avoid the confusion inherent in the fictitious SA data, I analyze the actual numbers of claims (NSA). It is a simple matter to extract the trend from the actual data  and compare the latest week’s actual performance to the trend, to last year, and to the average performance for the week over the prior 10 years.  It’s easy to see  graphically whether the trend is accelerating, decelerating, or about the same.

The week to week change of an increase of 40,000 was better than usual for the fourth weekly report in December. Over the previous 10 years the comparable week has virtually always had big increases. The average change for the 10 years from 2002 to 2011 was an increase of approximately 69,000.  Last year claims increased by 77,000 in that week. 2010 was a little better, however, with an increase of just  30,000. This year was better than 8 of the past 10 years, the only exceptions being 2009 and 2010 when the economy was in a bungee rebound from the worst of the depression.

From mid 2010 through mid October 2012 the annual rate of change in initial claims had ranged from -3% to -20% every week, with a couple of temporary minor exceptions, including the Superstorm Sandy surge. Since mid 2011 the annual rate of change was within a couple of percent of -10% in most weeks. The trend was remarkably consistent.

A second trend has become visible on the annual rate of change graph (bottom of chart below). It shows a channel of slightly higher lows and higher highs indicating a slowing rate of improvement as the trend moved toward zero year to year change. The December 8th week’s annual rate of change at -1.2% was at the upper limit of that channel.  The current weekly reading of -11.2% is back within the channel and near the center of the overall range of the past 2 years. For the time being at least, the improving trend continues, recovering to the best pace it has seen in 7 months.

Initial Unemployment Claims - Click to enlarge

Initial Unemployment Claims – Click to enlarge

Plotted on an inverse scale, the correlation of the trend of claims with the trend of stock prices over the longer term is strong, while allowing for wide intermediate term swings in stock prices. Both trends are largely driven by the Fed’s operations with Primary Dealers (covered weekly in the Professional Edition Fed Report; See also The Conomy Game, a free report). The chart below has suggested for a while that as long as the trend in claims is intact, the S&P would be overbought at approximately 1450, and oversold at roughly 1220.  On that basis it became overbought in mid September.

The market pulled back since then, but the correction has been far smaller than in 2011 when the upper limit of the channel was hit.  Given that the Fed’s QE 3 purchases began to settle just in mid November it is unlikely that a correction similar to 2011′s will occur. The expansion of QE now means that the Fed’s balance sheet will now grow by a 38% annual rate sending lets of cash toward the market for the duration of the program. When the market became extended relative to the unemployment claims trend in 2011, the Fed was simultaneously ending QE2, thus starving the monster of its lifeblood.  This year, the Fed is intent on fattening the bull.

I expect the Fed to also to attempt to paper over the “fiscal cliff” if it occurs, just as it did with Y2k. I call the prospective anti fiscal cliff money printing, the “fiscal cliff notes” program.  The Y2k papering episode helped to trigger the final blowoff of the internet bubble in Q1 2000. If no “Grand Bargain” is reached on the fiscal cliff, I expect Fed policy and the result to rhyme with Y2k in Q1 of 2013.

Some bubble jobs will likely be created in the process.  But at the same time, the inflation that should accompany the money printing, whether in asset prices, commodities, or in consumer prices will force the Fed to stop QE. At that point the markets and economy will deal with the hangover from the program.

[I cover the technical side of the market in the Professional Edition Daily Market Updates.]

Initial Unemployment Claims and Stock Prices - Click to enlarge

Initial Unemployment Claims and Stock Prices- Click to enlarge

Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE's Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to the Wall Street Examiner.

Social Trap in Spain: Mortgage Nightmare; Why Spain (or Germany) is Guaranteed to Leave Euro

Courtesy of Mish.

Looking for a synopsis of the problems facing Spain? A summary of bullet points I gathered from the Spiegel article Evictions Become Focus of Spanish Crisis shows just how hopeless the situation is.

  • There were a record number of evictions in 2012, foreclosures are expected to increase in 2013.
  • Some 400,000 eviction proceedings have been opened in Spain since 2007, with roughly half of the families involved having already lost residential properties due to foreclosures. That means Spain is only half-way through the crisis.
  • There are now 1.7 million Spanish households in which not a single family member still earns a salary.
  • 4 million people have lost their jobs since 2007
  • 27 percent of the population lives below poverty level
  • Evictions now affects pensioners, who have used their own homes as collateral to take out loans for their sons and daughters
  • A joint study by UNICEF, Oxfam and Doctors Without Borders concluded that the country will need over 20 years to regain the standard of living it attained in the prosperous, pre-crisis years.
  • In the Catalonia region, unemployment is 26 percent
  • Youth unemployment is over 50%

Social Trap

Spanish Prime Minister Mariano Rajoy has issued a moratorium on foreclosures for “extreme hardship” cases. The definition of “extreme hardship” is “families with two children and an annual income of less than €19,000, more than half of which has to be used for mortgage payments.” Single parents with children under the age of three also qualify.

Notice that the hardship rule still requires over half of income to go to mortgage payments. Meanwhile interest accrues indefinitely.

There is no way for these families to ever pay back debts accumulated at or near the height of the bubble.

If there are evictions people are thrown out on the street. If there are no evictions, then there is no way for banks to sell the properties to someone who is able to afford mortgage payments.

Euro Trap

In mid-December, Spain received nearly €40 billion ($53 billion) from the European Stability Mechanism (ESM) to restructure its ailing banks. Yet every day Spanish banks acquire more properties not marked-to-market.

Moreover, moratoriums delay the process as interest accrues.

The longer Spain tries to stay on the euro, the deeper Spain goes into debt to the rest of the EU. This is what happened to Greece, and the result was the rise of “Golden Dawn” a neo-Nazi group.

Constitutional Crisis

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Riding Coach for First Class Returns

Riding Coach for First Class Returns

Courtesy of Dr. Paul Price

Aspirational leather goods designer/manufacturer Coach (COH) got creamed in Wednesday’s trading when overall retail sales numbers showed poor year-over-year growth. COH dropped $3.39 per share (-5.89%).

The stock is down $25.53 (-32%) from the 52-week high of $79.70. Does that mean that earnings have been bad? FY 2012 (ended June 30, 2012) came in at $3.53, an all-time record . Q1 was up 5.5% from a year ago.

COH-2011-2012-source-BigCharts

The company is net debt free. Dividends were initiated in 2009 and raised every year since. The current quarterly payout is 30-cents for a yield of 2.22%.

That’s the highest yield ever on this remarkable growth stock. A look at the company’s past 10 years shows just how well Coach has performed. (Click on charts to enlarge)

COH-FY-2002-FY-2012

Coach suffered its only down year in FY 2009 due to the Great Recession. EPS dipped all of 7.3% (from $2.06 to $1.91). Buyers who bought during H2 of that decline snared a triple in one year and an ultimate shot at 600% gains.

Shoppers that would love to buy Coach merchandise at one-third off are passing up pretty much the same discount on the shares. The only way to get great values on high-quality stocks is to buy when things look bad. I was a buyer of Coach shares today, and we already own it in Market Shadows Virtual Value Portfolio. 

If you are worried about being too early … consider this 13-month combination buy/write out to January 2014.

COH-combo-details

COH-option-combo

COH-option-prices

Disclosure: Long Coach shares

*****

Special Offer:
Click on this link to try Phil’s Stock World FREE! 

Michael Pettis on China Reforms, Ponzi Schemes in Wealth Management Programs, Rebalancing Implications

Courtesy of Mish.

Here are portions of a email from Michael Pettis at China Financial Markets on the unsustainable nature of China’s growth, Ponzi schemes in wealth management programs, and the implications of China’s rebalancing efforts. By permission …

As analysts wrack their minds over specific debt problems in China and how they are to be resolved, I think we must remember to look not at specific debt issues but rather at the way the overall system operates.

I have argued many times in the past six years that the Chinese growth model has reached the point (perhaps well over a decade ago) where growth was almost necessarily driven by an unsustainable increase in debt. This meant, I suggested, that while it might be hard to predict where the next debt problem would crop up, it was very easy to predict that debt problems would continue to crop in one sector of the economy after another.

We need to remember this as we consider financial risks in China. One of the big stories this month of course was the failure of the Zhongding Wealth Investment Centre, the borrower against a Wealth Management Program (WMP) issued at a Shanghai branch of Huaxia Bank.

According to an article in the South China Morning Post, [Huaxia scandal spotlights China’s Ponzi crisis] “dozens of depositors lost their multimillion-yuan investments in a “wealth management product” (WMP) sold at a Shanghai branch of Huaxia Bank. The sorry saga was a rude reminder that Ponzi schemes thrive on the mainland, where millions of residents still believe that banks are the safest havens for their lifelong savings.

The reason this particular story is important is not because the transaction is large enough to make much of a difference, but rather in what it tells us about risks in the financial system. The first point is that we have no idea what is really going on in this already large and rapidly growing part of the Chinese financial system, but whatever we can see looks pretty ugly.

In my October 29 newsletter I referred to a recent article that discussed this problem, an opinion piece by Xiao Gang, the Bank of China’s CEO, in China Daily. In this piece he describes the shadow banking system and the role of wealth management products:

It is difficult to measure the precise amount and value of WMPs. Fitch Ratings says that WMPs account for roughly 16 percent of all commercial bank deposits, while KPMG reports that trust companies will soon overtake insurance to become the second-largest sector in the Chinese financial industry. According to a report by CN Benefit, a Chinese wealth-management consultancy, sales of WMPs soared 43 percent in the first half of 2012 to 12.14 trillion yuan ($1.9 trillion).

There are more than 20,000 WMPs in circulation, a dramatic increase from only a few hundred just five years ago. Given that the number is so big and hard to manage, China’s shadow banking sector has become a potential source of systemic financial risk over the next few years.

Particularly worrisome is the quality and transparency of WMPs. Many assets underlying the products are dependent on some empty real estate property or long-term infrastructure, and are sometimes even linked to high-risk projects, which may find it impossible to generate sufficient cash flow to meet repayment obligations.

I went on to say in my newsletter:

There are three big questions with WMPs, as analysts are increasingly recognizing, each of which Xiao discusses, perhaps a little more politically than I do, in his piece. First, we don’t know the size of the market. Second, we have no idea of whether or not the assets backing these products are money good – in fact the bankers themselves who sell WMPs are almost never able to explain what asset is behind the WMP. Third, we have no idea of the transmission mechanism between potential problems in WMPs and the banking system.

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Tokyo Almost As Irradiated As Fukushima

Tokyo Almost As Irradiated As Fukushima

Source: greenerideal.com via Greener Ideal on Pinterest

Courtesy of George Washington

We’ve documented the spread of radiation from Fukushima to Tokyo for a year and a half.  See this, this, this, this, this and this.

Unfortunately, as the following recent headlines from Ene News show, things are only getting worse:

  • Tokyo getting 5 times more radioactive fallout than prefectures closer to Fukushima

And we’ve previously noted that the radiation will spread worldwide (by water and air). For example:

A new study says that the West Coast will get slammed with radioactive cesium starting in 2015 

American Sailors Sue Tepco for Lying about Fukushima

Preface:  Before you get too mad at the Japanese, remember that the U.S. government and nuclear industry are just as bad.  And America is largely dictating Japanese nuclear policy.

Courthouse News Service reports:

Eight crew members of the U.S.S. Ronald Reagan, whose home port is San Diego, sued the Tokyo Electric Power Co. in Federal Court.

They claim the utility company, “a wholly owned public benefit subsidiary of the government of Japan,” misrepresented radiation levels to lull the U.S. Navy “into a false sense of security.”

Lead plaintiff Lindsay R. Cooper claims Tokyo Electric (TEPCO) intentionally concealed the dangerous levels of radiation in the environment from U.S. Navy rescue crews working off the coast of Japan after the March 10, 2011 earthquake and tsunami set off the nuclear disaster.

“TEPCO pursued a policy to cause rescuers, including the plaintiffs, to rush into an unsafe area which was too close to the FNPP [Fukushima Nuclear Power Plant] that had been damaged. Relying upon the misrepresentations regarding health and safety made by TEPCO … the U.S. Navy was lulled into a false sense of security,” the complaint states.

***

Six of the eight plaintiffs worked on the flight deck of the aircraft carrier; two worked in air contamination or the “air department.” One sued also on behalf of her infant daughter.

Japan called the relief effort Operation Tomadachi.

The complaint states: “Defendant TEPCO and the government of Japan, conspired and acted in concert, among other things, to create an illusory impression that the extent of the radiation that had leaked from the site of the FNPP was at levels that would not pose a threat to the plaintiffs, in order to promote its interests and those of the government of Japan, knowing that the information it disseminated was defective, incomplete and untrue, while omitting to disclose the extraordinary risks posed to the plaintiffs who were carrying out their assigned duties aboard the U.S.S. Ronald Reagan.” [Even an official Japanese inquiry found "collusion between the government, the regulators and Tepco"]

It adds: “Defendant represented and warranted that the levels of contamination to which the plaintiffs would be exposed were less than harmful to them and that their presence during ‘Operation Tomadachi’ would not cause any different or greater harm to them than they may have experienced on missions in the past. …

“At all times relevant times, the defendant, TEPCO, was aware that exposure to even a low dose of radiation creates a danger to one’s health [that's true] and that it is important to accurately report actual levels.

***

And, they say: “Defendants had actual and/or constructive knowledge of the properties of radiation that would ensure that, once released into the environment, radiation would spread further and in concentrations that would cause injury to the plaintiffs.”

The plaintiffs claim the government deliberately misled them: “the Japanese government kept representing that there was no danger of radiation contamination to the U.S.S. Reagan … and/or its crew, that ‘everything is under control,’ ‘all is OK, you can trust us,’ and there is ‘no immediate danger’ or threat to human life, all the while lying through their teeth about the reactor meltdowns at FNPP. [While the Japanese government hid radiation from its own people, it purportedly did share it with the U.S. military.]

“Such reports were widely circulated with the defendant, TEPCO’s, organization at the time it was published, despite the fact that the defendant knew that higher levels of radiation existed within the area whereat the plaintiffs and their vessel would be and were operating.”

***

“According to then-existing data uniquely known to the defendant at the time, the plaintiffs’ consequent exposure to radiation within their zone of operation, then indicated that radiation levels had already reached levels exceeding the levels of exposure to which those living the same distance from Chernobyl experienced who subsequently developed cancer,” the complaint states. [Yup.]

***

The sailors say they “face additional and irreparable harm to their life expectancy, which has been shortened and cannot be restored to its prior condition.”

But surely the Japanese government and Tepco are on top of things now …

Not exactly:

US Hits Debt Ceiling Limit on December 31; Geithner Unveils Treasury Plan to Buy More Time

Courtesy of Mish.

On December 31 the US will once again hit the debt limit and Treasury Secretary Tim Geithner is working on an emergency plan to deal with the situation.

Here’s the kicker. If the Fiscal Cliff hits (which it likely will), the increased tax revenue and spending cuts would automatically buy the Treasury some time.

Please consider Geithner’s plan to buy time under debt ceiling.

The Treasury on Wednesday announced the first of a series of measures that should push back the day when the government will exceed its legal borrowing authority as imposed by Congress by around two months.

Without any action, Treasury said the government is set to reach its $16.4 trillion debt ceiling on December 31.

To cut government spending and delay bumping up against the debt ceiling, the Treasury will suspend issuance of state and local government series securities — known as “slugs” — beginning on December 28.

Investments in a government employee pension fund will also be suspended, along with some other measures, although Treasury did not give dates for when these other measures will begin.

“These extraordinary measures … can create approximately $200 billion in headroom under the debt limit,” Treasury Secretary Timothy Geithner wrote in a letter to congressional leaders.

Normally, these measures would buy the Treasury about two months time before hitting the debt ceiling, Geithner said in the letter. But a series of planned tax hikes and spending cuts due to take effect in early January could give Treasury further time if they take effect as scheduled, he said.

True Fiscal Cliff

The true Fiscal Cliff is years down the road and will be similar to the crisis about to hit Japan in 2013 or 2014. The way to address the problem is to balance the budget, exactly the opposite of what Obama and nearly everyone in Congress other than Ron Paul and Rand Paul want to do.

The term “Fiscal Cliff” as currently used is simply preposterous. The ultimate irony is the alleged “Fiscal Cliff” happens to be the most fiscally responsible plan currently under discussion.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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Cliffmas Is Upon Us

Which Way Wednesday – Cliffmas Is Upon Us

By Phil of Phil’s Stock World

Merry Cliffmas!

That’s all the MSM is talking about but the markets are, so far, drifting along in the upper end of the year’s range into this potential “fiscal disaster.”  Perhaps the catastrophe is already priced in or perhaps it simply won’t be a big deal to go back to pre-2000 tax rates and to force some spending cuts.

If falling off the cliff is priced in, a “solution” might rally the markets. On the other hand, fixing the Fiscal Cliff may weaken our markets as it puts the US on the continued path to endless debt through printing money.

Of course Japan has continued down the path of endless debt through printing money and its markets have been on fire this week.  With the re-election of Helicopter Abe, who has vowed to weaken the yen by printing them by the Trillions, the Nikkei has jumped 2.5% this week – all the way back to 10,330 while the Yen falls to 85.36 to the Dollar – a 3-year low.

Our own easy-money policy coupled with the refusal of the Banks to pass it along to the consumer has created record-high spreads between what the Banks pay for money and the 30-year fixed rate mortgage they charge consumers.  Banks are now making spreads of 1.25-1.5%. This is compared to the less than 0.5% which they managed to get by on in the early years of the 21st Century.

Despite making these usurious rates, they still offer the consumers less than nothing for deposits (as in, not enough to cover even “core” inflation) and they still can’t attract investors, with the banking sector still down near half of where it was in 2007, when XLF was in the high $30s.

Another cliff we hit on 12/31 is the end of FDIC’s special Transaction Account Guarantee, which provided insurance for accounts over $250,000 and will affect $1.5Tn worth of accounts on deposit at US banks.  Banks, especially small ones, are scrambling to avoid losing this money and it will make for an interesting earnings season in Q1 as the banks step into the confessional and indicate how much faith their depositors really have in them.

On the other side of the coin, the Obama Administration is looking to double the size of the popular Mortgage Refinancing Program, which helps modify underwater mortgages, by making it possible for non Government-backed mortgage-lenders to work with the program.  As it stands now, about 10% of the 12.1M homes that were underwater (10% of US homes) have been refinanced through the program.  This would provide yet another well-timed boost to housing for 2013 as that sector continues to look investable.

With 10M Americans unemployed and under-employed in the Housing Sector alone, this is a great area of the economy for the Obama Administration to be focusing on.  As you can see from the chart on the left – housing starts are still nearly half of their historic average after 3 years below the line. Even if you assume we over-built in the earlier part of this decade – we’ve worked off that excess inventory by now.

From 2001 through 2005 (the last full year that home prices consistently increased), an average of approximately 1.3M households formed in the US, just a little under the 50-year average. In contrast, during the subsequent period of 2006 through 2011, an average of approximately 600K households formed, yet the population grew at largely the same rate.

Weak household formation is most likely related to high unemployment, as people have delayed moving out of their parents’ homes, getting married, or even getting divorced until their employment situations are secure. Even with an unemployment rate that remains stubbornly high, there are recent signs that household formation has begun to normalize. The Census Bureau estimates that in each month of 2012 (through September) there were about 1 million more households on average than in the same month of the previous year. This is a significant change from 2011 when the average year-over-year change was about 635 thousand, and from the previous four years when the average was approximately 550 thousand.

Household formation in 2012 is therefore approaching more normal levels, close to the historical average of about 1.3 million. Over the long-term, household formation is what drives demand for housing and for home construction. The current positive trends in household formation therefore suggest that demand for housing is starting to finally look healthy again. This will be one of the investing trends we are going to follow in 2013.  In 2012 – we focused on HOV and it has generated huge returns for our Members as that stock climbed from $1.50 to over $6 (up 300%) in 2012. In 2013, we will broaden our screens to include more potential winners in that sector now that we are more comfortable with the underlying fundamentals.

This is how you invest – you find macro fundamentals that are painting a long-term trend and then you identify medium and short-term opportunities that have that long-term Fundamental support. If you learn to invest like that, you won’t need to sweat over every rumor that runs past your screen on a daily basis. These long-term trends are hard to establish and just as hard to break – taking the time to identify them is one of the best investments you can make!

Looking forward to a very profitable 2013 with all of you.

*****

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Doug Casey on the Morality of Money

Abstract: Whether one agrees with him or not, Doug almost always has a singular take on issues and ideas, making his essays and talks highly stimulating. As we approach the end of the year – a time when people often reflect on their progress  – this February 2011 interview of Doug Casey by Louis James on the morality of money seems especially trenchant. We hope it helps you reflect on your relationship with money and investing, and brings a renewed sense of clarity and purpose to your financial activities in 2013.

Source: toonpool.com via Elena on Pinterest

Doug Casey on the Morality of Money 

By Doug Casey

Doug Casey on the Morality of Money

Interviewed by Casey Research Investment Strategist Louis James

Louis: Doug, every time we have a conversation, I ask you about the investment implications of your ideas, and we consider ways to turn the trends you see into profits. The assumption is that's what people want to hear from you, since you're the guru of financial speculation.

But this, your known status as a wealthy man, the fact that you have no children, and other things may lead some people to form an incorrect conclusion about you – that "all you care about is money." So let's talk about money. Is it all you care about?

Doug: I think anyone who has read our conversation giving advice to people just starting out in life (or re-starting) knows that the answer is no. Or the conversation we had in which we discussed Scrooge McDuck, one of the great heroes of literature. However, I have to stop before we start and push back: If money were all I cared about, so what? Would that really make me a bad person?

L: I've grokked Ayn Rand's "money speech," so you know I won't say yes, but maybe you should expand on that for readers who haven't absorbed Rand's ideas…

Doug: I'm a huge fan of Rand. She was an original and a genius. But just because someone like her, or me, sees the high moral value of money, that doesn't mean it's all-important to us. In fact, I find money less and less important as time goes by, the older I get. Perhaps that's a function of Maslow's hierarchy: If you're hungry, food is all you really care about; if you're freezing, then it's warmth; and so forth. If you have enough money, these basics aren't likely to be problems.

My most enjoyable times have had absolutely nothing to do with money. Like a couple times in the past when I hopped freight trains with a friend, once to Portland and once to Sacramento. Each trip took three days and nights, each was full of adventure and weird experiences, and each cost about zero. It was liberating to be out of the money world for a few days. But it was an illusion. Somebody had to get the money to buy the food we ate at missions. Still, it's nice to live in a dream world for a while.

Sure, I'd like more money, if only for the same genetic reason a squirrel wants more nuts to store for the winter. The one common denominator of all living creatures is one word: Survive! And, as a medium of exchange and store of value, money represents survival… it's much more practical than nuts.

L: Some people might say that if money were your highest value, you might become a thief or murderer to get it.

Doug: Not likely. I have personal ethics, and there are things I won't do.

Besides, crime – real crime, taking from or harming others, not law-breaking, which is an entirely different thing – is for the lazy, short-sighted, and incompetent. In point of fact, I believe crime doesn't pay, notwithstanding the fact that Jon Corzine of MF Global is still at large. Criminals are self-destructive.

Anyway, what's the most someone could take, robbing their local bank? Perhaps $10,000? That's only enough to make a wager with Mitt Romney. But that leads me to think about the subject. In the old days, when Jesse James or other thieves robbed a bank, all the citizens would turn out to engage them in a gun battle in the streets. Why? Because it was actually their money being stored in the bank, not the bankers' money.

A robbed bank had immense personal consequences for everyone in town. Today, nobody gives a damn if a bank is robbed. They'll get their money back from a US government agency. The bank has become impersonal; most aren't locally owned. And your deposit has been packaged up into some unfathomable security nobody is responsible for.

The whole system has become corrupt. It degrades the very concept of money. This relates to why kids don't save coins in piggy banks anymore – it's because they're no longer coins with value; they're just tokens that are constantly depreciating and essentially worthless. All of US society is about as sound as the dollar now.

Actually, it can be argued that robbing a bank isn't nearly as serious a crime today as robbing a candy store of $5. Why? Nobody in particular loses in the robbery of today's socialized banks. But the candy merchant has to absorb the $5 loss personally. Anyway, if you want to rob a bank today, you don't use a gun. You become part of management and loot the shareholders through outrageous salaries, stock options, and bonuses, among other things. I truly dislike the empty suits that fill most boardrooms today.

But most people are mostly honest – it's the 80/20 rule again. So, no, I think this argument is a straw man. The best way to make money is to create value.

If I personally owned Apple as a private company, I'd be making more money – completely honestly – than many governments… and they are the biggest thieves in the world.

L: No argument.

Doug: Notice one more thing: making money honestly means creating something other people value, not necessarily what you value. The more money I want, the more I have to think about what other people want, and find better, faster, cheaper ways of delivering it to them. The reason someone is poor – and, yes, I know all the excuses for poverty – is that the poor do not produce more than they consume. Or if they do, they don't save the surplus.

L: The productive make things other people want: Adam Smith's invisible hand.

Doug: Exactly. Selfishness, in the form of the profit motive, guides people to serve the needs of others far more reliably, effectively, and efficiently than any amount of haranguing from priests, poets, or politicians. Those people tend to be profoundly anti-human, actually.

L: People say money makes the world go around, and they are right. Or as I tell my students, there are two basic ways to motivate and coordinate human behavior on a large scale: coercion and persuasion. Government is the human institution based on coercion. The market is the one based on persuasion. Individuals can sometimes persuade others to do things for love, charity, or other reasons, but to coordinate voluntary cooperation society-wide, you need the price system of a profit-driven market economy.

Doug: And that's why it doesn't matter how smart or well-intended politicians may be. Political solutions are always detrimental to society over the long run, because they are based on coercion. If governments lacked the power to compel obedience, they would cease to be governments. No matter how liberal, there's always a point at which it comes down to force – especially if anyone tries to opt out and live by their own rules.

Even if people try that in the most peaceful and harmonious way with regard to their neighbors, the state cannot allow separatists to secede. The moment the state grants that right, every different religious, political, social, or even artistic group might move to form its own enclave, and the state disintegrates. That's wonderful – for everybody but the parasites who rely on the state (which is why secession movements always become violent).

I'm actually mystified at why most people not only just tolerate the state but seem to love it. They're enthusiastic about it. Sometimes that makes me pessimistic about the future…

L: Reminds me of the conversation we had on Europe disintegrating. But let's stay on topic. So you're saying that money is a positive moral good in society because the pursuit of it motivates the creation of value. It's the bridge between selfishness and social good, and it's the basis for voluntary cooperation, rather than coerced interaction. Anything else?

Doug: Yes, but first, let me say one more thing about the issue of selfishness – the virtue of selfishness – and the vice of altruism. Ayn Rand might never forgive me for saying this, but if you take the two concepts – ethical self-interest and concern for others – to their logical conclusions, they are actually the same.

It's in your selfish best interest to provide the maximum amount of value to the maximum number of people – that's how Apple became the giant company it is. Conversely, it is not altruistic to help other people. I want all the people around me to be strong and successful. It makes life better and easier for me if they're all doing well. So it's selfish, not altruistic, when I help them.

To weaken others, to degrade them by making them dependent upon generosity, as we discussed in our conversation on charity, is not doing those people any good. If you really care about others, the best thing you can do for them is to push for totally freeing all markets. That makes it both necessary and rewarding for them to learn valuable skills and to become creators of value and not burdens on society. It's a win-win all around.

L: That'll bend some people's minds… So, what was the other thing?

Doug: Well, referring again to our conversation on charity, the accumulation of wealth is in and of itself an important social as well as a personal good.

L: Remind us.

Doug: The good to individuals of accumulating wealth is obvious, but the social good often goes unrecognized. Put simply, progress requires capital. Major new undertakings, from hydropower dams to spaceships, to new medical devices and treatments, require huge amounts of capital. If you're not willing to extract that capital from the population via the coercion of taxes, i.e., steal it, you need wealth to accumulate in private hands to pay for these things. In other words, if the world is going to improve, we need huge pools of capital, intelligently invested. We need as many "obscenely" rich people as possible.

L: Right then… so, money is all good – nothing bad about it at all?

Doug: Unfortunately, many of the rich people in the world today didn't get their money by real production. They got it by using political connections and slopping at the trough of the state. That's bad. When I look at how some people have gotten their money – Clinton, Pelosi, and all the politically connected bankers and brokers, just for a start – I can understand why the poor want to eat the rich.

But money itself isn't the problem. Money is just a store of value and a means of exchange. What is bad about that? Gold, as we've discussed many times, happens to be the best form of money the market has ever produced: It's convenient, consistent, durable, divisible, has intrinsic value (it's the second-most reflective and conductive metal, the most nonreactive, the most ductile, and the most malleable of all metals), and can't be created out of thin air.

Those are gold's attributes. People attribute all sorts of other silly things to gold, and poetic critics talk about the evils of the lust for gold. But it's not the gold itself that's evil – it's the psychological aberrations and weaknesses of unethical people that are the problem. The critics are fixating on what is merely a tool, rather than the ethical merits or failures of the people who use the tool and are responsible for the consequences of their actions.

L: Sort of like the people who repeat foolish slogans like "guns kill" – as though guns sprout little feet when no one is looking and run around shooting people all by themselves.

Doug: Exactly. They're the same personality type – busybodies who want to enforce their opinions on everyone else. They're dangerous and despicable. Yet they somehow posture as if they had the high moral ground.

L: OK, so even if you cared only for money, that could be seen as a good thing. But you do care for more – like what?

Doug: Well, money is a tool – the means to achieve various goals. For me, those goals include fine art, wine, cars, homes, horses, cigars, and many other physical things. But it also gives me the ability to do things I enjoy or value – like spend time with friends, go to the gym, lie in the sun, read books, and do pretty much what I want when I want. Let's just call it as philosophers do: "the good life." It's why my partners and I built La Estancia de Cafayate [in Argentina]. We have regular events down there I welcome readers to attend.

But I don't take money too seriously. It's just something you have. It's much less important than what you do, and trivial in comparison to what you are. I could be happy being a hobo. As I said in the conversation on fresh starts, there have been times when I felt my life was just as good and I was just as happy without much money at all. That said, you can't be too rich or too thin.

L: Very good. Investment implications?

Doug: This may all seem rather philosophical, but it's actually extremely important to investors. What is the purpose of investing or speculating? To make money. How can anyone hope to do that well if they feel that there is something immoral or distasteful about making money?

Someone who pinches his or her nose and tries anyway because making money is a necessary evil will never do as well as those who throw themselves into the fray with gusto and delight in doing something valuable – and doing it well.

L: The law of attraction.

Doug: Yes, but I don't view the law of attraction as a metaphysical force – rather as a psychological reality. If you have a negative attitude about something, you're unlikely to attract it… even if you try to talk yourself into thinking the opposite.

L: OK, but that's not a stock pick…

Doug: Sure. We're talking basics here. No stock picks today, just a Public Service Announcement: If you think money is evil, don't bother trying to accumulate wealth. On the other hand, if you want to become wealthy, you'd better think long and hard about your attitudes about money, work through the thoughts above and those you can find in the rest of our conversations… Cultivate a positive attitude about money, which is right up there with language as one of the most valuable tools man has ever invented. Think about it, and give yourself permission to become rich. It's a good thing.

L: Very well. Thanks for what I hope will prove to be a very thought-provoking conversation!

Doug: My pleasure. Talk to you next week.

A successful investing strategy requires much more than choosing the right stocks: it requires an understanding of cultural, political, and economic trends as well as being able to analyze a sector and the companies in it. Doug Casey's decades of successful speculation show that he's "the real deal" – and now you can have deeper access into his mind, in one convenient location. Doug has recently written a book, Totally Incorrect, which offers his thoughts and investment implications on topics as wide-ranging as NASA, paying taxes, ethics, why college education is a waste of resources, the immorality of voting, and much more. It's available as an e-book as well as in physical format – get all the details here.

Mad, Mad World; Japan Prime Minister Unveils “Crisis Beating” Cabinet With Pledge to Increase Spending; Yen Sinks to Two-Year Low

Courtesy of Mish.

The Keynesian and Monetarist clowns in Japan are going all out in Japan with pledges to ignore debt caps and implement “bold monetary policy”.

Please consider Japan signals rise in borrowing.

Japan’s new finance minister has signalled that the government will borrow to boost the struggling economy, as Prime Minister Shinzo Abe unveiled a “crisis beating” cabinet on Wednesday.

At a press conference following his appointment as finance chief, Taro Aso announced he would issue bonds and lift a cap on new debt for the 2012 fiscal year.

“We will not stick to the debt cap of Y44tn ($514bn) [for the year through to March],” Mr Aso said. The debt limitation was introduced by the previous Democratic party administration, which was defeated in a landslide by Mr Abe’s Liberal Democratic party two weeks ago.

Mr Abe on Wednesday unveiled a cabinet of close allies and policy experts to push his agenda of economic recovery, just hours after being formally appointed as the country’s seventh prime minister in six years.

He has vowed to create a “crisis beating government” to tackle the deflation that has dogged Japan for more than a decade and also the strong yen. Mr Abe said he had instructed his cabinet to do their utmost to achieve economic recovery and reconstruction after last year’s devestating earthquake, and to ensure national security.

“I will direct the energies of my entire cabinet towards implementing bold monetary policy, flexible fiscal policy and a growth strategy that encourages private investment, and aim to achieve results with these three pillars,” Mr Abe said.

He has pledged to reflate the economy through fiscal stimulus and monetary easing. He has also called on the Bank of Japan to carry out “unlimited” easing and warned that the central bank risks losing its independence – through legislative changes – if it does not introduce a 2 per cent inflation target.

Nature and Origin of Japan’s Crisis

Japan’s crisis is not deflation as the economic illiterates suggest. Rather, Japan’s problem is a debt-to-GDP ratio of 230%, caused by economic illiterates attempting to defeat deflation.

Mad, Mad World

It’s a mad, mad world with monetarist fools in complete control of the Fed, the Bank of England, and the ECB….

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Good News for Consumers: Holiday Sales Barely Rise; Worst Shopping Season Since 2008

Courtesy of Mish.

I am always suspicious of early holiday season reports of glowing sales around Thanksgiving and especially Black Friday. Then, right after Christmas I always wonder if retailers lowball estimates so they can beat-the-street on same-store-sales reports.

That said, because of the souring economy I am not surprised by reports of Lackluster Holiday Sales.

The 2012 holiday season may have been the worst for retailers since the financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory.

While chains like Wal-Mart Stores Inc and Gap Inc are thought to have done well, analysts expect much less from the likes of Barnes & Noble Inc and J. C. Penney Co.

The latest sign of trouble came from MasterCard Advisors Spending Pulse, which reported holiday-related sales rose 0.7 percent from October 28 through December 24, compared with a 2 percent increase last year.

The estimates are still preliminary and focus on sales, not profits. A handful of retailers will post sales data next week, but most, including heavyweights like Wal-Mart, will not report results at the register until they release financial results in mid-February.

Analysts and industry groups already expected sales to grow at a slower pace than in 2011 and 2010. The National Retail Federation predicted 4.l percent sales growth, versus a 5.6 percent increase a year earlier.

But growth of less than 1 percent is weaker than even some of the most pessimistic forecasts.

INVENTORY CRUSH

One concern for retailers is that weak sales will mean an excess of inventory that will force some to slash prices.

Among other brands, Barnes & Noble offered 50 percent discounts in stores via email promotions on Wednesday, while Ann Inc had half-off at its Loft stores, and Bloomingdale’s promoted discounts of up to 75 percent in some cases.

“Retailers are no longer chasing sales, they are chasing inventory management. That means the discounts that they would have liked to be at 50-60 (percent) off have climbed to 75 to even 80 (percent) off,” said Marshall Cohen, chief industry analyst at The NPD Group….

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