Archives for July 2013

To Save Spain’s Housing Market, It Must First Be Destroyed

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

About a decade ago, Spain set off to "grow" its economy by launching an unprecedented homebuilding campaign. Several years later the campaign backfired, when the global housing bubble popped, and hundreds of thousands of houses ended up underwater, vacant or simply incomplete while millions of people lost their jobs, resulting in possibly the worst depression in Spanish history. Fast forward to today when Spain is about to set off to "grow" its economy by launching an unprecedented counter-homebuilding campaign, one in which the housing excesses of the last "growth" campaign will be literally demolished. And thanks to the magic of modern Keynesian math, both construction and destruction will result in growth for Spain.

Bloomberg explains:

Demolition man Daniel Anka had a staff of 450 in Spain preparing for new developments before the property crash. With about a 10th of that workforce left, he’s now waiting for a call from the country’s bad bank so his trimmed-down crew can start knocking down half-built homes that aren’t worth completing.

Anka may not have long to wait as Sareb, the unit holding soured real estate assets from Spain’s nationalized banks, orders work to stop on about 160 of the 650 partially-completed building projects on its books and decides which ones are worth completing. A small number of them may be demolished, said two people with knowledge of the matter, who asked not to be identified by name because it isn’t public.

“We expect the bad bank will start to seek bids for some demolition projects starting this summer,” said Anka, chairman of Madrid-based Anka Demoliciones and vice-chairman of the Spanish Association of Demolition Businesses.

Here by "small" they mean "large", if not all. Because once the demolitions begin the implicit acceptance that houses have a value of €0 on the books becomes rubberstamped and banks will have no choice but to remark their books accordingly. At which point the course of action will be the same as in the US – create a supply shortage (in the US this is done by the foreclosure stuffing process we have been describing for nearly a year) in hopes of pushing equilibrium prices higher. This of course ignores the fact that it is not a matter of supply but lack of demand as the end consumer in Spain is simply tapped out. But paradropping bundles of euros on an insolvent population is still not feasible so Spain will make do with what it can.

Spain is counting the cost of the collapse of a decade-long property boom that’s sent home prices falling about 30 percent since the start of 2008, driven unemployment to 26 percent and burdened banks with mounting bad loans that have made them wary of extending new credit. A decision by Sareb to raze unfinished properties would demonstrate it makes more sense to knock down homes than try to sell them as an economic slump drags into a sixth year, said Fernando Rodriguez de Acuna, a project manager at Madrid-based real estate consultant RR de Acuna & Asociados.

Naturally, the spin cycle has already been activated: "demolitions are bullish, maybe more bullish than constructions!"

“If demolitions start in sizeable volumes, that could be a positive sign because it would be a recognition that it’s impossible to sell these assets under any circumstances,” Rodriguez de Acuna said by phone. “At least if you knock them down, the land can be put to some other use.”

The one thing about Keynesian "logic" – one can't argue with it. It is rock solid. Just as solid as the capitalization of Spain's "bailout" bad bank, Sareb, which at this rate may need its own bailout quite soon.

Spain set up Sareb last year to absorb the souring real estate assets of eight lenders including the Bankia (BKIA) group that took a combined 41 billion euros of state aid as the government sought European funds to help clean up its banking system.

Sareb has taken on about 200,000 assets. This includes 107,000 properties, 76,000 of which are empty homes, Economy Minister Luis de Guindos told Congress in March. The bad bank plans to sell assets with a value of 1.5 billion euros ($2 billion) this year, he said.

Bids for the first group of properties to be sold, known as “Project Bull,” were due by July 18, according to a spokesman for Sareb who asked not to be named in line with its policy. No decision on the sale has been made, the spokesman said.

Sareb hasn’t identified any building project for demolition yet and has no plans to knock down finished properties, Sareb said in an e-mailed statement today. It would focus on projects that are at an early stage and may pose a safety risk or are breaking urban planning laws as it decides which ones to demolish.

The bad bank’s readiness to consider demolition means it’s recognizing the scale of the excess housing supply that was created before the boom turned to bust, Rodriguez de Acuna said.

In the meantime, actual home sales in Spain have virtually ground to a halt.

Net sales of homes, excluding purchases by banks, dropped to 259,000 in 2012 from 736,000 in 2007, according to RR de Acuna’s analysis based on data from the National Statistics Institute and the College of Property Registrars.

Alas, even when the bulldozers come, prices are likely to continue sliding. For another five years.

Home prices have dropped about 35 percent since their peak in 2007, according to RR Acuna estimates based on home valuation data, said Rodriguez de Acuna. Prices may keep falling for at least a further five years, taking total declines from the top of the market to the bottom to 50 percent, he said.

In retrospect, just like in Japan, what is there to lose? May as well try the nuclear option. We only hope that that phrase is not taken literally, although the grand priests of the dying economic religion will almost certainly suggest growing GDP using just that literal option before all is said and done.

Why QE Can Never End

Courtesy of John Rubino.

The Fed just made an announcement that the markets liked:

Fed stays on track with bond buying, for now
WASHINGTON (Reuters) – The Federal Reserve said on Wednesday the economy continues to recover but is still in need of support, offering no indication that it is planning to reduce its bond-buying stimulus at its next meeting in September.

The central bank said after a two-day meeting that it would keep buying $85 billion in mortgage and Treasury securities per month in its effort to strengthen an economy that it said was still challenged by federal budget-tightening. It also pointed to a recent run up in mortgage rates.

In a post-meeting statement, policymakers described economic activity as having expanded at a “modest” pace in the first half of the year. They had called the recovery “moderate” after their last meeting in June.

In another departure, the Fed’s policy-setting committee signaled some concern about the low level of inflation.

“The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Fed said.

Why the cautious tone when just a few months ago “tapering” was a sure thing by yearend? Because this morning’s GDP report was, as usual, much weaker than it looked. Here’s a quick summary from Consumer Metrics Institute: 

The new set of numbers for the 2nd quarter of 2013 in fact show weaker growth than previously reported numbers for the 1st quarter, but through the magic of historic revisions the headline (and the press release) can now tout quarter-to-quarter economic improvement — which should excite any markets that are blindly eager for good news, even if that good news is constructed from a revisionist history.

Unfortunately, we can’t ignore a pattern of significant downward revisions to recent past data — suggesting a deeply rooted positive bias in the BEA’s “real time” reporting, including each of the prior four quarters. Even the number published just last month was revised materially downward by -0.64% (i.e., over a third of the previously reported growth has vanished).

Among CMI’s other points:

  • The inflation number used to arrive at 2Q GDP is biased, and using a realistic deflator would yield a much lower growth number.
  •  A big part of 2Q growth came from rising government spending, which, in light of the debt ceiling debate, Detroit’s bankruptcy and Chicago’s recent downgrade probably isn’t a good bet going forward.

Even if we accept all the fluff in today’s numbers, a chart of recent GDP growth shows a hard stall, not a take-off. The Fed knows all this and has now completely walked back its talk of lowering its asset purchases. QE will go on until the market, not government, puts a stop to it.

GDP Q2 2013

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About that “Beat the Street” GDP Number

Courtesy of Mish.

GDP beat second quarter estimates of 1 percent easily. However, the BEA revised first quarter growth down from 1.7% to 1.1%.

Is this a good thing, a bad thing, or nonsense?

The correct answer is “nonsense”. One look at BEA GDP Release is all it takes to determine the answer.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.3 percent in the second quarter, compared with an increase of 1.2 percent in the first. Excluding food and energy prices, the price index for gross domestic purchases increased 0.8 percent in the second quarter compared with 1.4 percent in the first.

How Convenient

My friend “BC” says

How convenient, otherwise real GDP would have printed at 0.8%, prices constant. 

Yet, the yoy rate of real final sales per capita is below 1% for the second quarter in a row, whereas the second quarter annualized rate is near contracting. Had the deflator been reported at the rate in Q1, the yoy and 2-qtr. annualized real final sales per capita rates would have been reported as contracting.

Doug Short at Advisor Perspectives came up with similar conclusions via email.

Doug writes

  • Official GDP with the BEA’s GDP deflator (0.71% which is rounded in the popular press to 0.7%) gives us the official GDP of 1.67%,  which rounds to 1.7%
  • GDP with a hypothetical 1.6% deflator (as forecast by Briefing.com) would have been 0.78%, which rounds to 0.8%. 
  • GDP with the average deflator over the past 14 quarters (which is 1.75%) would have been 0.64%, which rounds to 0.6%.

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

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Economic Recovery in Spain? Tax Collections, Retail Sales Prove Otherwise

Courtesy of Mish.

In an attempt to distract voters from all the political scandals in his administration, Prime Minister Mariano Rajoy is talking about the pending economic recovery in Spain. Don’t believe it.

Huky Guru at Guru’s Blog in Spain takes a good look at numbers that prove Rajoy is disingenuous.

Via Mish-modified Google translation, please consider Debt Remains Uncontrolled, €40 Billion Deficit in First Half

First Half Deficit 3.81% of GDP

The government deficit totaled €40 billion in the first six months of the year in terms of national accounts, 3.81% of GDP, according to data released Tuesday by the Ministry of Finance and Public Administration.

The figure represents a decline of 8.2% compared to the same period last year, although an increase of 19.9% ​​compared to the figure recorded until May, which was around €33.3 billion.

The result of the shortfall until June due to an income reached €49.528 billion euros (+12%) and expenditure of €89.529 billion euros, up 2%.

Revenues Drop 7.1%

Cumulative to June, revenues fell by 7.1% and non-financial payments fall by 1%. What’s worse, is that for nearly every euro that enters government coffers, it is burning one euro in cash.

VAT Shows Decline in Economic Activity

State revenue from indirect taxes, with €36.221 billion, an increase of 5.1%. But remember the VAT went from 18% to 21%, an increase of 17%, so that a rise of only 5.6% in revenue means that economic activity or the collection capacity of the tax has diminished.

Expenditures

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Did Larry Summers Just Tap Someone On The Shoulder?

This post may not be reposted without permission and a prominent link to Zero Hedge. Links may not be removed. 

Courtesy of ZeroHedge, www.zerohedge.com. View original post here.

Submitted by Tyler Durden.

It seems 'someone' doesn't want the world knowing just how much of a 'long shot' Larry Summers is for the great-and-powerful-Oz position of Chairman of the Federal Reserve. As we showed just last week, PaddyPower showed Yellen as a strong 77% probability favorite with Summers lagging notably behind in the pack. Then comes this morning's comment from the second most powerful man in the world:

  • *OBAMA SAYS LARRY SUMMERS BEING UNFAIRLY CRITICIZED: SHERMAN
  • *REID SAYS SUMMERS IS A FRIEND, A `COMPETENT' MAN

And Goldman's Jan Hatzius' warnings that Summers is less 'enthusiastic' on using monetary policy than his competitor Yellen. And now – as the image below shows – PaddyPower has removed its betting on the next Fed head. We just wonder who got the tap on the shoulder?

 

PaddyPower

Via Reuters,

U.S. President Barack Obama pushed back on Wednesday against critics who complain that his former top economic adviser, Lawrence Summers, was not aggressive enough in seeking more economic stimulus funds than Congress ultimately approved in 2009.

At the closed-door meeting, Obama said that he had not made any decisions on his choice of Bernanke's replacement, according to a number of House Democrats.

"The decision is not ready to be made. He was quite clear about that," Representative Steve Israel said.

"He did talk about Larry Summers' qualities, but he also said there were many other candidates with their own qualities."

and then there is this:

  • OBAMA SAYS VERY LITTLE DIFFERENCE AMONG FED CANDIDATES: REID

Well there is this.

TROUGH FEEDERS ARE MAXING OUT

This post may not be reposted without explicit permission from Phil's Stock World (http://www.philstockworld.com) and Russ Winter at Winteractionables (http://winteractionables.com). Links may not be removed. 

TROUGH FEEDERS ARE MAXING OUT

Courtesy of Russ Winter

Originally posted here: http://winteractionables.com/?p=4984

Every day our country moves closer to the brink of collapse because of systemic corruption. We have become a country that relies on and feeds off of government schemes and looting. It’s happening at every level. This is the crippled backbone of our economy, and it’s fracturing. Virtually all governance is now inside capture by those who can promote their special interests.

I call these looters “trough feeders” and the system they feed off of the “sistema,” an apropos Brazilian term. The U.S. sistema has been largely an out-of-control loot of anything not tied down. For example, one of the troughs is the all-powerful Oz, the Federal Reserve. The Fed facilitates looting, but I don’t think things can be held together (market or otherwise) solely by it.

Note that I utilize trough and sistema theories often in my work. My post “The Sistema: Feeding At Three Troughs” is core to understanding my thinking. David Stockman in his book, “The Great Deformation” used this theory as well calling them “tentacles”.

Currently, there are at least four major feeding troughs in the corrupt American sistema:

1. Financial manipulation through the Federal Reserve and stealing at an unprecedented level. Think Enron multiplied by a thousand. This is assisted by a whole industry that’s on the payroll. It delivers double-think and Ministry-of-Truth psych-ops through a steady diet of shills.

2. The Military-Industrial Complex, now expanded through the Homeland Security/surveillance state racket.

3. The education system scam.

4. The medical industry loot now being reinforced by the Obamacare scheme.

On the financial loot front, No. 1 is interesting in that a smoke screen has been put up of late whereby the too-big-to-fail financial firms are being asked to pay a little rebate for show to the-chief-feeder-of-the-troughs as part of the facade that there is rule of law in the country. Here is a roll call of crimes and fines involving JP Morgan, and this firm is not alone. This will go along for awhile to please the peasants.

[Image above by William Banzai 7]

There has also been nearly a $100 billion annualized decrease of late in racket No. 2, the military. Unfortunately, I don’t think the U.S. economy can stay afloat unless to runs up trillion-dollar deficits. So this trough’s reduction is becoming a problem. I would therefore be on special alert for some black flag event, like a “sink the Maine” operation or a conflict getting things “back to normal.”

The latest in No. 3, education, is the student loan scam that lures more debtors in on a sick version of the old ARM housing scam. Under the newly modified student loan legislation, students get to pay a teaser rate priced against U.S. Treasury bills and the bond bubble. Interest rate surprises beckon down the road, at which point other schemes will surely be attempted.

Young adults, or at least the remaining lower middle class who are actually working, are about to be thrown under the bus by No. 4, Obamacare. This group is being targeted with more expensive, mandatory insurance or else face increasing “fines” for not participating. Starting in 2014, the penalty for lack of coverage is $95. In 2015, it jumps to $325, and then in 2016 to $695. The issue here of course is that most will pay the fine, at least in 2014. As a consequence, the subsidy for their older cohorts will go unfilled. Analysts suggest that 2.7 million young healthy adults are needed to offset the costs of older generations. Thus, in 2014, budgetary costs for Obamacare will skyrocket far higher than projected.

Of course, one problem trough-feeding debtism faces is the need to clean up its detritus.  This has shown up (not surprisingly) in the municipal and state arena. Presidente Hopium used some sleight of hand when Detroit at long last filed for Chapter 9 bankruptcy, indicating there would not be a direct bailout. And why should there be when you have Obamacare? The New York Times described how this new racket will pair underfunded health benefits for the looming lines of city and federal workers and push these into subsidized Obamacare medical insurance. You see, the sistema has a trough filled and ready after all!

Officials say the plan would be part of a broader effort to save Detroit tens of millions of dollars in health costs each year, a major element in a restructuring package that must be approved by a bankruptcy judge. It is being watched closely by municipal leaders around the nation, many of whom complain of mounting, unsustainable prices for the health care promised to retired city workers.”

Another of the looming detritus is to figure out how to deal with Housing Bubble version 2.0. Mortgage applications are down 55% in 11 weeks. I guess we will have to stay tuned for that; but one thing you know for sure, it will involve another trough and government scheme.

 

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Sense on Cents Quiz: Average GDP from ’02-’12 Is . . ?

Courtesy of Larry Doyle.

The Bureau of Economic Analysis this morning released the 2nd quarter GDP report and it registered a surprisingly robust reading of 1.7%.

Not that a growth rate of 1.7% is anything to write home about but it was better than the forecasted growth rate of 1% or thereabouts.

The cynic in me tells me that I guess we are supposed to disregard the downward revision to the prior quarter’s growth from a reading of 1.8% to 1.1%. That fact only further confirms that our economy continues to largely walk in place with what I have long defined to be a case of “walking pneumonia.’

The average growth for the first two quarters of 1.45% is not going to get it done in terms of generating meaningful job growth and an increase in incomes. This is not news and with Washington going on vacation for the next 5 weeks, we should not expect any meaningful developments from our fearless leaders to address our current reality.

No surprise there either.

Quick fixes, governmental band-aids, central bank smoke and mirrors, and financial chicanery are not the stuff that makes for long term economic growth.

If you do not think so, let’s play a game of “closest to the pin” and highlight the average GDP over the last ten years. Rather than my merely posting it, who cares to venture a guess as to what the average annual GDP has been in our country for the period of 2002-2012?

It’s not good.

Larry Doyle

Please order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy that will be published by Palgrave Macmillan on January 7, 2014.

For those reading this via a syndicated outlet or receiving it via e-mail or another delivery, please visit my blog and comment on this piece of ‘sense on cents’.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

 

Capitalism, A Norwegian Rat And Some Cockroaches

(Originally posted at The Automatic Earththeautomaticearth.com. This post may only be reposted with permission. Links may not be removed.)

Courtesy of The Automatic Earth.

Often, for some reason, when you want to make a simple point, before you know it it mushrooms into something much bigger. Like in this case, blasphemy. All I started out with was the notion that if we put a dollar value on something like an Arctic melt, or the extinction of species, we are making fundamental mistakes. Which invariably show in the way we reach the conclusions, presented as "scientific", that make us put such values on potential or already final events.

It may be getting increasingly hard to accept in our present worldview, but it's still true that not everything can be expressed in dollar terms. We may still find this to be obvious when we talk about losing our loved ones, our children, but other than that, there are hardly any questions raised when some individual or institution reports a $100 billion price tag for the loss of the bumble bee, or, the example that led me here, that a sudden Arctic "methane belch" could cost $60 trillion.

These reports come with such regularity these days that we have come to see them as normal. In reality what they depict is our loss of values, and a tendency towards moral bankruptcy. The problem in all this is that as long as we keep expressing the damage done by climate change, pollution or extinction in dollar terms, we have no chance of turning any of it around. Putting a dollar value on our very own destruction of our very own and sole habitat (which we share with all other species) carries with it an unspoken suggestion that there also must be a dollar value price tag we can put on halting the destruction, as well as undoing and repairing it. Which is, just like the original claim that an arctic melt would cost $60 trillion, the peak of absurdity.

But still, for 99% of people who read a headline with such numbers, their first reaction will be: that's a lot of money. If you are one of those people, you have some thinking to do. It makes no difference whatsoever what the financial cost is of an animal going extinct, or half the arctic melting. The fact that we increasingly tend to describe destruction in monetary terms is precisely why it will continue, since if a dollar value is all you have left, you might as well have no values.

What makes discussing these things blasphemous is that while you can't escape a critical look at how capitalism functions, in our world capitalism has taken on the role and characteristics of a religion, which typically rejects critical looks. You're not supposed to question it, and if you do anyway, before you know it you get to be Galileo. In the case of capitalism, if you dare criticize the prevailing system, you are a communist or a socialist. And like Galileo, a heretic.

From where I'm sitting, all the isms through history have led to the same result: a ruling elite and gagged masses. Most forms of Marxism promise those masses a voice in how their societies are structured, but few if any deliver. Our capitalistic societies call themselves democratic, but doubts about that are self-evident. When you only get to choose between options that are pre-selected by ruling classes, that's at best democracy between huge and thick brackets. Point in case: the masses don't tend to opt for a choice of rapidly increasing income inequality (which leaves them poorer), but it is what we experience. In short, capitalism leads where all other isms lead. People may claim that it's the least worst option, but that remains to be seen. Let it run its course, and then perhaps we can judge.

In any case, the pseudo science that comes up with the numbers mentioned above badly needs to be called to task and revealed for what it really is. So let's give it a shot.

Here's an article in New Scientist last week:

Huge methane belch in Arctic could cost $60 trillion

A sudden methane burp in the Arctic could set the world back a colossal $60 trillion. Billions of tonnes of the greenhouse gas methane are trapped just below the surface of the East Siberian Arctic shelf. Melting means the area is poised to deliver a giant gaseous belch at any moment – one that could bring global warming forward 35 years and cost the equivalent of almost a year's global GDP.

These are the conclusions of the first systematic analysis of the economic cost of Arctic melting, which delivers a sobering antidote to other, more upbeat assessments that say melting in this area would improve access to minerals on the ocean bed, increase fishing and create ice-free shipping lanes.

Previous work has estimated that more than a trillion tonnes of methane lie under the shelf, trapped inside lattices of ice known as hydrates, at depths as shallow as 20 metres. Concern about a possible eruption has grown since 2010, when research cruises over the shelf by Natalia Shakhova and Igor Semiletov, both now at the University of Alaska at Fairbanks, found plumes of methane as much as a kilometre wide bubbling to the surface.

The pair calculated that a release of 50 billion tonnes would be possible within a decade, through known areas of melting and geological faults. Since methane is a greenhouse gas 25 times as potent as carbon dioxide, such a scenario would trigger a "climate catastrophe", they say, increasing the methane content of the planet's atmosphere twelve-fold, and raising temperatures by 1.3C.

Now, environmental economist Chris Hope and Arctic Ocean specialist Peter Wadhams, both at the University of Cambridge, together with climate policy analyst Gail Whiteman of Erasmus University in Rotterdam, the Netherlands, have analysed the likely consequences of such a release occurring between 2015 and 2025. They did so by adding the extra emissions to an existing model used in the UK government's 2006 Stern Review, designed to assess the economic cost of coping with climate change between now and 2200.

There's so much wrong with this, where to begin? For starters, an environmental economist is not a scientist, since no economist is. Math and physics are sciences, since they deal in formulas and laws that can pass the fallibilty test. Economics deals with human behavior, which we don't know nearly enough about to formulate any such laws. The fact that papers like Nature and New Scientist publish this stuff anyway just goes to show where these publications have been heading for a while.

The entire piece is based on guesswork only, and that's not exactly scientific. To wit, the inevitable rebuttal in Live Science is just as credible:

Arctic Methane Claims Questioned

A scientific controversy erupted this week over claims that methane trapped beneath the Arctic Ocean could suddenly escape, releasing huge quantities of methane, a greenhouse gas, in coming decades, with a huge cost to the global economy.

The issue being debated is this: Could the Arctic seafloor really fart out 50 billion tons of methane in the next few decades? In a commentary published in the journal Nature on Wednesday (July 24), researchers predicted that the rapid shrinking of Arctic sea ice would warm the Arctic Ocean, thawing permafrost beneath the East Siberian Sea and releasing methane gas trapped in the sediments. The big methane belch would come with a $60 trillion price tag, due to intensified global warming from the added methane in the atmosphere, the authors said.

But climate scientists and experts on methane hydrates, the compound that contains the methane, quickly shot down the methane-release scenario. "The paper says that their scenario is 'likely.' I strongly disagree," said Gavin Schmidt, a climate scientist at the NASA Goddard Institute for Space Studies in New York.

But I don't intend to get into such controversies; they just keep our eyes off the ball. Environmentalism tends towards too many of the faults of all isms already. We know that human activity, burning fossil fuels, and the use of energy in general, tends to raise CO2 levels, and we know that higher CO2 levels tend to raise temperatures, but that's about it. We're dealing with systems that exhibit such elevated complexity, we should be very careful about drawing conclusions. Far too many people blame a local heatwave or flood on climate change that may well be simple fluctuations in existing models, and that's just as counterproductive as denying the whole mechanism to begin with (that we raise CO2 levels and they, over time, tend to raise temperatures). We should all stick to science, to what we can prove, not what we wish to believe.

But that was not my point. I wanted to address a different fallacy: that of trying to put dollar values on – sections of – our destruction of the world we inhabit. Capitalism tends to express everything in dollars, and that's where it fails: it has no other values, and therefore might as well have none. If we convince ourselves to believe that the demise of the polar bear or the bumble bee or, for that matter, half the population of Bangla Desh, can be expressed in numbers or dollars, we lose all hope of understanding the issues involved, let alone doing anything to counter them.

Nor is that $60 trillion number the only one that's floating around. The Christian Science Monitor has this:

Global warming could spell more bad news for baby seals

Research on threats to harp seals joins surging attention to the effects that melting in the Arctic will have not only on the wildlife there but on the entire planet. This week, a team of researchers found that, by 2030, the release of methane gas from just the melting Arctic ice is likely to accelerate the rise in temperatures to 3.6 degrees Fahrenheit above pre-industrial levels. That increase in temperatures would cost the world some $60 trillion in damages – a sum almost as large as the size of the entire global economy last year, which measured about $70 trillion. That number tacks on an additional cost of about 15% to the already $450 trillion that global warming is expected to cost the world.

 

Now people start to do the math in their heads: If we pay it off over a period of 10 years, or 20, or 100, 200, it doesn't look so bad, does it? The worst case scenario from that point of view is we could go temporarily bankrupt. But that's not very likely either, because our economists and central bankers seem to have found the solution to that: just watch the economy flourish in the wake of the banking crisis.

The problem is that while such discussions continue, the destruction continues too, and aggravates unabated. Which more pseudo scientists can then do more pseudo modeling for. None of it leads us anywhere but down. We need to take the discussion away from this nonsense, and put it on less shaky ground than blunt denial or fantasy number games. We don't even need to wonder what an environmental economist bases his figures on – though that could be pretty revealing -; we should figure out how people can even consider going this route. And that inevitably brings us back to religion.

A few quotes from finance journalist Cynthia Freeland's book "Plutocrats" put it into a clearer perspective. She cites Matthew Bishop, co-author of a book named "Philantro Capitalism", on the topic of people like Bill Gates, who "re-invent" philantropism (he labeled it “creative capitalism"), presenting what should at the very least raise serious questions, as something unequivocably positive:

 

"… in each era going back to the Middle Ages, the entrepreneurs have been among the people leading the response to the destruction caused by the economic processes that made them rich." 

To my amazement, and I kid you not, both Freeland and Bishop leave no doubt that they find this a good thing. Which makes me think they must be either poor readers or religious zealots.

You saw it in the Middle Ages, you saw it with the Victorians, you saw it with Carnegie and Rockefeller. What is different is the scale. Business is global and so they are focusing on global problems. They are much more focused on how do they achieve a massive impact.

You see? It all tends towards the same theme: putting a dollar value on the destruction that made them rich. And then pay it off. And there's no way they would stop there either:

 

Marx famously observed that early generations of philosophers has sought to describe the world; he wanted to change it. Gates and his plutocratic peers are having a similarly dramatic impact on the world of charity. They don't want to fund the social sector, they want to transform it.

One example is their impact on education in America. With their focus on measurable results, Gates and his fellow education-focused billionaires have spearheaded a data-driven revolution. The first step was to put tests at the center of education, so that the output – student learning – could be measured.

The next step is to try to make the job of teaching more data -and incentive – driven. As Gates said in a speech in November 2010, "We have to figure out what makes the great teacher great." That effort includes videotaping teachers in the classroom and paying them based on how they perform".

Anyone thinking that what Gates' education efforts are aiming for is for people to learn NOT to do what he did to get rich? Yeah, me neither. All I can think is this guy is dangerous, like so many self-appointed high priests of so many religions are. I know his foundation saves some babies' lives in Africa, but does that balance out this megalomania? There's still more: 

Strikingly, the ambition of the philantro-capitalists doesn't stop at transforming how charity works. They want to change how the state operates, too. These are men who have built their businesses by achieving the maximum impact with the minimum effort – either as financiers using leverage or as technologists using scale. They think of their charitable dollars in the same way. "our foundation tends to fund more of the up-front discovery work, and we're a partner in delivery, but governmental funding is the biggest," Gates told students at MIT on a visit there in April 2010."

 

If I may summarize: We should all want our children to emulate Bill Gates, so they will learn how to destroy things first and then pay off their guilt about it, preferably by buying up government influence. And feel good about it! Like they're the most worthy citizens of the earth that history has ever seen. If everything in our lives can be data-drivenly expressed in dollars, then Bill Gates must of necessity be right about all he says and does, because he has more dollars then just about anyone else.

It's hard to believe people allow their minds to go there (and still claim they love their children). Fortunately, just as I was starting to get really depressed about this, I read something that gave me back at least a glimmer of hope.

A July 11 interview in the Guardian paints a portrait of Doug Tompkins, a rich man by just about everyone's standards with the possible exception of Bill Gates. Tompkins, a good friend of Steve Jobs, clashed with the latter on issues that are very similar to those raised by Bill Gates' words. Tompkins became rich through the sale of the North Face and Esprit clothing brands, got out decades ago, and directs his efforts in different ways. He looks the much saner man.

 

How technology has stopped evolution and is destroying the world

It has become something of a mantra within the sustainability movement that innovations in technology can save the world. But rather than liberating us, Doug Tompkins, the cofounder of retail brands The North Face and Esprit, believes technology has enslaved us and is destroying the very health of the planet on which all species depend. Tompkins, 70 has used his enormous wealth from selling both companies to preserve more land than any other individual in history, spending more than £200m buying over two million acres of wilderness in Argentina and Chile.

He challenges the view that technology is extending democracy, arguing that it is concentrating even more power in the hands of a tiny elite. What troubles him the most is that the very social and environmental movements that should be challenging the destructive nature of mega-technologies, have instead fallen under their spell.

"We have been poor on doing the systemic analysis and especially in the area of technology criticism," says Tompkins [..] "Until we get better at that, I think we're cooked, we're going to continue to extinct species and we're going to continue to dig the hole deeper of the whole eco-social crisis.

Tompkins [and] his wife Kris, the former CEO of the outdoor clothing and equipment company Patagonia [..] have been instrumental in creating two huge nature reserves and are in the process of creating another one in the South American region of Patagonia, despite opposition within Latin America [..]

[..] ..they also fund numerous small activist NGOs, arguing that more established organisations such as WWF and Greenpeace have become too closely enmeshed with corporations. "When WWF started out, they were doing some good stuff," says Tompkins. "Now, they're burning up money like crazy and they don't really get too much done. "

Tompkins derides those who pin their hopes on technological developments in areas such as wind, solar and nuclear as coming from the smart resource management school, saying they fail to understand that this will not address the core issue, which is that capitalism is addicted to growth.

"Resource efficiency is the wrong metric," he says. "We should use nature as the measure, using nature's wisdom as a template for our economic systems."

"Capitalism doesn't function when it starts to contract and we can see that quite clearly right here in the eurozone. It's like pushing a giant monster underwater that's gasping for air. It goes nuts. Capitalism may have all sorts of things that are good, but ultimately it's bad for everyone."

 

He believes most sustainability practitioners have made the mistake of spending their time creating strategies and projects, without taking the time to gain a deep understanding of how we got into a mess in the first place. As a result, they may end up doing more harm than good. "As we get sucked more and more into the technosphere, we become less and less capable of understanding it because it becomes a technological milieu that we're in," he warns.

"If you extinct all the biodiversity and we end up living on a sandheap with a Norwegian rat and some cockroaches, that doesn't have too much logic to it. That would show that our behaviour as a civilization today is to the pathological. But, if you make a systemic analysis, that's exactly where we're going."

 

Tompkins recalls the Apple advertising campaign that highlighted the 1,001 great things that the PC was going to give to us and would tell Jobs that these represented a mere 5% of what the computer did while the other 95% was all negative and exacerbating the biodiversity crisis.

"He'd get mad at me when I'd tell him that," says Tompkins. "He was locked into a view that these technologies were going to bring all these good things. But that's typical of the purveyors of new technology. They're selling their product and their idea, and their prestige, their power and their influence. Their self-esteem is wrapped up in that. It's impossible for them to see it or to admit it, you see? Because, it pulls the rug out from underneath their purpose, especially when it's attached to a moral purpose."

 

Tompkins foresees a dark future dominated as he puts it by more ugliness, damaged landscapes, extinct species, extreme poverty, and lack of equity and says humanity faces a stark choice; either to transition now to a different system or face a painful collapse.

"Of course I'd prefer the transition, because a crash will be highly unpredictable," he says. "It could exacerbate something terrible."

"The extinction crisis is the mother of all crises. There will be no society, there will be no economy, there will be no art and culture on a dead planet basically. We've stopped evolution."

 

Now we're getting somewhere. Capitalism has nice traits, but it also has a built-in self-destruction mechanism: the demand for never ending growth. And that wouldn't be so bad, if that mechanism didn't also spell destruction for much of the planet is has been unleashed on. Spearheading education systems towards producing more Bill Gates clones in a sorcerer's apprentice fashion is definitely not the answer. Gates would do the world a lot more good if the curriculum were based on the exact opposite. But then, he just goes to proof that you don't have to be smart in a wider, "uomo universalis" kind of way, in order to get rich. In fact, you're more likely to succeed in that if your view is narrow.

The entire notion of being data-driven turns a society, bit by bit, into one that is controlled by numbers such at the $60 trillion or $450 trillion ones "calculated" for climate change damage, based on hollow guesswork derived from fake science that is devoid of any actual meaning. When Doug Tompkins says: "We have been poor on doing the systemic analysis and especially in the area of technology criticism", he advocates the opposite of what Bill Gates does, who would rather see only people just like himself, since he thinks he is a really great specimen. If you count the value of a human being in dollars, that may make sense, but it also leads to counting the value of everything else in dollars. And that's where the logic stops. Because you simply can't.

"Capitalism doesn't function when it starts to contract", as Tompkins puts it, is not even so much contested as it is flatly denied these days: every crisis is seen as but a springboard to the next high. To the true believers, a crisis is a sign that the system functions, and any contraction can only be temporary. But we can destroy, and we're actively doing it as we speak, more than we can rebuild, and that has nothing to do with how much money we have or how many technological advances we can yet produce.

We simply can't express our feelings, our love, our grief, our hope, in data or numbers. And no-one, not even Bill Gates, would dream of that. Techno-dreams involve robots that develop human features, like consciousness, grief and love, not humans developing into robots.

Capitalism, technology and the eternal progress they promise form a belief system increasingly built around the justification of the destruction we unleash on our world. And we need to question that belief.

Then again, I don't agree with Doug Tompkins that we have stopped evolution. Evolution, which is another word for life itself, is a force much grander than mankind. We are but an afterthought in the scheme of evolution. And if we don't fit that scheme, we will end up as just another one in a multi-billion years' series of billions of failed species. If we wish for our progeny to survive, we need to focus our efforts on understanding, not ignoring it. We are not bigger than life itself. At least that we should be able to agree on.

Photo top: Russell Lee The Law of God February 1939
"Child of migrant sitting by kitchen cabinet in tent home near Edinburg, Texas."

 

 

Carl Levin Opens New Investigation Into Wall Street; Obama Hits the Stump for the Middle Class

Courtesy of Pam Martens.

After packing his administration with 1 percenters or people earning a lucrative living off the 1 percenters, President Obama has decided, seemingly out of the blue, to hit the stump on behalf of the plight of the struggling middle class while railing against the income inequality that plagues the U.S. 

Could the President’s new focus have anything to do with a new probe of Wall Street practices opened by Carl Levin and the Senate’s Permanent Subcommittee on Investigations? The Subcommittee is delving into the hoarding of physical commodities by the largest firms on Wall Street. 

Whether the President is cognizant of the fact or not, the two issues are indelibly linked. Hoarding physical commodities pushes up prices on everything from the cost of food and beverage packaging to the price of a tank of gas to get to work or heating oil to stay warm in the winter. That’s effectively another wealth drainer for the middle class and an impediment to the poor to rise out of poverty. 

If Wall Street is further using its superior knowledge of how much physical commodity supply it has removed from the market, or its superior knowledge of how slowly it plans to release supplies to trade for itself (proprietary trading), it’s on a par with exactly what banks have been charged with in the rigging of the London interest rate benchmark known as Libor: harming consumers while enriching themselves. 

Levin’s Subcommittee has subpoena power and knows how to use it. That might explain last Friday’s sudden announcement by JPMorgan to exit the physical commodities business, saying it has decided to sell those assets – one business day before getting smacked with a $410 million fine on charges it rigged electricity prices in California and the Midwest. 

As Wall Street On Parade reported on July 23, the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, chaired by Senator Sherrod Brown, held a hearing last Tuesday on the matter, titled: “Examining Financial Holding Companies: Should Banks Control Power Plants, Warehouses, and Oil Refineries?”

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“Tax Nightmare” of Eminent Domain Mortgage Seizures

Courtesy of Mish.

Gayle McLaughlin, mayor of Richmond, California is hell-bent on her plan to seize mortgages via eminent domain, then provide “mortgage forgiveness” for the homeowners.

I smacked the idea from a legal standpoint in Illegal Public Seizure of Mortgages Via Eminent Domain in the Spotlight.

Tax Nightmare

Legalities aside, there are also huge tax consequences to consider.

A local attorney and real estate broker posting under the name “davecherr” commented on the problem of debt forgiveness.

There is a massive and thus-far unremarked upon problem with this ED scheme: it would result in a MASSIVE INCOME TAX BILL FOR THE HOMEOWNER. Under the tax code, discharge of indebtedness is counted as income. There is a safe harbor for people who lose their primary residence to foreclosure, but it would not apply to these Richmond residents, since they would keep their house with magically reduced debt.

That debt reduction would NOT be tax-free. If a homeowner’s mortgage goes from $400K to $190K under the proposed scheme, they would owe taxes on $210K of discharged debt (it would likely be much more, because all missed payments, late fees, and missed property tax and insurance payment, and interest on all of that, would be folded into principal — such costs can easily drive principal from $400K to $500K over the course of 1-2 years of non-payment).

The federal taxes on that would be around $50K, and the state taxes $15K, for a total tax bill of $65K, or around $7K per year on a 15 year payment plan. As a local, I can tell you that most residents of Richmond do not have an extra $7K/year of income to pay such a bill. 

Who will tell the people of Richmond, and their craven politicians, that their scheme will lead to tax nightmares exploding all across their fair city?

Mortgage Forgiveness Act of 2007 Expires

Sure enough, “davecherr” is correct. Details can be found in the IRS publication Home Foreclosure and Debt Cancellation.

Update Dec. 11, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

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Should You Trust Your Instincts on Gold?

Material from guest authors posted in Phil's Favorites is reposted with specific permission at www.philstockworld.com. Credit and appropriate links back to guest authors may not be removed. 

Should You Trust Your Instincts on Gold?

By Dennis Miller

Recent events in San Francisco and at La Guardia Airport made me recall a terrifying experience years ago. It was my last flight of the year, and I was headed home for Christmas. The plane was speeding down the runway to take off, when the pilot suddenly reversed thrust and slammed on the brakes; the plane shook like I have never experienced before as the pilot aborted the takeoff. As we stopped mere feet from the end of the runway and caught our breath, the pilot came on the intercom and announced, "I'm sorry to frighten you, ladies and gentlemen. I have been flying for many years. There was nothing on our instrument panel that says we have any kind of problem. It just did not feel right, and I want to have some things checked out before we go vaulting into the air."

We taxied back to the gate and several mechanics descended on the plane. Within ten minutes they made the announcement that the flight had been canceled due to mechanical difficulties. As I exited, I stuck my head in the cockpit door and exclaimed, "Captain, I will fly with you any time – thank you! I hope you have a wonderful Christmas season." As a seasoned traveler, it was probably the only time in my life that I was happy about having a flight canceled.

It just doesn't feel right

As of this moment, the business columns are blaring headlines about the Dow and the S&P hitting new highs seemingly every other day, even with our modest pull-back in June. At the same time, gold and gold stocks have been taking a beating. If you’re like a lot of us at Casey Research and have positions, regardless of size, in gold and silver, it can certainly be a test of courage and patience.

At times like this, it seems appropriate to review why we made certain decisions in light of new facts. Have things changed? Is it time to adjust our holdings? Sell off our metals, back up the truck, or something in between?

As luck would have it, Federal Reserve Vice Chairman Janet Yellen shed some light on the subject recently. Bloomberg's headline from earlier this spring, Yellen Says Fed Should Press on With QE Amid Limited Risk, sums it up well. Basically she reiterated that the Federal Reserve will keep on purchasing $85 billion in government debt for the foreseeable future, even if the current chairman has made suggestions they may consider scaling back at some point (no date given, of course).

And even Fed Chairman Bernanke’s recent comments on raising rates were tempered with his strong warning against raising them too soon. OK, no changes here, folks; we will continue to spend money we don't have, and the Fed will cover our butts.

Why pay attention to Ms. Yellen? Because she’s the front runner to replace Chairman Bernanke. Someone else may eventually be chosen, but her name is coming up in a lot of conversations.

The same day I read about Ms. Yellen, my copy of BIG GOLD hit my inbox. In the introduction, our own Jeff Clark has this to say about the situation (italics his):

"[T]he fundamental drivers for investing in gold have not changed. If they had, then we should sell, but clearly they have not. This is a short-term correction within a secular trend, despite what some may proclaim.

The primary impetus for a sustained gold bull market is that government debt is a structural problem, in the US and across the globe. Most of it will never be paid – and more piles up every day, to the tune of tens of billions of dollars. The economies of the world's indebted nations are not and cannot grow fast enough to pay off the debt (GDP shrunk [sic] last quarter in the US, the Eurozone, and Japan), and outright default or restructuring (i.e., a "soft default") isn't an option. The only politically acceptable way out is for government to create the money to service the debt and pay its bills, inflation be damned.

This default-by-inflation has been repeatedly employed by governments throughout history. We don't see a different outcome this time.

The Fed has said it wants inflation – and we're sure it'll get what it wants. No forecast comes with a guarantee, but it seems virtually certain that central banks will continue to print money. Since those currencies can't get "unprinted," they'll eventually enter the system and fuel double-digit rates of price inflation. When that process starts to unfold, gold and silver will respond, as they dependably have throughout history."

And of course I caught a quick glimpse of talking heads on CNBC enthusiastically discussing the Dow. One of the experts made a snide remark that all the gold nuts talking about Zimbabwe need to step aside because they just want to make some money.

Much like the pilot, my intuition is sending me a message. I know I'm heavily in the market with my share of metal and stocks, because I have no choice. They took away our interest income. Most of my peers feel the same way. We are not heavily in the market because we want to be; we really have few other choices.

Maybe the Dow will continue its run up, even with the occasional blips we’ve seen over the past couple months. But to many of us it feels more like the Great Depression than the roaring '20s. Real unemployment is still through the roof, record numbers of people are on food stamps and disability (just recently the number of those on food stamps of any sort surpassed the number of those working), and we see study after study about our net worth decreasing rapidly. Investors who generally eschew risk have very few outlets for generating real income.

So here is what we should be thinking

Let the talking heads at CNBC continue to make fun of us. I think we can do two things at once: make some money and do everything we can to protect ourselves against a possible Zimbabwe moment.

There are certain potential catastrophes that can be so threatening we must take steps to insure ourselves even though the probability of one actually occurring is slim. It’s like keeping a small fire extinguisher under your kitchen sink and hoping you never have to use it. I cannot put my life savings and my family at risk by trivializing dangers potentially on the horizon.

While CNBC may want to pooh-pooh the probability of something similar happening in our country, we all know that creating massive amounts of currency out of thin air always results in the currency collapsing, or at the very least being revalued in a way that most of us will suffer from. A prudent investor (particularly one on either side of the cusp of retirement) would do well to take out some insurance. That is generally done by investing in metal, farm land, and other forms of hard assets.

In the same Bloomberg article quoting Ms. Yellen, there is another clue for us: "Kansas City Fed President Esther George has warned that prices of some farm land have hit 'historically high levels.'" I’ve heard the same thing from folks in America’s heartland when I recently visited family in Illinois. I wonder if the CNBC folks think that is a mere coincidence.

In the fall of 2011, I attended the Casey Summit, which featured three speakers who had lived through hyperinflation in their home countries. They shared their personal experiences with us and I shared some of this in an article earlier this summer.

All three speakers went through very similar cycles. All said inflation was rising and then it spiked to astronomical proportions.

The following are a couple of slides used by the speaker from the former Yugoslavia. Note the last line that indicated that during its hyperinflation, prices doubled on average every 1.4 days.

The presenter showed a 500-billion denominated bill, which had the same purchasing power a 500 bill had just 24 months earlier. His slides documented the hyperinflation, starting at 5.00 and building up to 500 billion.

Can this happen in the United States? Are we immune from the natural laws of economics?

We see inflation on the rise in the US and know our government is not telling us the truth about it. We have discussed the record debt and Federal Reserve spending until we are blue in the face. And we know that very few of our elected officials are serious about significant cuts to federal spending to rein in debt and borrowing.

So what do we do right now?

I have yet to see anyone present any logical economic premise that concludes that our country will not eventually see a currency collapse. Many have put us down, called us "gold nuts" and the like, and trivialized our concerns. Just show me the facts.

Instead, I see several clues that reinforce my concerns. Throughout history thousands of currencies have collapsed, but precious metals have held their value. It should come as no surprise to learn that over the last few years China, Russia, and many central banks have been stockpiling gold. Germany and Venezuela quietly announced earlier this year that they are repatriating their gold stores overseas—not coincidentally mostly from the US—back to their shores. Not wanting to start a panic or gold rush, they played it down by saying they just think it is easier to store their metal inside their own borders. It sits in a lump and earns no interest whether at home or abroad, so there must be a good reason why they are going through all that effort and expense.

At Casey Research, we have regular editors' conferences. The subject of two of the more animated ones earlier this year was precious metals and the direction of the market. If I may summarize, we came to several conclusions.

  1. We may be in for a rough ride in the short term; however, the fundamental reasons for owning gold and silver have not changed.
  2. The reasons to own gold and silver are more evident than ever before.
  3. At the end of the day, none of us is selling, and we are going to be ever alert for some terrific buying opportunities as they come up.

Sure, all the contraptions on the airplane might be telling us everything is just fine: the Dow reaches new highs; unemployment drops another tenth of a point; and cheap credit is endless. But as experienced pilots, we're reading into the market beyond what the gauges are saying. That's the sort of insight that can mean the difference between a crash landing and a takeoff for the value of your portfolio.

So is gold going to start charging upward or take another nosedive any time soon, or just plod along in a tight range? I don’t know. At least not for the short term, but long term it seems the fundamentals point upward. For now we’re getting our returns from good-paying, reliable dividend stocks using our monthly income plan. It’s a strategy used by thousands of investors who are getting dividend income every month from some of the safest, most stable stocks on the market. I’ve recently updated a presentation laying out the details of this plan. You can find it here.

Illegal Public Seizure of Mortgages Via Eminent Domain in the Spotlight

Courtesy of Mish.

Bloomberg reports Richmond Escalates Eminent Domain Plan With Loan Offers.

Richmond, California, is backing a plan to buy mortgages in low-income areas for as little as 25 cents on the dollar and may force the sales under eminent domain laws, moving forward with a controversial program that would potentially seize control of home loans from investors.

Richmond is the farthest along in a plan advocated by Steven Gluckstern’s Mortgage Resolution Partners LLC for U.S. cities to confiscate mortgages and write them down in an effort to help homeowners escape oversized debt burdens. The idea has drawn opposition from bondholders such as Pacific Investment Management Co. and DoubleLine Capital LP and at least 18 trade groups representing the finance industry, homebuilders and real estate firms. 

None of the 32 servicer and bond trustees that oversee the loans will likely sell willingly, Chris Killian, head of the securitization group for the Securities Industry and Financial Markets Association, Wall Street’s largest lobbying group, said in a phone interview.

“You just can’t really sell performing loans out of securitizations,” Killian said. “Additionally, everybody we talk to in the industry thinks this is a bad idea that will be bad for the mortgage markets.”

Eminent Domain

Eminent domain (confiscation of private property for the public good), have been upheld time and time again, most recently in the infamous US Supreme Court decision Kelo v. City of New London.

Kelo v. City of New London, 545 U.S. 469 (2005) was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible “public use” under the Takings Clause of the Fifth Amendment.

The case arose in the context of condemnation by the city of New London, Connecticut, of privately owned real property, so that it could be used as part of a “comprehensive redevelopment plan.” However, the private developer was unable to obtain financing and abandoned the redevelopment project, leaving the land as an empty lot, which was eventually turned into a temporary dump.

Public reaction to the decision was highly unfavorable. Much of the public viewed the outcome as a gross violation of property rights and as a misinterpretation of the Fifth Amendment, the consequence of which would be to benefit large corporations at the expense of individual homeowners and local communities. Some in the legal profession construed the public’s outrage as being directed not at the interpretation of legal principles involved in the case, but at the broad moral principles of the general outcome. Federal appeals court judge Richard Posner wrote that the political response to Kelo is “evidence of [the decision’s] pragmatic soundness.” Judicial action would be unnecessary, Posner suggested, because the political process could take care of the problem.”

Prior to Kelo, seven states specifically prohibited the use of eminent domain for economic development except to eliminate blight: Arkansas, Florida, Kansas, Kentucky, Maine, New Hampshire, South Carolina and Washington. As of June 2012, 44 states had enacted some type of reform legislation in response to the Kelo decision. Of those states, 22 enacted laws that severely inhibited the takings allowed by the Kelo decision, while the rest enacted laws that place some limits on the power of municipalities to invoke eminent domain for economic development. The remaining eight states have not passed laws to limit the power of eminent domain for economic development.

End Result of Seizure: A Dump

There you have it. The result of the seizure (whose intent was a mall), turned useful tax-payer property into a vacant lot, then a dump when the developer could not get financing.

44 states passed laws restricting eminent domain as a response to that poor US supreme court decision. One of those states was California.

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Did Wall Street Miss A Bribe Payment?

Courtesy of John Rubino.

It’s hard to know which aspect of today’s world future historians will find most appalling. But the fact that during the greatest financial crime spree ever, not a single major Wall Street executive has gone to jail has to rank right up there.

Yes, the occasional insider trader and Ponzi scheme operator is prosecuted, but that kind of crime is just background noise in a major financial market. Someone is always doing such things and getting caught. But the systemic stuff, the selling of clearly-defective bonds to less-than-savvy municipal pension funds, the paying of rating agencies to slap “AAA” on those bonds without even looking at the underlying mortgages, the manipulation of markets in ways that would be impossible if regulators were not either paid-off or active participants — these things were (and are) rampant, and that the perps are still rich and free testifies to the completeness with which Washington is now owned by the big banks.

And yet…this year some regulators (who may have missed the memo explaining how things work) have actually accused some big banks of doing something wrong – in public.

JPMorgan to pay $410 million to settle power market case
NEW YORK (Reuters) – JPMorgan Chase & Co agreed on Tuesday to pay $410 million to settle allegations of power market manipulation in California and the Midwest, the latest in a series of high-profile inquiries by U.S. federal energy regulators.

The settlement, announced by the Federal Energy Regulatory Commission (FERC), will allow Chief Executive Jamie Dimon to close the books on one of several costly run-ins with regulators over the past year. It came days after the bank said it was quitting the physical commodities business.

JPMorgan Ventures Energy Corp, the commodity trading unit that became one of the biggest U.S. electricity traders with the 2008 acquisition of Bear Stearns, agreed to pay a civil penalty of $285 million and disgorge $125 million for “manipulative bidding strategies” from September 2010 through November 2012.

It is the second largest penalty in FERC history, and comes as the once-quiet government regulator steps up its pursuit of market malfeasance after gaining expanded powers from Congress in 2005, part of efforts to crack down on market manipulation after Enron Corp’s spectacular collapse.

The FERC deal did not cite specific traders or JPMorgan’s commodities chief Blythe Masters for any wrongdoing. Masters spent billions of dollars over the past five years to build JPMorgan’s oil, power, gas and metals business into the biggest on Wall Street.

JPMorgan had vowed in May to fight the FERC charges and disputed allegations that employees lied or acted inappropriately during the investigation. After a court battle over the disclosure over documents, the bank entered settlement discussions.

On Tuesday, FERC laid out Masters knowledge of the traders abusive bidding strategies, including spreadsheets given to her detailing a seven-year plan to churn up to $2 billion in profits from potentially loss-making power plants.

Meanwhile, Goldman Sachs’ manipulation of the aluminum market has just come to light. Here’s the clearest explanation we’re likely to see:

 

Goldman aluminum

There are maybe three possible explanations for this public shaming:

1) Whoever it is that moves the bribes from banks to the major political parties and regulators forgot to deliver the envelopes, and the political division of the empire decided to send the banking division a message. That’s believable. In the Sopranos there was always intra-family intrigue with messages being sent back and forth by various means.

2) The major players understand that the public is getting surly, so they’ve decided to sacrifice some businesses that the banks have milked for all they’re worth and are willing to abandon. That’s the most likely, when you consider that JP Morgan’s “settlement” amounts to less than 2% of its annual profit and no one in the organization is going to jail for what was clearly fraud. Here’s the key passage from the above article:

“On Tuesday, FERC laid out JPMorgan’s commodities chief Blythe Masters knowledge of the traders abusive bidding strategies, including spreadsheets given to her detailing a seven-year plan to churn up to $2 billion in profits from potentially loss-making power plants….The FERC deal did not cite specific traders or Blythe Masters for any wrongdoing.”

3) Washington has decided to start policing the banks and insisting that they make their money more-or-less honestly….Nah, this doesn’t even belong on the list.

Visit John’s Dollar Collapse blog here >

Unstoppable Demand Meets Undeliverable Object – A Run on the Bullion Banks

Material from guest authors posted in Phil's Favorites is reposted with specific permission at www.philstockworld.com. Credit and appropriate links back to guest authors may not be removed.  

Unstoppable Demand Meets Undeliverable Object – A Run on the Bullion Banks

Courtesy of Jesse's Cafe Americain

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

John Kenneth Galbraith, The Age of Uncertainty


If this is accurate, if this is really happening, I think that the effects of this run on the bullion banks are going to hit quite a few people dead cold, like a smack in the face.

That is because there is so little coverage of what is going on in the media, even the internet media.

The gambit of smacking down price to dampen the desire for gold appears to have backfired in a big way by sparking an insatiable demand for the physical metal and a remarkable decline in available inventories. That certainly wasn't what had been expected I would imagine when the process of a more energetic price manipulation in response to Germany's request for the return of its gold began.

That a sovereign nation asked for the return of its own gold being held in custody, and that request was flatly denied, is almost as unbelievable as the fact that so many are willing to take it in stride, like something that would happen every day.  

A seemingly unstoppable force, the flow of gold from west to east, is going to meet the undeliverable object, the nominal inventory of unencumbered gold in the bullion banks and exchanges, sometime over the next twelve months.

Of course one cannot predict exactly what will happen and when, given the phony controversies, obfuscations, and stonewalling that seem to settle like a thick fog over the markets at every treacherous turn in this slowly unfolding financial crisis.  But the math is intriguing.

This is getting very interesting. Let's see what happens.  

Is this what I wish to happen?  No, I would prefer that the markets be transparent, honest, and provide genuine price discovery and allocation of capital with relative rationale decision making open to all market participants.   I think for now the game is badly tilted in favor of insiders and their powerful friends.

I do not believe that there can be a sustainable economic recovery without genuine reform.  A financial disaster is what the financial predators seemingly wish to happen, assuming they even care about the broader effects of their foolish greed.

At some point one would have to anticipate a declaration of force majeure and/or a change in the rules if the financial interests do not relent on their aversion to a market-clearing price.  And when that tide goes out, we will see who is swimming naked.

But there remains plenty of opportunity for more desperate antics, so as always caution is advised , particularly in the use of any leverage and short term time horizons.  This is not a healthy trading environment for the non-professional.  And many a person has gone bust by underestimating the shameless manipulation of the markets when regulation is lax.

The exchanges and the Banks will not fail, because the financiers and their friends make their own rules as they go along, and do not hesitate to act in their own interests, promises and customers be damned.  That seems to be the way of modern finance and monetary theory.  Whatever we say it is, is because we say it is. 

The time for debate seems to be coming to an end. Weighed and found wanting.

Stand and deliver. 

Pundits Cry Over A Minor Spill In June Home Sale Contracts But The Uptrend Continues

This post appears on Phil's Stock World – www.philstockworld.com – with specific permission. 

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.

Pundits Cry Over A Minor Spill In June Home Sale Contracts But The Uptrend Continues

Courtesy of Lee Adler of the Wall Street Examiner

Monthly Home Sales and Inventory - Click to enlarge

Monthly Home Sales and Inventory – Click to enlarge

The NAR’s Pending Home Sales Index was 128.5 in June versus 131.1 in May, not seasonally adjusted, in other words, actual. That was equivalent to the sale of 501,000 units based on a simple algorithm which I have used for the past 9 years to convert the Realtors’ Pending Home Sales Index to an equivalent number of actual sales contracts.   This represented a decline of 10,400 units from May, apparently due to the rise in mortgage rates.

The seasonally adjusted headline number was down 0.4% month to month versus market expectations of a decline of 1.4%. In spite of the “beat” most news reports on the data had a dour tone. For example, Bloomberg blamed the early drop in stock prices on Monday on the decline in pending home sales. The Wall Street Journal said that rising mortgage rates “pinched” home sales.

Closer examination of the data reveals a more nuanced picture where there was no material change to the trend.

Contract volume was up by 10,700 or 8.2% versus June 2012, which was slower than the May gain of 11.2%, but it was similar to the year to year gain of 8.4% a year ago and stronger than the gain in four of the past seven months.

While there was a downtick in June, it was not enough to break the trend of increasing sales. The data does not support all the moaning and groaning that rising mortgage rates have caused a material slowing in the rate of sales (see US Housing Prices Within 7% of 2007 High – That’s Not A Bubble?). Considering that 30 year fixed rate mortgages were at 4.07%, versus 3.68% in June 2012 according to Freddie Mac, the continuation of the uptrend in sales attests to the strength of demand. Apparently buyers have been motivated to buy to beat both rapidly rising prices and rising mortgage rates, both of which they apparently believe will continue. This is a dynamic I have seen many times over my 30 years of experience in or analyzing the housing market.  At some point rising rates will crush demand. We’re not there yet.

Much of the rise in rates had already occurred by May, and there was no sign of a slowdown in demand in the May contract data. The bubble was still going strong at that time. The June data doesn’t change that. Inventories remain extremely tight. They show no sign of any meaningful loosening. The factors that drive the tight supply remain in place.

Inventory To Contracts Ratio - Click to enlarge

Inventory To Contracts Ratio – Click to enlarge

Departmentofnumbers.com reports median listing prices and inventory for 55 large US metros in real time.  As of July 22, total inventory was down 10.7 % year to year in these markets, which are representative of the US as a whole, suggesting that the tightening of inventories is continuing.

The NAR’s Realtor Confidence Index Report for June showed a downtick in buyer traffic but it remained at a very strong level, well above that of June 2012. Seller traffic upticked but remained within the post crash range, no better than during the 2008 crash. The crossover of the two lines on the graph below coincided with the beginning of the upturn in housing prices. The tight inventory situation that has been driving the rapid inflation in housing prices over the past two years is unlikely to ease until the gap between buyer and seller traffic comes closer to being in balance.

NAR Buyer/Seller Traffic - Click to enlarge

NAR Buyer/Seller Traffic – Click to enlarge

 

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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.

Undisputed Champion

Material from guest authors posted in Phil's Favorites is reposted with specific permission at www.philstockworld.com. Credit and appropriate links back to www.philstockworld.com and to guest authors may not be removed.  

Undisputed Champion

Courtesy of 

Guess who won the post-crisis recovery? Guess who still rules the US economy and runs American capitalism, despite everything we have and haven't learned over the years. Guess who is once again disproportionately represented in the US financial markets…

From Bloomberg:

Banks, brokers and insurance companies make up 16.8 percent of the S&P 500, almost double the level from 2009 and closing in on technology companies at 17.6 percent, according to data compiled by Bloomberg. Bank of America Corp. and Morgan Stanley are helping lead gains in the index this month after profits topped analyst estimates. Intel Corp. (INTC) and Microsoft Corp. are among the worst after earnings trailed forecasts.

For bulls, the change signals banks will lead the economy even after the Federal Reserve begins to reduce stimulus. Bears say S&P 500 profits would be down this quarter if not for banks. They note that the last time financials were the biggest industry was in 2008 and the consequences were disastrous.

Large financial institutions are, once again, the undisputed champions. Creators of nothing, they extract rents from every inch of the economy and essentially decide which laws will be written, who will be elected and what regulations, if any, they'll allow to stand in their way.

America's banks are now more Too Big To Fail than ever before.

"Your revolution is over, Mr. Lebowski. Condolences! The bums lost."

Source:

Banks Poised to Lead S&P 500 as JPMorgan Beats Microsoft (Bloomberg)

Buying Back into Heidrick & Struggles

Buying Back into Heidrick & Struggles

By Paul Price

Sometimes the best new idea is an old idea.

We sold the shares of executive search firm Heidrick & Struggles (HSII) at $17.37 per share on July 5, 2013. Today we were able to buy back a position at $14.94, a 14% discount to where we sold just twenty-four days ago.

We picked up 250 shares for our Virtual Value Portfolio.  The $3,735 cost came out of our cash reserves. Market Shadows will pocket a quick cash rebate on this purchase as HSII goes ex-dividend for a 13-cent distribution on Wednesday.

HSII   Jul. 29, 2013

At least two private equity firms had been interested in taking HSII private at valuations ranging from $17 – $19 per share. Management says they are committed to staying independent. Experience suggests that might be code for "Make me a higher offer."  That is exactly what happened earlier this year with another of our previous portfolio companies, Life Technologies (LIFE). They turned down multiple bids initially before accepting a later, higher priced offer.

Price negotiations asides, I think HSII is worth well above the sub-$15 we paid this morning to add it back to our Virtual Value Portfolio. The shares have traded higher than that over most of the past decade.

HSII  10-yr. chart (weekly)

The buyout firms were convinced they could profit from privatizing the company at higher levels. 

We can pocket almost 4% in yield while waiting for the mean-reversion price that should evolve over the next full business cycle. Another buyout rumor or takeover would speed up the process.

See full details of all open and closed-out positions: http://marketshadows.com/virtual-portfolios/virtual-portfolio/

Disclosure: I bought HSII shares in my personal portfolio today (July 29). My cost ranged from $14.92 – $14.94.

 

Ingredion Inc: Fundamental Stock Research Analysis

Courtesy of www.fastgraphs.com.

Before analyzing a company for investment, it’s important to have a perspective on how well the business has performed.  Because at the end of the day, if you are an investor, you are buying the business.  The FAST Graphs™ presented with this article will focus first on the business behind the stock.  The orange line on the graph plots earnings per share since 2002.  A quick glance vividly reveals the historical operating record of the company.

Ingredion Inc (INGR) is a leading global ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. With customers in more than 40 countries, Ingredion, formerly Corn Products International, Inc. serves approximately 60 diverse sectors in food, beverage, brewing, pharmaceuticals and other industries.

This article will reveal the business prospects of Ingredion Inc through the lens of FAST Graphs – fundamentals analyzer software tool.   Therefore, it is offered as the first step before a more comprehensive research effort.  Our objective is to provide companies that have excellent historical records and appear reasonably priced based on past, present and future data and expectations.

 A quick glance at the graph itself and the orange earnings justified valuation line will tell the readers volumes about how well the company has historically been managed and performed as an operating business.  Simply put, the reader should ask whether this example is worthy of a greater investment of their time and effort based on the data as presented and organized.  The FAST Graphs’ unique advantage is the graphical articulation of the price value proposition. 

Earnings Determine Market Price:  The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings.  The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line.  On graph after graph the lines will move in tandem.  If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.  

Earnings & Price Correlated Fundamentals-at-a-Glance

A quick glance at the historical earnings and price correlated FAST Graphs™ on Ingredion Inc shows a picture of undervaluation based upon the historical earnings growth rate of 18.7% and a current P/E of 11.4.  Analysts are forecasting the earnings growth to continue at about 10%, and when you look at the forecasting graph below, the stock appears  undervalued (it’s outside of the value corridor of the five orange lines – based on future growth).

Ingredion Inc:  Historical Earnings, Price, Dividends and Normal P/E Since 2002

Performance Table Ingredion Inc

The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return:  capital appreciation and dividend income.  Dividends are included in the total return calculation and are assumed paid, but not reinvested. 

When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident.  In addition to the 12.1% Annualized ROR (w/o Div) (green circle), long-term shareholders of Ingredion Inc, assuming an initial investment of $10,000, would have received an additional $3,029.78 in total dividends paid (blue highlighting) that increased their Annualized ROR (w/o Div) from 12.1% to a Total Annualized ROR plus Dividends Paid of 12.8% versus 4.5% in the S&P 500.

The following graph plots the historical P/E ratio (the dark blue line) in conjunction with 10-year Treasury note interest.   Notice that the current price earnings ratio on this quality company is as low as it has been since 2002.

A further indication of valuation can be seen by examining a company’s current P/S ratio relative to its historical P/S ratio.  The current P/S ratio for Ingredion Inc is .74 which is historically normal.

Looking to the Future

Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:

1.            The rate of change (growth rate) of the company’s earnings

2.            The price or valuation you pay to buy those earnings

Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound and profitable performance.

The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.

The consensus of 9 leading analysts reporting to Capital IQ forecast Ingredion Inc’s long-term earnings growth at 10%.  Ingredion Inc has medium long-term debt at 41% of capital.  Ingredion Inc is currently trading at a P/E of 11.4, which is below the value corridor (defined by the five orange lines) of a maximum P/E of 18.  If the earnings materialize as forecast, based upon forecasted earnings growth of 10%, Ingredion Inc’s share price would $140.64 at the end of 2018 (brown circle on EYE Chart), which would represent a 16.7% annual rate of total return which includes dividends paid (yellow highlighting).

Earnings Yield Estimates

Discounted Future Cash Flows:  All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.

Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Ingredion Inc to an equal investment in 10-year Treasury bonds illustrates that Ingredion Inc’s expected earnings would be 5.7 (purple circle) times that of the 10-year T-bond interest (see EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.

Summary & Conclusions

This report presented essential “fundamentals at a glance” illustrating the past and present valuation based on earnings achievements as reported.  Future forecasts for earnings growth are based on the consensus of leading analysts.  Although with just a quick glance you can know a lot about the company, it’s imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.

Disclosure:  No position at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. A comprehensive due diligence effort is recommended.

Please click here to read more articles at FastGraphs.com.

Retail Sales Rise in Germany and France, Decline in Italy; Margin Squeeze in Germany and France

Courtesy of Mish.

It’s a mixed bag of retail PMI news in Europe today (assuming of course one believes that spending is good).

Italy: Sharpest drop in retail sales since April

In Italy, Markit reports Sharpest drop in retail sales since April

Key points

  • Rate of decline in retail sales accelerates for second straight month
  • Stocks levels fall amid sharp drop in retailers’ purchasing activity
  • Purchase price inflation dips to modest rate

Summary

The downturn in Italy’s retail sector gained further momentum in July. The level of trade fell at a faster rate, leading to an accelerated decline in retailers’ purchasing activity and contributing to a deterioration in business sentiment. There were also further notable reductions in profitability, employment and inventory levels on the month.

July saw an acceleration in the month-on-month rate of decline in Italian retail sales, as highlighted by a drop in the headline Markit Italy Retail PMI® from 40.7 in June to 38.2. This was its lowest reading since April, and one that was indicative of a sharp pace of contraction overall. The level of trade has fallen continuously on a monthly basis for almost two-and-a-half years.

The gap between actual and planned sales was the widest for four months in July, as almost half of businesses missed their targets. Firms attributed their underperformance to a combination of uncertainty and pessimism among consumers.

Germany: strongest sales growth for two-and-a-half years

In Germany, Retail PMI indicates strongest sales growth for two-and-a-half years.

Key points

  • Retail PMI hits highest level since January 2011
  • New job creation maintained in July
  • Wholesale price inflation eases since June

Continue Here

Bloomberg Beverage Ban Bounced By Appeals Court

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

And so Bloomberg's initial foray into testing the limits of America's nanny financial capital is officially over. Moments ago Reuters reported that Mayor Mike's quest to limit what New Yorkers may or may not drink is officially over after his forced plan to ban large sugary drinks from restaurants and other eateries was halted and deemed an "illegal overreach of executive power," a state appeals court ruled on Tuesday, upholding a lower court decision in March that struck down the law. Wait, if illegal overreaching of executive power is, well, illegal, there are a few other people in position of power that America's court system may want to take a close look at. Alas it won't.

More:

The law, which would have prohibited those businesses from selling sodas and other sugary beverages larger than 16 ounces, "violated the state principle of separation of powers," the First Department of the state Supreme Court's Appellate Division said in a unanimous decision.

Mayor Michael Bloomberg had advanced the regulation as a way to combat obesity among city residents. Beverage makers and business groups, however, challenged it in court, calling it an attack on consumers' personal freedom.

Keep in mind, we said "initial foray." This is by no means the end of America's nanny statism and even though the decision was unanimous we are confident the billionaire is already lining up an army of lawyers to appeal the denial of the appeal. After all, the sheep do not produce nearly as much wool when they get far too fat.  Gotta keep em lean and mean, and preferably engrossed by Honey Boo Boo.

Full appeals court decision can be found here.

US Rents Hit Record Highs As Homeownership Plunges To 18 Year Lows

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The American Homeownership Dream is officially dead. Long live the New Normal American Dream: Renting.

According to the latest quarterly homeownership data released by the Census Bureau, the raw homeownership rate of 65.0% was unchanged from last quarter and 0.4% lower than a year ago. And on a seasonally adjusted basis (not sure why homeownership is adjusted for seasons: people who live in a house in the winter generally live under a bridge in the summer?), the percentage of Americans who have a house declined from 65.2% to 65.1%: the lowest since 1995.

Obviously the flipside to most "children" in their mid-30s still living in their parents' basements is that those wishing to brave the New Normal world will have to spend a lot for rent.

A record lot in fact: the median asking rent for US vacant housing units just hit an all time high of $735 per month.

The pain is most acute for those renting in the Northeast, where the median rent soared by $65 to a record high of $961. What is perhaps more notable is that the median rent in the Northeast (the financial capital of the US), is now decidedly above the median asking rent in the West (traditionally the entertainment and entrepreneurial capital of the US).

So rents are soaring. Which should mean that so are wages and/or personal income right? Wrong.

Presenting the annual change in real US wages…

And the 5 year change in Personal Income.

So how sustainable are the soaring rents shown above? We will let Blackstone and all those other Wall Street firms capitalizing on record low (until recently) rates to become America's largest landlords answer that one.

The Wall Street Cartel

Courtesy of Pam Martens.

The financial crimes you can’t see are the ones that can really hurt you. 

When Congress, the media, the financial experts talk about transparency on Wall Street, it is always in abstract terms: we should have more transparency; we should know more details about the kinds of risks Wall Street is taking with other people’s money; we should be able to see the nature of derivatives trading being conducted in private agreements between Wall Street firms; we should make the big banks hold more capital to offset all the risks we know they’ll never let us see until it’s too late. 

Unfortunately, we can’t fix Wall Street’s problems by discussing them in the abstract. We need to be comprehensively cognizant of what Wall Street has become, peel away the artifices layer by layer, and put in legislative fixes that get quickly to the problem – not 848 page snafus like Dodd-Frank that require implementation rules to be debated and massaged for years by a tangled web of regulators, most of whom are already captured by Wall Street. 

The very first artifice that has to be crushed is Wall Street’s private justice system. Wall Street is the only industry in America that is operating its own self-regulatory court system. It is benignly called mandatory arbitration but if you step back and look very closely, it’s a full blown private justice system that was structured by Wall Street’s biggest law firms to give an edge to Wall Street. 

Today, if you want to become a customer of the largest Wall Street firms, it requires that you to sign away your rights to access the nation’s courts and use Wall Street’s court instead – the Financial Industry Regulatory Authority’s (FINRA) dispute resolution program. This is a program where transparency dies. 

There is no ability to see a repetitive pattern of fraud because claims are not heard in an open courtroom. Typically, the press is barred from the proceedings. Case law and legal precedent are not required to be followed. Brief decisions are written by an arbitrator which rarely provide the public with adequate insight into the full details of the dispute or any legal rationale for the decision. There have been numerous charges in the past that arbitrators who give a large award to a plaintiff against a Wall Street firm are blackballed from serving in the future. 

Continue Here

How Do China’s Seven ‘Speak-Nots’ Play in America?

Courtesy of Larry Doyle.

People of faith are likely very familiar with the seven deadly sins: pride, envy, gluttony, lust, anger, greed, and sloth.

I think it goes without saying that our nation would be a better place if we had less of these vices on display. That said, our greatest virtues emanate from the very freedom that allows the aforementioned vices to gain a foothold. What if we did not have our freedom, though? Then what?

To explore this question, let’s navigate to The People’s Republic of China and review a recent report from Global Post that highlights:

In a directive reportedly distributed last month to local party committees, China’s top propaganda officials issued new

restrictions banning discussion of seven topics deemed to be “dangerous Western influences.”  

I am a big believer that any individual, group, team, company, and even nation can learn more about their own standing or status if they embrace the humility to view themselves through the lens of a critic. Let’s do just that and review what the leaders of China’s Communist Party believe to be the seven ‘dangerous Western influences.’

1. Universal values

2. Freedom of speech

3. Civil society

4. Civil rights

5. The historical errors of the Chinese Communist Party

6. Crony capitalism

7. Judicial independence

There is no doubt that the freedoms we hold dear are the distinguishing characteristics that make the USA the greatest nation in the world. The mere fact that I can write this blog and speak out vociferously on the waste, fraud, and abuse within our system is testament to that freedom. We should never take it for granted.

Yet I believe we need to remain ever vigilant so that we do not allow what I view as an incipient and increasingly powerful element to corrupt our society and infringe upon our freedoms. What is at the root of this element? No surprise, money and power.

As the ultimate capitalist, I view money and power — properly gained and utilized — as forces that can create untold benefits. But when money and power and pursuit of the same are abused — as they seem to be so often now in America — our core values and in turn our culture take a very real hit. This reality is totally independent of political party.

The question I pose to those who read this is the following: “How are we as a nation really doing in regard to the seven speak-nots put forth by the Chinese Communist Party?” My ‘sense on cents‘ views include:

I personally think we continue to have the critically important values necessary to move our nation forward. Regrettably, though, our values are all too often silenced or rendered mute by those more concerned with promoting political correctness. This is exceptionally unhealthy and dangerous to those who care about promoting democracy.

In regard to freedom of speech, I write this blog and am publishing a book that utilizes a style and delivery to call out individuals and institutions within our markets and government and hold them to account. That freedom is precious. I wish that our general media would do the same in pursuing the truth and upholding their mandate to serve the public interest.

In regard to civil society and civil rights, our freedom allows us to assemble and voice our opinions yet how often do those within positions of power abuse that status to quell the voice of those who hold differing views? Our democracy suffers in the process.

In regard to crony capitalism, having read far more materials than I ever might have imagined on this topic and crossed paths with countless of our citizens who have suffered from it, I hold those who practice this form of capitalism and their consorts in government who prosper personally and allow it to grow in total contempt. I eagerly await the release of my book so that these individuals can feel the wrath of my pen.

In regard to judicial independence, I believe the demise of trust and confidence in our system stemming from the lack of true justice on Wall Street is an exceptionally dangerous precedent and double standard that will cost our society dearly for generations to come.

These are my opinions. I would like to think that I am humble enough to appreciate that I am neither fully right nor wrong. Our nation gains strength, though, when we engage in vigorous debate in the public arena on the critically important topics of the day. To that end, how do others feel America is doing on the seven Chinese ‘speak-nots?’

Larry Doyle

Please order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy that will be published by Palgrave Macmillan on January 7, 2014.

For those reading this via a syndicated outlet or receiving it via e-mail or another delivery, please visit my blog and comment on this piece of ‘sense on cents’.

Please subscribe to all my work via e-mail, an RSS feed, on Twitter, or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

 

Remember when sequestration was going to crush the defense stocks?

Remember when sequestration was going to crush the defense stocks?

Courtesy of 

Conventional wisdom circa year-end 2012, winter 2013:

Among the deepest cuts to government spending under the sequestration terms would be to the defense budget. Many defense stocks have been underperforming the market as a result of investor anxiety about spending cuts, and this trend could pick up momentum going forward if no deal is reached.

Many defense companies depend on government largesse to drive growth and the gravy train could be coming to an end. Major government suppliers such as Raytheon (NYSE: RTN), Lockheed-Martin (NYSE: LMT) and Northrup-Grumman (NYSE: NOC) are exposed.

All three of these stocks have been noticeable underperformers and are down on both a six-month basis and year-to-date — time periods where the S&P 500 has recorded strong gains. Overall, it is not a particularly good time to be a global defense contractor, as the developed world is dealing with steep public sector debt and forced austerity.

It doesn't matter where or from whom the above sentiment came, it's pretty much what the consensus was so sure of.

The only problem is, someone forgot to alert the defense stocks themselves:

gy lmt noc rtn

Oh well.