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Monday 04.11.2016

BlackRock Joins $46 Billion Japan Pullout

For global equity investors and Shinzo Abe, it’s splitsville. Starting in the first days of 2016, foreign traders have been pulling out of Tokyo’s stock market for 13 straight weeks, the longest stretch since 1998. Overseas traders dumped $46 billion of shares as economic reports deteriorated, stimulus from the Bank of Japan backfired and the yen’s surge pressured exporters. The benchmark Topix index is down 17 percent in 2016, the world’s steepest declines behind Italy.

Losing the faith of foreigners would be a blow to the Japanese prime minister -- they’re the most active traders in a market Abe has held up as a litmus on his growth strategies. “Japan is back," and “Buy my Abenomics!” he proclaimed during a visit to the New York Stock Exchange in September 2013, when shares were marching to an eight-year high. Now about half of those gains are gone and BlackRock Inc., the world’s largest money manager, is among firms ending bullish calls on Japan equities.

“Japan has been disappointing,” said Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors Ltd., which oversees about $115 billion. He’s a long-time fan of Tokyo equities who says he’s now looking for opportunities to sell. “A lot of people are starting to doubt Abenomics.”

While markets elsewhere are climbing back from a global selloff, investors in Japan see fewer reasons for optimism. Growing concern that Abenomics -- the three-pronged strategy of fiscal and monetary stimulus and structural reform -- is falling flat has spurred speculation the nation will slip into deflation, setting back efforts to end three decades of malaise.

IMF supports move to negative rates by some central banks

The International Monetary Fund said on Sunday that a move to negative rates by some of the world's central banks would help deliver extra monetary stimulus and ease lending conditions.

Six of the world's central banks have introduced negative rates, most notably the Bank of Japan and the European Central Bank, and around a quarter of the world economy by output is now experiencing official rates that are less than zero.

They have achieved this by cutting deposit rates into negative territory, ranging from minus five basis points in Hungary to minus 125 basis points in Sweden - essentially a "tax" on deposits.

"Although the experience with negative nominal interest rates is limited, we tentatively conclude that overall, they help deliver additional monetary stimulus and easier financial conditions, which support demand and price stability," the IMF’s financial counselor and director of monetary and capital markets, Jose Vinals, wrote in a research paper.

U.S. banks' dismal first quarter may spell trouble for 2016

It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks. Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week.

Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth.

Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group Inc (GS.N), are expected to report the worst results in over ten years.

This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year. “What’s concerning people is they’re saying, ‘Is this going to spill over into other quarters?'” Goldman’s lead banking analyst Richard Ramsden said in an interview. “If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium.”

How Iceland responded to its banking collapse

Austria Just Announced A 54% Haircut Of Senior Creditors In First "Bail In" Under New European Rules

Just over a year ago, a black swan landed in the middle of Europe, when in what was then dubbed a "Spectacular Development" In Austria, the "bad bank" of failed Hypo Alpe Adria - the Heta Asset Resolution AG - itself went from good to bad, with its creditors forced into an involuntary "bail-in" following the "discovery" of a $8.5 billion capital hole in its balance sheet primarily related to ongoing deterioration in central and eastern European economies.

Austria had previously nationalized Heta’s predecessor Hypo Alpe-Adria-Bank International six years ago after it nearly collapsed under the bad loans it ran up when it grew rapidly in the former Yugoslavia. Having burnt through €5.5 euros of taxpayers’ money to prop up Hypo Alpe, Finance Minister Hans Joerg Schelling ended support in March 2015, triggering the FMA’s takeover.

This was the first official proposed "Bail-In" of creditors, one that took place before similar ad hoc balance sheet restructuring would take place in Greece and Portugal in the coming months. Or rather, it wasn't a fully executed "Bail-In" for the reason that creditors fought it tooth and nail.

And then today, following a decision by the Austrian Banking Regulator, the Finanzmarktaufsicht or Financial Market Authority, Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG.

Is being Federal Reserve chair like 'being God'?

That was before the 2008 financial crisis and the Great Recession, but still, the Fed chair is the director of the world's largest economy. Stocks, bonds and exchange rates surge and fall based solely on the words that come out of the Fed chair's mouth. Talk about a power trip.

But the four people alive today who have actually held the position don't think it's anything like being a deity. "You can't exactly do what you want," former Fed chair Paul Volcker said Thursday at an event at International House in New York. "You have a board. You have a public. You've got [regional] reserve bank presidents."

CNN's Fareed Zakaria moderated the discussion with former Fed chairs Volcker, Ben Bernanke, Alan Greenspan and current chair Janet Yellen. It was the first time all four living Fed chairs were interviewed at the same time.

Major decisions on interest rates and other measures to boost or slow down the economy are all made by a committee. The chair only gets one vote. Volcker, who served as Fed chair from 1979 until 1987, is famous for tackling inflation. His committee did it by hiking interest rates to an all-time high of 20%. That raised American's mortgage rates, credit card rates and other borrowing costs and made Volcker a very unpopular man for a while.

Gold Should Glisten As Confidence in Central Banks Sags

One way to produce exceptional trading results is to find hot sectors and themes and ride them. A good recent example is biotechnology. The group more than tripled off the 2011 levels while the S&P 500 failed to even double. Finding those sectors that are on a roll and staying with them should be a focus of all active traders.

One group that I'm watching closely now is precious metals and gold in particular. The sector has been a great disappointment for many traders for a long time. Many market players believe that a huge spike in gold was inevitable as the financial engineering by the central banks in response to the Great Recession eventually created inflation. The story was that gold would be the ultimate safe haven from the chaos and the demand would drive it through the roof.

That story has not come to fruition, but there are some indications that maybe the time finally is ripe for gold. Gold did do well off coming out of the 2008-2009 bear market, but it topped out in 2011 and the trend has been downward since. There recently was a spike back up that broke the downtrend, but momentum has slowed before picking back up this past week.

For a very long time gold largely was viewed as a hedge against inflation and a safe haven in the event of a breakdown in the financial system. Those two issues still drive many gold bugs, but in recent years the forces that move gold have shifted more toward central bank action and currencies. Those two factors cause some sharp short-term moves in gold as headlines hit.

“It’s Pure Chaos Now; There Is No Way Back” – Venezuela Hits Rock Bottom As Its Morgues Overflow

When we previewed Venezuela’s upcoming hyperinflation, which in January was predicted to be 720% and as of this moment is likely far higher…we said “This Is What The Death Of A Nation Looks Like” and said “there is no good news in any of the above for the long-suffering citizens of this “socialist paradise” which any minute now will be downgraded to its fair value of “socialist hell.”

Subsequent news that Venezuela was now openly liquidating its gold reserves while its president, in an amusing twist, announced last week, that henceforth every Friday will be a holiday, (the term there was a slightly different meaning) to cut down on electricity usage (while blaming El Nino for its electricity rationing) merely confirmed that the end if nigh for this once flourishing Latin American nation.

Sadly, while we have been warning for years about Venezuela’s inevitable, economic devastation, we said it was only a matter of time before the chaos spreads to broader society and leads to total collapse.

That may have arrived because as even the FT now admits, after visiting the main Caracas morgue, Venezuela risks a descent into chaos. But back to the morgue of central Caracas, where FT correspondent Andres Schipani writes that the stench forces everyone to cover their nostrils. “Now things are worse than ever,” says Yuli Sánchez. “They kill people and no one is punished while families have to keep their pain to themselves.”

Keiser Report: Thames Creature

Average US gas prices rose 8 cents in three weeks

The average price of a gallon of gasoline in the United States gained 8 cents in the past three weeks, according to a survey released on Sunday.

Regular-grade gasoline climbed to around US$2.10 a gallon in the Friday survey, from US$2.02 a gallon on March 18, survey publisher Trilby Lundberg said in an interview.

The latest price was the highest since Dec. 4, Lundberg said in an interview. Gasoline prices have risen 33 cents since Feb. 19, she said. The recent rise in gasoline prices has little to do with U.S crude oil prices, Lundberg said.

U.S. crude futures CLc1 inched up to US$39.72 cents on Friday from US$39.44 on March 18. "Even if crude oil prices keep meandering with no decisive climb, we may still see pump prices rise short-term," Lundberg said. The rise in gasoline prices is partly because of a seasonal increase in demand as more people are on the road as the weather improves and the days are longer. The improvement in the economy has also led to more auto sales, Lundberg said.

Economic Collapse Is Erupting All Over The Planet As Global Leaders Begin To Panic

Mainstream news outlets are already starting to use the phrase “economic collapse” to describe what is going on in some areas of our world right now. For many Americans this may seem a bit strange, but the truth is that the worldwide economic slowdown that began during the second half of last year is starting to get a lot worse. In this article, we are going to examine evidence of this from South America, Europe, Asia and North America. Once we are done, it should be obvious that there is absolutely no reason to be optimistic about the direction of the global economy right now. The warnings of so many prominent experts are now becoming a reality, and what we have witnessed so far are just the early chapters of a crushing economic crisis that will affect every man, woman and child in the entire world.

Let’s start with Brazil. It has the 7th largest economy on the entire planet, and it is already enduring its worst recession in 25 years. In fact, at the end of last year Goldman Sachs said that what was going on down there was actually a “depression“. But now the crisis in Brazil has escalated significantly.

I want to share with you an excerpt from a recent article entitled “Brazil: Economic collapse worse than feared“. I know, that title sounds like it comes directly from The Economic Collapse Blog, but I didn’t write it. It actually comes from CNN…

Amid political chaos, Brazil’s economic collapse is worse than its government once believed. In the midst of rising calls to impeach President Dilma Rousseff, Brazil’s central bank announced Thursday that it now expects the country’s economy to shrink 3.5% this year. That’s worse than the central bank’s previous estimate for a 1.9% contraction. The darker forecast matches what the International Monetary Fund projected for Brazil — Latin America’s largest country — and what many independent economists have suspected.

If California's $15 Minimum Wage Isn't Going To Reduce Poverty Then Why Bother To Do It?

Or perhaps if we were to be ever so slightly more accurate, if California’s $15 minimum wage isn’t going to reduce poverty very much and might possibly increase it then why are we doing this? I think the problem is that most people don’t quite understand the distributional issues of that minimum wage. After all, it seems pretty obvious. The minimum wage is low, poor people are the people who have low wages, so obviously a rise in the minimum wage will help poor people, right? But this isn’t actually quite so. The trick is that poverty is defined as living in a poor household and it’s nowhere near true at all that all people getting minimum wage live in poor households. Thus the benefits of a minimum wage rise don’t necessarily go to people in poverty. In fact, a minority of such benefits do. And it’s worse than that. For we know that there are going to be price rises as a result of this hike. But it’s generally true that those price rises will be on the things which are bought by poorer people, not richer. The net effect of those two could actually be that poverty increases as a result.

Ron Bailey over in Reason is having a look at a number of papers on the minimum wage and this is, for my argument, the important part.

"In an even more recent analysis for the Federal Reserve, Neumark asked how effective raising the minimum wage is at reducing poverty among those low-wage workers who remain employed. He found that if wages were simply raised to $10.10 per hour, as favored by President Barack Obama, with no changes to the number of jobs or hours, only 18 percent of the total increase in incomes would go to workers in families living in poverty. Thirty-two percent of the benefits would flow to families living in the top half of the income distribution.

How can that be? Neumark points out that the relationship between being a low-wage worker and being in a low-income family is fairly weak. First, in 57 percent of poor families, no one has a job, so no one gets any wages at all. Second, other workers have low incomes because they work low hours, not because they have low wages. Neumark notes that 46 percent of poor part-time workers have hourly wages above $10.10 and 36 percent above $12 per hour. Finally, many low-wage workers are secondary workers who live in well-off families—teens, for example."

Feds Ready To Pounce On Panama Papers To Bust Criminals

Cities that are about to become unaffordable

When you hear affordable cities, there are four that should be familiar to you now: Cincinnati, Charlotte, Pittsburgh, Omaha. But here’s a list of U.S. cities that are rapidly becoming less affordable: Cincinnati, Charlotte, Pittsburgh, Omaha.

In other words, the secret is out. The good news is, many of these places are still affordable — for now. The bad news is that time might be running out.

Data crunchers at RealtyTrac have supplied Credit.com with information on housing affordability for a couple of years now. People exhausted by the rat race in high-cost places like New York and San Francisco are moving to middle-of-the-county havens like Kansas City, where wages and housing prices are more in sync, as we’ve explored in our True Cost of Living series. It turns out that combination of strong employment and reasonable housing costs make places like Pittsburgh both attractive and financially sensible.

As much as we’d like to claim no one else has made this discovery, plenty of folks are onto the idea. We noticed last year that rental prices in places like Pittsburgh (not to mention Portland) are spiking. Now RealtyTrac data shows that affordability is fast moving in the opposite direction in many of these now-popular places. RealtyTrac developed its own affordability index, which takes into account factors like median wages, median home prices and property taxes. This data shows that Boone County, Kentucky — near Cincinnati — is 47% less affordable this year than last year, making it the U.S. county with the fastest trajectory toward unaffordability. That’s right. Boone County — not Manhattan.

Why no economic boost from lower oil prices?

Many analysts had anticipated that a dramatic drop in oil prices such as we’ve seen since the summer of 2014 could provide a big stimulus to the economy of a net oil importer like the United States. That doesn’t seem to be what we’ve observed in the data.

There is no question that lower oil prices have been a big windfall for consumers. Americans today are spending $180 B less each year on energy goods and services than we were in July of 2014, which corresponds to about 1% of GDP. A year and a half ago, energy expenses constituted 5.4% of total consumer spending. Today that share is down to 3.7%.

But we’re not seeing much evidence that consumers are spending those gains on other goods or services. I’ve often used a summary of the historical response of overall consumption spending to energy prices that was developed by Paul Edelstein and Lutz Kilian. I re-estimated their equations using data from 1970:M7 through 2014:M7 and used the model to describe consumption spending since then. The black line in the graph below shows the actual level of real consumption spending for the period September 2013 through February of 2016, plotted as a percent of 2014:M7 values. The blue line shows the forecast of their model if we assumed no change in energy prices since then, while the green line indicates the prediction of the model conditional on the big drop in energy prices that we now know began in July of 2014.

These calculations suggest that while there was a modest boost in spending in the second half of 2014 and first half of 2015, it was significantly less than would have been predicted from the historical relation between spending and energy prices. Moreover, any boost seems to have completely vanished by this point, with actual consumption even a little below what would have been predicted had there been no drop in energy prices at all.

Millennials face debt - and denial

Debt may be a drag for millennials, but apparently not as much as cooking their own dinner. A survey from Citizens Bank found that fewer than half (47 percent) of millennials, those in the 18-35 age group, who are college graduates, would be willing to limit their online food delivery in return for reducing their student loans.

Other priorities? Concerts, sporting events and lattes, as well as travel and vacations. The prospect of limiting any of these luxuries got the "no thanks" from the majority of millennials who were asked if they would cut back to lower their student loans. The same holds true for cutting Internet service.

Despite being so unwilling to give up life's little pleasures, more than half (57 percent) said they regret taking out as many student loans as they did, and about a third said they would not have even gone to college if they knew how much it was going to cost them. That is a big conflict, says Brendan Coughlin, president of consumer lending at Citizens Bank.

"They are very committed to living their life the way they want to live their life, and as frustrated as they are by student loans, they are not willing to make those lifestyle tradeoffs," he said. Part of the problem may be one of denial and math. The same survey found that nearly half of millennials (45 percent) with student loans do not even know how much of their annual salary they spend on them. It is 18 percent on average, for the record.

China concerns, US bank results

BMW unveils car-sharing service: Are personal cars becoming obsolete?

In a bid to compete with the growing popularity of Uber and other ride-hailing services, BMW is launching its own car-sharing service in Seattle.

The service, called ReachNow, provides customers with the use of 370 BMW and Mini vehicles which they can use in a number of ways, including as a short-term rental, a delivery service, chauffeur service or a longer-term rental.

"Our customers rightly expect uncomplicated and fast solutions to their individual mobility needs, especially in metropolitan regions," BMW board member Peter Schwarzenbauer told Reuters.

Customers can unlock and start the cars using their smartphones, and the service even makes car sharing available to groups such as companies or apartment residents, Reuters reports. ReachNow, which launched on Friday, is intended as a trial for expanding the service to other cities in the United States. It follows similar services launched by GM in Ann Arbor, Mich., and Car2Go, a car-sharing service launched three years ago in Seattle that offers customers the use of small two-door Smart cars.

Monday 04.11.2016

NEWS to Disturb the Comfortable...

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