Cash & Currencies

Next stop: Japan

2012-01-27T03:49:00.000-08:00

Pesek: Krugman Take on $12 Trillion Question Rings True
By William Pesek
"... Investors trying to predict the next debt crisis after Europe’s tend to look to Washington or Beijing. What about Tokyo? Those betting against Japanese bonds haven’t made much on the trade. Yet consider one inauspicious milestone reached this year.
On Jan. 9, youngsters celebrated Coming of Age Day, donning kimonos, visiting temples and partying the night away. This year, only 1.2 million Japanese turn 20, half as many as in 1970. A shrinking population complicates efforts to repay a $12 trillion debt, more than double the size of the economy...."
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Comment: There's no money left for Japan to finance other people's deficits when it runs an own trade deficit. This means that interest rise will be on the rise not just in Japan but also in the US, Ben's prayers not withstanding.

Showdown on Greek debt

2012-01-27T03:40:00.000-08:00

Greek Debt Wrangle May Pull Default Trigger
By Abigail MosesOpposition to payouts on Greek credit-default swaps from European Union policy makers is softening as disputes over a voluntary debt exchange threaten to push the nation into default.
Any agreement between the Greek government and the Washington-based Institute of International Finance on debt writedowns will only bind 50 percent of investors in the 206 billion euros ($270 billion) of notes being negotiated, Barclays Capital estimates. Hedge funds may resist a deal, seeking to get paid in full or compensated from insurance contracts.
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Comment: Come on guys, take your 70 % haircut and move on.

The new Fed - worse to the pervers

2012-01-27T03:23:00.000-08:00

Jeff Tucker explains: "We are getting a sense of what life is like with the new Fed policy of openness. It means that the chairman tries to beat the world record for the longest, most-boring press conference in modern history. Ben Bernanke is getting even better at that crucial skill of repeatedly saying nothing at great length. The better he gets at this, the longer he is willing to entertain questions from reporters.
They all ask some version of the same question, in any case. It’s the cocktail-hour question asked of every economist: What does the future hold and what should be done about it? The problem is that Bernanke doesn’t know more about the future than the markets know. Actually, looking at the transcripts of the 2006 FOMC meetings, the Fed knows much less than the markets know. But at least we now know what Bernanke thinks he knows. A short summary of the flurry of news from the Fed yesterday: The economy is still in the tank, it will stay that way for years, interest rates will be held at zero and savers can go to hell..."
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The US at a crossroads

2012-01-26T18:04:00.000-08:00

The Innovation Nation vs. the Warfare-Welfare State
By Alex Tabarrok
This is our national identity crisis in a nutshell: Do we want government spending half its money on redistribution and military, or re-dedicating itself to science, infrastructure, and health research?
We like to think of ourselves as an innovation nation, but our government is a warfare/welfare state. To build an economy for the 21st century we need to increase the rate of innovation and to do that we need to put innovation at the center of our national vision.
Innovation, however, is not a priority of our massive federal government. Nearly two-thirds of the U.S. federal budget, $2.2 trillion annually, is spent on the four biggest warfare and welfare programs, Medicaid, Medicare, Defense and Social Security. In contrast, the National Institutes of Health, which funds medical research, spends $31 billion annually, and the National Science Foundation spends just $7 billion.
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Comment: Sorry, Alex, it's too late by now. It was back then a long time ago when Murray talked about the warfare/welfare state that things could have changed.

Wisdom

2012-01-26T10:49:00.000-08:00

Wisdom: From Philosophy to Neuroscience, by award-winning science writer Stephen S. Hall, examines ancient concepts of wisdom through the lens of modern brain science. In a section called “Eight Neural Pillars of Wisdom,” Hall takes a fresh look at human qualities long associated with wisdom–including compassion, emotional regulation, the ability to discern what’s important, and the skill of coping with uncertainty–and suggests that modern neuroscience is providing radical new insights about how these timeless virtues evolved. Based in part on a 2007 article in The New York Times Magazine, Wisdom is also a meditation on the seeds of wisdom, aspects of wisdom in everyday life, and the future of wisdom in our complex society. More

Comment: The more knowledge we have and the easier it is to access it, the more we feel the dearth of wisdom in our world. Wisdom has become the rarer of the two in the face of a growing abundance of knowledge.

End the Fed

2012-01-26T05:41:00.000-08:00

The Fed’s Men Behind the Curtain
By Jeffrey TuckerThe debate about the Fed is under way, and thank goodness. But as with many policy debates, there really shouldn’t be a debate at all. That’s because, if you think about it, the idea of central banking makes no sense....
What is the worst cost of the Fed? It has made the federal government, no matter how big it gets, beyond failure. This is the ultimate moral hazard. It has puffed up the leviathan state beyond anything that should ever exist in the world. It’s not taxes that have done this. It is the Fed. In this way, it has made itself the ultimate enemy of freedom itself. And as goes freedom, so goes human rights...
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US debt card

2012-01-26T04:22:00.000-08:00

Fed's new inflation-target triggers bond buying

2012-01-26T04:19:00.000-08:00

Bernanke Makes Case for More Bond Buying
By Caroline Salas Gage and Craig Torres
Ben S. Bernanke laid the groundwork for a third round of large-scale asset purchases should unemployment remain higher than the Federal Reserve would like while inflation falls below a newly-established target.
The Federal Open Market Committee “recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation,” Bernanke said yesterday at a press conference in Washington.
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Comment: What's amazing about Ben is that he feels no shame to make a fool out of himself. I guess the reason is that he feels in good company with his fellow fools who surround him.

Euro rate

2012-01-26T04:12:00.000-08:00

EUR-USD 1.3147 +0.31%
Comment: I don't remember how many times we warned here about going short on the euro when the crowd cried that the euro would fall below 1.20 and it seemed as if it was only I to say that soon it would go over 1.30 again. No mercy for those who are stupid enough to follow the crowd and fall victim to propaganda - sometimes their own propaganda.

End of the ride

2012-01-25T17:59:00.000-08:00

Financial-Sector Job Cuts Announced: 200,000
By Simeon Hyman
More than 200,000 job cuts were announced in the global financial-services industry last year and many of those will take place this year and next. Among those chopping heads: Bank of America is cutting 34,075 employees; HSBC Holdings plans to reduce staff by 33,295; and ING Group expects to eliminate 19,000 positions. Other layoffs are in the works at Citigroup and Northern Trust, which plan about 4,500 layoffs each. That dismal news mirrors dismal fourth-quarter earnings -- thus far one-third of all financial companies have reported numbers and they are down 26 percent from the prior quarter. That's much worse than analyst expectations of a 9 percent decline.
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Comment: What the Greenspan illusion has given the Bernanke reality takes away.

Remember the Maestro

2012-01-25T17:14:00.000-08:00

Panderer to Power
At each critical stage of his life, Alan Greenspan chose to chase fame and control rather than principle and freedom. Sheehan's book exposes this remarkable enigma who once wrote an article praising the gold standard. It is not only a wonderful financial analysis; it makes for a gripping character study as well.
On Sale for only $19!

US car industry in decline

2012-01-24T16:19:00.000-08:00

17 Facts About The Decline Of The U.S. Auto Industry That Are Almost Too Crazy To Believe The following are 17 facts about the decline of the U.S. auto industry that are almost too crazy to believe....
#1 The average age of an automobile in the United States has gone up more than 50% since 1990 and is now sitting at an all-time record of 10.8 years. The average length of a marriage in the United States that ends in divorce is only 8 years.
#2 Germany made 5.5 million cars in 2010. The United States made less than half that (2.7 million).
#3 When you add up salary and benefits, the average auto worker in Germany makes $67.14 an hour. In the United States, auto workers only make $33.77 an hour in salary and benefits.
#4 Back in 2000, about 17 million new automobiles were sold in the United States. During 2011, less than 13 million new automobiles were sold in the United States.
#5 Do you remember when the United States was the dominant manufacturer of automobiles and trucks on the globe? Well, in 2010 the U.S. ran a trade deficit in automobiles, trucks and parts with the rest of the world of $110 billion.
#6 Japan builds more cars than anyone else on the globe. Japan now manufactures about 5 million more automobiles than the United States does.
#7 In 2010, South Korea exported approximately 12 times as many automobiles to us as we exported to them.
#8 According to the New York Times, a Jeep Grand Cherokee that costs $27,490 in the United States costs about $85,000 in China thanks to new tariffs.
#9 U.S. car companies are spending hundreds of millions of dollars building shiny new automobile factories in China.
#10 In 1970, General Motors had about a 60 percent share of the U.S. automobile market. Today, that figure is down to about 20 percent.
#11 The combined U.S. market share of the "Big Three" American car companies fell from 70% in 1998 to 53% in 2008.
#12 Detroit was once known as the "Motor City", but in recent decades automobile production has been leaving Detroit at a staggering pace. One analysis of census figures found that 48.5% of all men living in Detroit from age 20 to age 64 did not have a job during 2008.
#13 Today, only Chrysler still operates an automobile assembly line within Detroit city limits.
#14 Since Alan Mulally became CEO of Ford, the company has reduced its North American workforce by nearly half.
#15 Today, only about 40 percent of Ford's 178,000 workers are employed in North America, and a significant portion of those jobs are in Canada and Mexico.
#16 The average Mexican auto worker brings in less than a tenth of the total compensation that a U.S. auto worker makes.
#17 In the year 2000, the U.S. auto industry employed more than 1.3 million Americans. Today, the U.S. auto industry employs about 698,000 people.
Sadly, it is not just the auto industry in America that is falling apart. In fact, almost everywhere you look in our economy (and in our society as a whole) there is decay and decline.
For example, our infrastructure was once the envy of the entire globe. Today, U.S. infrastructure is ranked 23rd.
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Comment: While the rhetoric blooms, the economy dooms.

Davos in depression mood

2012-01-24T13:50:00.001-08:00

The Challenge at Davos: A Crisis of Global Politics, Not Just the Economy
By ISHAAN THAROOR
Read more: http://globalspin.blogs.time.com/2012/01/24/the-challenge-at-davos-a-crisis-of-global-politics-not-just-the-economy/#ixzz1kPmJOpGd

Attack Iran

2012-01-24T07:30:00.000-08:00

How Iran Could Trigger Accidental Armageddon: Jeffrey Goldberg
It’s beyond a doubt that the Iranian regime would like to bring about the destruction of Israel. One of the arguments often made in favor of bombing Iran to cripple its nuclear program is this: The mullahs in Tehran are madmen who believe it is their consecrated duty to destroy the perfidious Zionist entity (which is to say, Israel) and so are building nuclear weapons to launch at Tel Aviv at the first favorable moment.
However, the mullahs are also cynics and men determined, more than anything, to maintain their hold on absolute power.
Which is why it’s unlikely that they would immediately use their new weapons against Israel. An outright attack on Israel - - a country possessing as many as 200 nuclear weapons and sophisticated delivery systems -- would lead to the obliteration of Tehran, the deaths of millions, and the destruction of Iran’s military and industrial capabilities.
The mullahs know this. But here’s the problem: It may not matter. The threat of a deliberate nuclear attack pales in comparison with the chance that a nuclear-armed Iran could accidentally trigger a cataclysmic exchange with Israel.
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Euro carry trade

2012-01-23T17:12:00.000-08:00

Draghi Makes Euro Favorite for Most-Profitable Carry Trades With Rate Cuts
By Masaki Kondo and Hiroko Komiya
Betting against the euro may be the most profitable trade in the foreign-exchange market as policy efforts to stave off a European recession debases the currency.
Borrowing in euros and investing in the currencies of Australia, Brazil, Mexico, South Africa and South Korea has returned 7.8 percent since the European Central Bank cut its benchmark interest rate on Nov. 3 for the first time in more than two years, according to data compiled by Bloomberg. So- called carry trades funded with yen have lost 0.3 percent and gained 1 percent when financed with dollars.
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Comment: Remember: the yen also rises.

Money it's a gas

2012-01-23T17:06:00.000-08:00

European Banks May Deepen Their Dependence on Unlimited Central Bank Loans
By Liam Vaughan and Gavin Finch
European banks, shunned by investors and each other, may borrow as much next month from the European Central Bank as they did in a record offering in December as they seek refuge from frozen funding markets.
The ECB last month lent banks an unprecedented 489 billion euros ($637 billion) for three years. Analysts said they expect demand to be just as high at a second auction on Feb. 29 because the stigma associated with using the facility is dissipating and the list of what assets can be used as collateral in exchange for the loans will be extended.
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Why iPhone isn't made in America

2012-01-22T20:09:00.000-08:00

Why isn’t the iPhone made in America?
by Tyler Cowen on January 22, 2012 at 7:48 am in Economics, Web/Tech | Permalink
This is an excellent article, and perhaps it will win one of David Brooks’s Sidney Awards, excerpt:
Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States. In China, it took 15 days.
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Correlations

2012-01-22T18:45:00.000-08:00

CHAIRMAN GREENSPAN. Vice Chair, [it's your turn to speak].
VICE CHAIRMAN GEITHNER. Mr. Chairman, in the interest of crispness, I’ve removed a substantial tribute from my remarks. [Laughter]
CHAIRMAN GREENSPAN. I am most appreciative. [Laughter]
VICE CHAIRMAN GEITHNER. I’d like the record to show that I think you’re pretty terrific, too. [Laughter] And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.[Laughter] With that, the economy looks pretty good to us, perhaps a bit better than it did at the last meeting. With the near-term monetary policy path that’s now priced into the markets, we think the economy is likely to grow slightly above trend in ’06 and close to trend in ’07... More

French bonds

2012-01-19T05:41:00.000-08:00

France easily sells $12 billion in bond auctions
By SARAH DiLORENZO
PARIS (AP) — France easily sold €9.5 billion ($12.2 billion) in bonds on Thursday despite the recent loss of its cherished Triple A credit rating, another indication that investors aren't overly concerned over the country's ability to pay down its debts.
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Euro bonds

2012-01-19T05:39:00.000-08:00

Spain passes key bond test, France also in demand
By John Stonestreet
MADRID (Reuters) - Spain passed its biggest test of market sentiment so far this year on Thursday, selling far more longer-term debt than expected as the government pressed ahead with efforts to tackle its problems with the help of a European Central Bank backstop.
In Paris, France also drew strong demand at its first bond auction since Standard and Poor's stripped the country of its AAA credit rating.
Spain's first 10-year bond offering since mid-December raised 3 billion euros at a yield of 5.403 percent, broadly in line with analysts' expectations.
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Comment: Looks like a nice opportunity to buy Italian bonds along with Spain and France, maybe even a bit of Greek bonds. Anyway, it's time to end shorting the euro and go long on the eurozone -stocks, bonds, currencies.

American suicide

2012-01-18T06:24:00.000-08:00

America’s Dirty War Against Manufacturing (Part 1): Carl Pope“I’d love to make this product in America. But I’m afraid I won’t be able to.”
My host, a NASA engineer turned Silicon Valley entrepreneur, has just conducted a fascinating tour of his new clean-energy bench-scale test facility. It’s one of the Valley’s hottest clean-technology startups. And he’s already thinking of going abroad.
“Wages?” I ask.
His dark eyebrows arch as if I were clueless, then he explains the reality of running a fab -- an electronics fabrication factory. “Wages have nothing to do with it. The total wage burden in a fab is 10 percent. When I move a fab to Asia, I might lose 10 percent of my product just in theft.”
I’m startled. “So what is it?”
“Everything else. Taxes, infrastructure, workforce training, permits, health care. The last company that proposed a fab on Long Island went to Taiwan because they were told that in a drought their water supply would be in the queue after the golf courses.”
So begins my education on the hollowing-out of the American economy, which might be titled: “It’s not the wages, stupid.”
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US debt back into focus

2012-01-18T06:00:00.000-08:00

Debt Limit Again at Issue in Congress
“The House returns this week to a vote on a resolution to reject President Obama’s request to raise the national debt limit, now 15.24 trillion, by $1.2 trillion – the final element of a debt ceiling agreement that Congress approved on Aug. 1.” (Christian Science Monitor)
Comment: We're all Greeks now.

US food imports

2012-01-17T15:32:00.000-08:00

NEW YORK (AP) -- Which food revelation was more shocking this week?

Did it blow you away that low levels of a fungicide that isn't approved in the U.S. were discovered in some orange juice sold here? Yawn. Or was it the news that Brazil, where the fungicide-laced juice originated, produces a good portion of the orange pulpy stuff we drink? Gasp!

While the former may have sent prices for orange juice for delivery in March down 5.3 percent earlier this week, the latter came as a bombshell to some "Buy American" supporters. But that's not the only surprise lurking in government data about where the food we eat comes from.

Overall, America's insatiable desire to chomp on overseas food has been growing. About 16.8 percent of the food that we eat is imported from other countries, according to the U.S. Department of Agriculture, up from 11.3 percent two decades ago. Here are some other facts:
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Comment: Who needs to make orange juice when you can fabricate dollars?

Central banking

2012-01-17T14:21:00.000-08:00

“I do not blame these folks [Federal Reserve Board members] for being wrong about the direction of the incredibly complex economy.....What I do criticize is the hubris of making major top-down Federal policy decisions that require that these folks be consistently right. It’s simply madness, and I am exhausted with the continuing reaction of both the media and most politicians that if we only had the right folks making these decisions, all would be well.” ~ Warren Meyer (Coyote Blog) http://bit.ly/zjeH2Q
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WSJ article

AA+ rating for EFSF

2012-01-16T13:05:00.000-08:00

S&P Cuts EFS Facility to AA+ From AAA

By Will DaleyStandard & Poor’s cut the rating of the European Financial Stability Facility, the euro-region bailout fund, to AA+ from AAA, S&P said on its website.
The cut follows the Jan. 13 ratings downgrade by S&P of nine euro-region countries.
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