by ilene - August 1st, 2015 7:30 am
"I believe that anyone who has a job and works full time, they should be able to pay the things that sustain life: food, shelter and clothing. I can't even do that."
That rather depressing quote is from 61-year old Rebecca Cornick. She’s a grandmother and a 9-year Wendy’s veteran who spoke to CBS News. Rebecca makes $9 an hour and her plight is representative of fast food workers across the country who are campaigning for higher pay.
The fast food worker pay debate is part of a larger discussion as "states and cities across the country [wrestle] with the idea of raising the minimum wage," CBS notes, adding that "right now, 29 states have minimums above the federal $7.25 an hour [and] four cities, including Los Angeles, have doubled their minimum to $15."
[Image to the right: iStockphoto/06photo, TechRepublic]
Proponents of raising the pay floor argue that it’s simply not possible to live on minimum wage and indeed, there’s plenty of evidence to suggest that they’re right. Opponents say forcing employers to pay more will simply mean that employers will fire people or stop hiring if they’re forced to institute higher pay and indeed, as we highlighted on Friday (Economics 101: Wal-Mart Hikes Minimum Wages, Prepares To Fire 1000), it looks as though WalMart’s move to implement an across-the-board pay raise for its low-paid workers may have contributed to a decision to fire around 1,000 people at its home office in Bentonville.
"The reality is that most business are not going to pay $15 dollars an hour and keep their doors open," one Burger King franchisee told CBS. "It just won't happen. The economics don't work in this industry. There is a limit to what you're going to pay for a hamburger."
Yes, there’s only so much people will pay for a hamburger which is why Ronald McDonald has made an executive decision to hire more efficient employees at some locations:
by ilene - August 1st, 2015 5:54 am
Courtesy of The Automatic Earth
Time to tackle a topic that’s very hard to get right, and that will get me quite a few pairs of rolling eyes. I want to argue that societies need a social fabric, a social contract, and that without those they must and will fail, descend into chaos. Five months ago, I wrote the following about Europe:
The European Union is busy accomplishing something truly extraordinary: it is fast becoming such a spectacular failure that people don’t even recognize it as one.[..] the Grand European Failure is bound to lead to real life consequences soon, and they’ll be devastating. The union that was supposed to put an end to all fighting across the continent, is about to be the fuse that sets off a range of battles. [..]
The carefully re-crafted relationship with Russia, which took 25 years to build, was destroyed again in hardly over a year, something for which Angela Merkel deserves so much blame it may well end up being her main political legacy.
To its south, the EU faces perhaps its most shameful -or should that be ‘shameless’? – problem, because it doesn’t do anything about it: the thousands of migrants who try to cross the Mediterranean to get to Europe but far too often perish in the process. [..]
But the biggest failure is not even in politics outside of its own territory. The union rots from within. Which starts with its moral bankruptcy, obviously. If you allow yourself to be an active accomplice in the death of over 6000 East Ukrainians, and you simply look away as thousands of migrants die in the seas off your shores, it should not be surprising that you just as easily allow for a humanitarian crisis, like the one in Greece, to develop within your own borders. It comes with the territory, so to speak.
And make no mistake: this absence of moral values is something Europe in its present form will never be able to claim back. Never. The EU has shown itself to be a gross moral
by ilene - July 31st, 2015 8:05 pm
Courtesy of Sober Look
Back in February (see post) numerous equity investors refused to believe that a crude oil recovery is likely to be unsustainable. Many viewed this as a buying opportunity – just as they did in 2011 when such "bottom fishing" strategy worked. "Look at the declines in oil rigs" many argued – US crude production is about to dive. Even some in the energy business were convinced that crude oil recovery is coming and we will be back at $70/bbl in no time. It was wishful thinking.
There is no question that North American production of crude oil is stalling. However for now it remains massively elevated relative to last year.
More importantly, many fail to understand just how flexible US crude production has become – the time to bring capacity on/off-line has shrunk dramatically. Furthermore, a great deal of production in the US is now profitable at $60/bbl and even lower as rig efficiency rises. Many view this as unsustainable because new exploration is halted and existing wells are being reused. But there is enough staying power here to continue flooding the markets for some time to come.
The ability to bring capacity back online quickly is the reason we saw US rig count unexpectedly increased last week. This creates a natural near-term cap on crude prices, above which production can rise quickly.
|Source: Baker Hughes|
To add to the market's woes, the Iran deal threatens to bring materially more crude into the market in 2016, while immediately releasing a great deal of stored crude the nation currently holds.
by ilene - July 31st, 2015 7:47 pm
Courtesy of Dana Lyons
We take a break from the regularly scheduled poor breadth programming to bring you a chart of a sector…that just so happens to be one of the main contributors to the poor breadth phenomenon. After threatening for months last summer to break out above its all-time high set in 2008, the basic materials sector succumbed to the October weakness along with the rest of the market. However, unlike most of the market, the sector, as represented by the Dow Jones U.S. Basic Materials Index, never did make it back to its September highs as it was caught in the deflationary spiral in commodities at the time. It did begin the year in promising fashion, though. In February, we posted that the Equal-Weight Basic Materials ETF, RTM, actually hit an all-time high, as did the Materials SPDR, XLB, despite the commodities rout. That victory was short-lived, however, and there has been precious little to cheer about in the sector since.
Earlier this month, the DJ U.S. Basic Materials Index became the first sector to actually move to a 52-week low. This was a fairly extraordinary event considering the major averages were still near their 52-week highs. The fact that the sector accounts for only 3% of the S&P 500 helps explain that possibility. However, the sector’s collapse has certainly played a role in the severe weakening of the index’s internals. And currently, the sector finds itself teetering on a very key level of potential support.
We refer quite a bit to Fibonacci Retracement levels as they reflect the market’s tendency to “retrace” market moves in similar increments. We have also mentioned before that, in our view, the strongest Fibonacci signals come when there is a confluence of various such levels in the same vicinity. No chart illustrates this point better than the DJ U.S. Basic Materials Index.
Note how the 4 Fibonacci Retracements drawn from key lows in 2009, 2011, 2012 and 2013 to the 2014 highs, are aligned almost on top of one another. In fact, it makes
by ilene - July 31st, 2015 4:53 pm
Courtesy of Mish.
The Greek news of the day is Greek Stock Market to Reopen, With Restrictions.
- People cannot draw on their Greek bank accounts to buy shares
- People can only buy shares with existing brokerage account cash
I supposed people could transfer cash from elsewhere into stocks but no one in their right mind would do such a thing.
And what about taking cash out of brokerage accounts, wiring it elsewhere? The article did not say, but I suspect that has capital restrictions as well.
Will the market really reopen Monday?
I suggest not.
Reader "Bailout" Perspective
Reader "AC" occasionally pings me with some interesting comments and perspectives. Here's another one.
I wanted just to share some elements to put in perspective things about Greek bailout.
Greece is a small country with small GDP, but please consider the ratio of the bailout and guarantee vs GDP….
by ilene - July 31st, 2015 2:43 pm
Courtesy of Mish.
Chicago Eyes Bonds that Delay Repayments
Chicago Mayor Rahm Emanuel has his eyes on raising money via Capital Appreciation Bonds.
CABs saddle taxpayers with higher costs because they delay interest and principle payments until a final lump-sum payment at the end.
CABs have fallen out of favor because of risk. Some cities and states have outlawed them.
Mayor Rahm Emanuel proposed issuing $500 million of bonds this week in an ordinance that would permit the use of capital appreciation bonds, where borrowers postpone interest and principal payments into one big sum at the end of the term.
Chicago is struggling to plug its deficit and $20 billion of unfunded pension liabilities. Emanuel’s move would give the third-most-populous city a means of borrowing without having to face the costs right away.
Texas restricted the use of CABs in June and California has limited them since 2013. The Puerto Rico Electric Power Authority dismissed a bondholder plan last week to restructure its debt using capital appreciation bonds, citing the disproportionate risks.
Former California Treasurer William Lockyer called the debt “abusive” because it passes on large payments to future generations.
“They increase the total cost and lower flexibility going into the future,” said Steve Murray, a senior director at Fitch Ratings. “They can limit future borrowing ability.”
Emanuel also proposed selling $125 million of wastewater revenue bonds to fund swap termination payments, Poppe said. A separate ordinance would authorize $2 billion in bonds for O’Hare International Airport, including $1.7 billion of refunding for savings, and about $300 million of new money for capital projects and interest, according to Poppe.
Given Chicago's junk bond rating, no investor in their right mind would purchase Chicago CABs. Default risk is enormous….
Picture via Pixabay.
by ilene - July 31st, 2015 2:41 pm
If you read Zero Hedge, there's your proof that there is a bubble in pessimism. And if that doesn't make sense to you, read the following article, but it probably won't help.
Courtesy of ZeroHedge.
GFI's John Spallanzani came on CNBC today and decided to make the case that there is a bubble. But not a bubble in stocks which are trading 1% off their all time highs, at a 20x real P/E multiple, and 1400 days without a 10% correction, mind you, but a bubble in pessimism.
Here is his "argument," deconstructed in its several key components.
- "If there's a bubble in bonds, there has to be a bubble in pessimism."
Apparently, Mr. Spallanzani does not quite grasp that the only reason bond prices are as high as they are (to him, that means a bubble), is because the central banks are now buying more than 100% of all net issuance.
It also appears that the very logical conclusion that if there is a bubble in bonds, then there is clearly a bubble in stocks, because once the bond bubble bursts and interest rates soar, what happens to earnings? Or perhaps GFI employees just haven't covered yet the arcane linkage between the balance sheet and the income statement.
Ironically, in the very next sentence the CNBC guest says that "there is a shortage of quality assets in the world" (which actually is spot on as we showed in May of 2013), but apparently another class not discussed at GFI is that "quality assets" are bonds, not 100x (or Div/0) biotech stocks.
Then there is a lot of even more confused words, followed by this pearl: "the only way the Fed is going to hike is basically the S&P going toward 2200. If we stay at 2100 or below, the Fed doesn't go in September."
Then comes even more confusion: "the only game in town right now are equities to drive the balance sheet of the individual investor and also the consumer."
by ilene - July 31st, 2015 2:15 pm
Courtesy of John Rubino.
After nearly three decades of stagnation, Japan in 2013 went all-in, ordering its central bank, the Bank of Japan, to buy pretty much every bond on the market with newly-created yen. The BoJ’s balance sheet — a rough proxy for the amount of money it has created and dumped into the economy — soared at a rate that dwarfs, in relation to GDP, the US Fed’s QE programs.
But it’s not working:
(Bloomberg) – Consumer price gains in Japan remained little more than zero in June while household spending dropped, challenging the central bank’s effort to spur inflation.
Consumer prices excluding fresh food rose 0.1 percent from a year earlier, fractionally better than economists estimated. The same measure for Tokyo showed a 0.1 percent decline.
JPMorgan Chase & Co. and Barclays Plc are among economists estimating a second-quarter contraction that could sap momentum in inflation that BOJ chairman Kuroda predicts will pick up later this year.
“I can’t see when the BOJ will be able reach the 2 percent inflation target at all,” Yasunari Ueno, chief market economist at Mizuho Securities Co., said before today’s data. “It appears to be a matter of time before the BOJ adds monetary stimulus.”
Oil has tumbled more than 50 percent from last year’s high, squelching early progress that the BOJ made with unprecedented monetary stimulus in reflating the economy. Consumer prices excluding food and energy increased just 0.6 percent in June from a year earlier.
Household spending, which dropped in 14 of the past 15 months, fell 2 percent in June from a year earlier. Retail sales data released earlier in the week showed a 0.8 percent drop from May while industrial production provided a bright spot, rebounding more than expected.
There isn’t enough momentum in Japan’s economy to drive up inflation, said Yoshiki Shinke, an economist at Dai-ichi Life Research. He sees a contraction as deep as 2.5 percent last quarter, driven by weaker exports and consumer spending.
Most economists see the BOJ failing to reach its goal in its timeframe, with
by ilene - July 31st, 2015 10:46 am
Courtesy of Pam Martens.
By Pam Martens and Russ Martens: July 31, 2015
The commodities slump has accelerated this past month with gold now trading at five-year lows and the U.S. crude benchmark, West Texas Intermediate (WTI), down 19 percent in just the past month, 49 percent on the year, and 57 percent in the past two years. In early morning trade, WTI is at $47.82 versus $110 two years ago.
Minutes of the Federal Reserve’s Open Market Committee meeting on December 16 and 17 reveal that the Fed was expecting an upturn in oil prices this year, writing: “…inflation was projected to reach the Committee’s objective over time, with longer-run inflation expectations assumed to remain stable, prices of energy and non-oil imports forecast to begin rising next year, and slack in labor and product markets anticipated to diminish slowly.”
CNN Money is reporting this morning that major iron ore or metals exporting countries like Peru (copper), Chile (copper), South Africa (iron ore and gold), Australia (iron ore and gold), Brazil (iron ore), Zambia (copper), and Democratic Republic of the Congo (metals and crude oil) are experiencing a serious economic impact from the plunge in commodity prices over the past year.
by ilene - July 31st, 2015 5:21 am
Courtesy of Mish.
Once again the IMF is back in the news in regards to Greece.
The IMF staff told the board of directors Greece Disqualified from New IMF Program.
Yet, Germany insists IMF be a part of the program. The reason for the latter is Germany will have to pony up lots more money if the IMF is not involved. The staff presented this message to the board this week, along with the message eurozone bailout lenders first need to agree on “debt relief”.
From the above link (Financial Times) …
The International Monetary Fund’s board has been told Athens’ high debt levels and poor record of implementing reforms disqualify Greece from a third IMF bailout of the country, raising new questions over whether the fund will join the EU’s latest financial rescue.
The determination, presented by IMF staff at a two-hour board meeting on Wednesday, means that while IMF staff will participate in bailout negotiations currently under way in Athens, the fund will not decide whether to agree a new programme for months — potentially into next year.
The IMF’s assessment adds another source of complexity, just as Athens and its bailout monitors begin discussions to try to conclude a deal before a tight August 20 deadline.
According to a four-page “strictly confidential” summary of Wednesday’s board meeting, IMF negotiators will take part in policy discussions to ensure the eurozone’s new bailout “is consistent with what the fund has in mind”.
But they “cannot reach staff-level agreement at this stage”. The fund will decide whether to take part only after Greece has “agreed on a comprehensive set of reforms” and, crucially, after eurozone bailout lenders have “agreed on debt relief”.
[Germany] now faces the prospect of trying to move an €86bn bailout through a sceptical Bundestag in a matter of weeks, without the IMF’s imprimatur.
Some Greek officials suspect the IMF and Wolfgang Schäuble, the hardline German finance minister, are determined to scupper a Greek rescue, despite the July agreement to move forward with a third bailout.
In a private teleconference made public this week, Yanis Varoufakis, the former Greek finance minister, said he feared that his government would pass new rounds of economic reforms only for the IMF to pull the plug on the programme later this year….