by ilene - September 5th, 2015 4:05 am
Courtesy of The Automatic Earth.
Marion Post Wolcott Works Progress Administration worker’s children, South Charleston, WV 1938
In the end, what should have been avoided all along, was. The refugees who were treated like subhumans for days in Hungary, and who in the end refused to be subjected to that treatment any longer and started walking to the Austrian border, are being taken as we speak to that border, on buses provided by the government in Budapest.
Meanwhile, we have all been subjected to the words and ideas of Victor Orban, the loose cannon who rules Hungary. The media largely portray the sudden change from refugees stuck on trains in Budapest train station and locations just outside of the city, to the buses that will take them to Austria and presumably Germany, as something that sprouted from Orban’s brain.
But that is not true. One can call Orban on his crazy notions, but not on decisions about the movements of the refugees. Both the decision to in effect ‘detain’ the thousands of refugees inside Hungary for days, and the decision late last night to let them leave, came from one person only: Angela Merkel. She’s the only one with sufficient power to make such things happen.
She told Orban earlier this week to stop the trains from coming west. And she told him later all refugees would have to be registered. In fact, that was a EU wide order, which is why the Czechs started putting numbers on refugees’ arms. Another image Merkel couldn’t possibly tolerate, even if she initially managed to deflect the blame for that too.
Once again, Merkel diddled till she couldn’t diddle any longer. The one and only reason why she decided to change course was the damage to her stature as a leader and politician. The images of little Aylan Kurdi dead on a beach, and the images of thousands of refugees walking to the Austrian border, had simply become too damaging to Merkel’s reputation.
So she took the opportunistic and at least somewhat cynical decision to tell Orban he could set them free.
The Syrian refugees have taken to calling her Mama Merkel. They don’t know who she is, or what role she plays.
US Role in Europe’s Refugee Crisis; Migration in Numbers; Dead Baby Syndrome; Australia PM Promotes Hard-Line Stance
by ilene - September 4th, 2015 1:33 pm
Courtesy of Mish.
Crisis in Numbers
With an influx of 800,000 migrants, per year, and rising steeply, Europe struggles with what to to with the refugees.
Here’s the Migrant Crisis in Numbers.
The EU is struggling to respond to a surge of desperate migrants, thousands of whom have perished in their attempts to seek a better life in Europe. Where are they going and where are they coming from?
The largest group of people reaching Europe through the Mediterranean or the western Balkans are Syrians fleeing a civil war, but there are also many from Eritrea and Afghanistan, as well as Kosovo and Nigeria.
by ilene - September 4th, 2015 1:18 pm
Courtesy of Kurt Cobb at OilPrice.com
The characteristic feeling of the post-2008 world has been one of anxiety. Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word "panic." Pan's appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters.
Here is the crux of the matter as expressed in a piece which I wrote last year:
The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out….
Another thing we cannot necessarily count on is the remarkable geopolitical stability that the world experienced for two long stretches during the fossil fuel age. The first one lasted from the end of the Napoleonic Wars in 1815 to the beginning of World War I in 1914 (interrupted only by the brief Franco-Prussian War). The second lasted from the end of World War II in 1945 until now.
Following the withdrawal of U.S. military forces from Iraq, the Middle East has experienced increasing chaos devolving into a civil war in Syria; the rapid success of forces calling themselves the Islamic State of Iraq and Syria which are busily reshaping the borders of those two countries; and now the renewed chaos in Libya. We must add to this the Russian-Ukranian conflict. It is no accident that all of these conflicts are related to oil and natural gas.
As I view the current world landscape, I am reminded of two movies (which I've written about before) that I think capture the Zeitgeist: Melancholia and Take Shelter. In both the protagonists increasingly sense that something is terribly wrong, but can't quite put their finger on it. Everyone around them thinks they are ill or crazy. But for both protagonists, their anxiety comes from an inner vision that stems not from mere psychic disturbances, but rather from alarming real-world circumstances that are…
by Market Shadows - September 4th, 2015 12:52 pm
Financial Markets and Economy
Inflation risk neglected by smug markets (Financial Times)
Students of economic history often marvel at some of the phenomena and oddities of past eras such as feudalism, giant stone currency, tulip bubbles and the gold standard. Perhaps in the future inflation will be added to the list of quaint, incomprehensible quirks banished to the history books.
That, at least, seems to be the conclusion of many investors and economists. Aside from a motley group of stubborn doomsayers — who have loudly and wrongly predicted the outbreak of hyperinflation since the financial crisis — the feeling in markets is that inflation is not just an inconsequential danger today, but in the future too.
Investors are showing signs of nerves ahead of the U.S. employment report, which could determine the timing of the first interest rate rise in a decade and shake markets around the world.
Investor flight from US stocks fails to lift bond market (Business Insider)
The "flight to safety" into bonds many expected when U.S. stocks slumped last week never took off, making big losers out of prominent fund managers and further confusing investors at a volatile time in the market.
Stocks plunged in the second half of August, largely on fears of China's worsening economy, but U.S. Treasury yields did not see the kind of safety bid that many were expecting and has been typical in times of stock-market stress in the past.
German equities, which have already lost most of their gains for the year, have now fallen into a bearish chart pattern known as a death cross.
Dollar weakens ahead of August jobs report (Market Watch)
The dollar weakened against the euro and yen Friday ahead of a report on U.S. job gains
by ilene - September 4th, 2015 12:22 pm
[Ilene: What is a bull market vs. a bear market? There doesn't seem to be general consensus besides a bull market is going up and a bear market is going down. While markets can also spend time bouncing around and going nowhere. Because the characterization requires looking backwards, I don't know how useful it is. Any thoughts?]
The Bull Market in Stocks May Have Ended Already
As expected, Wall Street’s shills were out in force on Wednesday. And the Dow rebounded from Tuesday’s rout – up 293 points. CNBC assured investors that the “U.S. is a place you should be investing.”
The can and the road …
And Bloomberg explained that, “based on history” investors could expect to wait no more than four months until the stock market fully recovers:
“The S&P 500 rally that began in March 2009 has been marked by two previous corrections: a 16% sell-off from April to July in 2010, and a 19% slump over seven months a year later. The benchmark recovered within about four months of each. So if history is any guide, the market may not be back at its May peak until late December.”
Based on Bloomberg’s “history”, the Nikkei is about 25 years “late”, and it looks like it will be even later before everything is said and done – click to enlarge.
But wait… This assumes we’re still in a bull market. As we’ve seen, two factors have been paramount in driving the bull market of the last six years: the Fed’s zero-interest-rate policy (ZIRP) and its QE programs.
And neither of those things is working for the U.S. Now. The Fed’s QE is on pause. As for ZIRP, it seems to have lost some of its zest.
It’s no wonder… As we’ve pointed out many times, lending money that didn’t exist before to people who are already deeply in debt is not a good business model. It doesn’t stimulate an economy. And it doesn’t make people better off. All it does is keep…
by ilene - September 4th, 2015 11:36 am
Courtesy of Charles Hugh-Smith of OfTwoMinds
Corruption isn't just bribes and influence-peddling: it's protecting the privileges of the few at the expense of the many. Rampant pollution is corruption writ large: the profits of the polluters are being protected at the expense of the millions being poisoned.
This is why capital and talent are fleeing China: systemic corruption has poisoned the nation and raised the cost of doing business. External costs such as environmental damage must be paid eventually, one way or the other.
Either the cost is paid in rising chronic illnesses, shorter lifespans and declining productivity, or profits and tax revenues must be siphoned off to clean up the damage and the sources of environmental degradation.
In large-scale industrial economies such as China and the U.S., that cost is measured not in billions of dollars but in hundreds of billions of dollars over a long period of time.
I have often noted that one key reason why the U.S. economy stagnated in the 1970s was the enormous external costs of runaway industrialization were finally paid in reduced profits and higher taxes.
China's manufacturing base simply isn't profitable enough to pay for the remedial clean-up and pollution controls needed to make China livable. That means labor and all the other sectors will have to pay the costs via higher taxes.
Pollution and environmental damage is driving away human capital, i.e. talent. This loss of talent is difficult to quantify, but it's not just foreigners who have worked in China for years who are pulling up stakes to escape pollution and repression--talented young Chinese are finding jobs elsewhere for the same reasons.
The game-changer is automation, i.e. robots and software eating the world. To understand the impact on China, let's start with unit labor costs, i.e. the cost of labor needed to produce each unit of output.
If it takes one worker an hour to assemble 10 light fixtures, the unit labor cost of each fixture is 1/10th of an hour's total compensation costs, i.e. wages and overhead. (Total compensation costs include all overhead such as vacation, healthcare, pensions, social security taxes on labor paid by the employer, etc.)
by ilene - September 4th, 2015 11:21 am
Courtesy of John Rubino.
For about a decade there, Brazil was the Latin American country that got it right. Under a socialist but apparently reasonable government they kept their budgets under control, managed the population shift from farm to city, and developed some efficient export industries that brought in plenty of hard currency. The Brazilian real held its own on foreign exchange markets and inflation was, as a result, moderate.
Then it all fell apart. The US dollar spiked, commodity prices tanked, and it was discovered that a whole range of big local players were gaming the system in various ways, sparking a corruption scandal that reaches all the way to top.
Brazil’s real is now the worst performing major currency (in a world of badly-performing major currencies), its budget deficit is 8% of GDP, the interest rate on its 10-year bonds exceeds 15%, and GDP is apparently about to fall off the table.
There are calls for the impeachment of the president and rising speculation that the finance minister, unable to get spending cuts through the legislature, is about to quit. The latter’s departure will remove the last prop from Brazil’s investment grade credit rating, making it even harder to borrow, necessitating even bigger spending cuts, and sending the country into a stereotypical LatAm death spiral. Just in time for it to host next year’s Olympics.
A big part of the problem is the decision by major Brazilian companies like oil giant Petroleo Brasileiro to fund their rapid growth by borrowing tens of billions of US dollars. When the real was rising and dollar interest rates were low, this strategy was a double winner. But when the dollar spiked in 2014 the true cost of those loans went through the roof.
In this sense Brazil is one of the high-profile casualties of the currency war. And with the US about to raise rates while most other countries lower theirs, it’s only going to get uglier. Which means (here’s why this matters beyond Brazil itself) the big US banks and other major creditors are looking at multi-billion-dollar losses in 2016. Turns out that China has been on a lending spree in Latin America, extending more than $100 billion in credit to various state-run oil and mining companies since 2005. And whenever there’s a South-of-the-Border crisis, Citigroup, Goldman and JP Morgan are in…
by ilene - September 4th, 2015 11:20 am
Courtesy of Mish.
The establishment survey came in a weaker than expected 173,000 job. The Bloomberg Consensus estimate was 223,000 jobs.
However, the preceding two months were revised up by 44,000 and wages were strong. Bloomberg provides a nice summation of the strengths and weaknesses.
The headline may not look it but there's plenty of strength in the August employment report. Nonfarm payrolls rose only 173,000 which is at the low-end estimate, but the two prior months are now revised up a total of 44,000. The unemployment rate fell 2 tenths to 5.1 percent which is below the low end estimate and the lowest of the recovery, since April 2008. And wages are strong, with average hourly earnings up 0.3 percent for a 2.2 percent year-on-year rate that's 1 tenth higher than July. Debate will definitely be lively at the September 17 FOMC!
Private payroll growth proved very weak, at only 140,000. Government added 33,000 jobs vs July's 21,000. Manufacturing, held back by weak exports and trouble in energy equipment, shed a steep 17,000 jobs followed by a 9,000 loss for mining which is getting hit by low commodity prices. A plus is a 33,000 rise in professional & business services and a respectable 11,000 rise in the temporary help subcomponent. This subcomponent is considered a leading indicator for long-term labor demand. Retail rose 11,000 with vehicle dealers, who have been very busy, adding 2,000 jobs following July's gain of 11,000.
Seasonality, especially the timing of the beginning of the school year, always plays an outsized role in August employment data which are often revised higher. Policy makers are certain to take this into consideration at this month's FOMC. There's something for everybody in this report which won't likely settle expectations whether the Fed lifts off or not this month.
The employment change for June revised up from +231,000 to +245,000, and the change for July revised up from +215,000 to +245,000. Incorporating revisions, employment has increased by an average 221,000 per month over the past 3 months.
Average hourly earnings for all employees on private, nonfarm payrolls rose by 8 cents in August, following a 6-cent gain in July. Hourly earnings are up 2.2 percent over the year.
by ilene - September 4th, 2015 9:31 am
Perhaps the biggest catalyst why Fed Funds rate increased following today's payrolls miss is not so much the prior monthly payroll revisions but that after stagnating for months, August average hourly wages rose by 0.3%, the biggest sequential increase since January. The reason why pundits are focused on this number is because Yellen has repeatedly noted that with the unemployment having become utterly meaningless as a result of the 94 million Americans not in the labor force, the only indicator of labor slack is wages, and whether they are finally – after 5 years of waiting – rising.
Well, for the headline-scanning algos who saw the 0.3% number, they were although a Y/Y chart reveals a very different picture:
That said, a quick dig through the data reveals that as we first reported almost half a year ago, there are two vastly different pictures emerging when looking at the two key segment of the US labor force: the supervisors, managers and other workers in position of power, and everyone else.
First, this is how wages for the supervisory workers looked like: nothing but blue skies here, and rising at 3.7%, this was in line with the biggest wage gains in the past decade.
And if this was indicative of the overall work force, the Fed could indeed claim mission accomplished and hike not 0.25% but 2.5%.
There is a problem: supervisory workers only make up 17.5% of the US work force. As such, their wage gains are anything but indicative of the vast 140 or so million US workers.
What about the wages for the remaining 82.5% of US workers: the non-supervisory one. Here is the answer.
This means that on an inflation adjusted basis, 82% of the US population can't even keep up with inflation!
So before anyone decides that the Fed is one and done in September based on the "strong" August average hourly wages, if the Fed is looking at the real chart that matters, that of non-supervisory workers, it will be zero and nothing for a long, long time.
by Market Shadows - September 4th, 2015 2:43 am
Financial Markets and Economy
The stakes couldn't be higher for the August employment report, even though the month has typically been cursed by disappointment.
For Federal Reserve officials, who are trying to gauge the U.S. economy's prospects as they consider raising interest rates in less than two weeks, have already been thrown a curve ball — global economic malaise and reeling financial markets.
The last place oil producers want to be when prices plummet to profit-demolishing lows is midstream on a billion-dollar project in one of the costliest parts of the planet to extract crude.
The state of global monetary policy in one chart (Business Insider)
The big question hanging over markets right now is the Federal Reserve.
Will the Fed raise interest rates in September? October? December? Never?
When markets fall fast and hard, investors look for something to blame. This time around, a lot of the ire is focused on a trading strategy known as risk parity.
The most high-profile accusation came from Leon Cooperman, founder of hedge fund Omega Advisors. According to the Financial Times, Cooperman and his partner Steven Einhorn told investors in a Sept. 1 letter that fundamental factors, including turmoil in China and jitters over the Federal Reserve interest-rate outlook can’t fully explain the magnitude and velocity of the stock market’s drop in August.
Let Coal Die a Natural Death (Bloomberg View)
Coal-fired electricity is becoming ever less profitable. That's the good news — or it should be, since it gives power companies greater incentive to embrace cleaner and cheaper sources of energy.
But not every energy company is content to let the market guide its decision-making. In a role reversal, at least one energy company is asking