by ilene - August 19th, 2014 5:12 pm
Courtesy of Mish.
Congratulations go to Forbes columnist John Tamny and editor of Real Clear Markets for producing the “Idiot’s Guide to Austrian Economics‘.
Ironically, that is not exactly what Tamny set out to do. The actual title of Tamny’s article is “The Closing Of The Austrian School’s Economic Mind“.
Point by Point Look
Tamny: “It’s well known that some Austrians have a major problem with ‘fractional reserve banking’ whereby banks pay for liabilities (deposits) by virtue of turning those liabilities into assets (interest paying loans). Instead, they borrow money from depositors seeking a return on their savings, and who don’t need access to their savings right away, only to lend the money borrowed to individuals who do need it right away. The profits come from borrowing at one rate of interest, then lending longer term at a higher rate.”
Mish: With that single paragraph Tamny proves he does not understand AE or fractional reserve lending. In fact, he makes it clear he is clueless as to where the money banks lend even come from. AE has no beef against lending. Rather, AE does object to money being created out of thin air for lending.
I don’t care, nor does AE care if 100% of deposits are lent out, as long as three conditions are met: 1) Money is not created into existence by the loan 2) Money is not lent out for terms longer than the bank has access to the money 3) Depositors who lend money to the banks for interest are the ones who pay the price should there be a default on the loans.
In regards to point number three, it should be implicitly understood that the higher the interest banks pay for deposits, the greater the risk the banks (and depositors) must take to achieve that return. If it blows up, depositors, not innocent bystanders should pay the price.
Tamny: “Banks aren’t in business, nor could they remain in business if they simply warehoused money.”
Mish: Is there a need for warehousing? Even if the answer is no (which it isn’t), Tamny clearly fails to understand AE does not preclude lending. AE only precludes fraudulent lending.
Tamny: To many Austrians, this non-coerced act of exchange between consenting individuals is a fraud, and needs to be treated as such
Ukraine Overnight Interest Rates Soars to 17.5%; External Debt Cannot Be Paid Back; Ukraine Demands Rebels Surrender
by ilene - August 19th, 2014 2:30 pm
Courtesy of Mish.
It’s crystal clear Ukraine has no interest in a ceasefire under any terms. Instead it demands rebels lay down weapons and for Russia to stop intervention. In short, Ukraine demands surrender.
Thus death and destruction will continue, possibly long after Ukraine takes over Luhansk and Donetsk (or rather what’s left of Luhansk and Donetsk).
Please consider Ukraine Says It Makes Gains Against Rebels in Luhansk.
The Ukrainian government said its forces took control of one of four districts in the pro-Russian separatist stronghold of Luhansk and are fighting in the city center as diplomatic efforts to end the conflict intensified.
European leaders are pushing to halt the conflict that’s killed more than 2,000 people and fractured Ukraine since Russia annexed Crimea in March.
“Ukraine’s armed forces have been beating the separatists for weeks now and are moving deeper into the east,” Karl-Heinz Kamp, academic director at the German government’s Federal Academy for Security Policy in Berlin, said by phone. “Something must have happened that’s boosting their fighting skills. My gut feeling — and I don’t have any concrete evidence — is that the Ukrainian forces are getting support from the outside.”
Ukraine’s government says it will declare a truce only if the pro-Russian rebels lay down their arms and Russia stops supplying them with weapons. Russian Foreign Minister Sergei Lavrov, meeting with his Ukrainian, French and German counterparts in Berlin, repeated calls yesterday for an unconditional cease-fire. Russia denies it’s aiding the rebels.
The conflict has cost Ukraine $8 billion, Prime Minister Arseniy Yatsenyuk was quoted as saying today by the Unian newswire. Ukraine’s central bank raised its overnight refinancing rate to 17.5 percent today from 15 percent as it seeks to support the hryvnia. The Ukrainian currency fell as much as 1.6 percent before trading little changed at to 13.03 per dollar, taking its decline for the month to 5.8 percent.
Hryvnia vs. US Dollar
From mid-2007 the hryvnia crashed from 4.50 to the US dollar to 13.03 to the US dollar. That is a decline of 65%.
Given that Ukraine’s external debt is not priced in hryvnia, but rather euros or US dollars, this currency decline really hurts….
by ilene - August 19th, 2014 11:06 am
Submitted by Tyler Durden.
At 1033ET, Bloomberg headlines flashed: "WHOLE MILK POWDER PRICES FALL 11.5% IN GDT AUCTION" which caused an instant collapse in Kiwi (NZDUSD) as headline-reading algos reacted. However, as "humans" knew and @FXMacro reminded Bloomberg, that was last month's drop…
BB is reporting last months fall
— FxMacro (@fxmacro) August 19, 2014
When Bloomberg reissued: "CORRECT: WHOLE MILK POWDER PRICES RISE 3.4% IN GDT AUCTION" Kiwi surged higher. These are your efficient markets…
1033ET Bloomberg: WHOLE MILK POWDER PRICES FALL 11.5% IN GDT AUCTION
1035ET @FXMacro warns BB has it wrong be careful
1036ET @FXMacro warns BB is reporting last month's fall
1038ET Bloomberg: CORRECT: WHOLE MILK POWDER PRICES RISE 3.4% IN GDT AUCTION
* * *
Welcome to the new efficient liquidity-providing markets…
by ilene - August 19th, 2014 10:47 am
Courtesy of Pam Martens.
Two weeks ago, Paul Krugman used some expensive media real estate to write a propaganda piece on the unsupportable proposition that the Dodd-Frank financial reform legislation passed in 2010 is “a success story” and that its bank wind-down program known as Ordinary Liquidation Authority has put an end to “bailing out the bankers.”
Wall Street On Parade took Krugman to task over this fanciful ode to accomplishments by the President the day after his piece ran in the New York Times’ opinion pages and suggested he do proper research on this subject before opining in the future. That was the morning of August 5.
By late in the afternoon of August 5, Krugman had a reality smack-down on his Dodd-Frank success fairy tale by two Federal regulators. Every major media outlet was running with the news that eleven of the biggest banks in the country, including the mega Wall Street banks, had just had their wind-down plans (known as living wills) rejected by the Federal Reserve and FDIC for not being credible or rational. The eleven banks are: Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and UBS.
Yesterday, Krugman’s Dodd-Frank fantasy lost further credibility when Senator Elizabeth Warren released a letter that she and eleven of her Congressional colleagues had sent to the Federal Reserve, warning that one of its Dodd-Frank proposed rules “invites the same sort of backdoor bailout we witnessed five years ago.”
by ilene - August 19th, 2014 8:31 am
Courtesy of Larry Doyle.
When a penalty does not fit the crime it should come as no surprise that the activity in question is likely to perpetuate.
We would seem to see evidence of this reality in the ongoing “wash, rinse, repeat” cycle of money laundering activities at the laundromat heretofore known as Standard Chartered Bank.
The Financial Times peers inside this washing machine this morning to reveal the following dirty laundry:
Standard Chartered is in talks to pay up to $300m to New York’s top banking regulator to settle allegations it failed to identify suspicious transactions, despite promising to improve its procedures after it was fined for violating sanctions rules two years ago.
New York’s Department of Financial Services could announce the settlement as soon as this week, people familiar with the matter said. StanChart is also likely to agree to additional disciplinary measures, such as extending the contract of an independent monitor charged with identifying dubious transactions.
Does it strike you as odd that this independent monitor would have his contract extended? With this news it begs the question as to how effective the monitor has been to date. Perhaps a new monitor might be in order along with a “throw the bums” out cleansing of selected executives at the bank as well.
The current investigation is a follow-up to the bank’s 2012 settlement with the US authorities including the DFS, which alleged StanChart violated US sanctions laws that prohibited transactions with Sudan, Iran, Libya and Myanmar.
The penalty of up to $300m is steep for a follow-on settlement and comes close to the original DFS fine in 2012, reflecting Mr Lawsky’s position that banks that sign up to certain terms in a settlement need to abide by them.
StanChart has had a rocky history with US authorities since the 2012 sanctions settlement. Sir John irked regulators when he dismissed the bank’s actions as “clerical errors” rather than a “wilful” intention to break the rules, even though the group had accepted responsibility for breaching sanctions.
His comments earned Sir John, Mr Sands and then finance director Richard Meddings a summons to Washington, where all three were personally reprimanded by US authorities. Sir John was forced to apologise to investors and the bank’s staff, and admitted his remarks had been “both legally and factually incorrect”.
by ilene - August 19th, 2014 3:14 am
The New York Times is out with its latest catch-all piece on how strange and different the millennial mindset is from the rest of the nation.
I straddle the fence between Gen X and the millennials; born in ’77, I have way more in common with the millennials than with the “slackers” and Gen Xers who were born in the early 1960′s and think Caddyshack is the pinnacle of comedy. From my vantage point, I can tell you that some of the insights shared in the piece are spot-on while others confuse a difference in ages for a difference in attitudes.
Take this howler, which you’ve probably seen repeated elsewhere in some version or another:
Consider the approach many take to the workplace. Thanks to the 2008 economic crash, millennials know how fleeting wealth can be. Their solution? For many, it is to acquire not more, but less.
“Almost two-thirds (64 percent) of millennials said they would rather make $40,000 a year at a job they love than $100,000 a year at a job they think is boring,” the Brookings Institution recently noted in a report by Morley Winograd and Michael Hais titled “How Millennials Could Upend Wall Street and Corporate America.”
This is clever but misleading. Those “almost two-thirds” of millennials also don’t have children of their own yet, nor do they have mortgages in most cases. In general, they are in their twenties and responsible to no one but themselves – for the moment. Call me when that changes and tell me if they’re any different from any other generation before them, in the aggregate.
They won’t be.
And once this generation hits its mid-30′s, we’ll finally see the all-important household formation process kick into high gear – perhaps the only thing that will truly rescue the economy from lullsville, the one ingredient that’s been missing so far.
by ilene - August 19th, 2014 3:09 am
Instead, I’d come armed with just one chart and force my erstwhile pupil to spend the entire half-minute staring at it.
That chart is below, a gem from Professor Jeremy Siegel (via Vox):
In the above table, originally pulled from Siegel’s epic Stocks for the Long Run (now in its fifth edition), we see that stocks have beaten Treasury bonds and T-Bills (a cash equivalent) in almost 100 percent of all thirty-year periods. Phrased another way, only during less than one percent of all thirty-year periods for more than two centuries did it make sense to stay out of the stock market with a retirement portfolio.
Now of course, there are caveats – the first is, nobody lives for two hundred years. This is true, which is why the gains of the stock market from the entire period are not important ($1 turned into $704,000, in case you were wondering).
The second caveat is that, prior to the 1970′s and the advent of the index fund at Wells Fargo, nobody could have done anything quite so simple as buy the stock market passively. As such, these historical returns would have been unattainable, even if the numbers themselves are reality as represented by the indexes.
But to those caveats, the reasonable person says “So what? Just because I’m not going to live for centuries or because my grandparents could not have owned an index fund, what does that have to do with my own future and the next thirty years?”
Thirty seconds doesn’t offer us a lot of time for nuance and there are certainly other issues that should be brought to the fore in a discussion about portfolio management and risk. But if that were all I had, this chart would be all I’d need to make the most important point a younger investor needs to be armed with, the earlier the better.
Check out the book or gift it to the new investor in your family or office:
by ilene - August 19th, 2014 2:33 am
Courtesy of Mish.
The mirage in Spain pretending to be a recovery, has officially dissipated into wind-blown ashes.
Spain’s trade deficit doubled in the first half as imports soared. Spain is again dependent on foreign financing.
Via translation from Libre Mercado, Spain Again Borrows Abroad to Finance Consumption.
One of the main and genuine green shoots making the Spanish economy begins to show the first worrying signs of weakness. It is the foreign sector, one of the few economic engines of the country in recent years. And not because of the export slowdown , as the significant increase in imports.
Spain recorded a trade deficit of 11.882 billion euros in the first half of the year, almost double a year ago now, when this same gap stood at 5.824 billion.
According to the Economy Ministry report released Monday, exports slowed their growth, after rising just 0.5% yoy. Imports, meanwhile, rose 5.3%.
“Spain is still in debt,” says economist Juan Ramón Rallo. “That 6 million unemployed can only increase imports, not domestic production illustrates our problems,” he warns.
In the same vein, economist Javier Santacruz adds that the most worrying of these data is that we are not competitive (exports stagnate), but “imports soar to finance domestic consumption,” as shown by the increase internaual foreign car purchase (+ 17.6%) and non-durable consumer goods (+ 19.1%).
In fact, overall imports do not even account for energy products, which fell by 4.1%.
Spain has been living on borrowed time for years, accumulating a huge debt to maintain their level of consumption and investment-their standards of living. Between 2002 and 2007, Spain was amassing a growing external deficit, as more and sell less abroad (exports) and bought more (imports), bringing its foreign debt grew.
This imbalance is reflected in a very specific indicator, the current account deficit, which in 2007 reached a record high close to 10% of GDP. That is, the entire country that year said external financing close to 100 billion euros to cover their consumption and investment.
The fact that the trade deficit has risen again after the minimum economic rebound in recent quarters is a sign of weakness, because it demonstrates the strong dependence Spain still external financing to maintain their level of consumption and investment.
Think Spain is going to meet its budget deficit goals for 2014? If so, think again….
by ilene - August 18th, 2014 10:15 pm
?The stock market is presently a roulette wheel with dimes on black and dynamite on red. We continue to have extreme concerns about the extent of potential market losses over the completion of the present market cycle. At the same time, we have very little view with regard to short-term market action. If one reviews market action surrounding major pre-crash peaks such as 1929, 1972, 1987, 2000 and 2007, you’ll observe a sort of “resilience” in the major indices on a day-to-day and week-to-week basis even after market internals had already corroded. In 1987, for example, the break following the August bull market peak was largely recovered over the course of several weeks before failing rapidly in October. In 2000, the market actually experienced a series of 10-12% corrections and recoveries before a final high in September that was followed by a loss of half the market’s value. In 2007, the initial break in mid-summer was fully recovered, with the market registering a fresh nominal high in early October that marked the end of the bull market and the start of a 55% market collapse.
As economic historian J.K. Galbraith wrote about the advance leading up to the 1929 crash, the market’s gains
“had an aspect of great reliability… Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in February and March of 1929 it seemed that the end had come. On various of these occasions the Times happily reported the return to reality. And then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit. But it has long since been forgotten that for many months those who resisted reassurance were similarly, if less permanently, discredited.”
None of this implies that the market will or must collapse in short order. Stocks remain strenuously overvalued, overbought, and overbullish, but those conditions have persisted uncorrected much longer in the present instance than they have historically. That doesn’t encourage us to abandon our concerns, but it does make us less aggressive about investment stances that rely on…
by ilene - August 18th, 2014 10:07 pm
Courtesy of Mish.
Meet hitchBOT, a robot from Port Credit, Ontario.
HitchBOT Help explains Everything you always wanted to know about hitchBOT, but were afraid to ask.
HitchBot successfully hitchhiked from Halifax, Nova Scotia to Victoria, British Columbia, a distance of about 4,000 miles. HitchBOT is now on a return trip.
CNN reports …
The gender-neutral robot was conceived by university researchers David Harris Smith and Frauke Zeller, who view its quest as part performance art, part social experiment.
“People seem to be rather intrigued with hitchBOT, and take very good care (of it),” said Smith, a communications and multimedia professor at McMaster University in Hamilton, Ontario, and Zeller, a communications professor at Ryerson University in Toronto, in a statement e-mailed to CNN.
“We have even seen hitchBOT lying in a camping bed under a blanket, and sitting on a toilet,” they said, “so people certainly have fun with it.”
hitchBOT has a bucket for a torso, blue swimming-pool noodles for arms and legs and a smiling LED panel for a face, protected by a cake saver. It wears yellow gloves on its hands, and wellies — rubber boots — on its feet. Inside is a simple tablet PC and some components from Arduino, the open-source electronics platform. Together, all the parts cost about $1,000.
“We wanted to see what we can build on a shoestring budget … and with tools/components that one can get in any hardware store,” Smith and Zeller said.
Thanks to its computerized innards and speech software, hitchBOT can answer basic questions, make small talk and recite info from Wikipedia. It can also get pretty chatty, not always something you want in a road-trip companion.
“We knew that sometimes … hitchBOT won’t be able to properly understand what people are saying. For these cases, we came up with the solution to let hitchBOT simply chatter away,” its creators said. “We taught hitchBOT to say that sometimes it gets a bit carried away, and that its programmers could only write that many scripts, hoping for people to be patient.”…