by ilene - September 2nd, 2014 2:32 am
Courtesy of Mish.
It is amusing reading day in and day out the Keynesian cure for what ails Europe, especially France.
Consider France. Public spending amounts to 57% of French GDP, yet Keynesians want still more. The sad irony is that 100% would not be enough. In fact, it would make matters worse.
France suffers from too much government spending and too much government interference everywhere one looks.
On Sunday, in Eurozone Currency Dispute Intensifies: France Wants More ECB Action to Correct Overvalued Euro, Germany Doesn’t I summed up the problem.
Inflation Won’t Cure France
Contrary to popular belief, inflation will not spur consumer spending. Nor will inflation create any jobs or cause wage inflation.
Nonetheless, France demands the ECB wizards fix something that cannot be fixed by monetary policy.
Problem number one is the eurozone itself. The euro is fatally flawed. In addition, France’s problem is that it is not competitive with Germany and arguably even Spain, not that the Euro is too high.
France desperately needs structural reforms.
- It is nearly impossible to fire someone in France, so businesses are reluctant to hire.
- Government and union rules on everything are sheer madness.
- France seeks to save local bookstores by taxing online retailers and elimination of free shipping.
- Agricultural subsidies to save inefficient French farms (at great expense to the rest of Europe) are inane.
- Pension rules need fixes, and the retirement age needs to increase.
- The “French way of life” is incompatible with rising productivity, especially on a relative basis, so France is increasingly left behind.
How is QE supposed to fix all that? It can’t and it won’t, but it increasingly looks as if the ECB may give it a try.
by ilene - September 1st, 2014 10:37 pm
Courtesy of Mish.
The significance of the annexation of Crimea by Russia goes far beyond land territorial claims. Here are a couple of maps that show how Crimea affects oil rights in the black sea.
Black Sea Claims Before Crimea Annexation
Black Sea Claims After Crimea Annexation
The above charts from the New York Times article In Taking Crimea, Putin Gains a Sea of Fuel Reserves.
Russia did not annex Crimea just because of Black Sea claims. But, those claims make it all the more unlikely that Russia would ever cede Crimea back to Ukraine under any circumstances.
Moreover, Russia has no land connection to Crimea, and Russia has every reason to want to end that situation.
If you are looking for another reason for the rebel counteroffensive “march to the sea”, you now have one.
Mike “Mish” Shedlock
by ilene - September 1st, 2014 7:36 pm
Editor’s Note: A version of this appeared in the San Antonio Express News. Dignowity Hill is a historic neighborhood in San Antonio balanced precariously - for the moment – on the cusp of hipsterism, about to fall into the ‘gentrified’ category. For anyone who has strongly held opinions about gentrification, let me assure you this post has nothing to do with Dignowity Hill, or gentrification. Thank you.
My friend recently asked me what I thought about his idea of buying a small plot of land he saw for sale in Dignowity Hill, as a short-term investment. Less than $10,000.
“The East Side is getting ready to boom,” he tells me. Agreed.
“Dignowity Hill has so much charm and a ton of new investment activity nearby, with the Hays Street Bridge and Brewery, and prices will be going up.” Yup, probably.
“I like the idea of investing for a couple of years, then cashing out.” Ok, now I knew he was on the wrong track, and I told him so.
Markets are more efficient than you think
What I believe my friend did not take into account is the idea that he has hundreds – actually make that probably thousands – of competitors for that single parcel on Dignowity Hill. Those competitors mean he will not likely get a bargain.
Most middle class people, certainly most homeowners, understand the basics of real estate investing. That means hundreds of thousands of people – in San Antonio alone – have the knowledge necessary to buy that parcel, and certainly tens of thousands of people in the city have available cash to pick up a plot of land at less than $10,000.
Of those tens of thousands, I’d estimate many hundreds to a few thousand San Antonio residents actively look for real estate opportunities. I don’t think it’s unreasonable to expect that hundreds of San Antonians have seen this exact parcel, and up until now, have not made a bona fide offer to purchase it, at, or very near, the listed price.
by ilene - September 1st, 2014 4:18 pm
Courtesy of Joshua M Brown, The Reformed Broker
Happy Labor Day!
This weekend’s must-read is quite apropos of today’s holiday. ‘Profits Without Prosperity’, an incredible article at the Harvard Business Review, shows exactly how corporate share buybacks have gotten out of control in the last decade. It then goes on to point out the various ways in which buybacks-gone-wild are killing the capital formation process in America, holding back the investments needed to keep us competitive and decimating the middle class workforce that actually built this country.
The evidence is presented by William Lazonick, professor of economics at the University of Massachusetts Lowell, and one of the nation’s foremost experts on corporate buyback activity. Having studied the subject for some three decades, Lazonick concludes that an SEC rule rewrite in the early 1980′s meant to drive Value Creation has instead ushered in an era of Value Extraction – wherein an increasingly smaller group of corporate executives and hedge fund managers reap an increasingly larger share of the productivity benefits of the economy.
For example, buybacks and dividends – which serve to drive compensation higher, enriching shareholders while diverting resources away from investment and innovation – accounted for over 75 percent of net income for long-time S&P 500 member companies last year. Contrast that with the retain-and-reinvest model that the economy ran on from the end of World War II to the end of the 1970′s, in which corporations were much less preoccupied with “maximizing shareholder value” and padding CEO salaries.
The chart below illustrates this point starkly:
Since the early 1980s, when restrictions on open-market buybacks were greatly eased, distributions to shareholders have absorbed a huge portion of net income, leaving much less for reinvestment in companies. (Note: Data are for the 251 companies that were in the S&P 500 Index in January 2013 and were publicly listed from 1981 through 2012. If the companies that went public after 1981, such as Microsoft, Cisco, Amgen, Oracle, and Dell, were included, repurchases as a percentage of net income would be even higher.)
by ilene - September 1st, 2014 2:51 pm
By John Mauldin
?“It's said that power corrupts, but actually it's more true that power attracts the corruptible. The sane are usually attracted by other things than power.”
– David Brin in The Postman
“For every good idea, ten thousand idiotic ones must first be posed, sifted, sniffed, tried, and discarded. A mind that's afraid to toy with the ridiculous will never come up with the brilliantly original."
– David Brin, Orbit interview
As I begin my 15th year of writing Thoughts from the Frontline – some 700-odd newsletters plus 400–500 editions of Outside the Box, 6 books, and scores of special reports – I decided to take a random walk back through some of my writings (and your comments!). With some glaring and notable exceptions that I would like to take off the internet (but won’t because to do so seems somewhat intellectually dishonest), the body of work has held together pretty well. My writing style has matured and so has my thought process – or at least it seems so to me. Writing this letter has been the best personal educational tool I have ever experienced, enriching my life far more than I have probably enriched yours. I’ve done my 10,000 hours. Plus. No college, no course or seminar, could provide me with the wide range of materials I’ve studied.
And that is the thing that stands out to me: the wide variety of topics we’ve covered over the years. The themes vary from week to week and month to month. I write about what interests me that week – where my research and curiosity are taking me. I am, of course, influenced by my somewhat heavy travel schedule and the interaction I have with readers from all over the world (some 65 countries now), both directly and through correspondence. I seem to attract a number of readers who are quite willing to push back and make me think about all sides of an issue. For that I’m grateful.
Eurozone Manufacturing PMI at 13-Month Low, with Germany Worse than Expected, Italy and France in Contraction
by ilene - September 1st, 2014 10:27 am
Courtesy of Mish.
The Markit Eurozone Manufacturing final data shows Eurozone Manufacturing PMI at 13-month low in August.
The rate of expansion in eurozone manufacturing production eased to its lowest during the current 14-month growth sequence in August, as companies faced slower increases in both total new orders and new export business. The final seasonally adjusted Markit Eurozone Manufacturing PMI® posted 50.7 in August, down from 51.8 in July, its lowest reading since July last year. The headline PMI was also below its earlier flash estimate of 50.8. National PMI data signalled a broad easing in the manufacturing recoveries underwa y across much of the currency union. Although Ireland was a noticeable exception, with its PMI at the highest level since the end of 1999, rates of expansion slowed in Spain, the Netherlands and Germany.
The rate of expansion in new work received also slowed to the weakest in the current 14-month period of growth. Economic and geopolitical uncertainties were the main factors underlying slower demand growth. Inflows of new export business posted the slowest rise since July 2013. France was the only nation to report an outright decline in new export orders in August, while rates of increase eased in Germany, Italy and Greece. Ireland, Spain and Austria reported stronger inflows of new export business.
The big-three nations of Germany, France and Italy all reported job losses, as did Greece. Staffing rose in Spain, the Netherlands, Austria and Ireland, but Ireland was the only nation to report a faster pace of hiring than in July. Signs that the manufacturing sector may be on course for further easing in the coming months was signalled by data on purchasing and stock holdings. Input buying volumes fell for the first time in over a year and inventories were reduced further as strong competition led companies to maintain a cost-cautious position. Meanwhile, the forward-looking ratio of new orders to finished goods inventories dipped to a 13-month low.
Countries Ranked by Manufacturing PMI®
- Ireland 57.3 176-month high
- Spain 52.8 4-month low
- Netherlands 51.7 13-month low
- Germany 51.4 (flash 52.0 ) 11-month low
- Austria 50.9 Unchanged
- Greece 50.1 3-month high
- Italy 49.8 14-month low
- France 46.9 (flash 46.5 ) 15-month low
Ireland, Spain, and the Netherlands cannot sustain a eurozone recovery. A recession
by ilene - August 31st, 2014 7:20 pm
Courtesy of Mish.
Putin threw fat into the Ukrainian fire today by calling for Talks on Eastern Ukraine Statehood.
The question at hand is” What precisely does Putin mean by “statehood” ?
Russian President Vladimir Putin called on Sunday for immediate talks on the “statehood” of southern and eastern Ukraine, although his spokesman said this did not mean Moscow now endorsed rebel calls for independence for territory they have seized.
The Kremlin leader’s remarks, two days after a public appearance in which he compared the Kiev government with Nazis and warned the West not to “mess with us”, came as Europe and the United States prepared possible further sanctions to halt what they say is direct Russian military involvement in the war in Ukraine.
Germany aired suspicions that Moscow might be trying to create a land corridor to supply Crimea, which it annexed from Ukraine in March, while the four-month conflict moved onto the sea for the first time on Sunday. The separatists said they had fired on a Ukrainian vessel in the Azov Sea using land-based artillery, and a military spokesman in Kiev said a rescue operation was under way.
Ukrainian troops and local residents were reinforcing the port of Mariupol on Sunday, the next big city in the path of pro-Russian fighters who pushed back government forces along the Azov Sea this past week in an offensive on a new front.
Talks should be held immediately “and not just on technical issues but on the political organization of society and statehood in southeastern Ukraine”, Putin said in an interview with Channel 1 state television, his hair tousled by wind on the shore of a lake.
Moscow, for its part, he said, could not stand aside while people were being shot “almost at point blank”.
Putin’s spokesman Dmitry Peskov said there was no new endorsement from Moscow for rebel independence. Asked if “New Russia”, a term pro-Moscow rebels use for their territory, should still be part of Ukraine, Peskov said: “Of course.”
“Only Ukraine can reach an agreement with New Russia, taking into account the interests of New Russia, and this is the only way to reach a political settlement.”
Federation or Totally Independent Eastern State?
If one takes the statements from Russia at face value, it appears
by ilene - August 31st, 2014 6:39 pm
Courtesy of Lee Adler of the Wall Street Examiner
Lee Adler tells CNBC Africa that the Fed may be tapering, but the key to the US market will now be in the actions of the BoJ and ECB.
Copyright © 2012 The Wall Street Examiner. All Rights Reserved.
by ilene - August 31st, 2014 5:00 pm
Courtesy of Acting Man, Pater Tenebrarum
A Jumble of Memes
It has recently become quite fashionable to drag up the old Luddite argument that technological progress will destroy jobs, which is to say, destroy them on a net basis. Allegedly, the “rise of the Robots” will accomplish what centuries of economic and technological progress in the capitalist market economy have failed to do.
As you will see in the video below, the purveyors of this idea assure us that “this time, it's different”. Allegedly, humans are now in the same position that horses found themselves in when the automobile was invented. If you are not groaning inwardly by the time this argument is proposed, then you urgently need to brush up on your knowledge of economics (the same obviously goes for the makers of the video).
Closely associated with this idea is the meme of a “basic income for everyone”, to be provided by the State. People arguing in favor of such a program have apparently forgotten that nothing really comes for “free”. Not only must this redistribution be funded by others who produce real wealth and the State would have to forcibly expropriate them in order to provide this basic income, but we may rest assured that this “gift” will come with strings attached. A crypto-communist State providing basic incomes to all citizens will strip them not only of the incentive to work, it will inevitably also abridge their freedom in many other spheres of life. The State never provides something for “free”.
Another close cousin of this “free income” idea is a recent proposal mentioned in “Foreign Affairs”, that central banks should not only keep printing money, but should alter their modus operandi by paying this newly printed money directly into the accounts of all citizens, so as to spur demand. Not only is this proposal based on the economic fallacy that spending and “demand” are the causes of economic growth, it also fails on the grounds that the authors cannot pick and choose between the inflationary effects that will result. In other words, they won't only get the “good stuff” that they like, but also all the bad…
by ilene - August 31st, 2014 12:33 pm
The real, human costs of war cannot be measured.
I am tired and sick of war. Its glory is all moonshine. It is only those who have neither fired a shot nor heard the shrieks and groans of the wounded who cry aloud for blood, for vengeance, for desolation. War is hell. ~ William Tecumseh Sherman
(Read more at Brainy Quote)
As President Obama prepares to unleash his new 'strategery' to deal with ISIS, Syria, Putin… and so on, we thought a subtle reminder of the real cost of war was prescient…