August 23, 2015

Wolf Richter: What the Heck is Going on in the Global Markets?

What the Heck is Going on in the Global Markets?
by Wolf Richter • August 23, 2015


This wasn’t supposed to happen. The week was already on a crummy downhill path globally, and emerging-market currencies were blowing up, when on Friday in China the Caixin’s Purchasing Manager’s Index hit the worst level since March 2009; manufacturing is sinking deeper into the mire.

So the Shanghai stock index plunged 4.3% for the day, and 11.5% for the week, to 3,508, closing at the same level as the bottom of its July rout.

The entire machinery that the Chinese government and the People’s Bank of China had set in motion to bail out the markets during the July rout, which had worked for a couple of weeks, has now proven to be useless. And the markets, thought to be controllable by fiat or manipulation, suddenly regained a will of their own.

Other Asian stock markets plunged too: Hong Kong’s Hang Seng dropped 1.5% on Friday and 6.6% for the week; it’s 5.1% in the hole for the year. The Nikkei fell 3% on Friday and 5.3% for the week.

.....(snip).....

Have central banks lost their omnipotence?

That despicable, unpredictable force that central banks were thought to have vanquished – markets with a will of their own – ricocheted in its unruly manner around the world.

In Europe and Japan, the central banks are currently engaging in relentless QE programs to inflate stocks, and China is doing a whole lot more, and yet, this debacle! A few more episodes of this – and folks are going to question the omnipotence of central banks, and they’re going to doubt the central banks’ vaunted ability to inflate the markets. If those doubts spread, not even QE can prop up the markets. Omnipotence only works if people believe in it. ...............(more)

http://wolfstreet.com/2015/08/23/what-the-heck-is-going-on-in-the-global-markets-meltdown/

August 23, 2015

WTF? .... They've descended from the usual race-baiting/immigrant-bashing to outright fascism

Published on Aug 20, 2015
Jan Mickelson is a conservative AM radio host from Iowa. He recently floated an idea on his show about enslaving undocumented immigrants. Cenk Uygur, host of the The Young Turks, breaks it down. Tell us what you think in the comment section below.

"Iowa radio host and influential conservative kingmaker Jan Mickelson unveiled an immigration plan that would make undocumented immigrants who don't leave the country after an allotted time "property of the state," asking, "What's wrong with slavery?" when a caller criticized his plan.

On the August 17 edition of his radio show, Mickelson announced that he had a plan to drive undocumented immigrants out of Iowa that involved making those who don't leave "property of the state" who are forced into "compelled labor," like building a wall on the US-Mexican border.”*

http://mediamatters.org/blog/2015/08/19/ia-radio-host-jan-mickelson-enslave-undocumente/205020

August 22, 2015

Everybody get out your kleenex......

[font size="3"]World’s Richest People Lose $182 Billion in Market Rout[/font]




The world’s 400 richest people lost $182 billion this week from their collective fortunes as weak manufacturing data from China and a rout in commodities sent global markets plunging.

The weekly drop for the Bloomberg Billionaires Index, a group that includes Warren Buffett and Glencore Plc’s Ivan Glasenberg, was the biggest since tracking of the expanded list began in September 2014. The combined net worth of the index members fell by $76 billion on Friday alone, when the Standard & Poor’s 500 Index of U.S. stocks ended its worst week since 2011.

“For them that’s a fractional percentage, even though $182 billion is a big number,” said John Collins, director of investment advisory at Aspiriant, which oversees more than $8 billion for high net worth clients. “A week like this feels really bad, but when you take a step back, in a big picture view it’s not a disaster by any means.”

Friday’s losses put the world’s richest 400 into the red for the year to date. They’re now down $74 billion in 2015, with a collective net worth of $3.98 trillion.

The week’s largest setback in dollar terms was experienced by Buffett, who saw his fortune drop by $3.6 billion as Berkshire Hathaway Inc. slipped more than 5 percent. The investor is the world’s third-wealthiest person, with a fortune of $63.4 billion, according to data compiled by Bloomberg. ...................(more)

http://www.bloomberg.com/news/articles/2015-08-21/world-s-richest-people-lose-182-billion-as-market-rout-deepens

August 22, 2015

Goldman Sachs, at it again......

Goldman Sachs' New Loan Program Enters Underregulated, Potentially Abusive Loan Marketplace

Thursday, 20 August 2015 00:00
By Yana Kunichoff, Truthout | News Analysis


In the heady and panicked months following the financial crash of 2008, the US government bailed out a handful of the United States' biggest financial institutions. Among those were the investment banks Goldman Sachs and Morgan Stanley, which together received bailouts and loans totaling over $100 billion.

Among the terms of the bailout was that they both become bank holding companies, which meant they had the authority to own banks. While this may seem like an expansion of influence, the move has actually placed the previously independent investment banks under new regulation and supervision. It also opened the door for the companies to enter further into consumer lending than they could have as traditional investment banks.

This summer, news broke that Goldman Sachs would be taking advantage of its "bank holding company" designation to branch into the online loan market. According to The New York Times, which reported the story on June 15, the bank will be moving to offer loans of a few thousand dollars through a yet-to-be-launched online portal.

.....(snip).....

Predatory Lending Practices

The personal loan business - where money is received in a lump sum, with fixed monthly payments - can encompass both long- and short-term credit products and are often marketed heavily to financially vulnerable consumers.

The most infamous of short-term or installment lending products are payday loans, which are sold to consumers as quick-fix borrowing but often carry interest rates upward of 300 percent and use tactics frowned upon by the Consumer Financial Protection Bureau, including using vehicles as collateral or failing to underwrite for affordable payments.

Neither Goldman Sachs nor the Consumer Financial Protection Bureau replied to requests for comment. ...............(more)

http://www.truth-out.org/news/item/32433-goldman-sachs-new-loan-program-enters-underregulated-potentially-abusive-loan-marketplace

August 22, 2015

"A pure capitalism is a lovely idea ..... but I've never seen that realized."

Professor Richard Wolff: "Is Capitalism Broken?"

Audio link: http://rdwolff.com/content/prof-wolff-follow-money-daily

August 22, 2015

“How Complex Systems Fail”

from Naked Capitalism:



“How Complex Systems Fail”
Posted on August 21, 2015 by Yves Smith


Lambert found a short article by Richard Cook that I’ve embedded at the end of the post. I strongly urge you to read it in full. It discusses how complex systems are prone to catastrophic failure, how that possibility is held at bay through a combination of redundancies and ongoing vigilance, but how, due to the impractical cost of keeping all possible points of failure fully (and even identifying them all) protected, complex systems “always run in degraded mode”. Think of the human body. No one is in perfect health. At a minimum, people are growing cancers all the time, virtually all of which recede for reasons not well understood.

The article contends that failures therefore are not the result of single causes. As Clive points out:

This is really a profound observation – things rarely fail in an out-the-blue, unimaginable, catastrophic way. Very often just such as in the MIT article the fault or faults in the system are tolerated. But if they get incrementally worse, then the ad-hoc fixes become the risk (i.e. the real risk isn’t the original fault condition, but the application of the fixes). https://en.wikipedia.org/wiki/Windscale_fire#Wigner_energy documents how a problem of core instability was a snag, but the disaster was caused by what was done to try to fix it. The plant operators kept applying the fix in ever more extreme does until the bloody thing blew up.

But I wonder about the validity of one of the hidden assumptions of this article. There is a lack of agency in terms of who is responsible for the care and feeding of complex systems (the article eventually identifies “practitioners” but even then, that’s comfortably vague). The assumption is that the parties who have influence and responsibility want to preserve the system, and have incentives to do at least an adequate job of that.

There are reasons to doubt that now. Economics has promoted ways of looking at commercial entities that encourage “practitioners” to compromise on safety measures. Mainstream economics has as a core belief that economies have a propensity to equilibrium, and that equilibrium is at full employment. That assumption has served as a wide-spread justification for encouraging businesses and governments to curtail or end pro-stabilty measures like regulation as unnecessary costs.

To put it more simply, the drift of both economic and business thinking has been to optimize activity for efficiency. But highly efficient systems are fragile. Formula One cars are optimized for speed and can only run one race. ...............(more)

http://www.nakedcapitalism.com/2015/08/how-complex-systems-fail.html

August 22, 2015

As QE Wanes, Real Costs of “Employment” Subsidies Surface

By Erinç Yeldan, Dean of the faculty of Economics and Administrative Sciences at Yasar University and an executive director of the International Development Economics Associates (IDEAs), New Delhi. Originally published at Triple Crisis


Global finance centers have been holding their breath for almost a year by now: will the U.S. Federal Reserve (the “Fed”) finally start “tapering” off from its monetary expansion programs, known as quantitative easing (QE)? By way of three QE operations, the Fed had amassed a total of $3 trillion worth of assets from the financial markets over a course of less than four years. This was equal to roughly 20% of U.S. GDP. In turn, interest rates fell all around the globe to virtually zero. While short-term low-risk interest rates in the United States fell to zero, interest rates in some countries remained much higher, so large interest rate spreads emerged between the United States and other countries. Notable “carry trade” emerged, for this reason, between the U.S. and Brazil; and yet, unemployment only slowly fell back to the pre-recession period, despite the fact that the labor force participation rate declined sharply to its 1970s level.

Now, seeing the expansion of the monetary base barely made a dent in stimulating real productive activity (see my January 2015 Triple Crisis blog post), the Fed declared in early Spring that “from now on it will be patiently waiting to start raising its policy interest rate and quitting QE operations.” This means bad news for global finance capital, which was drugged with the inflow of cheap liquidity, with zero credit costs.

Now that the financial smoke is clearing, we are in a better position to see the real costs of public programs aimed of stimulating employment and real activity.


As a response to rising global unemployment during the Great Recession, many countries introduced direct and indirect incentive packages to cover labor costs. These often took the form of reducing and covering the employer share of social security taxes, tax breaks, publicly financed reduced-hours programs, and other public support programs. The costs of these employment subsidies were measured in multi billions dollars, and yet their beneficiaries had been mostly big corporations such as McDonalds and Walmart, which already profited handsomely from low wages. In return, employment gains had been meager at best, while the subsidy costs were borne by the public sector. .................(more)

http://www.nakedcapitalism.com/2015/08/as-qe-wanes-real-costs-of-employment-subsidies-surface.html

August 22, 2015

The Last Great Bubble may finally be starting to pop

(MarketWatch) Forget for a moment the "panic" that is happening in U.S. stocks. Forget about the panic in China FXI, -2.51% Forget about the panic in Apple AAPL, -6.12% As I argued several weeks back and have written about continuously since, the odds simply have been favoring a summer stock-market correction given the behavior of key inter-market relationships outlined in our award-winning papers (click here to download). Something far more important and spectacular may be underway which likely will only be realized and appreciated after the damage is done.

The illusion of stock-market stability is fading, and the Last Great Bubble — faith in central banks — may be starting to pop.

Just as everyone is talking about the Fed raising rates in September and "lift off" finally occurring, the global growth and inflation story is dramatically reversing. It turns out quantitative easing did absolutely nothing for the economy, and it turns out that Europe's own version of QE simply isn't working to boost reflation hope.

For too long, market participants have been sucked into the idea that the S&P 500 is the money market (as I said on CNBC here). Lower for longer has now become an excuse for too long to buy U.S. markets and believe that risk does not exist when central banks "have our backs."

The narrative may be on the verge of a significant change. At some point, we have to stop endlessly debating the question of "when" the Fed will raise rates. Instead, we must begin to question what is so wrong with the environment that has resulted in them not having raised rates yet. Unquestionably there are long-term structural forces at play which have been disinflationary, but the bigger issue is that the U.S. stock market turned from a discounting mechanism of the future to yet another failed vehicle for stimulus under the guise of the "wealth effect." .................(more)

http://www.marketwatch.com/story/the-last-great-bubble-may-finally-be-starting-to-pop-2015-08-21

August 21, 2015

U.S. Stocks Head for Worst Week of 2015 Amid Global Selloff

(Bloomberg) A global stock selloff sparked by world growth concerns showed no signs of relenting, sending U.S. stocks toward the worst week since 2011.

The Standard & Poor’s 500 Index fell again after its steepest one-day decline since February 2014. The benchmark gauge is down more than 6 percent from its last record in May, after dropping below a trading range that has supported it for most of the year.

The S&P 500 lost 2.2 percent to 1,991 at 1:06 p.m. in New York and is down 4.8 percent this week, dipping below the 2,000 level for the first time since February. The Nasdaq 100 Index slumped 2.8 percent to extend its biggest two-day drop since 2011. The Russell 2000 Index of smaller companies sank 1.3 percent, bringing its drop from a June record to more than 10 percent. The VIX, the benchmark gauge of U.S. equity options, was poised for its biggest weekly gain ever amid demand for contracts to protect against further losses.

“Yesterday was a decimation in the market,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “You typically tend to have a follow-through after big days. Given we broke below just about all key short-term technical levels, it isn’t surprising to see us down again today.” ............(more)

http://www.bloomberg.com/news/articles/2015-08-21/s-p-500-futures-little-changed-after-stock-rout-erased-2015-gain

August 21, 2015

Why the Global Economy Is Wheezing and Stock Markets Will Collapse

Why the Global Economy Is Wheezing and Stock Markets Will Collapse
ByChris Vermeulen


NEW YORK (TheStreet) -- The Federal Reserve has printed trillions of dollars to monetize U.S. government debt. Any significant rise in interest rates will probably decimate U.S. government finances and the fragile housing market. It will probably also cause a financial catastrophe in the bond market, too, because of interest rate derivatives.

This is a solid reason why the Fed will not raise interest rates for the foreseeable future.

The power to create money out of thin air is great. Should we give it to politicians and secretive central bankers? Will this power be abused? Will those in charge yield to the temptation for "legalized counterfeiting?" Apparently the answer is "yes."

All that the Federal Reserve has done was to inflate equity markets. It never solved any of the original financial problems that led to creating the credit bubble of 2007. There was as well no resolution by our elected political officials to resolve these serious financial problems so that they would never occur again. The process called quantitative easing created a shift of a tremendous amount of wealth from the middle class and the poor to the rich.

The prices of stocks, which are typically held by the wealthy, created a clear redistribution of wealth that future generations will pay for. The Fed appears to have believed that boosting stock values would help to create new jobs and increase capital spending by businesses. ................(more)

http://www.thestreet.com/story/13261949/1/why-the-global-economy-is-wheezing-and-stock-markets-will-collapse.html