US consumer sentiment is improving markedly

It's insulting. The Hungarian Central Bank parodied the Fed in the bank's statement yesterday

Why don't they write their own statement instead of making fun of ours?


Here it is:


The National Bank of Hungary issued the following statement:

"At its meeting on 16 December 2014, the Monetary Council reviewed the latest economic and financial developments and voted to leave the central bank base rate unchanged at 2.10%.

THE MONETARY COUNCIL’S STATEMENT ON MACROECONOMIC DEVELOPMENTS AND ITS MONETARY POLICY ASSESSMENT

In the Monetary Council’s judgement, persistently loose monetary conditions are consistent with the achievement of price stability.

In the Council’s judgement, with the easing cycle completed, maintaining loose monetary conditions for an extended period is warranted by the medium-term achievement of the Bank’s inflation target and a corresponding degree of support to the real economy. In addition to the primary goal of meeting the inflation target, the Council also takes into account the condition of the real economy and incorporates financial stability considerations into its decisions.

Global economic growth continues at a moderate pace. The low inflation environment is likely to persist for a sustained period.

Significant differences remain across the individual regions in terms of economic growth. The recovery in the euro-area economy has been slow and fragile, while strong growth in the US is likely to continue looking ahead. Growth has been slowing in the larger emerging market economies. Global inflation remains moderate, in line with the decline in commodity prices, particularly the sharp drop in crude oil prices and weak demand, and inflationary pressure in the global economy is likely to remain moderate for a sustained period looking ahead. There have been differences in the monetary policy stance of globally influential central banks in recent months; however, monetary conditions remain loose overall and, consequently, global interest rate and liquidity conditions continue to be supportive.

Inflation in Hungary is likely to be significantly below the inflation target next year, and rise to levels around 3 per cent only in the second half of the forecast period.

The Council expects inflation to be significantly below the inflation target next year, and rise to levels around 3 per cent in the second half of the forecast period. In recent months, inflation has been lower than the projection in the September issue of the Inflation Report, mainly on account of the sharp decline in commodity prices, the low food prices and weak demand. In the first half of the forecast period, domestic inflation is likely to be substantially below the target, mainly reflecting cost shocks having downside effects on inflation as well as the weak demand and inflation environment in Hungary’s major trading partner countries. In the second half of the forecast period, inflation is likely to move in line with the inflation target, reflecting the recovery in activity and the increase in wage dynamics, as the effects of cost shocks fade away. Inflation expectations anchored around the target are likely to ensure that price and wage-setting will be consistent with the inflation target.

In the Council’s judgement, domestic economic growth may continue in a balanced pattern.

The recovery in the real economy has continued over the past quarter, with output rising across most sectors on an annual basis. At the forecast horizon, domestic demand is expected to make the largest contribution to growth. Subdued global activity and the slowdown in the euro area economy are likely to act as a drag on export growth in 2015; however, the contribution of net exports to growth is likely to increase in the second half of the forecast period. The extended and prolonged Funding for Growth Scheme is likely to promote corporate investment next year, but weak global economic activity abroad and lower receipts of EU funding are likely to work in the opposite direction. Households’ investment activity is expected to rise gradually from its historically low level. As seen in previous quarters, the gradual improvement in employment and rising household real income due to low inflation are likely to play a key role in the recovery in household consumption. The uniformity decision of the Curia concerning household loans will effectively contribute to the reduction of existing debts thus household net financial wealth is expected to increase, accelerating the deleveraging process. The conversion of foreign currency loans into forint is expected to reduce uncertainty surrounding households’ future income and wealth position, thereby strengthening consumer confidence and supporting the recovery in consumption and domestic demand.

Hungary’s financing capacity remains high and external debt is falling.

The external position of the economy amounted to nearly 8 per cent of GDP in the second quarter of 2014. Over the coming year, the trade surplus is expected to rise despite the increase of imports driven by the pick-up in consumption and investment, reflecting the improvement in the terms of trade and, from 2016, the recovery in external demand. The surplus on the transfer account is likely to fall from its historical high as the budget cycle of European Union funding ends. As a result of the two offsetting effects, Hungary’s current account surplus and external financing capacity are likely to stabilise at a high level in the coming years. Consistent with this, the country’s external debt ratios, key in terms of the country’s vulnerability, are likely to continue to decline. The Bank’s self-financing programme, the conversion of foreign currency loans into forint and the provision of foreign currency funding by the Bank related to conversions will contribute positively to the change in gross debt.

The Hungarian risk premium has fallen in the past quarter and sentiment has been generally favourable in global financial markets.

International investor sentiment has been generally favourable in the past quarter. Global risk appetite fell in the middle of October, but sentiment in financial markets began to improve from the end of the month. The positive turnaround in sentiment reflected the release of favourable macroeconomic data in the US, the launch of the ECB’s asset purchase programme, monetary easing by the Bank of Japan, the reduction in interest rates in China and the continued decline in crude oil prices. Of the domestic risk indicators, the CDS spread has been broadly unchanged over the past quarter and foreign currency bond spreads have fallen. Long-term yields on forint-denominated bonds have declined significantly in the period since publication of the September Inflation Report. The forint has appreciated against the euro in the past quarter, due mainly to country-specific factors. Hungary’s persistently high external financing capacity and the resulting decline in external debt have contributed to the reduction in its vulnerability. In the Council’s judgement, a cautious approach to monetary policy is warranted due to uncertainty in the global financial environment.

The macroeconomic outlook is surrounded by both upside and downside risks. Downside risks to inflation increased.

Overall, downside risks to inflation increased relative to the September Report projection. The Monetary Council considered three alternative scenarios around the baseline projection in the December Report, which, if materialise, might influence significantly the future conduct of monetary policy. In the alternative scenario assuming persistently lower oil prices, the decline in the price of oil is mainly driven by supply-side factors. The lower inflation environment points in the direction of looser monetary conditions than assumed in the baseline scenario and economic growth may be stronger. The alternative scenario assuming persistently weak external demand implies downside risks to growth and inflation, and therefore looser monetary conditions ensure the achievement of the inflation target. The intensification of geopolitical tensions, associated with a decline in external demand, could lead to a sudden, sharp rise in the risk premium. As a result, exchange rate depreciation might raise inflationary pressure, and therefore a tighter monetary policy stance might ensure that the inflation target is met at the forecast horizon.

In the Council’s judgement, there is a degree of unused capacity in the economy and inflationary pressures are likely to remain moderate in the medium term. The negative output gap is expected to close gradually at the monetary policy horizon. Looking ahead, therefore, the disinflationary impact of the real economy is likely to diminish. With current monetary conditions maintained, inflation is likely to move into line with the target in the second half of the forecast period, despite disinflationary trends in external markets. The Council judges that, based on available information, the current level of the central bank base rate is consistent with the medium-term achievement of price stability and a corresponding degree of support to the real economy. If the assumptions underlying the Bank’s projections hold, achieving the medium-term inflation target points in the direction of maintaining current loose monetary conditions for an extended period.

The abridged minutes of today’s Council meeting will be published at 2 p.m. on 23 December 2014."


www.CentralBankNews.info

"Prepare yourself for the coming Japanese boom"

This is the title of a column by Peter Tasker, an analyst based in Tokyo, in today's FT. He points out that the decline in the yen from a peak of 78/dollar to 120/dollar is almost unprecedented for a major currency. (a drop of 50%) This is having a dramatic effect. Tourists change their plans rapidly in response to travel costs. Visitors from China are up 80% yoy. Tourism is expected to reach 13 million foreign visitors this year from 1 million a dozen years ago. Hotel occupancy rates are at a 22-year high.

Meanwhile, hourly earnings and total compensation of workers is rising, and there is now more than one job for each applicant. Trasker says Japanese steelmakers and shipbuilders say that are now the low cost producers.

Maybe Trasker's conclusion, that a boom is developing in Japan, is correct.

The Japanese economy: a woolly mammoth frozen in time

From The Economist

The copper market is confusing

The price of copper has dropped 12% year-to-date. The reason given is that the market is in surplus because of weakness in China, mainly.

And yet, according to an article in the FT this morning, there are contradictory facts:

1. Chinese demand for copper is currently "extremely strong," according to Tilis Mistakidis, head of copper for Glencore. Demand in China was up 16% year-over in the the three months ending in October.

2. Copper stocks in Shanghai, London and Chicago are at the lowest levels since 2008.

3. Copper production is expected to drop in 2015 due to declining grades at Escondida, the world's largest copper mine, and mine rehabilitation elsewhere.

4. Analysts who had been forecasting a surplus in 2015 have been cutting their surplus estimates.

Strong demand. Low stockpiles. Declining output. Lower copper prices. It doesn't make sense . . . unless a severe global economic slowdown is in the offing. But is it?

I don't see an objective reason why the economy should be worse next year than this. Mental gloom, however, could conceivably produce a depression were it intense enough, just as high animal spirits could produce a boom, were they present. "The mind is its own place and in itself, can make a Heaven of Hell, a Hell of Heaven." (Words of Satan in Milton's Paradise Lost)

So will we be in for Heaven or are we heading for Hell?

Greece: Now that' what I call a depression.

Piketty lambastes the US economics profession

This weekend I borrowed Piketty's Capital in the 21st Century from the library. Lest I be thought to have read it, I hasten to point out that I read only the introduction, the conclusion, and the chapter on inherited wealth. In addition, I looked at some of the graphs.

He makes a few basic points:

1. Given that the long-term growth rate of the world economy is 1%-1.5%, and the normal return on capital is 4%, it is a mathematical certainty that wealth will grow relative to incomes over time until wealth is destroyed by war, revolution or government policy.

2. Inherited wealth predominates over earned wealth.

3. The spread of knowledge and transparency is a countervailing force that tends to equalize wealth, but it is generally not strong enough to offset fully Point 1.

The introduction is good because it summarizes the book in about 30 pages. Piketty is also an entertaining writer. Someday when I have a lot of free time, such as one would have if serving a long prison term, for example, I may read the entire book.

Piketty was a wunderkind who was hired to teach at MIT just after finishing his PhD in France. He didn't like the US economics establishment, however, because he found that US economists deluded them into thinking they were scientists and were fascinated with their childish mathematical models which had little to do with reality. He therefore returned to France where economists have the advantage of being held in low regard and are therefore obliged to cooperate with the other social sciences and to provide useful insights.

I have attached a page from the introduction that states this. It made me laugh.

The problem we now have in the US is that the deluded economists with their childish models divorced from reality are controlling our fate.

Iraq: Government military strategy fails

Today's FT reports that the Iraqi army has over 50,000 "ghost" soldiers: soldiers who are paid regularly but who don't exist. This worked out fine until ISIS attacked; against them, the ghost soldiers turned out to be totally ineffective.

Interesting details on the rise in average earnings

Real wages are rising at last

The jobs report this morning was good, with 321,000 net new jobs in November. Economists were forecasting about 100,000 fewer.

Equally, and perhaps more interesting was the news that average hourly earnings grew 2.1% year-over-year. (In November of 2013 wages only grew 0.9% yoy.) You will note that wages in Japan are also growing an a good clip. (Not so in the UK.)

Faster wage growth is understandable because although the overall unemployment rate is at 5.8%, the unemployment rate of whites is 4.9% and of Asians is 4.8%, so whites and Asians are close to full employment, which means wages should rise. Rising wages will be tempered, however, by the 6.9 million involuntarily part-time workers plus the discouraged workers.

The FT reported this morning that real wages in the developed world rose only 0.1% in 2012 and 0.2% in 2013, so what we are seeing in Japan and the US represents an important change, I should think.

So wages are finally rising again. Maybe were are beginning to exit this long period declining/stagnant household income, and, at long last, consumption binging can resume. Let us hope for this good result.

Is Japan about to exit the lost decades? I would say yes.

Japan's labor statistics are very positive.  This should ignite the domestic ecoomy.

From today's FT:

Uranium in the long term will be unaffected by the Tohoku disaster (Euromoney Nov. 2014)

Inside investment: Uranium – Metal of the mind and Tohoku 

Lincoln Rathnam Monday, November 03, 2014 

Investment is easy when you can immanentize the eschaton. But even radioactive assets such as uranium can be worth running a Geiger counter over. 

News triggers thought in a tricky way. Take, for example, the Fukushima disaster in Japan. It occurred in March 2011 after the Fukushima nuclear plant was hit by a tsunami produced by the Tohoku earthquake, the largest ever recorded in Japan (9.0) and the fifth largest ever in the world. Over 15,000 people were killed by the tsunami, which, while not breaching the nuclear plant’s containment, caused three of the six reactors to melt down. 

Fortunately, the containment held, and no one has so far died from the meltdown. A 2013 World Health Organization report says that the worst case effects would be a possible rise of thyroid cancer among female infants living in and remaining in the Fukushima Prefecture from a natural rate of 0.75 to 1.25 per 100 over the course of their lives. The WHO estimated that, even among the emergency workers inside the plant following the incident, cancer risks were the same as the general population in two-thirds of the cases and slightly higher in one-third. 

Considering these facts alone, one might well conclude that the nuclear plant performed very well in the face of an incident far more severe than it was designed to handle. In the not-too-distant future, the Fukushima plant might well be cited as a testament to the safety of nuclear power. The 2013 WHO report is a step in that direction. 

That is not, however, how people view the matter today. Forgotten are the earthquake and tsunami that caused so much death and destruction; remembered is the ‘Fukushima nuclear disaster.’ I imagine that when many Japanese people think about the tsunami, what comes to mind is not a tidal wave, but Hiroshima. 

235 Gnostic speculations 

Uranium is as much an idea as it is a metal. I remember a time around 1970 when I was a college undergraduate and ran into a friend sporting a lapel button that read, ‘Don’t immanentize the eschaton.’ 

William F Buckley Jr had visited the campus to address the Conservative Society where he distributed these buttons. At that time, the Vietnam War controversy was raging on campuses because the draft still existed, which made the already scary prospect of graduation even more horrifying. Anti-war sentiment was high and the proponents of unilateral nuclear disarmament were active. Buckley took the position that although the effects of a nuclear war would be horrible, unilateral disarmament would increase rather than reduce the risk of one occurring. He might have been right – so far. 

But the point is that ideas are often more powerful than reality, even over substantial periods of time. This applies more strongly to investments than to many other areas, such as lawn care or automotive repair. The feedback mechanism for bad lawn care ideas is the appearance of brown spots on the grass in a few days or weeks, and for bad automotive repair ideas mechanical failure. 

Investment ideas, however, do not exist in that real world. Investment ideas are not of this earth. They float in outer space in an ether of capital markets theory, buoyed up by forecasts – fallacious and otherwise. The world of investment ideas is, in short, a world of opinion. 

This frustrates fundamentalists who perforce believe there will be an end time, an eschaton, when reality is revealed. Fundamentalists are betting reality will trump theory within their investment horizon, which might be a month, a quarter, or a year. 

I wondered about this when I listened recently to a presentation by a uranium mining company. I was particularly struck by a slide that showed that while only 58 nuclear reactors were under construction before Fukushima, the number is now 72; 152 reactors were planned before Fukushima, 174 are planned now. This is on top of the 435 reactors now operating in the world. 

Although demand dropped when Japan shut down its nuclear industry, the supply of uranium is already getting tight again. In fact, mine supply has been below consumption for 25 years. The 20-year programme under which Russia, in co-operation with the US, downgraded its weapons-grade uranium to fuel grade had been adding to supply until it ended last year. 

Mine production increased in the previous decade as uranium prices spiked to almost $150/lb, and the increase was mainly in Kazakhstan, which now accounts for about 40% of world production. We are now at $35/lb, which is said to be less than half the price needed to justify investing in new mining capacity. Meanwhile, the Global X Uranium ETF (URA) has dropped 21% this year and 80% from its high in 2011. 

According to the World Nuclear Association, the uranium fuel cost needed to produce one-kilowatt hour of electricity with uranium costing $35/lb is half a cent. Electricity prices in the US average between 10 cents and 15 cents per kilowatt-hour, so the uranium fuel is not a big factor. The price effect of uranium falls, therefore, wholly on supply and not at all on demand. Right now, supply is flagging while rising demand is built into the existing plant construction schedule. 

Some fundamentalist investors are now betting on uranium. Their reward still floats gently between the real world of facts and the dream world of investment ideas. They are betting that the realization of uranium’s value will soon come to earth and that the eschaton will be immanentized to their profit. 

Will regulatory changes finally unleash the velocity of money?

The banks have been saying that they are restricted in lending due to capital constraints due to two rules that the regulators have imposed since the crisis:

1. Banks must retain some of the risk for mortgages they sell that have less than 20% equity behind them.
2. The banks must take back mortgages they sell that go bad due to "their mistakes."

These innovations meant that even loans sold into the market effectively remained on the balance sheet and thus required capital. Since capital requirements are higher than they ever have been, lending has been fairly static despite Fed stimulus.

This is part of why easy money has not resulted in more lending.

Now this has changed. The regulators have done away with both rules. (See the NYT article: http://nyti.ms/1yZEtup )

Will this result in an acceleration in lending? It should. But how much? Maybe Bernanke should apply again.

This graph shows how anemic mortgage lending has been:

Erin go brag!

Business

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Ireland’s GDP now forecast to increase by 5pc – Bank of Ireland Quarterly Economic Outlook

23.10.2014

Ireland’s GDP now forecast to increase by 5pc – Bank of Ireland Quarterly Economic Outlook

For 2015, growth of 4.2pc is projected, up from 3.4pc previously and reflecting in part the changed fiscal stance with Budget 2015 providing for a €1bn stimulus, as opposed to the originally envisaged consolidation of €2bn.
The latest Bank of Ireland Quarterly Economic Outlook for the Irish economy has forecast a strengthening of the recovery, with GDP growth revised upwards for this year to 5pc from 2.8pc in its July outlook.

“News on the economic front has been positive through 2014, with headline measures of activity for the first and second quarters, and high frequency data for the third, confirming that the economy is strengthening,” said Loretta O’Sullivan, group chief economist, Bank of Ireland.

“The data also show that the recovery has broadened out, with domestic demand now contributing to growth along with exports. This was expected and is in line with the recovery path that Ireland has been following for some time.  

Sows to farrow more piglets

The FT's "Big Read" this morning is about commodity prices. It notes that the Bloomberg Commodity Index is at its lowest point in five years. That's low, and surprising given easy money.

The IMF estimates that the $20 drop in oil prices will increase world growth by 0.5%-1,2%.

Corn prices are down well over 50% in the past year. The FT notes that "hog farmers intend to allow more sows to farrow piglets," which is a shocking result to vegetarians.

Maybe now is, at last, the economic takeoff. What do you think?

No wonder US consumers are in a grouchy mood: no recovery in incomes yet

We may have fallen back to 1996 levels, which felt good at the time, but how will we feel at 1886 levels?

Do FT headline writers read the articles?

On page 2 of the FT today one sees "Russia to curb defence spending." The article says the new budget proposes a 32% increase in defense spending in 2015 followed by a 5.3% decline from that level in 2016, which would still be 25% higher than today. (Russia is aiming to bring 70% of its armaments up to date by 2020.) The article also points out that while Russia had a budget surplus last year, it may have a slight deficit this year.

We can be pleased by how much better we in the west are doing.

Remember this date: IMF says China now the world's biggest economy

"I am PIIGS; hear me oink!"

There is a surprising degree of optimism in the sty these days. Ireland is doing great. Greece is expecting growth this year and next (0.6% and 2.5%), and the Spanish market is near the US PE with Spain's banks trading at premium valuations to US banks. What is the secret of their success? I suppose it must be austerity.

The unexamined life is not worth a billion dollars, according to the Economist

http://www.economist.com/news/business/21621778-business-leaders-would-benefit-studying-great-writers-philosopher-kings?fsrc=scn/tw_ec/philosopher_kings

Market Disses Dots. Who is dotty, the Mr. Market or Dr. Yellin? BCA's take on issue.

Stock futures rally despite Greenland crisis: Had it been factored in?

From today's Financial Times:

Argentina Central Bank President ousted for "leaking sensitive information."

The information in question is that the government is planning to confiscate what is left of the people's money. This information deprives the authorities of the element of surprise.

“One of the last voices of reason of the current administration has departed,” Alejo Czerwonko, a New York-based strategist at UBS Wealth Management’s chief investment office, said in an e-mailed response to questions. “This development points towards further radicalization of monetary and fiscal policy in the country.”

Yellin's labor market dashboard is looking good. WIth China, Japan and the US perking up, why all the economic pessimism?

. . . except for the labor force participation rate.


The US, China and Japan, world's three biggest economies, are looking better. Question: why all the worry about world gdp growth?

The Economist says the US government is the biggest extortionist racket in the world.

From The Economist, August 30:

"WHO runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.

"The amounts are mind-boggling. So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds. BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations. And that is just the financial institutions. Add BP’s $13 billion in settlements since the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more.  In many cases, the companies deserved some form of punishment: BNP Paribas disgustingly abetted genocide, American banks fleeced customers with toxic investments and BP despoiled the Gulf of Mexico. But justice should not be based on extortion behind closed doors. The increasing criminalisation of corporate behaviour in America is bad for the rule of law and for capitalism."

From <http://www.economist.com/news/leaders/21614138-companies-must-be-punished-when-they-do-wrong-legal-system-has-become-extortion

US companies are increasing investment significantly

A majority of US small businesses plant to increase investment, compared with less than 1/3 eighteen months ago.  Finally! (from the WSJ)

The US is going broke due to dependency.

Our basic fiscal problem in the US is too few people pay income tax and too many received welfare benefits.

Only about 1/2 of the population live in households that pay taxes:

This parallels the increase in the numbers of "takers" relative to "givers."

Finally!?! Is the monetary transmission mechanism (i.e. bank lending) starting to function again in the US?

From the Wall Street Journal.

Famous last words

David Tang has this anecdote in today's FT: “Talking of death, I have always admired the optimism of Spain’s General Franco who regarded himself as almost immortal.  Once, it is said, he was lying, extremely weakly, in bed and everyone around him thought he was going to die.  Hearing a great deal of commotion and noise, the dictator asked, with a weakening hand, “What’s all that noise?”  His aide replied: “General, that's the crowd outside.  Your people.  There are thousands of them chanting your name.  They have come to say farewell.”  The General looked faintly puzzled and asked: “Where are they going?”

WIll Russia benefit from sanctions?

Interesting article on Russian agricultural in yesterday's FT. Russia exports energy and imports food and manufactured products. It's exports have not been affected by sanctions, therefore. In response to western sanctions, Russia has banned the import of many foodstuffs.

Russia has 0.8 hectares of arable land/capita, about the same as Argentina and Ukraine but still imports 40% of its food. With bans on imports from Europe and a weaker ruble, Russian agriculture may grow. Since the collapse of the Soviet Union, land under cultivation dropped from 90 mn hectares to 73 mn. The poor logistics infrastructure is a barrier. Nonetheless, poultry production is up 60% since 2008 and pork 36%. Will Russia become self-sufficient in and then an exporter of food? Russia already generates excess cash flow; this would increase greatly without food imports.

IBM: "Skim milk masquerades as cream."

I liberated these graphs from Dan Oliver of Myrmikan Capital.

IBM has clearly benefitted from Quantitative Easing by replacing expensive equity with cheap debt.

Over the past five years, IBM's stock has nearly double and its EPS have increased by 50%. But inside the numbers, it doesn't look very healthy. What happens when interest rates rise?

Are credit conditions returning to "normal?"

Auto loans by credit score:

Proof that Americans are more smart than those other dopes

from the New York Times

In the early 1980s "the A&W restaurant chain released a new hamburger to rival the McDonald’s Quarter Pounder. With a third-pound of beef, the A&W burger had more meat than the Quarter Pounder; in taste tests, customers preferred A&W’s burger. And it was less expensive. A lavish A&W television and radio marketing campaign cited these benefits. Yet instead of leaping at the great value, customers snubbed it.

"Only when the company held customer focus groups did it become clear why. The Third Pounder presented the American public with a test in fractions. And we failed. Misunderstanding the value of one-third, customers believed they were being overcharged. Why, they asked the researchers, should they pay the same amount for a third of a pound of meat as they did for a quarter-pound of meat at McDonald’s. The “4” in “¼,” larger than the “3” in “⅓,” led them astray."

Is the US the most literate nation on earth?

According to CNBC, the USPS delivers 43% of all mail delivered in the world.

It's a drag

Greece's public sector wage bill has fallen from €24 billion in 2009 to €16 billion in 2013, according to today's FT. Now that's what I call austerity!

Good news from the Duchy of Grand Fenwich

The IMF calculates that Luxembourg receives one tenth of the world's foreign direct investment, through "letter box corporations." The fees on this flow make it the richest country in Europe. Now the former pm is now to become the president of the European Commission. One comment of a tax specialist: "This isn't a poacher turned gamekeeper, it looks more like the poacher in charge of the gamekeepers."

Is China about to hit a wall?

China's debt/gdp has risen from 147% at the end of 2008 to 251% at the end of June. The US and the UK are 280% and Japan is 415%. What would be China's growth rate were the ratio to be stable rather than rising?

The very best hypocrites always sound sincere

EU has failed to add to Russian sanctions following the airplane disaster, despite a push by the UK, which was criticized by Jean-Christophe Cambadelis, head of the French Socialist Party, who said, "This is a false debate waged by hypocrites.  When you see how many [Russian] oligarchs have sought refuge in London, David Cameron should start by cleaning up his  own back yard." (In the FT today)

Henry Kaufman says the business cycle is dead

Henry Kaufman (remember him? Dr Doom of the 1970s?) wrote an oped in the FT yesterday, "Markets and the Fed have to practise a new dance," suggests that we might not see economic cycles in the future, but "selective intervention" by the Fed. I suppose he means, although does not explicitly say, that business cycles will be replaced by carefully modulated boom and bust cycles. Puzzling it is, both what he means and why he wrote this essay.

I wonder if we should welcome a replacement of normal market forces with Fed decision-making.

Assets of big banks get really big. Deutsche, Barclays, HSBC, BNP exceed $2.5 tn each.

I could hardly believe this graphic in the FT yesterday. Despite increased capital requirements, slow lending growth, and write-offs, the assets of the big banks have been growing by leaps and bounds: Barclays was up 500% in the 10 years ending 2012, for example, to $2.5 trillion.

Is this why they're invading the USA?

Latin America has the highest crime rates in the world. Honduras has the highest murder rate in the world. It has 90.4 murder/100,000/year. (So everyone in Honduras has a one in ten chance of being murdered in any ten year period?) London, which had 112 murders in the past year, would have had 7,500 with Honduras' rate. Economist 7/12/2014

As we speak:

Embassies of Japan and Korea are hosting joint meetings of Japanese and Korean companies to encourage them to team up to counter increasing Chinese investment in Russia. Is this in keeping with our sanctions?

Water, water everywhere. . .

There is an interesting article on water in the FT (Wednesday, p9) on water. The top ten countries for freshwater, both surface water and groundwater, account for 60% of world's fresh water: 

 
Brazil - 12.1%
Russia - 9.3%
USA - 7.8%
China - 6.8%
Canada - 6.2%
Colombia - 5.4%
Indonesia - 4.7%
Peru - 3.7%
India - 3.5%
Myanmar 2.8%

India and China have problems, particularly India, with only 1/2 as much water as China. But will Colombia, Peru and Myanmar become to water what the Middle East is to oil? By far the biggest use of fresh water by humans is for irrigation (2/3rds of total.) All efforts at conservation other than limiting irrigation will have marginal impacts. It would be better to address supply than demand, since irrigation is, as Martha Stewart would say, "a good thing."

Too much of a good thing?

President Hollande of France wants to streamline local government.   (FT Tuesday, p4)  France has 13% of the population of the EU’s twenty-eight states, but it has one-third of EU local authorities.  There are 36,700 municipalities, 2,500 intercommunal groupings, 100 prefectures and 200 subprefectures.   The French refer to this as a “millefeuille” in light of these delectable , rich, buttery bureaucratic layers. 

According to Plato, reality resides in the forms.

It turns out that the accounting error at the Bank of America that derailed its dividend plans was really an error at the Federal Reserve.  The Fed provides forms to banks to calculate their regulatory capital.  The forms gave incorrect instructions, which BAC followed.  When the Fed noticed its mistake and corrected its instructions, a new, lower capital level resulted when the new instructions were followed. . . . Something similar just happened to me.  I just turned 65 and received a letter from Medicare explaining how to enroll on their website.  These instructions were incorrect because, it appears, the web site had been changed but the instruction letter had not.  (Probably a different department for the letter from that for the website.)  It goes without saying that BAC had to take the blame for fear of regulator retaliation.  (Faceless bureaucracies abhor red faces.)  The interaction between big government and big business produces big errors.  The interaction of big government and the individual is just inefficient and annoying.

 

Wake up and smell the data

The FT argues that “the dollar's decline in status is greatly exaggerated:  "Emerging central banks, led by China, have piled into US assets.  A far higher proportion of US government debt is held by foreigners than is true of Eurozone or Japanese government debt.  So international trust in the US continues to be deep."  (John Authers, FT Weekend, p16) This belies that fact that China now has only 31% of its reserves in dollars compared to over 70% a few years ago and that dollars are now a minority of reserves globally (assuming one doesn’t count the Fed’s massive holdings of dollars.)  The FT should wake up and smell the data.  The US dollar has already, alas, lost its dominance.

Global central bank gluttony?

Is it behind the treasury rally?   RBS estimates that global demand for high quality bonds is $1.2 tn while "net" supply is only $600 bn.  Meanwhile, U.S. banks increased treasury holdings by 23% in the first quarter. So there’s lots of cash and a “net” shortage of bonds.  The word “net” is key, since the too meager supply is net of the 60%+ of all securities being issued in the world that are being purchased by central banks.  (FT Weekend, p 12)

They want to take you higher.

The U.K. is thinking of raising rates to avert inflation, whilst the ECB is planning to lower the deposit rate to a minus number to fight deflation at the same time.  Why is it that England, with much higher interest rates than Germany and an equally tight fiscal policy, is having more inflation while Germany is having less inflation?  (FT Weekend, p1)

Is an irreplaceable symbol of Chicago’s heritage at risk?

Walgreens, based in Illinois, owns 45% of Boots, the UK pharmacy.  It is considering exercising its option to acquire the balance.  That would allow it to move its official headquarters to the UK, where it would benefit from lower worldwide taxes.  Walgreens grew to a national chain during Prohibition, with sales driven by the high-quality "medicinal" whiskey it stocked under-the-counter to supply "alcoholics" holding prescriptions, which were as freely-available then as prescriptions for “medicinal” marijuana are in Massachusetts today.  Can there be a prouder symbol of Chicago’s past?

The Inscrutable East: Up? Down? Sideways?

The official Chinese manufacturing index rose from 50.4 in April to 50.8 in May.  To stimulate the economy, bank reserve requirements have been reduced.  Meanwhile, housing prices dropped from April to May, or so they say. China is still targeting 7.5% growth in 2014. Can they make it happen?  Doesn’t the market expect/fear worse? (FT Mon p4)

Spain's government proposed to lower the top corporate tax rate to 25%. Are trade wars becoming tax wars?

Even though Pres. Obama might not approve because of the subversive ideas it would give to US companies. . . Spain is planning to cut the top corporate tax rate from 30% to 25% to stimulate the economy. The government believe they must do this to be internationally competitive.  (FT, Mon p3)

The allies have our backs, just like in 1944.

This week’s D-Day celebrations on the beaches in France will, of course, include our then ally Russia, despite the anti-Russia sanctions about which the remaining allies are united.  But the FT senses some cracks in the alliance:  "European officials, however, suggest there is a difference of views about the nature of the separatists in eastern Ukraine, with the US tending to see unrest as being instigated by Moscow, while some in Europe believe the rebellion to be more organic."  Besides, Europe needs the gas and we don’t.

China and the Revenge of the Sith.

Robot Wars? Last year China bought 36,560 robots, up 60% from 2012, replacing Japan as the world’s biggest buyer of automatons. Japan bought 26,015 and the US, in third position, 23,679.  This was according to an FT article on page one on Monday. 

Problem solved bionically? I was reminded of the above today, when the FT (p6) discussed Japan’s declining workforce.  Last year Japan’s population declined by about 200,000 (0.17%), so we can estimate that the workforce dropped by 120,000.  But if the new robots work three shifts plus the weekends, a robot might be the equivalent of four human workers.  This means the Japan’s workforce was basically flat on a robot-adjusted basis, and soon it may be growing.

LOL. . . WUT? . . . OMG! . . .

In this week’s Bloomberg BusinessWeek (5/12, p12),  Michael Metcalf, head of “cross - asset strategies” (what’s that?) at State Street Global Markets in "Printing Money To Help The Poor" suggests pulling poor countries out of poverty by governments issuing zero coupon perpetual bonds purchased by their central banks and giving the money to poor people in the third world.  After all, U.S., U.K., and Japan have issued $3.7 trillion without any problem, he points out.  This idea came to him when his five-year-old daughter, not having any money to give to a homeless man, simply drew a picture of a $5 bill.

Are the Germans and the French cuddling up to the Russians behind our backs, or are they just playing FTSE?

The NYT reports, “Recently, Mr. Hollande joined Chancellor Angela Merkel of Germany on a phone call with Mr. Putin. . . Mr. Hollande’s scheduled meeting with the Russian president now constitutes the French president’s most prominent diplomatic foray into the Ukrainian crisis since it began. It follows France’s announcement that it would honor a deal worth 1.2 billion euros, or $1.6 billion, to deliver two Mistral-class warships to Russia even after its land grab in Ukraine, a decision that displeased France’s Western allies.”

And we ask ourselves why the banks aren’t lending, or “the beatings will continue until morale improves.”

CEO Moynihan of Bank of America said at a conference yesterday that they have just one big legal settlement left: one with the Department of Justice, which is estimated to be around $10 billion.  “We’ve got a myriad of cases that we’ll work through, but of the big stuff, that’s really the one that’s left out there,” said Moynihan. To date, Bank of America has paid about $60 billion in settlements and legal fees relating to the crisis, mainly from the shenanigans at Countrywide prior to its acquisition.  At the end of 2006, total shareholders' equity was $135 billion. (Charlotte Observer)  

Salvation Army, eat your heart out

Consignment shop chain Snooty Fox in Cincinnati has achieved $5 million annual sales and 11 outlets. It imitates clothing boutiques but with zero inventory costs and, of course, low prices. Is used clothing moving upscale, or is America moving downscale?

What? Me worry?

Niall Ferguson et al, reports the WSJ, provided the following chart at a conference in Portugal. He said that we shouldn’t worry about it.

In space they can’t hear you scream.

Also in today’s WSJ, Sayuri Shira, board member of Japan Central Bank, worries that inflation will not be high enough next year.  (The target is 2% by spring 2015.)  Meanwhile, the Brazil central bank kept rates at 11% even though inflation is higher than it would like. In Turkey, the central bank cut interest rates 0.5% to 11.5% despite the fact that inflation is likely to exceed the bank’s 5% target by a wide margin, but Prime Minister Erdogan is not pleased.  He called the cut "a joke" and wants more aggressive cuts to stimulate investment.

”I want inflation to be higher than I want it to be.”

So says, in effect, San Francisco Fed President John Williams, who is quoted in the WSJ today as arguing forcefully that the “optimal policy should trade off a transitory period of excessive inflation. . . in order to bring the broader measure of underemployment to normal levels more quickly.”

And the winner is. . .

In the race to the currency bottom, this year’s losers are the yen and the won, both up 3% versus the dollar.  The Renmimbi wins; it’s down 3%.  Ultimately, the winner will be the currency that first achieves zero value.

In the Ivory Tower, computers never crash.

In a curious, nay bizarre, article in today’s FT (p9), Kenneth Rogoff of Harvard argues that there is too much paper money (i.e. cash) around, which is about $4,000/capita in the developed world.  (His recent book argued there was too much debt.)  He proposes doing away with it, beginning with the $100 dollar bill.  This will increase the government’s ability to monitor and, eventually, control every aspect of our spending, which he views as a good thing.

Is it taxes, regulation, or just old age?

U.S. Business failures have exceeded startups since 2009.  The rate of business failures seems relatively steady, while startups have been declining since at least 1978.  If a loss of 2%/year were to continue, there wouldn’t be any businesses left in fifty years. (Economist.)

Has the US passed the private leverage baton to China, and will the results be the same?

Private debt was declining in China until 2008, but then everything changed in a big way.  One has difficulty in imagining a very soft landing.

Please Dr. Yellen, are we taking enough risk yet?

An article in the FT by Patrick Jenkins yesterday identified 5 dangerous bubbles: 

1.      Leveraged loans.  Securities representing $260 bn in covenant light loans were issued in 2013, up 69% from previous peak in 2007. 

2.      ETFs.  Liquid securities composed of increasingly illiquid assets that must be liquidated as EFT's are redeemed have proliferated.

3.      Eurozone sovereign debt.  Peripheral countries like Portugal are paying the same rate as the US treasury.  (Does this reflect overconfidence in Portugal or lack of confidence in the US?) 

4.       European bank paper.    A DB-issued cramdown hybrid bond was 10x oversubscribed, and Spanish non-performing loans quoted at prices that would yield 14% were they paying, which they are not. 

5.      UK property in the southeast.  London house prices have gone from 4x the average earnings of first time buyers to 8x.

The mouse that snored: Shouldn’t the newest EU members be the most enthusiastic?

Slovakia led the 28 EU member countries in apathy in Sunday’s parliament election with the lowest turnout, 13%, compared an EU average of 43%.

With thieves and morons so-well represented, why leave out those of us who are overweight?

A Michigan State University study documents weight bias in U.S. elections.  Overweight candidates get fewer votes than do the svelte, and overweight women fare worse than men with the same profile.  This means the third of the population who are obese are underrepresented in office. (From an article in a paper picked up on a Toronto street on Monday)

Is it still possible for a Nigerian politician to be too trusting and naïve?

Interviewed on Al-Jazeera TV, a Nigerian senator expressed surprise that military could not cope with Boko Haram. After all, he said, the military are given $10 bn a year. Even if they siphoned off 75%, they should have enough resources to defeat the terrorists.

Why the precipitous drop in law school applications and attendance?

The unemployment rate for lawyers nine months after graduation was 11.2% in 2013, up from 9.2% in 2011. Boston College Law School applications dropped 40% in five years, and Boston University’s were down 50%. Enrollment at the top 200 law school is down 24% from 2010. This is a lot even taking into account lawyer unemployment. (Boston Globe, May 4, G5)

At what age do we acquire wisdom?

On page 5 of the Weekend FT one finds the obituary of Stephen Sutton (1994-2014) who achieved fame in the UK by dying gracefully and publically at age 19. His Facebook and Twitter campaign raised £2.6 mn. (For what? The article does not say.) He is quoted as telling a group of wealth managers: "I do not know how long I've got left to live, but one of the reasons for that is because I haven't asked. That's because I don't see the point of measuring life in terms of time any more. I would rather measure it in terms of what I've actually achieved." Michel de Montaigne wrote something similar at a fairly young age, in his thirties: “Wherever your life ends, it is all there. The advantage of living is not measured by length, but by use; some men have lived long, and lived little; attend to it while you are in it. It lies in your will, not in the number of years, for you to have lived enough.”

Is it fair to say there is a management problem at the VA?

According to the Weekend FT, p14, The Veterans Administration has 8.57 million vets enrolled, a budget that has grown from $73 bn in 2006 to $154 bn in 2014, and visits have doubled since 2000. Twenty-four patients died in Phoenix after being on a waiting list for up to a year. Doctors there shredded papers to obscure the facts. What’s going on at other VA facilities?

What’s the difference between a bond and a bond trader?

(Answer: “The bond eventually matures.”) This old joke came to mind when I read in the FT that Deutsche Bank doesn't want traders to use bad or indiscrete language. Colin Fen, co-head of investment banking wrote to employees that "some of you are falling way short of our established standards [sic]." . . . "Let's be clear; our reputation is everything. Being boastful, indiscrete and vulgar is not o.k. It will have serious consequences for your career. And I have lost patience on this issue."

Is the US more anticompetitive than France?

France economy minister Arnaud Montebourg, prompted by opposition to the acquisition of Alstom’s power business by GE, has issued a decree requiring state approval for most foreign acquisitions. (One can expect that approval will not be given in this case.) In response to criticism that such a restriction is anticompetitive, Montebourg pointed out that his decree is no broader than the rights of the Committee on Foreign Investment in the US. (This inter-agency committee was established in 1988 to prevent Japanese acquisitions of US companies if “there is credible evidence that leads the President to believe that the foreign interest exercising control might take action that threatens to impair the national security.” It frequently blocks transactions.)

Where will the extra crude come from in the second half of the year?

The International Energy Agency (IEA) expects the world will need another 900,000 bpd in the second half, on top of the 400,000 bpd OPEC increase in April, but the IEA doesn't know where it will come from given production problems in Nigeria, Angola, Libya, South Sudan, Columbia and Kazakhstan.  Global crude inventories are below normal. (FT, Friday, p15)

Should we fear the 2nd of June?

President Putin has written a letter to each of the 19 European countries to whom Russia sells gas telling them he will cut off gas to Ukraine on June 2nd unless Ukraine begins prepaying.  Ukraine is currently paying nothing for gas and owes Gazprom $3.5 bn.  In the letter Russia says that it is willing to negotiate terms but has received no proposal from Ukraine.  For Russia to supply Europe while cutting off Ukraine, Ukraine would have to allow transit of the gas.    (FT, Friday, p4)

Should we be raising forecasts for Japan GDP growth in fiscal 2014 (ending March 31, 2015)?

The government’s forecast is 1.4%.   Some private economists have be predicting less than 1%. But the quarter just ended (the last of FY 2013) on March 31 was 5.9% versus a consensus of 4%, as consumer spending anticipated a 3% rise in sales tax.   Reports say post-tax-increase sales have not dropped off as much as expected, however, and capital spending was up 4.9% in the quarter.

Will the US ever get back to the 1.2-1.5 million housing starts a year we used to consider normal?

Housing starts were up 13% in April to 1.07 million, but still below last November’s 1.11 million annual rate.

Were they doing a “great job” or just a “good job?”

At a conference in London on Wednesday, Bank of America’s CFO Bruce Thompson was asked to comment on the accounting error that wrongly inflated the bank's capital ratios but he demurred, saying that the bank would "get back to doing a great job" on the stress test process and share buybacks, which were derailed by the error.   The stock has dropped from $18 to $14 due to the schoolboy error, resulting in the loss of $40 billion in market capitalization.

Fahrvergnügen (driving enjoyment). European auto sales accelerate

Europe is getting back in gear.  Ford announced that European sales rose 6.6% in April (industry 4.2%).  This was the 11th straight month of European sales improvement.  VW’s western European sales did even better: 8.2%.

On what planet does the Bank of England reside?

The UK has been reporting strong employment and good growth.  Meanwhile, Bank of England's Carney said that rates will stay low into next year anyway at a 0.5% level because inflation will stay near the bank's target of 2% through 2017 and growth will be modest.  Odd, since inflation, which is was 1.6% in the last report, was well above 2% all of last year and the economy is now accelerating.

Is the UK on the verge of a boom?

The UK just reported the strongest quarterly increase in jobs since records began in 1971.  The jobless rate fell to 5-year low of 6.8%, and the number of people out of work dropped by 133,000.  The total number of people working rose to 30.43 million, also the highest absolute number since 1971.  Self-employed workers now number 4.55 million, an increase of 183,000 for the quarter.

US banks will lend less to Russia, but the Russians don’t mind.

With a balanced budget, a current account surplus, and little sovereign debt, the Russian state is relatively indifferent to banking sanctions.  According to the central bank, Russia’s total external debt (public and private) is about $700 bn, most of it long; reserves are $500 bn.  The trade surplus is running at $170 bn. Banking sanctions are the favored kind of showy gesture that the US can make without the risk of affecting anything.  As such, they serve a useful public relations function.

Land of hope and baloney

The Indian stock market is rallying on expectations of a Modi victory.  Shares have risen 17% in three months.  Rodham Desai of Morgan Stanley is quoted in the FT as saying, "the market has turned hugely exuberant; there is a big hope that this incoming government will fix all of the country's macroeconomic problems.” 

The European defense industry is still downsizing even as global threats increase.

 Airbus is restructuring and cutting 5,800 defense jobs in response to a steep reduction in European defense spending.  It would appear that Europe is not particularly worried about security despite events in Ukraine.  Will this change?

Chinese housing: Built to last but likely to diminish

Residential construction is currently 23% of Chinese GDP.  (In the US it is 3.1%) The Chinese build houses and apartments of cement, and China produced more cement in 2011 and 2012 than the US did in the entire 20th century, according to China’s statistical agency.  But the economy is slowing. Electricity consumption was up only 4.4% in April. Curious though it is, the government has taken no stimulus measures.  One suspects the authorities want a slowdown.

Do Americans love their mothers?

­The National Retail Federation says Americans spent $29 bn on Mother's Day gifts this year. That’s only $300/mother.

Thank you, Federal Reserve, for the easy money

Ethiopia got its first credit rating: Fitch B, S&P B, Moody's B1. The economy is said to be growing at a 10% rate and the country is planning to issue a Eurobond.

Confucius says: “Even the seizure of the largest hydrocarbon resource must begin with a single offshore oil rig.”

China has moved an offshore rig into waters off Vietnam. Vessels of the two countries have been harassing each other. In December China state TV aired an eight part documentary proving it owns the seas within the famous “nine-dash line,” which goes up to the shores of Vietnam, the Philippines, Malaysia, and other countries.

The mouse that prospers: Why is it that small countries are usually more successful than big ones?

I suppose it is because everyone knows what is going on and consequently there is more accountability and efficiency. Take the Isle of Man, which was profiled in the FT recently. The country has had 29 years of continuous economic growth. It’s the 8th richest country in the world, ahead of the UK. It has a comprehensive welfare state for its 85,000 people. During the crisis the UK cut off its customs revenue sharing with Mann so the Manx are balancing their budget entirely on local revenues from the 10% corporate profit tax on banks, property companies and retailers, and a 20% personal income tax capped at £120,000/person.

How does one invest in Mann? Manx Telecom, recently listed in London. MANX. 162.50p. P/E: 500x. Market Cap: £183 million. Revenues £76 million.

Is Internet retailing peaking?

US April retail sales were up +0.1% compared to consensus expectations of +0.4%. Internet down -0.9% while department stores up +1.8%. 

It has been prophesied that the electricity price rapture will precede drought apocalypse in Brazil

Alcoa has stopped aluminum production in Brazil in order to divert power from thermal plants used in smelting to the spot electricity market. It is guessed in the FT that it costs Alcoa $18/megawatt hour to produce power which can now be sold for up to $377/megawatt hour in spot market.   70% of Brazil’s electric power is hydro.  Reservoir levels in the state of Sao Paulo are expected to fall below the outflow mains next month. On the positive side, there’s the World Cup.

The luck of the Irish

Ireland's financing costs have fallen below Britain's for the first time since the crisis. Get out your magnifying glasses: 2.656% (Ireland) vs 2.683% (UK) for 10-year bonds.

Steel yourselves: base metals are looking up

ArcelorMittal reported better results than expected. The first quarter loss was $250 million compared to $345 million last year.  The company is now expecting steel demand to rise to 2%-3% this year. They had been expecting a 1.5%-2.5% only a couple of months ago.   At the same time iron ore prices have fallen to a 20-month low of $102.80 a tonne.  Are we seeing a favorable conjunction with price and volume leverage going forward?  Is the economy approaching escape velocity?

Inebriation of the press is the best defense against tyranny

Journalists in India fear a nationwide alcohol ban. Prime ministerial candidate Modi’s home province of Gujarat has banned alcohol since 1960. Would an India-wide ban lead to an exodus of the best journalistic minds?

Everything an Italian prime minister needs to know he learned in kindergarten:

"I learned from my mother that doing good deeds is the best way to elevate oneself," remarked Silvio Berlusconi, beginning his one year community service sentence in a home for elderly dementia patients.

European parliament elections from a UK perspective

Blimey! While the UK’s leaders quail before the rise of the UK Independence Parties, even the most affected average chaps seem indifferent.  The FT reports that there are 300,000 registered and 600,000 unregistered British citizens living in Spain, for a total of 900,000.  Only 16,000 are enrolled to vote in British elections.  Few seem aware of the May 25 election. According to a Brit in Annie's Irish Pub on the Spanish coast, “most people down here just want to get together and have a laugh.". 

Americans exit stage left, pursued by weird tax rules

American citizens are running away. In 2013, 2,999 Americans renounced their citizenship, up 211% from the previous record in 2011. The Foreign Account Tax Compliance Act of 2010 (FATCA), now being phased in, not only makes it unadvisable for foreign banks to accept American taxpayers as customers (UBS, DB, etc. already don’t) even if the Americans in question are living abroad. Not only that, compliance is difficult for the 6 million Americans living abroad; those who can find banking services face onerous reporting requirements and criminal penalties for errors.

As for American corporations, will the US politicians’ opposition to Pfizer’s move to the UK prompt a rush for the exits? Ron Wyden, chairman of the Senate finance committee is threatening retroactive legislation to prevent this. It would certainly be prudent for multinational corporations to get while the getting is good.

The government seems to assume that no one has any legitimate reason to be abroad, nor to do business there. The concept of globalization is foreign to them.

We fear death, so we focus on the present

People are revoltng in Europe

Of the EU's six original members, three are expected to see "populist or far-right parties" (are they the same thing?) finish first or second in the upcoming European Parliament elections.  These three are France, Netherlands, and Italy.

Irish (CPAs') eyes are smiling

From today’s FT.  Any comment would be superfluous, except that Irish eyes are smiling, along with those in Germany and Canada.

Shareholders in London express revulsion to excessive compensation

British firms are apparently now required to submit executive compensation plans to binding shareholder votes. Over 40% of Standard Chartered's shareholders have just voted against the company’s plan because the incentives were tied to annual rather than longer performance. 

WIth Barclays' downsizing, there is no longer any British bank in the bulge bracket

Barclays is cutting 7000 jobs from its investment bank (one quarter of the staff) and moving over half its investment banking-related assets into a bad bank.  Barclays’ focus will be the U.K. and the U.S.  Higher capital requirements and more deferred pay put at a disadvantage, they say, UK banks compared to those in France, Germany, and the U.S.  Wasn't the U.K. supposed to benefit from banking restrictions on the continent?  The banking sector worldwide is in secular decline as debt/GDP shrinks.  According to the FT, Deutsche and the Wall Street players will be the only bulge bracket banks left.  Where does this leave London and Paris?

Informed money launderers prefer dollars to bitcoins.

CNBC just had a discussion of bitcoins and a couple of similar digital currencies that I had never heard of.  Concern was expressed that miscreants and low-lives could use bitcoins to launder money. 

I asked myself the following question:  If 99% of all money laundering is in US dollars, which it is, isn’t it the security of the dollar the issue? The dollar's vulnerability is putting too much of a burden on the intermediaries to police transactions, which is driving up transaction costs. The provenance of each bitcoin is contact within its code so every transaction is recorded automatically.  Why can't this be done with digital dollars?

It's getting easy to find a job in the USA, if you want one.

Dr. Yellen says that the JOLTS (Job Openings and Labor Turnover Report) is an important indicator of the labor market that she watches it carefully.  The March JOLTS came out this morning and the key phrase in the BLS’ commentary is "March was little changed from February."  The labor market was on cruise control.  The press commentary that followed the announcement opined that the report shows no pickup in activity and will not satisfy Mrs. Yellen that conditions are improving.  She can be expected, they think, to remain very dovish.

I find this puzzling. Doesn’t the key chart of JOLTS data above, the “Number of unemployed per job opening,” look great?

Climate change and the art of lawn maintenance

Who are you going to believe?  A bunch of distinguished scientists or your own lying outdoor thermometer?  I saw a headline today that said it has been the coldest winter in the US since 1912, and another that gave another more recent comparison date.  One specified that it has been the coldest winter if one counted only the months since the beginning of this year.  Etc.  Anyway, it's been cold recently.  Here on the Massachusetts coast, the trees are only now budding, which is on the late side.  Today it was 54° when I got up; yesterday it was 39° and the day before 34°. 

Doubts are spreading about the global warming thesis, and the recent UN report confesses that the models they had been using were not working; they suggest that weather is too complex to model.  The climate issue has, unfortunately, become a political football, or fireball, or snowball, as the case may be.  It is confusing.  Anyway, I know that I am not as worried about warming as I was ten years ago when it seemed imminent.  Perhaps we should look to the medieval author of The Cloud of Unkowning and put aside any preconceptions.  I know one this for sure, however, and that is that this cold, wet weather seems to have worked for the new lawn I put in behind the house.  The grass seeds have germinated and are coming in evenly.  In my neighborhood, all politics are local.

Nigeria's war on corruption; We wish them the best of luck.

At the World Economic Forum in Abuja President Goodluck Jonathan announced the “Clean Business Practice Initiative.”  The goal is for corporations in Nigeria to become less corrupt.  Of course, the only way for corporations to be corrupt is to bribe government officials; they certainly don’t bribe each other.  Putting that aside, President Jonathan is to be commended on his fine sense of irony in light of the $20 billion that recently disappeared from the state oil company and his efforts to suppress any inquiry. 

As for reducing corruption I can only say, "Good luck."

For central banks, there are no red lines. Monetary tightening may have become impossible.

Think back: In January 2013 the Fed announced that it would raise its bond buying from $40 billion to $85 and would keep buying bonds and maintaining zero rates until unemployment dropped to 6.5%. Unemployment then was 7.7%.   Today unemployment is 6.3%, but bond buying continues, albeit at a reduced rate, and zero rates persist.  Yesterday Yellen said these policies would continue and bond buying might increase again if housing weakness and unsatisfactory conditions in the labor markets persisted.

 

Meanwhile in the UK Bank of England Governor Carney, who had previously said he would tighten policy when growth reached "escape velocity," which, at more than 3% (.8% q/q, 3.2% y/y in Q1) , it has, now says he's waiting for "sustained momentum".  Chris Giles in FT notes that he does this while at the same time denying he has changed policy.

Maybe it is impossible for any single central bank to tighten policy without dire consequences on the trade and capital flow fronts?  New Zealand, for example, wants to raise rates to curb speculation but cannot do so because its currency is too strong.  It’s a sort of prisoner’s dilemma:  Once a critical mass of countries have bad policies, it is in the interest of each to be the last to implement good policies. The result is paralysis, and perhaps danger.

Blame it on the Bossa Nova: Brazil dances to inefficiency.

A recent study by the Boston Consulting Group rated Brazil as a more expensive manufacturing venue than Europe due to low productivity.  A report in the FT today, however, indicates that what Brazil lacks in efficiency it may be making up in volume.  Government revenues have risen from 33% of GDP in 1999 to 39% today, compared with an OECD average of 36%, while the country ranks 124 out of 148 in government efficiency, according to the World Economic Forum.  Under Lula and Rousseff, the number of ministers has about doubled to 39 and there are other cabinet-level officials, each with his retinue of advisors, consultants, minions, sycophants and hangers-on.  The FT relates the story of the rookie bureaucrat in Brasilia who was warned by her supervisor that she should stop spending eight hours a day at the office and put in four like everybody else. (FT, p2)