http://www.zerohedge.com/fullrss2.xml/sites/default/files/images/user5/imageroot/draghi/CBO%20August%201.png/wp-login.php en Putin Says "Use Of Force In Ukraine Will Have Consequences" As Column Of Military Vehicles Seen Heading Toward Border http://www.zerohedge.com/news/2014-04-24/putin-says-use-force-ukraine-will-have-consequences-column-military-vehicles-seen-he <p>As expected, Russia has promptly responded to the latest "anti-terrorist" escalation in Ukraine both <em><strong>diplomatically</strong></em>...</p> <ul> <li><strong>PUTIN SAYS USE OF FORCE IN UKRAINE WILL HAVE CONSEQUENCES - BBG</strong></li> <li><strong>PUTIN SAYS IF UKRAINE USING ARMY AGAINST PUBLIC IT'S A CRIME - BBG</strong></li> <li><strong>PUTIN SAYS EVENTS IN EAST UKRAINE COULD HAVE HAPPENED IN CRIMEA - BBG</strong></li> <li><strong>PUTIN SAYS NO SANCTIONS ARE EFFECTIVE IN MODERN WORLD - BBG</strong></li> <li><strong>PUTIN SAYS HE'S LEARNING ABOUT UKRAINE EVENTS FROM MEDIA - BBG</strong></li> <li>Use of force against public in Ukraine would be a “very serious crime,” Russian President Vladimir Putin says at meeting w/ media in St. Petersburg. </li> <li>Putin said consequences for people involved will depend on how vents evolve in Ukraine</li> <li>Putin adds that events in eastern Ukraine could have happened in Crimea, show Russia was right to support referendum there and says that the Geneva accord is not being followed as extremist groups in Ukraine refuse to disarm</li> </ul> <p><em><strong>.. and militarily</strong></em>. A YouTube clip released moments ago and taken in the Rostov region, shows a large column of military vehicles moving in the direction of Donetsk region. On the highway M-4 are seen tanks, armored personnel carriers and infantry. Following the column are 12 combat helicopters. Written on the sides of vehicles "peacekeeping mission."</p> <p><iframe src="//www.youtube.com/embed/E1vxyKMy0nQ" width="560" height="315" frameborder="0"></iframe></p> http://www.zerohedge.com/news/2014-04-24/putin-says-use-force-ukraine-will-have-consequences-column-military-vehicles-seen-he#comments Ukraine Vladimir Putin Thu, 24 Apr 2014 11:17:12 +0000 Tyler Durden 487650 at http://www.zerohedge.com Futures Creep Toward All Time Highs Again http://www.zerohedge.com/news/2014-04-24/futures-creep-toward-all-time-highs-again <p>While events in Ukraine have once again broken out into lethal fighting, and in a surprise development the Chinese Yuan crossed the 6.25 line for the first time in two years threatening to accelerate the unwind of carry trades which have a 6.25-6.30 point of max pain, futures remain completely focused solely on the strong after-hours results from Apple and Facebook which have helped push Spoos overnight to near record levels once again. The biggest push was given to NASDAQ futures which are back up 1% with optimism for US tech returning with the material earnings beats from both Apple ($11.62 EPS vs Est $10.17 EPS) and Facebook ($0.34 Adj EPS vs $0.24 forecast). Shares in both companies rose in afterhours trading with Facebook up +5% and Apple up more than +7% (supported further by the announcement that the company was expanding its share buyback plan to $90bn from $60bn). Not even the Nikkei being down 1%, the SHCOMP down 0.5% and the USDJPY once again treading water could put a dent in the tech-driven euphoria, which somehow also managed to slam gold and silver to month lows.</p> <p>On today's calendar we have initial claims which consensus expects to rise to 315K from 304K, but far more important than layoffs (since hiring is well below pre-recession levels), is the Durable Goods report also at 8:30am which will show whether or not the long suffering and longer expected capex boom is finally coming.</p> <p><strong>Bulletin summary headlines from Bloomberg and RanSquawk</strong></p> <ul> <li>Treasuries little changed before week’s auctions conclude with $29b 7Y notes, WI yield 2.315%; drew 2.258% in March.</li> <li>5Y notes sold yesterday drew 1.732%, 0.6bp above WI yield at 1pm according to Stone &amp; McCarthy and highest since May 2011</li> <li>ECB’s Draghi said any worsening of the medium-term outlook for inflation in the euro area could be the trigger for broad-based asset purchases</li> <li>Spain sold EU2.65b 10Y bonds at a record low 3.059%, down from 3.291% at a previous sale on April 3</li> <li>Ukraine said its forces entered the city of Slovyansk and killed five pro-Russian separatists as it stepped up an offensive in the east, a day after the government in Moscow warned it would respond if Russians were attacked </li> <li>Bank of Japan officials are increasingly concerned the nation’s bond market is failing to reflect emerging inflation, raising the risk of a sudden surge in yields, according to people familiar with the matter&nbsp; </li> <li>German business confidence rose in April, with the Ifo institute’s business climate index advancing to 111.2 from 110.7 in March</li> <li>Obama warned China the U.S. would protect East China Sea islands administered by Japan and urged the two countries to peacefully resolve a dispute over the territory that has raised tensions across Asia </li> <li>Sovereign yields mostly higher. Asian stocks mostly lower, with Nikkei -0.9%, Shanghai -0.5%. European equity markets, U.S. stock futures gain. WTI crude and copper higher, gold little changed</li> </ul> <p><strong>US Event Calendar</strong></p> <ul> <li>8:30am: Durable Goods Orders, March, est. 2% (prior 2.2%); <ul> <li>Durables Ex Transportation, March, est. 0.6% (prior 0.2%, revised 0.1%)</li> <li>Capital Goods Orders Non-def Ex-Aircraft, March, est. 1.5%&nbsp; prior -1.3%, revised -1.4%)</li> <li>Capital Goods Shipments Non-def Ex-Aircraft, March, est. 1% (prior 0.5%, revised 0.6%)</li> </ul> </li> <li><strong>11:00am POMO: Fed to purchase $450m-$700m in 2024-2031 sector</strong></li> </ul> <p><strong>Jim Reid concludes the overnight recap:</strong></p> <p>Onto markets and still elevated tensions in the Ukraine and disappointing US data led to softness in markets yesterday in spite of stronger than expected European data. However strong after-hours results from Apple and Facebook have helped US futures overnight. Prior to these earnings reports the S&amp;P 500 closed down -0.22% with the NASDAQ continuing its 2014 underperformance, falling a further -0.83%. The NASDAQ is now down -1.2% YTD (vs the S&amp;P500’s +1.5%). Overnight NASDAQ futures are back up 1% with optimism for US tech returning with the material earnings beats from both Apple ($11.62 EPS vs Est $10.17 EPS) and Facebook ($0.34 Adj EPS vs $0.24 forecast). Shares in both companies rose in afterhours trading with Facebook up +5% and Apple up more than +7% (supported further by the announcement that the company was expanding its share buyback plan to $90bn from $60bn).</p> <p>In spite of these better than expected earnings figures, Asian markets have struggled to make much headway overnight with the Nikkei down -0.44%, the Hang Seng up +0.19% and the Shanghai Composite unch. In other news the Reserve Bank of New Zealand raised interest rates for the second month on the back of rising inflation concerns. The NZD has strengthened around 0.5% vs the AUD. Elsewhere Bloomberg is reporting that General Electric Co. is in talks to buy France's Alstom SA in a $13bn deal (a 25% premium) which would make it GE’s biggest acquisition ever. The story suggests a deal could be announced as early as next week. It'll be interesting to see whether this boosts European equities this morning. Clearly there have been a lot of M&amp;A stories already this week, especially in the pharma space.</p> <p>Prior to all this yesterday saw equity weakness across Europe with the Core countries and Italy bearing the brunt of the moves with the DAX and CAC closing down –0.58% and –0.74% respectively whilst the FTSE MIB was down –1.18%. This weakness was felt in credit markets too with iTraxx Main and Xover +1 and +4bps wider respectively. Markets weren’t helped by the continued build up of tensions in the Ukraine yesterday as both the Ukrainian and Russian governments issued statements. The government in Kiev stated it was ready to resume operations against militants in the country’s eastern cities whilst Russia pledged to defend its citizens inside Ukraine, with the Russian foreign minister drawing parallels to the Russian invasion of Georgia in 2008, saying his country was prepared to “respond” if its “legitimate interests” were “attacked directly, like they were in South Ossetia.” This news flow appeared to override what was a relatively good day of European data with April euro-area flash PMI’s up 0.9 points to 54 (vs expectation of no change), the highest level since May 2011. This broad figure reflected a stronger than expected service reading in Germany (55 vs 53.3E) offsetting a weakening of the French Composite to 50.5 (from 51.8). According to our European economists the Euro area April flash readings are consistent with growth between +0.4% and +0.5% in Q2, slightly higher than their current forecasts. This generally positive news flow carried over to our side of the Channel where the BoE released its April 9th minutes in which it said it saw Britain’s recovery, ”building momentum,” even as, “near-term inflationary pressure appeared to have eased further.” All of this comes on the back of the IMF’s report earlier in the month that it expects the UK to be the fastest growing of any of the G7 economies this year.</p> <p>Over in the US we saw weaker than expected March data on new home sales which fell -14.5% to +384k (vs consensus expectation of +450k). DB’s Joe LaVorgna puts this fall down to a continued weather-related hangover as he notes sales closed in March are largely a function of buyer activity in the prior two months. </p> <p>Looking to the day ahead it’s relatively quiet on the data front with the stand out release being US initial jobless claims. DB’s Joe LaVorgna expects a reading of 325k whilst BBG consensus is expecting 315K (vs 304k previously). </p> http://www.zerohedge.com/news/2014-04-24/futures-creep-toward-all-time-highs-again#comments Apple Bank of England Bank of Japan BOE Bond China Copper Crude Equity Markets General Electric Germany headlines Initial Jobless Claims Italy Japan NASDAQ New Home Sales New Zealand Nikkei POMO POMO recovery Ukraine United Kingdom Yuan Thu, 24 Apr 2014 11:01:33 +0000 Tyler Durden 487649 at http://www.zerohedge.com Flash Boys Has Been Dethroned At The Top Of The Amazon Bestseller List By This Book http://www.zerohedge.com/news/2014-04-23/flash-boys-has-been-dethroned-top-amazon-bestseller-list-book <p>From a critique of pure capitalist algorithmic frontrunning (which was at the <a href="http://www.zerohedge.com/news/2014-03-31/lewis-top-high-freaks-storm-top-amazons-bestseller-list">top Amazon bestseller spot</a> until a few days ago)...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/03/book%20bestsellers.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/03/book%20bestsellers_0.JPG" width="600" height="465" /></a></p> <p>&nbsp;</p> <p>... we go to a <a href="http://www.amazon.com/best-sellers-books-Amazon/zgbs/books/ref=zg_bs_nav_0">critique of pure capitalism</a>.</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/Piketty%20book_0.jpg" width="600" height="479" /></p> <p>&nbsp;</p> <p>Which of course, is merely a rehash of a critique of <em>all </em>capitalism as expounded some 150 years ago by this book.</p> <p>&nbsp;</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/Das%20Kapital.jpg" width="384" height="384" /></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>And to think all it took was 147 years of 'capitalism' for the circle to be complete from <em><strong>Das Kapital's</strong></em> labor-vs-capital Marxist manifesto to Thomas Piketty's <em><strong>Capital </strong></em>"exposing capitalism's fatal flaw" topping the Amazon book charts. One wonders who finds the time to read the 696 page tome whose core thesis is&nbsp; well-known for socialists the world over: <em>under capitalism the rich, or hoarders of capital, get steadily richer in relation to everyone else; inequality gets worse and worse and it's all unavoidable,</em> between #Selfies, The Voice semi-finals, and Dance Moms finales.</p> <p>One thing is certain: the financial asset tax we warned about back in 2011 is <a href="http://www.zerohedge.com/news/muddle-through-has-failed-bcg-says-there-may-be-only-painful-ways-out-crisis">coming with a bang</a>.</p> <p>So, communism's heyday is coming again, right? Maybe. One thing is certain: liberals couldn't be more delighted about mandatory equality. But as <a href="http://www.zerohedge.com/news/2014-04-22/guest-post-pikettys-gold">we discussed yesterday, there is one thing that no one seems to want to discuss about Piketty's findings... gold...</a></p> <p><strong>Well, feature the chart that Professor Piketty publishes showing inequality in America.</strong> This appears in the book at figure 9.8; a similar version, shown alongside here, is offered on his Web site. It’s an illuminating chart. It shows the share of national income of the top decile of the population. It started the century at a bit above 40% and edged above 45% in the Roaring Twenties. It plunged during the Great Depression and edged down in World War II, and then steadied out, until we get to the 1970s. Something happened then that caused income inequality to start soaring. The top decile's share of income went from something like 33% in 1971 to above 47% by 2010.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140422_piketty.png"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140422_piketty_0.png" style="width: 600px; height: 450px;" /></a></p> <p>Hmmm. What could account for that? Could it be the last broadcast of the “Lawrence Welk Show?” Or the blast off of the Apollo 14 mission to the Moon? Or could it have something to do with the mysterious D.B. Cooper, who bailed out of the plane he hijacked, never to be seen again? A timeline of 1971 offers so many possibilities. But, say, what about the possibility that it was in the middle of 1971, in August, that America closed the gold window at which it was supposed to redeem in specie dollars presented by foreign central banks. That was the default that ended the era of the Bretton Woods monetary system.</p> <p><span style="text-decoration: underline;">That’s the default that opened the age of fiat money.</span> Or the era that President Nixon supposedly summed up in with Milton Friedman’s immortal words, “We’re all Keynesians now.” This is an age that has seen a sharp change in unemployment patterns. Before this date, unemployment was, by today’s standards, low. This was a pattern that held in Europe (these columns wrote about it in “George Soros’ Two Cents”) and in America (“Yellen’s Missing Jobs”). From 1947 to 1971, unemployment in America ran at the average rate of 4.7%; since 1971 the average unemployment rate has averaged 6.4%. Could this have been a factor in the soaring income inequality that also emerged in the age of fiat money?</p> <p>This is the question the liberals don’t want to discuss, even acknowledge.</p> <p><em>h/t @Not_Jim_Cramer</em></p> http://www.zerohedge.com/news/2014-04-23/flash-boys-has-been-dethroned-top-amazon-bestseller-list-book#comments Central Banks default Foreign Central Banks Great Depression Jim Cramer Unemployment Thu, 24 Apr 2014 10:28:53 +0000 Tyler Durden 487632 at http://www.zerohedge.com Fighting Breaks Out As Ukraine Deploys Tanks, APCs, Troops In Slavyansk: Deaths Reported http://www.zerohedge.com/news/2014-04-24/fighting-breaks-out-ukraine-deploys-tanks-apcs-troops-slavyansk-deaths-reported <p>A day after the acting government in Kiev announced the Geneva agreement is void and that it would once again send special forces to deal with "terrorists" in east Ukraine, it had made good on its promise and over the past few hours, Ukrainian tanks, APCs and other special forces troops took control of a checkpoint north of Slavyansk on Thursday, following what numerous reports confirm was an exchange of gunfire.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/Ukraine%20troops.png"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/Ukraine%20troops_1.png" width="500" height="333" /></a></p> <p>What happened next is not exactly clear. Reuters reports that "when the armoured unit approached along a road from Sviatogorsk, which Ukraine's government said it recaptured on Wednesday, militants set up a smokescreen of burning tyres. Within half an hour, the Ukrainian force was in control of the position near the village of Khrestyshche. No shots were heard."</p> <p>Reuters continues:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Ukrainian forces appear to be closing in around Slaviansk, a city of 130,000 which has become a military stronghold for the pro-Russian movement and is entirely controlled by separatist fighters.</p> <p>&nbsp;</p> <p>Reuters journalists saw Ukrainian troops digging in outside the city on the main road south to the regional capital Donetsk.</p> <p>&nbsp;</p> <p>Earlier in the morning, a spokeswoman for the separatist authorities in Slaviansk, Stella Khorosheva, said on Facebook that two people were killed at a checkpoint overnight.</p> <p>&nbsp;</p> <p>Local online news site slavgorod.com.ua quoted other separatist representatives saying one man was dead and another seriously wounded after a group of local militia fighters from a checkpoint went to engage a group of "armed men" between Slaviansk and Sviatogorsk and were then fired on from a wood.</p> <p>&nbsp;</p> <p>The Ukrainian government said troops repelled an overnight raid on a base at Artemivsk, to the south of Slaviansk on the road to Donetsk. A soldier was wounded in the attack by about 70 people who Interior Minister Arsen Avakov said on Facebook were led by Russian soldiers.</p> </blockquote> <p>This conflicts somewhat with reports from both AFP and RT of a far more serious escalation including shooting at the Slavyansk checkpoint, and that according to @GazetaRu at least six people have been killed so far. <a href="http://rt.com/news/154544-slavyansk-fighting-east-ukraine/">Just out from RT</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Fighting has erupted just outside Slavyansk, a town in east Ukraine where population voiced their protest against Kiev authorities. Ukrainian troops on tanks and armored vehicles are trying to break into the town.</p> <p>&nbsp;</p> <p>According to Ukrainian Interior ministry, at least five self-defense guards have been killed and one policeman injured after the ‘antiterrorist operation’ launched by Kiev in the city. Three checkpoints erected by the anti-government protesters have also been destroyed. </p> <p>&nbsp;</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/tanks_0.jpg" width="500" height="281" /></p> <p>&nbsp;</p> <p><strong>“Around 40 minutes ago fighting started on the outskirts of Slavyansk,” one of the leaders of self-defense forces, Miroslav Rudenko , told Interfax. We are checking reports of one dead and one injured. There are shootings at a number of checkpoints at some of Slavyansk exit-roads.”</strong></p> <p>&nbsp;</p> <p>Rudenko said it was impossible to reach self-defense leaders in Slavyansk by phone, suspecting that mobile phone connection could have been switched off. <strong><br /></strong></p> </blockquote> <p>More from RT:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Police has announced the beginning of the crackdown via loudspeakers and a special vehicle is currently patrolling the streets warning local people about the crackdown.</p> <p>&nbsp;</p> <p>The local citizens in the city are preparing for the Kiev crackdown. The majority of shops, kindergartens and schools have been closed in the city. Only the shops selling bread and water remain open. <strong>Rossiya 24 TV channel reported there was a slow offensive by Ukrainian troops on Slavyansk.</strong></p> <p>&nbsp;</p> <p><strong>“Now armored vehicles and special forces are just 10km away from the town,” said Rossiya 24 correspondent currently on the ground.&nbsp; </strong></p> <p>&nbsp;</p> <p>According to locals, at least eight armored infantry vehicles passed the village of Hrestische, near Slavyansk, on Thursday morning, reports Gazeta.ru.</p> <p>&nbsp;</p> <p>At least three snipers from Ukrainian army are now at the barricades, the residents also told Gazeta.ru, adding that when one of the journalists tried to approach the barricades, the snipers opened fire.</p> <p>&nbsp;</p> <p>Meanwhile, two columns of armored vehicles are heading towards Slavyansk. The first column is now 6km from the city, while the second is 3 to 4km, Mayor of Slavyansk Vyacheslav Ponomarev told Rossiya 24 TV channel.</p> <p>&nbsp;</p> <p>According to the latest reports, self-defense forces have repelled the attack of the Kiev gunmen at the key checkpoint in north of Slavyansk. At least three infantry vehicles had to retreat, reports Rossiya 24.</p> <p>&nbsp;</p> <p>Meanwhile, the armored infantry vehicles are currently heading towards the town of Izyum in the Kharkov Region, not far from Slavyansk.</p> <p>&nbsp;</p> <p>Anti-government protesters are still controlling the checkpoints on the outskirts of Slavyansk. </p> </blockquote> <p>A video of the events:</p> <p> <iframe src="//www.youtube.com/embed/v-wJVTUGUF0" width="500" height="281" frameborder="0"></iframe> </p> <p>And here is the latest reports on the ground:</p> <blockquote class="twitter-tweet" lang="en data-scribe-reduced-action-queue="><p>Seems the Ukrainian anti-terror operation in Slavyansk is under way. Fights reported on outskirts of the town</p> <p>— Olaf Koens (@obk) <a href="https://twitter.com/obk/statuses/459254622268698624">April 24, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet" lang="en data-scribe-reduced-action-queue="> <p>Locals report at least six dead, but no confirmation <a href="https://twitter.com/GazetaRu">@GazetaRu</a> writes. Fights occur at two road blocks around Slavyansk</p> <p>— Olaf Koens (@obk) <a href="https://twitter.com/obk/statuses/459255429663830016">April 24, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet" lang="en data-scribe-reduced-action-queue="> <p>Ukrainian forces near the entrance of Slavyansk, single shots fired. Via Piotr Andrusieczko <a href="https://t.co/HKb6EHawd7">https://t.co/HKb6EHawd7</a> <a href="http://t.co/MuvcabgGNF">pic.twitter.com/MuvcabgGNF</a></p> <p>— Olaf Koens (@obk) <a href="https://twitter.com/obk/statuses/459260852210651136">April 24, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p>RT <a href="https://twitter.com/mikewhills">@mikewhills</a><br /> Ukrainian troops pictured on the outskirts of Sloviansk (Kirill Kudryavtsev/AFP) <a href="http://t.co/D7Zdnr9Btt">pic.twitter.com/D7Zdnr9Btt</a></p> <p>— Alexander Marquardt (@MarquardtA) <a href="https://twitter.com/MarquardtA/statuses/459265486468173825">April 24, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet" lang="en"> <p>????????? ???????? <a href="http://t.co/xXXoEN92Gf">pic.twitter.com/xXXoEN92Gf</a></p> <p>— ?????????? (@anti_maydan) <a href="https://twitter.com/anti_maydan/statuses/459261701892759553">April 24, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p>PHOTO: Ukraine army chopper buzzes Artemovsk, 40km south of <a href="https://twitter.com/search?q=%23Slavyansk&amp;src=hash">#Slavyansk</a> "anti-terror" op scene <a href="http://t.co/DW9TMtgUDl">http://t.co/DW9TMtgUDl</a> <a href="http://t.co/oa0w0lqPio">pic.twitter.com/oa0w0lqPio</a></p> <p>— RT (@RT_com) <a href="https://twitter.com/RT_com/statuses/459267706756145152">April 24, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>But perhaps most concerning is the so far unconfrimed report that Russian support is on its way:</p> <blockquote class="twitter-tweet" lang="en"><p><a href="https://twitter.com/search?q=%23%D0%A1%D0%B2%D0%B5%D0%B6%D0%B5%D0%B5&amp;src=hash">#??????</a> <a href="https://twitter.com/search?q=%23%D1%84%D0%BE%D1%82%D0%BE&amp;src=hash">#????</a>.<br /> ????????? ????, ??????! <a href="http://t.co/7QKSJwLD7P">pic.twitter.com/7QKSJwLD7P</a></p> <p>— ??????????-LIVE (@NovorossiyaLive) <a href="https://twitter.com/NovorossiyaLive/statuses/459259645672972288">April 24, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>We will update if the situation escalates furtger</p> http://www.zerohedge.com/news/2014-04-24/fighting-breaks-out-ukraine-deploys-tanks-apcs-troops-slavyansk-deaths-reported#comments Reuters Twitter Twitter Ukraine Thu, 24 Apr 2014 09:53:49 +0000 Tyler Durden 487648 at http://www.zerohedge.com Groupthink Or Black Swan Rising? Not A Single 'Economist' Expects An Economic Downturn http://www.zerohedge.com/news/2014-04-23/groupthink-or-black-swan-rising-not-single-economist-expects-economic-downturn <p><em>Submitted by Pater Tenebrarum of <a href="http://www.acting-man.com/?p=30021">Acting-Man blog</a>,</em></p> <h3><span style="font-size:16px;"><span style="font-family: verdana,geneva,sans-serif;"><strong>A 100% Consensus</strong></span></span></h3> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">This doesn&#39;t happen very often.&nbsp; <a href="http://blogs.marketwatch.com/thetell/2014/04/22/100-of-economists-think-yields-will-rise-within-six-months/">Marketwatch reports</a> that Jim Bianco points out in a recent market comment that the 67 economists taking part in a regular Bloomberg survey have a unanimous forecast regarding treasury bond yields: they will be higher 6 months from now. This is a truly striking result, and given the well-known propensity of mainstream economists to guess wrong (their forecasts largely consist of extrapolating the most recent short term trend), it may provide us with a few insights.</span></span></p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">In fact, considering that there have been only a handful of instances since 2009 when a majority of the economists surveyed predicted a decline in yields, we can already state that their forecasts regarding treasuries are quite often (though obviously not always) wide of the mark. In fact, so far this year they are already wrong again &ndash; and so are fund managers, as they hold their lowest exposure to treasuries in seven years.</span></span></p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">This is not the only thing there is complete unanimity about. <em>Not a single economist taking part in a separate survey believes an economic downturn is possible</em>.</span></span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">&ldquo;Economists are unwavering in their assessment of where yields are headed in the next half year.</span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;"><strong><em>Jim Bianco, of Bianco Research, points out in a market comment Tuesday that a survey of 67 economists this month shows every single one of them expects the 10-year Treasury yield to rise in the next six months.</em></strong></span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;"><strong><em>The survey, which is done each month by Bloomberg, has been notably bearish for some time now, with nearly everyone expecting rising rates. In March, 97% expected rising rates. In February, 95% expected yields to climb. And in January, 97% held that expectation. Since the beginning of 2009, there have only been a handful of instances where less than 50% expected rates to rise.</em></strong></span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">Still, the fact that every single survey participant is bearish is striking. The last time the survey had that result was in May 2012, when benchmark yields were well below 2%.</span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;"><strong><em>&ldquo;Literally there is maybe one economist in the United States straddling the bullish/bearish divide on interest rates. The rest are bearish,&rdquo; Bianco writes</em></strong>.</span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;"><strong><em>He adds that a J.P. Morgan client survey shows that the percentage of money manager respondents who said they are underweight Treasurys is the second highest in seven years.</em></strong></span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">This is all the more surprising when we consider that investors went into 2014 thinking yields would rise significantly. Instead, the benchmark yield is lower than when the year started, as the market waded throw subpar economic data, geopolitical tensions, and uncertainty over the Federal Reserve. The 10-year note last traded at a yield of 2.72% on Tuesday, down from just over 3% on Dec. 31.</span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;"><strong><em>Then again, a separate poll of economists recently showed that&nbsp;</em></strong><a href="http://blogs.marketwatch.com/capitolreport/2014/04/21/seventy-two-economists-polled-and-exactly-zero-see-economy-contracting-this-year/">exactly zero expect the economy to contract</a><strong><em>.</em></strong></span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">But when the entire market thinks one thing is about to happen, the opposite outcome is often in store, notes James Camp, managing director of fixed income at Eagle Asset Management. So don&rsquo;t count out that result with Treasurys, he advises.</span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;"><strong><em>&ldquo;It&rsquo;s the most hated asset class,&rdquo; says Camp, but Treasurys are some of the best performers year-to-date.&rdquo;</em></strong></span></span></p> </blockquote> <p><em><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">(emphasis added)</span></span></em></p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">Color us unsurprised regarding the fact that the &#39;most hated asset class&#39; has turned out to be one of the better performing so far this year. Gold is probably hated even more, and for similar reasons. Everybody expects the weakest recovery of the entire post WW2 era to reach &#39;escape velocity&#39; (whatever that is supposed to mean), even after adding almost $8 trillion to the federal debt and some $4.8 trillion to the broad true money supply since the 2008 crisis have led to such a dismal outcome (of course as card-carrying Austrians we believe this development is precisely what should have been expected).</span></span></p> <p>&nbsp;</p> <p>&nbsp;</p> <h3><span style="font-size:16px;"><span style="font-family: verdana,geneva,sans-serif;"><strong>Likely Outcomes</strong></span></span></h3> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">While treasury bond yields have only moved down a little so far this year, one must keep in mind that they are at a historically very low level to begin with. At a yield of roughly 4%, a 50 basis points move represents 12.5% of the entire distance to zero. However, we also know that a lot more downside is <em>possible.</em> Yields have already been quite a bit lower on a number of occasions.</span></span></p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">There can be little doubt that if the consensus of economists turns out to be wrong again, it will likely be wrong on both t-bond yields and the economy. As an aside, it is noteworthy that long term yields have weakened considerably even while five year yields have remained roughly unchanged and yields on the short end of the curve have actually risen slightly since the beginning of the year.</span></span></p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">We interpret this as the market judging the Fed to be adopting a tighter monetary policy, and expecting weaker aggregate economic activity to ultimately result from this new stance. Clearly, the &#39;tapering&#39; of &#39;QE&#39; <em>does</em> represent a tightening of policy, no matter what Fed members are <em>saying </em>about it. It means the pace of money supply inflation is being slowed down.</span></span></p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">Note that something similar happened in the run-up to the 2008 crisis, only in this instance the yield curve actually inverted prior to the economic downturn. One should not expect a complete yield curve inversion to warn in a timely fashion of a recession when the central bank is hell-bent on keeping its policy rate at or near zero. We know this from &#39;ZIRP&#39; experiments that have been undertaken in other countries, such as e.g. Japan.</span></span></p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">If the economy doesn&#39;t do what seemingly everybody expects it to do in the famed &#39;second half&#39; (practically the entire sell-side shares the consensus of the economists surveyed by Bloomberg), then treasuries and gold should be expected to rise, while equities could end up getting hit quite badly.</span></span></p> <p>&nbsp;</p> <p style="text-align: center;"><a href="http://www.acting-man.com/blog/media/2014/04/TYX.png" rel="" style="" target="_blank" title=""><img alt="TYX" class="aligncenter size-full wp-image-30024" src="http://www.acting-man.com/blog/media/2014/04/TYX.png" style="width: 600px; height: 451px;" title="" /></a></p> <p style="text-align: center;"><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">30 year t-bond yield: declining since the beginning of the year &ndash; click to enlarge.</span></span></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">It is clear that one of the reasons why economists expect no contraction in the economy is that &#39;traditional&#39; recession indicators still appear largely benign, if somewhat weaker than previously. We prefer to keep an eye on things most people don&#39;t watch, such as the ratio of capital to consumer goods production, which shows how factors of production are pulled toward the higher stages of the capital structure when monetary pumping is underway. This ratio tends to peak and reverse close to recessions. Its recent trend isn&#39;t entirely conclusive yet as it has begun to move sideways, but it clearly seems to be issuing a &#39;heads up&#39; type warning signal.</span></span></p> <p>&nbsp;</p> <p style="text-align: center;"><a href="http://www.acting-man.com/blog/media/2014/04/Capital-vs-Cons.Goods-Production.png" rel="" style="" target="_blank" title=""><img alt="Capital vs Cons.Goods Production" class="aligncenter size-full wp-image-30023" src="http://www.acting-man.com/blog/media/2014/04/Capital-vs-Cons.Goods-Production.png" style="width: 601px; height: 310px;" title="" /></a></p> <p><em><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">Capital vs. consumer goods production &ndash; it tends to peak close to the beginning of recession periods, and declines while recessions are underway, as the production structure is temporarily shortened again &ndash; click to enlarge.</span></span></em></p> <p>&nbsp;</p> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;">Note also that the transition from expansion to contraction is usually quite swift, and never widely expected.</span></span></p> <p>&nbsp;</p> <h3><span style="font-size:16px;"><span style="font-family: verdana,geneva,sans-serif;"><strong>Conclusion:</strong></span></span></h3> <p><span style="font-size:12px;"><span style="font-family: verdana,geneva,sans-serif;"><strong>This is an astonishing degree of consensus thinking, but it perfectly mirrors the complacency we see in stock market sentiment and positioning data.</strong> The probability that such a unanimous view will turn out to be correct is traditionally extremely low. The economy is likely resting on a much weaker foundation than is generally believed. This is not least the result of massive monetary pumping and deficit spending, both of which tend to severely weaken the economy on a structural level, even though they can create a temporary illusion of &#39;growth&#39;.</span></span></p> http://www.zerohedge.com/news/2014-04-23/groupthink-or-black-swan-rising-not-single-economist-expects-economic-downturn#comments Black Swan Bond Deficit Spending Federal Reserve fixed Japan Jim Bianco Market Sentiment Monetary Policy Money Supply Recession recovery SWIFT Yield Curve Thu, 24 Apr 2014 02:06:53 +0000 Tyler Durden 487647 at http://www.zerohedge.com #MyNYPD... http://www.zerohedge.com/contributed/2014-04-23/my-nypd <p style="text-align: center;"><iframe src="https://www.flickr.com/photos/expd/13980717021/player/" width="1280" height="720" frameborder="0"></iframe>.</p> <p style="text-align: center;">Actually, it is their NYPD, not ours.</p> http://www.zerohedge.com/contributed/2014-04-23/my-nypd#comments Thu, 24 Apr 2014 01:49:21 +0000 williambanzai7 487646 at http://www.zerohedge.com Hoisington On The End Of The Fed's (Mythical) "Wealth Effect" http://www.zerohedge.com/news/2014-04-23/hoisington-end-feds-mythical-wealth-effect <p><em>Authored by Lacy Hunt and Van Hoisington of <a href="http://www.Hoisingtonmgt.com">Hoisington Investment Management</a>,</em></p> <h2><strong>Hoisington Investment Management &ndash; Quarterly Review and Outlook, First Quarter 2014</strong></h2> <h3><strong>Optimism at the FOMC</strong></h3> <p><strong>The Federal Open Market Committee (FOMC) has continuously been overly optimistic regarding its expectations for economic growth in the United States since the last recession ended in 2009.</strong> If their annual forecasts had been realized over the past four years, then at the end of 2013 the U.S. economy should have been approximately $1 trillion, or 6%, larger. The preponderance of research suggests that the FOMC has been incorrect in its presumption of the effectiveness of quantitative easing (QE) on boosting economic growth. This faulty track record calls into question their latest prediction of 2.9% real GDP growth for 2014 and 3.4% for 2015.</p> <p><strong>A major reason for the FOMC&rsquo;s overly optimistic forecast for economic growth and its incorrect view of the effectiveness of quantitative easing is the reliance on the so-called &ldquo;wealth effect&rdquo;, described as a change in consumer wealth which results in a change in consumer spending.</strong> In an opinion column for <em>The Washington Post </em>on November 5, 2010, then FOMC chairman Ben Bernanke wrote, &ldquo;...higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.&rdquo; Former FOMC chairman Alan Greenspan in a CNBC interview on Feb. 15, 2013 said, &ldquo;The stock market is the key player in the game of economic growth.&rdquo; This year, in the January 20 issue of <em>Time Magazine, </em>the current FOMC chair, Janet Yellen said, &ldquo;And part of the [economic stimulus] comes through higher house and stock prices, which causes people with homes and stocks to spend more, which causes jobs to be created throughout the economy and income to go up throughout the economy.&rdquo;</p> <p>FOMC leaders may feel justified in taking such a position based upon the FRB/US, a large- scale econometric model. In part of this model, employed by the FOMC in their decision making, household consumption behavior is expressed as a function of total wealth as well as other variables. The model predicts that an increase in wealth of one dollar will boost consumer spending by five to ten cents (see page 8-9 &ldquo;Housing <em>Wealth and Consumption&rdquo; </em>by Matteo Iacoviello, <em>International Finance Discussion Papers, </em>#1027, Board of Governors of the Federal Reserve System, August 2011). Even at the lower end of their model&#39;s range this wealth effect, if it were valid, would be a powerful factor in spurring economic growth.</p> <p><strong>After examining much of the latest scholarly research, and conducting in house research on the link between household wealth and spending, we found the wealth effect to be much weaker than the FOMC presumes. </strong>In fact, it is difficult to document any consistent impact with most of the research pointing to a spending increase of only one cent per one dollar rise in wealth at best. Some studies even indicate that the wealth effect is only an interesting theory and cannot be observed in practice.</p> <p>The wealth effect has been both a justification for quantitative easing and a root cause of consistent overly optimistic growth expectations by the FOMC. The research cited below suggests that the concept of a wealth effect is in fact deeply flawed. It is unfortunate that the FOMC has relied on this flawed concept to experiment with over $3 trillion in asset purchases and continues to use it as the basis for what we believe are overly optimistic growth expectations.</p> <h3><strong>Consumer Wealth and Consumer Spending</strong></h3> <p>Many episodes of rising and falling financial and housing asset wealth have occurred throughout history. The question is whether these periods of wealth changes are associated in a consistent and reliable way with changes in consumer spending. We examined, separately, percent changes in real consumption expenditures per capita against percent changes in the real S&amp;P 500 index (financial wealth) and against percent changes in Robert Shiller&rsquo;s real home price index (housing wealth). If economic relationships are valid they should work for all time periods, regardless of highly different idiosyncratic conditions, as opposed to an isolated subset of historical experience. As such, we conducted our analysis from 1930 through 2013, the entire time period for which all variables were available.</p> <p><strong>Financial Wealth. </strong>Chart 1 is a scatter diagram of current percent changes in both real per capita personal consumption expenditures (PCE), the preferred measure of spending, and the real S&amp;P 500 stock price index. It is made up of 84 dots, which constitutes a robust sample. Over our sample period, as with most extremely long periods, time will tend to link economic variables to each other; population is a key factor that can cause such an association. By expressing consumption in per capita terms, trending has been reduced, and in turn, an artificially overstated degree of correlation has been avoided.</p> <p><img height="341" src="http://www.marketoracle.co.uk/images/2014/Apr/us-economy-23-1.png" width="576" /></p> <p>If financial wealth drives consumer spending, an unambiguous positively sloped line should be evident on this scatter diagram. Larger gains in the S&amp;P 500 would be associated with faster increases in spending; conversely, declines in the S&amp;P 500 would be tied to lower spending. If there was a strong positive correlation, the large gains in stock prices would be associated with strong gains in spending, and they would fall in the upper right quadrant of the graph. In addition, sizeable declines in the S&amp;P would be associated with large decreases in consumer spending, and the dots would fall in the lower left quadrant, resulting in an upward sloping line. For the relationship to be stable and dependable the dots should be packed in an around the trend line. This is clearly not the case. The trend line through the dots is positive, but the observations in the upper left quadrant of the graph and those in the lower right exhibit a negative rather than positive correlation. Furthermore, the dots are not clustered close to the trend line. The goodness of fit (coefficient of determination) of 0.27 is statistically significant; however, the slope of the line is minimally positive. This suggests that an approximate one dollar increase in wealth will boost real per capita PCE by less than one cent, far less than even the lower band of the effect in the Fed&rsquo;s model.</p> <p>Theoretically, lagged changes are preferred because when current or coincidental changes in economic variables are correlated the coefficients may be biased due to some other factor not covered by the empirical estimation. Also, lags give households time to adjust to their change in wealth. As such, we correlated the current percent change in real per capita PCE against current changes as well as one- and two-year lagged changes (expressed as a three-year moving average) in the S&amp;P 500. The lags did not improve the goodness of fit as the coefficient of determination fell to 0.21. An increased dollar of wealth, however, still resulted in a one cent increase in consumption. We then correlated current percent change in real per capita PCE with only lagged changes in the real S&amp;P 500 for the two prior years (expressed as a two-year moving average), and the relationship completely fell apart as the goodness of fit fell to a statistically insignificant 0.06.</p> <p><strong>Housing Wealth. </strong>Chart 2 is a second scatter diagram, relating current percent changes in real home prices to current percent changes in real per capita PCE. Once again, the trend line does have a small positive slope, but there are so many observations in the upper left quadrant that the coefficient of determination does not meet robust tests for statistical significance. The dots are even more dispersed from the trend line than in the prior scatter diagram.</p> <p><img height="348" src="http://www.marketoracle.co.uk/images/2014/Apr/us-economy-23-2.png" width="576" /></p> <p>As with the analysis on financial wealth, when current changes in consumption were correlated against the lagged changes in home prices (both the three-year moving average and the two-year moving average), the goodness of fit deteriorated significantly and was not statistically significant in either case.</p> <p>Correlations, or the lack thereof, indicated by these scatter diagrams do not prove causation. Nevertheless, economic theory offers an explanation for the poor correlation. If a person has an appreciated asset and wishes to increase spending, one option is to sell the asset, capture the gain and buy something else. However, the funds to make the new purchase comes from the buyer of the asset. Thus, when financial assets are sold, money balances increase for the seller but fall for the buyer. The person with an appreciated asset could choose to borrow against that asset. Since new debt is current spending in lieu of future spending, the debt option may only provide a temporary boost to economic activity. To avoid an accentuated business cycle, debt must generate an income stream to repay principal and interest. Otherwise any increase in debt to convert wealth gains into consumer spending may merely add to cyclical volatility without producing any lasting benefit.</p> <h3><strong>Scholarly Research</strong></h3> <p>Scholarly research has debated the impact of financial and housing wealth on consumer spending as well. The academic research on financial wealth is relatively consistent; it has very little impact on consumption. In &ldquo;Financial <em>Wealth Effect: Evidence from Threshold Estimation&rdquo; </em>(Applied Economic Letters, 2011), Sherif Khalifa, Ousmane Seck and Elwin Tobing found &ldquo;a threshold income level of almost $130,000, below which the financial wealth effect is insignificant, and above which the effect is 0.004.&rdquo; This means a one dollar rise in wealth would, in time, boost consumption by less than one-half of a penny. Similarly, in &ldquo;Wealth <em>Effects Revisited 1975- 2012,&rdquo; </em>Karl E. Case, John M. Quigley and Robert J. Shiller (Cowles <em>Foundation Discussion Paper #1884, </em>December 2012) write, &ldquo;The numerical results vary somewhat with different econometric specifications, and so any numerical conclusion must be tentative. We find at best weak evidence of a link between stock market wealth and consumption.&rdquo; This team looked at quarterly observations during the 17-year period from 1982 through 1999 and the 37-year period from 1975 through the spring quarter of 2012.</p> <p>The research on housing wealth is more divided. In the same paper referenced above, Karl E. Case, John M. Quigley and Robert J. Shiller write, &ldquo;In contrast, we do find strong evidence that variations in housing market wealth have important effects upon consumption.&rdquo; These findings differ from the findings of various other economists. In &ldquo;The <em>(Mythical?) Housing Wealth Effect&rdquo; </em>(NBER <em>Working Paper #15075, </em>June 2009), Charles Calomiris, Stanley D. Longhofer and William Miles write, &ldquo;Models used to guide policy, as well as some empirical studies, suggest that the effect of housing wealth on consumption is large and greater than the wealth effect on consumption from stock holdings. Recent theoretical work, in contrast, argues that changes in housing wealth are offset by changes in housing consumption, meaning that unexpected shocks in housing wealth should have little effect on non- housing consumption.&rdquo;</p> <p>Furthermore, R. Glenn Hubbard and Anthony Patrick O&rsquo;Brien (Macroneconomics, <em>Fourth edition, </em>2013, page 381) provide a highly cogent summary of the aforementioned research by Charles Calomiris, Stanley D. Longhofer and William Miles. They argue that consumers &ldquo;own houses primarily so they can consume the housing services a home provides. Only consumers who intend to sell their current house and buy a smaller one &ndash; for example, &lsquo;empty nesters&rsquo; whose children have left home &ndash; will benefit from an increase in housing prices. But taking the population as a whole, the number of empty nesters may be smaller than the number of first time home buyers plus the number of homeowners who want to buy larger houses. These two groups are hurt by rising home prices.&rdquo;</p> <p>Amir Sufi, Professor of Finance at the University of Chicago, also indicates that the effect of housing wealth is much smaller than assumed in the policy models and earlier empirical research. Dr. Sufi calculates that an increase of one dollar of housing wealth may yield as little as one cent of extra spending (&ldquo;Will <em>Housing Save the U.S. Economy?&rdquo;, </em>April 2013, Chicago Booth Economic Outlook event). This is in line with a 2013 study by Sherif Khalifa, Ousmane Seck and Elwin Tobing (&ldquo;Housing <em>Wealth Effect: Evidence from Threshold Estimation&rdquo;, </em>The Journal of Housing Economics). These economists found that a threshold income level of $74,046 had a wealth coefficient that rounded to one cent. Income levels between $74,046 and $501,000 had a two cent coefficient, and incomes above $501,000 had a statistically insignificant coefficient.</p> <p>In total, the majority of the research is seemingly unequivocal in its conclusion. The wealth effect (financial and housing) is barely operative. As such, it is interesting to note its actual impact in 2013.</p> <h3><strong>Where Was the Wealth Effect in 2013?</strong></h3> <p>If the wealth effect was as powerful as the FOMC believes, consumer spending should have turned in a stellar performance last year. In 2013 equities and housing posted strong gains. On a yearly average basis, the real S&amp;P 500 stock market index increase was 17.7%, and the real Case Shiller Home Price Index increase was 9.1%. The combined gain of these wealth proxies was 26.8%, the eighth largest in the 84 years of data. The real per capital PCE gain of just 1.2% ranked 58th of 84. The difference between the two was the fifth largest in the 84 cases. Such a huge discrepancy in relative performance in 2013, occurring as it did in the fourth year of an economic expansion, raises serious doubts about the efficacy of the wealth effect (Chart 3).</p> <p><img height="460" src="http://www.marketoracle.co.uk/images/2014/Apr/us-economy-23-3.png" width="576" /></p> <p>In econometrics, theoretical propositions must be empirically verifiable. Researchers using numerous statistical procedures examining various sample periods should be able to identify at least some consistent patterns. This is not the case with the wealth effect. Regardless if examining a simple scatter diagram or something far more sophisticated, the wealth effect is weak and inconsistent. The powerful wealth coefficients imbedded in the FRB/US model have not been supported by independent research. To quote Chris Low, Chief Economist of FTN (FTN <em>Financial, Economic Weekly, March 21, 2014),<strong> </strong></em><strong>&ldquo;There may not be a wealth effect at all. If there is a wealth effect, it is very difficult to pin down ...&rdquo; Since the FOMC began quantitative easing in 2009, its balance sheet has increased more than $3 trillion. This increase may have boosted wealth, but the U.S. economy received no meaningful benefit. Furthermore, the FOMC has no idea what the ultimate outcome of such an increase will be or what a return to a &lsquo;normal&rsquo; balance sheet might entail. Given all of this, we do not see any evidence for economic growth as robust at the FOMC predicts.</strong></p> <p><u><strong>Without a wealth effect, the stock market is not the &ldquo;key player&rdquo; in the economy, and no &ldquo;virtuous circle&rdquo; runs through the stock market.</strong></u> We reiterate our view that nominal GDP will rise just 3% this year, down from 3.4% in 2013. M2 growth in the latest twelve months was 5.8%, but velocity should decline by at least 3% and limit nominal GDP to 3% or less.</p> <p><img height="458" src="http://www.marketoracle.co.uk/images/2014/Apr/us-economy-23-4.png" width="576" /></p> <h3><strong>The Flatter Yield Curve: An Opportunity for Treasury Bond Investors</strong></h3> <p>The Fed has indicated that the federal funds rate could begin to rise in the next couple of years, and the Treasury market has moderately anticipated this event. Similar to the 2004-2005 federal funds rate cycle, long before the federal funds rate increased short Treasury rates began their ascent (Chart 4). Interestingly, once the federal funds rate did begin to rise in 2004, long Treasury rates fell over the next two years. From May of 2004 until Feb. 2006 the federal funds rate increased by 350 basis point (bps) and the five-year note increased by 80 bps, yet the 30-year bond fell by 84 bps as inflation expectations fell. If the Fed follows through with its forecast and short rates rise, the dampening effect on inflation expectations should again cause long rates to fall. On the other hand, should economic activity continue to moderate then the downward pressure on inflation will continue. The prospect for lower Treasury yields appears favorable.</p> <p>Van R. Hoisington<br />Lacy H. Hunt, Ph.D.</p> http://www.zerohedge.com/news/2014-04-23/hoisington-end-feds-mythical-wealth-effect#comments Alan Greenspan Ben Bernanke Ben Bernanke Bond Federal Reserve Gross Domestic Product Housing Market Housing Prices Janet Yellen M2 Nominal GDP Personal Consumption Quantitative Easing Recession Robert Shiller Time Magazine Van Hoisington Volatility Yield Curve Thu, 24 Apr 2014 01:35:03 +0000 Tyler Durden 487645 at http://www.zerohedge.com Thomas Piketty's "Sensational" New Book http://www.zerohedge.com/news/2014-04-23/thomas-pikettys-sensational-new-book <p><em>Submitted by Hunter Lewis via <a href="http://bastiat.mises.org/2014/04/thomas-pikettys-sensational-new-book/">The Mises Economic blog</a>,</em></p> <p>This 42 year economist from French academe has written a hot new book: Capital in the Twenty-First Century. The US edition has been published by Harvard University Press and, remarkably, is leading the best seller list, the first time that a Harvard book has done so. <strong>A recent review describes Piketty as the man &ldquo;who exposed capitalism&rsquo;s fatal flaw.&rdquo;</strong></p> <p><strong>So what is this flaw? Supposedly under capitalism the rich get steadily richer in relation to everyone else; inequality gets worse and worse. It is all baked into the cake, unavoidable.</strong></p> <p>To support this, Piketty offers some dubious and unsupported financial logic, but also what he calls &ldquo;a spectacular graph&rdquo; of historical data. What does the graph actually show?</p> <p>The amount of U.S. income controlled by the top 10% of earners starts at about 40% in 1910, rises to about 50% before the Crash of 1929, falls thereafter, returns to about 40% in 1995, and thereafter again rises to about 50% before falling somewhat after the Crash of 2008.</p> <p><strong>Let&rsquo;s think about what this really means. </strong>Relative income of the top 10% did not rise inexorably over this period. Instead it peaked at two times: just before the great crashes of 1929 and 2008. In other words, inequality rose during the great economic bubble eras and fell thereafter.</p> <p>And what caused and characterized these bubble eras? They were principally caused by the U.S. Federal Reserve and other central banks creating far too much new money and debt. They were characterized by an explosion of crony capitalism as some rich people exploited all the new money, both on Wall Street and through connections with the government in Washington.</p> <p><u><strong>We can learn a great deal about crony capitalism by studying the period between the end of WWI and the Great Depression and also the last twenty years, but we won&rsquo;t learn much about capitalism.</strong></u> Crony capitalism is the opposite of capitalism. It is a perversion of markets, not the result of free prices and free markets.</p> <p><strong>One can see why the White House likes Piketty. He supports their narrative that government is the cure for inequality when in reality government has been the principal cause of growing inequality.</strong></p> <p>The White House and IMF also love Piketty&rsquo;s proposal, not only for high income taxes, but also for substantial wealth taxes. The IMF in particular has been beating a drum for wealth taxes as a way to restore government finances around the world and also reduce economic inequality.</p> <p>Expect to hear more and more about wealth taxes. Expect to hear that they will be a &ldquo;one time&rdquo; event that won&rsquo;t be repeated, but that will actually help economic growth by reducing economic inequality.</p> <p>This is all complete nonsense. Economic growth is produced when a society saves money and invests the savings wisely. It is not quantity of investment that matters most, but quality. Government is capable neither of saving nor investing, much less investing wisely.</p> <p>Nor should anyone imagine that a wealth tax program would be a &ldquo;one time&rdquo; event. No tax is ever a one time event. Once established, it would not only persist; it would steadily grow over the years.</p> <p><strong>Piketty should also ask himself a question. What will happen when investors have to liquidate their stocks, bonds, real estate, or other assets in order to pay the wealth tax? How will markets absorb all the selling? Who will be the buyers? And how will it help economic growth for markets and asset values to collapse under the selling pressure?</strong></p> <p>In 1936, a dense, difficult-to-read academic book appeared that seemed to tell politicians they could do exactly what they wanted to do. This was Keynes&rsquo;s General Theory. Piketty&rsquo;s book serves the same purpose in 2014, and serves the same short-sighted, destructive policies.</p> <p><strong>If the Obama White House, the IMF, and people like Piketty would just let the economy alone, it could recover. As it is, they keep inventing new ways to destroy it.</strong></p> http://www.zerohedge.com/news/2014-04-23/thomas-pikettys-sensational-new-book#comments Central Banks Federal Reserve Great Depression International Monetary Fund Real estate Reality White House Thu, 24 Apr 2014 01:03:34 +0000 Tyler Durden 487644 at http://www.zerohedge.com 60% Of China's Water "Too Polluted To Drink" http://www.zerohedge.com/news/2014-04-23/60-chinas-water-too-polluted-drink <p>Forget bank-runs, the <strong>water run has begun in China</strong>. Residents of the western city of Lanzhou rushed to buy mineral water earlier this month after local tap water was found to contain excessive levels of the toxic chemical benzene. But that is the tip of what is a massive problem facing the Chinese people. Not only do they suffer choking smog day after day, but, as The Business Times reports, <strong>sixty per cent of underground water in China which is officially monitored is too polluted to drink directly, state media have reported, underlining the country&#39;s grave environmental problems</strong>.</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_water.png"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_water_0.png" /></a></p> <p>&nbsp;</p> <p>As The Business Times reports,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Sixty per cent of underground water in China which is officially monitored is too polluted to drink directly,</strong> state media have reported, underlining the country&#39;s grave environmental problems.</p> <p>&nbsp;</p> <p><strong>Water quality measured in 203 cities across the country last year rated &quot;very poor&quot; or &quot;relatively poor&quot; </strong>in an annual survey released by the Ministry of Land and Resources, the official Xinhua news agency said late Tuesday.</p> <p>&nbsp;</p> <p>Water rated &quot;relatively&quot; poor quality cannot be used for drinking without prior treatment, while water of &quot;very&quot; poor quality cannot be used as a source of drinking water, the report said.</p> <p>&nbsp;</p> <p><strong>The proportion of water not suitable for direct drinking rose from 57.4 per cent from 2012</strong>, it said.</p> </blockquote> <p><a href="http://www.zerohedge.com/news/2013-02-25/guest-post-coming-water-wars">As we noted previously,</a> <strong>The World Bank&#39;s Ismail Serageldin puts it succinctly: &quot;The wars of the 21<sup>st</sup> century will be fought over water.&quot;</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>That old axiom that the earth is 75% water... not quite. In reality, water constitutes only 0.07% of the earth by mass, or 0.4% by volume.</p> <p>&nbsp;</p> <p>This is how much we have, depicted graphically:</p> <p>&nbsp;</p> <p style="text-align: center;"><a class="lightbox-processed" href="http://www.caseyresearch.com/sites/default/files/image1_184.jpg" rel="lightbox"><img alt="" height="504" src="http://www.caseyresearch.com/sites/default/files/resize/image1_184-490x504.jpg" style="width: 490px; height: 504px;" width="490" /></a></p> <p align="center">&nbsp;</p> <p>What this shows is the relative size of our water supply if it were all gathered together into a ball and superimposed on the globe.</p> <p>&nbsp;</p> <p>The large blob, centered over the western US, is all water (oceans, icecaps, glaciers, lakes, rivers, groundwater, and water in the atmosphere). It&#39;s a sphere about 860 miles in diameter, or roughly the distance from Salt Lake City to Topeka. The smaller sphere, over Kentucky, is the fresh water in the ground and in lakes, rivers, and swamps.</p> <p>&nbsp;</p> <p>Now examine the image closely. See that last, tiny dot over Georgia? It&#39;s the fresh water in lakes and rivers.</p> </blockquote> <p>There&#39;s no doubt that this is a looming crisis we cannot avoid. Everyone has an interest in water. How quickly we respond to the challenges ahead is going to be a matter, literally, of life and death. Where we have choices at all, we had better make some good ones.</p> http://www.zerohedge.com/news/2014-04-23/60-chinas-water-too-polluted-drink#comments China Reality World Bank Thu, 24 Apr 2014 00:36:58 +0000 Tyler Durden 487643 at http://www.zerohedge.com The Middle Class In Canada Is Now Doing Better Than The Middle Class In America http://www.zerohedge.com/news/2014-04-23/middle-class-canada-now-doing-better-middle-class-america <p><em>Submitted by Michael Snyder of <a href="http://theeconomiccollapseblog.com/archives/the-middle-class-in-canada-is-now-doing-better-than-the-middle-class-in-america-is">The Economic Collapse blog</a>,</em></p> <p>For most of Canada&#39;s existence, it has been regarded as the weak neighbor to the north by most Americans.&nbsp; Well, that has changed dramatically over the past decade or so.&nbsp; Back in the year 2000, middle class Canadians were earning much less than middle class Americans, but since then there has been a dramatic shift.&nbsp; <strong>At this point, middle class Canadians are actually earning more than middle class Americans are.&nbsp;</strong> The Canadian economy has been booming thanks to a rapidly growing oil industry, and meanwhile the U.S. middle class has been <a href="http://theeconomiccollapseblog.com/archives/28-signs-that-the-middle-class-is-heading-toward-extinction" title="steadily shrinking">steadily shrinking</a>.&nbsp; If current trends continue, a whole bunch of other countries are going to start passing us too.&nbsp; The era of the &quot;great U.S. middle class&quot; is rapidly coming to a bitter end.</p> <p>In recent years, I have been up to Canada frequently, and I am always amazed at how much nicer things are up there.&nbsp; The stores and streets are cleaner, the people are more polite and it seems like almost everyone that wants to work has a job.</p> <p>But despite knowing all this, I was still surprised when&nbsp;<a href="http://www.nytimes.com/2014/04/23/upshot/the-american-middle-class-is-no-longer-the-worlds-richest.html?hp&amp;_r=1" target="_blank" title="the New York Times">the New York Times</a> reported this week that middle class incomes in Canada have now surpassed middle class incomes in the United States...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>After-tax middle-class incomes in Canada &mdash; substantially behind in 2000 &mdash; now <strong>appear to be higher</strong> than in the United States. The poor in much of Europe earn more than poor Americans.</p> </blockquote> <p>And things are particularly dire for those in the U.S. on the low end of the scale...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country <strong>makes significantly less money</strong> than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.</p> </blockquote> <p>Even while our politicians and the media continue to proclaim that everything is &quot;just fine&quot;, the U.S. middle class continues to slide toward oblivion.</p> <p>The biggest reason for this is the lack of middle class jobs.&nbsp; Millions of good jobs have been shipped overseas, and millions of other good jobs have been replaced by technology.</p> <p>The value of our labor is declining with each passing day, and this has forced millions upon millions of very qualified Americans to take whatever they can get.&nbsp; As&nbsp;<a href="http://www.cnbc.com/id/101597957" target="_blank" title="NBC News">NBC News</a> recently noted, this is a big reason why the temp industry has been booming...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>For Americans who can&#39;t find jobs, the booming demand for temp workers has been a path out of unemployment, but now many fear it&#39;s a dead-end route.</p> <p>&nbsp;</p> <p>With full-time work hard to find, these workers have built temping into a de facto career, minus vacation, sick days or insurance. The assignments might be temporary &mdash; a few months here, a year there &mdash; but labor economists warn that companies&#39; growing hunger for a workforce they can switch on and off could do permanent damage to these workers&#39; career trajectories and retirement plans.</p> <p>&nbsp;</p> <p>&quot;It seems to be the new norm in the working world,&quot; said Kelly Sibla, 54. The computer systems engineer has been looking for a full-time job for four years now, but the Amherst, Ohio, resident said she has to take whatever she can find.</p> </blockquote> <p>It has been estimated that one out of every ten jobs is now filled by a temp agency.&nbsp; I have worked for temp agencies myself in the past.&nbsp; Big companies like the idea of having &quot;disposable workers&quot;, and this is a trend that is likely to only grow in the years ahead.</p> <p>But temp jobs and part-time jobs don&#39;t pay as well as normal jobs.&nbsp; And those kinds of jobs generally cannot support middle class families.</p> <p>At this point, nine out of the top ten occupations in the United States pay an average wage of <a href="http://theeconomiccollapseblog.com/archives/9-of-the-top-10-occupations-in-america-pay-an-average-wage-of-less-than-35000-a-year" title="less than $35,000 a year">less than $35,000 a year</a>.</p> <p>That is absolutely stunning.</p> <p>These days most families are barely scraping by, and they don&#39;t have much extra money to go shopping with.</p> <p>This is a big reason for the &quot;<a href="http://theeconomiccollapseblog.com/archives/two-more-victims-of-the-retail-apocalypse-family-dollar-and-coldwater-creek" title="retail apocalypse">retail apocalypse</a>&quot; that we are now witnessing.&nbsp; This week we learned that retail stores in the United States are closing at the fastest pace that we have seen <a href="http://www.zerohedge.com/news/2014-04-21/retail-store-closures-soar-2014-highest-pace-lehman-collapse" target="_blank" title="since the collapse of Lehman Brothers">since the collapse of Lehman Brothers</a>.&nbsp; But you won&#39;t hear much about that on the mainstream news.</p> <p>You can find lots of &quot;space available&quot; signs and empty buildings in formerly middle class neighborhoods all over the country.&nbsp; For example, one of my readers recently shot the following&nbsp;<a href="https://www.youtube.com/watch?v=Wu35WgGsR_k" target="_blank" title="YouTube video">YouTube video</a> in Scottsdale, Arizona.&nbsp; As you can see, empty commercial buildings are all over the place...</p> <p>As the middle class shrinks, more families are being forced to take in family members that can&#39;t find decent work.&nbsp; I have written previously about the huge rise in the number of young adults that are <a href="http://theeconomiccollapseblog.com/archives/29-percent-of-all-u-s-adults-under-the-age-of-35-are-living-with-their-parents" title="moving back in with their parents">moving back in with their parents</a>.&nbsp; But this is not just happening to young people.&nbsp; As&nbsp;<a href="http://www.latimes.com/business/la-fi-adults-in-parents-home-20140421,0,2293806.story?page=1&amp;fb_action_ids=10152355970744507#axzz2zfLl5gVJ" target="_blank" title="the Los Angeles Times">the Los Angeles Times</a> recently detailed, the number of Americans 50 and older that are moving in with their parents has absolutely soared in recent years...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents&#39; homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.</p> <p>&nbsp;</p> <p>The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.</p> <p>&nbsp;</p> <p>&quot;The numbers are pretty amazing,&quot; Wallace said. &quot;It&#39;s an age group that you normally think of as pretty financially stable. They&#39;re mid-career. They may be thinking ahead toward retirement. They&#39;ve got a nest egg going. And then all of a sudden you see this huge push back into their parents&#39; homes.&quot;</p> </blockquote> <p>The U.S. economy is slowly but steadily falling apart, and more people fall out of the middle class every single day.</p> <p>A recent <a href="http://www.gallup.com/poll/168563/job-loss-quickly-lead-hardship.aspx?utm_source=alert&amp;utm_medium=email&amp;utm_campaign=syndication&amp;utm_content=morelink&amp;utm_term=All%20Gallup%20Headlines" target="_blank" title="Gallup survey">Gallup survey</a> found that 14 percent of all Americans would experience &quot;significant financial hardship&quot; within one week of a job loss.</p> <p>An additional 29 percent of all Americans would experience &quot;significant financial hardship&quot; within one month of a job loss.</p> <p>That means that 43 percent of the entire country is living right on the edge.</p> <p>It is no wonder why only <a href="http://www.pollingreport.com/right.htm" target="_blank" title="about 30 percent">about 30 percent</a> of all Americans believe that we are moving in the right direction as a nation.</p> <p><strong>Most people know deep down that something is seriously wrong.&nbsp; But most people can&#39;t explain exactly what that is or how to fix it.</strong></p> <p><strong>Meanwhile, the politicians and the media keep telling us that if we just keep doing the same old things that everything will work out okay somehow.&nbsp; The blind are leading the blind, and we are rapidly marching toward disaster.</strong></p> http://www.zerohedge.com/news/2014-04-23/middle-class-canada-now-doing-better-middle-class-america#comments Finland Gallup Lehman Lehman Brothers NBC Netherlands New York Times Norway Ohio Recession Unemployment Thu, 24 Apr 2014 00:05:52 +0000 Tyler Durden 487642 at http://www.zerohedge.com