Krugman: Stop Hating on the Bearded Clam

“With U.S. stocks hitting all-time highs and bond yields under pressure, bubble talk is rampant. But you shouldn’t pay any attention to it, according to Princeton economics professor and New York Times columnist Paul Krugman.

In his Friday column, Krugman writes that there “definitely” is no bond bubble and is “probably not” a stock bubble, either.

The Nobel laureate takes a stab at defining a bubble, calling it a situation in which asset prices appear to be based on implausible expectations for the future. Think of dot-com prices in 1999 or housing prices in 2006. In the latter case, housing prices only made sense if you thought home prices would continue to significantly outpace buyers’ income for years.

When it comes to bonds, you wouldn’t want to buy a 10-year Treasury at a yield of less than 2% if you believed the Fed would be raising short-term rates to 4% or 5% soon, notes Krugman notes, who then asks why you’d believe any such thing:

The Fed normally cuts rates when unemployment is high and inflation is low — which is the situation today. True, it can’t cut rates any further because they’re already near zero and can’t go lower. (Otherwise investors would just sit on cash.) But it’s hard to see why the Fed should raise rates until unemployment falls a lot and/or inflation surges, and there’s no hint in the data that anything like that is going to happen for years to come.

There are several reasons for the bubble fears, but one may have something to do with what he describes as a “deep hatred” for U.S. Federal Reserve Chairman Ben Bernanke “and everything he does.” ….”

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“The yen broke through the 100 dollar resistance level Friday and was trading at 101.63, its weakest level in more than 4 ½ years.

Now the question is will how low can it go. David Baran, co-founder of Tokyo-based hedge fund Symphony Financial Partners, says he doesn’t see the dollar stopping until 115 to 118 yen.

“Give it time, it will happen,” he tells The Wall Street Journal….”

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“Federal securities regulators have been slow to revamp rules abused by corporate insiders to trade their company stocks, according to a group of pension funds and a former SEC commissioner.

In a letter Thursday to the Securities and Exchange Commission, the Council of Institutional Investors urged the agency for the second time in four months to tighten rules on government-sanctioned trading plans that allow corporate executives and directors to sell shares despite potentially having knowledge of nonpublic information about their companies.

The group, which represents pension funds overseeing more than $3 trillion in assets, cited a series in The Wall Street Journal on the issue. The articles have triggered criminal and civil investigations into whether executives and directors improperly profited from trading their company shares while in possession of confidential information.

“There are some abuses going on—even broader than some had suspected,” Jeff Mahoney, the group’s general counsel, said in an interview.

Mary Jo White, the SEC’s new chairman, declined to comment through a spokesman. The SEC hasn’t ruled out taking action to amend its guidance or regulations on the plans, but no such review is under way, according to a person familiar with the agency.

For now, the SEC intends to continue to tackle any abuses of the plans through enforcement actions, the person added…..”

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“Investors are overlooking Facebook‘s potential at their own peril, Leon Cooperman of Omega Advisors said Thursday on CNBC.

“We think that people are underestimating the mobility opportunity that exists in Facebook,” he said. “We think ultimately they could achieve a market cap comparable to a Google, which would make the stock very, very rewarding.” …”

See why Cooperman likes $FB

“California’s top law enforcement official accused JPMorgan Chase on Thursday of flooding the state’s courts with questionable lawsuits to collect overdue credit card debt.

The suit, filed in California Superior Court by the state’s attorney general, Kamala D. Harris, contends that JPMorgan, the nation’s largest bank, “committed debt collection abuses against tens of thousands of California consumers.”

For about three years, between January 2008 and April 2011, JPMorgan filed thousands of lawsuits each month to collect soured credit card debt, Ms. Harris said. On a single day, for example, JPMorgan filed 469 lawsuits, court records show.

As the bank plowed through the lawsuits, Ms. Harris said, JPMorgan took shortcuts like relying on court documents that were not reviewed for accuracy. “To maintain this breakneck pace,” according to the lawsuit, JPMorgan relied on “unlawful practices.”

The accusations outlined in the lawsuit echo problems — from questionable documents used in lawsuits to incomplete records — that plagued the foreclosure process and prompted a multibillion-dollar settlement with big banks. One hallmark of the foreclosure crisis, robosigning, in which banks worked through mountains of legal documents without reviewing them for accuracy, is at the center of Ms. Harris’s lawsuit against JPMorgan….”

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“The price of oil dropped below $95 a barrel on Friday as a strengthening dollar made crude more expensive for traders using other currencies.

By early afternoon in Europe, benchmark crude for June delivery was down $1.74 to $94.65 a barrel in electronic trading on the New York Mercantile Exchange. The contact lost 23 cents to finish at $96.39 a barrel on the Nymex on Thursday.

Since oil is traded in dollars, a stronger dollar makes crude and other commodities less appealing to investors with other currencies.

On Friday, the euro was down to $1.2998 from $1.3041 late Thursday in New York. The dollar also gained on the Japanese yen and was trading at 101.34 yen on Friday, the first time it broke above 100 yen in over four years, since April 2009.

Recent signs of improvement in U.S. employment data have sparked speculation that the Federal Reserve might scale back its aggressive monetary policy.

Traders were also influenced by remarks Thursday by Charles Plosser, president of the Fed’s Philadelphia regional bank, said Stan Shamu of IG Markets in Melbourne…..”

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“Yahoo! Inc. Chief Executive Officer Marissa Mayer is exploring whether to bid for the Hulu LLC streaming-TV service, people with knowledge of the matter said.

Mayer met this month with Hulu senior executives to learn more about the site, said one of the people, who asked not to be identified because the talks are private. Amazon.com Inc. has also expressed an interest in Hulu, this person said…”

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“Priceline.com Inc. (PCLN), the largest U.S. online-travel agent by market value, forecast second-quarter profit that missed analysts’ estimates as international expansion exposes the company to economic swings in Europe.

Profit, excluding some items, will be $8.87 to $9.45 a share in the current period, the Norwalk, Connecticut-based company said in a statement yesterday. Analysts were projecting a profit of $9.59, according to data compiled by Bloomberg….”

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“OPEC boosted crude output in April to the highest in five months as Saudi Arabia increased production, helping lower oil prices amid concern that global economic growth is slowing.

The Organization of Petroleum Exporting Countries produced 30.46 million barrels a day last month, up from 30.18 million in March, the group’s Vienna-based secretariat said today in its Monthly Oil Market Report. That’s the most since November. The estimates are based on secondary sources.

Brent crude slipped 7 percent last month as Europe struggled to move beyond its debt crisis and China’s growth and manufacturing showed signs of a slowdown. The drop brings prices closer to the $100-a-barrel target Saudi Arabia’s Oil Minister Ali Al-Naimi described as “reasonable” for consumers and producers. Brent, the benchmark for more than half of the world’s oil, traded at about $104 today on the ICE Futures Europe exchange in London.

“The continued decline in the eurozone, the significant deceleration in the first quarter in some of the Asian economies and the recently acknowledged slowdown in Russia all have the potential to again push growth down,” according to OPEC, which supplies about 40 percent of the world’s oil.

Saudi Arabia, the world’s largest crude exporter, pumped 9.27 million barrels a day in April, rising from 9.13 million in March, OPEC said. That’s the most since November and compares with the country’s own figure of 9.31 million barrels based on its direct communication with the group.

Fragile Recovery

Global oil demand is forecast to rise 800,000 barrels a day to 89.66 million barrels a day this year, little changed from last month’s estimate….”

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“Emerging-market stocks declined the most in three weeks and currencies depreciated as the yen’s tumble to a four-year low threatens developing-nation exporters.

Samsung Electronics Co. (005930), South Korea’s biggest exporter of consumer electronics, dropped 2.6 percent in Seoul, while Hyundai Motor Co. (005380) slid the most in three weeks, after the won climbed to its highest level against the yen in more than four years. China Resources Power Holdings Co. sank 11 percent in Hong Kong after saying it will issue shares for a merger. The Philippine peso, Thailand’s baht, the Russian ruble and South Africa’s rand weakened against the dollar.

The MSCI Emerging Market Index fell 0.7 percent to 1,053.53 at 3:25 p.m. in Hong Kong, paring this week’s gain to 1.1 percent. The yen slid beyond 101 per dollar for the first time in four years, helping the nation’s exporters compete at the expense of Asian rivals. Asian currencies dropped on speculation the yen’s slide will prompt some regional policy makers to weaken their exchange rates to protect exports….”

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“Global central bankers are poised to ease monetary policy even further after a wave of interest-rate cuts from India to Poland.

As Group of Seven finance chiefs gather in the U.K. today with monetary policy on their agenda, economists at Morgan Stanley and Credit Suisse Group AG are among those predicting policy makers will keep deploying stimulus amid weak global growth, slowing inflation and the need to thwart currency gains.

“Most central banks in our coverage universe still have a bias to ease,” Morgan Stanley economists led by London-based Joachim Fels said in a report to clients yesterday. “Given this disposition, it doesn’t take much in terms of downside surprises in growth or inflation to tip the balance for more central banks to pull the trigger for more easing.”

South Korea’s rate cut yesterday was the 511th reduction worldwide since June 2007, according to Bank of America Corp.’s tally, done before Vietnam and Sri Lanka today said they’re lowering their policy rates. While the liquidity has sent stock markets surging, it has yet to prove as effective in generating economic growth.

‘Best Friends’

“Central banks are our best friends not because they like markets, but because they can only get to their macro objectives by going through the markets,” Mohamed El-Erian, chief executive officer at Pacific Investment Management Co. in Newport Beach, California, said in a May 8 telephone interview. “The hope is that improving fundamentals will validate what central banks have done.” …”

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“The Reserve Bank of Australia cut its inflation outlook and reiterated its forecast for “below trend” growth this year, driven by an elevated currency, a crest in resource investment and fiscal tightening.

“The outlook for non-mining business investment remains relatively weak over the next few months,” the RBA said in its monetary policy statement in Sydney today. “The approaching peak in resource investment, the high level of the Australian dollar and ongoing fiscal consolidation are all likely to weigh on growth over the next year or so, while at the same time the low level of interest rates is helping to support demand.” …”

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“India’s industrial output in March expanded at the fastest pace in five months after the central bank eased interest rates to revive economic growth.

Production (INPIINDY) at factories, utilities and mines climbed 2.5 percent from a year earlier after a revised 0.5 percent gain in February, the Central Statistical Office said in a statement in New Delhi today. The median of 26 estimates in a Bloomberg News survey was for a 2.4 percent gain.

The Reserve Bank of India has cut interest rates three times in 2013 to help revive an economy that expanded at the weakest pace in a decade last year, extending the only reduction in borrowing costs this year in the major emerging nations of the BRIC group that include China, Russia and Brazil. Moderating investment, an extended fight against inflation and a drop in exports have hurt growth in Asia’s No. 3 economy….”

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“The yen weakened beyond 101 per dollar for the first time since April 2009 after a government report showed Japanese investors boosted holdings of overseas bonds, ending the longest streak of sales since January 2010.

Japan’s currency fell against all of 16 major counterparts as the data boosted speculation stimulus measures spearheaded by Bank of Japan Governor Haruhiko Kuroda and Prime Minister Shinzo Abe are driving local investors to seek higher returns overseas. Switzerland’s franc, also seen as a haven, dropped to a three-month low against the euro. The Australian dollar dropped below parity with its U.S. peer after the Reserve Bank this week cut interest ratesto a record….”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

[youtube://http://www.youtube.com/watch?v=8t29dLgjEJU 450 300]

[youtube://http://www.youtube.com/watch?v=bn35qoCjLYA 450 300]

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“In Santa Ana, real criminals never need fear arrest as police get $ to arrest law-abiding fathers, brothers, sisters, and children who have committed no crime except for failing to have their proof of citizenship. Do you have yours?

In Santa Ana, crime victims are rarely able to obtain assistance from the police when it’s needed. Police routinely ignore bruises, broken windows, and evidence of extreme violence. Policemen laugh as girls report child sexual abuse. Officers watch as elderly victims of torture are carried into ambulances. After the victims are removed, these officers allow violent intruders to occupy their homes. (Orange County case files: 30-2011-00503154-CU-PO-CJC)

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“Degrowth embraces the ongoing devolution of paid work and wealth that cannot be reversed.

The anti-consumerism Degrowth movement is gaining visibility and adherents in Europe. Degrowth (French: décroissance, Spanish: decrecimiento, Italian: decrescita) recognizes that the mindless expansion of mindless consumption fueled by credit and financialization is qualitatively and quantitatively different from positive growth.

Degrowth is based on a number of principles:

1. Consumerism is psychological/spiritual junk food (French: malbouffe) that actively reduces well-being (bien-etre) rather than increases it.

2. Better rather than more: well-being is increased by everything that cannot be commoditized by a market economy or financialized by a cartel-state financial machine– friendship, family, community, self-cultivation–rather than by acquiring more. The goal of economic and social growth should be better, not more. On a national scale, the cancerous-growth measured by gross domestic product (GDP) should be replaced with gross domestic happiness/ gross nation happiness (GNH).

3. A recognition that resources are not infinite, despite claims to the contrary. Even if fossil fuels were infinite and low-cost (cheerleaders never mention costs of extraction and refining or the external costs), fisheries, soil and fresh water are not. For one example of many: China Is Plundering the Planet’s Seas (The Atlantic). Indeed, all the evidence suggests that access to cheap energy only speeds up the depletion and despoliation of every other resource.

4. The unsustainability of consumerist consumption dependent on resource depletion and financialization (i.e. the endless expansion of credit and phantom collateral).

5. The diminishing returns on consumption. Investing in clean air and water, public transit, universally accessible knowledge/information–these forms of consumption yield high returns in public health, affordable mobility, etc. Buying clothing to wear once or twice and then throw away does not.

The investment in the rule of law, public infrastructure and universal access to clean air, water and education moves nations from developing to developed and greatly improves the material lives of the residents. Beyond this, consumption of resources offers diminishing returns up to a point of social/spiritual/ psychological derangement. Consumption beyond this point actively reduces well-being.

6. The failure of neoliberal capitalism and communism alike in their pursuit of growth at any cost.

7. We have reached Peak Consumption (video 27:30 minutes).

The Degrowth movement explicitly questions what John Michael Greer calls the religion of progress (i.e. growth). The civil religion that growth equals progress is akin to the Cargo Cult of Keynesianism, the notion that growth is so essential that expanding debt exponentially to drive diminishing returns of growth is necessary….”

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“Investors often hear about analyst upgrades and new “Buy” ratings. What they do not hear from most Wall Street analysts is the prediction that a stock price could double or come close to doubling. Most analysts do not want to get that bold by predicting ”the next Apple” because a call like that can wreck a career. These all come with high risk, but some investors might be inclined to consider these as being extreme value stocks based on the projected upside.

Most stocks simply do not double over the course of a year, and identifying the next double, or ten-bagger, generally has a lot of risk that companies like 3M and GE just do not have. Such calls generally come from boutique research firms, but that is not always the case.

Ocean Power Technologies, Inc. (NASDAQ: OPTT) and XOMA Corporation (NASDAQ: XOMA) were highlighted as stocks which could more than double by analyst calls On Thursday. Deckers Outdoor Corporation (NASDAQ: DECK) is a runner-up as the call was close enough to a double that it caught our attention from the same day, and a call from Monday on Pure Cycle Corp. (NASDAQ: PCYO) will catch the eyes of small-cap and speculative investors with the risk appetite for such a small stock….”

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