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Yearly Archives: 2014

State of the Union: Get Used to it Kid

“Americans keep hoping for a robust recovery — one that delivers better-paying jobs and decent returns on retirement savings. Changes in technology and the economy may require that never happens, and government efforts to improve conditions often multiply the misery.

In 1908, Henry Ford had a great idea — the Model T — and a novel understanding of mass production, but needed huge amounts of capital to build factories, establish dealers to sell and service mass-produced cars and maintain a large corps of managers and assembly workers.

His success inspired competitors and whole new industries making everything from agricultural implements to zippers. For three generations, those created enormous demand for capital and jobs for millions in manufacturing and supporting services.

In the closing decades of the 20th century, rapidly advancing digital technologies helped those industries use factories more efficiently and slash the numbers of managers and assembly workers needed.

Most digital companies never had quite the same appetite for capital and workers.
Google was founded in 1998 with $100,000 in seed capital, and $25 million in funding a year later. Within five years, its search engine was available to virtually every computer user around the world, and its brand was more ubiquitous than Coca Cola.

Google’s outstanding stock is worth approximately $370 billion — more than five times Ford’s stock — and it has accomplished this remarkable wealth creation on a relatively small initial investment. Today it has approximately 50,000 high-skilled employees — less than one-fourth of Ford’s workforce, which has been significantly downsized in recent decades.

Older enterprises like Ford and younger ones like Google that form the manufacturing and technology economy of the 21st century need more tech-savvy workers than universities and community colleges provide. However, even if enough liberal arts and business programs could retool to produce all the science, math, technology and engineering graduates needed, the remaining programs would still produce many more non-science, technology, mathematics and engineering graduates than the economy could absorb.

Similarly innovators often don’t need a lot of money to create valuable new enterprises or expand established businesses. Consider that many young people create profitable apps and marketing platforms on their laptops, and major corporations are flush with billions in cash and too few opportunities to deploy it.

Consequently, established companies and individual investors bid up prices for young enterprises, whose owners wish to cash in on their initial success….”

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[youtube://http://www.youtube.com/watch?v=Yd60nI4sa9A 450 300]

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Fed’s Bullard: A Sharp Drop in Unemployement Will Bolster Inflation

“Federal Reserve Bank of St. Louis PresidentJames Bullard said a rapid drop in joblessness will fuel inflation, bolstering his case for an interest-rate increase early next year.

“I think we are going to overshoot here on inflation,” Bullard said yesterday in a telephone interview from St. Louis. He predicted inflation of 2.4 percent at the end of 2015, “well above” the Fed’s 2 percent target.

“That is a break from where most of the committee seems to be, which is a very slow convergence of inflation to target,” he said in a reference to the policy-making Federal Open Market Committee.

A drop in unemployment to 6.1 percent in June, the lowest level in almost six years, increases pressure on the Fed to raise the main interest rate sooner than most officials have estimated, Bullard said.

The St. Louis Fed chief, who calls himself the “North Pole of inflation hawks,” estimates full employment at about 6 percent. A lower level may stoke wage and price pressures, he said. The FOMC’s longer-run projection of unemployment is between 5 percent and 6 percent.

“When unemployment goes into the five range, that is going to below the natural rate,” or the level at which inflation is neither speeding up or slowing down, Bullard said.

Photographer: Scott Eells/Bloomberg

James Bullard, president of the St. Louis Federal Reserve Bank.

“Inflation has been unusually low in 2013 and the first part of 2014” because of temporary circumstances such as European economic weakness.

“Those special factors are wearing off, and the economy is on the upswing,” Bullard said. “Those factors will send the inflation rate above target in 2015.”

Rapid Drop

Unemployment could drop below 6 percent in “the next couple of jobs reports,” Bullard said…..”

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The New Plague:Ransomware Malware

“Ransomware, a particularly annoying breed of computer virus, is spreading like the plague. This malware locks you out of your computer files until you pay up — and it is proving incredibly difficult to exterminate.

A major ransomware operation called Cryptolocker was supposedly halted by the FBI in May. Not so fast, security experts say. It’s only a setback.

Cryptolocker used a massive network of hijacked computers called a “botnet” to spread the virus. The FBI, foreign law enforcement and private security companies teamed up to cut off communication between that botnet and victims’ devices. They seized Cryptolocker’s servers and replaced them with their own.

But as antivirus maker Bitdefender points out, all that accomplished was to stop Cryptolocker’s virus delivery system. Cryptolocker lives on, and its criminal masters just need to find a new botnet to start delivering viruses to new computers once again.

If the criminals tweak the virus’ code and find a different set of servers, law enforcement is back at square one….”

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NYT’s Irwin: Whole Range of Financial Markets May Be in a Bubble

“A slew of financial assets around the world may have entered bubble territory, says New York Times columnist Neil Irwin.

“Welcome to the Everything Boom — and, quite possibly, the Everything Bubble,” he writes. “Around the world, nearly every asset class is expensive by historical standards.”

Among the examples Irwin cites are:

  • Spanish bonds. Despite the fact that the country sports one of the weakest economies in the eurozone, its 10-year government bonds yield 2.68 percent. That’s not much above the 2.58 percent offered by 10-year U.S. Treasurys.
  • The office building at One Wall Street in New York City sold for $585 million in May, only three months after one industry report estimated it would go for $466 million.
  • In April, the French cable TV company Numericable executed the largest junk bond issue in history, with an interest rate of only 4.9 percent.

“We’re in a world where there are very few unambiguously cheap assets,” Russ Koesterich, chief investment strategist at BlackRock, tells Irwin….”

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The Container Store CEO Says the Consumer in Still Stuck in a Polar Vortex….But Wait it’s Summer

“Following a chilly winter that froze economic growth, economists have been forecasting a sharp snapback in activity for Q2 and the second half of the year.

Recent reports on jobs and auto sales confirm as much. Add the fact that the stock market is near an all-time high, and you would assume the consumer would be feeling pretty confident.

But new comments from a major U.S. retailer contradict all of the optimism out ther.

On Tuesday afternoon, The Container Store Group announced that its comparable store sales fell 0.8%, which led to a wider than expected net loss of $0.07 per share.

CEO Kip Tindell warned that weakness at his stores wasn’t a company-specific problem.

“Consistent with so many of our fellow retailers, we are experiencing a retail ‘funk,'” Tindell said in the company’s earnings announcement…..”

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One More Reason to Respect Gaia

This is a great vid on the natural world, and why you need to have MAD RESPECT for Gaia.

We must change our thought process and find respect…..

[youtube://http://www.youtube.com/watch?v=XI5frPV58tY 450 300]

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A Heads Up on Some Stocks Going Into Earnings Season

“After the worst U.S. winter in decades, scores of companies will show plenty of quarter-over-quarter sales and earnings improvements starting this week.

But looking beyond the weather will be of more interest, because many companies that suffered the worst earnings declines in the first quarter are also expected to show hugeyear-over-year earnings growth for the second quarter.

To highlight those, we began with the S&P 1500 Composite Index, which includes the components of the S&P 500 SPX -0.76% , the S&P MidCap 400 MID -1.02%  and the S&P SmallCap 600 SML -1.28% . In order to show which companies posted the worst earnings decreases during the first quarter, we limited the list to stocks with positive earnings per share for both periods.

So here are the 10 profitable S&P 1500 companies showing the worst year-over-year EPS declines for the first quarter:

Enlarge Image

Investors might have expected to see a list of retailers, because shoppers stayed at home during the frigid temperatures. But the list is varied, in part, because we focused on EPS. Many of these companies reported lousy results that had nothing to do with the weather.

Here’s where it gets interesting: Seven of those stocks are expected to show year-over-year EPS growth for the second quarter, based on consensus estimates among analysts polled by FactSet. Six may report double-digit increases in EPS:

Here’s more on all 10 companies, beginning with the ones showing the largest year-over-year EPS declines for the most recently reported quarter….”

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Irrational Exuberance Part Deux

“PORT WASHINGTON, N.Y. (MarketWatch) — When good news is good news, and bad news is good news, it’s time to take some money off the table.

Call it irrational exuberance, part two. Like old man river, the stock market just keeps rolling along. Last week it was Dow 17,000. Will this week see the market go even higher?

Before you jump on the bulls’ bandwagon, let me call to your attention a couple of salient statistics. At today’s level, the Dow industrials DJIA -0.72%  are up 5% since the beginning of this year. This is on top of a 35% leap in 2013. And in case you are keeping score, the Dow is now a whopping 155% above its low back in March 2009.

All that said, there are a number of warning signs out there that suggest the party may soon be over.

For one thing the economy has not grown anywhere near as much as stocks over the past 5-1/3 years; neither have corporate profits.


AFP/Getty Images

Additionally, price-to-earnings ratios are well above average. Robert Shiller, the noted Yale professor, economist and author, thinks that the market today is about at the valuation it was running at in 2008, just before stocks plunged.

In the past, the stock market has managed to avoid such excesses by dropping in price. A decline of 10% (a.k.a. a correction) used to occur about once every 12 months.

This bull market has managed to avoid a correction for 33 months — far longer than average. And correction or no, the current bull market is the fourth-longest since the Crash of 1929.

If you don’t have angst yet, here is another bit of history to chew on: Stocks usually take a header late in the third quarter, as well as in October. Indeed, some of the market’s biggest declines have occurred during this period.

Here is another tidbit: Bond prices are up…..”

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Ukrainian Rulers aka Nazis Surrender Sovereignty to EU

“Amid massive public opposition and behind-the-scenes globalist scheming, the new regime in Ukraine took a major step toward surrendering the nation’s sovereignty to the Brussels-based European Union super-state. In exchange for giving up self-government and independence to the unelected, perpetually expanding EU bureaucracy that now dominates policy across the 28-member bloc, Ukraine will be able to sell its exports without paying tariffs. Meanwhile, armed conflict continues to rage across wide swaths of Eastern Ukraine as the death toll rises.

As part of the far-reaching scheme between Kiev and Brussels, known as the “Association Agreement” and the “Deep and Comprehensive Free Trade Area,” Ukraine’s economy and society are set to be radically restructured under the supervision and dictates of so-called “eurocrats.” The avalanche of regulations and decrees coming from the EU will also be imposed. The Ukrainian people, as with other peoples under the thumb of the EU, will have little say in the process.

Unsurprisingly, the establishment and the rulers of Ukraine and Europe celebrated the plot. The self-styled “president” of the EU,Bilderberg operative and unelected “global-governance” monger Herman Van Rompuy, for example, claimed the agreements with Ukraine are “milestones in the history of our relations and of Europe as a whole.” Speaking at the signing “ceremony” in Brussels, Van Rompuy, who regularly calls for “convergence” with Moscow, also claimed that people in Kiev and elsewhere “gave their lives for this closer link to the European Union.”

In reality, of course, even Western polls going back to the start of the foreign-backed uprising in Ukraine showed significantly less than half of the public supported closer ties to the sovereignty-destroying super-state. Other surveys of the population suggested that even fewer backed the EU agreement, despite fiendish globalist efforts to portray the sole options for Ukraine as oppression from Moscow or Brussels. However, as with virtually everything about the emerging regime in Brussels, the voice of the people matters little — indeed,EU “integration” has itself taken place largely in direct defiance of voters.     

Ukrainian “President” Petro Poroshenko, meanwhile, claimed while signing the thousands of pages of “agreements” last week in Brussels that June 27 was “maybe the most important day for my country after independence day” in 1991, following the supposed “collapse” of the Soviet Union. “All of us would have wished to sign the agreement under different, more comfortable circumstances,” he added. “On the other hand, the external aggression faced by Ukraine is another strong reason for this crucial step.”

The controversial deals with the EU are essentially the same plot that ousted Ukrainian “president” Viktor Yanukovych was set to sign in November. However, under pressure from Moscow, which offered a more enticing “aid” package, the now-deposed former ruler in Kiev backed out at the last moment. With plenty of help from globalists such as George Soros and others at the Council on Foreign Relations, Western-backed forces helped stir up riots and eventually an armed uprising against Yanukovych’s corrupt regime…..”

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U.S. Equities Take Another Dip as Earnings Jitters Rise

“U.S. stocks declined Tuesday, pushing the Dow industrials below 17000, as investors showed caution ahead of a slew of corporate earnings reports.

The Dow Jones Industrial Average shed 109 points, or 0.6%, to 16915.

The S&P 500 index fell 12 points, or 0.6%, to 1966, and the Nasdaq Composite Index declined 47 points, or 1.1%, to 4404.

Traders said that volumes were muted even as stocks tumbled, and cited no single catalyst for the selling. After the broad stock-market rally, and ahead of the release of earnings reports, many investors were reluctant to commit more money to the market, traders said.

Jarred Kessler, global head of equities at Cantor Fitzgerald, said that he saw small orders to sell rather than chunks of stocks for sale from large clients, which would indicate higher conviction in further declines. Rather, he said that many investors appeared to be in a holding pattern.

“Every time there’s a move down, the market bounces back up,” Mr. Kessler said. “No one is fearful of anything.” ….”

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El-Erian: Janet Yellen Lays Out Her Policy Blueprint

“Over the weekend, I reread remarks that U.S. Federal Reserve chair Janet Yellen made last week at the International Monetary Fund and also read the transcript of her conversation with Christine Lagarde, the International Monetary Fund’s managing director.

The IMF event brought together a virtual who’s who of the international economic and financial community, and in one of her most significant policy speeches to date, Yellen seized the opportunity to address head-on some of the major questions confronting modern central bankers. Many of these center around the burden of trying to restore, almost singlehandedly, economic growth, more dynamic job creation, price stability, and durable market stability.

There are seven major takeaways from Yellen’s IMF speech. They collectively signal that the Fed will maintain a gradual policy approach for now. Markets, conditioned to expect strong and steadfast monetary support from the Fed, welcome that stance. But Yellen’s statements also point to the need for a delicate transition from policy-induced growth to more organic economic growth. If that transition is mishandled, it would trigger renewed financial and economic instability.

First, Yellen recognizes that we could well be in a world of steady-state interest rates that, in both nominal and inflation-adjusted terms, are lower than what historical experience would suggest.

Second, such rates, as Yellen noted, can “heighten the incentives of financial market participants to reach for yield and take on risk.” Indeed, she added, “such risk-taking can go too far, thereby contributing to fragility in the financial system.”

Third, financial stability cannot be divorced from the pursuit of economic well-being, because “a smoothly operating financial system promotes the efficient allocation of saving and investment, facilitating economic growth and employment.”

Fourth, this situation places even greater importance on the effectiveness of macro-prudential policies as “the main line of defense” against financial excess in the marketplace.

Fifth, while progress has been made in strengthening crisis prevention through better macro-prudential measures, more is needed at the policy level. With that in mind, Yellen stated that she “has not taken monetary policy totally off the table as a measure to be used when financial excesses are developing.” Since macro-prudential tools “have their limitations,” monetary policy should be “actively in the mix” even though it is “not a first line of defense.”

Sixth, central banks have to continue to think imaginatively about additional tools they can deploy to bolster the economy and maintain financial stability given the constraints they face in using interest rates as an effective macroeconomic tool…..”

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Mike Maloney: The Dollar As We Know It Will Be Gone Within 6 Years

“This week’s podcast sees the return of Mike Maloney, monetary historian and founder of precious metals broker GoldSilver.com.

Based on historical patterns and the alarming state of our current monetary system, Mike believes the fiat US dollar is in its last years as a viable currency. He sees its replacement as inevitable in the near term — as in by or before the end of the decade:

All of this is converging with the crazy experiments the Federal Reserve has done.

 

I absolutely believe that there are economic consequences to this that are inescapable. The Fed is not just in a box; a trap has been set. And before the end of this decade, if there is still a US Dollar around it will not be this US Dollar. It will be a dollar that is tied to a very different monetary system.

 

The last three shifts in our monetary system were little baby steps off of the classical gold standard where it was fully backed. We went down to a 40% reserve ratio with the Federal Reserve in the United States during the Gold Exchange Standard. Then the Bretton Woods system didn’t have a reserve ratio specified, but I believe the dollar was about 8% backed by gold by the time Nixon took us off of gold in ’71. Now, the only backing that the US Dollar has is the promise to tax us all in the future: it is US Treasury bonds, or the Fed doing its quantitative easing and buying mortgage-backed securities.

 

And how corrupt is the notion that you can give some entity the power to have a check book that has a $0 balance and they can go out and buy anything they want with that and it just creates currency? That is corrupt in itself.

 

Think about how immoral this is. First of all, the Fed whipped up that currency not out of thin air but by indebting the public. They buy a Treasury bond or a mortgage-backed security, and now they own the mortgage on your house or they own a Treasury bond that you are going to work for in the future and pay taxes to pay off. And so they give all of this currency to the banks, and then they pay them interest to not loan it out or otherwise stimulate the economy. So they are giving them the gift of interest.

 

By the way, any profits that the Fed has at the end of the year are supposed to get turned over to the Treasury. Well, they are paying the banks interest that reduces the amount that they give to the Treasury by exactly that amount. So in other words, the public is paying those banks interest. That’s where all of the interest comes from. We’re not seeing those profits passed on to the Treasury anymore…..”

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$GS Expects Feds to Raise Rates in Q3 of 2015

“Goldman Sachs Group Inc. brought forward its forecast for the Federal Reserve to raise interest rates after U.S. employers added more jobs than forecast, sending five-year Treasuries lower for a fourth day.

The Fed will increase its benchmark in the third quarter of 2015, rather than the first three months of 2016, Goldman Sachs Chief Economist Jan Hatzius wrote in a report yesterday. The investment bank joins companies including JPMorgan Chase & Co. and Bank of Tokyo-Mitsubishi UFJ Ltd. in moving up its Fed estimates after U.S. data last week showed the economy added 288,000 workers in June, compared with the 215,000 projected by a Bloomberg News survey of analysts.

“We might see more U.S. banks bringing forward their rate-hike expectations this week,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “It was an important jobs report. It may be that we get more losses for Treasuries and higher yields today.”

The U.S. five-year yield climbed two basis points, or 0.02 percentage point, to 1.75 percent at 6:49 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.63 percent note maturing in June 2019 dropped 3/32, or 94 cents per $1,000 face amount, to 99 13/32.

The two-year yield rose one basis point to 0.52 percent and the 10-year yield was little changed at 2.64 percent after rising 10 basis points last week.

Spread Widens….”

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Barclays: Draghi’s $1.4 T Liquidity Plan is No Silver Bullet

“Mario Draghi’s plan to end the euro area’s lending drought risks missing the target.

While the European Central Bank president says a program to hand as much as 1 trillion euros ($1.4 trillion) to banks has built-in incentives to spur lending to the real economy, analysts from Barclays Plc to Commerzbank AG have doubts on how well it will work. In fact, the measure allows banks to borrow cheaply from the ECB even without increasing credit supply.

Draghi has identified weak lending as an obstacle to the euro area’s recovery and is committed to reversing a slump that has eroded more than 600 billion euros in loans to companies and households since 2009. The risk is that if the latest plan fails, the currency bloc slips closer to deflation and to the need for more radical action such as quantitative easing.

“It’s not the silver bullet,” said Philippe Gudin, chief European economist at Barclays in Paris. “Every incentive for banks to lend is a good thing, but I wouldn’t say I’m reassured that credit will pick up.”

The ECB’s latest plan differs from its previous liquidity measures in the way it tries to nudge banks into lending more to the real economy. In contrast, three-year loans issued in late 2011 and early 2012 were used largely to buy higher-yielding government bonds, a practice known as the carry trade.

Attractive Option

Targeted longer-term refinancing operations will offer banks an initial total of as much as 400 billion euros this year that they can hold until 2016 with no strings attached. They can keep it another two years if they meet specific new lending targets set by the ECB, and they can borrow more funds starting in March if they exceed those thresholds. At his monthly press conference on July 3, Draghi said the total take-up could be 1 trillion euros.

“If this sounds a little complicated, I think you’re right,” he told reporters in Frankfurt. “But I’m confident that the banks will quickly understand that even though it’s complicated, it’s also quite attractive.”

Still, to keep the initial batch of funding for the full term, banks aren’t required to expand their loan books. They are only obliged to boost credit if they wish to borrow more cash starting next year, when the ECB will provide as much as 3 euros for every 1 euro of net new lending.

Bank Review….”

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Documentary: OBEY – The Death of the Liberal Class

Cheers on your holiday weekend!

[youtube://http://www.youtube.com/watch?v=hH6UynI5m7Y 450 300]

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[youtube://http://www.youtube.com/watch?v=5H8G7aotaXQ 450 300]

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