It’s Alive! Dexia’s $775 mln MBS case vs JPMorgan Back From the Dead

John Feather, PhD: The Big Question That Comes With Getting Older

Who will care for you when you get old? If that’s a scary or uncomfortable question, you are in good company. Most people don’t want to think about their long-term care needs and when they do, they tend to have major misperceptions of what it costs and what the government will pay for.

This high degree of denial or optimism — take your pick — was reaffirmed last month in a survey released last month by the Associated Press and the NORC Center for Public Affairs Research. One particularly striking finding: almost 70 percent of Americans believe they will be able to rely on their family to meet their long-term care needs. Yet the Baby Boomers, that large postwar generation now crossing the threshold of 65 at the rate of 10,000 per day, are the least likely generation in history to be married or have children. Over one-third of Boomers have never married, a jump of 50 percent from the previous generation. Between 20-25 percent are childless. How realistic is it to expect that every Boomer’s family will be able to provide what is needed? In this context, who is “family”?

Family caregiving remains the bedrock of our long-term care system, partly because families’ love and support their older members, but also because no one else will do it. The government provides very little support for long-term needs, and even that is diminishing. For the record, Medicare does not cover long-term care and Medicaid imposes strict income and asset limits before it will cover nursing home and other long-term care. And caring for an older person is not just making decisions at the end of life or whether to go into a nursing home, but also providing the security that there is someone to call who can provide both emotional support and on the ground support whenever needs arise.

In some ways, the lesbian, gay, bisexual and transgender (LGBT) community faced this issue sooner than the rest of the population. In an environment where biological families were often hostile, relationships were not legally recognized and child rearing was not the norm, LGBT people came to rely on their “family of choice” rather than a “family of origin.” Fortunately, most LGBT folks no longer have to choose between one and the other, but the system of relying on friends and neighbors much more systematically and broadly offers an important lesson for Boomers in general.

Another factor: We all rejoice in the “longevity bonus” of much longer life that most of us will receive, but it also brings its own challenges. My grandmother lived to be 100. If my mother lives to be the same age (and, at age 82, she shows no signs of doing otherwise), I will be the 81-year-old “child” taking care of her. Even for Boomers who are married, inevitably one spouse will die before the other, leaving the remaining spouse (usually the woman) to address these challenges alone. Indeed, some commentators feel that growing older alone is one of the most important — and ignored — women’s issues of the next 30 years.

The challenges are real, but so is the determination of Boomers to make this work, and their ingenuity and willingness to improvise can be effective. For example, individuals are coming together informally to develop networks of friends who have responsibilities when a member of the group needs help. Some older people are living together (like the “Golden Girls”) informally or co-locating to a neighborhood where they can help each other when needed, at least in places where zoning and other ordinances do not make this type of living arrangement difficult or impossible.

Where are other successful support models to be found? The fastest growing network to help older people find services is the Village to Village network. Villages are based on the model of neighbors helping neighbors, but provide a structure and consistency for the work. They are membership-based, created and governed by older adults, and offer their members a network of services that support “aging in community,” such as transportation and home repairs delivered by both paid providers and volunteers; social, cultural and educational programs; health and wellness activities; and member-to-member volunteer support. In fact, remaining active and engaged by volunteering is a popular aspect of membership and 51 percent of members volunteer within their Village. While most Villages require individual members to pay a fee to join (generally around $500), about two-thirds of Villages offer discounts or subsidies to low-income seniors. In California, grants from the SCAN Foundation and the Archstone Foundation have helped both support individual Villages and document what makes them work and how they can be sustained and expanded.

The Village to Village network is part of a growing movement to create age-friendly communities where people can grow up as children and also grow old in place. Instead of segregating older people into special facilities or communities, it tries to find ways make places better for both the old and the young and to link the groups together. Grantmakers In Aging offers great resources that can help. These include a database that can be searched by state so you can see what’s already going on in or near your community, or find workable solutions to adapt to your community’s needs.

Today’s generation of older adults looks forward to the longest life span of any group in human history. If that reality, and the related possibility of growing old alone, gives you pause, join us in supporting a more age-friendly future, with a greater range of choices for all people to find the support they will someday need. The challenges of living longer and living alone can be formidable, but there are lots of creative solutions already helping people across America. What ideas can you add? It’s time to pull together and put all our ideas to work.

Earlier on Huff/Post50:

Raymond J. Learsy: Energy Exports Are Good! But!

Cheerleading the argumentation for exporting our newly developing bounty
of natural gas, Mr. Joe Nocera regales us in his recent New York Times
Op-ed “Energy Exports Are Good!” with a plethora of reasons of why we should
sanction the unbridled export of this newly evolving American treasure.
He calls into question the motives of Dow Chemical in their lobbying to
keep a lid on gas exports given the fact that Dow has a minutae
interest in a Gulf Coast facility originally built to import Liquified
Natural Gas (LNG) and along with our new natural gas bounty, is, being
converted to handle gas exports,

Dow’s argumentation as put forward by Mr.Andrew N. Liveris, Chairman of
Dow Chemical, is that the newly found gas offers”a historic opportunity
to streghen the economy,increase national competiveness and create
jobs.” Nocera then goes on to instruct us that Liveris’ real objective
is “are you ready for this-limiting gas exports” given Liveris’ stated
agrumentation that the new jobs the natural gas boom is expected to
create, is dependent on “affordable” and “plentiful supply.”

While Nocera is instructing us on the benefits of gas exports, almost
concurrently the European Union annouced this past week that it is
opening an investigation of myriad oil companies over suspected price
manipulation (http://www.euronews.com/2013/05/15/brussels-opens-oil-price-fixing-probe)
bringing to the fore the thesis that pricing on the international oil
market has nothing to do with supply and demand (please see “EU’s Oil
Probe Years Overdue. Targets Wrong Benchmark” 05/16/2013).

And that is the point that is consistently overlooked. Natural Gas is unique in that it is priced both globally and domestically. While American manufacturers such as Dow or Dupont
are paying about $4/mmbtu, Japanese manufacturers are paying nearer
$18mmbtu. An enormous difference, and in this writers opinion a
reflection of and on the distortion of the trading dynamics for virtually all energy
commodities traded interntaionally.

Consider the following. The United States has become natural gas
selfsufficient. No natural gas is imported into the U.S. market and no
natural gas is exported. The American natural gas market is therefore
uniquely American and subject to clear oversight by the Federal Trade
Commision and the Justice Department. Any attempts at collusion between
U.S producers.would result in jail time for those so engaged.This, as
opposed to the manipulations of such as OPEC, as but one instance, for
oil prices on the international market, and whatever new findings that will be borne out
by the EU investigation. Permitting unlimited exports of U.S.
natural gas would be tantmount to exposing the U.S. traded natural gas
market to the same supply-demand discipline destruction which have
impacted virtually all energy products traded on the commodity exchanges worldwide.

Unlimited exports of U.S. natural gas without restoring honest supply
and demand based markets worlwide will permit us to can goodbye to the
jobs that would have been created, as gas prices will be pumped to
artificially determined world levels, much to the glee of the ‘oil patch.’

Report: Yahoo nearing $1.1B acquisition of Tumblr

Jamie Dimon under pressure ahead of JPMorgan Chase investor vote

United to restart 787 flights on Monday

Japan’s Nikkei 225 Overtakes Dow For First Time In 3 Years

Following an 80% rise off October 2012 lows, Japan’s Nikkei 225 nominal price just exceeded that of the Dow Jones Industrial Average for the first time since May 6th 2010. Though the Dow is around 8% above its 2007 all-time highs, the Nikkei remains 16% below its 2007 highs (and over 60% below its 1989 all-time highs). While the Dow is pushing its P/E towards 15x, the Nikkei just passed 28x – quite a ‘valuation’ difference. JGB futures – though not halted yet – are plunging notably (with JGB yields up 3-4bps). The last time the Nikkei was here a USD bought 95 JPY, now it buys 103… and 10Y Japanese government bonds yielded 1.29% against today’s 86bps (compared to 10Y Treasuries 3.5% then and 1.96% now) … In those three years the Fed has expanded its balance sheet by just over $1 trillion and the BoJ by about $400 billion equivalent.

 

 

and JGB Futures are plunging…

 

Charts: Bloomberg

White House Damage Control Script Jeopardized By New Disclosures

It has been a tough weekend for the President. First, the CEO of the Associated Press states the government’s seizure of AP phone records was “so broad and so secret,” among other factors, “that it was an unconstitutional act,” adding that it had already had a chilling effect on newsgathering and press freedom…

 

Add to that James Goodale’s comments (the leading force behind the release of the Pentagon Papers and first amendment lawyer), that President Obama is “worse for press freedom than Nixon” and things are not going well…

But, the problems did not stop there as the Wall Street Journal reports that while President Obama claims not to have been made aware of the IRS indiscretions until May 10th it seems the White House’s chief lawyer learned weeks ago that an audit of the IRS likely would show that agency employees inappropriately targeted conservative groups.

 

Via The Wall Street Journal,

…

 

In the week of April 22, the Office of the White House Counsel and its head, Kathryn Ruemmler, were told by Treasury Department attorneys that an inspector general’s report was nearing completion, the White House official said. In that conversation, Ms. Ruemmler learned that “a small number of line IRS employees had improperly scrutinized certain…organizations by using words like ‘tea party’ and ‘patriot,’ ” the official said.

 

…

 

The White House, which declined to make Ms. Ruemmler available for comment Sunday, wouldn’t say whether she shared the information with anyone else in the senior administration staff.

 

…

 

When findings are so potentially damaging, the president should immediately be informed, said Lanny Davis, who served as a special counsel to President Bill Clinton.

 

Of the controversies dogging Mr. Obama, including the terrorist assault in Benghazi, Libya, and the Justice Department’s seizure of phone records of Associated Press journalists, the IRS case “is the most nuclear issue of all,” Mr. Davis said. It involves the “misuse of the IRS” and “anyone who knew about this a few weeks ago and didn’t tell the president shouldn’t be in the White House,”

 

…

 

Republican lawmakers on House oversight committees are pressing the investigation, with more hearings set for this week.

 

“Exactly who in the administration knew what about the IRS targeting is one of the key outstanding questions,” said Rep. Darrell Issa

 

…

 

“… President Obama and his administration seem more preoccupied with having deniability than quickly addressing serious wrongdoing…”

 

 

The President’s response so far is that “we’re not going to participate in is a partisan fishing expedition.”

The ‘Other’ Way To Exit The Euro…

With unemployment rates running at all-time record highs across the peripheral European nations and the rise of nationalist (some might say extremist) parties, it remains somewhat surprising that there has not been greater social unrest (yet). The people of Europe are caught in a hinterland of knowing what is best in the long-run but fearing the short-term band-aid ripping pain of exiting the political farce known as the European Union. But some have found a way… There is another way to ‘exit’ on personal terms from the austerity and pain induced by a centrally planned overlord. Immigration to Germany from Italy, Spain, Greece, and Portugal has ‘never’ been higher… leaving us wondering – at what point does the free and open exchange of everything in the union gets its share of ‘protectionism’ from an over-stuffed Germany freezing the import of labor? So it seems that not only is the money (deposits) finding a new home but the people too are moving to where the money is..

 

Leah Eichler: How Women Hold Themselves Back in Business

While women are equipped with the necessary skills to perform well as leaders, they are not exercising the ability to self-promote. They hesitate getting their accomplishments known to the people in the highest rungs of the organization resulting to their inability to get the support they need to advance.

This was one of the findings of the latest Conference Board of Canada report released last week. Donna Burnett Vachon and Carrie Lavis authored Women in Leadership: Perceptions and Priorities for Change which is based on the results of a national survey of more than 800 men and women as well as in-depth interviews with female leaders and women who are aspiring for these positions.

The research revealed that the problem does not stem from a women’s leadership style which is anchored primarily on consensus, collaboration, and teamwork. In fact, they receive high marks as leaders, with 74 per cent of women and 73 per cent of men in both management and non-management roles agreeing that “women and men make equally effective leaders.” They even perform better than their male counterparts in business-oriented and people-oriented competencies.

The issue lies, in part, with a woman’s confidence or lack thereof. Compared to men who are more aggressive in putting their names forward for positions where they do not have the requisite skills or experience, women tend to “self-select out.” That is, they don’t generally take on projects or positions that allow them to advance “unless they feel certain they already have all of the skills required.”

But women are also walking a tightrope when it comes to self-promotion, the research points out. Current cultural norms don’t look too favorably on females who are proactive and aggressive in flaunting their qualifications to advance as “she runs the risk of alienating her audience.” Not speaking up, on the other hand, will also mean not getting noticed as “it’s likely that no one else is going to do it on her behalf.”

The study authors stressed that this is where mentors, sponsors, and advisors play a crucial role. They give women visibility by allowing them to “let their skills shine in front of the people who make decisions about advancement and career growth opportunities.”

Aside from leadership abilities, the report also examined the leadership attitudes, organizational opportunities, and career advancement motivation that affect women’s ability to ascend to the ranks of senior management. Their findings show that “attitudes about the need for more women in senior management are still polarized along gender lines.”

Some strategies for change include getting the board of directors involved by making woman’s advancement a priority; making sponsorship programs of emerging women leaders transparent; and providing more family-friendly policies in the workplace.

Still, the researchers conclude that more women are needed in senior management roles before significant change is felt: “A shift in attitudes will only come when we stop seeing a woman in senior management as the exception and start seeing her as the norm.”

By Nicel Jane Avellana, contributor to Femme-O-Nomics.com and r/ally

Central Banks to Dominate the Forces of Movement in the Week Ahead

The most important force that has lifted the US dollar across the board is the sense, encouraged by official comments, of the potential divergence in the trajectory of monetary policy between the US and most of the other major high income countries. 

In particular, the pendulum of market psychology has swung back toward speculation of tapering off of QE-related asset purchases by the Federal Reserve.  At the same time, ECB officials continue to indicate they are carefully considering a negative deposit rate. Many still expect the Bank of England to resume its gilt purchases program and new initiatives on its forward guidance in Q3 after Carney takes the helm. 

Meanwhile, Carney and the Bank of Canada continue to push further out when they anticipate full capacity will be reached and when it will remove some accommodation by increasing interest rates. The recent string of economic data, including prices, has been generally softer than expected and the forward guidance the central bank has offered is becoming less credible. Additional easing by the Reserve Bank of Australia, though the recent sharp drop in the Australian dollar appears to tempering expectations of a rate cut as early as next month.

Japan’s quantitative and qualitative easing is not even two months old. It is far too early to suggest a reassessment, though Q4 12 GDP was revised up and Q1 13 GDP came in stronger than expected and may be revised after Japan releases the latest capex figures in early June. Capital investment was an unexpected drag on Q1 GDP and may be adjusted higher.

Although there are several important pieces of economic data in the days ahead, including UK inflation and retail sales reports, euro area flash PMI readings, German IFO, Japan’s latest trade figures, US durable goods orders, the focus is on the central banks.

The Fed’s Dudley and Bollard speak on Tuesday, but the real interest is on Bernanke’s testimony on the economic outlook on Wednesday. Comments by regional Fed presidents who do not vote this year on the FOMC has helped fan speculation of tapering off of Fed purchases in Q3.   Bernanke is likely to reiterate that the Fed is vigilantly watching the impact of QE on the financial markets and risk-taking generally.  However suspect it is too early for Bernanke to signal a shift in the pace of QE. Not only has the full impact of the fiscal tightening this year not yet been fully transmitted, but also the decline in core inflation readings suggests no strong urgency to alter the pace of the asset purchases.

There are at least eight ECB officials that speak in the coming days, including Draghi and Weidmann on Thursday. The official line is that the ECB is technically prepared to adopt a negative deposit rate, and there were rumors last week that it had contacted at least one bank to discuss.

Most analyses seem to focus on the potential unintended consequences. More problematic, we suspect are the unforeseeable consequences to financial disintermediaries of policies that frankly have not been tried by other major central banks. In addition, shrinking margins and attempts to secure deposits may become more challenging, for example, and could lead to new borrowing from the ECB or ELA (emergency lending assistance).  

Moreover, the intended benefits—to bolster lending, especially to small and medium size businesses– may be elusive in the face of soft demand and recessionary conditions in much of the euro area, including several core countries.  We expected that when the cost/benefits have been analyzed, the ECB will decide to refrain from pushing the deposit rate below zero.  

The BOJ is the only major central bank meeting this week. Its two day meeting concludes Tuesday. For the most part BOJ Governor Kuroda must be fairly pleased. The growth is sufficient that the BOJ is likely to revise up its assessment of the economy. Inflation expectations, as revealed in the break-even rates of its inflation linked bonds have increased. The yen has weakened and the Nikkei has rallied. International resistance has been quite modest despite the traditional and social media playing up the “currency war” metaphor.

The main problem has been the Japanese government bond market. The increase in yields seems considerably earlier and more dramatic than officials anticipated. The marked increase in volatility is poses a significant threat to some market segments whose investment strategies that are particularly sensitive to shifts in value-at-risk models.  

Just like the low vol environment encouraged investors such as banks and leveraged accounts to trade large size, the increase in volatility is forcing them to reduce exposures. This aggravates the lack of liquidity and tends to reinforce the increase in volatility. The BOJ has already tried to alter is asset purchases, making smaller and more frequent transactions. 

Officials may steps up their verbal assurances and large scale injections of short-term liquidity did help stabilize the JGB market at the end of last week.  Economic Minister Amari’s comment that the yen’s weakness has been corrected and additional weakness may be counter-productive, suggests heightened concern about the bond market.  

Minutes from the recent Reserve Bank of Australia’s meeting that resulted in a 25 bp rate cut will be released. We look for the minutes to reiterate the statement issued after the rate cut. Previously, the RBA had identified scope to ease and they used part of that scope. This still leaves the door open to additional rate cuts. Concerns about the impact of the strength of the Australian dollar may seem a bit dated given the recent slide in the Australian dollar, though by most measures, it remains significantly over-valued.

The BOE publishes minutes from the recent MPC meeting on Wednesday. The minutes will likely echo the sentiments of the latest quarterly inflation report in which the BOE shaved its inflation forecast and lifted its growth forecast. In April, three MPC members, including the governor, voted to resume gilt purchases. They have failed to persuade a majority. With stronger economic data and the proximity of Carney’s ascension, it will be interesting to see if there were defections from the minority.

At the BOJ, Kuroda was able to secure a majority in favor of new and more aggressive quantitative easing, even though some similar measures had been previously rejected by the same board.  The Bank of England is horse of a different color. The thinking seems to be more independent. Critics have harangued about Governor King’s management style, but he is a rare species of central bank heads that has allow himself to be outvoted on several occasions. Carney may find it more difficult than Kuroda in bending the central bank’s monetary policy to his will.

Is EVERY Market Rigged?

CNN reports:

The European Commission raided the offices of Shell, BP and Norway’s Statoil this week as part of an investigation into suspected attempts to manipulate global oil prices spanning more than a decade.

 

None of the companies have been accused of wrongdoing, but the controversy has brought back memories of the Libor rate-rigging scandal that rocked the financial world last year.

 

***

 

A review ordered by the British government last year in the wake of the Libor revelations cited “clear” parallels between the work of the oil-price-reporting agencies and Libor.

 

“[T]hey are both widely used benchmarks that are compiled by private organizations and that are subject to minimal regulation and oversight by regulatory authorities,” the review, led by former financial regulator Martin Wheatley, said in August . “To that extent they are also likely to be vulnerable to similar issues with regards to the motivation and opportunity for manipulation and distortion.”

 

***

 

In a report issued in October, the International Organization of Securities Commissions — an association of regulators — said the ability “to selectively report data on a voluntary basis creates an opportunity for manipulating the commodity market data” submitted to Platts and its competitors.

 

Responding to questions from IOSCO last year, French oil giant Total said the price-reporting agencies, or PRAs, sometimes “do not assure an accurate representation of the market and consequently deform the real price levels paid at every level of the price chain, including by the consumer.” But Total called Platts and its competitors “generally… conscientious and professional.”

 

***

 

“Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers,” the European Commission said this week.

USA Today notes:

The Commission … said, however, that its probe covers a wide range of oil products — crude oil, biofuels, and refined oil products, which include gasoline, heating oil, petrochemicals and others.

 

***

 

The EU said it has concerns that some companies may have tried to manipulate the pricing process by colluding to report distorted prices and by preventing other companies from submitting their own prices.

 

***

 

Unlike oil futures, which set prices for contracts, the data used in the MOC process is based on the physical sale and purchase of actual shipments of oil and oil products.

 

***

 

According to Statoil, the EU investigation stretches back to 2002, which is when Platts launched its MOC price system in Europe. The suspicion is that some companies may have provided inaccurate information to Platts to affect the oil products’ pricing, presumably for financial gain.

Fox points out:

At issue is whether there was collusion to distort prices of crude, refined oil products and ethanol traded during Platts’ market-on-close (MOC) system – a daily half-hour “window” in which it sets prices.

 

But the European Commission also is examining whether companies were prevented from taking part in the price assessment process.

The Guardian writes:

The commission said the alleged price collusion, which may have been going on since 2002, could have had a “huge impact” on the price of petrol at the pumps “potentially harming final consumers”.

 

Lord Oakeshott, former Liberal Democrat Treasury spokesman, said the alleged rigging of oil prices was “as serious as rigging Libor” – which led to banks being fined hundreds of millions of pounds.

 

He demanded to know why the UK authorities had not taken action earlier and said he would ask questions of the British regulator in Parliament. “Why have we had to wait for Brussels to find out if British oil giants are ripping off British consumers?” he said. “The price of energy ripples right through our economy and really matters to every business and families.”

 

***

 

Shadow energy and climate change secretary Caroline Flint said: “These are very concerning reports, which if true, suggest shocking behaviour in the oil market that should be dealt with strongly.

 

“When the allegations of price fixing in the gas market were made, Labour warned that opaque over-the-counter deals and relying on price reporting agencies left the market vulnerable to abuse.

 

“These latest allegations of price fixing in the oil market raise very similar questions. Consumers need to know that the prices they pay for their energy or petrol are fair, transparent and not being manipulated by traders.”

 

Shadow financial secretary to the Treasury Chris Leslie said: “If oil price fixing has taken place it would be a shocking scandal for our financial markets.

The Telegraph reports:

“97 per cent of all we eat, drink, wear or build has spent some time in a diesel lorry,” said a spokesman for FairFuel UK, the lobbyists. “If it is proved, they have been gambling with the very oxygen of our economy.”

 

***

 

Platts – to determine the benchmark price – examines just trades in the final 30 minutes of the trading day. A group of half a dozen analysts gather round a trading screen and decide on the final price. As with much that goes on in the City, it is a surprisingly old-fashioned method, reliant on gentlemanly conduct. Critics say it leaves the market open to abuse, and the price can suddenly spike or fall in the final minutes of the day.

The New York Times notes of agencies like Platt and Argus Media:

Their influence is extensive. Total, the French oil giant, estimated last year that 75 to 80 percent of crude oil and refined product transactions were linked to the prices published by such agencies.

The Observer points out that manipulation of the oil markets has long been an open secret:

Robert Campbell, a former price reporter at another PRA, Argus – he is now a staffer at Thomson Reuters, which also competes with Platts and others on providing energy news and data – said this a few days ago in a little-noticed commentary: “The vulnerability of physical crude price assessments to manipulation is an open secret within the oil industry. The surprise is that it took regulators so long to open a formal probe.”

Reuters reports that the probe may be expanding to the U.S.:

In Washington, the chairman of the Senate energy committee asked the Justice Department to investigate whether alleged price manipulation has boosted fuel prices for U.S. consumers.

 

“Efforts to manipulate the European oil indices, if proven, may have already impacted U.S. consumers and businesses, because of the interrelationships among world oil markets and hedging practices,” Sen. Ron Wyden (D-Ore.), chairman of the Senate Energy and Natural Resources Committee, wrote in a letter to Attorney General Eric H. Holder Jr.

 

Wyden also asked Justice to investigate whether oil market manipulation was taking place in the United States.

Not only are petroleum products a multi-trillion dollar market on their own, but manipulation of petroleum prices would effect virtually every market in the world.

For example, the Cato Institute notes how many industries use oil:

U.S. industries use petroleum to produce the synthetic fiber used in textile mills making carpeting and fabric from polyester and nylon. U.S. tire plants use petroleum to make synthetic rubber. Other U.S. industries use petroleum to produce plastic, drugs, detergent, deodorant, fertilizer, pesticides, paint, eyeglasses, heart valves, crayons, bubble gum and Vaseline.

The India Times reports that:

The price variation in crude oil impacts the sentiments and hence the volatility in stock markets all over the world. The rise in crude oil prices is not good for the global economy. Price rise in crude oil virtually impacts industries and businesses across the board. Higher crude oil prices mean higher energy prices, which can cause a ripple effect on virtually all business aspects that are dependent on energy (directly or indirectly).

The Federal Reserve Bank of San Francisco notes:

When gasoline prices increase, a larger share of households’ budgets is likely to be spent on it, which leaves less to spend on other goods and services. The same goes for businesses whose goods must be shipped from place to place or that use fuel as a major input (such as the airline industry). Higher oil prices tend to make production more expensive for businesses, just as they make it more expensive for households to do the things they normally do.

 

***

 

Oil price increases are generally thought to increase inflation and reduce economic growth.

 

***

 

Oil prices indirectly affect costs such as transportation, manufacturing, and heating. The increase in these costs can in turn affect the prices of a variety of goods and services, as producers may pass production costs on to consumers.

 

***

 

Oil price increases can also stifle the growth of the economy through their effect on the supply and demand for goods other than oil. Increases in oil prices can depress the supply of other goods because they increase the costs of producing them. In economics terminology, high oil prices can shift up the supply curve for the goods and services for which oil is an input.

 

High oil prices also can reduce demand for other goods because they reduce wealth, as well as induce uncertainty about the future (Sill 2007). One way to analyze the effects of higher oil prices is to think about the higher prices as a tax on consumers (Fernald and Trehan 2005).

The Post Carbon Institute notes (via OilPrice.com) that high oil prices raise food prices as well:

The connection between food and oil is systemic, and the prices of both food and fuel have risen and fallen more or less in tandem in recent years (figure 1). Modern agriculture uses oil products to fuel farm machinery, to transport other inputs to the farm, and to transport farm output to the ultimate consumer. Oil is often also used as input in agricultural chemicals. Oil price increases therefore put pressure on all these aspects of commercial food systems.

Figure 1: Evolution of food and fuel prices, 2000 to 2009
Sources: US Energy Information Administration and FAO.

Economists Nouriel Roubini and Setser note that all recessions after 1973 were associated with oil shocks.

Interest Rates Are Manipulated

Unless you live under a rock, you know about the Libor scandal.

For those just now emerging from a coma, here’s a recap:

• The big banks have conspired for years to rig interest rates … upon which $800 trillion in assets are pegged

• This was the largest insider trading scandal ever … and the largest financial scam in world history

• Local governments got ripped off bigtime by the Libor manipulation

• Libor is still being manipulated

Derivatives Are Manipulated

The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market.

Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed: through gamed self-reporting.

Gold and Silver Are Manipulated

The Guardian and Telegraph report that gold and silver prices are “fixed” in the same way as interest rates and derivatives – in daily conference calls by the powers-that-be.

Everything Can Be Manipulated through High-Frequency Trading

Traders with high-tech computers can manipulate stocks, bonds, options, currency and commodities. And see this.

Manipulating Numerous Markets In Myriad Ways

The big banks and other giants manipulate numerous markets in myriad ways, for example:

• Engaging in mafia-style big-rigging fraud against local governments. See this, this and this

• Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here

• Charging “storage fees” to store gold bullion … without even buying or storing any gold . And raiding allocated gold accounts

• Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this)

• Pledging the same mortgage multiple times to different buyers.  See this, this, this, this and this.  This would be like selling your car, and collecting money from 10 different buyers for the same car

• Cheating homeowners by gaming laws meant to protect people from unfair foreclosure

• Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this

• Engaging in unlawful “frontrunning” to manipulate markets. See this, this, this, this, this and this

• Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this

• Otherwise manipulating markets. And see this

• Participating in various Ponzi schemes. See this, this and this

• Charging veterans unlawful mortgage fees

• Cooking their books (and see this)

• Bribing and bullying ratings agencies to inflate ratings on their risky investments

A Dollar-Yen Tale Told By An Idiot, Full Of Sound And Fury, Signifying Nothing

We are so deep inside the centrally-planned, Keynesio-monetarist Twilight zone, that the best we can advise is just laughing at the utterly ridiculous amounts of daily idiocy hitting the tape now on an hourly basis.

h/t @andrewyorks

19 Tornadoes Strike Kansas And Oklahoma In Three Hours

Bullish for GDP, foodstamps and BLS scapegoating of the weather as the reason for a weak May jobs report.

Full list of all reported tornaodes between 8PM and 11PM UTC:

Source: NOAA

Crushed By Soaring Energy Costs, Japan Prepares To Reactivate Its Nuclear Power Plants

In what was painfully obvious to everyone with half a brain months ago (see here) Japan’s desperate gambit at reflating would backfire massively by sending energy prices soaring in a world in which Japan no longer has access to internally producer, nuclear power plants and is forced to import all of its energy from abroad. For a glimpse of the horrors awaiting Japan’s utilities and those consumers lucky enough to have electricity in their homes, here is a chart of Japanese LNG costs expressed in Yen: hardly the stuff sustainable, discretionary income-led recoveries are made of. And this was three months ago: now it’s much, much worse.

Because as we also showed using the chart below, unless Japan actually restarts its nuclear power plants, it is doomed to a future in which all the import-led price inflation goes to such trivial, non-core items as energy and, of course, food. But who cares about those…

Well, apparently after six months of dithering, Japan does.

First it was Japan’s economy minister chiming in with his views on the fair value of the USDJPY (apparently, now it is too high), who also made it clear that Japan has no choice but to restart the same nuclear power plants that two years resulted in the biggest nuclear catastrophe since Chernobyl.

And now, proving that Japan has learned absolutely nothing from its recent past, it is now preparing to risk yet another Fukushima, just to make sure that Goldman’s partners have a fresh year of record bonuses, driven by the BOJ’s monetary insanity. Yomiuri Shumbun reports, that just two years after a wholesale shutdown of Japan’s nuclear power plants demanded by the people, Japan is once again going to reactivate its nuclear power plants, much to the chagrin of the already massively irradiated local population.

Tokyo Electric Power Co. has decided to apply to the nuclear regulating body to restart two reactors at its nuclear power plant in Niigata Prefecture by the end of July, after revised safety standards are implemented earlier that month, it has been learned.

 

Reactivation of the two reactors at the Kashiwazaki-Kariwa nuclear power plant could help stabilize the power supply situation for eastern Japan, including the Kanto region, which is part of TEPCO’s service areas; and the Tohoku region, Tohoku Electric Power Co.’s service area for which TEPCO provides electricity. In doing so, the company could prevent electricity fees from rising further.

 

Reactivation of the reactors could also help TEPCO’s management reconstruction drive, as the utility faces additional fuel costs for thermal power generation to make up for power shortfalls due to the suspension of nuclear power reactors.

 

The application to the Nuclear Regulation Authority will be made for the Nos. 1 and 7 reactors at the Kashiwazaki-Kariwa plant in Niigata Prefecture. The move is expected to coincide with similar applications to be filed by four other operators for reactors at their five plants, according to officials.

So which nukes are set to go live?

The reactors could be reactivated after passing the NRA’s safety inspections and obtaining consent from local governments. The reactors that the four utilities are applying to restart are at:

• Hokkaido Electric Power Co.’s Tomari nuclear power plant in Tomari, Hokkaido.
• Kansai Electric Power Co.’s Takahama nuclear power plant in Takahama, Fukui Prefecture.
• Shikoku Electric Power Co.’s Ikata nuclear power plant in Ikata, Ehime Prefecture.
• Kyushu Electric Power Co.’s Sendai nuclear power plant in Satsuma-Sendai, Kagoshima Prefecture, and Genkai nuclear power plant in Genkai, Saga Prefecture.

The Kashiwazaki-Kariwa plant has boiling water reactors–the same type as those at the Fukushima No. 1 nuclear power plant, which suffered meltdowns following the March 2011 earthquake and tsunami.

But don’t worry: this time there are “filters” in place to catch all that evil gamma radiation if and when the Fukushima disaster should repeat itself:

TEPCO has decided to apply for reactivation of the Nos. 1 and 7 reactors, as work to install filtered vents is expected to be completed by the end of July, according to officials.

 

The filters help minimize the amount of radioactive materials released into the air in the event of a serious accident. Under the revised safety standards, such vents will be required for nuclear reactors.

There is some hope the people will refuse to be willing Guinea pigs in what is rapidly becoming the most insane, ridiculous experiment, where disproving statist Keynesian voodoo may and will literally cost people their lives…

Hirohiko Izumida, governor of Niigata Prefecture, which has signed a safety agreement with TEPCO, remains cautious over the reactivation the Kashiwazaki-Kariwa plant reactors.

 

“We won’t discuss resuming operations [of the reactors] until results of the review into the crisis at the Fukushima No. 1 plant are presented,” he has said.

 

TEPCO’s study has revealed that faults beneath the buildings for the Nos. 1 to 3 reactors and the Nos. 5 to 7 reactors show signs of having shifted 200,000 to 330,000 years ago. TEPCO has said they are not regarded as active faults under the current safety guidelines, but could be under the revised guidelines. As a result, the utility may be told to reinvestigate the matter.

… Although we doubt it: it is only a matter of time before some Japanese central planner takes the mic, and reads the Goldman script, promising all disastrous future earthquakes and tsunamis have been henceforth banned and made illegal, and the BOJ will guarantee nothing bad can ever happen to the earthquake prone nation, located along one of the most active seismic faultlines in the world.

Adding Insult To Injury, South African Gold Mining Union Demands Up To 60% Wage Hikes

In case the complete disconnect of paper selling from physical hand-over-fist buying (see this chart to explain all the gold activity in Q1 which can be summarized in two words: paper liquidation) were not enough to send the price of precious metals to zero, then news that quite soon gold mining companies in one of the world’s largest producers of gold may be going out of business, leading to a collapse in physical product, should be sufficient to really send precious metals well into negative territory. The only question will be if the GDX gets there first. Reuters reports that South Africa’s National Union of Mineworkers said it would seek pay rises of up to 60 percent from gold and coal producers, raising the prospect of fresh strikes as firms battle higher costs and falling prices in an already heated labor climate.

We wish the mineworker union godspeed, and the best of luck, as in the current full retard gold supply/demand environment, only a complete halt in South African mining production will accelerate gold’s price plunging to sub-extraction costs, as miner after miner mothball operations, only to see even further paper liquidation taking the price to laughably low levels (and why not negative?) yet making purchases of physical product completely impossible as there simply will be none left in the supply channel.

More from Reuters:

Africa’s biggest economy is hoping to avoid the 2012 wildcat strike action at platinum and gold mines that cost billions in lost revenue and production and killed over 50 people.

 

Mineworkers are mobilizing to assert themselves, with the NUM fighting a challenge to its once near monopoly in the shafts from the Association of Mineworkers and Construction Union (AMCU), which has poached tens of thousands of platinum miners from it in a violent struggle for members.

 

NUM said it was seeking an entry-level minimum monthly wage of 7,000 rand ($750) for gold and coal surface workers and 8,000 rand for those underground in a submission to the country’s Chamber of Mines, a copy of which was seen by Reuters.

 

Elize Strydom, the industrial relations adviser at the Chamber of Mines, said the minimum wage for surface workers is currently 4,700 rand and for underground miners it is 5,000 rand, so the demands for the latter are a 60 percent increase. NUM also said it wanted 15 percent increases for “all other wage categories,” or more experienced and skilled workers.

 

The chamber of mines said in a statement it had received the “proposals” from NUM and urged all parties to compromise in the talks which will begin around the middle of June.

 

“We appeal to all parties to explore every option in trying to reach settlement without resorting to damaging industrial action, and to reach agreements that will strike a balance between what is affordable to the companies and meets the expectations of the employees,” the chamber said in a statement.

 

Sliding precious metals prices have raised the pressure on miners as they ready for pay talks. Spot platinum on Friday closed at $1,450 an ounce, down around 35 percent from a record high of $2,240 hit in March 2008, and most South African shafts are losing money at this price.

Needless to say, miners can’t afford said hikes, and the most likely result will be a repeat of last year’s mining violence when many workers were killed, while mine production of platinum and other PMs collapsed. This year it appears the target will be gold.

The rivalry between the two unions triggered violence that killed over 50 people last year and tensions are running high. An AMCU organizer was murdered last weekend, prompting a 2-day strike at platinum producer Lonmin.

 

Anglo American Platinum (AMSJ.J), the world’s top producer, now plans to cut 6,000 jobs from an initial target of 14,000 as it seeks to restore profits after falling into a loss last year. It is hardly in a position to give big pay rises after scaling back its original plan under government pressure.

 

Gold and coal producers negotiate through the country’s chamber of mines. South African gold companies include AngloGold Ashanti (ANGJ.J), Africa’s top bullion producer, Gold Fields (GFIJ.J), Harmony (HARJ.J) and Sibanye (SGLJ.J). Coal producers include Anglo American (AAL.L) and Exxaro (EXXJ.J).

At last check, gold was once more sliding as the silver margin liquidation has woken up correlation algos taking down the entire PM complex lower. Which only means that margins at miners, already razor thin, are about to turn negative, leading to inevitable mothballing and eventually, bankruptcies and permanent shutdowns. Which in a new normal should mean even lower prices, until such time as all paper liquidation is exhausted. Until then enjoy the ride as gold miner after gold miner (because the South African mining union’s demands will certainly be noticed everywhere else gold is mined) goes out of business.

For the sake of completeness, below is the gold cost curve of the world’s largest mines.

Silver Plunges As Yen Stop Surge Triggers Margin Liquidation

Not a moment after someone was slammed with a massive margin call following the hit of 102 USDJPY stops as we noted moments ago, was that same someone(s) forced to dump a whole lot of silver in thin, no volume trading taking out the entire bid stack on what can only be described as “get me the hell out and pay me anything” liquidation, sending the precious metal to just over $20, before yet another round of buying programs kicked in, and sent it right back up, allowing those quick enough to capitalize on some foolish macro trader’s blowing up to pocket a huge profit before Japan has even woken up.

Thank you Kuroda, Bernanke and co for this total farce of a “market.”

Yen Surges In Early Trading, Takes Out USDJPY 102 Stops

“Easy come, easy go, when the market is GETCO”

That should be the motto of every momentum trader who decided on Friday to buy the USDJPY just because it was 2pm, and then, when 3:30 pm came around, and the momentum chasing algos woke up, then pat themselves on the back for a “job well done.” Because in early trading, before even the Japan open, the USDJPY, following on comments by Japan’s econ minister Amari, as noted here earlier, that the days of easy JPY devaluation are over, collapsed by over 120 pips from a closing print of 103.20, and tumbled in a span of second to just under 102, taking out all 102 stops, before the GETCO plunge protection algo team took over and sent the pair back up, however briefly.

Of course, Japan has yet to wake up and read the comments from Amari. At that point should the Mrs Watanabe retreat bugle sound, all bets are off, and just as the momentum was so instrumental in sending the USDJPY over 103, so it may push the pair in double digit territory in almost no time. As for JGB vol and the dreaded VaR storm, well: good luck to Japanese banks which may be nursing up to JPY10 trillion in capital losses soon.

Please Take Me

Tomas Chamorro-Premuzic, Ph.D.: The Beckham Effect

As the world celebrates the retirement of soccer’s most beloved icon, it is time to reflect on the success of one of the most influential brands of all-time. Even his biggest fans would admit that the principal reason underlying David Beckham’s career success is his exceptional ability to self-brand, to stand out from the crowd and permanently capture people’s attention. So, what is the recipe for the Beckham Effect? There are three key ingredients.

1) More branding than talent: Be the most famous person in a field, profession, or domain of expertise, without being the best (or even close to it). Soccer aficionados will fume at any suggestion that Beckham should be considered one of the best 10 or 20 players in recent years. And yet Beckham’s soccer earnings alone (which are trivial compared to his endorsement deals) were as high as those of the world’s best players — e.g., Messi and Ronaldo — not the least because his image rights were included in the transfer deals. When he left Manchester United to move to Real Madrid, he was at the peak of his career… but in the shadow of his more talented teammates (Zidane, Ronaldo and Raul), except when it came to selling shirts and merchandising. When he moved from Madrid to the U.S. his mission was to finally convert Americans to the beautiful game — yet, despite being the most beautiful footballer in the planet, there was nothing particularly beautiful about his game. In a recent interview, Stefan Szymanski, a professor of sports management at the University of Michigan, wisely noted that, “Beckham is soccer plus sex: those are the only two things that sell in the world, aren’t they?” Indeed, but the fact that he achieved that with limited talent for soccer is testimony to the selling power of sex.

2) Altruistic motives and a fortune, too: Beckham has been an ambassador for noble and charitable causes while simultaneously being a symbol of mindless consumerism, celebrity cult, and narcissistic self-promotion. One would have thought that the two are incompatible, but not under the Beckham Effect. He was proud to play for England… and Manchester, Real Madrid, even PSG. When he moved to PSG, he was proud to give up a six-figure weakly salary to charity (while re-valuing his brand, getting more media attention, and barely playing soccer). Shortly after joining PSG he announced his retirement — surely, to devote his times to more charitable causes than playing soccer.

3) Disrupting cultural stereotypes: The Beckham Effect is also about creating a paradigmatic shift of stereotypes. It is about being original and counter-conformist, while hoping that everybody copies you. Before Beckham, footballers looked scruffy, primitive and unfashionable; now they are metrosexual. Before Beckham, tattoos were for prisoners — now they are for hipsters. And you may be on the cover of OK! magazine all the time, hang out with Tom Cruise and Prince William, but you are still a shy and simple family guy, the hard-working guy next door. Indeed, unlike most soccer stars, Beckham seems stable, conflict-free, polite and trustworthy — a mother’s dream son (and all this while selling sex!).

In short, the Beckham Effect is the ability to achieve exceptional brand value while having limited talent, disguising materialistic with altruistic motives, and not just defying, but creating novel stereotypes. Although, naturally, there is no better exponent of the Beckham Effect than David Beckham himself, there are some other noticeable examples (in areas other than soccer). Here are a few examples, with brief illustrations for each of the three points described above:

Marissa Meyer: 1) one of the world’s best paid CEOs despite her short career and no track record as CEO; 2) committed to saving Yahoo! and being a role model for female managers while being more ruthless than most male managers, hiding from the media during pregnancy and being a fashion junkie; 3) pretty, blonde female in charge of IT empire.

Steve Jobs: 1) the biggest icon of creativity since Andy Warhol despite not really creating that much; 2) Apple’s goal is not to make money but to make “cool products” (it is a service to humanity by the most valued corporation of all times — the iPhone alone has higher revenues than the whole of Microsoft); 3) first billionaire entrepreneur who connected and even attained rock star status with gen Y.

Bill Clinton: 1) one successful term in office yet he would win the French presidential election if he were allowed to run; considered one of the most inspiring politicians alive (globally); 2) inspirational speaker (for a six sum fee); estimated wealth = $55 million; 3) you can be a cheat and a moral authority at the same time… apparently.

Jamie Oliver: 1) one of the most recognizable chefs in the world despite never having a Michelin star and cooking mostly pasta and risotto; 2) committed to improving the nutritional habits of schools, hospitals and prisons (while selling TV shows and books); 3) the world’s first — and still only — celebrity hipster chef… who made cooking and dining a very hipster thing.

Thus, we can define the Beckham Effect as the ability to (a) become an iconic brand despite possessing relatively less talent than your competitors, (b) being associated with ethical rather than materialistic motives (despite amassing a fortune), and (c) defying cultural stereotypes, by replacing them with newer counter-stereotypes (being original in the hope that others will copy you).