El Erian is nowadays al over the press. Even though he is talking his book, he gives us some color on the Debt Ceiling problems, and the pathetic negotiations, when the country as a whole, US, needs a makeover that won’t happen soon. FT reports;
As the August 2nd debt ceiling deadline looms ever closer, President Barack Obama has asked congressional leaders to work through the weekend. The hope is for agreement on a “grand bargain” that avoids disorderly disruptions to government payment obligations and creates, quoting the president’s remarks of yesterday, “an environment in which we can grow the economy and make sure that more and more people are being put back to work”. The likelihood is that the disruptions will indeed be avoided but, unfortunately, only through a “mini deal”.
To address its economic woes, America desperately needs to transition from a series of ad hoc measures to a more holistic policy approach. The notion of a grand bargain can be a critical enabler in this regard, especially if four conditions are met.
First, a grand bargain can serve as the catalyst for unifying diverse policy actions into clearer, more comprehensive drivers for growth and medium-term fiscal sustainability.
Vital areas include tax and spending reforms, much greater emphasis on growth enablers (including infrastructure, education and retraining), and meaningful steps to restore a more normal functioning of the housing, labour and credit markets. To be effective, they must be implemented as a package of reinforcing measures and not a series of standalone announcements.
Second, the grand bargain itself – especially if centred on the urgent need to address the country’s growing unemployment crisis – can help overcome the repeated difficulties that the administration has faced in outlining a credible economic vision. This is central to unlocking the considerable idle capital that is waiting on the sidelines for a medium-term roadmap before being committed to investment spending.
Third, it would help counter increasing nervousness among America’s foreign creditors. With the Federal Reserve completing its purchase of treasuries under QE2 last week, these creditors now hold the key to maintaining the low interest rates that are so critical for limiting the deterioration of the country’s debt dynamics.
Fourth, it would intensify pressure on other systemically-important parts of the world – particularly Europe and China – to join the US in striking their own grand bargains.
As we suggested 2 days ago, gold looks good for a retest of the highs, while the SPX looks rather toppish. Some Technicals on the Market. The no volume melt up, driven by Algos only, not considering other risk assets, today got an abrupt ending. The trader has argued of buying vol, as there simply are too many possible “bumps in the road” going forward. For a detailed look, please read, This Time is Different, or will The Next Financial Crisis Be Even Worse.
Today’s NFP figures disappointed the market totally. We are still rather fascinated by the pundits, of whom one outstanding, raised his estimates from 100k to 175k, only yesterday, just to find the answer today, 18k. These guys earning six figure sums yearly, per default, should be reconsidered. But, being that wrong doesn’t matter on Wall Street.
So while people all want to believe in the recovery scenario, the Economy is falling off the cliff. With Fed having pumped up asset prices, we could be heading for the Nirvana Collapse, later this autumn. When people understand the Economy is in a serious double dip, Greece needs to default and the US looses the credit rating agencies support, people will be running to the hills. We still believe in buying vol on declines, as the market is pricing in risks very “strange”. Irrational exuberance is here, and the black swan won’t be the Greek Default, it will be something much bigger, while Obama will try quick fixing the Economy, in order to win the Elections.
For this year’s still absolutely best analysis of why volatility is “mispriced”, please read artemis volreport.
Some charts of the NFP.
Helping India and small businesses….Welcome to the world of untamed Capitalism and Banksters.
Barclays, HSBC, Standard Chartered and Citibank are among many lenders that charge interest rates as high as 30-50%, mainly on consumer loans, akin to microfinance lenders that face a possible cap on lending rates. Although all banks have a base rate, or benchmark prime lending rate, most loans are priced well above it as small entrepreneurs and individual borrowers do not have the power to negotiate lower rates.
Most of these high-priced loans are either credit card loans or unsecured loans. Citibank and StanChart charged a 41% interest rate for over 60% business contracted under the cash credit category while HSBC charged 53% on term loans, RBI data for the quarter ended December 2010 shows.
In that quarter, the base rate of most banks was between 7.75% and 9.5%. “Although credit card companies justify charging high rates due to high delinquencies on credit card receivables, there is an urgent need to cap such rates of interest as it is done in case of MFIs,” said AC Mahajan, former chairman & managing director of state-run Canara Bank .
“It is generally believed that some banks, including foreign and private banks, charged 36% upward on credit cards dues and extra penalty on overdues.” Banks’ lending practices, including those of state-run ones, were questioned when they were found lending below their previously benchmarked ‘prime lending rates’ to top clients.
No Regulation of Consumer Loans
At the same time, banks weer charging the smaller ones more-a case of the poor subsidising the rich. That made the RBI mandate the base rate last year, the rate below which no bank can lend. The rates charged on consumer loans, especially credit cards, have also been questioned, but there is no indication of regulating them. “The interest rate of 50% refers to the consumer finance business which was closed down in 2008,” said an HSBC spokesperson.
“However, some of these loans were of up to four years tenor and are being repaid. Such loans form less than 1% of HSBC’s retail loan book. Currently, in the unsecured loans category, HSBC offers personal loans where the interest rates are in the 17-22% range.”
There was a debate a few years ago on usurious rates when recovery agents tortured customers to receive payments. But banks changed course and instead cut their indiscriminate selling of credit cards. A similar development in some parts of Andhra Pradesh last year led to a state legislation that curtailed business.
Subsequently, the central bank accepted the recommendations of the Malegam Committee that suggested ceilings on the loan amount and interest rates. Industry leader State Bank of India has been lending in the range of 7-15% while second-largest lender ICICI Bank’s loans are between 6% and 19.50%. (Economic Times)
What about Brazil’s way of transforming it’s Economy?
For most of the 20th century, Brazilian governments tended to favor growth as a means of containing social unrest and mustering resources for the government, even when this meant high inflation. But since inflation tends disproportionately to harm the poor, the already-wide income gap between the oligarchs and the rest of the population only widened. The macroeconomic strategy of the current regime, along with that of a string of governments going back to the early 1990s, is known colloquially as the “real plan” (after Brazil’s currency, the real). In essence, the strategy turned Brazil’s traditional strategy of seeking high growth despite the inflationary complications on its head. Instead of growth at any cost, the mantra became low inflation at any cost. Subsidies were eliminated wholesale across the economy, working from the understanding that consumption triggered inflation. Credit — whether government or private, domestic or foreign — was greatly restricted, working from the assumption that the Brazilian system could not handle the subsequent growth without stoking inflation. Government spending was greatly reduced and deficit spending largely phased out on the understanding that all forms of stimulus should be minimized so as to avoid inflation. These strict inflation control policies have achieved a high degree of economic stability. Inflation plunged from more than 2,000 percent a year to the single digits. But those gains came at a cost: Between 1980 and 2005, Brazil has shifted from one of the world’s fastest growing economies with one of the highest inflation rates to one of the lowest inflation economies with one of the lowest (if somewhat irregular) growth rates. (Stratfor)
From our FX trader.
Quite a interesting day given that it is summer and nfp Friday. Asias morning session with a risk on tone continued in Europé. Once Asia had gone home, European traders deicded that it was time to sell risk, this time on back of italy and italian banks. Unicredit was halted on the milan stock exchange after falling 7%. Asia handed over eurusd at 1,4350ish.. Before lunch our time it fell to 1,4240ish. Liquidity is very very thin at the moment and next on the calendar, NFP..
We eat it, breath it, sleep it and consume it like never before. Welcome to the Information and Media Age, but are there any potential pitfalls in the increasingly non critical view of Media and it’s Power? Only people directly affected by Media realize it’s Power. Some thoughts on the recent Murdoch situation, the press and who runs the show. Courtesey of Sturdyblog.
It is terribly unfair how most of us seem to have made up our minds about the Murdoch Press. The serious allegations against the News of The World have not yet been proven. Our reaction was quite unreasonable and disproportionate. It was based on accusation and innuendo. We decided to go on a witch-hunt before the ordinary processes of justice had run their course.
But here is the delicious irony: we have been conditioned to behave like this by the Murdoch Press.
Only a couple of days ago, the Attorney General made representations in the High Courtseeking a ruling of contempt against tabloid publications, including The Sun, over the vilification of Chris Jefferies in the Joanna Yeates murder – hung, drawn and quartered before he was even charged. The Murdoch empire has been absolutely instrumental in establishing a climate of sensationalism which has taken hold of much of this country’s media in the last few decades. Their hacks are always among the first alligators at any given feeding frenzy; among the first sharks to catch the scent of blood of the unionist, the depressed, the eccentric, the immigrant or the homo and sink their teeth in. They lived by the sword and they died by the sword.
I have some sympathy with the 200 individual workers who have lost their jobs. However, they are a small drop in an ocean of the many thousands of workers being laid off by a government that News International helped elect – and bragged about having done so. And again, I find a healthy dose of irony in the editors of The Sun walking out in support of their colleagues, having attacked every single legitimate strike in the last 30 years as extremist, leftie posturing.
I have even less sympathy with arguments that the demise of the News of The World is a loss to press pluralism. The absence of this Jordan-obsessed rag is as much a loss to pluralism as the throwing away of last week’s shopping list is a loss to literature. In any case, I am certain we shall be able to glean the Murdochs’ take on current affairs from their remaining three publications (as well as the soon-to-emerge Sun on Sunday – the relevant web domains having been registered two days ago).
The idea is propagated that Rupert Murdoch is sitting in a swivel-chair somewhere, deep within his Bond-villain lair, stroking a white cat. He is shrewd. He is cunning. He is a foreigner. He should not be allowed to control such a large slice of our media. This is as obvious and solid a notion, as it is lazy and convenient. It obfuscates the real issue, which is that nobody – no entity, no one person, no corporation - nobody should hold such power.
This is why the government must now act to stop the proposed takeover of BSkyB. Do not be side-tracked by their protestations that it is up to OfCom to decide whether the license-holders are fit and proper persons. It is a red herring. It can be side-stepped by the appointment of a different, more palatable figurehead. The real grounds and the real decision belong to the Secretary of State, Jeremy Hunt. He had originally stated that he was minded to refer the matter to the Competition Commission. News Corp then gave certain assurances. When assessing those assurances he stated:
“Some respondents also argued that News Corp could not be relied upon to abide by the requirements set out in the undertakings, citing previous guarantees and assurances given by News in the past, and the current phone hacking allegations against The News of the World. I have taken the view that News have offered serious undertakings and discussed them in good faith… whilst the phone hacking allegations are very serious they were not material to my consideration.“
Those assurances are still under consideration. In the light of recent revelations his position on their validity is untenable. Any assurances given by that organisation are not worth the smudgy, cheap paper they are printed on.
Rupert Murdoch took a massive risk yesterday. He needed to create some storm defences. He cynically decided to place them at a level where the blameless would be swept away and the culpable would be protected. His gamble was calculated to prevent cross-contamination of his other brands and, most crucially, to keep the proposed BSkyB takeover dry. I think he has failed in two significant ways:
Firstly, he has created an army of as many as 200 disgruntled whistle-blowers. The hope that not a single editor or journalist will have come across a document or email which implicates those responsible is naive. Watch out for leak after leak and revelation after revelation.
Secondly, he has removed the physical target for the public’s anger, without removing the guilty parties. The inevitable result is that the public’s anger will be directed upwards to News International – the organisation which now seeks to shelter the guilty. And they are guilty. Which ever way one looks at the matter they are guilty. At best they are guilty of gross incompetence – if one were to accept their ludicrous argument that they had no idea of the systemic immoral and illegal practices which took place under their watchful eye. At worst, they are the source of the infection.
With the American Elections coming up, Taibbi gives some color on the subject.
A lot of people are talking about Frank Rich’s explosive new article in New York magazine. I think it is a remarkable thing, the latest and maybe the most comprehensive in an increasingly lengthy series of articles and investigations into the Obama administration’s failure to properly investigate the causes of the financial crisis.
By now this is not quite a mainstream media drumbeat, but it’s coming close: between the reporting of Louise Story and Gretchen Morgenson at the New York Times to the recent not-terribly-laudatory piece on New York Southern District U.S. Attorney Preet Bharara by the New Yorker’s George Packer, to Eliot Spitzer’s bitter commentary on the subject on CNN, to my own bleatings, and now this Rich broadside, it seems quite clear that the Obama administration’s failure to clean up Wall Street is becoming a matter of some fascination with the few investigative journalists who are not covering the Casey Anthony case.
Rich’s thesis is that this issue is becoming important not just to reporters, but to voters, and that Obama may soon pay for his failures at the polls:
Obama can win reelection without carrying 10021 or Greenwich in any case. The bigger political problem is that a far larger share of the American electorate views him as a tool of the very fat-cat elite that despises him.
In making this point, Rich uses language that seems unusually savage for him:
For all the lurid fantasies of the birthers, the dirty secret of Obama’s background is that the values of Harvard, not of Kenya or Indonesia or Bill Ayers, have most colored his governing style. He falls hard for the best and the brightest white guys.
Buffet has some easy solutions for fixing the debt ceiling. Pre pay taxes, and get his friends to join the plan. Sounds easy, but what will happen next time, and next time, and next time….