| Japan's Finance Minister Threatens Yen Intervention to Halt "One-Sided Movement" Posted: 24 Aug 2010 09:06 PM PDT Japan's Finance minister is waving the "currency intervention flag" hoping to halt the Yen's rise. Given that markets do their best to apply pressure exactly where it is not wanted, this flag-waiving exercise practically guarantees intervention will follow. Will it do any good? Of course not. Moreover, one has to laugh at finance minister's proclamation that the Yen's move is "one-sided". Is there any other kind of move? Generally one cannot go left and right at the same time, can they? Please consider Noda Signals Japan's Preparedness to Act on CurrencyJapanese Finance Minister Yoshihiko Noda said he is prepared to take "appropriate action," his strongest language to date on currencies after the yen surged to its highest level since June 1995 against the dollar.
"We have to take appropriate action when necessary, though I plan to continue to watch currency movements very closely with great interest," Noda told reporters in Tokyo today. "My basic understanding is that movements have been one-sided."
The Nikkei 225 Stock Average fell to a 16-month low today amid increased signs that the global economy is faltering. The slowdown in world growth has helped fuel demand for the yen as a safe refuge, driving its 10 percent advance against the dollar this year.
This week's market volatility was also spurred by a 15- minute telephone conference between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa, which failed to produce any concrete measures to halt the yen's climb, according to Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo.
"At this point, the Bank of Japan no longer has the option of doing nothing at their next meeting" scheduled for Sept. 6-7, Dai-Ichi's Shinke said. "It's likely to announce something. The question will be whether they'll wait until the September meeting or they'll go ahead and call an emergency meeting." Verbal Interventions Not WorkingBloomberg reports Yen Drops From 15-Year High on Speculation Japan Will InterveneThe yen surged yesterday even after Prime Minister Naoto Kan told reporters "steep currency gains are undesirable" and Noda said recent foreign-exchange rate movements have "clearly" been one-sided.
"Verbal interventions aren't working any longer," said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo, which manages $119 billion. "Upward pressure on the yen won't go away." "We have to take appropriate action when necessary" Noda told reporters in Tokyo today.
Appropriate ActionThe appropriate action is to do nothing for the simple reason nothing makes any sense to do. Currency intervention has never worked in the past and I see no reason it would work this time. Governments can enhance primary trends, they cannot reverse them, at least without major unwelcome consequences. Japan's Exports Slow Fifth MonthIn other Japanese news, the New York Times reports Growth of Japan's Exports Slows Down for Fifth Month. Japan's export growth slowed for the fifth straight month in July, the government said Wednesday, as the global economy loses momentum and a strong yen threatens to derail the country's recovery.
The value of exports climbed 23. 5 percent from a year earlier to 5.98 trillion yen ($71 billion), the Finance Ministry said. Exports expanded 27.7 percent in June and 32.1 percent in May.
The latest figures come as the country faces the growing threat of a strong yen, which hit a new 15-year high against the dollar Monday. An appreciating yen shrinks the value of repatriated profits for exporters like Toyota Motor Corp. and Sony Corp. and makes their products less competitive overseas.
Japan's economy grew at an annualized pace of just 0.4 percent in the April-June quarter, losing its place to China as the world's No. 2 economy. On the surface, it's pretty hard to have much sympathy for a country whose exports climbed 23.5%. However, Japan's GDP is poised to contract, so the year-over-year comparisons were exceptionally easy. The sad state of affairs is every country wants a weak currency to fuel exports. The reality is it's mathematically impossible. The irony is how hard it is for Japan to destroy its currency, even when that is the clearly stated goal. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Another Atlas Shrugs - Small Business Owners Chime In Posted: 24 Aug 2010 12:51 PM PDT In response to Small Businesses are Not Hiring - Should They? I received a couple emails worth sharing. The CEO of a healthcare consulting company writes .... Hello Mish
You ran a series of articles on small businesses, hiring and expansions. I thought I would add to it.
I run a small firm, with about 45 employees and 40 contractors. We have been growing pretty well, close to 80% topline numbers for the past 3 years. Our average salary is over $100,000. We have some innovative software we sell to the industry. We also offer operational improvement strategies and IT consulting.
We provide great healthcare insurance coverage to our employees. It is necessary in order to attract talent and I am in the talent business. Our healthcare costs went up 90% this year – and that is on a 6-figure number to begin with. We found only one insurer willing to provide us coverage, United Healthcare.
Every other provider pulled out of our segment of the small business market. Cigna, our prior carrier, refused to renew at the last minute on a technicality despite being our carrier for the past 3 years.
Our management team's focus for two weeks was seriously diverted as we dealt with the consequences of this. Had we lost coverage altogether, we would have been out of business as our employees would go elsewhere.
Our staff is young and healthy, by and large. Average age is early 30s, in the healthcare consulting, software and technology industry. Only in a severely government distorted marketplace can a firm with a young and healthy staff that has had coverage for years face insurers pulling out or demanding a 90% hike.
We had plans to add one person to our R&D staff, a low 6-figure salary. That was shelved because of healthcare costs. Our software development cycle is slowed as a result.
How has the healthcare bill helped the economy? In this case, not one bit. And everyone of my employees has been hurt, because we switched mid-year, those who were part way into their deductible have to start all over again. That is a few 1000s for a number of employees. Because of a bill that passed that cost us money, and most of our employees money. No one is happy with this.
I have additional areas I would like to invest in. Areas that involve productivity gains, not just taking share from someone else, and not just for us. Many of the things I would like to do would reduce costs for my customers and build efficiencies in the healthcare industry as well.
One of our software products reduces the cost of clinical trials, and has saved millions of dollars in better planning. Another model we have developed reduces the cost of carrying inventory for bio/agritech firms. I believe it is the best in the world, developed by a Ph.D. out of Carnegie Mellon. It saves millions a year for large companies (Monsanto, Bayer Crop Science, etc. type of companies).
Productivity is the wealth of a nation.
However, thanks to Obama administration policies, we are pissing our edge away on dumb stuff which makes us hesitate to invest more. Thanks a lot, Congress.
The state government, California, (surprise, surprise, surprise) has intimated our customers. Several large companies are withholding taxes from our payments in case we need to pay sales tax on our services. We don't. It is our responsibility to pay sales taxes under our contract anyway.
What can I do? Sue my customer?
How in the heck in this environment can a business owner feel good, create jobs, and expand?
It's no wonder small businesses are in a sour mood. I have so many other stories from other small business owners that I know. The theme is the same. We are all up against overseas competition, against taxes, against the government, against societal acrimony.
Many of my business executive associates are looking to cash out if they could find a buyer at a decent price. As my friend, a former mid-size credit union COO and small business owner, says whenever one of the "good guys" – people who understand how to start businesses that are productive - throws in the towel and cashes in … "Another Atlas shrugs."
The business climate is freaking insane. I don't blame the insurers too much. It takes a government to make a market this screwed up.
Thanks to you and others, I pay more attention to Washington, D.C. and state legislatures. I also call to protest and give money to fiscal conservative candidates.
Unfortunately this takes time away from my business. But do I have a choice?
Unions get to pay people full-time to lobby on their behalf. Me? I work long weeks. I feel bad for my family if I don't spend more time with them, but I cheat my son if I don't fight for a better world for him.
As always, your coverage of all topics, including public sector unions, is wonderful, a great service, and greatly appreciated. You have an impact on us who don't have time to do this on our own, but care about our society and want to contribute. I have given to so many individual campaigns and efforts around the country this year, more than the rest of my years combined. You are making a difference, thanks.
"Healthcare CEO" Nursery Wholesaler Chimes InDavid, a nursery wholesaler in Oregon writes ... Hello Mish
We are not hiring either, why should we?
My wife and I own a small wholesale nursery in Oregon. Nurseries were shining star of agriculture in Oregon and elsewhere for the last @ 20+ years.
The contraction is causing sales to drop industry wide. A few nurseries have gone bankrupt in the last year. One bankruptcy auction netted the owner $.07 on the dollar. The bank may now need to take the land to pay the debt. You want to talk about striking fear into the nursery industry? Well $.07 cents on the dollar will certainly do it!
Others who are still hanging on have watched their sales drop up to 80% from the peak. Yes 80%! No new houses = no new yard and street landscaping, plain and simple.
Competition is fierce as everybody is trying to unload plants before they are too big and must be thrown out or must be planted into a larger container (more expense). Why put more money into something that may not sell anyway?
Our sales are down about 30% from last year. We are selling some plants that would have sold 2 years ago prior to the debt crunch. Overcapacity is everywhere in our industry, prices are dropping to move material instead of dumping it out which is a total loss.
Here is the first rule in small business: Everyone else gets paid first and you get what is left over. I'm not surprised the State of Oregon is having increasing budget problems, I think we will see another downward revision in the state budget in next couple of months.
Sincerely,
David
For more of the problems facing Oregon and other highly unionized states, please see Dysfunctional OregonThanks for sharing David, "Healthcare Consultant CEO". Addendum:Frustrated in Phoenix, owner of a design firm writes ... Hi Mish,
I started a mechanical design firm 25 years ago. I worked out of my house at first. Then I rented office space as work came in. I hired employees. I paid them decent wages and gave them reasonable benefits.
Now, I don't have employees anymore. I contract out everything. I have no choice. I make more money per job now than ever.
Health care insurance broke the bank. The health care 'reform' that has been enacted is an insult to business owners and hard working, non-union employees.
Whether you are on the left or the right of this issue, you have been sold out to the insurance industry. Add up social security withholding, medicare, unemployment insurance, state and federal income taxes, and the result is 35 to 40 percent of payroll goes for taxes. Add to that the cost of health insurance and we're talking about 50% of payroll going out the door, not invested in R&D, equipment, advertising, employee training, new software, etc, etc. Out the door....gone.
I'm doing much better thank you now that I work from home. I don't have a payroll, and I don't have insurance.
Frustrated in Phoenix Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Existing Home Sales Plunge 27%, Worse than Every Economist Forecast; Treasury Yields Hit New Lows Posted: 24 Aug 2010 09:36 AM PDT In yet another clean sweep, the third in a week or so, sales of existing homes dropped twice as much as expected, worse than every economist forecast, to a 15 year low. Inventory soared to 12.5 month, the highest since 1999. Treasury yields plunged with yield on the 10-year note falling as low as 2.50 and the 2-year note hitting a new all-time low at .47%. Please consider Sales of U.S. Existing Homes Drop More Than ForecastSales of U.S. previously owned homes plunged 27 percent in July, twice as much as forecast, evidence foreclosures and limited job growth are depressing the market.
Purchases plummeted to a 3.83 million annual pace, the lowest in a decade on record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled.
A tax credit of up to $8,000 boosted sales earlier in the year, pulling forward demand and indicating additional advances will prove difficult. Mortgage rates at record lows have provided scant relief to the industry as unemployment hovers close to 10 percent, foreclosures hold near record-highs and the economy cools.
"This is a devastating reading on the U.S. housing market," said Derek Holt, an economist at Scotia Capital Inc. in Toronto. "There's such an inventory overhang, it shows there will be pressure on prices" in the months ahead.
The pace of existing home sales is the slowest since comparable records began in 1999. Purchases of single-family homes dropped to a 3.37 million annual rate, the lowest since May 1995.
Range of Forecasts
Economists projected sales would fall 13 percent from June's previously reported 5.37 million pace. The agents' group revised the June sales figure down to 5.26 million. Estimates in the Bloomberg survey of 74 economists ranged from 3.96 million to 5.3 million. Previously owned homes make up about 90 percent of the market.
The number of previously owned homes on the market rose 2.5 percent to 3.98 million. At the current sales pace, it would take 12.5 months to sell those houses, the highest since at least 1999 and compared with 8.9 months in June. The months' supply of single-family homes at 11.9 months was the highest since 1983, the NAR said. Extend and PretendThe only thing this administration knows how to do is extend and pretend. The latest gimmick offered on August 11, 2010 is HUD Offers Interest-Free Loans to Reduce Foreclosures. The Obama administration will offer $1 billion in zero-interest loans to help homeowners who've lost income avoid foreclosure as part of $3 billion in additional aid targeting economically distressed areas.
The Department of Housing and Urban Development plans to make loans of as much as $50,000 for borrowers "in hard hit local areas" to make mortgage, tax and insurance payments for as long as two years, according to a statement released today. The Treasury Department will also provide as much as $2 billion in aid under an existing program for 17 states and the District of Columbia, according to the statement.
The initiatives will help "a broad group of struggling borrowers across the country and in doing so further contribute to the administration's efforts to stabilize housing markets and communities," Bill Apgar, HUD's senior adviser for mortgage finance, said in the statement. Fool's Offering vs. Free RentAnyone going $50,000 deeper in debt to "save" their existing underwater home is a complete fool. On the other hand, anyone who takes the cash as an offer for free rent with a plan to declare bankruptcy and walk-away later just may be thinking clearly. Thus, it is likely that the fool in this case is the Obama administration. The only thing this stupid program will do is waste taxpayer money while pushing foreclosures into the future. Meanwhile the number of negative surprises continues unabated. Recent SurprisesRecession Never EndedAs I said in 3rd Quarter GDP Likely Negative, Recession Never Ended ... While some people still think the odds of a double dip recession are close to zero, ironically, the only reason they may be right is if the first dip never ended. Amazingly, economists are still clinging to estimates of 2.5% and up. So expect to discover the vast majority of economists will be surprised at the forthcoming downward revisions, even after we point these things out well in advance and repeat them. The ECRI is still touting the "flattening" of the Weekly Leading Indicators (WLI) at -10. With the collapse in treasury yields, a print of -500,000 on weekly claims, and a god-awful Philly Fed report, let's watch the next few weeks. I suspect this "flattening" period will soon be over. Fooled By StimulusNearly every economist has been Fooled by Stimulus even though the structural problems still remain. It's time to face the facts: There never was a "recovery" by any rational measure. The alleged recovery was nothing more than inventory replenishment fueled by massive and unsustainable government spending waste with additional trillions of taxpayer dollars handed out in bank bailouts. The plunge in existing home sales shows exactly what happens when free money handouts stop. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Dissent at the Fed, 7 of 17 Express Reservations about QE; Appeals Court Refuses Fed's Motion to Dismiss Bloomberg's Freedom of Information Request Posted: 23 Aug 2010 11:23 PM PDT Beneath the surface of a 9-1 vote in favor of continued quantitative easing, 7 of 17 Fed officials at the last FOMC meeting had at least some reservations about Bernanke's policy. The Wall Street Journal reports Fed Split on Move to Bolster Sluggish EconomyThe Aug. 10 meeting of top Federal Reserve officials was among the most contentious in Ben Bernanke's four-and-a-half year tenure as central bank chairman. With the economic outlook unexpectedly darkening, the issue was a seemingly technical one: whether to alter the way the Fed manages its huge portfolio of securities.
At least seven of the 17 Fed officials gathered around the massive oval boardroom table, made of Honduran mahogany and granite, spoke against the proposal or expressed reservations. At the end of an extended debate, Mr. Bernanke settled the issue by pushing successfully to proceed with the move.
Officials were clustered in two camps. In one camp, Mr. Dudley, and the presidents of the Boston and San Francisco Fed banks, Eric Rosengren and Janet Yellen, were distressed that the Fed was far from its objectives of low unemployment and stable inflation.
Richard Fisher, president of the Dallas Fed, and others expressed a concern that Fed moves might be ineffective, arguing that businesses weren't using already ample, cheap credit to fund investments because they were uncertain about many other problems, including government deficits and new financial regulations.
Narayana Kocherlakota, president of the Minneapolis Fed, argued that a large part of today's unemployment problem is caused by issues the Fed can't solve, such as the mismatch between the skills of jobless workers and the skills that employers wanted. "The Fed does not have a means to transform construction workers into manufacturing workers," Mr. Kocherlakota said in a speech after the meeting.
The president of the Philadelphia Fed, Charles Plosser, who has had misgivings before about Mr. Bernanke's initiatives, deemed the latest move premature because, though the Fed was lowering 2010 growth estimates, it wasn't significantly ramping down its estimates for growth in 2011 and beyond. Two other frequent dissenters, Thomas Hoenig of Kansas City, and Jeffrey Lacker of Richmond, Va., also objected. Fed governor Betsy Duke, a former commercial banker, also expressed reservations, according to participants. Fed Worried Balance Sheet Might Shrink Too FastThe concern of Bernanke and other Fed officials was the Fed's balance sheet might shrink too fast. According to the New York Fed, as much as $340 billion would be paid back including $55 billion Fannie and Freddie mortgages. A shrinking portfolio in the face of slowing economic growth amounted to "prematurely applying the brakes" according to New York Fed President William Dudley. Excuse me for asking but how the hell does repayment of Fannie and Freddie loans (with consumers refinancing at lower rates) constitute tightening? Only in the perverted world of Fed minds with government backstopping all losses at Fannie and Freddie could mortgage paybacks be construed as tightening. The same applies to any balance sheet assets paid back because of favorable bond market conditions. Indeed, the Fed should be thrilled to get rid of garbage on its balance sheet at a time when mortgage rates are dropping. Exit Strategy BlownNote how the Fed blew a chance at an exit strategy handed to them on a silver platter. They are unlikely to be so lucky down the road. Quantitative Nothingness vs. Quantitative EasingI discussed the FOMC decision in Quantitative Nothingness and the Yield Curve's ReactionBernanke's pledge to hold the Fed's balance sheet constant is certainly a new twist. However, given that quantitative easing will not do a damn thing as discussed in Quantitative Easing Take II; Uncharted Territory it is silly to think that Quantitative Nothingness will do anything.
When the equity market will figure this out remains a mystery, but the treasury market seems to have figured it out already. For still more on the debate, please see Will Quantitative Easing Spur Inflation? Job Creation? Credit Expansion? Do Anything? written on August 6, before Bernanke opted for constant garbage. Appeals Court Refuses Fed's Motion to Dismiss Bloomberg's Freedom of Information RequestIn other Fed news, Bloomberg reports Fed Loses Bid for Review of Bailout Disclosure RulingAn appeals court refused to reconsider a decision compelling the Federal Reserve Board to release documents identifying banks that might have failed without the U.S. government bailout.
The full U.S. Court of Appeals in New York, in a docket entry dated Aug. 20, denied a May 4 request by the Fed to review a three-judge panel's unanimous March 19 decision requiring the agency to release records of the unprecedented $2 trillion U.S. loan program begun primarily after the 2008 collapse of Bear Stearns Cos.
Unless the court stays its decision, the Fed will have seven days to disclose the documents. In the event of a stay, the central bank and the Clearing House Association LLC, an organization of 20 commercial banks that joined the Fed in defense of the lawsuit, will have 90 days to petition the Supreme Court to consider their appeal. The Clearing House has already said it will ask the high court to rule on the case.
"We are reviewing the decision and considering our options for appeal," David Skidmore, a Fed spokesman, said.
At issue are 231 "term sheets" documenting Fed loans to financial firms during 2008. The records, which include the banks' names, the amounts borrowed and the collateral posted in return, were originally requested by late Bloomberg News reporter Mark Pittman through the Freedom of Information Act, which allows citizens access to government papers.
The amount the Fed and the U.S. government lent, spent and guaranteed to stem the recession and rescue the banking system peaked in March 2009 at $12.8 trillion, most of it following the September 2008 bankruptcy of Lehman Brothers Holdings Inc.
Fox News, a unit of New York-based News Corp., also sued the Fed to force the release of loan documents for transactions in 2008 and 2009. The hypocrites at the Fed have promised more transparency and show it by fighting freedom of information requests all the way to the supreme court, which appears to be where this lawsuit is headed. Should the Fed does deliver any data now, it will only be because the data is already entirely useless and/or they fear setting a supreme court precedent. Fed's Transparency Policy UnveiledThe Fed's transparency policy amounts to a spoon-feeding of blatant lies, distortions, half-truths, and purposely overoptimistic guesses, along with a few smatterings of obvious truths hoping to make the entire package look legitimate. The simple fact of the matter is it's Not Practical To Tell The Truth. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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