Testosterone Pit http://www.businessinsider.com/category/testosterone-pit en-us Sun, 28 Dec 2014 22:11:47 -0500 Sun, 28 Dec 2014 22:11:47 -0500 The latest news on Testosterone Pit from Business Insider http://static3.businessinsider.com/assets/images/bilogo-250x36-wide-rev.png Business Insider http://www.businessinsider.com http://www.businessinsider.com/google-glass-hack-report-2014-6 Hackers Can Record Everything You See With Google Glass http://www.businessinsider.com/google-glass-hack-report-2014-6 Thu, 26 Jun 2014 22:26:00 -0400 Wolf Richter <p><img style="float:right;" src="http://static4.businessinsider.com/image/53acd5016bb3f73b6b2ad279-1200-924/sergey-brin-google-glass-10.jpg" border="0" alt="sergey brin google glass" /></p><p>Hackers have already proven smarter than smartphones or just about any other connected electronic device, and soon they&rsquo;ll hack into your fridge, thermostat, and toilet.</p> <p>The NSA got into your files stored in the cloud&rsquo;s &ldquo;secure&rdquo; data centers. Chinese authorities got everything on your laptop that you left in your hotel room while going for quick beer at the bar downstairs. And now Dutch hackers, um &ldquo;computer experts,&rdquo; have commandeered Google Glass to take pics and videos of everything you're looking at.</p> <p>Which could be expensive &ndash; the PIN you key into an ATM. Or more than embarrassing &ndash; strangely long stares at places that you don&rsquo;t stare at in polite society, a naked date.... Possibilities are endless. Pics and videos will then be transferred, without the wearer&rsquo;s knowledge, to another device where&nbsp;they can be stored and studied&nbsp;<em>ad infinitum</em>. For the lucky ones,&nbsp;it might end up on YouTube.</p> <p>&ldquo;Breaking into the system is relatively easy. You don&rsquo;t need to break a code; you don&rsquo;t need to capture a server,&rdquo; the Dutch paper&nbsp;<a href="http://www.volkskrant.nl/vk/nl/2694/Tech-Media/article/detail/3678797/2014/06/25/Dutch-experts-hack-Google-Glass.dhtml">Volkskrant</a>&nbsp;reported after employees of internet marketing company Masc and the folks at Deloitte&rsquo;s computer security department had demonstrated their exploit to the paper.</p> <p>&ldquo;Hardcore hackers wouldn&rsquo;t even bother with it,&rdquo; said one of the hackers, identified as Bosboom. &ldquo;They would find access too easy.&rdquo;</p> <p>To take control, hackers need to transfer the script to Google Glass, which can be done in various ways, such as via a USB stick. &ldquo;A pretty girl in the pub,&rdquo; Bosboom helpfully suggests. Let her check out and try on the device, and while you&rsquo;re intently focused on her assets, she might quickly connect a USB stick, and voil&agrave;.</p> <p>That you should be careful where to bring your Google Glass &ndash; such as a bar &ndash; was made amply clear earlier this year in a case that catapulted Sarah Slocum to&nbsp;<a href="http://www.rawstory.com/rs/2014/03/24/i-wanna-get-this-white-trash-on-tape-google-glass-user-releases-video-from-bar-attack/">national prominence</a>when she got tangled up in an altercation &ndash; a &ldquo;hate crime,&rdquo; she claimed &ndash; at Molotov&rsquo;s in the Lower Haight, San Francisco. Which she helpfully recorded via her Glass.</p> <p>&ldquo;I wanna get this white trash, this trash on tape for as long as I can,&rdquo; she said in the video, followed by a tsunami of profanity that would be too shocking for TP&rsquo;s well-mannered readers. Glass recorded those precious moments. The video eventually ended up on YouTube. So now, in addition to catapulting your rages into the national limelight, taking Google Glass to a bar can have other consequences.</p> <p>But it doesn&rsquo;t need to be a USB. That was just a demo. The script can be transferred as well via a Wi-Fi connection or by an Android app via smartphone.</p> <p>It didn&rsquo;t take the dozen hackers long to figure it out &ndash; just one evening fueled by a few pizzas, according to Bosboom: &ldquo;We were thinking about worst-case-scenarios with these glasses. We then came up with the idea of someone being able to view what the wearer is watching. This means that you are better off not wearing the glasses when using a cash-point or engaging in other private activities.&rdquo;</p> <p>Google had its own take on the debacle.</p> <p>&ldquo;The more feedback we obtain, the safer we will be able to make Glass for the wider launch later on this year,&rdquo; a spokesperson told the&nbsp;<em>Volkskrant</em>, admitting that Glass security was an area that needed attention. And the spokesperson had some good advice: &ldquo;users shouldn&rsquo;t give Glass to someone they don&rsquo;t know without locking it or any supervision. More broadly speaking, users should avoid downloading Glassware that is not available on the MyGlass destination, or debugging their device and then giving it to someone else.&rdquo;</p> <p>The cat-and-mouse game has started. In that respect, Glass is no different than the clunky PCs 15 years ago. Hackers engineer a malicious exploit either for the heck of it or to grab valuable data. Companies react to it afterwards by trying to fix the security hole. Meanwhile, the damage has been done.</p> <p>But the smaller the hacked devices, the more intrusive the hack. Smartphones go everywhere humans go. But Google Glass is a step further down that road in that it can be made to record and transmit what you&rsquo;re&nbsp;<em>looking at</em>. And that would be a handy tool for the ultimate Big Brother thought police.</p><p><a href="http://www.businessinsider.com/google-glass-hack-report-2014-6#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/3-major-red-flags-about-the-staying-power-of-americas-fracking-boom-2014-6 3 Major Red Flags About The Staying Power Of America's Fracking Boom http://www.businessinsider.com/3-major-red-flags-about-the-staying-power-of-americas-fracking-boom-2014-6 Wed, 04 Jun 2014 08:24:00 -0400 Dajahi Wiley <p><img src="http://static1.businessinsider.com/image/52f4f664eab8eaf8031afa50-1200-800/frackingcali.jpg" border="0" alt="frackingcali" /></p><p>Between 2008 and 2013, U.S. oil production&nbsp;<a href="http://www.ogj.com/articles/print/volume-111/issue-12/exploration-development/shale-gas-and-oil-fundamentally-changing-global-energy-markets.html">surged</a>&nbsp;by 64 percent. U.S. natural gas production increased by 42 percent between 2005 and 2013. Both increases were driven by the boom in shale oil and gas production.</p> <p>The boom has led&nbsp;<a href="http://www.bloomberg.com/news/2014-01-15/u-s-will-be-energy-self-sufficient-by-2035-on-shale-bp-says.html">BP</a>&nbsp;and&nbsp;<a href="http://www.cnbc.com/id/101321945">Exxon</a>&nbsp;executives to claim that the U.S. will be self-sufficient in energy within two decades. Energy economist Philip K. Verleger, Jr.&nbsp;<a href="http://www.international-economy.com/TIE_Sp12_Verleger.pdf">argues</a>&nbsp;that American energy independence will allow the country to become a net exporter of oil and gas and to enjoy a cost advantage in energy supplies over the rest of the world that will translate into serious economic benefits.</p> <p>However, there are three major red flags that should curb this unconstrained enthusiasm: shale depletion rates, decreased oil and gas prices due to the glut, and the extent to which upstream oil and gas companies in the shale space are over-leveraged.</p> <p>Shale oil and gas wells have rapid decline and depletion rates.&nbsp;<a href="http://www.bloomberg.com/news/2014-02-24/wells-that-fizzle-are-a-potential-show-stopper-for-the-shale-boom.html">According</a>&nbsp;to Pete Stark, a geologist and analyst at IHS, Inc., production from the average shale oil well declines by 50 to 78 percent after its first year, and by 50 to 75 percent after the first year for shale gas wells. The Serenity 1-3H oil well in Oklahoma, owned by Chesapeake Energy, produced over 1,200 b/d in 2009; in 2013, it produced&nbsp;<a href="http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power">less than</a>&nbsp;100 b/d. Continental Resources&rsquo; Robert Heuer 1-17R well in the Bakken fields saw production&nbsp;<a href="http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power">plunge 69 percent</a>&nbsp;in its first year. In order to maintain the same level of output in the face of such drastic decline rates, upstream companies must&nbsp;<a href="http://www.economist.com/news/united-states/21596553-benefits-shale-oil-are-bigger-many-americans-realise-policy-has-yet-catch">constantly drill</a>&nbsp;new wells.</p> <p>For natural gas, increased supply has exerted downward pressure on prices. Lower prices have given the U.S. a cost advantage over other countries and allowed for&nbsp;<a href="http://www.lngindustry.com/news/regasification/articles/EIA_announces_fall_in_US_natural_gas_imports_677.aspx">decreased imports since 2007</a>, but they also cut into the profit margins of upstream natural gas companies. This may push these companies to cut back on drilling,&nbsp;<a href="http://online.wsj.com/news/articles/SB124104549891270585">as in 2009</a>.</p> <p>In the case of oil, the shale boom has helped stop prices from soaring in a hectic geopolitical environment. American supplies, in effect, have&nbsp;<a href="http://www.businessweek.com/articles/2014-05-08/u-dot-s-dot-shale-boom-keeps-global-oil-prices-from-soaring">offset insufficient production</a>from Libya, Nigeria, Venezuela, and other major producers. However, moving forward in the medium-term, production is projected to&nbsp;<a href="http://www.businessweek.com/articles/2014-05-08/u-dot-s-dot-shale-boom-keeps-global-oil-prices-from-soaring">outpace</a>&nbsp;demand as major producers such as Iraq stabilize. This glut in oil will push prices down. In the long-term, it is becoming&nbsp;<a href="http://www.businessweek.com/articles/2014-05-08/u-dot-s-dot-shale-boom-keeps-global-oil-prices-from-soaring">increasingly difficult and expensive</a>&nbsp;to identify and exploit supply sites. Companies will face a conundrum of lower prices for oil but higher costs to find and obtain it, cutting into revenues and profits.</p> <p>The third red flag is how over-leveraged oil and gas companies in the shale space are. It is a capital-intensive business; extracting oil from shale wells using horizontal drilling&nbsp;<a href="http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power#p2">costs between $3.5 and $9 million</a>. For gas in the Haynesville Shale, a&nbsp;<a href="http://www.cnbc.com/id/100946625">well costs about $8 million</a>. Companies borrow heavily to finance their operations.&nbsp;<a href="http://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch-as-frackers-go-for-broke.html">A Bloomberg News analysis</a>&nbsp;of over 60 companies found that these companies&rsquo; debts doubled between 2010 and 2014, while their revenues increased by only 5.6 percent. Interest expenses are also proving to be a large burden &ndash; the companies considered in the study racked up almost $2 billion in Q1 2014 alone.</p> <p>Shale depletion rates and falling oil and gas prices compound the over-leveraging problem. Shale companies have to constantly drill new wells to offset well-decline rates, which requires financing, often in the form of debt. Falling oil and gas prices can force companies to take on more debt to continue operating, if they choose to stay in business. Low oil and gas prices also hinder the ability of companies to pay back the debt they already accumulated. Further, shale drilling is made economical by high oil and gas prices &ndash; price decreases will undercut the economic rationale for such operations.</p> <p>Considered together, these three red flags suggest that a more measured and nuanced analysis of the American shale boom is required. The staying power of the American shale boom is limited by natural, macroeconomic, and microeconomic factors, none of which will disappear on the strength of unconstrained enthusiasm.&nbsp;<em>By Dajahi Wiley,&nbsp;</em><em><a href="http://oilprice.com/Energy/Energy-General/The-Questionable-Staying-Power-Of-The-U.S.-Shale-Boom.html?p=6" target="_blank">Oilprice.com</a></em></p> <p>Slashing the smoke-and-mirrors hype of the Monterey shale by 96% socked not only oil companies but also the state of California that was dreaming of $24.6 billion a year in revenues and 2.8 million jobs, now dissipated into thin air. Read.....&nbsp;<a href="http://www.testosteronepit.com/home/2014/6/1/the-big-losers-in-the-california-shale-oil-fiasco.html">The Big Losers in the California Shale-Oil&nbsp;Fiasco</a></p><p><a href="http://www.businessinsider.com/3-major-red-flags-about-the-staying-power-of-americas-fracking-boom-2014-6#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/fast-food-workers-endangered-species-2014-5 Fast Food Workers Are An Endangered Species http://www.businessinsider.com/fast-food-workers-endangered-species-2014-5 Mon, 19 May 2014 11:39:06 -0400 <p><strong><em><img style="float:right;" src="http://static3.businessinsider.com/image/537a2510ecad04b655ea9726-480-/mcdonalds-fries-worker-2.jpg" border="0" alt="mcdonalds fries worker" width="480" />By James Murray</em></strong><span>,</span><em>&nbsp;an American living permanently in&nbsp;<a href="https://www.google.com/search?q=Ajijic&amp;rls=com.microsoft:en-US:IE-Address&amp;tbm=isch&amp;tbo=u&amp;source=univ&amp;sa=X&amp;ei=UfRtUoeELYmdiQLwkIGwDA&amp;ved=0CDYQsAQ&amp;biw=1526&amp;bih=844">Ajijic</a>, Jalisco, Mexico. After having owned a business for 27 years, he now spends his free time musing on the world</em><span>.</span></p> <p>In 1978, I owned a small company and bought my first personal computer, or more accurately, a PC kit. The kit had a printed circuit board and a lot of parts. You had to mount the parts, solder them into place, and do your own testing. I think I paid just over $1000 for it.</p> <p>The manufacturer had promised to provide a dual floppy disk storage unit "in a few months." That turned into over a year. In the meantime, we used audio tape recorders as storage. We had a small company and just updating inventory for the day could take an hour. Eventually, the manufacturer did supply a dual 8" floppy disk drive ($1500) and updating inventory dropped to just 15 minutes.</p> <p>As time went on, we upgraded our computer systems every few years. Each computer was "stand alone" in that it would only run one program at a time and there was no file sharing. If you wanted to check inventory, you had to locate the inventory computer, same for bookkeeping and letter writing. About 1985, I found some software that allowed one computer to have 3 workstations and file share. Now, you could run any program on any workstation but only one program at a time.</p> <p>I sold the company in 1999 and promptly bought a home computer. It used the phone line (AOL dialup account), and I had to buy a cell phone because my landline was always tied up. I paid $1600 for that computer. It was pretty much a "bare bones" machine.</p> <p>In 2004, that computer died. I scrounged all the good parts I could and went to Best Buy and bought another "bare bones" computer. It had Windows XP and an 80GB hard drive. That was the first year that I could also access DSL. Between all the upgrades, I was in heaven. The computer was basically state of the art and fast. It was a 32 bit machine and had a single-core processor.</p> <p>That computer lasted a decade (with a few hard drive replacements). Eventually, getting parts was becoming a pain, so a new computer was in order. I decided to see what I could get for $1000. You can get a LOT for $1000 today.</p> <p>I decided to build a system and started ordering parts. After ordering everything, I had enough left over for a big monitor, mouse and keyboard. Putting the system together was a snap ... snap things into place, connect the cables, and fire it up. This system has enough power and speed to run a large manufacturing operation or a small group of retail stores. The difference in just the last decade is amazing, and the prices are still dropping.</p> <p>Fast food workers have been in the news recently, wanting $15 an hour minimum wage. Also in the news was an article on an automated machine that can make 360 perfect hamburgers an hour and put them on a bun with any toppings you desire. &nbsp;</p> <p>30 years ago, just getting a computer system to run reliably was a full time job, not to mention the cost. Just the memory to run a complex program would break the bank. Today, that is not a problem. Applebee&rsquo;s is already running trials where you order off a tablet and later your order shows up. The waitress is missing.</p> <p>The fast food workers may get $15 an hour, but it will be short lived. I think within a few years, you will place your order on a tablet, and a machine will cook and deliver it just as ordered. It will probably also ask "Do you want fries with that?"</p> <p>The first operation to do that will have a few problems, but they will work them out, and then all fast food will go that way. It won't be long before "burger flipper" is a machine, not a teenager. The equipment is already available at a decent cost. The only thing left is getting the customers to accept the changes.</p> <p>ATMs were around at least a decade before I ever used one. If I had a deposit or wanted cash, I went to a bank and stood in line. I haven't been in a bank in 6 years. I deposit checks by scanning them and e-mailing them to the bank. I pay by "bill pay," and cash comes from an ATM. Thirty years ago, if you had told me that I might go to a fast food joint, place an order on a tablet, and eat a machine-made burger, I would have said, "No way". Today, I probably wouldn't think too much about it.</p> <p>San Francisco is a tough place for fast-food workers to live in: The median home price hit $945,000 in February,&nbsp;<em>16% above</em>&nbsp;the prior peak. But momentum stocks, which the city is addicted to, are crashing. With terrible results. Read.....<strong>&nbsp;</strong><a href="http://www.testosteronepit.com/home/2014/5/16/momentum-stock-fiasco-pricks-san-francisco-housing-bubble.html">Momentum Stock Fiasco Pricks San Francisco Housing&nbsp;Bubble</a></p><p><strong>Follow Us:&nbsp;<a href="http://www.pinterest.com/businessinsider/" >On Pinterest.</a></strong></p> <p><a href="http://www.businessinsider.com/fast-food-workers-endangered-species-2014-5#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/german-foreign-policy-with-russia-2014-3 German Industry Is Sending A Clear Message About Foreign Policy With Russia http://www.businessinsider.com/german-foreign-policy-with-russia-2014-3 Thu, 27 Mar 2014 15:00:00 -0400 Wolf Richter <p><img style="float:right;" src="http://static6.businessinsider.com/image/533473a66bb3f70c6012cef5-480-/siemens-3.jpg" border="0" alt="siemens" width="480" /></p><p>President Barak Obama went to Belgium &mdash; a trip planned long ago but repurposed since the Crimean debacle &mdash; to meet with European leaders, commemorate the 100th anniversary of World War I, draw iffy parallels between then and now, and&nbsp;<a href="http://online.wsj.com/news/articles/SB10001424052702304418404579463054284314312">announce</a>&nbsp;that more sanctions against Russia were being concocted and would soon be forthcoming,&nbsp;<em>even</em>&nbsp;if Russia made no additional moves on the Ukraine.</p> <p>The EU and the US must not sit on their hands as Russia pursues "the old way of doing things," he said. "That message would be heard not just in Europe but in Asia and the Americas, in Africa and the Middle East."</p> <p>Russian President Vladimir Putin might have had a field day listening to the speech. But he was busy. He was at his official residence in Novo-Ogaryovo near Moscow, meeting with German industry tycoons, including Joe Kaeser, CEO of multinational engineering conglomerate Siemens. It wasn&rsquo;t an emergency response to the current sanctions spiral but had been planned during their last meeting in October.</p> <p>That meeting in October must have been Kaeser&rsquo;s first meeting as CEO with Putin. Saturday night, July 27, 2013, Kaeser&rsquo;s predecessor had been unceremoniously sacked. There was no immediate successor. Eventually, the board settled on Kaeser who was CFO at the time and has been with Siemens his entire working life. And he didn&rsquo;t wait long to go see Uncle Putin.</p> <p>Which shows how connected German industry and Putin are. Regular powwows are&nbsp;<em>de rigueur</em>.</p> <p>So this time, Kaeser&nbsp;<a href="http://www.faz.net/aktuell/wirtschaft/wirtschaftspolitik/siemens-chef-kaeser-sagt-putin-langfristige-investitionen-zu-12865289.html">explained</a>&nbsp;to Putin that Siemens, which had already invested &euro;800 million in Russia, wanted to continue its &ldquo;long-term involvement and localization strategy," a Siemens spokesman said. The company is of the opinion "that we should not let the conversation break off even if it is perhaps difficult politically at the moment." So it would continue to produce in Russia and help industrialize the country.</p> <p>"We have built relations with Russia on the basis of long-term prospects and trust," Kaeser said, according to Russian news agency,&nbsp;<a href="http://en.itar-tass.com/world/725430">Itar-Tass</a>. When questioned about the possible consequences for Siemens due to its cooperation with Russia, given the sanctions, he said, &ldquo;Siemens and I personally do not feel any pressure from the federal authorities,&rdquo; which had known about the visit. &ldquo;And certainly there has been no pressure when the chief executive of Germany&rsquo;s leading company, cooperating with Russia for 160 years, comes to meet the Russian president.&rdquo;</p> <p>Kaeser also met with Gazprom CEO Alexei Miller, the Siemens spokesman confirmed. Despite any sanctions, both sides favored continuing with the strategic partnership agreement they'd inked in 2011. Gazprom is currently threatening to turn off the natural gas tap for the Ukraine. Unless the Ukraine pays up, it could&nbsp;<a href="http://voiceofrussia.com/2014_03_26/Impendent-fuel-crisis-in-Ukraine-will-crash-countrys-economy-9119/">run out of gas</a>&nbsp;in two or three months.</p> <p>Siemens, which employs more than 3,500 people in Russia, partners with state-owned Russian Railways &ndash; whose president Vladimir Yakunin is on the US sanctions blacklist &ndash; to provide high-speed trains. It&rsquo;s involved in energy projects and numerous other activities in Russia. Siemens isn&rsquo;t alone. About 6,200 German companies were trading with Russia. The bilateral trade volume was over &euro;76 billion in 2013. German companies have invested &euro;20 billion in Russia, and about 300,000 jobs in Germany depend on this economic relationship. A sanctions-spiral could have &ldquo;unforeseen consequences,&rdquo; said the president of the German Association of Exporters, Anton B&ouml;rner. It would be tough for Germany but &ldquo;life threatening&rdquo; for Russia. And there&rsquo;d be a political price to pay as well, he warned [read....<a href="http://www.testosteronepit.com/home/2014/3/13/german-exporters-fire-warning-shot-about-russia-sanction-spi.html">German Exporters Fire Warning Shot About Russia &ldquo;Sanction-Spiral,&rdquo; Banks At&nbsp;Risk</a>].</p> <p>The intricate and convoluted connections between Germany and Russia can exude a peculiar aroma. Gerhard Schr&ouml;der, Chancellor from 1998 to 2005, had moved heaven and earth to push Germany into a deal on the Nord Stream sub-sea gas pipeline from Russia to Germany via the Baltic Sea. It was signed in October 2005, shortly before Angela Merkel kicked him out of office. Without waiting to take a breath, he joined Nord Stream AG as&nbsp;<a href="http://www.nord-stream.com/about-us/our-management/">Chairman of the Board of Directors</a>.</p> <p>Gazprom owns a controlling 51% of Nord Stream. The remaining 49% are owned by German mega-utility E.on, German chemical company BASF, and Gasunie, a Dutch natural gas infrastructure company. With Schr&ouml;der&rsquo;s infinite foresight, the Nord Stream system vastly increased Germany&rsquo;s dependence on Russian natural gas.</p> <p>Gazprom Chairman Alexei Miller, whom our Siemens hero Kaeser also met while in Moscow, is Deputy Chairman of the Board of Nord Stream, right next to Putin&rsquo;s buddy Schr&ouml;der. It&rsquo;s good to have Schr&ouml;der on board to bring all these people together.</p> <p>Chancellor Merkel is getting the message, apparently. She has been forceful and very vocal in condemning Putin's actions, but on Wednesday, she&nbsp;<a href="http://en.itar-tass.com/world/725463">commented</a>&nbsp;in Berlin that the West &ldquo;has not reached a stage that implies the imposition of economic sanctions&rdquo; on Russia. &ldquo;And I hope we will be able to avoid it,&rdquo; she said. &ldquo;I am not interested in escalation. On the contrary, I am working on de-escalation of the situation.&rdquo; Clearly, she forgot to check with President Obama recently.</p> <p>Alas, it doesn&rsquo;t take long for Russian humor to tear into the pronouncements of American politicians. Read....&nbsp;<a href="http://www.testosteronepit.com/home/2014/3/23/putin-playing-chess-hilarious-picture-russian-point-of-view.html">Putin Playing Chess (Hilarious Picture, Russian Point of&nbsp;View)</a></p><p><a href="http://www.businessinsider.com/german-foreign-policy-with-russia-2014-3#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/this-depressing-chart-is-the-best-picture-of-unemployment-in-america-2014-3 This Depressing Chart Is The Best Picture Of Unemployment In America http://www.businessinsider.com/this-depressing-chart-is-the-best-picture-of-unemployment-in-america-2014-3 Sat, 22 Mar 2014 12:40:00 -0400 Wolf Richter <p><img style="float:right;" src="http://static3.businessinsider.comhttp://static3.businessinsider.com/image/532dbc7feab8ea47423ee016-578-371/us-duration-of-unemployment_unemployment-rate.png" border="0" alt="US Duration of Unemployment_Unemployment Rate" /></p><p>The unemployment rate is a complex measure based on surveys and some grotesque definitions, including who gets counted as "unemployed."</p> <p>These definitions eliminate millions of <em>jobless</em> people from the list of the officially &ldquo;unemployed.&rdquo; The resulting grotesque data &ndash; grotesque in, grotesque out &ndash; is then adjusted to paper over nagging real-world issues, such as seasonality. The result is a number that is easy to toss around during speeches but hard to use for gauging what's really going on in the labor market.</p> <p>The unemployment rate&rsquo;s inability to accurately portray the labor market has caught so much flak that even the Fed <a href="http://www.federalreserve.gov/newsevents/press/monetary/20140319a.htm">abandoned it</a> as a trigger for unwinding its zero-interest-rate policy. Instead, it will &ldquo;take into account a wide range of information....&rdquo;</p> <p>OK, the Fed has other reasons for throwing off the self-imposed yoke. It certainly wouldn&rsquo;t want to be pushed by that single number into depriving its cronies on Wall Street of their free-money elixir. Whatever its reasons, it threw out the unemployment rate. And that&rsquo;s a good thing. It&rsquo;s a useless number.</p> <p>But the Bureau of Labor statistics and other entities produce other measures of the labor market, and overall, we know what's going on.</p> <p><strong>And what's going on is <em>still</em> a fiasco.</strong></p> <p>So, employers are no longer laying off workers in monthly tsunamis, as they did during the financial crisis; we know because new unemployment claims have been relatively low over the last couple of years.</p> <p>And employers <em>are</em> hiring. We know because the Employment-Population Ratio has stabilized at <a href="http://data.bls.gov/timeseries/LNS12300000">very low levels</a>. They&rsquo;re hiring enough to keep up with the growth of the working-age population. That&rsquo;s about it. They&rsquo;re not hiring enough to pick up the millions of &ldquo;unemployed&rdquo; or mere jobless.</p> <p>Among the &ldquo;unemployed,&rdquo; the fiasco shows up in the average duration of unemployment &ndash; before they either find a job or get tossed on the no-longer-counted pile of the mere jobless.</p> <p>The <em>unemployment rate</em> normally peaks at the end of a recession, and in some cases significantly later &ndash; as in the &ldquo;jobless recoveries&rdquo; of the early 1990s and early 2000s. The average <em>duration of unemployment</em> peaks even later. The pre-financial-crisis record duration of unemployment had been set in July 1983 at 21.2 weeks. The unemployment rate had peaked half a year earlier at 10.8%.</p> <p><strong>This was the worst it could get, <em>we thought...</em></strong></p> <p>Until the financial crisis spooked employers into plowing under millions of jobs. Then they made structural changes that eliminated many of those jobs forever.</p> <p><strong>This chart, which compares the unemployment rate (red line) to the duration of unemployment (blue line), shows better than anything else the nature of the still ongoing unemployment fiasco in the US, despite the steadily declining unemployment rate.</strong></p> <p><img src="http://static3.businessinsider.comhttp://static3.businessinsider.com/image/532dbc7feab8ea47423ee016-578-371/us-duration-of-unemployment_unemployment-rate.png" border="0" alt="US Duration of Unemployment_Unemployment Rate" /></p> <p>The unemployment rate maxed out at 10% in late 2009, after the recession had ended. By that time, the duration of unemployment had shot up to 29.7 weeks, a new horrific record. But then something happened &ndash; or rather <em>didn&rsquo;t happen</em>. I<strong>nstead of changing course a few months later in parallel with the unemployment rate, the duration of unemployment just kept rising and rising and rising.</strong></p> <p>It didn&rsquo;t peak until the end of 2011 &ndash; two years after the peak of the unemployment rate &ndash; at a previously unthinkable 40.7 weeks. Nearly <em>twice as long</em> as during the worst month in 1983. And these were the lucky ones, so to speak, who still got counted as &ldquo;unemployed!&rdquo; Not the ones who&rsquo;d been tossed on the ignored pile of the jobless.</p> <p>But then the duration of unemployment dropped. A year later, in December 2012, it was down to 35.4 weeks. Politicians were breathing a sigh of relief. The Fed started to <em>look</em> competent. Hallelujah! And they were extending the line down along that trajectory. Soon, the duration would be in the realm of the bearable. But that&rsquo;s exactly what <em>didn&rsquo;t</em> happen.</p> <p><strong>The duration of unemployment has not improved one iota since.</strong></p> <p>In fact, it has gotten worse: 37.1 weeks. It takes the unemployed nearly 9 months on average to get hired ... or to get purged from the list because they got discouraged and stopped looking or whatever and didn&rsquo;t fit the definition of &ldquo;unemployed&rdquo; anymore. For the people who don&rsquo;t have a job, this economy is still a fiasco.</p> <p>They&rsquo;re in a hellish position. A nine-month average means some people find a job fairly quickly, but many others are looking for years. They burn through their savings. They lose contact with their industry. Their skills aren&rsquo;t updated. Depression can set in. Once they&rsquo;re desperate enough, they end up accepting whatever they can get even it pays a lot less than their prior job &ndash; to the detriment of the whole economy.</p> <p>The other tragedy in this number is that the Fed has relentlessly printed over $3 trillion for the benefit of what David Stockman calls the &ldquo;Wall Street casino&rdquo; (that&rsquo;s him, <a href="http://www.testosteronepit.com/home/2014/3/20/david-stockman-on-cnbc-feds-whole-taper-kabuki-is-a-farce.html">pungent, irascible, razor-sharp on CNBC</a>)! And it has artificially repressed interest rates and demolished savers and retirees in order to fatten up the banks and allow executives and employees to extract record bonuses. Fact is, the duration of unemployment has gotten <em>worse</em> for four out of the five years that the Fed has inflicted its loose monetary policies on the real economy. And it has gotten worse since QE3 started in late 2012!</p> <p>Wall Street once again stands out as history&rsquo;s most glorious, most efficient, sophisticated, prolific &ldquo;gigafactory,&rdquo; to use Tesla&rsquo;s newfangled term, for the production of self-serving BS. Investors beware! Read....<a href="http://www.testosteronepit.com/home/2014/3/20/goldman-goes-bonkers-over-tesla.html">Goldman Goes Bonkers Over&nbsp;Tesla</a></p><p><a href="http://www.businessinsider.com/this-depressing-chart-is-the-best-picture-of-unemployment-in-america-2014-3#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/foreclosure-rebound-pattern-2014-2 Foreclosures Suddenly Jump 57% in California (And Soar In Much Of The Country) http://www.businessinsider.com/foreclosure-rebound-pattern-2014-2 Fri, 14 Feb 2014 11:42:00 -0500 Wolf Richter <p>From Federal-Reserve-fueled bubble to debilitating return to reality &ndash; reality being a financial calamity &ndash; to Federal-Reserve-hyper-fueled bubble: that&rsquo;s the US housing market over the last&nbsp;ten years. There are many places around the country, including some cities in Silicon Valley, where home values are now higher than they were at the peak of the last bubble. Of course, no one at the Fed or in government calls it &ldquo;bubble.&rdquo; They&rsquo;re talking about the housing &ldquo;recovery.&rdquo;</p> <p>But the excesses and speculators are back, and private equity funds and highly leveraged REITs are all over it, buying up every single-family home in sight, and now Wall-Street-engineering firms have come up with a new and improved contraption, a synthetic structured security that on its polished surface looks like that triple-A rated mortgage-backed toxic waste that helped blow up the banks. But this time, it&rsquo;s different. The securities are backed by sliced and diced rental payments from single-family homes that are, <em>hopefully</em>, rented out [read.... <a href="http://www.testosteronepit.com/home/2014/1/31/the-exquisitely-reengineered-frankenstein-housing-monster.html">Another Exquisitely Reengineered Frankenstein Housing&nbsp;Monster</a>].</p> <p>So wither this &ldquo;recovery?&rdquo;</p> <p>Foreclosure filings &ndash; default notices, scheduled auctions, and bank repossessions &ndash; suddenly jumped 8% to 124,419 in January across the nation, according to <a href="http://www.realtytrac.com/content/foreclosure-market-report/january-2014-foreclosure-market-report-7982" target="_blank">RealtyTrac</a>. Which&nbsp;left some people scratching their heads. A mild uptick was expected after the holidays, but 8%? And what about the polar vortices &ndash; weren&rsquo;t they supposed to have slowed things down to a crawl? &nbsp;</p> <p>OK, foreclosure filings were still down 18% from a year earlier, the 40th month in a row that they declined on an annual basis. But it was the smallest annual decline since September 2012. And the 8% jump from December was the largest such increase since May 2012. Crummy as they were, these national averages covered up some, let's say,&nbsp;interesting phenomena in a number of states.</p> <p>&ldquo;The sharp annual increases in some states shows that many states are not completely out of the woods when it comes to cleaning up the wreckage of the housing bust,&rdquo; said RealtyTrac VP Daren Blomquist. &ldquo;The foreclosure rebound pattern is not only showing up in judicial states like New Jersey, where foreclosure activity reached a 40-month high in January, but also some non-judicial states like California....</p> <p>Ah, my beloved state of California. Housing has been booming, and prices in coastal areas have been soaring &ndash; along with rents, to the point that <a href="http://www.testosteronepit.com/home/2014/1/22/housing-bubble-20-hits-messy-resistance-in-california.html">mini-rebellions are breaking out</a>. In this hyped and glorified housing market where the Big Money rules and where first-time buyers have been shoved aside unceremoniously, where foreclosure starts in&nbsp;2013 had <a href="http://www.realtytrac.com/content/foreclosure-market-report/2013-year-end-us-foreclosure-report-7963" target="_blank">plunged 60%</a> from 2012, and had declined year-over-year for 17 months in a row, or with the exception of five months, had declined <em>four years</em> in a row, well, in this wondrously recovered housing market, foreclosures starts in January <em>suddenly</em> jumped 57%.</p> <p><img src="http://static3.businessinsider.com/image/52fe46976da811ef76063b87-580-421/us-california-foreclosure-starts-jan-2010_jan-2014.png" border="0" alt="US California foreclosure starts Jan 2010_Jan 2014" /></p> <p>It&rsquo;s not just in California. Foreclosure starts rose 10% from December to&nbsp;hit 57,259 properties across the country. That they on average&nbsp;were still down 12% from a year earlier obscured major annual increases in certain individual states, and not just in one or two, like us crazies out here in California, but in 22 states! And California with its 57% jump in foreclosure starts now suddenly seems tame: In New Jersey, they soared 79%, in Connecticut 82%, and in Maryland 126%!</p> <p>The cynic in me says the sudden and dizzying jump in foreclosure starts, not only in California but in much of the country, must be some kind of data problem. Maybe RealtyTrac&rsquo;s computers got hacked by some evildoer who was short the housing market or something. But when I contacted RealtyTrac to request permission to republish the chart, there was no word of a retraction, though this would have been a good opportunity, and so the numbers hold.</p> <p>Maybe foreclosure starts in February and March will somehow, miraculously, plunge and return to trend. Maybe January was just a fluke. But that may be wishful thinking. Instead, it could be the indication of a turning point of sorts, like some of the other indications we&rsquo;ve already observed, and maybe the strange sound that we&rsquo;re hearing out there is the hot air hissing out of this whole construct, so carefully inflated by the Fed, and so assiduously taken advantage of by private equity funds and other Wall Street outfits with access to the Fed&rsquo;s nearly free money.</p> <p>Meanwhile, my beloved state of California, whose $2 trillion economy is the eight largest in the world ahead of Italy and Russia, has a new problem: it&rsquo;s awash in cash. It&rsquo;s projecting multi-billion dollar surpluses for years to come. The feeding frenzy in Sacramento is a sight to behold. Read.... <a href="http://www.testosteronepit.com/home/2014/2/12/california-must-have-magnificent-endless-bubbles-in-housing.html">California MUST Have Magnificent, Endless Bubbles in Housing, Stocks, And IPOs &ndash; Or Go Broke&nbsp;Again</a></p><p><a href="http://www.businessinsider.com/foreclosure-rebound-pattern-2014-2#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/frances-private-sector-is-mired-in-a-disaster-worse-than-2009-2014-2 France’s Private Sector Is Mired In A Disaster Worse Than 2009 http://www.businessinsider.com/frances-private-sector-is-mired-in-a-disaster-worse-than-2009-2014-2 Thu, 13 Feb 2014 10:39:00 -0500 Wolf Richter <p><img style="float:right;" src="http://static4.businessinsider.com/image/52fce6bdecad04fd314b0288-480-/french-president-francois-hollande-7.jpg" border="0" alt="French President Francois Hollande" width="480" /></p><p>Maybe it worked. He needs all the help he can get: when French President Fran&ccedil;ois Hollande was paraded around Washington D.C. by President Obama, the French government-owned TV channel France 2 described the two as exhibiting, or at least trying to exhibit, "harmony." Then Hollande showed up here in San Francisco and Silicon Valley to hobnob with French and American entrepreneurs, some of them billionaires, presumably to find out from them what exactly it would take to put some oomph into the French economy and particularly in its anemic private sector.</p> <p>Perhaps it will give Hollande the boost he sorely needs at home, because at home things are getting ever more mired down. The economy has <a href="http://www.insee.fr/en/themes/indicateur.asp?id=26" target="_blank">shriveled in four of the last six quarters</a>. And it would have shriveled a lot more had it not been for the dominant government sector, including a slew of state-owned or state-controlled coddled and protected monopolistic mega-enterprises. And despite incessant talk of austerity, that government sector continues to grow.</p> <p>When Markit, a global business survey company, tried to figure out why its private-sector Purchasing Managers&rsquo; Index for France was so much worse than France&rsquo;s GDP figures, though they track pretty closely for most countries, <a href="http://www.markit.com/assets/en/docs/commentary/markit-economics/2014/jan/France_economy_14_01_21.pdf" target="_blank">it found</a> that output of the government sector has grown 2.1% since the second quarter 2012. But once the government sector is removed from the equation, private-sector GDP actually declined during that period by 0.2%. And it remains 3.2% below the pre-crisis peak. The private sector has never recovered!</p> <p>Evidence is piling up that the private sector is now getting into deeper trouble. It shows up in the number of business failures that in 2013 <a href="http://www.coface.fr/content/download/74245/861537/version/7/file/Defail-02-2014-FR-RVB-OK.pdf" target="_blank">exceeded those of crisis year 2009</a>!</p> <p>In 2013, there were 63,452 business failures, up 5.3% from 2012, and for the first time, they&rsquo;d crept above the level in 2009 (63,204), a level that at the time had been considered catastrophic. Particularly nasty were the second and third quarters when business failures jumped respectively 9.8% and 8.2%.</p> <p>Business failures began rising in 2008 as the Financial Crisis gnawed into France and soared in 2009. Then they began to decline ever so gradually until mid-2012. Outgoing President Nicolas Sarkozy was patting himself on the back. Alas &ndash; and certainly by coincidence &ndash; they began to rise again just as Hollande was still busy hanging up his suits at his new residence, the Elys&eacute;e, and before he&rsquo;d even had a chance to inflict any tax increases on these hapless businesses and their owners.</p> <p>Many of the smallest outfits, the &ldquo;individual enterprises&rdquo; with one employee, never made it past the crisis. So in 2013, business failures among them, at 16,261, were 13.3% below those of 2009. They weren&rsquo;t recovering. There just weren&rsquo;t that many left.</p> <p>But failures among "commercial enterprises&rdquo; rose to 47,191 &ndash; 6.2% higher than they&rsquo;d been during the crisis year of 2009! While these failing companies had on average four employees, there were some big ones in that group, including Mory Ducros with 5,000 employees. It is these companies that are now getting whacked.</p> <p>The costs of these failures set a new record in 2013 of &euro;4.82 billion, or 0.23% of GDP, a smidgen higher than the 2009 crisis total of &euro;4.7 billion. And these failures put 211,716 jobs at risk.</p> <p>It was broad-based. Only one sector &ndash; chemicals &ndash; saw a reduction in failures. All other sectors experienced increases. The biggest loser was &ldquo;distribution&rdquo; (includes retail) where failures jumped 9.7% from a year earlier! As everywhere, the sector was undergoing structural changes forced upon it by the internet. But it was also dragged down by strung-out households struggling with rampant unemployment, and these folks were watching every euro they spent. Failures of bookstores soared 17.5%, including some chains with several hundred employees each. Flower shop failures jumped 12.8%, toy store failures 45.8%! Even in the sector of the future, &ldquo;electronics, IT, and telecom,&rdquo; business failures jumped 9.2%. It&rsquo;s tough out there.</p> <p>Hollande has been presiding over a steady deterioration of the private sector. Making up for it haphazardly by boosting the government sector with the stroke of his ingenious pen or a vote in Parliament is predictably not producing any results in the private sector &ndash; other than possibly creating more mayhem. But it nudges up GDP a tiny bit and makes his government look like it&rsquo;s doing <em>something</em>.</p> <p>Yet the lifeblood of the economy is the hundreds of thousands of smaller and larger companies struggling on a daily basis to stay afloat. The fact that they fail at record numbers, <em>still</em>, five years after the crisis, should tell Hollande and his government that something is seriously wrong with the business environment in the country &ndash; something that can&rsquo;t be solved by hammering these hapless businesses with even more taxes.</p> <p>But the despised &ldquo;political class&rdquo; is different. Someone in the French government deleted 3,300 French names from a purloined list of accounts at HSBC Switzerland; their revelation, apparently, would have left that political elite red-faced and vulnerable to prosecution. Read.... <a href="http://www.testosteronepit.com/home/2014/1/27/black-money-in-france-at-the-center-of-life-for-politicians.html">Black Money In France &ldquo;At The Center Of Life For&nbsp;Politicians&rdquo;</a></p><p><a href="http://www.businessinsider.com/frances-private-sector-is-mired-in-a-disaster-worse-than-2009-2014-2#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/bs-in-the-minimum-wage-war-2014-2 Why My BS-O-Meter Redlined In The Minimum Wage War http://www.businessinsider.com/bs-in-the-minimum-wage-war-2014-2 Tue, 11 Feb 2014 14:25:00 -0500 Wolf Richter <p><img style="float:right;" src="http://static6.businessinsider.com/image/52fa744becad048c61f92b2a-480-/parking-meter.jpg" border="0" alt="parking meter" width="480" /></p><p>&ldquo;There is never a good time to raise the minimum wage,&rdquo; explained Joseph Sabia, an associate professor of economics at San Diego State University, to Capitol Hill staff members and reporters.</p> <p>The briefing was co-sponsored by the Employment Policies Institute, whose anti-minimum wage campaign includes seven reports by Sabia, for which he&rsquo;d received $180,000 from the organization that is in part funded by the fast-food industry, the&nbsp;<a href="http://www.nytimes.com/2014/02/10/us/politics/fight-over-minimum-wage-illustrates-web-of-industry-ties.html">New York Times</a>&nbsp;reported. Each of these reports found that raising minimum wage did more harm than good, destroyed jobs, or didn&rsquo;t benefit the poor.</p> <p>The organization&rsquo;s website&nbsp;<a href="http://www.epionline.org/minimum-wage/">features</a>&nbsp;a section evocatively titled, &ldquo;5 Things You Didn&rsquo;t Know About the Minimum Wage.&rdquo; It cites reports by Sabia and others to support its curious findings, among them: &ldquo;For every 10 percent increase in the minimum wage, teen employment at small businesses is estimated to decrease by 4.6 to 9.0 percent.&rdquo; Or, &ldquo;Programs like the Earned Income Tax Credit are far better at helping low-income Americans&rdquo; than raising wages.</p> <p>The needle on my BS-o-meter instantly redlined.</p> <p>But this is how the minimum wage war is being fought. At stake in Washington: raise it from $7.25 per hour to $10.10 per hour over the next two and a&nbsp;half years. Some states and cities are fighting their own battles over minimum wages or living wages.</p> <p>If there were a shortage of labor at the low end of the skills scale, minimum wage laws would probably be superfluous. The labor market would take care of it. Companies would have to try harder to attract workers. And wages would go up.</p> <p>Wishful thinking in the US. There is a scarcity of jobs and plenty of jobless people. Without a minimum wage, employers could drive wages down to ridiculous lows in their pursuit of happiness and still be able to hire desperate, starving job seekers.</p> <p>There are differences. In a town in a rural area in the middle of the country where rents are cheap and commutes short, $7.25 per hour may allow a single adult to get by. In San Francisco, forget it. How about working in San Francisco and living in a cheaper area of the East Bay. So you&rsquo;ve got to commute and get across the Bay, either by BART (our commuter rail system), by bus, or by personal vehicle. Either way, the commute is expensive for a minimum-wage earner. During rush hour, the bridge toll would eat up nearly an hour of the federal minimum wage. Plus gasoline for that old beater and the long drive to the cheaper area. You might spend a quarter of your wages per day just to get to your job. And then live off what, exactly? So forget that too.</p> <p>San Francisco has implemented long ago a living wage, which was raised to $10.74 per hour on January 1. Other expensive cities in California, like San Jose, have their own living wages. California&rsquo;s state minimum wage is $8.00 per hour and will increase to $9.00 on July 1. Are those minimum wage levels going to kill the economy in San Francisco, in San Jose, or in California? Nope. There are bigger issues that might kill the economy &ndash; like bubbles that implode, or the drought that is drying up the state. But not the minimum wage.</p> <p>And the idea that raising the minimum wage to some kind of subsistence level would cost jobs, for teens or otherwise? Minimum wage jobs are in services, like fast-food restaurants, jobs that&nbsp;<em>still</em>&nbsp;cannot be outsourced to Bangladesh. Those jobs need to get done. People need to be hired to do them, even if wages would be higher.</p> <p>In many competitive sectors where pricing is a big factor, such as fast-food restaurants, the low-cost producers win. It allows them to keep prices down and still make money while higher-cost competitors croak. Keeping payroll expenses down has developed into a fine art. Without a minimum wage law, and without other checks and balances, such as a shortage of labor, desperate, hungry people would work for next to nothing.</p> <p>Minimum wage impacts all competitors the same way. Your competitors can still undercut your prices because they run a more efficient operation or have a better handle on other expenses or negotiate larger discounts with their suppliers, or they use even lousier ingredients and crummier substitutes or cheaper packaging, or serve even smaller quantities, or they&rsquo;re willing to make less profit, but one thing they cannot do: undercut you with how little they pay their workers. In that respect, they&rsquo;re all on a level playing field.</p> <p>They might have to raise the price of their burrito by 4 cents, but every competitor will have the same problem. Raising the minimum wage won&rsquo;t change the competitive balance.</p> <p>And the risk of selling fewer burritos when the price goes up by 4 cents? Everyone has the same issue, but there&rsquo;s a benefit: minimum wage earners will be making more money, and will have more money to spend, including on burritos &ndash; and they&rsquo;ll spend every dime they get.</p> <p>But it&rsquo;s complicated. If the minimum wage goes up $1 per hour, what do you do with your employees whose wages you&rsquo;ve raised last year by $1 from the old minimum wage? They learned things, got faster and more productive. Now they&rsquo;d be back at minimum wage. You&rsquo;d likely raise their wages to some extent to differentiate them from the new hires. In my many years in business, I&rsquo;ve been through a number of minimum wage increases, and while we rarely employed people at minimum wage, we always ended up raising the whole wage scale. You don&rsquo;t want to end up suddenly with a bunch of people on minimum wage, when before you had none. Every business goes through this &ndash; it&rsquo;s not catastrophic.</p> <p>But the logic of one minimum wage across the nation falls apart in face of the huge differences in the costs of living. You can&rsquo;t compare Modesto, CA, with San Francisco. And what about that small town in Kansas, with low rents and short commutes &ndash; does it really have to have the same minimum wage as Dallas, TX, with much higher rents and endless commutes? America doesn&rsquo;t consist of cookie-cutter towns. Every area has its own dynamics. And a compromise would be too low for high-cost areas and too high for low-cost areas.</p> <p>I saved the best for last:&nbsp;the Employment Policies Institute's claim above that &ldquo;programs like the Earned Income Tax Credit are far better at helping low-income Americans&rdquo; than higher wages &ndash; the debate having been framed in terms of reducing poverty in the US. According to this claim, a plethora of federal benefits, such as food stamps, should be used to compensate low-wage workers&nbsp;<em>instead of</em>&nbsp;raising their wages. And it works. Low-wage employees in just the fast-food industry receive nearly $7 billion per year in public assistance. This, in essence, is a way for the $200 billion-a-year industry to do something our corporate welfare queens excel at: shuffle off part of the costs of doing business to the hapless taxpayer.</p> <p>Read....<strong>&nbsp;</strong><a href="http://www.testosteronepit.com/home/2013/10/15/corporate-disease-workers-are-a-cost-not-a-productive-resour.html">Corporate Disease: Workers Are A Cost Not A Productive&nbsp;Resource</a></p><p><a href="http://www.businessinsider.com/bs-in-the-minimum-wage-war-2014-2#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/why-natural-gas-prices-are-soaring-2014-1 Why Natural Gas Prices Are Soaring http://www.businessinsider.com/why-natural-gas-prices-are-soaring-2014-1 Sun, 26 Jan 2014 16:36:27 -0500 Wolf Richter <p><img style="float:right;" src="http://static2.businessinsider.com/image/52e57f716bb3f79a3b82a55a-480-/a-gas-flare-is-seen-at-an-oil-well-site-gas-flares-are-created-when-excess-flammable-gases-are-released-by-pressure-release-valves-during-the-drilling-for-oil-and-natural-gas-5.jpg" border="0" alt="A gas flare is seen at an oil well site. Gas flares are created when excess flammable gases are released by pressure release valves during the drilling for oil and natural gas." width="480" /></p><p>On Friday, when stocks were plunging, natural gas soared 9.6% to $5.18 per million British thermal units (MMBtu) at the Henry Hub. Up 20% for the week. The highest close since June 2010.</p> <p>Back then, the &ldquo;shale gas revolution&rdquo; had turned into a crazy no-holds-barred land-grab and fracking boom that veered into overproduction and a &ldquo;glut&rdquo; &ndash; accompanied by a historic collapse in price. The US could not export its excess production due to export restrictions and the lack of major LNG export terminals. By April 2012, when the Japanese were paying around $17 per MMBtu for LNG on the world markets, natural gas in the US hit a decade low of $1.92 per MMBtu, and predictions that it would go to <em>zero</em> showed up in the mainstream media. That was the bottom.</p> <p>But nothing can be priced below the cost of production forever. By Friday, natural gas was up 170% from the April 2012 low. Turns out, only a low price can cure a low price.</p> <p><strong>The low price caused demand to creep up</strong>.</p> <p>Gas exports via pipeline to Mexico have been growing, especially since additional pipeline capacity went into service last year. Mexico is switching power generation from using its own oil to cheap US natural gas. This allows it to export its more valuable oil to the US. Ka-ching. But building gas-fired generating capacity is a slow-moving process.</p> <p>Other exports are also moving forward &ndash; in people&rsquo;s heads. There are pipelines between the US and Canada, but the US is a net importer. Exports of LNG are at this point still a pipedream, so to speak, though deals are being made, contingent on getting government approvals to export LNG. It&rsquo;s going to take years before LNG can be exported in large quantities.</p> <p>But the low price had short-term <em>and</em> structural impacts. Utilities dispatched electricity generation from their coal-fired plants to their gas-fired plants. And there have been structural changes: utilities have built gas-fired power plants and have retired &ndash; not mothballed! &ndash; their oldest, most inefficient, and most polluting coal-fired power plants. Global industrial companies have been building plants in the US for energy-intensive processes and for processes that use natural gas as feed stock. Even natural gas in transportation is picking up.</p> <p><strong>The low price destroyed the business model for drillers</strong>.</p> <p>Thousands of unprofitable wells litter the land. Many billions were written off. Real money that had been recklessly thrown around during the boom disappeared into the ground. Investors were lured with false promises. The bloodletting in the industry was enormous. Some of the largest drillers have pulled back from drilling for dry natural gas. Most of the wells that are still being drilled are in fields that are rich in natural-gas liquids and oil, which sell for much higher prices and make wells profitable. Dry natural gas has become a byproduct. In the immensely productive Bakken shale-oil field in North Dakota, where gas occurs along with oil, 30% of it is flared &ndash; burned at the well as a <em>waste product</em>. The low price doesn&rsquo;t justify building pipelines to haul it off.</p> <p>But shale gas wells have sharp decline rates, and new wells need to be drilled constantly to make up for the decline in older wells. These days, not enough wells are being drilled, and production in all gas plays combined &ndash; except for the Marcellus &ndash; is already <a href="http://www.eia.gov/naturalgas/weekly/img/ShaleGas-201311.xlsx">in slight decline</a>. The only production boom left is in the Marcellus: the &ldquo;shale gas revolution&rdquo; in the US is now a one-pony show.</p> <p>In January 2012, according to <a href="http://phx.corporate-ir.net/phoenix.zhtml?c=79687&amp;p=irol-reportsother">Baker Hughes</a>, there were 143 rigs drilling for natural gas in the Marcellus &ndash; the most prolific parts of which are in Pennsylvania. Today, there are 86. But during the drilling boom, someone forgot to install sufficient pipeline infrastructure. So, wells were shut in, perhaps thousands of them, a giant reservoir waiting for takeaway capacity. That was 2012. Last year, part of a new pipeline network went into service, and bottlenecks were removed, and the gas started flowing to New York City and other places. Drilling is down. Production &ndash; the delivery of gas to the markets &ndash; is soaring!&nbsp;&nbsp;</p> <p>How long can it last? Well decline rates in the Marcellus are as steep as elsewhere, and this sudden burst in production, if not supported by a new bout of drilling, will taper off as it has in other fields. And that&rsquo;s today&rsquo;s one-pony show of the US &ldquo;shale gas revolution.&rdquo;</p> <p><strong>Then cold fronts swept across the country.</strong></p> <p>These polar vortices, as they&rsquo;re now referred to for additional flair, have caused demand for gas as heating fuel to spike to record highs. And more bitter cold weather is being forecast. Natural gas in underground storage dropped to 2,423 billion cubic feet (Bcf) for the week <a href="http://ir.eia.gov/ngs/ngs.html">ending January 17</a>. The last time storage levels were this low during an equivalent week was in January 2005!</p> <p>At the time, gas was selling for $12 to $14 per MMBtu and hit an all-time high of $15.40 in December that year. But demand has changed. In 2013, demand was over 18% higher than in 2005; this year, it might be over 20% higher [my article from nine days ago.... <a href="http://www.testosteronepit.com/home/2014/1/16/natural-gas-squeeze-panic-hasnt-ensued-just-yet.html">Natural Gas Squeeze? &ldquo;Panic hasn&rsquo;t ensued just&nbsp;yet&rdquo;</a>].<strong>&nbsp;</strong></p> <p><strong>And the big money has jumped into the fray</strong>.</p> <p>For years, the favorite game was to short natural gas, playing the glut for all it was worth, a sport that has gotten very complex and, if you get the timing wrong by a few hours, very expensive. Some of the spike late Friday, and some of the action all week, was due to a hard squeeze on these folks &ndash; as the big money arrived <em>en masse</em>.</p> <p>On Wednesday, the big money went public. As reported by <a href="http://blogs.marketwatch.com/thetell/2014/01/22/natural-gas-at-5-is-not-impossible-citi-research/">MarketWatch</a>, Citi analysts wrote that, &ldquo;With tight fundamentals, $5 gas is not impossible.&rdquo; What had been obvious for a while, showed up in the media: &ldquo;Strong demand is expected to push gas inventories to very low levels with cold weather lingering.&rdquo; And the price took off once again.</p> <p>Now everyone is bent over weather data, trying to figure out what nastiness the winter will still serve up, and they&rsquo;re betting on the weather because cold snaps happen relatively fast and are observable. Watching the fundamentals is like watching paint dry. But it&rsquo;s the fundamentals that have changed the equation. The polar vortices are merely speeding up the calculus.</p> <p>Natural gas is famous for its head fakes, unexpected plunges when it <em>should</em> rise, and inexplicable rises when it should drop. It&rsquo;s being manipulated in a myriad ways. It&rsquo;s always a bet on the weather, except when it&rsquo;s not. It can turn around in a second and cause whiplash. It&rsquo;s a seatbelt-mandatory commodity. And once every few years, there is a panic, and it spikes to dizzying highs.</p> <p>While natural gas was soaring on Friday, and all week, the rest of the markets were tanking, with emerging markets &ldquo;trading in full-blown panic mode.&rdquo; What gives? Read.... &nbsp;<a href="http://www.testosteronepit.com/home/2014/1/24/a-teeny-weeny-bit-of-taper-and-look-what-happened.html">A Teeny-Weeny Bit Of Taper, And Look What&nbsp;Happened</a></p><p><a href="http://www.businessinsider.com/why-natural-gas-prices-are-soaring-2014-1#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/three-energy-trends-that-are-getting-hot-2014-1 Three Energy Trends That Are Getting Hot http://www.businessinsider.com/three-energy-trends-that-are-getting-hot-2014-1 Wed, 22 Jan 2014 18:37:58 -0500 Marin Katusa <p><strong><em><img style="float:right;" src="http://static6.businessinsider.com/image/52e055f06bb3f76363a97b4c-752-564/xcel-energy-2.jpg" border="0" alt="xcel energy" />By Marin Katusa, Chief Energy Investment Strategist, Casey Research:</em></strong></p> <p>Investors who want to know how the energy sector will be doing this year are, in my opinion, asking the wrong question. There really is no such thing as "the energy sector," because the performance of the different resources&mdash;from oil and gas, to uranium, to coal, to renewables&mdash;can vary dramatically.<iframe width="1" height="1" frameborder="0" src="http://trk.caseyresearch.com/f/?content_id=700&amp;code=TES&amp;editorial=energy-outlook-whats-hot-in-2014"></iframe></p> <p>To find out which investments will deliver the greatest profits for well-positioned investors in 2014, my team and I have identified three trends that are hot&hellip; and may become even hotter in the course of this year.</p> <h3><strong>HOT: Service Companies in North America</strong></h3> <p>The oil and gas production in the United States is mature. Rather than looking for new basins, companies are looking to "rediscover" the past by applying new technology to increase economic production from known oil and gas fields.</p> <p>This new technology comes in a variety of shapes and sizes: better software, bigger rigs, more efficient drilling processes. And it's being applied everywhere, onshore and offshore, conventional and unconventional alike.</p> <p>Just as an example, today we're seeing operators drill more than 50 horizontal wells from a single well pad, a far cry from just a decade ago.</p> <p>Exploration and production companies know that the focus moving forward is not just the amount of oil they can pump out of the ground, but the profit they can extract from every barrel (what we call the "netback"). This is even more true in the mature unconventional basins such as the Bakken, Eagle Ford, and the Marcellus shale plays, where the margins are tight and require an oil price of more than US$70 per barrel in order to be economic.</p> <p>This means E&amp;P companies have to use the best ways to increase production from every well&mdash;while at the same time reducing their drilling costs. Failure to do so would be to guarantee a firm's demise.</p> <p>The dilemma for E&amp;P companies is having to prioritize what their shareholders want in the short term&mdash;growing production and dividends&mdash;over whatever may be best for the company in the long term. At the same time, they have to fight the natural decline of oil coming out of their wells.</p> <p>All the while, service companies continue to extract fees for their tools and services. Drillers, pumpers, frackers, and other oilfield-service guys make money regardless of whether E&amp;P companies find oil or produce it at economic rates.</p> <p>We've said it before: Many E&amp;P companies are running on a treadmill, and the incline is going higher and higher, which means higher costs to produce the same amount of oil.</p> <p>Of course, not all service companies will rake in the dough. The ones that will do the best are the ones that can consistently stay at the forefront of technology and keep signing contracts with the supermajors like Exxon, Chevron, and Shell.</p> <h3><strong>HOT: European Energy Renaissance</strong></h3> <p>Russia's grip on European energy continues to tighten, and there's a push to produce oil and gas within their own borders all around Europe.</p> <p>2014 looks to be an exciting year for companies like one of our&nbsp;<a href="http://www.caseyresearch.com/go/vt3rv-2/TES" target="_blank"><em>Casey Energy Report</em></a>stocks, a TSX-V-listed oil and gas explorer and producer&nbsp;with a 2-million-acre concession in Germany. We call the deposit it's sitting on the "Next Bakken" because we believe that its potential to deliver exceptional output could rival that of the famed North American formation.</p> <p>This development is still in its early stages, but investors who position themselves now could see outsized gains for years to come. It's not really a question of "if" the oil is there&mdash;previous oil production in the very same location yielded more than 90 million barrels&mdash;but of "how much" oil can be extracted with the modern methods not available the last time companies worked on this field.</p> <p>The company has completed its first well and will continue to drill additional wells (both vertical and horizontal) next year. While the initial well cost more than anticipated, it's a good start that indicates economic oil can be produced in Germany. We're also confident this company's experienced management team is applying the lessons of its first foray to reduce drill costs on future wells.</p> <p>As our&nbsp;<em>Energy Report&nbsp;</em>pick proves up any of its projects in 2014 and early 2015, we can expect another of our holdings, which has just entered the German oil and gas scene,&nbsp;to either farm into the company or even buy it out.</p> <p>We predict that by the end of 2015, our "Next Bakken" play, and others like it, will have attracted a lot of attention, not just from individual speculators, but from institutional investors as well&mdash;and investors who have gotten in early will be very happy indeed.</p> <p>Another of our portfolio holdings is just beginning to drill on its Romania projects after a series of delays due to politics and bureaucracy. We have reason to be optimistic because its JV partner, a Gazprom subsidiary, has drilled successful wells on the same basin on the other side of the border in Serbia. If our pick has anything close to that level of success, the markets will surely take notice and its shares will go much higher.</p> <p>As the "Putinization" of the global energy markets continues and Russia's dominance grows, European countries become increasingly more desperate to escape from under Putin's heavy thumb and to start developing their own energy resources.</p> <p>The European Energy Renaissance is real, and we continue to monitor companies that are funded and have the permits and ability to drill game-changer wells in Europe in 2014.</p> <h3><strong>HOT: Uranium</strong></h3> <p>During a recent trip to London, I spoke with Lady Barbara Judge, chairman emeritus of the UK Atomic Agency and an advisor to TEPCO on the Fukushima nuclear disaster in Japan. I asked her point-blank whether Japan was willing to bring any nuclear reactors back online in 2014.</p> <p>Her answer was an unequivocal "Yes." The Japanese have no choice, really, because the alternative&mdash;importing liquefied natural gas (LNG)&mdash;is far too expensive.</p> <p>Japan is the world's largest importer of LNG and has had to double its imports since the Fukushima incident. For that privilege, the country pays some of the highest rates on the planet&mdash;almost four times more than what we pay for natural gas in North America.</p> <p>South Korea also shut down its nuclear plants post-Fukushima to do inspections and maintenance upgrades, and it, too, has had to import a lot of LNG. Both countries are looking to restart their nuclear reactors so they can stop paying a fortune to foreign energy suppliers. When these countries restart their reactors, they'll also restart the uranium market, so we expect uranium prices to begin to shake loose of the doldrums this year.</p> <p>Another driver will be throwing the switch at ConverDyn, the US uranium facility that is slated to start converting natural U<sub>3</sub>O<sub>8</sub>&nbsp;to reactor-ready fuel in late 2014 or early 2015.</p> <p>We currently hold two solid uranium companies in the portfolio&mdash;one is a US-based small-cap producer (one of the very few in America), the other is the lowest-risk way to play the uranium market that I know of. Both, we believe, will take off in 2014 on the renewed interest in uranium and the associated stocks.</p> <p>If you want to know more about our thoroughly vetted energy stocks and their potential for amazing gains in 2014 and beyond, give the&nbsp;<strong><em>Casey Energy Report</em></strong>&nbsp;a try. You'll find all my<strong>"What's Hot" predictions</strong>&nbsp;and the&nbsp;<strong>full names of the stocks</strong>&nbsp;I've mentioned above in our January forecast issue&hellip; plus&nbsp;<strong>the energy sectors you should avoid</strong>&nbsp;like the plague this year&hellip; as well as a feature article on&nbsp;<strong>elephant oil deposits in the Gulf of Mexico</strong>&nbsp;and a<strong>new stock pick</strong>&nbsp;ready to profit from them.</p> <p>Giving the&nbsp;<strong><em>Casey Energy Report</em></strong>&nbsp;a try is risk-free because it comes with a 3-month, full money-back guarantee. If the&nbsp;<em>Energy Report&nbsp;</em>is not all you expected it to be, just cancel within those 3 months and get a prompt, full refund. Or cancel any time&nbsp;<strong>AFTER</strong>&nbsp;the 3 months are up for a prorated refund. Getting started is easy&mdash;<a href="http://www.caseyresearch.com/go/vt3cw-2/TES" target="_blank">just click here</a>.</p><p><a href="http://www.businessinsider.com/three-energy-trends-that-are-getting-hot-2014-1#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/no-money-no-problem-bank-of-japandemonium-takes-care-of-it-2013-12 No Money, No Problem, Bank Of Japandemonium Takes Care Of It http://www.businessinsider.com/no-money-no-problem-bank-of-japandemonium-takes-care-of-it-2013-12 Tue, 24 Dec 2013 16:11:06 -0500 Wolf Richter <p><img style="float:right;" src="http://static1.businessinsider.com/image/52b9f7b1ecad04a540253003-480-/shinzo-abe-tokyo-olympics-7.jpg" border="0" alt="Shinzo Abe Tokyo Olympics" width="480" /></p><p>In the days before Christmas and New Year&rsquo;s, when no one was supposed to pay attention, Japanese Prime Minister Shinzo Abe, his ministers, and coalition partners agreed on a draft budget for fiscal 2014, which starts April 1. It&rsquo;s a doozy. Instead of slowing down the fiscal fiasco engulfing Japan, Abenomics is speeding it up.</p> <p>Spending rises to a <a href="http://www.bloomberg.com/news/2013-12-21/japan-unveils-record-budget-even-as-abe-trims-new-bond-sales.html">record &yen;95.9 trillion</a> ($921 billion) &ndash; a prevarication, but more on that later. Social security outlays increase 4.8% based on the costs incurred by the aging population. Defense, stirred up by thorny entanglements with China, rises 2.9%, a breath-taking jump in defense spending for Japan. And public spending for new bridges to nowhere, needless river embankments, and other worthy projects, some for the Tokyo Olympics, soars by 12.9% to nearly &yen;6 trillion.</p> <p>These endless fish-barrel projects have failed to cure the wheezing economy over the last two decades, but hey, that&rsquo;s no reason to stop them now! They&rsquo;re essential gifts for Japan Inc. and political cronies.</p> <p>So the <a href="http://asia.nikkei.com/Politics-Economy/Economy/Japanese-budget-s-debt-dependence-seen-falling-to-43">hype apparatus</a> kicked in and claimed with fanfare that the government would need to issue only &yen;41.25 trillion in new bonds, thus borrowing 43% of the total outlays, down from the current fiscal year&rsquo;s &ldquo;initial&rdquo; budget, which had foreseen new bond issuance to cover 46% of total outlays.</p> <p>But the shenanigans rolled into this conclusion could take your breath away, if you still had any left, after looking at these numbers.</p> <p>Every year, the government passes between one and four &ldquo;supplementary budgets,&rdquo; or stimulus packages, paid for with borrowed money. For example, in the current fiscal year, the initial budget was &yen;92.6 trillion. After a &yen;10.3 trillion &ldquo;supplementary budget&rdquo; was tacked on, the first Abenomics budget hit a record &yen;102.9 trillion.</p> <p>Same thing in fiscal 2014. With an elegant Abenomics twist. A supplementary budget of &yen;5.5 trillion already made it through the system &ndash; the Japanese don&rsquo;t dilly-dally around with their stimulus packages. Ironically, it is supposed to counteract the impact of the consumption tax hike, effective April 1. Last time Japan jacked up the consumption tax, it triggered a buying spree beforehand and a long recession afterwards. This time, the tax hike is expected to extract &yen;4.5 trillion in revenue from the unwilling Japanese. All of it, plus &yen;1 trillion, will be paid to recipients of the &ldquo;supplementary budget.&rdquo; Robbing Peter to pay Paul.</p> <p>This &ldquo;supplementary budget&rdquo; of &yen;5.5 trillion and the initial budget of &yen;95.9 trillion bring total outlays to &yen;101.4 trillion. The elegant Abenomics twist? Timing has been re-engineered to where the supplementary spending is accounted for in fiscal 2014, but the bonds to pay for it are issued in the current fiscal year, which no one looks at anymore, and where they dissipate into oblivion. Abracadabra. Sudden signs of improvements!</p> <p>In reality, of the total outlays of &yen;101.4 trillion, part of it will be covered by tax revenues of an estimated &yen;50 trillion &ndash; the highest since 2007, hallelujah. The rest, &shy;&yen;51.4 trillion, will be paid for with borrowed money.... 50.7% of every yen spent will be borrowed, not the ludicrous 43% the government is trying to get their holiday-bedazzled people and everyone else around the world to swallow.</p> <p>Worried, moi? Ha! The Bank of Japan will take care of it!</p> <p>In its perfectly orchestrated manner, the BOJ, at its board meeting just before the budget fiasco surfaced, <a href="http://www.bloomberg.com/news/2013-12-20/boj-keeps-policy-unchanged-as-fed-tapering-helps-weaken-yen.html">affirmed</a> its pledge to water down the yen 50% over two years by printing &yen;60 trillion to &yen;70 trillion per year and buying mostly government bonds with it.</p> <p>Out of the other side of its mouth, the BOJ keeps emphasizing relentlessly to an incredulous world that it is not, repeat not, monetizing the budget deficit in any way, shape, or form. It&rsquo;s just conducting monetary policy or something.</p> <p>How stupid do they think we are? Very, apparently. Because the Bank of Japandemonium is not only monetizing the entire deficit, but also part of the existing debt. It should just come out and admit it.</p> <p>I would certainly respect a smidgen of rare honesty from a central bank. It could say, for example, that it&rsquo;s going to monetize the deficit and the debt until much of the mountain of JGBs is securely piled up on its balance sheet. There, it can gradually go to hell because one way of dealing with it would be a controlled slow default under the guise of &ldquo;monetary policy.&rdquo;</p> <p>The goal would be to create as little havoc as possible while spreading the losses as widely as possible. The older generation, the assiduous savers that greatly benefited from the deficit-funded welfare system, would get hit the hardest. The BOJ should just come out and say that.</p> <p>It could simply admit what everyone already knows: after decades of living off borrowed money, and with still no plan in sight for addressing the problem, and no willingness by anyone to pay for more than half of what the government spends, there simply aren&rsquo;t any good solutions left. And if that quadrillion yen in public debt &ndash; which pension funds, banks, individuals, and mega-bondholders like government-owned <a href="http://www.testosteronepit.com/older-econ-rumblings/2013/10/22/japan-post-bumbles-toward-ipo.html">Japan Post</a> carry as assets on their books &ndash; is in the process of getting watered down, so be it.</p> <p>To mollify our fears, it should further admit that, by buying every government bond that isn&rsquo;t nailed down, it controls the entire JGB market, and it won&rsquo;t allow yields to spike &ndash; which is key; a spike in yields could topple its precarious construct in one fell swoop.</p> <p>Japan&rsquo;s new economic religion of printing itself out of trouble works. For the elite. This is a lesson learned from the Fed. But how are workers and consumers faring? And by implication the real economy? Read.... <a href="http://www.testosteronepit.com/home/2013/11/29/this-inflation-is-supposed-to-be-good-for-japanese-workers.html">This Inflation Is Supposed To Be GOOD For Japanese&nbsp;Workers?</a></p><p><a href="http://www.businessinsider.com/no-money-no-problem-bank-of-japandemonium-takes-care-of-it-2013-12#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/fear-and-trembling-in-muni-land-2013-12 Why Investors Are Fleeing Muni Bonds At Record Rates http://www.businessinsider.com/fear-and-trembling-in-muni-land-2013-12 Mon, 16 Dec 2013 12:23:00 -0500 Wolf Richter <p><img style="float:right;" src="http://static2.businessinsider.com/image/52af36f069bedd173b43dd65-1200-924/puerto-rico-10.jpg" border="0" alt="puerto rico" /></p><p>Municipal bond investors, a conservative bunch who want to avoid rollercoaster rides and cliffhangers, are getting frazzled. And they&rsquo;re bailing out of muni bond funds at record rate, while they still can without losing their shirts. So far this year, they have yanked out $52.8 billion. In the third quarter alone, as yields were soaring on the Fed&rsquo;s taper cacophony and as bond values were swooning, net outflows from muni funds reached $32 billion, which according to&nbsp;<a href="http://www.reuters.com/article/2013/12/15/us-usa-municipals-outlook-analysis-idUSBRE9BE06R20131215">Thomson Reuters</a>, was more than during any&nbsp;<em>whole year</em>.</p> <p>Muni investors have a lot to be frazzled about. Municipal bonds used to be considered a safe investment &ndash; though that may have been propaganda more than anything else. Munis are exempt from federal income taxes, hence their attractiveness to conservative investors in high tax brackets. Munis packaged into bond funds appealed to those looking for a convenient way to spread the risk over numerous municipalities and states. While the Fed was repressing rates, muni bond funds were great deals.</p> <p>Then came the bankruptcies.</p> <p>The precursor was Vallejo, CA, a Bay Area city of 115,000 that filed for Chapter 9 bankruptcy protection in 2008 and emerged two years ago. But it&rsquo;s already struggling again with soaring pension costs that had been left untouched. Jefferson County, which includes Alabama&rsquo;s largest city, Birmingham, filed in 2011 when it defaulted on $3.1 billion in sewer bonds, the largest municipal bankruptcy at the time [but it&rsquo;s&nbsp;<em>already</em>&nbsp;issuing new bonds; read.....&nbsp;<a href="http://www.testosteronepit.com/home/2013/11/16/municipal-bankruptcy-why-not-and-so-the-floodgates-open.html">Municipal Bankruptcy? Why Not! And so The Floodgates&nbsp;Open</a>].</p> <p>Stockton, CA, filed in June 2012. Mammoth Lakes, CA, filed in July 2012. San Bernardino, CA, filed in August 2012. They were dropping like flies in the &ldquo;Golden State.&rdquo; Detroit filed in July this year, crushing all prior records with its debt of up to $20 billion. That&rsquo;s $28,000 per person for its population of 700,000.</p> <p>But Detroit is just a fraction of what is skittering toward muni investors: the Commonwealth of Puerto Rico. The&nbsp;<a href="http://www.census.gov/prod/2013pubs/acsbr12-01.pdf">poverty rate</a>&nbsp;is 45.6%.&nbsp;<a href="http://data.bls.gov/timeseries/LASST43000003">Unemployment</a>&nbsp;is 14.7%. The economy has been in recession since 2006. The labor force has shrunk 16% from 1.42 million in 2007 to 1.19 million in October. The number of working people, over the same period, has plunged from 1.8 million to 1.1 million, a breathtaking 39%.</p> <p>Puerto Rico had a good run for decades as federal tax breaks lured Corporate America to set up shop there. But when these tax breaks were phased out by 2005, the companies went in search for the greener grass elsewhere. To keep splurging, the government embarked on a borrowing binge that left the now lovingly named &ldquo;Greece of the Caribbean&rdquo; with nearly&nbsp;<a href="http://online.barrons.com/article/SB50001424052748704719204579022892632785548.html">$70 billion in debt</a>.</p> <p>That&rsquo;s 70% of GDP, and for its population of 3.67 million, about $19,000 per capita, or about $64,000 per working person. And then there is the underfunded pension system. But unlike Detroit, Puerto Rico is struggling to address its problems with unpopular measures, raising all manner of taxes and cutting outlays. Not even the bloated government payrolls have been spared. Too little, too late? Given the enormous poverty rate and long-term shrinking employment, what are the chances that this debt will blow up?</p> <p><em>Pretty good</em>, according to Moody&rsquo;s Investors Service. Last week, it put $52 billion of Puerto Rico&rsquo;s debt under review for a downgrade &ndash;&nbsp;<a href="http://www.bondbuyer.com/issues/122_238/moodys-review-of-puerto-rico-pressures-island-to-sell-bonds-soon-1058192-1.html">to junk</a>. Moody&rsquo;s litany of factors: &ldquo;Failure to access the public debt market with a long-term borrowing, declines in liquidity, financial underperformance in coming months, economic indicators in coming months that point to a further downturn in the economy, inability of government to achieve needed reform of the Teachers&rsquo; Retirement System.&rdquo; This followed a similar move by Fitch Ratings in November.</p> <p>Alas, Puerto Rico has swaps and debt covenants with collateral and acceleration provisions that kick in when one of the three major credit ratings agencies issues the threatened downgrade. Which &ldquo;could result in liquidity demands of up to $1 billion,&rdquo; explained Moody&rsquo;s analyst Lisa Heller. It would &ldquo;significantly narrow remaining net liquid assets.&rdquo;</p> <p>Now Puerto Rico is under pressure to show that over the next three months or so it can still access the bond markets at a&nbsp;<em>reasonable</em>&nbsp;rate. If not....</p> <p>Puerto Rico&rsquo;s debt was a muni bond fund favorite because it&rsquo;s exempt from state and federal taxes. Now fears of a default on $52 billion or more in debt are cascading through the $3.7 trillion muni market. But Puerto Rico isn&rsquo;t alone. Numerous municipalities and some states have ventured out on thinner and thinner ice.</p> <p>Default risks are dark clouds on the distant horizon or remain unimaginable beyond the horizon. And hopes that disaster can be averted by a miracle still rule the day. However, the Fed&rsquo;s taper cacophony is here and now, and though the Fed is still printing money and buying paper at full speed, the possibility that it might not always do so hangs like a malodorous emanation in the air.</p> <p>Taper talk and bankruptcies are a toxic mix for munis. Now add the lure of stocks that have become the official risk-free investment vehicle with guaranteed double-digit rates of return for all years to come. So muni-fund investors, tired of losing money, are seeking refuge in stocks. This has pressured munis further. The Bank of America Merrill Lynch master municipal index has dropped 2.8% and, unless a miracle happens, will end the year in the red. A first since 2008. Its index of bonds with maturities of at least 22 years has skidded almost 6% &ndash; though the Fed hasn&rsquo;t even&nbsp;<em>begun</em>&nbsp;to taper.</p> <p>The Fed&rsquo;s easy money policies over the decades encouraged borrowing binges by municipalities and states. When the hot air hissed out of history&rsquo;s greatest credit bubble in 2008, the Fed&rsquo;s remedy, its ingenious QE and zero-interest-rate policies, blew an&nbsp;<em>even greater</em>&nbsp;credit bubble &ndash; kudos! As that credit bubble transitions from full bloom to whatever comes afterwards, the associated asset bubbles too transition. And the plight of muni bond funds is just the beginning.</p> <p>The Fed&rsquo;s policies of dollar destruction took on a sudden virulent form in 1970 &ndash; clearly visible against the Swiss Franc. And it&rsquo;s&nbsp;<em>still</em>&nbsp;going on. When even the Swiss couldn&rsquo;t handle it anymore, they too jumped into the currency war. Read....<strong>&nbsp;</strong><a href="http://www.testosteronepit.com/home/2013/12/12/mother-of-all-currency-wars-in-one-chart-dollar-vs-swiss-fra.html">Mother Of All Currency Wars in One Chart: Dollar Vs. Swiss&nbsp;Franc</a></p> <p><strong>Read more posts on <a href="http://www.testosteronepit.com/">Testosterone Pit &raquo;</a></strong></p><p><a href="http://www.businessinsider.com/fear-and-trembling-in-muni-land-2013-12#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/eu-citizenship-goes-on-sale-price-war-breaks-out-2013-11 EU Citizenship Goes On Sale, And A Price War May Follow http://www.businessinsider.com/eu-citizenship-goes-on-sale-price-war-breaks-out-2013-11 Thu, 14 Nov 2013 13:49:00 -0500 Wolf Richter <p><img style="float:right;" src="http://static6.businessinsider.com/image/52851ab7ecad04375a4164e5-480-/valletta.jpg" border="0" alt="Valletta malta" width="480" /></p><p>The huddled masses yearning to breathe free in the European Union drown by the boatload in the Mediterranean. They languish behind bars in detention centers in Greece and elsewhere. They&rsquo;re maligned, hounded, deported if possible, and sometimes killed. But it&rsquo;s getting cheaper and easier for the rich.</p> <p>The path to residency and eventual citizenship has always been paved with money. The more money, the smoother the path. But now in the EU, citizenship (and a passport, one of the most prized in the world) is moving into the realm of not only the super-rich but the run-of-the-mill well-off. EU citizenship has become just another product that strung-out debt-crisis countries can sell in a competitive market by undercutting each other. And Malta just started a price war.</p> <p>The tiny EU member with a&nbsp;<a href="https://www.gov.mt/en/About%20Malta/Maltese%20Islands/Pages/The-Maltese-Islands.aspx">population</a>&nbsp;of 417,000 spread over three islands lies 50 miles south of Sicily, 175 miles east of Tunisia, and a little over 200 miles north of Libya. It&rsquo;s convenient for foreigners, with English being one of the two official languages.</p> <p>If you&rsquo;re from Russia or China or Venezuela or Mali and become a citizen of one of the 28 EU countries, you&rsquo;ll get a country-specific EU passport, which allows you to establish residency and do business anywhere in the EU. Large international money transfers are less of a hassle. There are all sorts of offshore benefits. And travel around the world is a breeze.</p> <p>But EU citizenship, though a hot product for those who don&rsquo;t have it, is not normally considered for sale. You have to invest lots of money in your chosen country. Every country has its own priorities: in Hungary, iffy government bonds; in Ireland, public projects such as education; in Portugal, property. These investments will make you eligible for residency, after which you may or may not be able to get citizenship, similar to programs available in the US.</p> <p>In Austria, where citizenship is almost impossible to get for normal foreigners, the super-rich<a href="http://www.dw.de/citizenship-for-sale/a-16756198">are sought after</a>. The government, through paragraph 10, section 6 of the Citizenship Act, can confer citizenship &ldquo;because of the services already provided by the foreigner and the extraordinary achievements still to be expected of him in the special interest of the Republic.&rdquo; A Saudi hotel investor and the Russian singer Anna Netrebko reportedly received Austrian citizenship (and passport) in this manner. Few succeed: none in 2012 and only 23 in 2011.</p> <p>But nowhere in the EU could you actually just go and buy citizenship off the shelf.</p> <p>Cyprus got close. In 2012, as it was veering toward bankruptcy, it offered citizenship through a&nbsp;<a href="http://www.fbscyprus.com/?pageid=631">&ldquo;fast-track&rdquo; scheme</a>&nbsp;to anyone willing to plow at least &euro;10 million in direct investment into the country, which is a lot of money for the average rich guy, just to get a travel document and EU residency. There were also some other onerous criteria, and it wasn&rsquo;t seen as a good deal.</p> <p>By April 2013, Cyprus was desperate. Depositors in its collapsed banks were treated to high and tight haircuts. Its offshore financial industry, the mainstay breadwinner, had cratered. Cyprus needed money badly. So President Nikos Anastasiades, in office for only a couple of months, announced that&nbsp;<a href="http://www.telegraph.co.uk/finance/financialcrisis/9993610/Cyprus-offers-passport-to-big-foreign-investors.html">the price of citizenship</a>&nbsp;would be slashed to &euro;3 million, but it would still be tied to investment in Cyprus. It was in part an olive branch he held out to Russians who&rsquo;d stashed their money in the cesspools of corruption that were the Cypriot banks: they too would be eligible for citizenship if they&rsquo;d lost at least &euro;3 million.</p> <p>But that era of tying citizenship to investment and residency is now over in the EU. Malta put it up for sale at 78% off! And you can buy it off the shelf and leave.</p> <p>The Parliament of Malta&nbsp;<a href="http://www.telegraph.co.uk/news/worldnews/europe/malta/10445966/Malta-offers-EU-citizenship-to-anyone-with-650000-euros.html">passed legislation</a>&nbsp;that set the price for Maltese citizenship at &euro;650,000 for any non-EU applicant. It&rsquo;s not linked to any residency or investment requirements. People can just come by, jump through some minor hoops, pay, get their citizenship and passport, and then settle in Germany or wherever. Simon Busuttil, leader of the opposition Nationalist Party, warned that Malta could end up being compared to shady tax havens in the Caribbean.</p> <p>Prime Minister Joseph Muscat admitted that the deal was designed to sell the product. Malta is struggling. It needs the money. He claimed that about 45 people would end up buying citizenship during the first year, for about &euro;30 million in revenues.</p> <p>No big deal?&nbsp; Henley and Partners, an international consulting group, was awarded the contract to run the program. The firm&nbsp;<a href="https://www.henleyglobal.com/">specializes</a>&nbsp;&ldquo;in residence and citizenship planning,&rdquo; for &ldquo;wealthy individuals and families, as well as their advisors worldwide.&rdquo; CEO Eric Major claimed that the program would be transparent. But unlike the Prime Minister, Mr. Major estimated that Malta would sell between 200 and 300 citizenships per year. Hence, at the upper range, nearly &euro;200 million in annual revenues &ndash; not bad for a little bit of paperwork. And a lot of money for such a small place.</p> <p>And if the product really takes off? The price point is advantageous, given what Cyprus charges, and there are hundreds of millions of well-to-do but not super-rich Chinese, Indians, and others who would like to establish an escape route. This could be Europe&rsquo;s next big thing. It could be HUGE!&nbsp;</p> <p>But it&rsquo;s competitive out there, as Cyprus found out. The Maltese government said that other EU countries were also considering the outright sale of citizenship. This can mean only one thing: downward pressure on prices.</p> <p>Will Greece offer citizenship for &euro;599,000 each? Perhaps,&nbsp;<em>no questions asked</em>, to be even more competitive? It&rsquo;s going to be what the bailout Troika and everyone else have been looking for: a phenomenally profitable export product with minuscule input costs and unlimited potential. If it sold 1 million citizenships over the next three years at this price, it would be able to pay off&nbsp;<em>all</em>&nbsp;its debts, bail out its banks properly, allow politicians and tycoons to syphon off &euro;100 billion for personal gain, and still have some cash left to buy some German tanks and frigates. Debt crisis solved!</p> <p>Unless Slovakia jumps in and cuts the price to &euro;399,000 a piece....</p> <p>Despite a miraculous economic &ldquo;recovery,&rdquo; EU-wide youth unemployment hit 24%.&nbsp;New records were set in Spain (56.5%), Greece (57.3%), and other countries. The warnings from history are clear: governments that allow youth unemployment to escalate, do so at their own peril. Read.... &nbsp;<a href="http://www.testosteronepit.com/home/2013/11/9/no-country-for-young-men.html">No Country For Young&nbsp;Men</a></p> <p><strong>Read more posts on <a href="http://www.testosteronepit.com/">Testosterone Pit &raquo;</a></strong></p><p><a href="http://www.businessinsider.com/eu-citizenship-goes-on-sale-price-war-breaks-out-2013-11#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/american-boondoggle-meets-chinese-methods-2013-10 California's Attempt To Buy Green Jobs From Shenzhen Is Backfiring http://www.businessinsider.com/american-boondoggle-meets-chinese-methods-2013-10 Mon, 28 Oct 2013 16:57:00 -0400 Wolf Richter <p><img style="float:right;" src="http://static3.businessinsider.com/image/526ece3eecad04ff7e237803-480-/byd-california-stella-li.jpg" border="0" alt="byd california stella li" width="480" /></p><p>Arnold Schwarzenegger, when he was Governor of California, used to go on begging missions to China; the state was running out of moolah, and he was trying to round up some investments (this year, it&rsquo;s Gov. Jerry Brown&rsquo;s turn). What they got was Shenzhen-based BYD, in which our favorite Uncle Warren Buffett, via Berkshire Hathaway, quickly took a 9.9% stake in 2009.</p> <p>A deal was&nbsp;<a href="http://www.dailynews.com/general-news/20100430/officials-cap-an-18-month-push-by-landing-automakers-us-headquarters">announced</a>&nbsp;in April 2010, after 18 months of begging. BYD would set up its North American headquarters in Los Angeles. It would build a manufacturing plant for solar panels, electric batteries, and electric cars nearby. It would employ 150 people in the first year and could hire up to 2,000 more people in the following years. It would spend $100 million on construction and create 1,600 construction jobs. And taxpayers would cough up massive subsidies.</p> <p>&ldquo;With all that Los Angeles was offering, it was hard to refuse coming here,&rdquo; BYD Chairman and billionaire founder Wang Chuan-fu gloated at the press conference. Schwarzenegger hyped California&rsquo;s &ldquo;market-friendly energy and environmental policies&rdquo; and smiled victoriously. &ldquo;This is just the start,&rdquo; added L.A. Mayor Antonio R. Villaraigosa. &ldquo;BYD will be creating the high-paying green-collar jobs that we want....&rdquo;</p> <p>Today, BYD&rsquo;s headquarters is in a refurbished building in downtown L.A. The manufacturing site in Lancaster, a suburb of L.A., is an RV plant that had been closed. Nothing was built. &ldquo;The plant is still mostly vacant save for a small number of local workers,&rdquo; reported the&nbsp;<a href="http://www.nytimes.com/2013/10/26/us/chinese-company-falling-short-of-goal-for-california-jobs.html?_r=0">New York Times</a>. And &ldquo;three engineers from China were working to install factory equipment.&rdquo; In total, fewer than 40 people are working for BYD in California &ndash; and even fewer Americans. What&nbsp;<em>has</em>&nbsp;come to California are BYD&rsquo;s Chinese workers, and they got paid $1.50 per hour, plus a $50/day allowance.</p> <p>&ldquo;You cannot pay people in Chinese dollars with Chinese standards while they are doing work in America,&rdquo; state labor commissioner Julie Su told the&nbsp;<em>Times</em>. &ldquo;If this is the tip of the iceberg, you could see this ruining all kinds of industries.&rdquo;</p> <p>After an investigation, BYD was fined $99,245 for, among other things, minimum wage violations and failure to provide workers&rsquo; comp insurance. &ldquo;Workers in this kind of underground economy may not know what their rights are,&rdquo; Su pointed out. &ldquo;It doesn&rsquo;t matter where a company is based, if an employee is working here, the company has to abide by California law when they&rsquo;re doing work in California. In no scenario is it permissible to cycle people through to get around our state&rsquo;s laws.&rdquo;</p> <p>But BYD&rsquo;s Chinese execs didn&rsquo;t seem to think so. They said they&rsquo;d appeal the citation, as the&nbsp;<em>Times</em>&nbsp;put it, &ldquo;arguing that Chinese workers here on legal work visas are not subject to state labor laws, including the minimum wage.&rdquo;</p> <p>BYD has signed contracts this year to&nbsp;<a href="http://www.bloomberg.com/news/2013-08-04/buffett-backed-byd-seeks-u-s-electric-bus-sales-as-shares-surge.html">supply 35 K9 battery-powered electric buses</a>&nbsp;to Long Beach and Los Angeles. $40 million are at stake. BYD is also testing a bus in Manhattan. Currently, it builds these buses in China. But the contracts stipulate that the buses meet &ldquo;Buy America&rdquo; procurement guidelines: final assembly must be in the US, and US content,<em>at least on paper</em>, must be 60% of the cost of the bus. &nbsp;</p> <p>At the end of April, BYD announced with fanfare that it would build the buses and the iron-phosphate batteries that power them in Lancaster, starting May 1. It might employ a few dozen people. &ldquo;We are starting small,&rdquo; said Stella Li, BYD senior vice president. The&nbsp;<a href="http://online.wsj.com/article/SB10001424127887324743704578442712560522402.html">Wall Street Journal</a>&nbsp;noted at the time: &ldquo;But the benefits of BYD&rsquo;s move will be immediate, allowing it to sell its buses to local transit companies at a huge discount &ndash; with the federal government picking up the rest of the tab.&rdquo;</p> <p>Taxpayers are digging deep into their pockets to support the arrangement: Federal grants for zero-emission buses and other Federal and California subsidies cover up to 80% of the cost of the buses. BYD spokesman Michael Austin admitted that subsidies were &ldquo;one of the main motivations&rdquo; behind the deal.</p> <p>It&rsquo;s not like there isn&rsquo;t already an American company eager to sell electric buses: South Carolina-based&nbsp;<a href="http://www.proterra.com/index.php">Proterra</a>, which has buses operating in a number of American cities, wanted to bid on the deal but didn&rsquo;t get very far.</p> <p>BYD already has a stellar record. In order to finagle the Long Beach deal, BYD had claimed that it &ldquo;had already deployed several buses within the US &ndash; particularly to Apple in Cupertino and Hertz in Los Angeles,&rdquo; the&nbsp;<a href="http://lbpost.com/news/2000001932-after-deferring-voting-long-beach-transit-board-to-discuss-purchase-of-electric-buses">Long Beach Post</a>&nbsp;reported in March. However, the paper checked with &ldquo;several Apple and Hertz executives&rdquo; and found that &ldquo;the claims BYD presented to Long Beach Transit are false.&rdquo; BYD also&nbsp;<a href="http://lbpost.com/business/2000001998-lbt-recommended-china-based-bus-company-below-expectations">appears to have fabricated claims</a>&nbsp;of units in service in Milan and Holland.</p> <p>And there are performance shortcomings. A Chinese-made BYD bus did a trial run for Hertz in L.A. last December. &ldquo;The company&rsquo;s state-of-the-art electric buses provide a range of over 155 miles on a single charge, BYD claimed on its&nbsp;<a href="http://www.byd.com/na/news/news-158.html">website</a>. That&rsquo;s important because recharging the thing takes three to four hours. However, the results of the Hertz trial that the<a href="http://lbpost.com/business/2000001998-lbt-recommended-china-based-bus-company-below-expectations">Long Beach Post</a>&nbsp;obtained showed that the bus actually had a range of only 123 miles, without using heating or air conditioning. &ldquo;On a hot day with a full passenger load, the bus performance would actually result in about a 65 mile range.&rdquo;&nbsp;<em>Less than half</em>&nbsp;the claimed range!</p> <p>The bus is also way overweight due to the massive battery &ndash; so overweight that it would take a toll on streets and raise maintenance costs, according Long Beach&rsquo;s Chief Traffic Engineer, David Roseman &ndash; a problem that had been known since&nbsp;<em>before</em>&nbsp;the contract was signed, but Long Beach Transit officials had swept it under the rug.</p> <p>Then there was the debacle of testing the bus for efficiency and structural soundness at the federal&nbsp;<a href="http://www.altoonabustest.com/">Altoona Bus Research and Testing Center</a>&nbsp;in Pennsylvania. With no American-made bus available, BYD had a Chinese-made bus tested there. By July 12, after six of the 17 tests, and after about 2,600 miles, visible cracks appeared above the rear door. BYD yanked the bus out of the testing program and&nbsp;<a href="http://lbpost.com/place/transit/2000002773-lb-transit-faces-new-challenges-with-chinese-electric-bus-procurement">claimed</a>&nbsp;that the problem was due to crummy welding, rather than a design flaw.</p> <p>Now somewhat leery, Long Beach Transit decided to have an American-made bus, when available, tested at Altoona before completing the purchase of its ten buses. This pushed the completion date &ndash; originally January 2014 &ndash; to January 2015.</p> <p>When Long Beach Transit inspectors headed to China to inspect the buses, they &ldquo;discovered &lsquo;unacceptable&rsquo; issues with the bus frames, including &lsquo;improper bracket installation&rsquo; on the bus sidewalls and roof assemblies and inconsistencies with steel subassemblies on the chassis, according to a staff report,&rdquo; the&nbsp;<a href="http://lbbusinessjournal.com/long-beach-business-journal-newswatch/1836-long-beach-transit-staff-finds-problems-with-new-zero-emission-bus-frames-at-chinese-factory.html">Long Beach Post</a>&nbsp;reported on October 8.</p> <p>The company promised that it would put 20 engineers to work to figure out what to do about the flawed frame before the first bus for Long Beach Transit would be built. Turns out, that wasn&rsquo;t true either, as the paper found out: &ldquo;A staff report indicates that the frame for LBT&rsquo;s pilot bus has already been built and inspected.&rdquo;</p> <p>BYD stands for &ldquo;Build Your Dream.&rdquo; And maybe that&rsquo;s what they&rsquo;re trying to do in China. But here they&rsquo;re building a nightmare, lushly funded by hapless American taxpayers &ndash; and they paid Chinese workers in California $1.50 per hour to do it. Next time Gov. Brown and et al. go on begging missions to China, they need to keep that in mind.</p> <p>Consumer spending hasn&rsquo;t exactly been hot. With one big exception: auto sales. At 20% of total retail sales, they&rsquo;ve been phenomenal and propped up overall retail sales. But in September, there was a downdraft. The calendar got blamed. And in October, there was the government shutdown and debt-ceiling debacle. And now all bets are off. Read....&nbsp;<a href="http://www.testosteronepit.com/home/2013/10/25/last-hope-for-holiday-shopping-frenzy-the-few-who-can-splurg.html">Last Hope For Holiday Shopping Frenzy: The Few Who Can&nbsp;Splurge</a></p> <p><strong>Read more posts on <a href="http://www.testosteronepit.com/">Testosterone Pit &raquo;</a></strong></p><p><a href="http://www.businessinsider.com/american-boondoggle-meets-chinese-methods-2013-10#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/first-cracks-and-losses-in-the-insane-lbo-craze-2013-9 The First Cracks Appear In The Insane LBO Craze http://www.businessinsider.com/first-cracks-and-losses-in-the-insane-lbo-craze-2013-9 Thu, 26 Sep 2013 18:20:00 -0400 Wolf Richter <p><img style="float:right;" src="http://static2.businessinsider.com/image/5244b2caecad04514f8b456a-480-/sdfv07050fa2207911e3a1bd22000a9f1361_7.jpg" border="0" alt="rue21" width="480" /></p><p>It could be an aberration. Or it could be the first visible crack in the insane leveraged buyout craze that has spread across the country: JPMorgan, Bank of America, and Goldman Sachs could get hit with a combined loss of up to $156 million on the $780 million in junk debt they pledged to sell to fund the buyout of teen-fashion retailer rue21. With consequences for investors.</p> <p>Private Equity firm Apax Partners, which already owned 30% of rue21, had offered to buy the remaining shares for $1.1 billion, a 23% premium of where the shares traded before the announcement. It was in May, when the hot air had <em>just</em> started to hiss out of the junk bond bubble &ndash; and more ominously, out of the greatest debt bubble in history &ndash; after the Fed had begun to contemplate out loud the revolutionary concept that it might actually dare to taper what Wall Street had considered a taper-less &ldquo;QE Infinity.&rdquo;</p> <p>The 23% premium was a great deal for shareholders. They couldn&rsquo;t believe their eyes, and 99.7% of them approved the deal last week. But since May, the world has changed. Retailers, particularly teen retailers, have run into trouble as the excitement of a hot back-to-school season turned into a dud. Same-store sales at rue21 dropped 5.9%, earnings dropped too, and the bane of all retailers, inventories piled up. Meanwhile, the company continued at breakneck pace to open new stores around the country, now numbering 971, as it is trying to get to the magic 1,000 by the end of the year.</p> <p>The Fed&rsquo;s policies have accomplished a magnificent feat: turning conservative but desperate investors into &ldquo;high-yield&rdquo; investors &ndash; in quotes because the Fed at its peak performance managed to push yields on even risky junk bonds below 5%, a level that FDIC insured one-year CDs were paying during the halcyon days of the old normal, before QE, when &ldquo;high yield&rdquo; meant something in the double digits. And these conservative but desperate investors, hunting down yield in reasonable places without finding any, closed their eyes and held their noses and picked up this stuff and gorged on it, and drove down yields even further.</p> <p>But since May, investors have begun to open their eyes just a teeny bit, and some let go of their noses, and yield on junk debt has been rising since. This rue21 debt was the first that actually turned investors off. Suddenly, they&rsquo;d smelled junk.</p> <p>JPMorgan, BofA, and Goldman had tried to sell $530 million of that stuff last month but failed. So now they&rsquo;re trying again, &ldquo;according to people familiar with that matter,&rdquo; the <a href="http://online.wsj.com/article/SB10001424052702304795804579097621957079650.html">Wall Street Journal</a> reported. To rid their books of the $780 million in debt, the banks are offering it at a discount of $0.80 to $0.85 on the dollar &ndash; and will have to eat the difference.</p> <p>If they dump it at the low end, they&rsquo;d receive $624 million, for a loss of $156 million. That the banks are even contemplating such a loss, rather than keeping that crap hidden in their basements, while waiting for sunnier days, exposes their thinking:</p> <p>One, new banking regulations require that banks maintain higher capital reserves against risky paper of this type, raising the costs of holding it, and giving the banks an incentive to unload it.</p> <p>Two, the banks estimate that the value of the debt will continue to go south, as rue21, teetering under its load of debt, will run into rough waters, given the dreary retail environment in the US.</p> <p>And three, the banks are seeing that more hot air, despite the current reprieve, will hiss out of the junk debt market, and more generally out of the greatest debt bubble in history, and that dumping that debt now might produce a smaller loss for the banks&nbsp; than dumping it at a later date. This vision would be another signal for investors around the world to buckle their seatbelts.</p> <p>The LBO and junk-debt craze was ignited by the nearly $3 trillion the Fed printed since the financial crisis. Recipients include JPMorgan, now negotiating to settle various mortgage scams for $11 billion; it made $53.2 billion in profits over the last three years. But American consumers weren&rsquo;t so lucky. And Wal-Mart shoppers have been hit the hardest &ndash; with more retail woes to come. Read.... <a href="http://www.testosteronepit.com/home/2013/9/25/wal-mart-shoppers-clobbered-by-fed-policies-warren-buffett-a.html">Wal-Mart Shoppers Clobbered By Fed Policies, Warren Buffett And His Ilk Thank The&nbsp;Fed</a></p><p><a href="http://www.businessinsider.com/first-cracks-and-losses-in-the-insane-lbo-craze-2013-9#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/broke-italy-would-love-to-but-cant-pay-its-bills-this-year-2013-7 Italy Is Strangling Businesses And Fudging Numbers To Avoid Crossing A Deficit Limit http://www.businessinsider.com/broke-italy-would-love-to-but-cant-pay-its-bills-this-year-2013-7 Sun, 07 Jul 2013 08:21:00 -0400 Wolf Richter <p><img style="float:right;" src="http://static1.businessinsider.com/image/51d95d1f69beddd537000018-480-/3138588167_821abced4e_b.jpg" border="0" alt="victor emmanuel italy" width="480" /></p><p>In most countries, it would be an act of mind-bending chutzpah, or perhaps a display of political insanity, but in Italy it barely made ripples: for a government official, a minister no less, to declare that the country cannot pay its long overdue bills, and not for a month or two, but for the rest of this year! Due to "technical" problems.</p> <p>The Italian government is out of money. Not that the US government is in any better shape in that respect, or the Japanese government for that matter, but they have central banks that print the missing moolah with lavish abandon. Italy doesn't. It has the ECB which is run by an Italian who promised last year to print with lavish abandon to keep countries like Italy afloat. But that promise is not the same thing as having your own central bank.</p> <p>On July 4, Italy's budget fiasco <a href="http://www.istat.it/en/files/2013/07/quaterly_accounts_for_GG.pdf?title=Quarterly+accounts+for+General+Government+-+4+Jul+2013+-+Full+text.pdf">came to light</a> once again. Wracked by the pretense of austerity, expenditures <em>rose</em> 1.3% in the first quarter, while revenues remained flat. So the deficit rose to 7.3% of GDP, up from 6.6% last year, bringing the national debt to 130% of GDP. Ballooning debt and deficits in a shriveling economy &ndash; Italy has been in recession since the fourth quarter of 2011 &ndash; is a toxic combination in the Eurozone.</p> <p>How will Italy force its deficit under 3% of GDP, the line in the sand that would trigger the Eurozone&rsquo;s excessive deficit procedure? The government is desperately trying. Economy Minister Fabrizio Saccomanni <a href="http://www.milanofinanza.it/news/dettaglio_news.asp?id=201307031626544703">announced</a> that he&rsquo;d identified a1,600 &ldquo;unused&rdquo; properties that could be dumped. In the near term, this could haul in about &euro;600 million, he said, though former Prime Minister Mario Monti's plan to do that had run aground on the reefs of the declining property market.</p> <p>In any case, despite appearances to the contrary, "the trend of public finances in the first half is consistent with the achievement of a net deficit of 2.9%," he said. But &euro;600 million, if they materialize, would be a drop in the rusty Italian budget bucket. Much more would be needed.</p> <p>Hence, a eurocratic deus ex machina: Jos&eacute; Manuel Barroso, president of the European Commission, told the European Parliament on Wednesday that the budget rules would be <em>reinterpreted</em> for 2014 so that some public spending on infrastructure projects could be excluded from the deficit figures &ndash; something Italy has long pushed for in its valiant efforts to keep its deficit under 3%. If all else fails, monkey with the rules. Abracadabra.</p> <p>&ldquo;For countries with high levels of public debt,&rdquo; such as Italy, &ldquo;this will be of limited use in the short term,&rdquo; an EU official <a href="http://www.ft.com/intl/cms/s/0/862ded0e-e3d3-11e2-91a3-00144feabdc0.html">cautioned</a> to appease any remaining Germanic deficit hawks. But these kinds of details didn't stop Italian Prime Minister Enrico Letta from declaring victory. &ldquo;<a href="https://twitter.com/EnricoLetta/statuses/352332375415468033">We made it!</a>&rdquo; he tweeted triumphantly. It would give &ldquo;more flexibility in coming budgets for countries like Italy&rdquo; that had their &ldquo;accounts in order.&rdquo;</p> <p>What exactly he meant with &ldquo;accounts in order,&rdquo; given Italy&rsquo;s deficit and debt spiral, remains a mystery &ndash; particularly in light of the fact that it cannot even pay its past-due bills.</p> <p>Beppe Grillo, leader of the opposition 5-Star Movement, has long hammered on this point. In April, during the post-election interregnum, he&rsquo;d <a href="http://www.beppegrillo.it/2013/04/o_si_aiutano_le.html">clamored</a> for &ldquo;the immediate payment of about &euro;120 billion&rdquo; that the government and public entities owed the private sector.</p> <p>The government&rsquo;s refusal to pay its suppliers violates EU rules. But the EU has soft-pedaled the issue, for two <em>very</em> big reasons: payment of arrears would force Italy to sell a truckload of bonds when there might not be any demand; and it would push the deficit way beyond the 3% line in the sand. Thanks to cash accounting, only actual disbursements make it into the deficit figure. Italy has achieved its &ldquo;austerity&rdquo; goals by not paying its suppliers. Once again, abracadabra.</p> <p>But it&rsquo;s strangling businesses. So, paying a portion of those past-dues, namely &euro;40 billion, has been kicked around. Most recently, Renato Brunetta, leader of the House and member of Silvio Berlusconi&rsquo;s PDL party, demanded at a coalition meeting that payment be made by the end of the year. In a surrealist show of noble governance, Letta himself jumped into the fray and committed to pay those debts even faster &ndash; not in July or August, but sometime in the fall! Rousing applause!</p> <p>"I would love to" pay the past-due debt of the Public Administration by 2013, "but I don&rsquo;t know if it can be done," <a href="http://www.repubblica.it/economia/2013/07/04/news/zanonato_non_riusciamo_a_pagare_tutti_i_debiti_della_pa_nel_2013-62364732/">retorted</a> Economic Development Minister Flavio Zanonato the next morning. "It's not ill will, but there is a technical problem,&rdquo; he said. &ldquo;The government has removed the obstacle; now all the various sources of expenditure must take action to pay." They don&rsquo;t have the money, apparently. To say that it&rsquo;s difficult to pay the debts of the Public Administration is "obvious and true," he conceded.</p> <p>It would normally be an admission of default. But not for the Italian government. For them, it&rsquo;s just another illustration of a budget absurdity: staying by hook or crook on this side of the 3% line in the sand &ndash; even if it strangles companies and the economy and makes the deficit and debt spiral worse.</p> <p>Italy has become legendary about tax evasion, which is part of its budget absurdity. So now the G-8 wants to crack down. The first four items at the recent meeting dealt with the need for governments to share information to &ldquo;fight the scourge of tax evasion.&rdquo; If only their primary targets were multinationals, banks, and hedge funds. But they&rsquo;re going after the little guy. Read.... <a href="http://www.testosteronepit.com/home/2013/7/3/beware-the-borderless-tax-man-cometh.html">Beware, the Borderless Taxman&nbsp;Cometh</a></p><p><a href="http://www.businessinsider.com/broke-italy-would-love-to-but-cant-pay-its-bills-this-year-2013-7#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/argentine-inflation-its-tough-when-all-you-get-is-lies-2013-5 Argentina's Inflation Lies Are Getting More And More Absurd http://www.businessinsider.com/argentine-inflation-its-tough-when-all-you-get-is-lies-2013-5 Thu, 23 May 2013 08:30:02 -0400 Wolf Richter <p><img style="float:right;" src="http://static6.businessinsider.com/image/4d496d27ccd1d50447070000-400-300/1Cristina.jpg" border="0" alt="Argentina Cristina Kirchner" /></p><p>The issue of inflation is complex everywhere. Official rates are disputed. People can&rsquo;t reconcile them with what they see at the store. There are different formulas and data sets, resulting in different rates, and everyone picks and chooses what suits their needs.</p> <p>But nowhere is the issue as &ldquo;complex,&rdquo; infested with lies, and shrouded in obscurity as in Argentina.</p> <p>The debacle took on hilarious overtones when a Greek reporter, in her soft, harmless-looking manner, began to crucify Economy Minister Hernan Lorenzino during an interview at his office: &ldquo;I have a very simple question for you, which seems very complicated these days: how much is Argentine inflation at this moment?&rdquo;</p> <p>His response was an epic journey into obfuscation that got him entangled in such verbal spaghetti that the <a href="https://www.youtube.com/watch?v=EkHGLkCYnMY">video</a>, when it was released in April, went viral instantly. &ldquo;We never speak about inflation, not even with the Argentine media,&rdquo; an unseen aide explained after the minister had skedaddled.</p> <p>His jab at official inflation, however, was on target. The interview took place late last year. By April, inflation, as reported by the Instituto Nacional de Estadista, was 10.5%, down from 10.6% in March, and from 11.1% in January, its recent peak, nicely heading once again in the right direction, after having been below 10% for much of 2012.</p> <p>But it&rsquo;s a joke &ndash; though not nearly as hilarious as Lorenzino&rsquo;s verbal spaghetti.</p> <p>In early 2007, the staff at the statistical agency were booted out and replaced with political appointees who would toe the line on inflation and other inconvenient statistics. Since then, official inflation has been decided by edict.</p> <p>Private economists, brushing off these figures with a nervous smile, kick around 25% as the current annual inflation rate.</p> <p>Mid-May the government nodded. With elections coming up in October, President Cristina Fern&aacute;ndez de Kirchner has to hand some goodies to her base to buy their votes. So during the impeccably timed <a href="http://english.telam.com.ar/index.php?option=com_content&amp;view=article&amp;id=18396:the-govt-announced-24-wage-increase-agreements-with-six-labor-unions&amp;catid=37:economy" target="_blank">wage negotiations</a>, she personally met with leaders of six unions representing 2 million workers, and struck the same kind of deal she&rsquo;d made with the Railway and Bus Drivers&rsquo; unions, a deal that might get close to preserving purchasing power: wages would be increased by 24%! The closest to an official <em>and</em> somewhat realistic CPI that Argentina has.</p> <p>To pour some oil on the fire, Torcuato Di Tella University (UTDT) &ndash; a non-profit private university in Buenos Aires &ndash; publishes the <a href="http://www.utdt.edu/download.php?fname=_136906281428936900.pdf">Inflation Expectation Survey</a>. It measures what the public expects inflation to be over the next 12 months. For much of 2006, when the surveys began, median inflation expectation was 10%. The just-released index for April came in at 30%; and average inflation expectation rose from 34.2% to 34.9%.</p> <p>UTDT concedes that the public has a tendency to overestimate changes in consumer prices. Nevertheless, it&rsquo;s another ray of light in an obscure environment where the government has done its darnedest to replace any visibility with lies. Yet ordinary people, managers, and investors alike need to make decisions daily based on their understanding of inflation. And they&rsquo;re making those decisions &ndash; just not the way the government wants them to.</p> <p>The impact on the peso has been, let&rsquo;s say, noticeable. In 1999, when I first traipsed around Argentina, the peso was interchangeable with the dollar one-to-one. ATMs would distribute both, depending on the button you pushed. Quite impressive. But Argentina seemed expensive, compared to other Latin American countries. And the economy was bogging down. Something was amiss.</p> <p>The peso mirage ended in 2001, when people cleared out their bank accounts, converted pesos to dollars, and sent them overseas. To stop this torrent, the government froze all bank accounts; only small amounts of cash could be withdrawn. The people didn&rsquo;t accept this quietly, which led to the declaration of a state of emergency, and more riots. In January 2002, the government lifted the dollar-peso parity, and set an exchange rate of 1.4 pesos to the dollar. People with money still frozen at the bank had been robbed.</p> <p>And it never stopped. In early May on the black market, the peso fell through yet another floor: for the first time ever, it took over 10 pesos to buy a dollar. People have been scrambling to convert every peso they didn&rsquo;t need at the moment into dollar bills. The official exchange rate is 5.25 pesos to the dollar. But it too is a lie, for most people. In one of those ironies that follow reckless deceitful governance, the government is running out of dollars and few people can buy them at the official rate &ndash; though the country is awash in dollar bills.</p> <p>Since I write so much about financial fiascos, debacles, and nightmares, I&rsquo;ve been asked about ways to protect assets in this environment. Thankfully, I don&rsquo;t give financial advice. Even if I did, I wouldn&rsquo;t have all the answers. But I just finished reading an excellent book on precisely that topic, so I decided to review it. Read....&nbsp;<a href="http://www.testosteronepit.com/home/2013/5/19/diplomatic-immunity-for-your-assets-in-interesting-times.html">Diplomatic Immunity For Your Assets In Interesting&nbsp;Times!</a></p><p><a href="http://www.businessinsider.com/argentine-inflation-its-tough-when-all-you-get-is-lies-2013-5#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/luxembourg-is-not-the-next-cyprus-not-yet-but-2013-4 Luxembourg Is Not The Next Cyprus http://www.businessinsider.com/luxembourg-is-not-the-next-cyprus-not-yet-but-2013-4 Sat, 27 Apr 2013 06:53:00 -0400 Wolf Richter <p>The Grand Duchy of Luxembourg, with a population of just over half a million, smaller even than the other speck in the Eurozone, the Republic of Cyprus, ranks in the top three worldwide in per-capita GDP.</p> <p>In a <a href="http://www.testosteronepit.com/home/2013/4/9/total-fiasco-germans-are-the-poorest-cypriots-the-second-ric.html">Eurozone wealth survey</a>, it had the highest average household wealth &ndash; &euro;710,100. Only Cyprus, a former off-shore banking center in the Eurozone, came close.</p> <p>Yet Luxembourg is threatened with ruin.</p> <p>It has 141 banks &ndash; bank companies, not ATMs. One bank per 3,808 people. Most of them do private banking. The financial sector <a href="http://www.abbl.lu/useful-information/statistics/impact-financial-sector-luxembourg-economy">added 38%</a> to GDP in 2010 and contributed 30% to the country&rsquo;s tax revenues, according to the Luxembourg Bankers&rsquo; Association (ABBL). All due to bank secrecy and tax laws.</p> <p>But suddenly, after Cyprus had been massacred, Luxembourg buckled.</p> <p>With the big German guns, and the smaller guns from other nations, swinging in its direction, Luxembourg agreed to participate in an international automatic data-sharing arrangement that would send banking data of foreign clients to their countries, starting in 2015.</p> <p>Prime Minister Jean-Claude Juncker, somewhat defensively, <a href="http://www.lessentiel.lu/fr/economie/story/Apres-2015-la-moitie-des-banques-vont-fermer--20042475">proclaimed</a> that lifting bank secrecy wasn&rsquo;t such a big deal, that Luxembourg didn&rsquo;t live from tax evasion. For the banks, the &ldquo;lights won&rsquo;t go out in 2015,&rdquo; he said.</p> <p>During the entire Eurozone bailout debacle that he presided over until February as President of the Eurogroup, he&rsquo;d proven to be time and again an inveterate optimist.</p> <p>&ldquo;It&rsquo;s expected that only 60 to 70 banks will survive in the coming years,&rdquo; declared Alain Steichen, a prominent Luxembourgian tax lawyer, at a conference about the consequences of the data-sharing agreement. He should know. Per his <a href="http://www.bsp.lu/asteichen.html">online profile</a>, he &ldquo;assisted Thomson in the merger acquisition of <a class="hidden_link" href="http://www.businessinsider.com/blackboard/reuters">Reuters</a> in order to form Thomson Reuters, with the group&rsquo;s main holding location being Luxembourg.&rdquo; He also &ldquo;assisted Chase Manhattan in the merger acquisition of <a class="hidden_link" href="http://www.businessinsider.com/blackboard/jp-morgan">JP Morgan</a> in order to form their main holding company in Luxembourg.&rdquo; Yup, there are a lot of benefits to doing business through Luxembourg.</p> <p>Combine bank secrecy with nominee corporations to get a particularly juicy cocktail. An entire industry of &ldquo;fiduciaries&rdquo; has formed around the banks for that purpose. These accounting, audit, and law firms set up and maintain tax-advantaged nominee corporations, the infamous mailbox companies, whose directors and top executives are principals of the fiduciary firm. The client and the source of money remain anonymous to the outside world. A perfect setup for money laundering. Because the bank is doing business with a Luxembourg mailbox company, not a foreigner, and because the signatories are pillars of Luxembourg&rsquo;s society, the setup is impervious to the automatic data-sharing arrangement. But now mailbox companies too are under attack, not only in Europe, but also in the <a href="http://www.gfintegrity.org/content/view/611/70/">US Congress</a>.</p> <p>&ldquo;I expect a serious change of the banking landscape because there will be customer withdrawals,&rdquo; Alain Steichen explained. Some banks, he said, &ldquo;would lose the critical mass needed to survive.&rdquo;</p> <p>The private banks he was talking about managed &euro;300 billion in assets, generated &euro;3.14 billion in revenues, and contributed &euro;503 million in taxes, <a href="http://www.abbl.lu/sites/abbl.lu/files/wysiwyg/PB_Facts&amp;Figures_OCTOBRE_2012_V4-4.pdf">according to the ABBL</a>. They employ over 10,000 people directly and indirectly. Of the assets under management, 19% are from Luxembourg, the rest from other countries. Half of that system would disappear; the survivors would have to shrink.</p> <p>&ldquo;A large part of the clients of the Luxembourgian banks have undeclared money,&rdquo; Steichen pointed out. They wouldn&rsquo;t have a lot of options other than closing their accounts in Luxembourg, he said. They might repatriate their funds &ndash; and pay fees, taxes, and penalties &ndash; or transfer their funds to Singapore, Monaco, or other murky banking centers. Either way, these assets would leave Luxembourg. Their power to generate income, jobs, and tax revenues would evaporate.</p> <p>This &ldquo;undeclared money&rdquo; has been called &ldquo;black money&rdquo; in the battle over Cyprus, much of it from Russians. Northern Europe revolted against bailing out mailbox companies and their black-money bank accounts. While they were at it, Northern Europe, including France in this case, shut down the whole offshore machine, crippled the Cypriot economy, smashed its largest source of income and wealth, and demolished its business model. Encouraged by success, Northern Europe, now including the UK, swiveled its guns in direction of Luxembourg.</p> <p>Luxembourg was horrified. There were too many parallels between it and Cyprus &ndash; the mailbox companies, foreign black money, a bloated financial sector, high household wealth.... It was the era of austerity when pensions, wages, and social services were on the chopping block in other countries. Taxes were being jacked up, as in France, to an absurd degree. Belts were being tightened around the poor. So, tax evasion by the rich and not so rich has become an obvious target. Governments would crack down, not on their own tax dodgers, but more conveniently on countries whose business it was to help them.</p> <p>With 38% of GDP depending on the financial sector, Luxembourg could not risk a sudden &ldquo;transition&rdquo; to a new business model, &agrave; la Cyprus. Some of the banks could collapse in the process. It would cause a depression and shred the country&rsquo;s wealth. Instead, Luxembourg would cooperate, in return for a gradual transition, some loopholes, and a little wiggle room, knowing that the good times were over, and that on the other end of the spectrum, there&rsquo;d be the Cypriot scenario.</p> <p>Austerity in Spain succeeded in trimming the bloated government sector. But instead of picking up the slack, the private sector destroyed jobs almost four times faster! The hope is that this fiasco will <em>finally</em> reverse course, that something will click and start a virtuous cycle before the unspeakable happens. But so far, it has relentlessly gotten worse. Read.... <a href="http://www.testosteronepit.com/home/2013/4/25/the-spanish-unemployment-powder-keg.html">The Spanish Unemployment Powder&nbsp;Keg</a></p><p><a href="http://www.businessinsider.com/luxembourg-is-not-the-next-cyprus-not-yet-but-2013-4#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/from-tax-hell-to-tax-haven-2013-4 Americans Really Need To Stop Complaining About Taxes http://www.businessinsider.com/from-tax-hell-to-tax-haven-2013-4 Fri, 12 Apr 2013 01:05:00 -0400 Wolf Richter <p>Eurozone countries are falling like dominos.But bailouts&mdash;funded by taxpayers in other countries&mdash;keep banks from collapsing, governments from defaulting, and investors from incurring well-deserved losses.</p> <p>Bailout money that no one has. And so it's borrowed. Borrowing is pain free, and easier than collecting taxes. Until it&rsquo;s impossible. Hence a debt crisis.</p> <p>In the US, we talk about &ldquo;revenues&rdquo; instead of taxes. President Obama&rsquo;s budget is circulating, and it has that word in it, causing heart palpitations and conniptions left and right. But how do countries stack up against each other when it comes to taxes?</p> <p>In the graph below, the 34 countries of the OECD are ranked by the amount of taxes they collected from all sources in 2010&mdash;income, consumptions, assets, etc., at local and national levels&mdash;as a percent of GDP.</p> <p>Denmark, perched precariously at the top of the list, extracts nearly half of its GDP in taxes, followed by Sweden, followed by 10 of the 17 Eurozone countries&mdash;plus Hungary. We used to live in Belgium and can confirm that much of what you earn is taken. While it may be a tax haven of sorts for rich foreigners with unique tax problems who get taxed to death in their own countries, Belgium is a tough place for people who make and spend their money there!</p> <p>And there are disparities: France confiscates 42.9% of its GDP in taxes&mdash;and that was before a slew of tax increases were passed in 2012. Germany takes 36.1%. Yet, France&rsquo;s deficit is ballooning while Germany had a nearly balanced budget in 2012.</p> <p>The bailed-out debt-crisis countries are all in the lower tax-extraction category: Spain (32.3%), Portugal (31.7%), and Greece (30.9%)&mdash;Greeks at all levels, particularly independent professionals such as doctors and lawyers, and of course the elite, have figured out how to avoid paying taxes. Then there&rsquo;s Ireland (27.6%). Bailed-out Cyprus isn&rsquo;t on the list because it isn&rsquo;t a member of the OECD; in 1995, its application <a href="http://www.mfa.gov.cy/mfa/mfa2006.nsf/All/826CB014C0CDE8DEC22571B100229450">was vetoed by Turkey</a>. However, in 2010, <a href="http://www.testosteronepit.com/home/2013/4/9/total-fiasco-germans-are-the-poorest-cypriots-the-second-ric.html">Cyprus was the <em>second richest</em> country in the Eurozone!</a> With its 10% corporate income tax and other tax advantages, it would have one of the lower tax burdens.</p> <p>Alas, these five countries that have relatively low tax burdens now expect taxpayers in other countries&mdash;countries that have much higher tax burdens&mdash;to bail them out. Hapless taxpayers in Belgium, for example, are tasked to pay twice: once to keep their own governmental apparatus greased and to bail out their banks, such as <a class="hidden_link" href="http://www.businessinsider.com/blackboard/dexia">Dexia</a>; and a second time to bail out countries whose taxpayers refuse to do it themselves.</p> <p>The graph shows the ranking of the 34 OECD countries (data from the OECD via the <a href="http://ctj.org/ctjreports/2013/04/the_us_continues_to_be_one_of_the_least_taxed_of_the_developed_countries.php">Center for Tax Justice</a>). And who is near the very bottom?</p> <p><span class="full-image-block ssNonEditable"><span><img src="http://www.testosteronepit.com/storage/Taxes-Paid-per-GDP-OECD-countries.png?__SQUARESPACE_CACHEVERSION=1365629885128" border="0" alt="" /></span></span></p> <p>The biggest fiscal basket case of them all, the real one, the one that is blowing up in slow motion right now, Japan, whose gross national debt will exceed 240% of GDP by the end of this fiscal year, has given its people and companies a free ride for years. All manner of huge subsidies and handouts for Japan Inc. on top of a welfare state par excellence for the people add up to a majestic tab. The way they&rsquo;ve paid for much of the tab, given the relatively light tax burden of 27.6%: borrowed and printed money.</p> <p>Near the very bottom of the list, in third place, is the US (includes federal, state, and local taxes). Among OECD countries, only Mexico and Chile have a smaller tax burden. Over the last thirty years, taxes in the US have ranged from a high of 29.5% of GDP in 2000 (capital gains!) to a low of 24.2% in 2009. The noble rank of 32 out of 34 was first achieved in 2009, after a long uneven progression from 16 out of the then 24 OECD countries in 1979. If Congress could just hold spending down to that level! But that&rsquo;s the hard part. Cutting taxes, any idiot can do that.</p> <p>As the value of a Bitcoin soars and dives and soars and dives even more in mega-percentages, and as perfectly sane people wonder what the heck it is and then suddenly jump on the bandwagon with both feet, a computer security researcher and software developer pokes around in its ugly innards. Read.... <a href="http://www.testosteronepit.com/home/2013/4/9/bitcoin-bait-and-switch.html">Bitcoin:&nbsp;Bait-And-Switch?</a></p><p><a href="http://www.businessinsider.com/from-tax-hell-to-tax-haven-2013-4#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/fear-of-nuremberg-trials-for-corrupt-italian-politicians-2013-3 Italian Populists Threaten Nuremberg Trials For Corrupt Politicians http://www.businessinsider.com/fear-of-nuremberg-trials-for-corrupt-italian-politicians-2013-3 Tue, 05 Mar 2013 11:15:06 -0500 Wolf Richter <p><img style="float:right;" src="http://static6.businessinsider.com/image/513619c569bedd404e000000-400-/nuremberg-trials.jpg" border="0" alt="nuremberg trials" width="400" /></p><p>Former Italian senator Sergio De Gregorio confirmed over the weekend that he&rsquo;d been bribed by Silvio Berlusconi in 2006.</p> <p>&ldquo;The <em>Cavaliere</em> paid me,&rdquo; he told <a href="http://www.lastampa.it/2013/03/02/italia/politica/il-cavaliere-mi-pago-ho-deciso-di-parlare-perche-voglio-rinascere-1Qm6Q9FL1FpFwRmmADBphP/pagina.html">La Stampa</a> nonchalantly about the &euro;3 million he&rsquo;d received. &ldquo;Of course I took the money, as I clarified to the prosecutors,&rdquo; he said.</p> <p>Utterly frustrated with this sort of daily display of corruption in their country, 8.7 million angry Italians from all walks of life voted for Beppe Grillo&rsquo;s 5-Star movement.</p> <p>While 25.5% of the popular vote isn&rsquo;t nearly enough to govern without being part of a coalition, which he has so far rejected, it&rsquo;s enough to give the political establishment conniptions&mdash;and show that anger and frustration <em>finally</em> count.</p> <p>&ldquo;The existing political class must be expelled immediately,&rdquo; Grillo told the <a href="http://www.nytimes.com/2013/03/04/world/europe/beppe-grillo-italys-gadfly-reflects-a-movement.html?_r=0&amp;pagewanted=all">New York Times</a>. Hence his refusal to form a coalition. He wants the political system to collapse. From it, he&rsquo;d construct &ldquo;something new,&rdquo; something truly democratic. &ldquo;We can change everything in the hands of respectable people,&rdquo; he explained.</p> <p>But wasn&rsquo;t it reckless to try to destroy the system? &ldquo;How can we be accused of destroying something that&rsquo;s already destroyed?&rdquo; he asked. &ldquo;They&rsquo;ve devoured the country, and now they can&rsquo;t govern.&rdquo; He called Berlusconi of the right-leaning PDL a &ldquo;psycho dwarf&rdquo; and Pier Luigi Bersani, the top honcho of the left-leaning Democratic Party, &ldquo;a dead man walking.&rdquo;</p> <p>Italy&rsquo;s political system would collapse, he told the German online magazine <a href="http://www.focus.de/politik/ausland/wird-italien-den-euro-verlassen-grillo-ich-gebe-den-alten-parteien-noch-sechs-monate_aid_931112.html">Focus</a>. &ldquo;I give the old parties six months, and then it&rsquo;s over.&rdquo; In the subsequent elections, the 5-Star movement could get enough votes to govern&mdash;and to clean house.</p> <p>He also demanded the renegotiation of Italy&rsquo;s debt. &ldquo;We&rsquo;re being crushed, not by the euro, but by our debt.&rdquo; A government is like a corporation that goes bankrupt. Investors are simply &ldquo;out of luck.&rdquo; They took a risk and lost, he said, having earned a degree in accounting. And if the conditions aren&rsquo;t changed, he added, Italy would leave the euro and return to the Lira.</p> <p>Then he was talking with the tabloid <a href="http://www.bild.de/politik/inland/peer-steinbrueck/der-steinbrueck-grillo-streit-eskaliert-29348764.bild.html">Bild</a>, the largest circulation paper in Germany&mdash;he&rsquo;d become an equal opportunity mainstream-media darling. The <em>Bild</em> pushed him about Merkel&rsquo;s demand that Italy continue on Prime Minister Mario Monti&rsquo;s path of reforms and austerity. He brushed it off. What Monti had done wasn&rsquo;t real austerity, he said. &ldquo;Instead of taking something from the already privileged, particularly politicians, he helped himself to the savings of families who now, without this money, no longer know how they can go on.&rdquo;</p> <p>Himself &ldquo;a convinced European,&rdquo; he wants an online referendum on the euro. Though non-binding under Italian law, results would be difficult to ignore. &ldquo;In one year, we won&rsquo;t have enough money to pay pensions and wages of those who work in the public sector.&rdquo; One year! During the Focus interview the day before, it was half a year. But hey. It&rsquo;s the principle that counts.</p> <p>He&rsquo;d been lambasting the Italian political system and the established parties for years&mdash;and it has struck a chord with voters. As if to drive home the point, just after the election, Berlusconi&rsquo;s corruption scandal bubbled to the surface with Sergio De Gregorio&rsquo;s admission that &ldquo;The <em>Cavaliere</em> paid me,&rdquo; underlined by, &ldquo;Of course I took the money.&rdquo;</p> <p>The <em>Cavaliere</em> allegedly funneled &euro;3 million to De Gregorio in 2006 to get him to switch parties, which resulted in the collapse of the center-left coalition government under Prime Minister Romano Prodi. In the subsequent election, Berlusconi won. Last Thursday, it seeped out that prosecutors in Naples were investigating Berlusconi and others for corruption and illegal financing of political parties. Prodi called it &ldquo;an assassination of democracy.&rdquo;</p> <p>Gregorio told <a href="http://www.lastampa.it/2013/03/02/italia/politica/il-cavaliere-mi-pago-ho-deciso-di-parlare-perche-voglio-rinascere-1Qm6Q9FL1FpFwRmmADBphP/pagina.html">La Stampa</a> that he&rsquo;d decided to cooperate with prosecutors when it became clear to him that the new members of parliament, the Grillini, as the media dubbed them, were demanding a sort of &ldquo;Nuremberg for Politicians,&rdquo; reminiscent of the Nuremberg Trials for the Nazis. &ldquo;I didn&rsquo;t want to go down in history as the senator who leaves the Palazzo Madama&rdquo;&mdash;the palace in Rome where the Senate meets&mdash;&ldquo;in handcuffs.&rdquo;</p> <p>De Gregorio isn&rsquo;t exactly a paragon of innocence temporarily gone astray: he has been investigated in the past for money laundering and corruption. Suspicions are floating around that he is connected to the Mafia. But now he is afraid the new members of parliament might try to clean house.</p> <p>The 5-Star movement doesn&rsquo;t have much of a structure yet, and no experienced MPs&mdash;they, like their electorate, come from all walks of life and were picked during the primaries through internet voting. The movement might have trouble bringing down, as Grillo hopes, the political establishment that was designed to survive these kinds of democratic groundswells; it had been able to form governing coalitions before, even when election results were complicated. But alone the fact that the 5-Star movement gives De Gregorio and perhaps others visions of Nuremberg Trials for politicians is a glorious achievement.</p> <p>&ldquo;I&rsquo;m appalled that two clowns have won,&rdquo; said the man who&rsquo;d try to knock Merkel off her perch later this year. He was referring to former comedian Grillo and former Prime Minister Berlusconi. One of them is &ldquo;a professional clown who doesn&rsquo;t mind being called that,&rdquo; he explained; the other is &ldquo;a clown with special testosterone boost.&rdquo; Read.... <a href="http://www.testosteronepit.com/home/2013/2/27/the-utter-fragility-of-the-eurozone-even-democracy-is-a-thre.html">The Fragility Of The Eurozone: Even Democracy Is A&nbsp;Threat</a>.</p><p><a href="http://www.businessinsider.com/fear-of-nuremberg-trials-for-corrupt-italian-politicians-2013-3#comments">Join the conversation about this story &#187;</a></p>