Billionaire hedge fund manager, David Tepper, made news this week when he emphatically stated that investors have nothing at all to fear regarding the eventual tapering off of Fed’s $85 billion worth of monthly debt monetization. His assertions were based on the fact that our annual deficit is shrinking and would thus require less of Bernanke’s money printing.

Besides the fact that the deficit for fiscal 2013 will still be about $500 billion higher than it was before the Great Recession began at the end of 2007, markets have two other reasons to fear the cessation of quantitative easing. What Mr. Tepper doesn’t realize is the end of QE will cause the U.S. dollar and interest rates to soar. And that will have devastating consequences for the markets and economy in the short-term.

Since February of this year, the dollar has increased by 6.3 percent against our six largest trading partners. Just imagine how it would then surge if the Fed were to start aggressively reducing its bond-buying program…especially in light of the surging debt monetization now occurring over in Japan and the protracted recession in Europe. Of course, a stronger dollar would be greatly beneficial to the American economy in the long-term, as it engendered a period of deflation that is needed to reconcile the current imbalances of debt, money supply and asset prices. However, that same deflation would likewise do significant damage to equity prices; as it also vastly lowered the revenue and earnings of S&P 500 corporations.

But the most important problem if Bernanke were to taper QE this summer and bring it completely to a halt by the end of this year, is that the market would then begin to factor in the unwinding of the Fed’s near $3.5 trillion balance sheet. This would, at the very least, cause interest rates to rise back towards the forty-year average of about 7 percent on the Ten-Year Note. Interest rates have already been around zero percent for nearly five years. The condition of artificially produced low rate for years on end causes the economy to become addicted to cheap money. Misallocations of capital and economic imbalances occur; like bubbles in equities, real estate and bonds.

In 2007 the real estate bubble popped once the cost of borrowing money to purchase over-priced homes became unaffordable. This caused banks to become insolvent because their assets were primarily involved with real estate loans. Insolvent banks and over-leveraged consumers sent the economy into a depression. Today, banks and consumers have deleveraged on the margin, but the government has vastly increased its borrowing. At the start of the Great Recession, we had $48.8 trillion in total debt and our GDP was $14.2 trillion (343 percent debt to GDP). At the end of Q4 2012, the U.S. economy had $53.8 trillion in total debt sitting on top of a $15.8 trillion economy. The current debt to GDP ratio is 340 percent.

Therefore, we can be sure rising interest rates will bring down the economy this time just as it did six years ago because the total debt to GDP ratio at the start of the Great Recession is exactly the same as it is today. The only difference is the interest rate attached to that debt has been artificially reduced to the low single digits. When rates rise, as they will if the Fed aggressively tapers QE, the government will then learn it does not have the tax base to service its debt.

This is why every time the Fed threatens to end QE the markets tumble and why Tepper, and investors, should fear the eventual taper. Evidence of this fear is abundantly clear. On February 20th the minutes of the January FOMC meeting were released, which indicated members of the Fed were growing concerned about the amount of asset purchases. That very same day the NASDAQ dropped 1.5 percent and commodity prices tumbled.

In addition, stock market gains appear to have decoupled from market fundamentals and are merely clinging to the hope of endless Fed credit creation. This week’s economic data was profoundly anemic, yet markets still rallied. On Wednesday news came out that Industrial Production dropped 0.5 percent in April, and the Empire State Manufacturing Index fell to a minus 1.4 in May, from a positive 3.1 in April. Also on Wednesday, we learned that France entered into a double-dip recession and Europe’s recession extended into its sixth straight quarter. Nevertheless, the S&P 500 gained 0.5 percent that day.

The following day’s economic data was just as bad. On Thursday we learned that the Philly Fed Survey dropped to a minus 5.2 in May, from a positive 1.3 in April, and Initial Unemployment Claims surged 32k for the week ending May 11th. However, the S&P 500 spent most of the day on Thursday in positive territory; until 2:30pm. That’s when San Francisco Fed President John Williams said in a speech, “We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer, and end the program late this year.” The market cared nothing about the current weak economic data but was very much concerned about the threat to end QE. The S&P quickly sold off 0.5 percent once news broke that the Fed may begin slowing its asset purchases.

The truth is rising debt service payments on government debt will wreak havoc on the economy just as it did for real estate and banks back in 2007. Artificially-produced low-interest rates, record amounts of debt and inflation targets set by central banks make for a very dangerous cocktail. An expeditious tapering on the part of the Fed from QE may be the prudent and necessary thing to do for the long-term health of the country, but it would also send markets and the economy into a cathartic depression in the interim.

Michael Pento is the President of Pento Portfolio Strategies

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When the governor signed the Equal Pay bill into law, I eagerly watched his hand move across the page, thanked him for the commemorative pen and cheered. There is much to cheer about in this new law. It will help close the pay gap between women and men, which is 84 cents to the dollar in Vermont.

The law answers some key questions.

Such as: How can you know if you are paid fairly if you don’t know what the person earns who does the same job as you? Until now, many employers prohibited employees from even asking. Now it’s legal to disclose your salary and to ask your co-worker for that information. Once you compare, you’ll know whether or not you’re receiving equal pay for equal work.

How safe is it to ask your boss for a flexible work schedule so you can come to work an hour early and leave an hour early to pick up your child from day care, or take your Mom to the doctor? Some workers are afraid to ask, because they may be punished for asking. They might be considered disloyal, or even be fired, just for asking.

The Equal Pay bill permits workers to ask for a flexible work schedule twice a year without fear of retaliation. The employer is not obligated to grant the request for flexible work arrangements, but she will have a duty to respond in good faith.

One more thing, the new law requires state contractors to certify that they comply with the law and open their books to prove it.

Vermont, once again, is leading the country. A similar bill, called the Paycheck Fairness Act, is languishing in the Congress. How did we do it in Vermont? We worked together. The Attorney General’s office, a group of feisty legislators, spear-headed by Representative Jill Krowinski, women’s organizations, labor groups, and the governor made it happen.

At first glance, the Equal Pay law looks like a win just for women. Not so. When women are paid fairly their spouses, partners and their children do better. So do the elderly. A small pay discrepancy between men’s and women’s salaries for the same job may seem inconsequential. But over the years, salary discrimination adds up to a significantly smaller pension.

The best way for the poor to move out of poverty and the middle class to prosper is for all families to increase the size of the family paycheck. The Equal Pay law will help us get there. Three cheers!

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Summer is around the corner, temperatures are heating up, and teens are getting ready for that quintessential rite of passage: the summer job. It used to be that teens could expect to find a summer job as quickly as pop-up summer showers appear in Florida.

But times have changed. Now, the teen unemployment rate is at 24 percent, and as the country still struggles with a slow economic recovery, the ease with which teens used to be able to find seasonal work has all but evaporated.

Junior Achievement took the teen pulse around their goals for summer employment. Our 2013 Teens and Summer Jobs survey reveals a teen population confident in its ability to find summer work. The national survey of 14-18 year-olds shows that nearly two-thirds (63 percent) plan to get a job this summer, and of those, 92 percent are “very” or “somewhat” confident they will find seasonal work. Yet only 38 percent of teens surveyed said they had a summer job in the past.

When asked how they planned to find summer jobs, teens’ top three methods of finding work were networking through their parents’ connections (47 percent), using online job postings (33 percent), and looking in store windows for “now hiring” signs (32 percent).

Nearly three-quarters (72 percent) of those teens who plan to work this summer said they anticipate earning between $7.25 (the current Federal minimum wage) and $10 per hour. However, according to the U.S. Bureau of Labor Statistics, among employed teenagers paid by the hour, more than one-in-five (21 percent) earned the minimum wage or less in 2012, compared with about 3 percent of workers age 25 and over.

Particularly given the challenges they could face in finding summer work, we applaud teens for seeking summer employment to increase work experience and earn extra spending money. However, we hope teens who do not find jobs this summer due to a still-challenging job market do not become too discouraged. There are still opportunities to earn valuable experience through volunteering or by creating their own opportunities by starting a business, such as IT services or a house sitting service.

Seasonal work can provide young people with important work-readiness and interpersonal skills that will help them to succeed in their careers. Overwhelmingly, teens who planned to get summer jobs said that they viewed gaining real-life work experience (79 percent) as the top benefit of summer employment other than salary. Yet only 5 percent of respondents planning to work this summer said they planned to seek an internship in a field of interest to them.

Junior Achievement and other nonprofit organizations have programs in place now at schools across the country to help students get ready for success in the workforce. A summer job not only provides fun memories and a paycheck, but skills that pay career readiness dividends later.

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Global risk appetite surged to 4.53 (5 being ‘euphoria’), its highest level since the euphoria event of 2006, and up from 1.76 one month ago according to Credit Suisse. Other risk appetite indices, as well as market anecdotes, confirm the “almost euphoric” environment. US credit risk appetite has charged higher and is now at 3.22. Furthermore, as they note, the current risk rally has several unusual features. First, it clearly lacks the usual support of strong global growth momentum. Global IP momentum (as we noted here) is almost always above its long-term average when risk appetite hits euphoria, but currently is below 5%, which is somewhat sluggish. Second, the current near-euphoria is strongly driven by one asset class: Japanese equities. The bottom-line, they conclude, is that the current risk-loving environment is related much more to recent policy innovations than growth data. And confirming this ‘euphoria’ Investors Intelligence notes that newsletter writers classified as bulls rose to 55.2% from 54.2% with readings of ~55% “suggestive of a trading top,” last seen in Oct. 2007. No surprise there but with markets statistically ‘euphoric’ caution seems warranted at least…

Chart: Credit Suisse

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Veterans are superbly trained, diverse, innovative, reliable, hardworking, dedicated citizens, and many possess skills that are highly transferable. Despite all this, an unemployment gap remains between the post-9/11 generation of veterans and non-veterans: the Bureau of Labor Statistics’ spring 2013 data indicate 9.2 percent unemployment among new veterans compared with 7.6 percent among non-vets. This disparity persists despite pledges by organizations of all sizes, across industries, to hire more veterans. So what’s going on?

As I’ve written before, culture may well play a role in this gap. For one, hiring managers and veterans can miss each other as a result of confusing jargon (on both sides) and resume-filtering software that isn’t optimized to search for the idiosyncrasies of a veteran’s resume. Also, there may not be buy-in across organizations for veteran-hiring initiatives. A hiring manager may well ask himself (as I have from time to time): why should I hire Sally Jones, who is a veteran, versus John Doe, who is not a veteran, but who has three years of experience in the applicable role or industry? The answer will not come from adherence to a corporate pledge — the hiring manager must be aware of the intrinsic value veterans can bring to an organization, and believe that hiring a veteran isn’t an act of charity, it’s a smart investment.

Let’s highlight some of the returns on investment for hiring veterans:

▪ Experience beyond GI:JOE: Despite the stereotypes, there is incredible diversity in military service. Considering each of the distinct branches and the 2,000-plus occupational specialties therein, veterans’ work experience reflects the needs of a $692 billion organization and includes strategic communications and public relations; finance, program, and project management; human resources; and much more. All this diversity means that whatever the needs of your organization, there is a veteran, National Guardsman, or Reservist who can meet them.

▪ Well-vetted for life and death situations, let alone the 9-to-5: Veterans have been vetted by one of the most particular and selective organizations in the world — the U.S. military. During their military career, service members are tested repeatedly to ensure their intellectual, mental, and emotional strength. Military leadership understands that the consequences of failing to accurately assess, promote, and, when necessary, demote personnel can mean the difference between life and death. Just as a college degree means that an applicant has mastered her studies, an honorable discharge means that a veteran has been trained to perform complex, specialized work and has been tested in very demanding circumstances.

▪ Experience in dynamic, high-impact environments: Few civilian occupations will force a veteran to sustain the same kinds of pressure faced in the military. Adaptability and resilience are built into every veteran’s experience: changing jobs and locations every two to three years, working across multiple disciplines with little to no training, and more. Their ‘performance target’ is excellence — with little room for failure or error.

▪ “Management experience a plus”: It’s not uncommon for veterans in their early twenties to manage multi-million dollar budgets, challenging logistics, and dozens or even hundreds of their peers.

▪ Problem solvers and consummate planners: The scale and dynamism of the wars in Iraq and Afghanistan have required service members to become skilled problem solvers. They are trained to internalize the intent of their superiors, then figure out how to get the job done.

▪ Who needs a ropes course to learn teamwork?: It isn’t surprising that so many corporate teamwork and leadership exercises are modeled on military training. Basic training teaches young people to put the needs of their team ahead of their own, to trust their teammates, and to be deserving of others’ trust. They learn to lead, follow, and communicate up, down, and across.

When you hire a veteran, you get an individual who has all these skills ingrained in their basic understanding of a work environment. But that’s just the beginning. What happens after you’ve hired a veteran? How can you best support her at work?

▪ Learn military culture to counter stigma and understand how you can make the best use of the veteran’s skills and experiences.

▪ When possible, tailor employee on-boarding programs to meet the needs of veterans transitioning from active duty or after a deployment.

▪ Establish an information exchange program between veterans, National Guardsmen and Reservists, and civilian employees to help bridge the gaps between their different experiences and to foster learning.

▪ Create a peer network for veterans on staff to develop camaraderie and build internal support.

▪ Ensure that management is familiar with the requirements of the Americans with Disabilities Act (ADA) and that new employees understand the policies.

▪ Consider participating in Yellow Ribbon Reintegration Programs that help veteran employees and their families re-adjust to the workforce.

For more information about how to support vets in the workplace, download these useful guides from Iraq and Afghanistan Veterans of America (IAVA): “America’s Veterans: Untapped Resources for Your Corporate Success” and “Supporting Veterans, National Guardsmen, and Reservists in the Workplace.”

Now, where can you find veterans to hire? One way is to post jobs on IAVA’s Career Pathfinder, an innovative and comprehensive jobs tool targeted at recent veterans. Designed to be more holistic than other job boards, it includes a resume builder and career mapping guide as well as a unique military skills translator tool, which allows veterans to type in their MOC (military occupation code) and get a list of skills, experience, and attributes associated with their specific role. For example, someone who was an “11B” (infantry, enlisted), will receive a list of thirteen different skills he can choose from when describing his military experience. Career Pathfinder allows organizations and veterans to find each other easily, helping to connect veterans and the civilian workplace.

We have the shared responsibility and opportunity to support new veterans in their transition out of the military and into the workforce. Let’s show America’s new Greatest Generation that we’ve got their backs.

Derek Bennett is the Chief of Staff of Iraq and Afghanistan Veterans of America, overseeing the organization’s strategy and daily operations. A combat veteran of Operation Iraqi Freedom, Derek attended Harvard Business School and previously worked at the Boston Consulting Group. Follow him on twitter @dhb00.

The post Derek Bennett: Hiring Veterans Isn’t Charity — It’s Smart Investing appeared first on MORTGAGE FRAUD EXAMINERS.

A week ago it was the better than expected weather’s fault for the big Wal-Mart miss. Today, it is the turn of that other retail bellwether, Target, to blame sunny days.

From the release: “Target’s first quarter earnings were below expectations as a result of softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “While we are disappointed in our first quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target’s long-term growth.”

Of course, what this miss really means is that the payroll tax impact on consumption, so well seasonally-adjusted out of the wholesale retail sales numbers, and thus PCE and GDP, and which Goldman has been so inquisitively looking for and not finding at the national level leading it to believe the US economy is steadily on the mend, is more than present at the micro level. One only has to look. And with gas prices set to rise back to all time highs in a day or two, one can forget hopes that the fade in the payroll tax hike’s impact on consumption will be promptly forgotten as other forms of taxation strip the already empty consumer wallet even more bare.

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Yes, yes, everyone knows hedge funds aren’t benchmarked to the S&P – after all they “hedge” for the broader market downside.

Here is the problem: having underperformed the S&P for five years in a row, many LPs are starting to get tired of not only underperforming stocks but paying out 2 and 20 on all the lost upside (and not only due to such leftfield surprises as RICO Stevie).

The bigger problem is that by the time the crash finally comes, there will be no hedges left as the Federal Reserve will have made sure all shorts get crushed as confirmed by the relentless outperformance of the most shorted stocks relative to the market (and why we continue to suggest quarter after quarter that going long the most shorted stocks is the most lucrative “alpha” strategy) as “hedge” funds abandon all hedging in droves and become “long-onlies”, a problem further compounded by the fact that when the real crash does come not one hedge fund will be positioned properly and able to generate any alpha.

The biggest problem, at least for the active management community, is that with the global central banks now stock market activists and buying stocks outright, it is they who have eliminated the downside risk and by implication made hedging redundant.

So for all those curious why all real money managers (and not those who spend 18 hours a day on the modern day Yahoo Finance known as Twitter, “trading” with monopoly money while selling $29.95 newsletters) are furious at what Bernanke and company are doing as shown in the most recent Ira Sohn conference, we present the chart below from Goldman which confirms what most have already known: the Federal Reserve has made hedge funds a thing of the past, whose investors are sure to keep underperforming the S&P until the moment when it all goes tumbling down.

Luckily, at that point, bidless market aside, everyone will be able to sell ahead of everyone else, or so the momentum-chasing mantra goes. In the meantime the facts are sobering: the average hedge fund has returned a tiny 5.4% through the week of May 10, a whopping 65% discount to the performance of the S&P, and even the average mutual fund has outperformed the average hedge fund nearly threefold!

Some more from Goldman:

• The typical hedge fund generated a YTD return of 5% through May 10, compared with 15% gains for both the S&P 500 and the average large-cap core mutual fund (see Exhibit 1). Hedge funds returned an average of 3.5% in 1Q 2013, lagging the S&P 500 by 700 bp. Last year the average fund returned 8% vs. 16% for the S&P 500.
• The distribution of YTD performance indicates that 13% of hedge funds have generated absolute losses. The standard deviation of YTD hedge fund returns is 6 percentage points and almost half of funds have generated returns between 3 % and 8%. Fewer than 5% of funds have outperformed the S&P 500 or the average large-cap core mutual fund YTD.
• Despite starting the year with the highest net long exposure since 1Q 2007, strong long performance was not enough to outweigh the drag from popular short positions. Our basket of S&P 500 stocks with the largest dollars of shorts (<GSTHVISP>) has returned 17% YTD, in line with the VIP basket. In addition, 22 of the 50 stocks over $1 billion with the highest short interest as a percentage of market cap returned over 30%, twice the S&P 500 return. The average return of these 50 stocks was also 30%.

As for that key “benefit” from hedge funds – diversification away from single-name holdings – they were only kidding. In fact the average hedge fund is nearly twice more undiversified than the average mutual fund, and just 10 names represent 63% of the average hedge fund’s AUM. See AAPL for what happens when said hedge fund hotels fall out of favor.

“Hedge fund returns are highly dependent on the performance of a few key stocks. The typical hedge fund has an average of 63% of its long-equity assets invested in its 10 largest positions compared with 37% for the typical large-cap mutual fund, 16% for a small-cap mutual fund, 18% for the S&P 500 and just 3% for the Russell 2000 Index.”

Finally, for those wondering who is selling one share of SPY or GLD for every share bought? Wonder no more: ETFs continue to be the widest used hedging vehicle:

• Hedge funds appear to use ETFs more as a hedging tool than as a directional investment vehicle, based on our analysis of 13-F and short interest filings. We estimate that hedge funds hold $126 billion in gross exposure to ETFs compared with $1.4 trillion of gross exposure to single-stocks. ETFs represent 3% of long holdings, down from nearly 6% in 1Q 2009 and the lowest since 2Q 2011 levels (Exhibit 22).
• The $96 billion of short ETF positions accounts for 76% of the hedge fund gross ETF exposure. In contrast, single-stock short positions ($406 billion) represent 29% of hedge fund gross single-stock positions. The most shorted ETFs tend to be index hedges (representing $50 billion of the $96 billion short positions). Commodity-related, bond funds, and Emerging Market ETFs appear to make up the majority of ETFs that hedge funds utilize on the long side (see Exhibit 23).

Source: Goldman

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In April, the sequester that had flown under the radar for most Americans at last entered the public spotlight. As cuts led to furloughs for air traffic controllers and other FAA personnel, flight delays frustrated passengers across the country.

Congress responded by passing a bill to ease the burden on travelers, but the bill did nothing to mitigate the impact of the sequester on those suffering the most from its effects. When we pass piecemeal, band-aid fixes to the sequester, we leave people behind, including cancer patients, low-income children attending Head Start, and seniors relying on Meals on Wheels. That’s why both of us opposed the FAA sequester fix bill and continue to push instead for a replacement of the entire sequester with a balanced approach.

Since coming into effect in March, the sequester has begun imposing severe and arbitrary spending cuts for programs that make a real difference in the lives of so many families struggling to make ends meet. From Maryland to California, and every state in between, the most vulnerable in our society were hit first and hit hardest as a result of Congress letting sequestration take effect, especially in communities of color.

From infants to seniors, the sequester affects at-risk Americans in every age bracket, and its cuts will harm families trying to put food on the table. Simply put, the sequester will erect road blocks along the pathways out of poverty.

For the youngest Americans, the more than $900 million on the chopping block for early childhood care and education means fewer opportunities to catch up to their peers in school. As many as 70,000 children could be dropped from Head Start. These cuts would disproportionately impact children of color, who constitute nearly 60 percent of those participating in Head Start. These children, truly the ‘least of these,’ need to be protected and empowered, not shunted off the track to academic success and the opportunity for higher education that comes with it.

For our aspiring college students, the sequester could make it harder to matriculate or afford tuition. Federal funding for education could be cut by as much as $3 billion, affecting 9.3 million students seeking subsidized college loans, work-study opportunities, or enrollment in English-language programs. Eighty-one percent of African Americans and 67 percent of Latinos leave college with student loan debt, and sequestration’s arbitrary cuts to student loan financing could keep many young people of color from obtaining a post-secondary education that provides the best pathway to the middle class.

For the long-term jobless relying on unemployment insurance as they look for work, benefits could diminish by nearly 11 percent, making an already difficult situation even worse. Workforce development programs and job-creating investments in public infrastructure could also be at risk of significant cuts, further raising obstacles to employment for those who so desperately seek it. While the unemployment rate overall dropped to a four-year low of 7.5 percent in April, the rate for Latinos remains at 9 percent. For African Americans, that figure reaches 13.2 percent.

For our seniors who are homebound, the sequester could cut 4 million Meals on Wheels deliveries. We simply can’t let partisan dysfunction in Congress stand in the way of caring for America’s seniors in need. The sequester isn’t just harming us today; it will put the future health of our nation in jeopardy. The National Institutes of Health, which is instrumental in developing new drugs and sponsoring new discoveries in medical science, could lose $1.6 billion in funding for research on new treatments for conditions like diabetes and cancer.

The sequester will not help us create jobs, nor is it a rational approach to our deficit challenge. Chief among its flaws is that it pays no attention to our national priorities. Any family knows that, when funds are running low, prioritizing where to cut is the first step. However, under the sequester, Congress isn’t allowed to prioritize but is obligated to slash the same percentage from nearly every program, no matter the outcome.

The only way Congress can undo this irrational and irresponsible sequester — and reaffirm our commitment to eradicating poverty in America — is by achieving a big and balanced solution to deficits that restores fiscal discipline and leaves us room to prioritize our investments.

As the sequester continues to take effect, we will keep pushing for Congress to reach an agreement that protects the most vulnerable in our country from this unfair, unnecessary, and unwise process. We will keep working to remind Americans and our colleagues in Congress that there is a painful, human cost to sequestration — one we must prevent before it becomes worse.

For these and so many other reasons, we have formed the new Democratic Whip’s Task Force on Poverty and Opportunity. Aimed at developing support for a national strategy to eliminate barriers to opportunity and to eradicate poverty, its initial goal has been set at cutting poverty in half within ten years — one that becomes harder to achieve as long as the sequester remains in place.

This is not only sound economic policy — it’s the right thing to do. When one American family fails, it means we have all failed to meet our common responsibility to one another. Democrats and Republicans share a moral obligation to work together to fight poverty in this country and ensure that all of our people have equal access to the opportunities that sustain our American Dream.

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By EconMatters

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We would have been perfectly happy to report this as Humpday Humor, but unfortunately, and only in America, can a disgraced former Congressman, the very appropriately named Anothony Weiner, announce his candidacy for NYC Mayor via YouTube in all too serious news.

What is perhaps most disturbing is that, “a Quinnipiac University poll also released on Wednesday found Weiner in second place with 15 percent of the vote, trailing City Council Speaker Christine Quinn by ten points. The poll also found that nearly half of city voters say Weiner should not enter the race for mayor, while 38 percent of voters want to see him run.” That is a 38% of the population that wants nothing more than bread and ever more circues, and if possible, to let it all burn all around them.

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• Apple Bonds Stick Buyers With $280.6 Million Loss as Rates Climb (BBG)
• Iceland Freezes EU Plans as New Government Shuns Euro Crisis (BBG)
• “Transparent Fed” – Ben Bernanke meets privately with Darrell Issa (Politico)
• Bank of Japan vows market steps to curb bond turbulence (Reuters) holds policy (FT)
• Stockholm riots spread in third night of unrest (FT)
• Dudley Says Decision on Taper Will Require 3-4 Months (BBG)
• Senate panel passes immigration bill; Obama praises move (Reuters)
• Italy to outline youth jobs plan as government struggles (Reuters)
• Apple CEO Tim Cook, Lawmakers Square Off Over Taxes (WSJ)
• Google Joins Apple Avoiding Taxes With Stateless Income (BBG)
• Sony Board Discussing Loeb’s Entertainment IPO Proposal (BBG)
• Vote Strengthens Dimon’s Grip (WSJ), Dimon performance well choreographed (FT)

Overnight Media Digest

WSJ

* Federal investigators apparently accessed records of calls to and from a phone number at Fox News Channel in their leak investigation of a former state department contractor, according to a court document.

* Insecticide sales are surging after years of decline, as American farmers plant more corn and a genetic modification designed to protect the crop from pests has started to lose its effectiveness.

* Starwood Capital Group is in talks to buy seven U.S. shopping malls from Westfield Group for more than $1 billion, a deal that would mark the latest in a flurry of big ticket acquisitions of retail property. Starwood’s talks with Westfield aren’t yet in the final stages and still could collapse, according to people familiar with the matter.

* A lawsuit brought by auto dealers has put a chill on the potential sale of R.L. Polk & Co, owner of the used-car shopping tool Carfax, according to people familiar with the matter. Polk, which provides car companies and consumers with data on autos, attracted interest from some potential corporate buyers as well as a host of private equity firms, including buyout giants Carlyle Group LP and KKR & CO LP, the people said.

FT

Apple Inc Chief Executive Tim Cook defended the technology company’s tax practices, saying Apple did not depend on “tax gimmicks” as U.S. senators grilled him over charges that the company avoided billions of dollars in taxes on international profits.

A majority of JPMorgan Chase & Co shareholders voted to let Jamie Dimon keep his chairman title, handing him a decisive victory over shareholder activists who wanted to strip him of the role.

BP has stepped up appeals against what it says are unjustified compensation payments under the settlement it reached with those affected by the 2010 Gulf of Mexico oil spill.

Europe’s banking regulator has broadened its bonus cap rules to bring in far more bankers within the scope of the regulation.

G4S Chief Executive Nick Buckles has stepped down with a 16 million pound package following a series of embarrassments, raising shareholder fears over the future direction of the company.

Some of Royal Dutch Shell’s shareholders called for a rethink of the company’s Alaska plans amid questions over the company’s troubled drilling programme there.

NYT

* Other countries have long been annoyed by Irish tax laws, but the benefit to the struggling country’s economy means the rules are unlikely to change.

* Tim Cook came to Capitol Hill prepared to face down senators furious over evidence that Apple Inc had avoided paying billions in taxes, but he left having won many of them over.

* James Bullard, a member of the Federal Reserve’s policy committee, warned Europe of becoming trapped in the economic stasis from which Japan is only now emerging.

* Microsoft’s new Xbox game console also serves as a home entertainment hub, a response to the rising popularity of mobile devices for playing games.

* A lawyer argued that Rajat Gupta, found guilty of leaking boardroom discussions, should be granted a new trial because a judge erroneously admitted wiretapped conversations.

Canada

THE GLOBE AND MAIL

* Civic leaders are adding to a chorus of calls on Toronto Mayor Rob Ford to clear the air about allegations of drug use amid growing concern that the scandal has derailed council’s business of governing.

* Without more support for industry investment in research and development, Canada will be hard-pressed to keep up with international competitors and will risk an erosion of its economic wellbeing, a report on the state of the nation’s science and technology landscape by the Science, Technology and Innovation Council has revealed.

Reports in the business section:

* The damage to the ground immediately surrounding an oil car that derailed on Tuesday and spilled some of its contents in rural Saskatchewan is apparently contained. On Tuesday morning, five tank cars carrying crude oil and operated by Canadian Pacific Railway Ltd derailed outside the town of Jansen, Saskatchewan.

NATIONAL POST

* Federal NDP Leader Tom Mulcair says he was contacted by the provincial police anti-corruption squad in Quebec to discuss a suspected 17-year-old bribe offered to him. Mulcair says he never reached out to the police himself because he had no proof a bribe was actually being offered at a 1994 meeting with the now controversial ex-mayor of Laval, Quebec, Gilles Vaillancourt.

* Canada is investigating allegations that Eritrea’s diplomatic mission in Toronto has continued soliciting money for the East African regime’s military despite being warned by the Department of Foreign Affairs to stop.

FINANCIAL POST

* Gold mining stocks have been decimated in recent months, but Jamie Sokalsky does not think investors should expect any corresponding uptick in merger and acquisition activity. Speaking at the Bloomberg Canada Economic Summit, the chief executive of Barrick Gold Corp said there is a general “anti-M&A” mood in the gold space right now, and that investors don’t even ask him about it much anymore.

* Concerns are being raised that efforts to improve efficiency at Canadian Pacific Railway are contributing to a series of accidents at the railroad in recent months, including two more this week.

China

CHINA SECURITIES JOURNAL

– The China Securities Regulatory Commission should focus on its key duties of regulating the market and delegate unnecessary duties to other departments gradually, its Chairman Xiao Gang said on Tuesday.

SHANGHAI SECURITIES NEWS

– A major gold deposit with estimated reserves of 53 tonnes was discovered in Yili Valley of China’s northwestern Xinjiang province, government data showed. Total gold resources at the field are expected to exceed 100 tonnes, with a potential value of about 20 billion yuan ($3.26 billion).

CHINA DAILY

– Local government officials said Dongguan in Guangzhou province remains a top destination for processing trade businesses, despite recent closures in the city being blamed on the continued strength of the yuan.

– The Shanghai government plans to allow cold-processed poultry meat to return to the market by the end of May as there have been no new confirmed cases of the H7N9 virus in China for more than a week, giving the poultry industry a chance to recover.

SHANGHAI DAILY

– Cosco Pacific Ltd, the container-terminal arm of China’s biggest shipping group, agreed to sell its stake in the world’s largest shipping-container manufacturer to its parent for $1.22 billion, according to a Hong Kong Stock Exchange filing.

– Three rice mills in central China’s Hunan province are being investigated after cadmium was found in their rice last week, local authorities said last week. The mills were ordered to recall their products and suspend business operations, according to a statement released by the county government.

Corporate Finance

* Australia’s Westfield Group is in talks to sell seven U.S. shopping malls to private real estate investment company Starwood Capital Group for more than $1 billion, a source said on Wednesday.

* Roche Holding AG teamed up with Sigma-Aldrich Corp to make an unsuccessful bid for Life Technologies Corp earlier this year, people familiar with the matter said.

* U.S. prosecutors are considering charging Steven Cohen’s SAC Capital Advisors as a criminal enterprise engaged in a long pattern of insider trading in stocks, according to a person familiar with the matter.

* Telecom Italia SpA is mulling spinning off its mobile unit along with its fixed-line network to bring new investors on board, three people, including a senior political source, told Reuters on Tuesday.

* Singapore state investor Temasek Holdings Pte Ltd has paid $500 million for a stake of around 10 percent stake in financial data provider Markit Group, a person familiar with the transaction said.

* Britvic Plc’s new chief executive is set to lay out plans for the soft drinks maker to continue as a standalone company, casting further doubt on its proposed merger with A.G. Barr Plc, Sky News reported, citing people close to Britvic.

* A boutique carmaker led by former General Motors Co executive Bob Lutz and China’s largest auto parts supplier made an offer this month to buy cash-strapped “green” car company Fisker Automotive, people familiar with the matter said.

* Chevron Corp is in advanced talks to sell most of its downstream assets in Egypt and Pakistan, three sources said, with the planned disposals seen raising around $300 million for the U.S. oil major.

* Finnish paper firm Ahlstrom Oyj is set to secure European Union approval for the merger of its label unit with Munksjo to form the world No. 1 speciality paper maker after agreeing to sell a German business, a person familiar with the matter said on Tuesday.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Bristol-Myers (BMY) upgraded to Buy from Neutral at Citigroup
CVR Energy (CVI) upgraded to Neutral from Underperform at Macquarie
Cree (CREE) upgraded to Buy from Neutral at Sterne Agee
Roche (RHHBY) upgraded to Buy from Neutral at Citigroup
Terex (TEX) upgraded to Overweight from Equal Weight at Barclays
Volcano (VOLC) upgraded to Overweight from Equal Weight at First Analysis

Downgrades

Caesar’s Entertainment (CZR) downgraded to Neutral from Outperform at Credit Suisse
Carnival (CCL) downgraded to Neutral from Overweight at HSBC
Chart Industries (GTLS) downgraded to Hold from Buy at BB&T
Dick’s Sporting (DKS) downgraded to Market Perform from Outperform at BMO Capital
EPIQ Systems (EPIQ) downgraded to Market Perform from Outperform at William Blair
EQT Corporation (EQT) downgraded to Hold from Buy at Societe Generale
InterXion (INXN) downgraded to Neutral from Buy at Goldman
Joy Global (JOY) downgraded to Equal Weight from Overweight at Barclays
Newcastle (NCT) downgraded to Market Perform from Outperform at Keefe Bruyette
Rosetta Resources (ROSE) downgraded to Neutral from Outperform at Cowen
SodaStream (SODA) downgraded to Neutral from Overweight at JPMorgan
UBS (UBS) downgraded to Underperform from Market Perform at Keefe Bruyette
Warner Chilcott (WCRX) downgraded to Market Perform from Outperform at Leerink

Initiations

Chart Industries (GTLS) initiated with an Outperform at Raymond James
Coca-Cola (KO) initiated with a Market Perform at BMO Capital
Cott Corp. (COT) initiated with a Market Perform at BMO Capital
Dr Pepper Snapple (DPS) initiated with a Market Perform at BMO Capital
Galena Biopharma (GALE) initiated with an Outperform at JMP Securities
Monster Beverage (MNST) initiated with an Outperform at BMO Capital
PepsiCo (PEP) initiated with an Outperform at BMO Capital
Popular (BPOP) initiated with an Outperform at Wells Fargo

HOT STOCKS

Saks (SKS) rallied after NY Post reported Goldman Sachs (GS) hired for possible sale
Merck (MRK) announced $5B share repurchase
Moody’s placed Carnival’s (CCL) A3 rating on review for possible downgrade
Ford (F) raised North American capacity by 200,000 units, reduced summer shutdown, added jobs
NetApp (NTAP) reducing workforce by 900, expects $50M-$60M charge
BNY Mellon (BK) plans to increase Wealth Management sales force by 50%

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Toll Brothers (TOL), Dycom (DY), NetApp (NTAP), Intuit (INTU)

Companies that missed consensus earnings expectations include:
Staples (SPLS)

Companies that matched consensus earnings expectations include:
Compuware (CPWR), Analog Devices (ADI)

NEWSPAPERS/WEBSITES

• Since the financial crisis, bonds backed by a single loan have been less common than securities made up of a group of unrelated loans. But the market for loans on commercial properties has changed in recent months and is booming again–$12.1B so far this year–the Wall Street Journal reports
• Big phone companies (SAP, T, TEF, VZ, VOD, CCO) have begun to sell the vast amounts of data they gather about their subscribers’ locations, travels and Web-browsing habits. The information provides a powerful tool for marketers but raises new privacy concerns, the Wall Street Journal reports
• Apple’s (AAPL) ability to shelter billions of dollars of income from tax has depended on an unusual loophole in the Irish tax code that helps the country compete with other countries for investment and jobs. Apple channeled profits into Irish-incorporated subsidiaries that had no declared tax residency anywhere in the world, Reuters reports
• The dollar languished well below last week’s 4 1/2-year high against the yen today, ahead of testimony from the Fed Chairman Bernanke after two regional Fed presidents hinted that the central bank will continue its bond-buying scheme, Reuters reports
• Samsung (SSNLF) and LG Electronics are reworking their strategies for high-end TVs after spending billions of dollars on a new display technology that’s behind schedule and costs nearly $10,000 a set. The misstep has created an opening for Sony (SNE), Sharp (SHCAY) and Chinese maker Skyworth Digital, Bloomberg reports
• Apple’s (AAPL) bonds have lost $280.6M of market value since buyers snapped up $17B of the iPhone maker’s debt last month, declining as yields climb from record lows, Bloomberg reports

SYNDICATE

Aeterna Zentaris (AEZS) may sell up to 2.5M common shares for up to $4.6M
Alcobra (ADHD) 3.125M share IPO priced at $8.00
Baltic Trading (BALT) files to sell common stock
CVR Partners (UAN) files to sell 12M shares for CVR Energy interests
Cadiz (CDZI) files to sell 9.69M shares of common stock for holders
Ironwood (IRWD) 10.5M share Secondary priced at $13.00
M/A-COM (MTSI) files to sell 9.24M shares of common stock for holders
NPS Pharmaceuticals (NPSP) 6M share Secondary priced at $14.53
PGT (PGTI) 11M share Secondary priced at $7.75
Portola Pharmaceuticals (PTLA) 8.423M share IPO priced at $14.50
Sensata (ST) announces 12.5M common share offering by selling holders

The post Frontrunning: May 22 appeared first on MORTGAGE FRAUD EXAMINERS.

Today is one on those rare days in which everyone stops pretending fundamentals matter, and admits every market uptick is purely a function of what side of the bed Bernanke wakes up on, how loudly Kuroda sneezes, or how much coffee Mark Carney has had before lunch, but more importantly: that all “risk” is in the hands of a few good central-planners. Following last night’s uneventful Bank of Japan meeting, in which Kuroda announced no changes to the “full speed ahead” policy of inflation or bust(ed bank sector following soaring JGB yields) and which pushed the Nikkei225 to surge above the DJIA closing at 15,627, today it is Bernanke’s turn not once but twice, when he first takes the chair in the Joint Economic Committee’s “Economic Outlook” hearing at 10 am, followed by the May 1 minutes release at 2pm (which may or may not have been previously leaked like last month). As a reminder, Politico reported last night that Ben Bernanke had previously met in secret with Darrell Issa and other lawmakers “to discuss the central bank’s efforts to stimulate the economy and how it could exit this strategy in the future, according to people who attended the meeting.”  And since we know how important transparency is to Bernanke and the Congress, “Participants in the meeting declined to disclose specifically what Bernanke told lawmakers beyond saying there was discussion about the Fed’s bond buying programs and other issues.” But as long as Mr. Issa, the wealthiest man in the House, has his advance marching orders, all is well.

Just in case there is still any doubt that the Fed is just as clueless as everyone else in this uncharted territory, Bill Dudley appeared minutes ago on Bloomberg TV with the following key observations:

• Says QE tapering possible by autumn if economy improves, speaking in interview on Bloomberg TV. Or, if it doesn’t as it won’t as it is the Fed that is preventing growth, then impossible
• Says Fed wants to make sure markets don’t overreact to taper
• Says Fed hasn’t decided yet on tapering timing, steps
• Says he is “very much in sync” with Bernanke on policy
• Says fiscal drag obscuring stronger economic fundamentals
• Sees lot of real positive things underneath the surface
• Says economy not quite at “self-reinforcing” stage yet
• Says 2%-2.5% growth “pretty good” given fiscal restraint
• Says he’s “not very nervous” about slower inflation rate

And so on.

In other, irrelevant but still notable news, UK retail sales plunged -1.3% and -1.4% ex autos, on expectations of a +0.1% print for both, while the BOE announced it had voted 6-3 to keep QE unchanged. This will certainly change once Mark Carney takes the helm in just under two months.

And in somewhat strange news, Russia pulled a 33.6 billion ruble bond auction of 2019 OFZ bonds with a yield of 6.33%-6.38% due to lack of bids. A failed bond auction in this carry chasing environment? Surely this can’t happen, and if it did, there is something more than meets the eye. Oh well, let’s just ignore it as it does not fit the narrative of all is well, as confirmed by the EURCHF passing 1.26 for the first time in years, following rumblings out of the SNB’s Jordan about a possible negative deposit rate. Wait, did we say “all is well” – we meant all is centrally-planned.

The remainder of the key events summarized in bulletin format courtesy of Bloomberg:

• Treasuries little changed before Bernanke speaks on economic outlook, Fed releases May 1 meeting minutes; NY Fed’s Bill Dudley said policy makers will know in three to four months whether economy is healthy enough for QE to be tapered.
• Dudley cited “tug-of-war between the fiscal drag and the improving economy” in an interview with Bloomberg TV; said that his views and Bernanke’s were “very much in sync”
• The Bank of Japan pledged to adjust its unprecedented stimulus program as needed after a jump in bond yields that highlighted risks linked to policy makers’ campaign to revive the world’s third-largest economy
• BoJ maintained pledge to double monetary base in two years; link to statement
• BoE Governor Mervyn King was defeated for a fourth month in his bid to expand stimulus as the majority of officials cautioned against the danger of stoking inflation expectations
• U.K. retail sales fell 1.3% in April (est. +0.1%), led by drop in food sales
• CHF weakened through 1.26 vs EUR for first time in two years; SNB President Thomas Jordan yesterday said a shift of the cap on the franc and negative interest rates are among steps the central bank could take to prevent a tightening of monetary conditions
• Government bonds should be excluded from the EU’s planned financial-transaction tax because the levy would drive up sovereign borrowing costs, a panel of European debt-management officials said
• Apple Inc.’s bonds have lost $280.6m of market value since buyers snapped up $17b of the iPhone maker’s debt last month, declining as yields climb from record lows.

SocGen recaps the already noted key highlights, only better:

Fed chairman Bernanke’s testimony before the Joint Economic Committee last year (7/6/12) produced no fireworks, with the exception of gold. A run of open and closing prices for that day reads as follows: EUR/USD 1.2559/1.2566, USD/JPY 79.13/79.60, UST 10y 1.6541%/1.6388%, gold $1,634/$1,592, S&P 1,316/1,314. What on earth is all the fuss about today, if you are really keen sell JPY and gold. But that’s no rocket science and corresponds neatly with the view any USD bull has today, and there quite a few. Except that the last leg of the dollar rally has not been led by speculative accounts (see chart). Does that mean the rally is running out of steam and a dovish Bernanke reignites risk on and a weaker USD?

Strategically our secular view for a stronger USD has not changed, but the question is whether Bernanke calls for a short-term tactical switch after a 3.7% rally in the USD this month. The currency is by no means technically overbought and bright prospect of additional gains are unchanged over a 6 to12 month time horizon based on our expectations that the Fed will start tapering bond purchases later this year (Q3). However, planning ahead for stimulus exit is not the same as pledging to exit and for Bernanke (and other FOMC voters), the bar is likely to be pretty high before steps are undertaken to dial back from the current purchase rate of $85bn per month.

The FOMC minutes could include an updated guidance of how a roadmap would look once the Fed decides the time has come to take its foot off the monetary accelerator. Speculation has been building steadily since the start of the year but is only a few weeks since FOMC voters and non-voters alike have stepped up the rhetoric with some calling for tapering at soon as the June meeting. We believe Bernanke will stick to the last FOMC statement to allow the central bank maximum flexibility, and in doing so, keep bullish conditions intact for risk assets. Watch the 2.00% level in UST 10y.

It has not been a one-way street for the USD and UST yields despite speculation that 2013 could be a watershed for Fed policy. There have been a few bumps along the road which caused the USD and UST yields to give back some of the early 2013 gains, notably in March and April. In contrast, the equity and credit markets have been on a planet of their own, supported by concerted central bank efforts to support global demand. The S&P gave up 2.8% in February and 3.8% in April over one-week periods but other than that it’s been fairly smooth sailing. With inflation subdued and the labour market still not satisfactory, Bernanke will be careful not to spoil the party.

* * *

And DB’s recap of the past 24 hours.

Central banks are also the key focus over the next 24 hours with the Fed minutes and Bernanke speaking later. However as I type the BoJ have just concluded their latest policy meeting by reaffirming their target to double the monetary base over two years and the inflation target of 2%. In terms of the economic outlook, the BoJ said that exports and business fixed investment have stopped weakening amid improving consumer sentiment. The central bank added that indicators are suggesting a rise in inflation expectations. There was no reference made to the recent JGB volatility which was probably behind the 4bp sell-off in 10yr JGB yields (to 0.895%) in the minutes following the BoJ’s statement. We will probably get more on this at Governor Kuroda’s post-meeting press conference scheduled for 7:30am London time today. USDJPY is steady at 102.5 following the announcement.

Returning to the Fed, relatively dovish comments from the NY Fed’s Dudley and St Louis Fed’s Bullard, both FOMC voters, helped put a floor on risk assets yesterday. Starting with Bullard, who is not generally known for his dovishness, remarked that the Fed should “continue with the present QE program” because it is the best available option for policy makers to boost growth. Bullard added that he doesn’t see a good case for QE tapering unless inflation risks pick up. On the topic of IOER, Bullard said that he advocates negative interest rates arguing that paying interest on excess reserves was “mildly counterproductive”. Dudley backed up some of those comments about the pace of easing but stressed that QE should be largely data-dependent.

In terms of the market reaction, the S&P500 was trading near a session low of -0.1% yesterday, but rallied as Bullard and Dudley spoke to close at another record high of 1669.16 (+0.17%). Sectorally, healthcare (+1.1%), consumer discretionary (+0.5%) and financials (+0.2%) enjoyed the best of the gains. The latter was buoyed by news that JPMorgan’s Jamie Dimon had survived a proposal to split his role of CEO and Chairman. The proposal to split the roles drew only 32% of votes this year, was down from 40% last year, which helped propel JPM’s stock to a 1.4% gain yesterday. Better than expected earnings from Home Depot underscored a strong day for consumer discretionary stocks. As US earnings season draws to a close, it’s fair to say to that results have been somewhat mixed this quarter with 71% of US firms beating estimates, but only about half managing to do the same on the top line.

Outside of equities, 10yr UST yields threatened to breakthrough the 2.00% level yesterday before rallying 7.5bp from the intraday high to close at 1.93%. In addition to the Fedspeak, the volatility was also attributed to short covering ahead of Chairman Bernanke’s testimony today. The USD index closed higher (+0.2%) in an up and down session. Gold (-1.3%) and silver (-2%) gave up most of yesterday’s rebound amid the stronger risk sentiment and stronger USD.

Turning to Asian markets, equities are trading mostly higher overnight led by gains on the Nikkei (+1.2%). The Nikkei traded through the 15,500 mark for the first time since December 2007. The KOSPI (+0.8%) and Shanghai Comp (+0.2%) are also firmer, but the ASX200 (-0.3%) is lagging the region’s broader moves. The Hong Kong equity markets remain shut due to inclement weather (“black rain”) but are due to reopen in the afternoon. I’m glad I flew out last night from there. I did one meeting yesterday where I was so high up that I was practically in the middle of the violent thunderstorm! I was trying to convince the client that I wasn’t in the slightest bit scared!! The reality was a bit different.

In the day ahead, Ben Bernanke takes centre stage when he speaks before the congressional Joint Economic Committee on the US economic outlook at 3pm
London time. The Committee is bipartisan, and it’s safe to say that will be an effort by lawmakers on both sides of politics to prise more detail with respect to the Fed Chairman’s QE plans. The Fed minutes from its Apr30/May1st FOMC meeting are published at 7pm London today. The BoE’s will also publish its latest meeting minutes this morning. US existing homes in April and UK retail sales are the highlights on the data calendar.

The post It’s Central Banker Appreciation Day appeared first on MORTGAGE FRAUD EXAMINERS.

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Originally posted http://www.tothetick.com/google-its-just-not-cricket

The UK Leader of the Opposition, Ed Miliband plans on running head long into Eric Schmidt today during a conference in which he will clearly point out that he doesn’t agree with Google Inc.’s lack of fair play. It’s just not cricket, Eric! In an interview given to The Observer he said that Google wasn’t “living up to their responsibilities”. He went on to add that if everybody went around flouting HM Treasury laws and using loopholes to get around paying tax then the British Health Service wouldn’t exist. Has somebody actually told him that the British Health Service doesn’t exist already and that was long before Google was around and we turned it into the search engine on everyone’s lips?

Tax havens cost the world something in the region of $100 billion a year. Google Inc. has been using the loophole in the double Irish as it has become known. Around 88% of sales go through Google Ireland and Google Ireland Holdings. Tax dodgers? Or just using the loopholes that we allowed to be set up around the world? In just three years, Google Inc. has managed to exploit the rules and avoid taxation to the tune of $6 billion.

Miliband plans on telling Schmidt face to face in a conference today in London that Google is being unethical. He will go on to add that when (and if) he gets into number 10, he’ll clamp down on them. David Cameron, the Prime Minister, and current President of the G8 summit will be bringing tax avoidance to the top of the agenda at the next summit meeting. The “Don’t be evil” slogan coined by Google might have been quietly dropped, but it looks like it’s living up to part of that according to some in politics. But, just how effective will Cameron be at the G8 summit? Will Britain go it alone in tax reforms? It seems unlikely that they will. Out on a limb, alone, fighting against tax avoidance loopholes means that they will suffer heavy losses as companies go elsewhere. In these troubled economic times. It’s not the politicians that are calling the tune. Of course companies are going to avoid tax and if we aren’t good enough to get lawmakers to stop them doing that, then that’s hardly their fault.

But, yes, it is questionable today. Many businesses are going under. Many are struggling to keep their heads above water. Forty five companies are going bankrupt every day in the UK at the moment and households are struggling to make ends meet. But international tax-hopping is big business. Revenue from income tax and VAT returns in the UK alone rose by over 6% compared with last year. But, corporate tax fell by 10%. Something’s amiss!

But, Ed, listen up, it’s not only Google, you know. Starbucks only paid tax once in the past 15 years and Amazon wrote off all its tax in the UK (despite making over $3 billion in sales). Starbucks goes through what’s known as the ‘Dutch sandwich’. Amazon uses the ‘Luxembourg sandwich’. But, if we carry on like this, there won’t be any more dough to make the bread, will there?

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Surging nominal imports and a miss for exports just about sums up perfectly just how the reality of Abenomics is crushing the real economy as the market goes from strength to strength on the hope that recovery is just around the corner. For the 28th month in a row Japan trade deficit has dropped YoY and its 12-month average is now at its worst ever. Energy costs are driving up imports (and adjusted for the devaluation in the JPY, the data is simply horrendous. Of course, there are green shoots – CPI is not deflating as fast as it was… and ‘some’ inflation expectations are rising (though as we noted here that is simply due to the tax expectations). Contrary to expectations held by some in the bond market, the BOJ did not comment on the sharp fluctuation in JGB yields since April as a result of monetary relaxation – on the basis, we assume, that if they don’t mention it, it never happened. The result post a nothing-burger of ‘more uncertainty’ from the BoJ, the Nikkei keeps screaming higher, JPY rallied then fell back, and JGBs are sliding higher in yield.

Japan’s trade balance…

Goldman On the Unexpectedly large trade deficit:

Larger-than-expected trade deficit in April: The April trade deficit came in larger than the market consensus (¥621.1 bn) at ¥879.9 bn prompted mainly by continued yen depreciation and a resulting rise in import prices. There was a particularly prominent rise in the value of mineral fuel imports (LNG, etc.), and the overall value of imports was up 9.4% yoy in April, the largest April figure on record. At the same time, overall export value was up 3.8% yoy in April (+1.1% in March), showing acceleration and a second straight month of positive growth. Export volume was still negative in April (-5.3% yoy vs. -9.8% in March), but the degree of decline is shrinking.

 

Export to the US and Asia recovering, Europe remains sluggish: Export value to the US was up by a substantial 14.8% yoy in April (+7.0% in March), and exports to Asia also showed signs of recovery at +4.3% yoy (+0.3% in March). Exports to China showed the first positive year-on-year growth in three months, albeit small at +0.3% (-2.5% in March). By contrast, exports to Europe remained sluggish at -3.5% yoy in April (-4.7% in March).

 

Outlook—More trade deficits ahead, but we expect mild improvement in line with J curve: We expect the trade balance to remain in the red in the near term, but we see a gradual improvement over time in line with the J curve. We still see little boost to export volumes from the weaker yen but expect it to gradually become more evident around summer.

JGBs react to BoJ…

Full BoJ Statement:

Statement on Monetary Policy

1. At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting:

 

The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen.

 

2. With regard to the asset purchases, the Bank will continue with the following guidelines:
a) The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 50 trillion yen, and that the average remaining maturity of the Bank’s JGB purchases will be about seven years.
b) The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of about 1 trillion yen and about 30 billion yen respectively.
c) As for CP and corporate bonds, the Bank will continue with those asset purchases until their amounts outstanding reach 2.2 trillion yen and 3.2 trillion yen respectively by end-2013; thereafter, it will maintain those amounts outstanding.

 

3. Japan’s economy has started picking up. Exports have stopped decreasing as overseas economies have been moving out of the deceleration phase that had continued since last year and are gradually heading toward a pick-up. Business fixed investment continues to show resilience in nonmanufacturing and appears to have stopped weakening on the whole. Public investment has continued to increase, and housing investment has generally been picking up. Private consumption has seen increased resilience, assisted by the improvement in consumer sentiment. Reflecting these developments in demand both at home and abroad, industrial production has stopped decreasing and signs of picking up have become increasingly evident. Meanwhile, financial conditions are accommodative. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) has been negative, due to the reversal of the previous year’s movements in energy-related and durable consumer goods. Some indicators suggest a rise in inflation expectations.

 

4. With regard to the outlook, Japan’s economy is expected to return to a moderate recovery path, mainly against the background that domestic demand remains resilient due to the effects of monetary easing as well as various economic measures, and that growth rates of overseas economies gradually pick up. The year-on-year rate of change in the CPI is expected to register smaller declines for the time being, and thereafter is likely to gradually turn positive.

 

5. Regarding risks, there remains a high degree of uncertainty concerning Japan’s economy, including the prospects for the European debt problem and the growth momentum of the U.S. economy as well as the emerging and commodity-exporting economies.

 

6. The Bank will continue with quantitative and qualitative monetary easing, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate?’

 

Such conduct of monetary policy will support the positive movements in economic activity and financial markets, contribute to a rise in inflation expectations, and lead Japan’s economy to overcome deflation that has lasted for nearly 15 years.

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