Via TcotAudrey, whom I’m now pretty much required to start following.
Speaking of East Asian bubbles…
China’s manufacturing is contracting in May for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter.
The preliminary reading of 49.6 for a Purchasing Managers’ Index (EC11FLAS) released today by HSBC Holdings Plc and Markit Economics compares with a final 50.4 for April and the 50.4 median estimate in a Bloomberg News survey. A reading above 50 indicates expansion. A separate Markit index (SHCOMP) for euro-area services and factory output increased more than forecast.
China needs to generate about 25 million jobs a year just to stay even, and to keep the Party popular enough to maintain a peaceful rule.
Nowhere to go but down:
While central bank policy is supposed to be focused solely on maintaining full employment and price stability, boosting the equity market has been a furtive goal of monetary policy—generally not part of Open Market Committee discussions but never far from mind.
That surreptitious relationship came further into the open at the April 30-May 1 meeting, when Fed members discussed Wall Street expectations for the historically high level of central bank easing.
“A few members expressed concerns that investor expectations of the cumulative size of the asset purchase program appeared to have increased somewhat,” the meeting minutes stated, noting further that those expectations have come even though the unemployment has dropped.
In other words, this big rally we’ve been enjoying isn’t due to any expectation of real growth. Wall Street is hooked on stimulus, and needs ever-increasing doses to keep going.
Reminds me of what a friend told me cocaine is like. (I’ve honestly never touched the stuff; scares the crap out of me.)
Imagine your baseline of ordinary happiness. On an average day, you feel X amount of happy. We’ll baseline that at zero. You snort some coke, and you shoot up to ten points above the baseline. Nice. When you come down, however, you drop two points below your baseline. So you do a little more blow. This time it only boosts you up nine points — but, hey, that’s still seven above the zero mark. Then you drop down to negative three, and the next snort only takes you up eight, to plus five. It’s not long before you need to do massive amounts of coke just to try and reach up to zero.
Wall Street is on that third snort — still above water, and not likely to drop too far down. But it’s counting on an endless supply of cocaine from Ben Bernanke.
Oops. I mean money.
No, I mean cocaine.
Before us is an X-wing fighter — full-size, an 11-foot-tall and 43-foot-long replica, 42 times the size of the LEGO X-wing you can find in the store (Star Wars set #9493, if you must know). We meet Eric, one of a select few “master builders” who work full-time for LEGO creating large models like this one for store displays and media events. Eric leads Nate under and around the model, explaining that the X-wing took 32 master builders more than 17,000 hours to complete, using 5,335,200 LEGO bricks. The result is nearly 46,000 pounds, with a wingspan of 44 feet.
Not the X-Wing. I mean, I want that, too — sort of. But mostly I want that Master Builder gig. And 5,335,200 Lego bricks.
The Tax Policy Center has a gentle reminder for you after the Senate’s little anti-Apple tax circus the other day:
Because Apple is so profitable, the dollars involved will certainly attract attention (this is a Senate committee after all, so that is the point). The report alleges Apple reduced its U.S. corporate income tax by an average of $10 billion-a-year for the past four years. Since the corporate levy generated only about $240 billion in 2012, $10 billion foregone from one company is a very big number indeed.
But while it added a few interesting twists, Apple cut its taxes with the same tools multinationals have been using for years to minimize their worldwide tax liability. And if there is a scandal, I suppose it is the very ordinariness of these transactions. Apple’s tax avoidance shop, it seems, is a lot less innovative than its phone designers.
Again, this goes to something we’ve talked about a time or two in the last few weeks, and that’s the undue attention given to finance. Tax avoidance is a part of that.
Apple is a smart company, devoting its best brains to producing insanely great products — not to complicated tax avoidance schemes. How many more great brains could how many more great companies hire to create great products, if so many of those great brains weren’t being half-squandered on things like gaming the tax code and credit default swaps?
This is a real problem, and it’s a natural outgrowth of many bad public policy decisions. Good on Apple for doing the right thing, and bad on government for making Apple the exception.
Is Japan 2013 just a rerun of America 2007? Hmm:
Japanese equities were basically the hottest major asset class in the entire world before today’s bloodbath, posting 20.9% cumulative gains over the past three months alone.
Last night, though, sparked by the first notable sell-off in three weeks in American stock markets – and really driven home by new data overnight that revealed the Chinese manufacturing sector has unexpectedly dipped into contraction – the Nikkei 225 plummeted 7.3%, marking its biggest single-day drop since the earthquake that ravaged Japan two years ago.
That takes the Nikkei back to levels not seen since May 9 (it’s been moving quickly on the way up).
At least one analyst finds the drop-off in Japan reminiscent of the Lehman Brothers collapse in 2008 that unleashed turmoil on markets.
“Lehman-like in Japan,” writes Société Générale foreign exchange strategist Sebastien Galy in an email this morning.
We’ve been assured for months now that BOJ’s massive fiscal stimulus is just the thing to generate “real” growth in Japan’s long-moribund economy. Instead — pop goes yet another bubble.
If Japan wants robust growth again, it needs to end the cozy relationships between Tokyo and the keiretsu, do something about its rapidly aging population and shrinking workforce, and let the yen take care of itself.
Look, finance is important. But national governments around the world treat it as if it were the only thing. But finance is just one tool needed in the beginning of creating real wealth, which must still either be manufactured, mined, or farmed. Governments hinder all three methods, while juicing the finance side and wondering why nothing happens.
Linda Feldman details four reasons Anthony Weiner is “no Mark Sanford.” Here they are:
• Weiner is trying to come back much sooner than Sanford did, two years versus four years.
• Weiner is aiming for a more prestigious job – mayor of the biggest city in the United States, currently held by Michael Bloomberg. Sanford had the good fortune of seeing his old congressional seat open up, allowing him to show a little humility as he ran for a job less prestigious than the governorship.
• Sanford had less difficult competition than Weiner does – not that Sanford’s political resurrection was a sure thing. Plenty of voters in South Carolina’s First Congressional District weren’t ready to forgive and forget. He had to compete in a runoff for the Republican nomination. Then in the general, he faced a well-funded Elizabeth Colbert Busch, sister of satirist Stephen Colbert. Toward the end of the campaign, Sanford’s ex-wife accused him of trespassing on her property, and the National Republican Congressional Committee stopped investing in the race. But the district was heavily Republican, and Ms. Colbert Busch was a political novice. Sanford won by nine percentage points.
• Perhaps the biggest issue weighing against Weiner is the “ick” factor. The “weiner” jokes are back, as voters are treated to rehashes of Weiner’s lewd texts and tweets sent to women he had met online. Back in 2011, when confronted, Weiner lied about his actions before admitting to them.
Those are all pretty compelling reasons, but I still get this feeling Weiner is going to pull this out.
House Oversight and Government Reform Committee Chairman Darrell Issa said embattled IRS official Lois Lerner waived her Fifth Amendment rights and will be hauled back to appear before his panel again.
The California Republican said Lerner’s Fifth Amendment right to avoid self-incrimination was voided when she gave an opening statement this morning denying any wrongdoing and professing pride in her government service.
This is gonna get gooooooooood.
Longtime VP reader Toadold sent a link an an Austin Bay piece I somehow missed over at StrategyPage yesterday. It’s column-length, and as always Read the Whole Thing™, but here’s a little something on “System D” and the underground economy to get you started:
Apparently Greece’s government still doesn’t understand that spurring entrepreneurial creativity is absolutely essential to economic recovery. In a recent Bloomberg View economics column, Megan Greene dismissed headlines touting a Greek turnaround. Greece’s business operating environment “remains unattractive because of high levels of red tape, an unstable regulatory environment, an opaque legal system” and judicial corruption.
Greene’s list of Greek business afflictions would resonate with Neuwirth’s System D entrepreneurs. Rejecting poverty, they operate beyond the reach of crooked politicians levying confiscatory taxes. Rejecting poverty, they sidestep expensive legal business registration costs.
Fair bet The Great Recession and our onerous “authorized regulatory administrations” have vexed American debrouillards. Indeed, our System D has grown. In a recent New Yorker column, James Surowiecki asked why Americans didn’t report $2 trillion in income to the IRS. Economist Edgar Feige mentioned red tape and distrust of government. Irked Americans want to avoid regulators’ “elaborate hoops.”
This dovetails perfectly with something Glenn linked to a few years ago, but I can’t find the link. But I do remember the author’s main thrust, which is that when the middle class gives up on lawfulness, then it’s really all over for a country.
What Bay has written is yet another clear sign that that’s exactly where the middle class is headed.
Wired has an excellent writeup of the new Xbox One. It was just revealed to the public yesterday, but Peter Rubin got to spend some quality time with one over the last few weeks — the lucky bastard. It’s an impressive piece of hardware, like any new console should be. But here’s what I think makes it a winner:
When the 360 launched, smartphones hadn’t yet trickled out of the corporate world; Netflix was strictly a DVD delivery service; the “cloud” was something that got in the way of a suntan. (Hell, in 2005, people suntanned.) And a big part of the 360’s longevity was Microsoft’s ability not only to develop games but also to forge partnerships that took advantage of these new staples of online life. So as those deals proliferated, so did the things the Xbox 360 could do. People played Halo 3 on their Xbox, but they also watched Netflix. They bought Kinect sensors for controller-free experiences, but they also burned through seasons of Deadwood on HBO Go and caught sports highlights on an ESPN app. But all of this new functionality was built on patches and firmware updates. The 360 simply wasn’t constructed that way, so when the Xbox One was greenlit in the fall of 2011, “the decision wasn’t, ‘We need a gamebox,’” Whitten says. “It was, ‘We need a living-room experience.’” Built that way from the ground up.
This is Microsoft playing at the absolute top of its game (no pun intended). They’ve leveraged everything they’ve learned about gaming, consoles, services, and streaming, and worked them together into a single system. To call the Xbox One a mere “console” is to undersell what it is and what it does. This is an entertainment system-in-a-box, all for a few hundred dollars.
How was Microsoft able to do this, when they’ve pretty much flubbed every single other consumer device they’ve tried to build in the last few years? How did the company that build the ill-fated Zune with its infamous “Squirt” feature manage to get something so spectacularly right?
It’s the Absurdity Blogger Full Employment Act of 2013:
Former Rep. Anthony Weiner, whose career in public life came to an abrupt end when he sent lewd pictures to a college student on Twitter, jumped back into politics on Wednesday by announcing a bid for mayor of New York City.
“Look, I’ve made some big mistakes and I know I’ve let a lot of people down,” the Democrat said in a two-minute video announcing his bid. “But I’ve also learned some tough lessons. I’m running for mayor because I’ve been fighting for the middle class and those struggling to make it for my entire life. And I hope I get a second chance to work for you.”
I can’t wait.
That “American manufacturing renaissance?” Not so fast:
The anecdotes are nice, but the broader data just don’t bear it out. Manufacturing employment over the last 12 months has essentially been flat, stuck at around 11.9 million workers since April 2012. The industry has added around 500,000 jobs since the recession ended, but that’s a drop in the bucket compared with the 1.8 million manufacturing jobs lost from November 2007 through the end of 2010.
It’s not just employment that’s been sagging. Industrial production shrank 0.5 percent in April, according to new data from the Federal Reserve. Overall, the country is using about 77 percent of its total industrial capacity, nearly 3 percentage points below the 40-year average.
The latest bad news comes from the Philadelphia Fed’s report on regional manufacturing activity, which plummeted to a -5.2 reading this month. The average estimate of economists surveyed by Bloomberg called for a gain of 2. Anything below zero indicates contraction.
With the jokers we have in charge, never, ever believe the hype.
On the heels of EA’s announcement that it has zero, zilch, nada in development for the Wii U, the UK’s Matt Martin writes:
The Wii U has been defeated by the most humbling of challengers – consumer apathy. When the inevitable “Nintendo halts Wii U production” stories hit, the majority of those that bought the original Wii won’t even notice. The mainstream bought the Wii because it was a fun novelty, they didn’t buy it for a new Zelda game. What’s the Wii U’s novelty? That it does everything a current-gen console does but a little bit slower and with a Fisher Price tablet attached?
Retailers have given up on the Wii U. It’s not discounted at the supermarkets because they want to sell more, it’s been cut in price so they can get rid of it quickly. Software drives hardware sales. But there are no credible software sales because there are no games being released. Retail is desperate to sell anything, that’s why GAME is now selling sci-fi and fantasy books and HMV has cans of Coke and sweets at the till – anything to squeeze a penny out. They aren’t going to sit around and make space for a handful of Wii U games near the end of the year. They’ll be pushing the Wii U to one side to make more space for the Xbox 360, the PlayStation 3 and hopefully the PS4 and next Xbox.
One reason Windows Phones have fared so poorly is that consumers want iPhones, and retailers are paid handsomely by Samsung to push Samsung phones. That leaves Microsoft without consumer mind-presence, and without retail allies. Try it sometime: Go into a Verizon store and tell the salesman you want a smartphone, but you’re not sure which one. Odds are he won’t let you anywhere near a Windows Phone. Samsung’s spiffs are just too good.
If Nintendo finds itself in a similar fix, then it’s game over, man — game over.
Ralph Peters has today’s message of hope and change:
We don’t even know how many new states will emerge from the old order’s wreckage. But the Scramble for the Sand is on, with Iran, Turkey, treacherous Arab oil sheikdoms and terrorists Sunni and Shia alike all determined to dictate the future, no matter the cost in other people’s blood.
We had our chance to extend the peace and keep both Iran and Wahhabi crazies at bay after we defeated Iraq’s insurgencies. But a new American president, elevating politics over strategy, walked away from Baghdad, handing Iraq to Iran. Now it’s too late. If George W. Bush helped trigger the Arab Spring, Barack Obama made this Arab Winter inevitable.
He’s calling it “The Arab Collapse,” which is about as accurate a shorthand as anyone could manage.
My wife and I were watching Anthony Bourdain’s new CNN show last night, the episode on Libya. Even though we’re fans of the show, we ended up skimming through much of it. There wasn’t a whole lot of food to see, and the politics and the history were just so incomplete. The story seemed to be: Gaddafi is dead and everyone is happy. Maybe the country wasn’t as safe as it could be, what with all those guns and rockets left over from the Civil War — but that was about it.
If there was any talk of Benghazi or how the Islamists are steadily working to control whatever they can (or to fester in areas no one controls), we missed it. I’m afraid most of us in the West are missing it.
I was once at a Town Hall meeting in Cupertino where Steve Jobs commented on this type of wearable computing. An Apple employee in the audience asked Steve a question to the extent of: “How can we reach out to our leadership if we have a really good idea”. Steve immediately put him on the spot and made him pitch the idea in front of everyone there. An opportunity to pitch Steve Jobs. What? The employee proceeded to pitch an idea about glasses you can wear that display various types of information. A heads up display a’la terminator cyborg vision if you will. He continued to explain how he wished he had a way to see projected information while he perhaps went for a run outside. Keep in mind this is happening in a room filled with a lot of people. Steve immediately shot his idea down and told the guy that he would probably trip and fall if that were the case. Steve also suggested he should get a girlfriend so he has someone to keep him company while running.
Me, I flashed on on William Shatner and “get a life.”
The Apple CEO released a statement — how unJobs-like! — before his Senate testimony:
For Apple’s current fiscal year, the company plans to pay more than $7 billion in taxes to the U.S. Treasury.
The testimony also argues that Apple does not use so-called “tax gimmicks.” Specifically, Apple has said it does not:
Move its intellectual property into offshore tax havens and use it to sell products back into the U.S. in order to avoid U.S. tax.
Use revolving loans from foreign subsidiaries to fund its domestic operations.
Hold money on a Caribbean island
Have a bank account in the Cayman Islands.
The justification for Apple’s “substantial foreign cash,” as the company put it, is because the majority of its products are sold outside of the U.S. The iPhone maker’s international operations accounted for 61 percent of its revenue last year, and increased to two-thirds of its revenue last quarter.
Cook will also testify to the need for tac reform to make it more desirable to repatriate foreign-earned capital back to the United States.
Ron Fournier almost wins the internet today:
Swamped in controversies, President Obama and his slow-footed team are essentially telling the American public, “We’re not crooked. We’re just incompetent.”
The IRS targeting conservatives, the Justice Department snooping at The Associated Press, the State Department injecting politics into Benghazi, the military covering up sexual assaults, and the Department of Veterans Affairs leaving heroes in health care limbo – each of these so-called scandals share two traits.
First, there is some element of “spin,” the cynical art of telling just enough of the truth to avoid political embarrassment. Obfuscation and demagogy, the dirty tools of political quackery that Obama pledged to purge from Washington, enjoy top-shelf status at his White House.
In just two short grafs, Fournier said Obama or his Administration is
• Using dirty tools
But then he mentions “these so-called scandals.”
Ron, buddy? Where there’s smoke, there’s probably a liar with his pants on fire.
Salena Zito has an interesting take on the President’s interesting means of wielding power:
Presidents also wield power by influencing those who deeply admire, strongly identify with or highly respect them. This is referent power, which focuses on ability to exploit others’ trust.
Celebrities — with no formal power and little expertise — wield influence through referent power; some people feel so close to and trustful of celebrities that they act upon their perceptions of what a celebrity wants them to do.
“To be clear, referent power does not work through order, command or threat,” Nichols explained. “Instead, it works through suggestion and the creativity of the fawning admirer.”
We don’t know yet how involved the White House was in today’s scandals. Yet, at a minimum, they suggest a government — from the State Department to the CIA, the military leadership, the IRS and Justice — filled with sycophants under the sway of Obama’s referent power.
Read the whole thing, of course, but this is exactly it. Reagan might have been the first President to use the power of celebrity effectively. Clinton, I thought, perfected it. But Obama has brought it to an entirely new level.
Appear on The View, non-political magazine covers, the outlandish parties. I’d denigrate him for it, except that it’s just so damn effective. And until the GOP re-learns how to play this game, they’ll probably be shut out of the White House.
Honeybees trained to sniff out landmines? It’s true:
A team of Croatian researchers are training honeybees to sniff out unexploded mines that still pepper the Balkans.
Nikola Kezic, a professor in the Department of Agriculture at Zagreb University, has been exploring using bees to find landmines since 2007. Croatia, Bosnia-Hercegovina and other countries from former Yugoslavia still have around 250,000 buried mines which were left there during the wars of the early 90s. Since the end of the war more than 300 people have been killed in Croatia alone by the explosives, including 66 de-miners.
Tracking down the mines can be extremely costly and dangerous. However, by training bees — which are able to detect odours from 4.5 kilometres away — to associate the smell of TNT with sugar can create an affective way of identifying the locations of mines.
I can’t tell if that’s cooler than it is creepy or creepier than it is cool. And of course this is going on in Croatia, because you know the EPA would shut that program down faster than you can say, “Did you hear a click?”
H/T, Doug Mataconis.
White House Spokesmodel Dan Pfeiffer isn’t too happy these days, and vented his frustration on yesterday’s Sunday shows:
The remarks came from Dan Pfeiffer, a member of the president’s inner circle, as he appeared on all five major Sunday morning talk shows in an effort to move the administration past what commentators have described as a “hell week” of controversy and missteps. He pointedly rejected Republican criticisms of the president’s actions and leadership style as “offensive” and “absurd,” and he said the administration would not be distracted from doing the nation’s business.
I don’t know about offensive, but critiques this effective are certainly unaccustomed. Even Bob Schieffer is tired of getting stonewalled:
“I don’t want to compare this in any way to Watergate … but I have to tell you, that is exactly the approach the Nixon administration took. You’re taking exactly the same line,” Mr. Schieffer said.
He then castigated the White House for taking credit when the federal government does something right, but passing the buck when problems arise. Republicans and other critics have made similar claims that Mr. Obama seems to have little knowledge of what’s happening in his own federal government.
“When the executive branch does things right, there doesn’t seem to be any hesitancy for the White House to take credit for that,” Mr. Schieffer said, citing the killing of Osama bin Laden as an example. “When these [scandals] happen, you seem to send out officials many times who don’t even seem to know what’s happened.”
The last couple of weeks have been one Sergeant Schultz act after another from various Administration officials. And that breaks the cozy compact between Official Washington and the MSM (but I repeat myself), in which the former has to help the latter make it appear as though they’re doing their jobs.