3D Printer Builds 10 Small Houses a Day for $5,000 Each

Chinese construction firms can 3-D print 10 low-cost houses a day with machines that add layer after layer of quick-drying cement in a process called "contour crafting".

A private company in east China recently used a giant printer set to print out ten full-sized houses within just one day.

The stand-alone one-story houses in the Shanghai Hi-Tech Industrial Park look just like ordinary buildings. They were created using an intelligent printing array in east China's city of Suzhou.

The array consists of four printers that are 10 meters wide and 6.6 meters high and use multi-directional automated sprays. The sprays emit a combination of cement and construction waste that is used to print building walls layer-by-layer.

Ma Yihe, the inventor of the printers, said he and his team are especially proud of their core technology of quick-drying cement. Ma said he hopes his printers can be used to build skyscrapers in the future.

This technology allows for the printed material to dry rapidly. Ma has been cautious not to reveal the secrets of this technology.

MarketWatch provides this image of the 33 foot wide by 22 foot tall building.



To label aesthetics as "unappealing" would be a huge understatement. But what do you expect for a house that costs $5,000?

2,500 Sq Ft Printed Home

Using similar technology, and larger printers, MSN notes 3D Printer Can Build 2,500 Square Foot House in 24 Hours.

The University of Southern California is testing a giant 3D printer that could be used to build a whole house in under 24 hours.

Professor Behrokh Khoshnevis has designed the giant robot that replaces construction workers with a nozzle on a gantry, this squirts out concrete and can quickly build a home according to a computer pattern. It is “basically scaling up 3D printing to the scale of building,” says Khoshnevis. The technology, known as Contour Crafting, could revolutionise the construction industry.

As Khoshnevis points out, if you look around you pretty much everything is made automatically these days – “your shoes, your clothes, home appliances, your car. The only thing that is still built by hand are these buildings.”



“It’s a CAD/CAM solution,” says Khoshnevis. The buildings are “designed on computer and built by a computer”. Contour Crafting hopes to generate “entire neighbourhoods built at a fraction of the cost, in a fraction of the time, far more safely, and with architectural flexibility that is unprecedented.”

The Contour Crafting solution also produces much stronger structures than traditional building methods. According to Contour Crafting the tested wall is a 10,000PSI (pounds per square inch) strength compared to an average of 3,000PSI for a regular wall.

They would not be as homogenous as the suburbs, says Khoshnevis, because “every [Contour Crafted] building can be different. They do not have to look like track houses because all you have to do is change a computer program” to get a completely different house.

Because the buildings are printed with a nozzle, they can also be far more creative than current constructions. “The walls can be curved” says Khoshnevis and “you can have very exotic architectural features without incurring additional costs.”

Will builders be out of work?

What the implications are for builders is, of course, a major concern. Building and construction has largely escaped the construction line automation of other industries and remains solid employment for millions worldwide. According to the International Labour Organisation construction employs nearly 110 million people worldwide and “plays a major role in combating the high levels of unemployment and in absorbing surplus labour from the rural areas.”

That’s a lot of people Contour Crafting could make redundant, which raises the question of whether the system could do more harm than good.

Contour Crafting

The idea that such technology would do more harm than good is of course preposterous. Falling prices and improved productivity should always be welcome. With this technology, we can easily build "affordable homes".

Here is an interesting video on the "contour crafting" process.



Improvements in technology inevitably raise standards of living. Curiously, people are concerned about it. Central banks will even attempt to fight it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Separatism Spreads; Kiev Admits Losing Grip in Eastern Ukraine; Putin Threatens to Retaliate Against Sanctions

Pro-Russia forces seized administration buildings in Horlivka today forcing Kiev to admit reality. Please consider Kiev Admits Losing Grip in Eastern Ukraine.

Ukraine’s acting president on Wednesday admitted that government authorities had lost control of the eastern Donetsk and Lugansk provinces to separatists, and said the challenge now was to “prevent terrorism from spreading to other regions”.

Oleksandr Turchynov also warned that pro-Russian groups were planning “subversive acts” in six other eastern and southern Ukrainian regions during Thursday’s May Day holiday, formerly one of the biggest events in the Soviet calendar for mass marches.

In Lugansk, capital of Ukraine’s easternmost province, gunmen were on Wednesday in control of several government buildings after easily overpowering them late on Tuesday, using weapons and explosives from the state security headquarters, which they seized control of earlier this month.

Lugansk’s regional administration building was also in separatist hands after a crowd easily seized control on Tuesday from police, who remained in the building and surrendered control. Residents of the depressed mining city, population 450,000, approached men guarding the building with gifts of cigarettes.

“We saw policemen in anti-riot gear guarding the building, but they didn’t put up any resistance to the occupiers,” Andrea Cellino, leader of an Organisation for Security and Co-operation in Europe monitoring team in Lugansk who witnessed Tuesday’s government building takeover. “The population is mostly either sympathetic or openly supports the occupiers and their motives.”

Ukraine Vows to Stanch Separatism

Bloomberg reports Ukraine Vows to Stanch Separatism as Militants Spread

Ukraine’s acting president vowed to create a special police force to staunch the spread of separatism in the country’s east, vowing to overcome unrest he says is stoked by Russia and hold an election slated for May 25.

As part of a creeping campaign by pro-Russian militants across Ukraine’s east, armed men seized government buildings in the city of Horlivka today, while news service Unian reported a member of the Donetsk electoral commission was kidnapped by “terrorists.” The U.S. and EU say Putin’s government is helping the separatists to destabilize the country of 45 million people in the run-up to next month’s presidential ballot in their worst standoff with Russia since the Cold War.

“Our first and main task is to prevent the spread of the terrorist threat to other regions,” Ukraine’s acting President Oleksandr Turchynov said in Kiev today. “Because there is a real threat of Russia starting a continental war, our army is on full combat alert.”

About 1,000 gunmen have seized buildings in more than 10 cities in eastern Ukraine, according to the country’s Interior Ministry. About 20 seized the Horlivka city council and regional police headquarters today, Interfax said. Yesterday, hundreds of activists wielding sticks and waving Russian flags stormed the Luhansk regional administration.

Putin Threatens to Retaliate Against Sanctions

Europe wants to "do something" as long as it does not cost anything, an impossible challenge. For example, European Commission President Jose Manuel Barroso said today that officials should make sure any future actions don’t harm the European economy.

Meanwhile, Putin Threatens to Retaliate for Sanctions.

President Vladimir Putin’s threats to retaliate for further sanctions on Russia set the stage for escalating economic warfare that may have painful effects for U.S. and European companies.

“I would expect Putin to make life somewhat difficult for foreign companies in Russia whose governments are doing the sanctioning,” said Gary Hufbauer, a sanctions specialist at the Peterson Institute for International Economics in Washington. 

Putin’s warning yesterday of consequences for U.S. and European companies came hours after the EU announced new measures over the crisis in Ukraine. His comments took aim at the interests of companies such as Exxon Mobil Corp. (XOM), which has drilling rights to 11.4 million net acres (46,134 square kilometers) in Russia, the company’s biggest single cache of drilling rights outside the U.S. Exxon also is planning Arctic drilling in an alliance with state-owned OAO Rosneft.

“The Russian government has already proposed some retaliatory steps,” Putin said at a Supreme Eurasian Economic Council summit in Minsk. “I consider these not necessary. But if something like this continues, then of course we will have to consider who’s working and how in the Russian Federation, in the key sectors of the Russian economy, including energy.”

Hufbauer said in an interview that Putin’s response is likely to be limited, because any pain he inflicts on Russia’s trade partners and investors can boomerang on him. “I don’t think he’ll over-escalate, but he’ll show he can play the sanctions game, as well.”

Economic retaliation by Putin -- whether punishing foreign investors or cutting off gas exports to Europe -- would rebound back to Russia, harming its $2 trillion economy more than the $16.8 trillion U.S. economy or the EU’s $17.4 trillion gross domestic product, according to Michael Corgan, a professor of international relations at Boston University.

Negative Sum Game

I don't think it is at all clear that Russia would lose more than Europe if it shuts off gas, but it is clear that both Europe and Russia would suffer.

If the US turns the screws hard enough, Russia will respond in some fashion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Guinea Pig

Recently we had the opportunity to babysit our neighbor's guinea pig named Shadow.


He was a little shy at first, but once he got used to us, he let us hold him and pat him behind his ears.


It's hard to believe he's related to the extinct 1500-pound giant rodent that I painted called Josephoartigasia, a rodent the size of a rhinoceros.
-----

Previously: Visualizing a Mega Rodent

Guinea pigs were exotic pets in the Renaissance, brought back by conquistadors.

Japan Output and New Orders Decline at Fastest Pace Since 2012; Abenomics in Review

Abenomics said Japanese stimulus efforts would offset tax hikes. I disagreed. Although one month is not proof, Markit reports Japanese Output and New Orders Decline For First Time in 14 Months Following Tax Hike

Key points:

Output falls at fastest pace since December 2012
New orders also down; exports decline slightly
Rate of job creation accelerates to highest since February 2007

Summary: Japanese manufacturing firms saw a decline in output for the first time in 14 months in April. Alongside this fall in output was a deterioration in new orders which also decreased for the first time in 14 months. In both cases, firms linked the reductions to the rise in the sales tax.

The headline seasonally adjusted Markit/JMMA Purchasing Managers’ Index™ (PMI™ ) – a composite indicator designed to provide a single - figure snapshot of the performance of the manufacturing economy – posted at 49.4 in April, down from 53.9 in March. This was the first time in 14 months that the Japanese manufacturing sector saw a deterioration in business conditions. Output fell to the greatest extent seen since December 2012.

The main contributor according to anecdotal evidence was a decline in demand. Indeed, similar to output, new orders decreased, with evidence suggesting the increase in the sales tax was the main factor behind lower new orders, as clients had brought forward purchases in March to avoid paying additional costs the following month.

Japan Manufacturing PMI



Abenomics in Review

One month does not present a complete picture. However, Abenomics has so far resulted in a declining Japanese balance of trade, inflation (foolishly wanted), little to no increase in exports, and soaring import costs (especially food and energy).

For those results, many leading world economists think prime minister Shinzo Abe is a hero. In contrast, I think he is a fool.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Ukraine Separatists Seize Another Local Government Headquarters; Two Points of View; EU Expands Sanction List by 15

Making it readily apparent that no one has any control over the separatists, nor can anyone speak for them, Separatists Seize Another Local Government HQ in Ukraine.

Hundreds of pro-Russian separatists seized the regional government headquarters in Luhansk on Tuesday, unopposed by police, underlining the lack of control of central government over swathes of eastern Ukraine.

Lines of riot police surrounded the back of the building, facing hundreds of men and women. At the front, dozens of men, some in green camouflage and holding shields, walked into the imposing, white building, while others smashed windows and raised the Russian tricolor.

The government in Kiev has all but lost control of its police forces in parts of eastern Ukraine since pro-Russian activists seized buildings in the region's second biggest city of Donetsk and several smaller towns.

In separatist-held Slaviansk, the self-declared mayor said he would discuss the release of detained military observers only if the European Union dropped sanctions against rebel leaders.

"The regional leadership does not control its police force," said Stanislav Rechynsky, an aide to Interior Minister Arsen Avakov, referring to events in Luhansk where separatists had earlier only occupied the local security services' building.

"The local police did nothing."

He added that the ministry had information that they would next try to take the local television center.

Ukraine's authorities are struggling to find a way to evict the separatists, who also took a small town hall in Pervomaisk in the Luhansk region on Tuesday.

Separatists in Donetsk, eastern Ukraine's second biggest city, have said they will hold a referendum on independence for the Donbass region on May 11.

That would undermine government efforts to hold a non-binding consultative referendum across Ukraine on May 25 or June 15, when the country votes for the president, to gauge appetite for the decentralization of power.

Two Points of View

Some claim Russia is orchestrating these events. Russia denies it. Which story is true? If Russia is not leading these efforts, then how is sanctioning Russia supposed to help?

Regardless, more sanctions are the call of the day.

EU Expands Sanction List by 15

The Financial Times reports Russia’s Military Chief and Deputy PM Added to EU Sanctions List

Russia’s military chief and deputy prime minister are among 15 names the EU has added to the list of individuals it is imposing sanctions on, in a move that sparked sharp criticism from Moscow.

Russia’s foreign ministry said that the EU sanctions were “shameful” and claimed they would inflame the Ukraine crisis.

“If that is really how someone in Brussels hopes to stabilise the situation in Ukraine, it is clear evidence of a complete misunderstanding of the internal political situation in the country and a direct invitation to local neo-Nazis to continue producing lawlessness and extrajudicial retaliations against the peaceful population of the southeast,” the ministry said in a statement on Tuesday.

Questions of the Day

Whether or not Russia has a hand in orchestrating these events is debatable. What is clear is that outside forces in both Russia and Ukraine are not in control of the situation and do not speak for the separatists.

If Russia isn't responsible for these takeovers then how can extra pressure on Russia help?

Would a dialogue with the one group never invited to the peace accord make sense? What precisely are their demands? What is it they will settle for? Isn't it time someone find out?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

CGI Film: Hallucination of a Lost 16th Century Mariner

Here's a short 3D CGI film called "Navigation in Dreamtime."


The camera drifts through trippy dreamscapes, as ornate golden orbs and tendrils gently morph in shape, pattern, and color.

(Direct link to video) The animation is by Julius Horsthuis, who imagines that "It's 1596 AD and a ship is frozen in the deep arctic. No help is coming. The Navigators and Cartographers aboard, suffering from hypothermia and frostbite are starting to hallucinate."

Fractal-powered software is Mandelbulb 3D. Music is "Soul Medicine" by Mari Boine.
If you liked this, check out his "Phenotypic Sarcophagi."
Via CGBros.

Slow Motion Bust - The Long Goodbye - One-Sided Incentives

In The Long Goodbye, economist Andy Xie says People around the world will only begin to question their economic policymakers when they realize living standards are slowly worsening.

The recent tumbling of Internet and biotech stocks may indicate that the speculation in such stocks has peaked. But, unlike in 2000, the bursting will occur in slow motion. The financial market structure has radically changed in the past 15 years. Too many money managers have a one-sided incentive to long such stocks.

The global financial system has experienced one bubble after another because major central banks have kept monetary policy loose. Prolonged loose monetary policy has made the financial system extraordinary large relative to the real economy. This change forces central banks to respond to negative shocks, like the bursting of a bubble, from the financial system. Such responses make the financial system even bigger. This vicious cycle explains why speculation has become such a powerful force.

A bubble cannot expand forever, even in an environment of loose monetary policy. The balance between fear and greed can tip over when the price of an asset becomes too high, like Internet stocks now relative to the average. The subsequent deflating bubble, in a continuing environment of loose money, just shifts air into other assets.

The talk of monetary tightening in the United States or China will not be followed up with strong enough actions. Real interest rates will remain negative until another crisis, like high inflation or hyperinflation or political crisis, force the hand.

Gold is the safe asset in today's environment. As paper currencies lose credibility, the demand for gold will surge. The alternative digital currencies are fool's good, really scams to take advantage of people's fear over the potential collapse of paper currencies.

Facebook trades at 100 times earnings and US$ 150 billion in market capitalization. No company grows forever. When it stagnates, its stock can trade at 10 times earnings. Hence, Facebook needs to increase its profit 10 times to justify its current stock price. How many media companies make US$ 15 billion in advertising today? Zero.

Two changes in the past 15 years have made bubble formation a constant feature of financial markets around the world. The inefficiencies in capital allocation and income redistribution to finance are the main reason for today's sluggish global economy.

At the macro level, globalization has made inflation slow to emerge, as multinational companies can shift production around the world in response to cost pressure. This force has given central banks more room in increasing money supply without facing the inflation consequences for years. Hence, central banks around the world have become more active in response to economic fluctuations. The consequence is a rising ratio of money supply or credit to GDP. By definition, this means a bigger and bigger financial system, which needs more and more income to survive.

This is an excellent article by Xie. Inquiring minds will want to read the entire piece.

I am in Sonoma now, preparing for Wine Country Conference II. Looking forward to seeing all the speakers and attendees.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Final day at the Portrait Conference

On the final day of the annual portrait conference, I sketched Robert Liberace and Rose Frantzen as they painted a two-hour head study of a bearded model. 

Scott Burdick shot this quick video of the action. (Direct link to video)

Rose worked with incredible energy, beginning the painting with a phthalo green oil crayon. The strong color kept flooding into mixtures as she went along. 

 
She's impetuous, dynamic, and experimental, very exciting to watch. She and Robert Liberace got great results, but I failed to take a photo of their paintings. Can someone send me scans of the finals?
-----
Rose Frantzen
Video footage provided by Scott Burdick
Portrait Society

Pending Home Sales Rise First Time in 9 Months, Down 7.9% From Year Ago

The Wall Street Journal reports Pending Home Sales Up 3.4% in March, the first rise in nine months.

Facts and Figures

• Pending sales up 3.4% from February
• Pending sales down 7.9% from year ago
• Index 2.6% Below 2001 Level
• Actual new home sales down 14.5%

Wishful Thinking

In the wishful thinking department, Gennadiy Goldberg, U.S. strategist at TD Securities stated "The stronger pending home-sales report hints at resurgence in housing-market momentum during the typically busier spring buying season."

Don't count on it. Home prices are up, and so are mortgage rates. Thirty year mortgages are about a full point higher from a year ago. The recovery, if that's what you want to call it, was driven by all-cash sales.

Investor demand has waned at these prices. There is just not much left of the recovery, if anything at all.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Progressives Plan Huge Illinois Tax Hikes; Union Member on the "Fair Tax" Proposal

Via email, Ben VanMetre at the Illinois Policy Institute mentions huge tax hikes that Progressives are angling for. The tax hikes are so steep and so universal that even thinking union members are against the hikes.

From VanMetre

State Sen. Don Harmon and advocates for his progressive tax proposal argue that the progressive income tax will provide tax relief for Illinois’ middle class.

Not only is the argument not true, but the progressive income tax was never about tax relief. The proof of that is in the numbers.

Under Illinois law, the individual income tax rate will be 3.75% in 2015. Under the progressive tax-hike plan introduced by Sen. Harmon — and endorsed by A Better Illinois — a higher 4.9% applies to income earned after $12,500.

Under Harmon’s proposal, anyone with a taxable income of more than $22,000 will see their overall state tax bill increase. That plan targets Illinois’ working- and middle-class residents.

So why didn’t Harmon use the sunset rate (3.75%) for $12,500 in his rate structure?
The answer: because part of the progressive tax hike scheme is about making as much of the temporary tax hike permanent as possible while still calling it “tax relief.”
And that’s true for all of the popular progressive tax plans instructed in Illinois recently:

• State Rep. Naomi Jakobsson’s plan makes permanent the 5% rate on income earned above $36,000.
• The Center for Tax and Budget Accountability’s plan makes permanent the 5% rate on income earned above $5,000.
• Sen. Harmon’s plan makes permanent nearly all of the 5% rate on income earned above $12,500.

It’s time for taxpayers in Illinois to know the truth about the progressive income tax. It’s not about tax relief — it’s about making the temporary tax hike permanent and further increasing taxes on the middle class.

Ben VanMetre
Senior Budget and Tax Policy Analyst

"Unfair" Tax details



Everyone who makes more than $12,500 will see huge tax increases. Supposedly this is "fair".

Illinois Union Member on "Fair Tax" Proposal



Live in Illinois and want to fight the proposed tax hike?

If so visit unfairillinois.com today and complete three simple steps to stop Springfield's middle-class money grab.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

US Plans Sanctions on Putin's Inner Circle, Russia's Third Largest Lender, and Gazprom

Today the US announced more sanctions on individuals, businesses, banks and Gazprom. The one person not targeted is Putin, the alleged perpetrator of the crisis.

Bloomberg reports U.S. Plans to Hit Putin Inner Circle With Sanctions.

Deputy White House National Security Adviser Tony Blinken pledged “news for Monday” on sanctions as the focus on the ground in Ukraine turned to a team of international observers seized by pro-Russian separatists. Among those that may be hit are Russia’s third-largest lender, OAO Gazprombank, development lender Vnesheconombank, and Igor Sechin, the chief executive officer of OAO Rosneft (ROSN), according to people familiar with developments. Sechin is a confidant of the Russian president.

“We will be looking to designate people who are in his inner circle, who have a significant impact on the Russian economy,” Blinken said on CBS’s “Face the Nation” program today. “We’ll be looking to designate companies that they and other inner-circle people control. We’ll be looking at taking steps as well with regard to high-technology exports to their defense industry. All of this together is going to have an impact.”

Representatives of the 28 European Union nations will also meet tomorrow to widen a list of people subject to asset freezes and travel bans, an official from the bloc said yesterday. The sanctions will target 15 Russians in positions of power, another diplomat said. Both asked not to be identified because of the sensitivity of the matter.

“What we will hear about in the coming days is an expansion of existing sanctions, measures against individuals or entities in Russia,” U.K. Foreign Secretary William Hague told Sky News television today. “Already we have seen more than $60 billion of capital flight out of Russia so far this year, and serious falls in the Russian stock market. So no one should underestimate the impact on Russia and Russia’s own interests of continued escalation of this crisis.”

In the wake of those capital outflows and a credit-rating downgrade by Standard & Poor’s, Russia’s central bank unexpectedly raised its key interest rate to 7.5 percent on April 25. The ruble has lost almost 9 percent this year against the dollar, the second-worst performance among 24 emerging currencies tracked by Bloomberg after Argentina’s peso.

Sechin may be among those facing travel bans and asset freezes tomorrow, according to a U.S. official familiar with the situation. Executives at Gazprombank are preparing for possible sanctions, two people with knowledge of the deliberations said last week, while Vnesheconombank is taking precautionary measures, according to a person familiar with talks at the lender.

U.S. Senator Bob Corker of Tennessee, the top Republican on the Foreign Relations Committee, called on President Barack Obama’s administration to impose sanctions on four of Russia’s largest banks and OAO Gazprom (OGZD), the country’s gas-export monopoly.

“It’s going to be more effective if everybody signs on and everybody’s committed,” Obama told a news conference today in Putrajaya, Malaysia. “We’re going to be in a stronger position to deter Mr. Putin when he sees that the world is unified and the United States and Europe is unified, rather than this is just a U.S.-Russia conflict.”

The planned EU moves are not set to include broader trade, financial and economic measures against Russia, known as “stage three” sanctions. Hague said work on those is continuing.

It's not clear why striking back at friends and associates of someone who allegedly committed a crime should be legal, but legalities do not stop this president, nor have they stopped any president.

That aside, if Gazprom is shut off from the world, then what's the point of Russia delivering any gas to Europe?

Things can get out of hand in a hurry if the US keeps turning the screws. Desperate people do desperate things. Of course, that is exactly what some warmongers want.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mary Whyte Demo

Watercolor painter Mary Whyte gave a spellbinding live demonstration at the Portrait Society of America conference yesterday here in Washington, DC.

Whyte is beloved for her sympathetic portrayals of the working South, and her images of the African-American Gullah women of Johns Island, South Carolina.

She captures her subjects in everyday actions, sweeping the floor, sewing on buttons, or putting on shoes. "All my life I've been interested in the in-between moments," she said. As she laid on wet washes of color before an audience with most of the 700 attendees, she described how she tries to "hold onto the biggest brush you can for as long as you can." 

Taking a break from painting her longtime model Tesha Marshland, she described her process for creating her compositions, and she showed sketches done from her imagination in advance of shooting reference.  She said she uses photos "for information, not for direction."

"After I have an idea for a painting," she explained, "it's important to think how can I say more? Sometimes that means taking things out of a painting."

-----

Book: More Than a Likeness: The Enduring Art of Mary Whyte

Mary Whyte's website

Number of New Mortgage Loans in Spain Down 33% From Year Ago

Those who think the Spanish economy is poised to turn around need only take one look at mortgage loans to see reality.

Via translation from La Vanguardia please consider New Mortgages Drop 33% in February, 46 Consecutive Months of Declines

New mortgages for home purchases fell in February by 33% over the same month in 2013. This marks 46 months of declines according to data released today by the National Statistics Institute (INE).

The average amount of these loans reached 102,443 euros, 0.8% less than in January and only up 1.1% from a year earlier.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Ukraine PM Accuses Russia of Wanting WWIII; Kiev Forces Block Rebel Town; Russia Issues Downbeat Economic Statement

Ukraine and Russia remain in the spotlight this weekend. Here are the top stories.

1. Russia hiked interest rates 50 basis points on Friday accompanied with a warning about inflation and a sluggish economy.
2. Russian Markets Have Worst Week Since Crimea.
3. Ukraine's acting prime minister accused Russia of wanting to start WWII.
4. Ukraine forces barricade the rebel stronghold of Slavyansk

Russia Issues Downbeat Economic Statement

The World Politics Journal notes Russia’s central bank issues a downbeat statement on the Russian economy.

On Friday, April 25th, Russia’s central bank raised its benchmark interest rate by 50 basis points to 7.5 per cent, giving higher inflation risks as a reason behind its decision.

‘The probability of inflation exceeding the 5% target at the end of 2014 has increased substantially’, the Russian central bank said in a statement.

Annual inflation stood at 7.2 per cent as of Monday, April 21st. However, the central bank estimates that inflation would not exceed 6 per cent by the end of 2014.

The Russian economy expanded 1.3 per cent in 2013, the slowest pace of growth since a 2009 recession. For comparison, the economy grew by 3.4% in 2012. The Bank of Russia said in a downbeat statement on the economy: ‘Labour productivity growth is sluggish, while fixed capital investment continues to contract because of declining profits in the real sector, limited access to long-term financing in both international and domestic markets, as well as low producer and consumer confidence.

The Russian central bank predicts that the country ‘will continue to witness a downward trend in economic growth’ in 2014, adding ‘Amid economic uncertainty and declining producer confidence there is a strong probability of a reduction in fixed capital investment. Combination of slower growth in real wages and a decline in household lending growth rates will have a dampening effect on consumer activity’.

Russian Markets Have Worst Week Since Crimea as S&P Cuts Rating

Bloomberg reports Russian Markets Have Worst Week Since Crimea as S&P Cuts Rating.

Russian bonds and stocks suffered their worst weekly rout since mid-March as the truce forged to ease tension in eastern Ukraine unraveled, fueling concern that President Vladimir Putin faces stiffer international sanctions.

Benchmark ruble bond yields climbed to the highest since March 14, prompting the Finance Ministry to abort plans to return to the local debt market on April 23, two days before Standard & Poor’s cut Russia’s credit rating to one level above junk. The central bank’s surprise half-point interest-rate increase yesterday failed to stem the ruble’s weekly retreat, the biggest among 24 emerging markets after South Africa’s rand.

“The past few days have been particularly painful for Russian fixed income,” Benoit Anne, the London-based head of emerging-market strategy at Societe Generale SA, said by e-mail yesterday. The failed debt auction “badly damaged investor confidence. In addition, the geo-political situation continues to deteriorate with a war of words and a tougher rhetoric employed between various parties,” he said.

The Micex Index (INDEXCF) dropped 5.6 percent for the week, the most since the period ended March 14, the last trading day before the Crimean referendum that paved the way for Putin to annex the Black Sea peninsula. The yield on government bonds due February 2027 jumped 29 basis points yesterday to 9.65 percent, extending the weekly increase to 65 basis points, following the central bank’s move to raise its key rate to 7.5 percent.

The ruble suffered its steepest weekly retreat against the dollar since the five days ended March 9, depreciating 1.2 percent to 36.0450 by 9:08 p.m. in Moscow yesterday. The currency, whose three-month implied volatility rose to an almost six-week high, slumped 8.8 percent this year, the most for an emerging-market currency after Argentina’s peso.

Ukraine PM Accuses Russia of Wanting WWIII

The Financial Times reports Kiev Forces Blockade Rebel Town as Rhetoric Rises

Ukraine pursued its operation to flush out separatists in the east for a second day on Friday, surrounding the rebel stronghold of Slavyansk, as the interim prime minister accused Russia of “wanting to start a third world war”.

Serhiy Pashynsky, acting head of Ukraine’s presidential administration, said a decision had been made to blockade Slavyansk – which on Friday was still in the control of the pro-Russian “people’s mayor” Vyacheslav Ponomarev – by positioning its security forces around the town.

A Ukrainian military transport helicopter, parked at an airport in nearby Kramatorsk where separatists are barricaded inside the town hall, exploded in a fireball on Friday after being hit by a sniper bullet, dealing a symbolic blow to Kiev’s campaign to clear cities of rebels.

Ukraine’s interior minister said law enforcement officials were taking a cautious approach in the crackdown, which continued amid fears of an imminent Russian military intervention . “The key principle in the antiterrorist operation . . . is minimising risk for the peaceful population,” Arsen Avakov said.

Ukrainian officials described their crackdown as the “second stage” of an operation that began on Thursday. Their deliberation suggests Kiev is trying to avoid casualties that might provoke Russia to retaliate.

However, officials engaged in fiery rhetoric, capping a week that saw tensions between Moscow and Kiev rise to perhaps their highest level since Russia annexed Crimea in March.

“The world has not forgotten [the] second world war,” Arseniy Yatseniuk, Ukraine’s acting prime minister, said on Friday. “Russia wants to start a third world war.”

Ukraine Handling Situation Well

Recent polls support the notion the regions want more political autonomy not outright independence.  If that's what the majority want, who I am I to judge differently? I would say the same thing if the regions wanted to rejoin Russia. Simply put, it is not my place or the US's place to judge what is in the best interest of people thousands of miles away, in a place most US citizens could not even find on a map.

For now, it appears Ukraine is handling the situation well.

A blockade may take a while to work, but anything that acts to reduce tensions is welcome.

Talk of World War III, is likely just that, talk. At least let's hope so.

Finally, with the Russian economy crumbling, rash escalation of sanctions may be counterproductive.
Russia may easily decide to shut off gas to Europe if pressured enough.

Instead, this may quietly blow away by November in the absence of serious policy mistakes by one side or another. In that regard, excessive US pressure is unlikely to help.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Day Two at the Portrait Conference

I sketched Jeffrey Hein from the side of the main stage as he painted a two hour demo yesterday morning at the Portrait Society conference here in Washington, DC.

The day was filled with lots of demos and programs. In the afternoon, I gave a presentation about practical tips for location sketching using all sorts of media from colored pencils to watercolor, gouache, casein, and oil.

Day 1 at the 2014 PSoA conference
Portrait Society of America

Top Tier Chinese Cities Discounting Property; Beijing Prices and Volume Down 11 Straight weeks

The Australia Macro Business Blog notes Tier 1 Chinese Cities Discounting Property

Prices and volumes are falling in Beijing and real estate agents are started to drum up sales by delisting homes listed at high prices. Lots of homes listed online now show price cuts, and volumes have picked up recently from depressed levels. Total listings are down about 50% in some parts of Beijing due to listings being removed.

Online Prices Falling Everywhere; Real Estate Agents Cut Prices 30% (网上随处可见降价房 北京中介三成房源进入降价通道)

“Two weeks ago the price fell 200,000 yuan,” “6 hours ago the price fell 100,000 yuan,” …… Yesterday, the sites of real estate companies show homes in the east, south and west Third Ring large area, about thirty percent of listings are marked with The green arrow indicates the listings with price cuts have almost quadrupled since the period before Spring Festival. Such a situation from two weeks since the beginning of April, the city is currently at this largest second-hand housing sales real estate agent are starting to tell homeowners who ask for high listing prices, “no.” Every home exceeding the average price for the area is being persuaded one by one to cut their asking price, otherwise they will be removed from the website, “off the shelf.”

Reporter survey found that many hot spots in the district, real estate agencies have taken as much as 40% of the properties off the market, resulting in an eyeful of lower prices online.

In Guangzhou, developers only paid a premium of 1.4% on the “star plots” at a recent government land auction. In Beijing, prices and volume have been sliding for 11 straight weeks.

Hugh Pavletich posted the following links as comments to the above article.

Housing projects in China in limbo due to debt-ridden developers

Does China's Q1 GDP Figure Rule Out A Hard Landing?

New Zealand’s Bubble Economy Is Vulnerable

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Reader Question on Shadow Banking and Gold Buying in China

Reader Jason pinged me with a MarketWatch article Will China Drop Gold Next? by writer Craig Stephen.

Stephen notes that for the first time, Chinese demand topped 1,000 tonnes, reaching 1,176 tonnes after a 41% year-on-year gain, not including central-bank buying and that "investors have done well in the past with a simple strategy of buying what China was buying."

Stephen also cautioned about a "worrying explanation" that "a big chunk of China’s gold demand is the spectacular growth in China’s shadow banking, for which that the government is now trying to apply the brakes."

If so, Stephen claims that "raises the possibility of a gold crunch, depending on how the People’s Bank of China flushes out the yuan carry trade by orchestrating a weakening in the Chinese currency."

Does the Story Make Any Sense?

Reader Jason wonders "if the story makes any sense."

The answer is "Yes" and "No".

Given what happened with copper, no one should be surprised if shadow banking operations in China used gold for the same purpose. But does that mean or imply a "possibility of a gold crunch"?

For that, the answer is no.

Shadow Banking Demand Story a Big "So What?"

Here are comments from Pater Tenebrarum at Acting Man, via email

This story is a big 'so what'?

That China buys a few hundred tons more or less is completely irrelevant to the gold price. People continue to make the fundamental mistake of confusing gold with an industrial commodity. You can see it already in the very first sentences: "Investors have done well in the past with a simple strategy of buying what China was buying. So earlier this year, things were looking up for gold when it was revealed that China had swept past India to become the world’s biggest buyer in 2013."

It is completely irrelevant if Chinese gold imports 'swept past India's'. The most relevant factor in gold pricing are macroeconomic drivers and reservation demand. The total gold supply amounts to something close to 180,000 tons by now - which means that the total global gold demand is also for 180,000 tons.

In what way does a few hundred tons here or there matter? The answer is "it doesn't".

I have covered this type of question before. Please see Plague of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real Long-Term Driver for Gold?.

Also read I suggest an interview on Gold Switzerland with Robert Blumen: “What’s really key for the price formation of gold?”

Time and time again, you hear talk of demand in India or China going up or down as if it is meaningful. It isn't. You also hear about the price of physical gold vs. paper gold. I suggest you ignore that talk as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Merkel Tiptoes Through the Tulips; Russia Debt Cut to One Notch Above Junk; Is Anyone in Control?

Citing the tense geopolitical situation between Russia and Ukraine, the S&P Cut Russia Debt Rating to Step Above Junk and warned further downgrades may come.

S&P cut Russia’s rating one step to BBB-, it said in a statement today. The grade, on par with Brazil and Azerbaijan, has a negative outlook. S&P last downgraded Russia in December 2008. Russia’s currency and bonds fell.

“The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P said in the statement.

The downgrade was expected by investors and won’t significantly change their behavior, Russian Economy Minister Alexei Ulyukayev told reporters today.

Russian President Vladimir Putin told reporters in St. Petersburg yesterday that “sanctions are not effective in the contemporary world and are not bringing the desired outcome.”

“The decision is partially expected -- Russia is almost in recession, even without sanctions,” Dmitry Dorofeev, a money manager at BCS Financial group, said by phone.

S&P said it may lower the rating further “if tighter sanctions were to be imposed on Russia and further significantly weaken the country’s net external position.”

Threats of More Sanctions

The Financial Times reports Angela Merkel Warns Russia it Faces Further Sanctions.

“I spoke to the Russian president this morning and made clear again that on the one hand Ukraine has taken a whole series of steps to implement the Geneva accord but on the other side I see no Russian backing for the accord which would of course have an effect on the separatists in Ukraine,” Ms Merkel said.

The German chancellor made it clear that any additional measures would be an extension of the current financial sanctions, not the introduction of full-blown trade sanction, which include energy.

Merkel Tiptoes Through the Tulips

By making it clear the threats do not involve full-blown trade sanctions, Merkel effectively chose meaningless tiptoe steps that cannot possibly accomplish much. Then again, a full blown trade war will not accomplish much either, except perhaps quickly sink Europe back into recession.

If Russia shuts off gas to Europe, everyone loses. Merkel knows that, so does UK Prime minister David Cameron.

The only person who doesn't know or doesn't care is president Obama.

Is Russia in Control of the Separatists?

Merkel stated “Russia has the power, or could have the power, to bring the separatists on to a peaceful path of discussions about the constitution and preparations for elections".

Is that necessarily true? One can make a case that Russia spawned these uprisings. Some claim Russia even supplied the weapons.

But does that mean Russia is in control of the situation?

Recall that Denis Pushilin, the head of the self-declared Donetsk People's Republic, told journalists in regards to the now broken peace accord, that "Russian foreign minister Sergei Lavrov did not sign anything for us, he signed on behalf of the Russian Federation."

The only thing Russia clearly has control over, is whether or not to invade if Ukraine responds with more force.

And if Russia does invade, the Ukrainian army will be no match. Let's hope it does not come to that.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Portrait Society Conference

I arrived at the Portrait Society of America annual conference in Washington, DC last evening as the Face-off began. 

The Face-off is a competition between 15 artists who paint five models in groups of three as attendees watch. Here's Tony Pro, one of the contestants. The winner will be determined by popular vote.

One of the reasons the convention organizers invited me back was to sketch from the sidelines like a courtroom reporter. I'm using the little Schmincke watercolor kit, some gouache, and watercolor pencils in a watercolor notebook.

Instructors this year include: Sam Adoquei, Juliette Aristides, Ryan Brown, Scott Burdick, Wende Caporale, Ellen Cooper, Virgil Elliott, Rose Frantzen, Max Ginsburg, Daniel Greene, James Gurney, Jeffrey Hein, Quang Ho, Edward Jonas, David Kassan, Everett Raymond Kinstler, Robert Liberace, Susan Lyon, Michael Shane Neal, Paul Newton, Alicia Ponzio, Tony Pro, Mardie Rees, Anthony Ryder, Rhoda Sherbell, Burton Silverman, Daniel Sprick, Sharon Sprung, Alexey Steele, Jennifer Welty, Dawn Whitelaw, and Mary Whyte.

Portrait Society of America Website

Previously: Portrait Society Convention 

Japan CPI +2.7%; Tale of Two Headlines

Japan's CPI spiked to 2.7% this month. What's more interesting is how it was reported in various places.

Less Than Expected

The Wall Street Journal reports Japan CPI Rises Less Than Expected.

A closely watched Japanese inflation gauge rose a bit less than expected in April, the government said Friday, creating room for possible doubts among Bank of Japan 8301.TO +0.81% policy makers that the recent increase in the domestic sales tax would stoke strong upward price movements.

The core consumer-price index for the Tokyo metropolitan area climbed a preliminary 2.7% from a year earlier in April, the largest gain since 1992, according to data released by the Ministry of Internal Affairs and Communications. Core CPI exclude volatile fresh food prices.

Economists polled by The Wall Street Journal and the Nikkei had expected an increase of 2.8%.

While the figure dwarfed a 1.0% rise in the previous month, the big jump was largely due to a sales tax increase of three percentage points that kicked in at the start of this month. By a Bank of Japan measure that cleans CPI data of the effects of the tax change, underlying inflation in Japan's capital was unchanged at a 1.0% increase.

The nationwide core CPI for March increased 1.3%, the same as in February, the Internal Affairs Ministry said. Economists had expected a 1.4% rise.

Tokyo CPI Spikes To Highest Since 1992

The ZeroHedge headline reads: Tokyo CPI Spikes To Highest Since 1992 (Well Above Abe's 2% Target)

If this evening's data from Tokyo on April's Consumer Price Inflation is any guage on the national inflation picture, those hoping for moar stimulus had better start praying for war. Thanks to favorable comps and the April 1st tax rise, Tokyo CPI jumped to 2.9% YoY - its highest since 1992 - and well above the BoJ's 2% inflation goal. Mission accomplished (almost)... except that the economy just won't play ball and now stocks are fading too (along with Abe's approval ratings).

Which story more accurately reflects what happened? I vote for the WSJ.

 Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Verge of War: Ukraine's Foreign Minister says "We are Ready to Fight"; Russia holds Military Exercises on Border

Tensions in Ukraine took another step for the worse today as Russia held military exercises on the border and Ukraine's foreign minister responded "We are Ready to Fight Russia"

Andriy Deshchytisa said Russia’s decision Thursday to launch the military exercises “very much escalates the situation in the region.”

Talking to The Associated Press in Prague, Deshchytisa says his country has been taught a lesson by Russia’s annexation of Ukraine’s Crimean Peninsula. He says “having this experience, we will now fight with Russian troops if ... they invade Ukraine.”

He says “Ukrainian people and Ukrainian army are ready to do this.”

Russia holds Military Exercises on Border

The Financial Times reports Russia Plans Military Exercises After Mounting Ukraine Unrest.

Russia has announced military exercises on the border of Ukraine, hours after Kiev sent in its army to flush out armed pro-Russian rebels in the east of the country raising fears about the worsening crisis.

As tensions on the ground escalated, the war of words between Moscow and Kiev also intensified. Russia’s President Vladimir Putin warned Ukraine there would be consequences for sending its armed forces into the volatile east to oust separatists from government buildings and checkpoints. Ukraine’s acting president Oleksandr Turchynov retaliated on national TV, accusing Russia of “co-ordinating and supporting killer terrorists”.

The two leaders’ remarks came shortly after Ukraine’s army began a big security offensive against the separatist stronghold city of Slavyansk on Thursday, making good on its vow to crack down on armed rebels holding public buildings in the country’s east.

But there were reports that Ukrainian troops had withdrawn from a checkpoint north of Slavyansk they had taken over earlier in the day and pro-Russian separatists had moved back in and began to strengthen the position with sandbags.

Tensions have been rising in eastern Ukraine after the tortured body of a local politician – allied to Kiev – was discovered in a river near Donetsk.

Obama Warns Russia Sanctions ‘Teed Up’

For sake of completeness, meaningless red line talk comes from president Obama who warns, Sanctions ‘Teed Up’

Mr Obama said that it was “a matter of days, not weeks” before new sanctions would be levelled on Russia unless it took decisive steps to reduce the tensions in eastern Ukraine.

The new round of US sanctions is likely to target more of the business figures around the Russian leader Vladimir Putin as well as potentially some banks or state-owned companies. US officials have said that the broader, sectoral sanctions that the White House now has the power to impose are only likely if there is an explicit Russian military intervention in eastern and southern Ukraine.

Danylo Lubkivsky, Ukraine’s deputy foreign minister, said on Thursday that it was time to impose new sanctions on Russia. Speaking on a visit to Washington, he said he still hoped for a diplomatic resolution to the crisis, but he insisted that “Russia has already crossed a new red line, so we need to impose further economic pressure on the Kremlin”.

Zbigniew Brzezinski, the former US national security adviser, said that events in Ukraine were quickly spinning out of control. “I fear we are stumbling into a crisis which is unpredictable,” he said. “But I still think there is a residual chance for reaching some sort of accommodation.”

I still suspect cooler heads will prevail. Let's hope so. Perhaps it would help if Ukraine repeated its offer of amnesty to rebels who lay down their weapons now.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

First Flight Edition Released

Hohepa, astride his tyrannosaur, wades across the shallows of Buckthorn Creek to parley with an invading force of shield strutters. His action prevents the destruction of the hatchery at Moss Valley, but leads to the Armakians breaking off their alliance. Hohepa later becomes the mentor of Blake Terrapin. Watercolor on board by James Gurney, 2012.

An emissary riding a T. rex faces off against a phalanx of robotic strutters. This is one of the new paintings featured in the expanded edition of Dinotopia: First Flight, which releases today.

The book tells the story of Dinotopia's origins, with dramatic stories and artwork from its Age of Heroes. It begins with an unabridged republication of my 1999 book.

The second half of the book includes a bonus of over 45 new images, including never-before-published storyboards, concept sketches, and production paintings, plus new characters, backstory notes, and a cinematic treatment all downloaded from my creative archives.

You can preorder a copy on Amazon if you like. But if you live in the USA and would like to order directly from me, you can cancel the Amazon order (as long as it hasn't shipped yet) and I'll send you a personally signed copy. I'll also be doing a quick sketch in every copy. 

As an additional incentive, the 25th, 50th, 75th, and 100th copy ordered from me will receive a tipped-in original storyboard, such as the one above, which I drew in 1997 when I was planning the book.

Preorder a copy on Amazon or order Dinotopia: First Flight Anniversary Edition now from JamesGurney.com or Dinotopia.com. (USA orders only, because it costs too much to ship overseas. International customers: what most people do is to order a book to be sent to a friend at a US address.)

Previously: First Flight edition coming in April

Illustration #44: Walter Baumhofer

The newest edition of Illustration magazine has the entire 80-page special issue devoted to Walter Baumhofer, who painted dashing heroes and damsels in distress for the pulps and the slick magazines. Pick up a copy at your local bookstore or at the Illustration website.

French Telecom Company Does Biggest Junk Bond Sale Ever; Bidding Wars for Junk; AOL Flashback

With central bankers globally suppressing interest rates, the search for yield elsewhere is on. One of the places investors have turned is speculative junk bond offerings.

Please consider French Company Does Biggest Junk Bond Sale Ever.

Numericable (NUM), which provides cable and internet service in France and other European markets, sold a record amount of high-yield bonds Wednesday with some priced in dollars and others in euros.

It's sold $7.78 billion and €2.25 billion in notes that yield 5% or more, according to a statement from Altice, the multinational telecom group that owns Numericable. Altice issued $2.9 billion and €2.1 billion in bonds that yield more than 7%.

Numericable will use the proceeds to finance its acquisition of rival cable company SFR.

Overall, the deal represents the largest sale of high-yield debt on record, according to Dealogic. It surpassed Sprint's $6.5 billion debt sale in September.

Dollar Equivalent Junk

All told Altice issued 10.68  billion in dollar denominated bonds and 4.35 billion in euro denominated bonds. The grand total in dollar equivalent junk is an amazing $16.69 billion.

Bidding Wars for Junk

$10.89 billion of that went to buy out a rival company at an undoubtedly absurd price due to bidding wars.

The New York Times has some bidding war info in Numericable Raises $10.9 Billion in Junk Bond Offering.

The battle for SFR pitted two French billionaires against each other: Martin Bouygues, who runs the diversified industrial group that bears his name, and the French entrepreneur Patrick Drahi, who since 2002 has built Altice into a global operation with cable and cellphone assets in Europe and the Caribbean.

Bruno Lasserre, the president of the Autorité de la Concurrence, has said that the French competition watchdog would conduct a “thorough review” of the Numericable-SFR combination, but that review is not expected to preclude the deal.

Altice also raised an additional €4.15 billion in junk bonds to help finance its purchase of a larger stake in Numericable ahead of the SFR merger. Altice is buying an additional 34.6 percent stake in Numericable, giving it a 74.6 percent stake in the unit.

Reflections on AOL

These are the kinds of deals that mark the top of markets. Recall the merger of AOL and Time Warner in 2000.

Check out this New York Times report from January 11, 2000: MEDIA MEGADEAL: THE OVERVIEW; AMERICA ONLINE AGREES TO BUY TIME WARNER FOR $165 BILLION; MEDIA DEAL IS RICHEST MERGER.

America Online, the company that brought the Internet to the masses, said yesterday that it had agreed to buy the largest traditional media company, Time Warner, for $165 billion in what would be the biggest merger in history and the best evidence yet that old and new media are converging.

By agreeing to give up its independence in return for an ample premium on its stock price, Time Warner is acknowledging that the Internet is central to its music, publishing and TV businesses and that its own efforts to create online operations have been lackluster.

The deal, which was negotiated with such secrecy that it took the industry by surprise, also brought a new realization about the extraordinary stock-market values that America Online and other Internet companies have reached the last 18 months. Although analysts have long predicted that the stars among the Internet upstarts would wind up part of larger media empires, the deal indicates that it could be the Internet companies that do the buying and the old media that sell out.

"The dot-com guys have sort of won," said David B. Readerman, an analyst with Thomas Weisel Partners, a San Francisco brokerage firm. "AOL was able to serve up its stock and buy Time Warner, walking away with incredible media assets."

With a market value of $342 billion, based on yesterday's closing stock prices, the combined corporation would be the fourth-most-valuable company in the country, after Microsoft, General Electric and Cisco Systems. And its stock market value would roughly be equal to the gross domestic product of Mexico.

Broken Marriage

Flash Forward January 10, 2012: The New York Times had a Revised Take on the AOL Time Warner Merger.

On Jan. 10, 2000, the Internet service company AOL and the media giant Time Warner announced that AOL would buy Time Warner for more than $160 billion in the largest merger in corporate history.

However, the new company, AOL Time Warner, did not live up to its potential. The merger occurred at the height of the “dot-com bubble,” a time when AOL’s value was grossly inflated. Its stock price plummeted within a few years of the merger, causing huge losses for AOL Time Warner. Furthermore, the AOL and Time Warner divisions remained at odds with each other and did a poor job integrating their products.

In 2009, Time Warner decided to spin off AOL as its own company again, ending their ill-fated relationship. But, as The Times noted, “the merger between AOL and Time Warner will likely remain a prominent part of both companies’ legacies, rather than becoming a historical footnote. After all, more than $100 billion in shareholder value was wiped out.”

In 2011, AOL bought The Huffington Post, the news, aggregation and commentary Web site, for $315 million.

“To call the transaction the worst in history, as it is now taught in business schools, does not begin to tell the story of how some of the brightest minds in technology and media collaborated to produce a deal now regarded by many as a colossal mistake,” Tim Arango wrote in a New York Times article on the 10th anniversary of the merger.

The merger between Time Warner and AOL was among several examples of increased concentration of media ownership in the first decade of the 21st century — a topic that aroused debate about media deregulation and the impact of conglomerated media on information and entertainment.

The ludicrous bidding war for SFR in which Numericable lost (by winning) will not go down as the worst deal ever, but it may go down as the worst junk bond deal ever.

The bidding war for SFR is exactly the kind of nonsense the easy money policies of the Fed and central banks in general have fostered.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

New Home Sales Plunge 14.5%; It's Not the Weather; Steen Jakobsen on Consensus vs. Reality

The Census Bureau report New Residential Sales Report shows sales of new single-family houses in March 2014 were at a seasonally adjusted annual rate of 384,000.

• Sales are 14.5 percent below the revised February rate of 449,000
• Sales are 13.3 percent below the March 2013 estimate of 443,000
• Median sales price was $290,000 vs. $260,900 in February, $257,500 in March of 2013
• Average sales price was $334,200 vs. $318,900 in February, $300,200 in March of 2013
• Median sales price was up 11.5% from last month, 12.6% from year ago
• Average sales price was up 4.8% from last month, 11.3% from year ago
• New houses for sale was 193,000
• Supply is 6.0 months at the current sales rate

Sales by Region (Month-Over-Month, Year-Over-Year)

Northeast +12.5% MOM, -22.9% YOY
Midwest    -21.5% MOM, -17.7% YOY
South        -14.4% MOM, -03.8% YOY
West         -17.7% MOM, -27.9% YOY
Total         -14.5% MOM, -13.3% YOY

It's Not the Weather

USA Today noted "Harsh winter weather helped hold down sales in February and may have in March as well."

Also note: "Economists had predicted an annual rate of 450,000 for March, according to the median forecast in Action Economics survey."

My question: If sales decline was weather related, then why were sales up in the Northeast?

I suggest the Fed managed to blow another housing bubble, especially in California and the West where sales are down the most. With rising rates, people are priced out of the market.

Steen Jakobsen on Consensus vs. Reality

Steen Jakobsen, chief economist at Saxo Bank tweeted "Housing tanks again - according to consensus housing should add 0.5%-0.8% to GDP in the US in 2014"



Steen: "Consensus is looking for 0.5% to 0.8% positive GDP from housing. Pity the opposite is happening ... and that on a day when 100% of economists in recent survey by Jim Bianco see US rates higher in six months! Yes, 100%."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Einhorn Shorts "Cool Kid" Bubble Tech Stocks

Greenlight Capital hedge fund manager Einhorn Shorting Tech as ‘Cool Kid’ Stocks Show Bubble.

Greenlight Capital Inc., the $10.3 billion hedge-fund firm run by David Einhorn, said it was betting against a group of technology stocks as evidence grows of a bubble.

“There is a clear consensus that we are witnessing our second tech bubble in 15 years,” the New York-based firm said in a quarterly letter to clients today.

Greenlight said that companies it’s betting against may fall by at least 90 percent “if and when the market reapplies traditional valuations,” according to the letter, a copy of which was obtained by Bloomberg News.

Greenlight cited initial public offerings of technology firms that have “done little more than use the right buzzwords and attract the right venture capital” as evidence of how far along the current bubble is.

Greenlight, best known for wagering on a decline in Lehman Brothers Holdings Inc. before the bank collapsed in 2008, said it was betting against a group of stocks because it reduces the potential of a single investment becoming too costly. The firm didn’t identify the individual companies.

Greenlight questioned whether technology companies would be able to keep their highly skilled employees if they stopped giving them large amounts of equity. The firm said it was hard to ignore the future dilution of shares that result from paying employees in stock.

“Once again, certain ‘cool kid’ companies and the cheerleading analysts are pretending that compensation paid in equity isn’t an expense because it is ‘non-cash’,” Greenlight wrote.

Valuations are without a doubt back in bubble land. The only open question is whether the time is finally ripe for shorting.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

A Painter's Sampler

Nowadays we might show a prospective client a folder of images on an iPhone. But in 1860, William Trost Richards (1833-1905) created this "Painter’s Sampler," to show what he could do.


Thirteen miniature canvases are mounted up together. They show a range of conventional landscape compositions. I can just image him saying... "I can paint you a Hudson River sunset, or a summer meadow, a nautical, or a cabin in the woods, or a forest interior...."
-----
This comes from a private collection and was exhibited at a Hudson River School exhibition called "American Scenery" at the Dorsky Museum of Art

China Manufacturing Output and New Orders Contract Once Again

Chinese manufacturing remains in contraction for 2014. Output and new orders were down for the 4th consecutive month, but at a slightly reduced pace according to the HSBC Flash China Manufacturing PMI.



Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said:

“The HSBC Flash China Manufacturing PMI stabilised at 48.3 in April, up from 48.0 in March. Domestic demand showed mild improvement and deflationary pressures eased, but downside risks to growth are still evident as both new export orders and employment contracted. The State Council released new measures to support growth and employment after the release of Q1 GDP. Whilst initial impact will likely be limited, they signalled readiness to do more if necessary. We think more measures may be unveiled in the coming months and the PBoC will keep sufficient liquidity.”

There is a massive expectation that China will step on the gas at any time now to improve conditions. I rather doubt it, unless there is a far bigger, disorderly breakdown.

China needs to rebalance, and will. Slower and slower GDP growth will generally be the norm, most likely for years to come, perhaps interrupted by an occassional unsustainable spurt here or there.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Amazing Surge in Middle-Aged Folks Moving in With Parents

Moving back home with parents is not just for millennials. A large number of those aged 50 to 64 are moving back home, for economic reasons, not for providing care to aged parents.

The LA Times reports Moving in with Parents Becomes More Common for the Middle-Aged

At a time when the still sluggish economy has sent a flood of jobless young adults back home, older people are quietly moving in with their parents at twice the rate of their younger counterparts.

For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents' homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.

The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.

"The numbers are pretty amazing," Wallace said. "It's an age group that you normally think of as pretty financially stable. They're mid-career. They may be thinking ahead toward retirement. They've got a nest egg going. And then all of a sudden you see this huge push back into their parents' homes."

Many more young adults live with their parents than those in their 50s and early 60s live with theirs. Among 18- to 29-year-olds, 1.6 million Californians have taken up residence in their childhood bedrooms, according to the data.

Though that's a 33% jump from 2006, the pace is half that of the 50 to 64 age group.

The surge in middle-aged people moving in with parents reflects the grim economic reality that has taken hold in the aftermath of the Great Recession.

Long-term unemployment is especially acute for older people. The number of Americans 55 and older who have been out of work for a year or more was 617,000 at the end of December, a fivefold jump from the end of 2007 when the recession hit, according to the Bureau of Labor Statistics.

Those in their 50s move in only as a last resort. Many have exhausted savings. Some have jobs but can't shoulder soaring rents in areas such as Los Angeles or San Francisco.

The Fed thinks higher inflation is the answer. So does the ECB. One has to be lost in academic fantasyland to hold that view.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

ECB Threatens Negative Interest Rates; Bank of NY Mellon Threatens Charging for Euro Deposits

ECB president Mario Draghi has been making lots of noise recently about cutting interest rates because the euro is too strong and banks aren't lending enough.

Realistically, there's not much room to cut with rates already at a rock-bottom .25 percent.

Some suggest negative interest rates are just the ticket to spur lending. Should that happen, the Bank of New York Mellon Eyes Charging Clients for Euro Deposits.

Bank of New York Mellon said it was considering charging clients for depositing euros if the European Central Bank decides to cut key interest rates below zero.

The potential move by the world’s biggest custody bank comes after Mario Draghi, president of the ECB, said last week that the region could require “further monetary stimulus” to offset a strengthening euro.

“If the eurozone were to go to negative rates that would actually present the opportunity for us to charge for deposits and we are giving that very serious consideration,” Todd Gibbons, BNY Mellon’s chief financial officer, said on a conference call as the bank unveiled its first-quarter earnings.

Reflections on Forcing Banks to Lend

For starters, banks lend when they believe they have creditworthy customers and lending is worth the risk.

An attempt to make banks lend to non-creditworthy customers is not only foolish but reckless. How many times do we have to march down that path to prove it?

Banks Should be Banks

Moreover, and as I have commented before, banks should be banks. I see nothing at all wrong with banks charging a slight fee for deposits.

Banks ought not be lending demand deposit accounts in the first place. The practice is fraudulent. Thus, it is natural for banks to charge for safekeeping of such deposits.

If the ECB forces banks into a corner where they have to start charging for deposits, arguably the system will be better off for it.

However, I cannot endorse the blatant manipulation of interest rates that has led to the low rates we see now. Interest rate manipulation does harm holders of interest-bearing accounts such as CDs who receive paltry returns for their investments.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com