| Start of a Global Currency Crisis? Posted: 26 Jan 2014 09:29 PM PST In Emerging Market Contagion Spreads, I presented a viewpoint that emerging market currencies have been under pressure because of falling commodity prices. Commodity exporter currencies such as the Australian dollar, Canadian dollar, and Brazilian Real have been under pressure for the same reason. Yen ConnectionIn addition to the commodity collapse thesis, Pater Tenebrarum at the Acting Man blog throws Abenomics into the mix of possible causes of the Currency Massacre in Emerging Markets. Both Venezuela (socialist worker's paradise) and Argentina (nationalist socialist paradise) have a problem with their foreign exchange reserves. In both cases it stems from trying to keep up the pretense that their currencies are worth more than they really are.
Since they have maintained artificial exchange rates – coupled with capital controls, price controls and other coercive and self-defeating economic policies – people have of course felt it necessary to get their money out any way they can. This includes making use of every loophole that presents itself, so that e.g. in Venezuela, so-called 'dollar tourism' has developed, whereby citizens travel abroad for the express purpose of using their credit cards to withdraw the allowed limit in dollars at the official exchange rate [then buy goods or bring back the cash to exchange on the black markets at much higher rates].
Now the governments of both Venezuela and Argentina have reacted – the former by introducing a 'second bolivar exchange rate' for certain types of exchanges, the latter by stopping to defend the peso's value in the markets by means of central bank interventions.
To be fair, quite a few emerging market currencies as well as the currencies of developed countries that are large commodity exporters have been under pressure for some time. The Indonesian rupiah has basically crashed, the South African Rand and the Brazilian real have fallen to their weakest levels since the 2008/9 crisis sell-off, and even the Canadian and Australian dollar look a bit frayed around the edges these days.
We cannot help thinking that all this upheaval is the prelude to a more serious denouement down the road – perhaps sooner than most people currently think.
One of the sources of all this recent trouble is quite possibly Japan's decision to inflate with the help of a generous dose of 'QE' and deficit spending. Although the yen's anticipatory move lower could so far not really be justified by actual money supply growth, the fact remains that it did decline rather sharply. This in turn has put pressure on Japan's competitors in Asia, which in turn has put pressure on their suppliers in commodity-land and has altered capital flows, etc.
Recall that the Asian crisis of the late 1990s was preceded by a devaluation in China, after which the yen started weakening rather precipitously as well. Of course the situation was different in that many of the countries hit by the crisis had their currencies pegged to the dollar at the time, but the point remains that a weakening yen preceded the event. A parallel is that there are once again quite a few countries that sport large current account deficits and have experienced major credit and asset booms. In short, there are many balloons waiting for a pin. No US HyperinflationWhile misguided US hyperinflationists predicted the collapse of the US dollar, I expected a collapse in commodity exporter currencies. Please see my November 8, 2011 article Perfect Storm; Eight Reasons to be Bullish on the US Dollar. I also expected a slowdown in China, a plunge in the Yen, and a currency crisis not related to a sinking US dollar (See March 12 2012 article Japan's Debt Disaster and China's Non-Rebalancing Act: Economic Toxic Brew Portends Currency Crisis). Here we are, with still other currencies in the problem mix. Consider this chart of the Turkish Lira. Turkish Lira vs. US Dollar Since mid-2008 the Lira collapsed from 1.03 to 2.45 to the US dollar, a collapse of 58%. Turkey's deputy prime minister Ali Babacan Blames Fed Tapering. Babacan said the central bank was taking the necessary steps to deal with the situation, and said Turkey was protected against the swings in the market by its sound finances.
"The balance sheet of the government, the banks and households are quite well protected against market volatility." Turkey-Greece ConnectionZeroHedge notes Turkey's liabilities have multiplied dramatically in recent years with over $350 billion of foreign bank exposure on an ultimate risk basis.  According to Gavekal, as quoted by ZeroHedge ... - Turkey is not, however, showing any signs of stabilization. The lira continues to fall, and policymakers are doing little to contain the situation.
- Not only is its current account deficit at nearly 8% of GDP - the highest in the MSCI's emerging markets universe—but the country is also geographically closer and thus more dependent on the eurozone, whose economic recovery is painfully slow. Its political situation is also clearly very unstable.
- Already fragile Greece is particularly exposed to the Eurasian republic. Turkish credit as a proportion of total Greek bank assets stands at over 5%, compared to 0.7% for the next two largest (Dutch and UK banks).
It's difficult to know whether this is the start of a major currency crisis or if central banks can paper over these imbalances still another time, but things sure are heating up rather quickly on numerous currency fronts at once. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Mid-Level Manager at Target Responds to Mish Part-Time Job Thesis Posted: 26 Jan 2014 12:27 PM PST My part-time job thesis is easy to describe: - Obamacare exacerbated the already ongoing trend towards more part-time employment by lowering the definition of full-time employment to 30 hours.
- As a result, companies reduced employee hours from 32-34 to 25-29.
- In turn, workers picked up extra part-time or weekend jobs with minimal hours, to help make ends meet.
A few days ago, Target made the claim it would not reduce employee hours because of Obamacare. See Target Drops Healthcare Coverage for Part-Time Workers, Claims No Reduction in Hours. My response was that Target was disingenuous, and that the only way it would not reduce hours due to Obamacare is if it already did so well in advance. A Home Depot employee asserted that Home Depot did just that (see Anecdotes From Home Depot Employee), but I had not heard from Target employees yet. Today I heard from a Mid-Level Target manager (MLTM) who wishes to remain anonymous. MLTM writes ... Hello Mish
I appreciate your blog and felt that I should contribute at least what I have observed in my time at Target. I'm an exempt store employee (middle management) and I can attest to the fact that Target has been controlling hours of hourly employees as you have suggested.
This is a trend that began well before the recent press release regarding health insurance for part time workers. Policy isn't explicitly stated, but part-time positions have a 12 month auditing period. Average weekly hours are tracked in order to not exceed the part time threshold.
It is common to have part time team members scheduled to cover full time shifts or responsibilities. The two most striking aspects of this effort are on the team members and on shoppers.
The vast majority of team members have such limited hours that to survive they must either have other employment. Some have other full time employment, most an additional part time position. Alternatively some of our part time positions are filled by retired workers or college students.
Turnover, attendance, and work quality and customer support are greatly affected by these facts.
The customer impact, as many of your readers may have noticed, is that there are not enough team members to assist or process transactions at any given time. This frustrates shoppers and makes lower cost internet shopping experience all the more attractive.
A downward spiral of falling sales, fewer hours/team members, further falling sales, and increased operational costs from Obamacare and other regulations pushes costs up when the consumer is buying less from stores and more from on-line vendors. Anecdotes do not constitute data, but the overwhelming number of similar emails I receive sure rings true. Competition in the form of " Retail Sales Cannibalization" is intense. Moreover, the huge, ongoing discrepancy between the establishment survey and the household survey also suggests my thesis is correct. For details, please see Employment vs. Jobs Discrepancy based on December 2013 Data, released in January. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Were You Aware the NFL is Treated as Non-Profit and thus Exempt From Taxes? Should it Be? Posted: 26 Jan 2014 10:20 AM PST With the Super Bowl a week away, here's a question on my mind: Were you aware the NFL is treated as a non-profit organization and thus exempt from taxes? If you weren't, you are with the majority. Only 13% of people polled got the question correct. Curiously, it's only football that's exempt from taxes, not baseball or other sports. Please consider a Fairleigh Dickinson University report Your Tax Dollars into NFL Owners' Pockets? Americans may love football, but few support the use of public funds and tax breaks for the National Football League and a vast majority were unaware the NFL is a not-for-profit entity, according to a recent national survey from Fairleigh Dickinson University's PublicMind.
More than half of respondents (56%) identify themselves as fans of the NFL, but when it comes to tax dollars being used to help the NFL, an overwhelming majority of Americans say it should be 'under further review.' Seven-in-ten (69%) oppose the use of public funds to build and support stadiums for NFL teams, and virtually the same number (71%) say no to tax breaks to attract or keep a team in town.
"The public's love for the game clearly doesn't trump their fiscal restraint when it comes to big time sporting events," said Krista Jenkins, director of PublicMind and professor of political science at Fairleigh Dickinson University. "Even teams who don't make it to the Super Bowl generate millions from licensing and ticket sales. The public says taxpayers shouldn't be hit up for support when there's enough in the NFL coffers to pay their own way."
Digging deeper, there's little evidence to suggest that some are more persuaded by NFL appeals for public funding than others. Across gender, race, and age, opinion remains consistent -- a resounding "no" to tax breaks and public funds. Even self-described football fans are largely opposed to corporate welfare for the NFL, although it's notable that fans are twice as likely as non-fans to favor tax breaks for NFL teams (27 versus 14 percent, respectively).
The same survey also finds that most are unaware that the NFL is a not-for-profit organization. As a recent report in The Atlantic outlined, the NFL and its teams are the recipients of a good many direct and indirect subsidies. However, more than two-thirds (69%) say the NFL is NOT a nonprofit, with only 13 percent correctly identifying it as not-for-profit.
"Since the NFL is generally associated with wealthy owners and players, not to mention the tremendous revenue that each team generates year-round, the public would not be expected to know the League is a non-profit organization," said Jenkins. "With billions likely to flow from the Super Bowl, it would seem a contradiction that the organization behind it all would be technically a not-for-profit, but that is indeed true about the NFL." Fairleigh Dickinson University Survey Question
How Did the NFL Get Tax-Exempt Status?Bloomberg explains in Americans Think NFL Should Pay TaxesThe NFL enjoys vast support among the American public despite recent controversies, but when it comes to taxes, the league is best served by keeping fans in the dark.
A survey conducted last month by Fairleigh Dickinson University found that people overwhelmingly oppose tax breaks enjoyed by the league, while the majority had no idea the National Football League has nonprofit status. The poll, which questioned more than 1,000 people, found that 56 percent identified themselves as football fans, 69 percent don't think public money should be used to build stadiums, and 71 percent oppose tax breaks to keep an NFL team in town.
Most interesting, however, is how effective the NFL's public-relations machine has been at keeping its nonprofit status out of the public eye. Only 13 percent of those polled correctly identified the NFL as a nonprofit. It seems most people have a hard time reconciling tax breaks for a league flush with cash at a time when government budget cuts are threatening classrooms and even the IRS itself.
To clarify, the NFL is not categorized as a charity under the tax code; rather, it falls under Section 501(c)(6), which exempts trade or industry associations from taxation. In 1966, the tax code was amended to include professional football to facilitate the merger of the NFL and the American Football League, by granting the sport antitrust and tax exemptions. The IRS specifically mentions the sport in its statute:
IRC 501(c)(6) provides for exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues (whether or not administering a pension fund for football players), which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
With $9.5 billion in revenue, the NFL doesn't seem to fit this definition. The next-richest professional sports league, Major League Baseball, does not enjoy the same break.
There's a bipartisan campaign to amend the tax code, which is right in the wheelhouse of liberal activists calling for increased taxes on millionaires and conservative critics of government waste. Senator Tom Coburn, Republican of Oklahoma, recently announced he would retire from Congress, but not before introducing a bill that would strip the NFL of its nonprofit status. The PRO Sports Act proposes taxing any professional sports league that brings in at least $10 million. In such a politically polarized climate, it seems football might be our great uniter after all. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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