Thursday, May 02, 2013 - Dying to Work for Slave Wages

Dying to Work for Slave Wages

by Sinclair Noe

DOW + 130 = 14,831
SPX + 14 = 1597
NAS + 41 = 3340
10 YR YLD - .01 = 1.63
OIL + 3.04 = 94.07
GOLD + 9.30 = 1468.40
SILV + .18 = 23.93

Yesterday the Federal Reserve left interest rates unchanged and announced they would continue buying $85 billion a month in Treasury bonds and mortgage backed securities; they might increase or reduce the purchases depending; they blamed politicians for fiscal policy, or lack thereof.

Today, the European Central Bank cut interest rates for the first time in 10 months, promising to provide as much liquidity as eurozone banks need well into next year and to help smaller companies get access to credit. The ECB lowered its main interest rate by a quarter percentage point to a record low 0.50 percent in response to a drop in eurozone inflation to an annualized 1.2%, well below its target level, and rising unemployment. ECB President Mario Draghi said the central banks was “ready to act if needed', should more be required to boost the eurozone's economic health.

Sounds good; doesn't mean much. The late moves by the ECB probably won't do much to lift the economic health. The best analogy I heard today was that the ECB action is like opening the windows in a convertible when the top is already down.

In recent months there have been growing calls for European countries to move away from austerity measures. Both French President Francois Hollande and newly-elected Italian Prime Minister Enrico Letta have urged a reconsideration of austerity policies. Yesterday, Spaniards took to the streets to protest 27% unemployment; 57% among the Spanish youth; Greeks staged a one day national strike, shutting down almost everything; The Greek government is cutting government jobs.

We don't hear much about May Day protests in the US. Seattle seems to be the only US city that can muster a crowd; yesterday, 3,000 people marched through Seattle; it was not without incident; protesters threw bottles and did some property damage; police threw pepper spray grenades and arrested 17 protesters.

In Indonesia, tens of thousands of workers marched, many dressed as ants, complete with bright red outfits and antennae to depict the exploitation of workers.

In Dhaka, Bangladesh the protests drew thousands. This was the scene of a building collapse last week. A eight-story garment factory, originally built as a three-story building, suddenly collapsed. The landlord and some of the factory owners have been arrested. The death toll stands at 433, while more than 2,400 survivors were pulled from the rubble, hundreds more are still missing. Bangladesh's prime minister is promising reforms in the nation's garment industry, which is now the second largest in the world, behind only China. In the days after the collapse, thousands of Bangladeshi workers took to the streets in protest, demanding the death penalty for those responsible for the collapse.

Perhaps the most intriguing response to the building collapse in Bangladesh came from the new Pope Francis; according to Vatican Radio,  he condemned the “selfish profit” motive of the companies whose search for low prices meant “slave conditions” for workers.

He was quoted as saying: “Today in the world this slavery is being committed against something beautiful that God has given us - the capacity to create, to work, to have dignity. How many brothers and sisters find themselves in this situation. Not paying fairly, not giving a job because you are only looking at balance sheets, only looking at how to make a profit. That goes against God.”

Later, in his weekly sermon in St Peter’s Square in the Vatican, Pope Francis called for more concern for “social justice.” “Work is fundamental for dignity,” he said, and denounced unemployment as the result of “an economic conception of society based on selfish profit outside the bounds of social justice”. Saying: “There are many people who want to work but cannot. When a society is organised in a way that not everyone is given the chance to work, that society is not just.”

Human dignity derived from work, he said, but too many countries had “made choices that mean exploiting people.”

The collapsed factory produced apparel for large Western brands like Benetton, Children’s Place and Primark. Sadly, without the Western-brands angle, the collapse might not have even made news. And the companies have started to respond, however the response is not always satisfying. There have been efforts to turn blame toward Bangladeshi officials and an environment of corruption and lax oversight. And then there is the old saw of globalization, that without the demand from Western brands, the Bangladeshi economy would implode; the argument is that people are dying to get a job. This is the idea that slave wages are better than no wages, and our slaves are happy slaves. The Pope said the typical garment factory wage is 38-euros a month, the equivalent of $49 a month. Or what the new Pope calls “slave labor”. In fact, wages are even lower, with the legal minimum salary routinely paid to employees only $37 a month for a six-day week with 10-hour shifts.

The 70-mllion strong Lutheran World Federation has also condemned the circumstances in the market that led the tragedy. The Anglican Church and the Seventh Day Adventists have joined in rescue operations.

The Bangladeshi prime minister noted that workplace disasters have occurred in the United States, too; she cited last month's explosion of a fertilizer plant in West, Texas, in which 14 people died and 200 were injured.

"Anywhere in the world, any accident can take place," she said. "You cannot predict anything."

Of course, it is still to be determined if the building collapse in Bangladesh or the fertilizer plant explosion in West, Texas were in fact mere accidents. It is unlikely that the owners of the West plant intended to kill anyone, but there was, at least, gross neglect in the siting of the plant in the midst of a town, where the company was situated - so close to the town, schools and other infrastructure; certainly it raised red flags in the way they stored the ammonium nitrate, the construction of the building, and the amounts of chemicals they reported as stored on site – 1,350 times more than what normally triggers Department of Homeland Security oversight. Perhaps it was in someone's financial interest to ignore the danger.

The Senate yesterday announced an investigation into what went wrong at the plant. One of the leading problems was likely that the Occupational Safety and Health Administration – which is responsible for the enforcement of workplace safety regulations – hadn't inspected the site since February 1985.

OSHA has too few resources to do the job assigned to it. This year, OSHA has a budget of $535 million to protect workers at over 8 million workplaces. OSHA conducts about 40,000 inspections each year. Together with state OSHA programs, it has 2,000 inspectors; with those resources, federal OSHA can conduct an inspection of every facility only once every 131 years. And the sequester is expected to reduce OSHA's budget by 8.2%.

This lack of attention to the safety of our workplaces and neighborhoods is no accident. It is the work of industry trade associations, think tanks, opponents of regulations, Congress, and even the Supreme Court; in other words, its what the folks in Bangladesh would describe as an environment of corruption and lax oversight.

The traditional cure to our economic ills has always been growth. But now, despite the various and sometimes contrasting efforts, the economy refuses to grow. The economic tools that have been applied – lower interest rates, quantitative easing, and strict austerity, are failing or found to be insufficient. Suppose that instead of chasing after more stuff, more jobs, more consumption, and more income, we aimed for enough stuff, enough jobs, enough consumption and enough income.

Our main indicator of progress, GDP, is a measure of economic activity—of money changing hands. It doesn't tell us anything about what kind of activity is occurring. If the police came to your door and said that "activity" in your neighborhood had increased by 3% last year, you'd want to know what kind of activity. Was it more children playing in parks, or was it the clean-up following an explosion at a nearby fertilizer plant? We need to ask the same kinds of questions about GDP. Did it grow because our society became wealthier, or did it grow because we ran up huge debts and liquidated our natural assets?

Perhaps the biggest fear that most people have when they hear "no growth" is "no jobs", but the evidence for a relationship between economic growth and job creation is much weaker than you would expect and varies remarkably between countries. In the US, for example, a 3% increase in GDP tends to be accompanied by a 1% fall in unemployment. In France, the same amount of GDP growth reduces unemployment by only half a percent. In Japan, there is no relationship whatsoever.

I can't recall a Pope talking about slave labor. I think it might be the beginning of a new dialogue, and if that is the case, the conversation is starting from a very different place than what we've heard before. The new Pope has a pretty large base, and that balcony looking over Vatican Square is quite the bully pulpit. 

Thursday, April 18, 2013 - Elvis and Other Ongoing Investigations

Elvis and Other Ongoing Investigations

by Sinclair Noe

DOW – 81 = 14,537
SPX – 10 = 1541
NAS – 38 = 3166

10 YR YLD - .02 = 1.69%

OIL + 1.68 = 88.36
GOLD + 14.60 = 1393.10
SILV - .03 = 23.38

Emergency teams went house to house through mounds of debris in a devastated four-block area of West, Texas; that's the name of the town – West; it's near Waco. An explosion at a fertilizer plant leveled a big part of the town and there are 15 dead and perhaps 160 injured. Officials said there was no initial indication that the blast was anything but an industrial accident, but it is an ongoing investigation. Maybe someone will look into the wisdom behind building a fertilizer plant right next to a residential area and even a nursing home.

Meanwhile, an interfaith service was held in Boston today to mourn the victims of the bombing. It was actually a very good service. Several dignitaries spoke, including President Obama, who promised that the perpetrators will face justice. But it is an ongoing investigation. The FBI has released pictures of a couple of guys carrying large backpacks; they think they might be suspects in the bombings.

Meanwhile, the FBI has arrested a man in Mississippi for mailing letters laced with the poison ricin. The suspect is an Elvis impersonator. I can't make this stuff up.

We’re seeing economic growth cool off a little bit after a strong start to the year. The index of leading economic indicators declined 0.1% in March. The LEI looks forward about 3 to 6 months; the biggest challenges seem to be weak consumer demand and slow income growth.

Meanwhile, the Philadelphia Fed’s factory index declined, reflecting a drop in orders that prompted managers to cut back on hiring and inventories.. Manufacturing activity in the region is still growing, it's just sluggish growth.

This week, the IMF released new economic forecasts lowering its estimates for global growth, while also citing diminished risks of a severe financial disruption in Europe or sharp fiscal policy adjustment in the United States. Today, at the spring meeting of the World Bank and the IMF in Washington, Christine Lagarde, the director of the IMF gave her blessing to recent actions taken by the Bank of Japan to help bolster growth. She also said the European Central Bank had more room to aid a recovery in Europe.

But it was cautious support for more easing. The IMF still believes unconventional monetary policies meant to prop up economic growth around the world are still needed now, but they also raise the risk of creating new bubbles that would jeopardize financial stability. Policy reforms are needed before any problems created by central bank stimulus start to arise.

At a separate news conference, Jim Yong Kim, the head of the World Bank, called for eradicating extreme poverty by 2030 and for fostering income growth for the bottom 40 percent in every country.

Meanwhile, the argument for austerity has suffered a devastating blow. Carmen Reinhart and Kenneth Rogoff, two economists, of the University of Maryland and Harvard respectively, wrote a paper, “Growth in the Time of Debt” that has been used by everyone from Paul Ryan to Olli Rehn of the European Commission to justify austerity policies. The authors purported to show that once a country's gross debt to GDP ratio crosses the threshold of 90 percent, economic growth slows dramatically. Debt, in other words, seemed very scary and bad. Cut budgets now or crash your economy. Problem is that their math didn't add up, and some other economists went back and checked the math, and Rogoff and Reinhart now say there was a problem with the Microsoft Excel spreadsheet; maybe some other problems they haven't taken credit for yet.

When properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2%, not -0.1% as published in Reinhart and Rogoff. It kind of changes the whole debate.

The House of Representatives has passed legislation designed to help companies and the government share information on cyber threats, though concerns linger about the amount of protection the bill offers for private information. US authorities have recently elevated the exposure to Internet hacks and theft of digital data to the list of top threats to national security and the economy. This is the second go-around for the Cyber Intelligence Sharing and Protection Act after it passed the House last year but stalled in the Senate after President Obama threatened to veto it over privacy concerns. The White House repeated its veto threat if further civil liberties protections are not added. Some lawmakers and privacy activists worry that the legislation would allow the government to monitor citizens' private information and companies to misuse it.

Too late.

Every time you mindlessly give a sales clerk your zip code at checkout, you're giving data companies and retailers the ability to track everything from your body type to your bad habits.

That five-digit zip code is one of the key items data brokers use to link a wealth of public records to what you buy. They can figure out whether you're getting married (or divorced), selling your home, smoke cigarettes, sending a kid off to college or about to have one.

Such information is the cornerstone of a multi-billion dollar industry that enables retailers to target consumers with advertising and coupons. Yet, data privacy experts are concerned about the level at which consumers are being tracked without their knowledge -- and what would happen if that data got into the wrong hands.

Acxiom, one of the biggest data brokers in the business, claims to have a database that holds information -- including one's age, marital status, education level, political leanings, hobbies and income level -- on 190 million individuals.Major competitors, like Datalogix and CoreLogic, tout similarly vast databases.

In most cases, all that is needed to match the information these data brokers compile with what you buy is your full name — obtained when you swipe a credit card — and a zip code.

Once a retailer identifies you, it can track and analyze your spending behaviors and background in order to predict what you might buy next. In the data world, this is often called predictive analysis or predictive modeling. Some retailers sell this information back to the data brokers which then sell it to other companies -- including retailers, banks, credit card issuers, airlines, hotels, auto manufacturers and many, many more -- in a seemingly never-ending cycle.

Currently, data brokers are required by federal law to maintain the privacy of a consumer's data only if it is used for credit, employment, insurance or housing. But there are some gray areas. Medical records and prescription purchases are off limits, but data brokers are allowed to track purchases of over-the-counter drugs and other related medical items, as well as web searches and medical surveys that consumers fill out online

I hope you've heard some of the talk about the foreclosure settlement fiasco. The quick rundown is that the Office of the Comptroller of the Currency and the Federal Reserve tried to take over an investigation into foreclosure abuses by the big banks and mortgage servicing companies. They looked into abuses such as foreclosing on active duty military, forged foreclosure documents, robo-signing, foreclosing on the wrong houses, foreclosing on people who were paying their mortgages on time, and other little problems. But it was too much work for the regulators, so they told the banks to hire outside consultants to review the mortgage files one by one. But it was too much work for the outside consultants, even though they were paid $2 billion to do the review. So, after two years, the regulators just decided to guess; they said there were probably 4.4 million homeowners who had been abused and they should be paid $3.6 billion. Some would be paid up to $125,000 for the big messes, but most homeowners would get a check for $300 or less.

The first round of the settlement checks was mailed last week; 1.4 million checks for abused homeowners, or maybe not abused; nobody is really certain because they never finished reviewing the files; but they sent the checks anyway. And now the checks are bouncing. Not all of them; just a few. The company hired to distribute the checks says it has corrected the problem.

Meanwhile, the journal, Science reports that NASA scientists have discovered two planets which they think could support life. The planets are very, very far away; 1,000 light years; part of a five planet solar system. The host star -- the equivalent of Earth's sun -- takes the name Kepler-62, where the individual planets are designated by letters thereafter. The planets are the right size and the right distance from the host star, and the scientists think they might have polar caps and water and all the other stuff of life; although probably no Elvis impersonators.

When former Governor Arnold Schwarzenneger signed an executive order in 2007 creating the first-in-the-nation rule ordering reduced carbon emissions for cars and trucks, the oil industry seemed to be on board. Chevron helped write the rules. Chevron's biofuels chief spoke at the signing ceremony and pledged to develop biofuel replacements to gasoline. Two years ago, California started phasing in the mandate aimed at global warming. Now Chevron is leading a lobbying campaign to undercut the mandate they helped to write.

Chevron, the second largest US oil company quietly shelved most of its biofuels work in 2010; they just didn't see enough profit potential. The oil companies can make a profit making advanced biofuels, they just can't make as much profit as they would like.

ExxonMobil, the largest US oil company, has also retreated from a biofuels effort. It cut funding for research into making fuel from algae. Now ExxonMobil and Chevron are pressing California to postpone the low-carbon standard, and they are lobbying to stop other states from following California. The Big 2 oil giants acknowledge that carbon emissions contribute to global warming but they claim the mandate would push up prices at the pump, and the technology isn't currently available and would be expensive to produce.

Back in 2007, Chevron committed to a plant to extract biofuels from forest-based biomass; pretty much using the parts of the tree that don't get cut into lumber. The researchers developed a process, known as solvent liquefaction, that could produce fuel on a commercial scale at a cost of about $2.18 per gallon, back when crude oil was around $70 a barrel. The plants were expected to generate profits around 5 to 10%, but that's not quite the profit margins for oil and gas exploration, so they shut down the venture three years ago.

So, the big oil companies have shifted from research to lobbying against low-carbon fuels, including a lobbying group called Fueling California, which has received hundreds of thousands of dollars from Chevron.

This year, 30 bills to kill or weaken renewable rules have been considered in 16 states. None have passed so far. California is the front line, and the state is outgunned. Chevron had its second most profitable year in 2012, posting net income of $26 billion on $222 billion in sales, the vast majority from petroleum. California’s revenue in fiscal year 2012 was $87 billion.

Emission controls enacted in California since 1966 have been models for federal car-pollution and miles-per-gallon rules. The state’s 32 million vehicles consume 15 billion gallons of gasoline each year, and emit 160 million metric tons of greenhouse gases annually, 36 percent of all such emissions in California. The state began to phase in the low-carbon standard in 2011. When it’s fully in effect in 2020, greenhouse gas emissions associated with transportation fuels are supposed to be 10 percent less than they were in 2010. Right now, the state is on track to achieve the goal, but the Air Resources Board, Chevron, and ExxonMobil won't disclose how the companies are complying with the rule. It could just be that Californians are driving less, or driving more fuel efficient and cleaner burning autos.

Some of the main arguments against the California low-carbon standard have been that it could raise the state's already high gasoline prices, force refiners out of business and even harm the economy by requiring the importation of more foreign oil. But it turns out that California's railroad infrastructure, including planned West Coast terminals, will increase the logistical capacity to transport oil to California from the Bakken oil field in North Dakota. That creates a sidebar play for energy by looking at the railroad companies, but it also means that the 2020 standards aren't a death knell for California refineries. The oil from the Bakken field is cheaper than the average barrel price in the US, and Bakken crude has been given a relatively low carbon intensity rating. The use of Bakken crude in California should exert downward pressure on gasoline prices in California, and Bakken crude is considered clean enough to help the state reach its 2020 low carbon emissions standard.

The USC Schwarzenegger Institute recently hosted a forum on Climate Change. California is uniquely vulnerable to rising sea levels. It's estimated that the past decade was 2 degrees warmer than it had been historically, and it was the hottest the Southwestern US has ever experienced. It's estimated the temperatures could rise 6 to 9 degrees over the next 50 years, if we do nothing.

And that looks like the current path, or at least the current path is next to nothing. This probably isn't the way things were expected to turn out in 2007; the idea of slightly less dirty fossil fuels is not nearly as good as truly clean alternatives, but until the economics change, that's what we'll be stuck with. And that leaves the question of what we've learned. We've learned that the big oil companies will break their promises in the pursuit of higher profit margins, and this should be remembered as new standards are considered or as new oil fields, such as the Monterrey Shale fields are explored.