Raúl Ilargi Meijer

May 272016
 
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Jack Delano Near Shawboro, North Carolina, Florida migrants on way to Cranberry, NJ 1940


Bill Gross Trying to Short Credit to Reverse Four Decades of Instinct (BBG)
“Japan Is Already Doing Helicopter Money” (BBG)
“China’s Economy Resembles A Spinning Top Running Out Of Momentum” (RD)
US-China Economic Poker Game Looms With Market Calm at Stake (BBG)
China Stocks Head for Longest Weekly Losing Streak in Four Years (BBG)
Chinese Buyers Are Losing Interest In Australian Property (BBG)
EU Warns China To Expect New Steel Tariffs (FT)
Japan Fails in Bid to Have G-7 Warn of Global Crisis Risk (BBG)
Corporate Japan Much More Downbeat About Escape From Deflation (R.)
Debt Repayments In Crude Cripple Poorer Oil Producers (R.)
Wells Fargo Launches 3% Down-Payment Mortgage (CNBC)
Universal Basic Income: Money For Nothing (FT)
After 7 Years, UK Workers Still Waiting For Decent Pay Rises (FT)
Cameron Denies Being A “Closet Brexiteer” (R.)
Australia Erased From UN Climate Change Report As Government Intervenes (G.)
‘Disaster in the Making’: The Many Failures of the EU-Turkey Refugee Deal (Sp.)
Up To 80 Dead In Shipwreck Off Libya (MEE)

“I’m an investor that ultimately does believe in the system, but believes that the system itself is at risk.”

What Gross says is that being an investor is no longer any use. Or, as I said quite a while ago, in a market as manipulated as this one, with no price discovery, there are no investors. You’d have to fully redefine the term. For now, there are only people pretending to be investors.

Bill Gross Trying to Short Credit to Reverse Four Decades of Instinct (BBG)

Bill Gross, who built a career and a $1.9 billion personal fortune trading bonds, is trying to go short on credit, a position that he said runs contrary to his instincts and training as an investor. Gross, who manages the $1.3 billion Janus Global Unconstrained Bond Fund, said he is moving to sell credit risk and insurance on market volatility rather than buying long-term debt, because he believes a day of reckoning will come when central banks will no longer be able to prop up asset prices and investors will withdraw from markets. “It’s really hard to change your psychological makeup and to be a hedge manager that is comfortable with being short,” he said in an interview with Bloomberg’s Erik Schatzker. “I’m working on it, because I’m an investor that ultimately does believe in the system, but believes that the system itself is at risk.”

Central bankers, seeking to stimulate economies, have lowered rates below zero in Europe and Japan, driving down returns on national debt, while investors seeking higher yield have pushed up the value of other credit. Stimulus from central banks worldwide has artificially pushed up values of stocks and credit, which has made Gross cautious on such assets, he said. Eliminating credit as an investment means “not buying stocks, not buying high-yield bonds,” Gross said. “It means going the other way, which comes at a price.” The U.S. Fed Funds target rate is between 0.25% and 0.5%. Eventually, central bankers will have to raise rates to reward individual savers, insurance companies and other investors who depend on fixed-income returns, or the economy and markets will suffer, according to Gross.

The Fed will boost the rate in June and should continue a gradual path of increases, Gross said. Since last week when the Fed released minutes of an April meeting indicating the economy has strengthened enough for a rate increase, the probability of a hike at the June 15 Federal Open Market Committee meeting has climbed to 34%, according to futures information compiled by Bloomberg.

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Shinzo Abe approaches full panic mode. Dangerous.

“Japan Is Already Doing Helicopter Money” (BBG)

Yukio Noguchi, a former Ministry of Finance official whose business books are best sellers, envisages a scenario in which a failure of Japan’s economic stimulus could drive the yen to weaken beyond 300 per dollar. “If these fiscal and monetary policies continue, the yen’s value is at great risk,” the 75-year-old professor at Tokyo’s Waseda University said in an interview on May 11. “If you base your thinking on the efficient-markets hypothesis, you can’t predict a level for the currency. But, if the nation’s economic strength weakens, it is possible the yen could drop to 300, or 500, or 1,000 to the dollar.” Growth has stagnated for a decade despite fiscal and monetary stimulus efforts that left the government with a debt burden that is the highest in the world, at about 2.5 times the value of the nation’s economic output.

Noguchi believes the Bank of Japan is already financing fiscal spending, providing so-called helicopter money. That echoes comments by billionaire bond investor Bill Gross, who said the likely endgame was for the BOJ to forgive sovereign debt. The problem with the extremely cheap money is that it gets channeled into unproductive areas, and allows “zombie companies” to continue to stay in business, said Noguchi, who has a Ph.D. in economics from Yale, and is currently an adviser at Waseda University in Tokyo. Even so, this stimulus hasn’t been effective, and capital investment, wages, and prices aren’t rising, he said. “Japan is already doing helicopter money, as Bernanke describes it,” said Noguchi, whose economics books and life-hacking scheduler have sold millions of copies in Japan. “That’s what’s happening now under the BOJ’s asset purchase policy, with banks buying longer-maturity bonds and immediately selling them to the BOJ.”

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Duncan’s not fooling around.

“China’s Economy Resembles A Spinning Top Running Out Of Momentum” (RD)

Economist and financial author Richard Duncan has published a stark look at China’s economy as it enters a new phase of slower growth, assessing the implications for a global economy that has become reliant on Chinese demand as a driver. Duncan believes that China’s economic boom ended in 2015 and that a protracted slump lies ahead. He has published a series of videos explaining why, in his opinion, China’s economic development model of export-led and investment-driven growth is now in crisis. The South China Morning Post brings you the first video in that series.

“China’s economy resembles a spinning top that is running out of momentum. It is wobbling and gyrating erratically,” Duncan said. A former Hong Kong-based banking analyst, Duncan has also worked as an analyst at the World Bank, and as global head of investment strategy at ABN AMRO Asset Management in London. He has authored three books on the global economic crisis, including The Dollar Crisis: Causes, Consequences, Cures. He is now chief economist at the Singapore-based hedge fund Blackhorse Asset Management.

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Cats in a sack.

US-China Economic Poker Game Looms With Market Calm at Stake (BBG)

As top American and Chinese officials prepare for their annual powwow against the backdrop of a looming Federal Reserve interest-rate increase, the policy actions of the world’s two-biggest economies have never been so closely bound. In what could be likened to a poker game, officials from the world’s two biggest economies will attempt to assess each others’ policy plans – and their potential domestic implications – when they sit down in Beijing June 6-7. China wants to loosen the yuan’s link with the dollar while averting an exodus of capital. The Fed wants to gradually move away from near-zero interest rates, with almost all officials penciling in at least two quarter-point hikes this year.

The past nine months have made clear how the two sides’ goals can conflict, with the withdrawal of U.S. stimulus encouraging Chinese outflows and a surprise August yuan devaluation generating market ructions that put a pause on a Fed rate move. A Fed-induced surge in the U.S. currency would put pressure on the yuan, lighting a match under money outflows that have eased significantly after a record $1 trillion left in 2015. Avoiding another financial conflagration is one task for Fed Vice Chairman Stanley Fischer, U.S. Treasury Secretary Jacob J. Lew and other officials when they meet their Chinese counterparts. The gathering will be the eighth and final Strategic and Economic Dialogue since the Obama administration agreed on the annual sessions, which were an extension of a Bush administration initiative.

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Listening to the ‘authorative voice’.

China Stocks Head for Longest Weekly Losing Streak in Four Years (BBG)

China’s stocks headed for their longest stretch of weekly losses since July 2012 amid concern a pick-up in earnings growth is losing steam as the nation’s economy slows. The Shanghai Composite Index was poised for a sixth week of declines after slipping 0.3% on Friday. Industrial, drug and consumer-staples producers were the worst performers this week. China Southern Airlines and Air China slumped more than 6% during the period, hurt by rising fuel prices and a weakening yuan. Data on Friday showed industrial companies’ profit growth slowed to 4.2% in April. Hong Kong stocks halted a three-day advance after Tingyi Cayman Islands reported slumping earnings.

Sentiment toward Chinese stocks turned bearish after March’s pick up in economic indicators didn’t carry over to April and a high-profile warning by the People’s Daily about the nation’s high levels of debt damped hopes for more easing. Adding to the concern this week is the prospect of higher U.S. interest rates spurring capital outflows. Despite dwindling optimism, the Shanghai Composite hasn’t strayed more than 51 points from 2,800 in the past two weeks, with declines limited by suspected buying from state-backed funds aimed at preventing the benchmark from ending below that level. “The market is slowly searching for a bottom and testing investors’ patience,” said Wu Kan at JK Life Insurance in Shanghai. “Stocks are fluctuating in a small range near 2,800 amid waning turnover, as investors cautiously await clarity over issues such as the timing of U.S. rate hikes. Small rebounds, if any, will be followed by declines.”

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Losing interest? Are we sure that’s the only reason?

Chinese Buyers Are Losing Interest In Australian Property (BBG)

Buyers from China, often blamed for the sharp rise in home prices in Sydney and Melbourne, are starting to lose interest. In the first four months of the year, visits by potential buyers from China to realestate.com.au’s listings in New South Wales state, which has Sydney as its capital, declined 25% from the same period last year. Views of properties in Victoria state, whose capital is Melbourne, fell 8.9%, while the mining state of Western Australia saw the biggest drop of 35%, according to the portal, one of the nation’s two biggest property websites.

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At some point China must retaliate.

EU Warns China To Expect New Steel Tariffs (FT)

The EU has warned China that it faces new anti-dumping tariffs on steel, amid growing pressure for the west to block Beijing’s bid for “market economy status” and greater access to world markets. Speaking ahead of the G-7 summit in Japan, European Commission president Jean-Claude Juncker declared: “If somebody distorts the market, Europe cannot be defenseless.” The issue of Chinese steel exports will be discussed by G-7 leaders on Thursday against the backdrop of a steel crisis in many western countries, including Britain where efforts are under way to save Tata Steel’s UK operations. Draft language prepared for discussions on the G-7 communique, while not mentioning China, expresses concern about the excess supply of steel around the world and says it has distorted the global market.

A Japanese government official said the issue went beyond steel to other commodities as well. Juncker claimed Chinese overcapacity amounted to double the EU’s annual steel production and that it had contributed to the loss of “thousands of jobs since 2008”. “We will step up our trade defense measures,” he said. Juncker also said there would be an impact assessment of Chinese steel exports and detailed discussion on Beijing’s bid for market economy status under WTO rules. China expects to achieve that status in December on the 15th anniversary of its 2001 accession to the WTO, giving it greater access to world markets and making it harder for third parties such as the EU to impose anti-dumping sanctions.

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So it’s G7, but not really, since Juncker and Tusk are also invited, while Putin and Xi are not. You make it up as you go along.

Japan Fails in Bid to Have G-7 Warn of Global Crisis Risk (BBG)

Japanese Prime Minister Shinzo Abe failed in his bid to have Group of Seven leaders warn of the risk of a global economic crisis in a communique issued as their summit wraps up Friday in central Japan. The final statement declares that G-7 countries “have strengthened the resilience of our economies in order to avoid falling into another crisis.” Japan had pressed G-7 leaders to note “the risk of the global economy exceeding the normal economic cycle and falling into a crisis if we did not take appropriate policy responses in a timely manner.” On Thursday, Abe presented documents to the G-7 indicating there was a danger of the world economy careering into a crisis on the scale of the 2008 Lehman shock.

Abe has frequently said he would proceed with a planned increase in Japan’s sales tax in April 2017 unless there is an event on the scale of Lehman or a major earthquake. He is expected to announce next week he is deferring the tax rise, Japanese media reported. One of the biggest topics at the meeting was China, which is not a member of the G-7. A slowdown in China, alongside a global steel glut, has spurred concerns among developed economies and at times disagreement on how best to spur growth. Abe has advocated greater government spending to back up monetary policy action. The communique urged a coordinated, albeit differentiated, response to storm clouds gathering over the global economy. Leaders pledged to use a mix of tools depending on their circumstances.

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Fast looming gloom: “70% of companies see no decisive escape from deflation for the foreseeable future, up from 48% in January”

Corporate Japan Much More Downbeat About Escape From Deflation (R.)

Japan Inc has become increasingly pessimistic about the country’s ability to beat deflation, with the vast majority of firms now expecting no escape for the foreseeable future, a Reuters poll showed. Most Japanese companies also said they did not think Prime Minister Shinzo Abe’s latest growth strategy that centers on lifting the mininum wage and investment in technology would help bring significant improvement to a faltering economy. Abe swept into office three years ago with bold plans to end decades of deflation and bring about sustainable growth. But while unprecedented monetary policy in tandem with fiscal stimulus met with some initial success, any gains in ridding the country of a deflationary mindset look like they could be slipping away.

The Reuters Corporate Survey, conducted May 9-23, found 70% of companies see no decisive escape from deflation for the foreseeable future, up from 48% in January when the same question was asked. “Demand is not on an upward trend, and household spending is not rising because base pay is not rising,” wrote a manager at a chemicals company. “It has become difficult for companies to lift prices.” Japan has only managed very mild inflation since Abe took office and the pace of price gains has been slowing since 2014. Core consumer prices in March fell 0.3% from a year earlier, the fastest decline in three years due to lower oil prices. The survey also found that 79% of companies were worried that consumer prices could return to deflation either this year or next.

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Stunning from earlier in the week. ‘Weaker producers’ are forced to flood the market, but with nothing in return.

Debt Repayments In Crude Cripple Poorer Oil Producers (R.)

Poorer oil-producing countries which took out loans to be repaid in oil when the price was higher are having to send three times as much to respect repayment schedules now prices have fallen. This has crippled the finances of countries such as Angola, Venezuela, Nigeria and Iraq and created a further division within OPEC. Ahead of an OPEC meeting next week, poorer members have continued to push for output cuts to lift prices but wealthier Gulf Arab members such as Saudi Arabia, which are free of such debts, are resisting taking any action despite prices falling 60% in the past 2 years. Angola, Africa’s largest oil producer has borrowed as much as $25 billion from China since 2010, including about $5 billion last December, forcing its state oil firm to channel almost its entire oil output toward debt repayments this year.

This year Angola, Nigeria, Iraq, Venezuela and Kurdistan are due to repay a total of between $30 billion and $50 billion with oil, according to Reuters calculations based on publicly disclosed information and details given by participants in ongoing restructuring talks. Repaying $50 billion required only slightly over 1 million barrels per day (bpd) of oil exports when it was trading at $120 per barrel but with prices of around $40, the same repayment would require exports of over 3 million bpd. “All of those oil nations – Angola, Nigeria, Venezuela – have taken money for survival but haven’t got any money left for investments. “That is very damaging to their long-term growth prospects,” said Amrita Sen from Energy Aspects think-tank.

“People tend to look at current production volumes but if you have committed your entire production to China or other buyers under loans – then you cannot invest to keep growing and won’t benefit from higher prices in the future.” China has also become Venezuela’s top financier via an oil-for-loans program which since 2007 has funneled $50 billion into Venezuelan coffers in exchange for repayment in crude and fuel, including a $5 billion deal last September. While details of the loans have not been made public, analysts from Barclays estimate Caracas owes $7 billion to Beijing this year and needs nearly 800,000 bpd to meet payments, up from 230,000 bpd when oil traded at $100 per barrel.

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But of course. Got to keep them sales going until they don’t.

Wells Fargo Launches 3% Down-Payment Mortgage (CNBC)

First-time buyers and low- to moderate-income buyers have largely been sidelined by today’s housing recovery. The common cry is too-tight credit. Lenders have kept the credit box restrictive because they are gun-shy from the billions of dollars in buy backs and judicial settlements stemming from the mortgage crisis that they still face today. Now, the nation’s largest lender, Wells Fargo, says it is opening that box with a new low down payment loan — a loan it claims is low-risk to the bank. “We are fully underwriting the borrowers, we are partnering with Fannie Mae to originate and sell these loans, we are ensuring the borrowers have an ability to repay and that they’re qualified for home ownership, but we’re simplifying things for the homebuyer,” said Brad Blackwell, executive vice president and portfolio business manager at Wells Fargo.

Branded “yourFirstMortgage,” Wells Fargo’s new product has a minimum down payment of 3% for a fixed-rate conventional mortgage of up to $417,000. Down payment help can come from gifts and community-assistance programs. Customers are not required to complete a homebuyer education course, but if they do, they may earn a 1/8% interest rate reduction. The minimum FICO score for these loans, which are underwritten according to Fannie Mae standards, is 620. Mortgage insurance can either be rolled in to the cost of the loan or purchased separately by the borrower. Blackwell said either way, the monthly payment is less than a government-insured FHA loan. More importantly, it’s simpler than other 3% down payment products already in the market, some of which have specific income and counseling requirements.

“We’ve taken all the complexity of the home mortgage lending process, removed it from the front-line consumer, so that it’s easy for them to understand and Wells Fargo is taking care of all the capital markets and other types of complexities behind the scenes,” added Blackwell. Other 3% down payment products from Bank of America with Freddie Mac or Fannie Mae’s HomeReady program have not been popular because lenders find them bureaucratic and hard to use. “To the extent that Wells is using this product as liberally as they can, that’s a positive for most borrowers,” said Guy Cecala, CEO of Inside Mortgage Finance.

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Sort of like Brexit, a discussion conducted on the wrong terms. It can’t only be about robots taking jobs. That is far too narrow. Economic collapse is a much larger factor.

Universal Basic Income: Money For Nothing (FT)

Switzerland’s traditionally conservative electorate will next month vote on the superficially preposterous idea of handing out an unconditional basic income of SFr30,000 ($30,275) a year to every citizen, regardless of work, wealth or their social contribution. Opinion polls suggest the June 5 referendum will be heavily defeated. And even if some kind of electoral convulsion results in the proposal being unexpectedly approved by voters, it is certain to be shot down by the 26 cantons that would have to implement it. But the very fact that one of the world’s most prosperous countries is holding such a vote highlights how a centuries-old dream of radical thinkers is seeping into the political mainstream.

In countries as diverse as Brazil, Canada, Finland, the Netherlands and India, local and national governments are experimenting with the idea of introducing some form of basic income as they struggle to overhaul inefficient welfare states and manage the social disruption caused by technological change. Daniel Häni, a chirpy Basel entrepreneur who is one of the Swiss initiative’s main supporters, said modern welfare states provide basic social support but are failing to adapt to the needs and values of our times. The trouble is that they are too costly and cumbersome, assume that a citizen’s worth is determined solely by their value as an employee and rely on means testing by an overly intrusive state. “Our social system is 150 years old and is based on Bismarck’s response to Industrialisation 1.0,” he said. “Our idea is simple. We want to render the conditional unconditional. UBI is about shifting power back to the citizen.”

The idea of providing money for nothing to all citizens dates back centuries and was nurtured by a radical cult before resurfacing in recent times. In the 20th century it was championed by thinkers on the left, such as John Kenneth Galbraith and Martin Luther King, as a means of promoting social justice and equal opportunity. But it was also backed by some libertarians and economists on the right, including Milton Friedman, as a way of restricting the coercive state and restoring individual choice and freedom. Incredible as it seems today, President Richard Nixon came very close to implementing a negative income tax (a variant of basic income) across the US in 1970. Nixon’s initiative, part of his Family Assistance Plan, was strongly backed by the House of Representatives but failed in the Senate, where some Democrats considered it unambitious, and several Republicans considered it too bold.

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Something tells me they will get to wait a lot longer.

After 7 Years, UK Workers Still Waiting For Decent Pay Rises (FT)

Britain’s workers have gone seven years without a decent pay rise — and data published on Thursday suggest they will have to wait a while longer. In the three months to the end of April, the busiest month of the year for pay settlements, the median pay settlement dipped from 2% to 1.7%. XpertHR, the company that gathers the data, said almost half the awards were lower than the same group of employees received last year, while only a fifth were higher. Economics textbooks would not have predicted such figures. Wages are meant to rise when unemployment falls since there are fewer jobless people around who are willing to work for low pay. Yet though unemployment has dropped to a pre-crisis low of 5.1%, average wage growth remains stubbornly slow at about 2% a year — roughly half the pace that was typical before the crash.

Adopting the slogan “Britain deserves a pay rise”, the government has tried to force the issue by raising the minimum wage sharply in April but this does not seem to have affected average pay. Britain is not alone: wage growth has weakened across the developed world and economists in Germany and the US, where unemployment is similarly low, are just as puzzled. Employers are less mystified. “We keep referring back to the old world, where full employment meant pay should be rapidly rising but I think the new world we’re in now is [that] we have still got underemployment, low productivity and low inflationary environments, which means there’s no need to raise pay,” said James Hick, managing director of ManpowerGroup Solutions, which supplies 35,000 contractors and temps per week to UK employers.

There are plenty of lower-paid people who would work more hours if they could, said Mr Hick, which lessens the pressure on employers to pay more. The unemployment rate may be the same as it was in 2006 but 14% of part-time workers say they cannot find full-time work, compared with 9% a decade ago. [..] The most important factor in the long term is that Britain has suffered a productivity slowdown since the financial crisis, much like many other countries, including the US. British workers are now 14% less productive than they would have been if the pre-crisis growth trend had continued. Employer lobby groups such as the CBI say wages cannot rise sustainably until workers increase their output per hour.

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Could have fooled me… Why else make such crazy claims?

Cameron Denies Being A “Closet Brexiteer” (R.)

British Prime Minister David Cameron said on Friday he was not a “closet Brexiteer” and that leaving the European Union would hurt Britain’s economic future and complicate trade deals with countries such as Japan. Speaking at a meeting of the G7 industrial powers, Cameron rejected a description by a former aide this week that he secretly supported a vote to leave the EU at a referendum on June 23. “So I have never been a closet Brexiteer,” he told a news conference in Japan. “I am absolutely passionate about getting the right result, getting this reform in Europe and remaining part of it. It’s in Britain’s interests and that’s what it is all about.”

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Almost funny.

Australia Erased From UN Climate Change Report As Government Intervenes (G.)

Every reference to Australia was scrubbed from the final version of a major UN report on climate change after the Australian government intervened, objecting that the information could harm tourism. Guardian Australia can reveal the report “World Heritage and Tourism in a Changing Climate”, which Unesco jointly published with the United Nations environment program and the Union of Concerned Scientists on Friday, initially had a key chapter on the Great Barrier Reef, as well as small sections on Kakadu and the Tasmanian forests. But when the Australian Department of Environment saw a draft of the report, it objected, and every mention of Australia was removed by Unesco. Will Steffen, one of the scientific reviewers of the axed section on the reef, said Australia’s move was reminiscent of “the old Soviet Union”.

No sections about any other country were removed from the report. The removals left Australia as the only inhabited continent on the planet with no mentions. Explaining the decision to object to the report, a spokesperson for the environment department told Guardian Australia: “Recent experience in Australia had shown that negative commentary about the status of world heritage properties impacted on tourism.” As a result of climate change combined with weather phenomena, the Great Barrier Reef is in the midst of the worst crisis in recorded history. Unusually warm water has caused 93% of the reefs along the 2,300km site to experience bleaching. In the northern most pristine part, scientists think half the coral might have died. The omission was “frankly astounding,” Steffen said.

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The German view of a doomed deal.

‘Disaster in the Making’: The Many Failures of the EU-Turkey Refugee Deal (Sp.)

It is becoming increasingly difficult to maintain the claim that Turkey is a safe place for refugees. According to Amnesty International, Turkish authorities have deported hundreds of refugees from Turkey back to Syria in recent months. In early May, Human Rights Watch documented the cases or five Syrian refugees who were shot dead while attempting to enter Turkey, allegedly by Turkish border troops. The Syrian Observatory for Human Rights reported 16 deaths at the Syrian-Turkish border between December 2015 and March 2016. The EU has sent 390 migrants from Greece back to Turkey since early April, far fewer than planned. About 8,000 migrants, a third of them Syrians, remain in the Aegean islands. The European Commission now believes that Greek appellate judges may stop one in three deportations of Syrians.

“This strikes at the core of the deal,” said a senior Brussels official. Europe’s goal with the Turkey agreement is deterrence. In recent weeks, a number of migrants have indeed chosen not to leave Turkey for Greece, fearing that they would be sent back. If it now emerges that the Greeks are not deporting migrants nearly as quickly as anticipated, many more refugees could risk the voyage across the sea again soon, predicts Metin Çorabatir, chairman of the Ankara-based Research Center on Asylum and Migration (IGAM). But the camps on the Greek island are already overcrowded. Food is scarce and migrants have set garbage cans on fire to protest conditions in the camps. “We don’t know what we’ll do if even more people arrive,” says an official with the Greek Ministry of Migration. Political consultant Knaus calls it a “disaster in the making.”

Nevertheless, the EU is clinging to the deal, despite the tense climate between Brussels and Ankara. Erdogan has threatened to cancel the agreement altogether if EU refuses to grant Turkish citizens visa-free travel, while Europe has countered that Ankara needs to reform the Turkish anti-terrorism law first, as agreed. The Turkish president hardly misses an opportunity to show that he couldn’t care less about what Europeans think – of his plan, for instance, to revoke the immunity of members of parliamentarians who refuse to toe the line, so that they can then be sidelined with the help of the judiciary. And now that Prime Minister Ahmet Davutoglu has been ousted, the EU has lost a level-headed dialog partner in Turkey. His successor, Transportation Minister Binali Yildirim, is seen as an Erdogan acolyte.

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Thousands are being rescued every single day. The idea that you can just stop the flow is a lethal illusion. But still no emergency UN meetings.

Up To 80 Dead In Shipwreck Off Libya (MEE)

Up to 80 people are feared dead after a shipwreck off Libya, while at least 50 refugees and migrants have been rescued from the waves, the EU’s naval force said on Thursday. The wreck comes during a week in which more than 6,000 migrants and refugees have been rescued by Libyan, Italian and other authorities off the coast of Libya. On Thursday, a Luxembourg reconnaissance plane spotted the capsized boat around 64km off the Libyan coast with about 100 refugees and migrants in the water or clinging to the sinking vessel, captain Antonello de Renzis Sonnino, spokesman for the EU’s Sophia military operation to combat people smugglers in the Mediterranean, told AFP. The Spanish frigate Reina Sofia and Italian coast guard raced to the scene and threw life-floats and jackets to those in the water.

“Unfortunately, there were bodies too,” de Renzis Sonnino said, adding that the rescue operation was still ongoing. In photographs released by EUNAVFOR MED on Twitter people could be seen waving their arms for help as they balance perilously on the deck of the boat, already underwater but clearly visible in the limpid aquamarine sea. The shipwreck followed sharply on the heels of a disaster on Wednesday when a migrant boat overturned leaving five people dead, and another sinking on Tuesday which left a baby girl orphaned after both her parents died. Video footage of the incident released by the Italian navy showed people toppling into the sea as the overcrowded vessel capsized. A bout of good weather as summer arrives has kicked off a fresh stream of boats attempting to cross from Libya to Italy. The survivors will be added to the list of nearly 40,000 migrants and refugees to arrive in the country’s southern ports so far this year.

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May 262016
 
 May 26, 2016  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , , ,  7 Responses »
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NPC Graf Zeppelin over Capitol 1928


Britain’s Property Market Is Going To Implode (BI)
Trillions in Debt—but for Now, No Reason to Worry (WSJ)
IMF: No Cash Now for Greece Because Europe Hasn’t Promised Debt Relief (WSJ)
China’s ‘Feud’ Over Economic Reform Reveals Depth Of Xi’s Secret State (G.)
Chinese Officials To Ask US Counterparts When Fed Will Raise Rates (BBG)
Fear Of UK Steel Sector’s ‘Death By 1,000 Cuts’ (Tel.)
Varoufakis: Australia Lives In A Ponzi Scheme (G.)
Venezuela Sells Gold Reserves As Economy Worsens (FT)
Wall Street Crime: 7 Years, 156 Cases and Few Convictions (WSJ)
Quantitative Easing and the Corruption of Corporate America (DMB)
Brexit, And The Return Of Political Lying (Oborne)
We Have Entered The Looting Stage Of Capitalism (PCR)
France Digs In to Endure Oil Strike With Release of Fuel Reserve (BBG)
Union Revolt Puts Both Hollande’s Future And France’s Image On The Line (G.)
Bayer Could Get ECB Financing For Monsanto Bid (R.)
Putin Closes The Door To Monsanto (DDP)

No doubt here. Ditto for all bubbles.

Britain’s Property Market Is Going To Implode (BI)

Property prices in Britain may be surging due to a horrendous imbalance of supply and demand — but the market is poised to implode. Why? Because Britons are not earning enough money to either get on the housing ladder or are spending such a large portion of their wages on mortgages that may not be sustainable. Well, not unless everyone suddenly gets a huge pay rise over the next year or so. That’s the assumption in the latest figures from think tank Resolution Foundation, which show that lower- and middle-income households are spending 26% of their salaries on housing, compared to 18% back in 1995. In London, households spend 28% of their income on housing. The think tank said this is the equivalent to adding 10 percentage points onto income tax.

Only the rich are not feeling the pressure of rising house prices. Higher-income households spend 18% of their income on housing, compared to 14% in 1995. The average price to buy a house in Britain now stands at £291,504, according to the Office for National Statistics. Meanwhile, the average London property price is at a huge £551,000. To put this into perspective, Resolution Foundation estimated that median income, at £24,300, is only around 3% higher than it was when the credit crunch hit in 2007/2008. [..] the house price-to-earnings ratio is near the pre-crisis peak. Considering the average deposit to secure a home is around 10% of the total property price, this means Britons are taking on huge amounts of debt and eating into the little savings they have to buy a home.

[..] the market is poised on a knife edge between interest rates and wages. If interest rates were to rise — and they will eventually — it could prove a major problem for the Britons who already spend 25-28% of their salaries on housing. Similarly, if another downturn depresses wages, mortgage payments will become an increasing portion of their income even without an interest rate increase. That situation is pricing out low- and middle-income people from the market, as the chart shows. Ownership rates in this group have sunk from nearly 60% in 1997 to just 25% today. That’s how fragile the housing market is: With those buyers unable to afford to buy, the market is dependent on a thinner slice of owners, whose incomes are increasingly stretched by housing costs, who can’t afford a decrease in wages, and who may not be able to afford any increase in interest.

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“Global debt—including households, businesses and governments—has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter.”

Trillions in Debt—but for Now, No Reason to Worry (WSJ)

If current trends persist through the end of the year, U.S. households will owe as much as they did at the peak of borrowing in 2008. Global debt has already topped 2008 levels and keeps rising. That’s pretty astonishing so soon after debt-driven crises in the U.S. and Europe and endless worries about too much borrowing in Japan, China and emerging markets. But for all the hand-wringing, a near-term debt crisis is unlikely. Lower interest rates mean debt payments are far lower than they were before the crisis. In the U.S., household debt compared with the overall economy is way down. And overseas, loans can easily be rolled over. Yet even with low rates, the cycle of borrowing and rolling over loans has a cost. People, governments and businesses spend now instead of later, likely reducing future growth.

The cycle also allows borrowing to go on for years, which can be good—allowing reform to take hold—or not, allowing bad policies to go on almost indefinitely. U.S. households owed $12.25 trillion at the end of the first quarter, up 1.1% from the end of 2015, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, released Tuesday. If the first quarter repeats itself through the end of the year, U.S. household debt will approach its peak of $12.68 trillion, which it hit in the third quarter of 2008. Many people remember that quarter because it’s when the global financial system went off a cliff. This time is different because short-term interest rates have been stuck near zero since then. For U.S. consumers, that means household debt-service payments as a percent of disposable personal income are at their lowest level since at least 1980, despite a much higher debt load. In addition, more loans are going to higher-quality borrowers.

[..] Low rates have had an even more dramatic impact overseas, where economies are weaker or less stable. Global debt—including households, businesses and governments—has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter. But the cost of interest payments, as a share of GDP, has fallen to 7% from a peak of 11%, according to J.P. Morgan. Japan is the prime example of how low interest rates can change the rules of the game. At 400% of GDP, Japan’s debt level is by far the highest in the world. One of the great mysteries of finance is why investors lend the government money for negligible or negative yields when it seems impossible for Japan to pay off its debt.

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“..no one does what’s in Greece’s best interests..”

IMF: No Cash Now for Greece Because Europe Hasn’t Promised Debt Relief (WSJ)

A senior IMF official Wednesday said it can’t help Europe with fresh emergency financing for Greece because Athens’s creditors haven’t yet committed to detailed debt relief. The comments show that the agreement touted by European finance ministers last night to release fresh bailout cash for Greece hasn’t nailed down the key elements the IMF says are critical to finally return the debt-laden country to health. Rather, the IMF’s reserved support for the deal has paved the way for Germany to approve new funds and sets the stage for more tough negotiations later this year. “Fundamentally, we need to be assured that the universe of measures that Europe will to commit to…is consistent with what we think is needed to reduce debt,” the senior official told reporters on a conference call. “We do not yet have that.”

But the official said Europe’s acknowledgment that debt relief is needed and would be detailed later this year was enough to win the fund’s conditional backing. “All the stakeholders now recognize that Greek debt is…highly unsustainable,” the official said. “They accept that debt relief is needed, they accept the methodology that is needed to calibrate the necessary debt relief. They accept the objectives of gross financing needs in the near term and in the long run. They even accept the time tables.” Many outside economists see the deal as papering over the differences and once again prolonging the crisis. “Summary of Eurogroup: Germany always wins, IMF caves under pressure from Germany and U.S., no one does what’s in Greece’s best interests,” said Megan Greene at Manulife and John Hancock Asset Management. Marc Chandler at investment bank Brown Brothers Harriman called the deal a “paper charade” that saves Europe more than it does Greece.

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Li wants more debt, Xi at least sees the danger in that.

China’s ‘Feud’ Over Economic Reform Reveals Depth Of Xi’s Secret State (G.)

It was hardly a headline to set the pulse racing. “Analysing economic trends according to the situation in the first quarter: authoritative insider talks about the state of China’s economy,” read the front page of the Communist party’s official mouthpiece on the morning of Monday 9 May. Yet this headline – and the accompanying 6,000-word article attacking debt-fuelled growth – has sparked weeks of speculation over an alleged political feud at the pinnacle of Chinese politics between the president, Xi Jinping, and the prime minister, Li Keqiang, the supposed steward of the Chinese economy.

“The recent People’s Daily interview not only exposes a deep rift between [Xi and Li], it also shows the power struggle has got so bitter that the president had to resort to the media to push his agenda,” one commentator said in the South China Morning Post. “Clear divisions have emerged within the Chinese leadership,” wrote Nikkei’s Harada Issaku, claiming the two camps were “locking horns” over whether to prioritise economic stability or structural reforms. The 9 May article – penned by an unnamed yet supposedly “authoritative” scribe – warned excessive credit growth could plunge China into financial turmoil, even wiping out the savings of the ordinary citizens.

As if to hammer that point home, a second, even longer article followed 24 hours later – this time a speech by Xi Jinping – in which the president laid out his vision for the Chinese economy and what he called supply-side structural reform. “Taken together, the articles signal that Xi has decided to take the driver’s seat to steer China’s economy at a time when there are intense internal debates among officials over its overall direction,” Wang Xiangwei argued in the South China Morning Post. Like many observers, he described the front page interview as a “repudiation” of Li Keqiang-backed efforts to prop up economic growth by turning on the credit taps.

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“A less aggressive Fed stance is in China’s interest.” Look, the dollar will rise no matter what the Fed does. China must devalue.

Chinese Officials To Ask US Counterparts When Fed Will Raise Rates (BBG)

Chinese officials plan to ask their American counterparts in annual talks next month about the chance of a Fed interest-rate increase in June, according to people familiar with the matter. The Chinese delegation will try to deduce whether a June or a July rate rise is more likely, as their nation’s policy makers prepare for the potential impact on financial markets and the yuan, the people said, asking not to be named as the discussions were private. In China’s view, if the Fed does lift borrowing costs, a July move would be preferable, the people said. China’s exchange rate has already been weakening as expectations rise for the U.S. central bank to boost its benchmark rate for the first time since it ended its near-zero policy in December with a quarter%age point increase.

It’s not unusual for senior officials to press each other on their policies, and any inquiries by the Chinese about the Fed would follow repeated expressions of concern from the U.S. about China’s intentions with its exchange rate. The Treasury Department put China on a new currency watch list last month to monitor for unfair trade advantages. “The Chinese side will argue that the U.S. should tread cautiously as it tightens monetary policy and avoid any surprises,” said Mark Williams, chief Asia economist at Capital Economics in London, who participated in U.K.-China meetings when working at Britain’s Treasury. “The Federal Reserve will make its decision solely on what it deems best for the U.S. economy, but it is clear that concerns about China have influenced its thinking about the balance of risks facing the U.S.”

[..] “Chinese officials are pretty anxious about the Fed as a June rate hike – which is not fully discounted in the market – may boost the dollar,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. “This could pose a threat or make it difficult for the PBOC to keep a stable RMB exchange rate,” he said, referring to the People’s Bank of China’s management of the renminbi, another term for the yuan. “A less aggressive Fed stance is in China’s interest.”

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Trying to rewrite UK pensions laws just to sell one company. Wow.

Fear Of UK Steel Sector’s ‘Death By 1,000 Cuts’ (Tel.)

Tata has refused to rule out holding on to its crisis-hit British steel division, raising fears that the business could suffer “a death by a thousand cuts”. Delivering annual results for the Tata’s global steel business, Koushik Chatterjee, executive director, declined to give details on the board’s thoughts on the seven bids the company has received for the loss-making UK plants. But pressed on whether Tata could do a U-turn and hold on to the business – which the Government has said it is willing to take a 25pc stake in and offer financial support to if this will keep it alive – he refused to deny this was an option “I don’t think we have a case as yet,” said Mr Chatterjee. “There is lots of focus only on a sale.” The results announcement – which showed Tata Steel’s revenues down 6pc to £11.9bn and an annual loss of £309m – echoed Mr Chatterjee, saying: “The board… is actively reviewing all options for the Tata Steel UK business, including a potential sale.”

Sajid Javid, the Business Secretary, met with Tata’s directors on Monday night for several hours ahead of their monthly meeting, which considered the bids. It is thought Mr Javid sees Tata keeping the UK business as a way of retaining a viable steel industry in the Britain, after bidders signalled their reluctance to take on the Tata pension scheme, which has a £500m deficit. Ministers are this week expected to start consultations on controversial proposals to restructure the pension scheme [..] The changes would alter the way pension payments are calculated by swapping from RPI inflation to the lower CPI, potentially shaving billions from the scheme’s liabilities. However, such a move would require a change off law and could set what some pensions experts have described as a dangerous precedent.

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Like Britain, like New Zealand, like Canada.

Varoufakis: Australia Lives In A Ponzi Scheme (G.)

Varoufakis’s answers are quick, sharp and eloquent – and ready. He barely needs a pause when asked what he’d do if suddenly installed as Australia’s treasurer, before he’s firing off a prescription for the economy. “The first thing that has to happen in this country is to recognise two truths that are escaping this electorate, and especially the elites. “Firstly, Australia does not have a debt problem. The idea that Australia is on the verge of becoming a new Greece would be touchingly funny if it were not so catastrophic in its ineptitude. Australia does not have a public debt problem, it has a private debt problem. “Truth number two: the Australian social economy is not sustainable as it is. At the moment, if you look at the current account deficit, Australia lives beyond its means – and when I say Australia, I mean upper-middle-class people. The luxurious lifestyle is not supported by the Australian economy.

It’s supported by a bubble, and it is never a good idea to rely on the proposition that a bubble will always be there to support you. “So private debt is the problem. And secondly, because of this private debt, you have a bubble, which is constantly inflated through money coming into this country for speculative purposes.” Varoufakis is unequivocal in his conviction that current growth – which he likens to a Ponzi scheme – needs to be replaced with growth that comes from producing goods. “Australia is switching away from producing stuff. Even good companies like Cochlear, who have been very innovative in the past, have been financialised. They’re moving away from doing stuff to shuffling paper around. That would be my first priority [if I were Australian treasurer]: how to go back to actually doing things.”

Varoufakis wouldn’t be the first to compare the Australian economy to a Ponzi scheme. Economist Lindsay David has made a similar criticism of the housing market, and has also heavily criticised Australia’s reliance on Chinese investment. David and fellow economist Philip Soos have predicted the economy is heading for a crash, and Varoufakis thinks they might be right. He is quick to point out that crashes can never be predicted, but he is in little doubt that it will happen if Australia doesn’t change direction soon. “There is no doubt, if you look at the pace of house prices over the past 20 years in Australia and the pace of value creation; they’re so out of kilter that something has to give.”

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US revenge on Chavez is nearing completion.

Venezuela Sells Gold Reserves As Economy Worsens (FT)

Venezuela’s gold reserves have plunged to their lowest level on record after it sold $1.7 billion of the precious metal in the first quarter of the year to repay debts. The country is grappling with an economic crisis that has left it struggling to feed its population. The OPEC member’s gold reserves have dropped almost a third over the past year and it sold over 40 tonnes in February and March, according to IMF data. Gold now makes up almost 70% of the country’s total reserves, which fell to a low of $12.1 billion last week. Venezuela has larger crude reserves than Saudi Arabia but has been hard hit by years of mismanagement and, more recently, depressed prices for oil. Oil accounts for 95% of its export earnings. Despite the recent price rebound, declining oil output is likely to take a further toll on the economy. The IMF forecasts the economy will shrink 8% this year, and 4.5% in 2017, after a 5.7% contraction in 2015.

Inflation is forecast to exceed 1,642% next year, fueled by printing money to fund a fiscal deficit estimated at about 20% of GDP. Venezuela began selling its gold reserves in March 2015, according to IMF data. At roughly 367 tonnes, Venezuela has the world’s 16th-biggest gold reserves, according to the World Gold Council. In contrast, China and Russia both added to their gold holdings this year, the data show. Gold prices have risen 15% this year. Last year Venezuela’s central bank swapped part of its gold reserves for $1 billion in cash through a complex agreement with Citi. The late president Hugo Chávez had said he would free Venezuela from the “dictatorship of the dollar” and directed the central bank to ditch the US dollar and start amassing gold instead. In 2011, as a safeguard against market instability, Chávez brought most of the gold stored overseas back to Caracas.

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What an incredible charade this has turned into.

Wall Street Crime: 7 Years, 156 Cases and Few Convictions (WSJ)

The Wall Street Journal examined 156 criminal and civil cases brought by the Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission against 10 of the largest Wall Street banks since 2009. In 81% of those cases, individual employees were neither identified nor charged. A total of 47 bank employees were charged in relation to the cases. One was a boardroom-level executive, the Journal’s analysis found. The analysis shows not only the rarity of proceedings brought against individual bank employees, but also the difficulty authorities have had winning cases they do bring. Most of the bankers who were charged pleaded guilty to criminal counts or agreed to settle a civil case, with those facing civil charges paying a median penalty of $61,000.

Of the 11 people who went to trial or a hearing and had a ruling on their case, six were found not liable or had the case dismissed. That left a total of five bank employees at any level against whom the government won a contested case. They include Mr. Heinz, the former UBS employee. One of the few successful government cases was overturned Monday. A federal appeals court tossed civil mortgage-fraud charges and a $1 million penalty against Rebecca Mairone, a former executive at Countrywide Financial Corp., now part of Bank of America Corp. The court also threw out a related $1.27 billion penalty against Bank of America. Representatives of Ms. Mairone and the bank this week welcomed the verdict, while the Justice Department, which brought the cases, declined to comment.

There are plenty of possible explanations for the small number of successful cases. For starters, much of the institutional conduct during and after the financial crisis didn’t break the law, said law-enforcement officials. Even when the government has been able to prove illegal activity, it has rarely been traced to the upper echelons of big banks. “The typical scenario is not that the bank has this plan for world domination being cooked up by the chairman and CEO,” said Adam Pritchard, a law professor at the University of Michigan. “It’s some midlevel employee trying to keep his job or his bonus, and as result the bank gets into trouble.”

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“The Fed might want to imitate the ECB but may be restricted from doing so by its charter..” “We wouldn’t discount the possibility it will try to amend, or get around, any prohibitions, however.”

Quantitative Easing and the Corruption of Corporate America (DMB)

[..] corporate leverage is hovering near a 12-year high and domestic capital expenditures have plunged. In the interim, reams of commentary have been devoted to share buybacks and with good reason. Companies reducing their share count have, at least in recent years, been where the hottest action is, courtyard-seat level action. But now, it looks as if the trend is finally cresting. A fresh report by TrimTabs found that companies have announced 35% less in buybacks through May 19th compared with the same period last year. And while $261.5 billion is still respectable (for the purpose of placating shareholders), it is nevertheless a steep decline from 2015’s $399.4 billion. Even this tempered number is deceiving – only half the number of firms have announced buybacks vs last year.

Have U.S. executives and their Boards of Directors finally found religion? We can only hope. The devastation wrought by the multi-trillion-dollar buyback frenzy is what many of us learned in Econ 101 as the ‘opportunity cost,’ or the value of what’s been foregone. As yet, the value of lost investment opportunities remains a huge unknown. In the event doing right by future generations does not suffice, executives might be motivated to renounce their errant ways because shareholders appear to have stopped rewarding buybacks. According to Marketwatch, an exchange traded fund that affords investors access to the most aggressive companies in the buyback arena is off 0.8% for the year and down 9.8% over the last 12 months.

The hope is that Corporate America is at the precipice of an investment binge that sparks economic activity that richly rewards those with patience over those with the burning need for instant gratification. The risk? That central bankers whisper sweet nothings the likes of which no Board or CFO can resist. Mario Draghi may already have done so. In announcing its latest iteration of QE, the ECB added investment grade corporate bonds to the list of eligible securities that can satisfy its purchase commitment. Critically, U.S. multinationals with European operations are included among qualifying issuers. As Evergreen Gavekal’s David Hay recently pointed out, McDonald’s has jumped right into the pool, issuing five-year Euro-denominated paper at an interest rate of a barely discernible 0.45%.

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Yeah, like it was ever gone.

Brexit, And The Return Of Political Lying (Oborne)

During the run-up to the Iraq invasion, intelligence officers would hand ministers an estimate, an allegation, a straw in the wind, in certain cases (the 45-minute claim being the most notorious example) an outright fabrication. Tony Blair’s office would then bless it with the imprimatur of a government assessment, usually employing vague wording — in the hope that the media would repeat and then amplify the message. Cameron and Osborne have become masters of this kind of politics. ‘We’re paying down Britain’s debts,’ said David Cameron in 2013. This was a straight lie: the national debt was soaring as he spoke. ‘When I became Chancellor,’ observed Osborne last year, ‘debt was piling up.’ True – and he has been piling it up ever since, even now rising by £135 million a day.

This kind of deception works: polls show that only a minority of voters realise that the national debt is still rising. George Osborne has now converted the Treasury into a partisan tool to sell the referendum, exactly as Tony Blair used the Joint Intelligence Committee to make the case for war against Iraq. Before becoming Chancellor, Osborne was critical of Gordon Brown’s Treasury, and rightly so, because it had been so heavily politicised. He rightly stripped the Treasury of its forecasting function and created an independent Office for Budget Responsibility — an encouraging sign that he was determined to avoid the culture of deceit which was such a notable feature of the Brown/Blair era. It is therefore very troubling that the Office for Budget Responsibility has not come anywhere near the two Treasury dossiers that make the case for the EU.

It’s easy to see why – they would point out straight away that the Chancellor has been engaged in fabrication. For example, let’s take a hard look at how he induced Treasury officials to endorse his central claim that families would be £4,300 ‘worse off’ if Britain left the EU. The main technique that Osborne used was his conflating GDP with household income – and referring to ‘GDP per household’, a phrase that has never been used in any Budget. As the Chancellor used to argue, GDP is a misleading indicator which can be artificially inflated by immigration. Immigration of 5% may well raise GDP by the same amount, but nobody would be any better off. ‘GDP per capita is a much better indicator,’ said Osborne when newly in office. He made no mention at all of GDP per capita when launching the Brexit documents published by the Treasury.

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“We have entered the looting stage of capitalism. Desolation will be the result.” Paul Craig Roberts doesn’t hold back.

We Have Entered The Looting Stage Of Capitalism (PCR)

Having successfully used the EU to conquer the Greek people by turning the Greek “leftwing” government into a pawn of Germany’s banks, Germany now finds the IMF in the way of its plan to loot Greece into oblivion . The IMF’s rules prevent the organization from lending to countries that cannot repay the loan. The IMF has concluded on the basis of facts and analysis that Greece cannot repay. Therefore, the IMF is unwilling to lend Greece the money with which to repay the private banks. The IMF says that Greece’s creditors, many of whom are not creditors but simply bought up Greek debt at a cheap price in hopes of profiting, must write off some of the Greek debt in order to lower the debt to an amount that the Greek economy can service.

The banks don’t want Greece to be able to service its debt, because the banks intend to use Greece’s inability to service the debt in order to loot Greece of its assets and resources and in order to roll back the social safety net put in place during the 20th century. Neoliberalism intends to reestablish feudalism—a few robber barons and many serfs: the 1% and the 99%. The way Germany sees it, the IMF is supposed to lend Greece the money with which to repay the private German banks. Then the IMF is to be repaid by forcing Greece to reduce or abolish old age pensions, reduce public services and employment, and use the revenues saved to repay the IMF. As these amounts will be insufficient, additional austerity measures are imposed that require Greece to sell its national assets, such as public water companies and ports and protected Greek islands to foreign investors, principallly the banks themselves or their major clients.

So far the so-called “creditors” have only pledged to some form of debt relief, not yet decided, beginning in 2 years. By then the younger part of the Greek population will have emigrated and will have been replaced by immigrants fleeing Washington’s Middle Eastern and African wars who will have loaded up Greece’s unfunded welfare system. In other words, Greece is being destroyed by the EU that it so foolishly joined and trusted. The same thing is happening to Portugal and is also underway in Spain and Italy. The looting has already devoured Ireland and Latvia (and a number of Latin American countries) and is underway in Ukraine. The current newspaper headlines reporting an agreement being reached between the IMF and Germany about writing down the Greek debt to a level that could be serviced are false. No “creditor” has yet agreed to write off one cent of the debt.

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Euro Cup starts in a few weeks, but “The French government said it was prepared to endure weeks of strikes at refineries..” Oh, sure.

France Digs In to Endure Oil Strike With Release of Fuel Reserve (BBG)

The French government said it was prepared to endure weeks of strikes at refineries and began releasing strategic oil reserves to help ease nationwide fuel shortages. While panic-buying by motorists drove demand to three times the normal level Tuesday, France has enough stocks even if the strikes persist for weeks, Transport Minister Alain Vidalies said. The problem isn’t about supply but about delivery, he said. Oil companies have mobilized hundreds of trucks to ship diesel and gasoline around the country since the start of the week as filling stations ran dry after all the nation’s refineries experienced disruptions or outright shutdowns. By Wednesday Exxon Mobil reported that its Gravenchon plant was operating normally and able to transport fuel while elsewhere strikers have blocked refineries to try to bring shipments to a halt.

Workers are protesting against President Francois Hollande’s plans to change labor laws to reduce overtime pay and make it easier to fire staff in some cases. While the government has watered down its proposals since first floating them in February, unions are calling for them to be scrapped altogether. The new law will not be withdrawn and police will continue to ensure access to fuel depots, Prime Minister Manuel Valls told Parliament Wednesday. Total’s Feyzin refinery near Lyon and its Normandy plant have stopped production. La Mede was working at a lower rate Wednesday, while the facilities at Grandpuits near Paris and Donges close to Nantes will come to a complete halt later this week, according to a company statement.

Total may reconsider a plan to spend €500 million to upgrade the Donges facility as workers take the plant “hostage,” CEO Patrick Pouyanne said Tuesday. He urged motorists not to rush to gas stations and create an “artificial” shortage. Some 348 of Total’s 2,200 gas stations ran out of fuel and 452 faced partial shortages as of Wednesday morning, the company said. The figures are little changed from Tuesday. About one in five of the country’s 12,200 stations were facing shortages Tuesday afternoon, the government said.

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All Marine Le Pen has to do is to sit back and watch.

Union Revolt Puts Both Hollande’s Future And France’s Image On The Line (G.)

As smoke rises from burning tyres on French oil refinery picket-lines, motorists queue for miles to panic-buy rationed petrol, and train drivers and nuclear staff prepare to go on strike. With the 2017 French presidential election nearing, the Socialist president François Hollande is facing his toughest and most explosive crisis yet. It is not just Hollande’s political survival at stake, though, but the image of France itself. The country is preparing to host two million visitors at the showpiece Euro 2016 football tournament in two weeks, and the back-drop is not ideal: strikes and feared fuel shortages, potential transport paralysis, a terrorist threat, a state of emergency and a mood of heightened tension and violence between street protesters and police.

Hollande, the least popular leader in modern French history whose approval ratings are festering, according to various polls, at between 13% and 20%, might not seem as though he has further to fall. But in fact he is clinging, white-knuckled, to the edge of a cliff. The Socialist was supposed to be spending May and June testing the waters for a possible re-election bid by repeating his new mantra “things are getting better” – even if more than 70% of French people don’t believe that that is true. Instead, France has been hit by an explosive trade union revolt over Hollande’s contested labour reforms. The beleaguered president has framed these reforms as a crucial loosening of France’s famously rigid labour protections, cutting red-tape and slightly tweaking some of the more cumbersome rules that deter employers from hiring.

This would, he has argued, make France more competitive and tackle stubborn mass employment that tops 10% of the workforce. But after more than two months of street demonstrations against the labour changes, the hardline leftist CGT union radically upped its strategy and is now trying to choke-off the nation’s fuel supply to force Hollande to abandon the reforms.

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Win win win squared. That’s why you feel so happy right now; look in the mirror. You get to finance a winning proposition!

Bayer Could Get ECB Financing For Monsanto Bid (R.)

Bayer could receive financing from the European Central Bank that would help to fund a takeover of Monsanto, according to the terms of the ECB’s bond-buying program. U.S.-based Monsanto, the world’s largest seed company, turned down Bayer’s $62 billion bid on Tuesday, but said it was open to further negotiations. The ECB can buy bonds issued by companies that are based in the euro area, have an investment-grade rating and are not banks, provided that they are denominated in euros and meet certain technical requirements. The purpose for which the bonds are issued is not among the criteria set by the ECB, which will start buying corporate bonds on the market and directly from issuers next month.

This means that, in theory, the ECB could buy debt issued by Bayer, which said on Monday it would finance its cash bid for Monsanto with a combination of debt and equity. “It will be interesting to observe how much of such a deal would be absorbed by the central bank,” credit analysts at UniCredit wrote in a note. The ECB is buying €80 billion worth of assets every month in an effort to revive economic growth in the euro zone by lowering borrowing costs. Central bank sources told Reuters that it would not be the ECB’s first choice if the money it spent ended up financing acquisitions. But even this would have a silver lining if consolidation made an industry or sector more efficient and if it gave fresh impetus to the stock market, the source added. And if issuers ended up exchanging the euros raised through bond sales for dollars, that would also help the euro zone by weakening the euro against the greenback, the sources said.

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“Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost..”

Putin Closes The Door To Monsanto (DDP)

Russia’s Vladimir Putin is taking a bold step against biotech giant Monsanto and genetically modified seeds at large. In a new address to the Russian Parliament Thursday, Putin proudly outlined his plan to make Russia the world’s ‘leading exporter’ of non-GMO foods that are based on ‘ecologically clean’ production. Perhaps even more importantly, Putin also went on to harshly criticize food production in the United States, declaring that Western food producers are no longer offering high quality, healthy, and ecologically clean food. “We are not only able to feed ourselves taking into account our lands, water resources – Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost, especially given the fact that demand for such products in the world market is steadily growing,” Putin said in his address to the Russian Parliament.

And this announcement comes just months after the Kremlin decided to put a stop to the production of GMO-containing foods, which was seen as a huge step forward in the international fight to fight back against companies like Monsanto. Using the decision as a launch platform, it’s clear that Russia is now positioning itself as a dominant force in the realm of organic farming. It even seems that Putin may use the country’s affinity for organic and sustainable farming as a centerpiece in his economic strategy. “Ten years ago, we imported almost half of the food from abroad, and were dependent on imports. Now Russia is among the exporters. Last year, Russian exports of agricultural products amounted to almost $20 billion – a quarter more than the revenue from the sale of arms, or one-third the revenue coming from gas exports,” he added.

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May 252016
 
 May 25, 2016  Posted by at 1:31 pm Finance Tagged with: , , , , , , , , ,  7 Responses »
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G.G. Bain Immigrants arriving at Ellis Island, New York 1907

There’ve been a bunch of issues and topics on my -temporarily non-writing- mind, and politics, though as I’ve often said it’s not my preferred focus, keeps on slipping in. That’s not because I’ve gotten more interested in ‘the game’, but because the game itself is changing in unrecognizable fashion, and that is intricately linked to subjects I find more appealing.

For instance, in the past few days, I’ve read Matt Taibbi’s epos on the demise of America’s Republican Party in R.I.P., GOP: How Trump Is Killing the Republican Party, and Shaun King on a similar demise of the Democrats in Why I’m Leaving the Democratic Party After This Presidential Election and You Should Too, and both make a lot of sense.

But I think both also miss out on the main reason why these ‘demises’ are happening. In my view, it’s not enough, not satisfactory, to talk about disgruntled voters and corrupt politicians and the antics of Donaldo, and leave it at that. There is something bigger, much bigger, going on that drives these events.

But that I will explain in a later article (soon!). Right now, I want to address another piece of the same pie (though it’s perhaps not obvious that it is): the Brexit ‘discussion’ in Europe. A May 11 piece by ex-World Banker Peter Koenig provides as good a starting point as any:

The Collapse of the European Union: Return to National Sovereignty and to Happy Europeans?

Imagine – the EU were to collapse tomorrow – or any day soon for that matter. Europeans would dance in the streets. The EU has become a sheer pothole of fear and terror: Economic sanctions – punishment, mounting militarization, the abolition of civil rights for most Europeans. A group of unelected technocrats, representing 28 countries, many of them unfit to serve in their own countries’ political system, but connected well enough to get a plum job in Brussels – are deciding the future of Europe. In small groups and often in secret chambers they decide the future of Europe.

Koenig makes much work of connecting what’s bad about the EU, to the TTiP and TiSA trade deal negotiations. And though the TTiP deal has lately come under rapidly increasing fire in Europe, that is a relevant point. Koenig also, perhaps more importantly, concludes that the EU has no future.

If the TTIP is ratified despite all logic, and if subsequently the EU fell apart – each country would still be held accountable to the terms of the agreement. Hence, time for an EU collapse before signing of the TTIP and TiSA is of the essence. This radical solution may be too much even for staunch EU / Euro opponents. Many of them still seek, hope and dream of a reformed EU. They still live under the illusion that ‘things’ could be worked out. Believe me – they cannot.

The Machiavellian US-invented venture called EU with the equally US-invented common currency – the Eurozone – has run its course. It is about to ram the proverbial iceberg. The EU-Euro vessel is too heavy to veer away from disaster. Europe is better off taking time to regroup; each nation with the objective of regaining political and economic sovereignty – and perhaps with an eye a couple of generations down the road envisaging a new United Europe of sovereign federal states, independent, totally delinked from the diabolical games of the western Anglo-American empire.

That last bit is- or should be- highly relevant to the Brexit discussion that’s ongoing in Britain, working up to an undoubtedly grotesquely clownesque climax on June 23, the day some 40 million by then supremely confused Britons get to vote. Koenig’s last words also contradict the goals and aspirations of Yanis Varoufakis’ new initiative DiEM25, which seeks to democratize the EU from the inside out.

Now, I appreciate Yanis quite a bit, and certainly much more than most Greeks seem to do these days, but ever since DiEM25 announced itself I haven’t been able to keep from thinking: have you looked at the EU lately, like, really looked? I get the idea, obviously, but why would you, to use a convenient metaphor, want to go through the trouble of renovating a building that’s been structurally condemned for good reasons, instead of tearing it down and build a new one?

The only reason I can think of is that DiEM25 thinks the building is still salvageable. Question then: is it? And that’s a question Britain should ask itself too in the run-up to June 23. If you vote yes, what exactly are you voting to belong to, what -sort of- edifice are you electing to continue living in? A delapidated structure bound and waiting to be torn down? If so, why would you do that, and what would be the consequences?

And what about the alternative, what if you voted to leave the building? It’s not as if the present EU is the only way for European countries to work together. There are a zillion others, and arguably some of those might actually do what the EU portends to do but is failing miserably at: that is, prevent violence from breaking out. The narrative of Brussels as a grand peacemaker sounds less credible by the minute.

It is perhaps open to personal interpretation, but when I look at what the EU has done, and is still doing to Greece, the country I’m visiting again trying to relieve some of the pain inflicted on it by the EU, and I look at how the refugee issue has been handled by ‘Brussels the peacemaker’s actions and inactions, causing thousands of deaths and infinitely more misery, you’d have to be a darn great orator to make me support the what I have come to call Unholy Union.

What Greece shows is that there is no Union, other than in times of plenty. What Aylan Kurdi and the sorrowful litany of other drowned toddlers of the Aegean show is that there are no moral values inside the -leadership of the- Union. One drowned child can be an accident. Hundreds of them constitute criminal moral deficiency.

Of course you can argue that since Britain’s handling of the refugee crisis is just as obscene as the rest of Europe’s, this is not in and of itself a reason to vote Leave, but it’s no ground to vote Remain either. If anything, it’s a reason to indict politicians across the European board. Their behavior contrasts sharply with that of many of their constituents, as countless stories testify and as I’ve seen in such sparkling bright light here in Athens.

But we can take this back a few steps. I was surprised to see PM David Cameron appear as the big voice for “Remain”, for the UK to stay within the EU. Cameron was never exactly a fan of the Union. And as the Daily Mail observes, just 6 months ago Mr Cameron “declared there was ‘no question’ that Britain could survive and do well outside the EU.”

But then, he’s a man who’ll happily blow along with whatever wind is prevalent. I was even more surprised to see Boris Johnson try to take the lead of the “Leave” side, because Boris, a weather vane as much as Cameron, had always belonged to the same side as the latter on everything, and now suddenly differs on Remain or Leave. A shrewd career gamble?

The British Conservative Party has managed to corner the entire debate, both yes and no, between them. I mean, kudos and well done old boys, but what a farce that is. Labour’s Jeremy Corbyn sides with Cameron’s Remain side, without wanting to, but has failed utterly to make sure he has a realistic part in the discussion. Exit Jeremy. Where was their spin team when Corbyn fell into that hole?

Of course, there’s Nigel Farage and UKIP, but Nigel will forever be a fringe character. Which is not necessarily a bad thing, by the way; the British Lower House is not that fine of a place to sit in on a daily basis. Whenever I see footage of it I can’t help thinking AA meeting for masochists.

Farage’s main contribution to the discussion will forever be the countless YouTube clips in which he very succinctly explains how dysfunctional the European Parliament he is (was?) a member of, is, to the very same parliamentarians. Maybe more Brits should watch those and think again about what their vote is about.

An apt comparison would seem to lean towards a Tower of Babel much bigger than the original one, and in which between mountains of paper not a single scrap can be found that pertains to the prevention of poverty, misery and the drowning deaths of 4- and 5-year olds. Or at least such, most basic, principles are nowhere near the top of any lists.

Inside the pretend Union, it is obvious that the people of Germany, Holland, France find their own children’s lives more valuable than those of other children. And their futures too; half of Spanish and Greek youngsters are out of work and out of a future. And Brits are asked to vote to keep that demonic apparatus intact and join the oppressors.

Framing it in those terms also tells you something about the DiEM25 question: is it worth one’s while to try and democratize the EU from within? Given how entrenched the predators vs prey positions have become, and how unlikely the predators are to defend their advantages tooth and nail, and how their ‘chosen’ people have taken over Brussels, does that look like a project to put a lot of energy in?

The Euro is just 15 years old, but the EU goes back many decades. Strategic positions have long been taken in trenches that have long been dug. Is that the fight you want to fight? There’ll always be a Europe, but there’s nothing inevitable or incontrovertible about the EU, or about Brussels being its capital. All it takes is perhaps for one country to say “Thanks, but no, thanks.” The EU for all its bluster is very vulnerable.

So there’s your voting options. But it should be clear that the Brexit vote is headlined by the wrong people, for all the wrong reasons, and with all the wrong arguments. It can’t be exclusively about money, but it is. And if the Unholy Union falls apart sometime further down the line regardless, a vote for Remain on purely financial grounds will take on a whole different light: wasted energy, wasted money, wasted morals.

Besides, nobody knows what the -financial- effects of a Brexit will be, and any claims that are made to the contrary are just guesses based on whatever political -career- preferences the person or institution making them has. ‘Things’ ‘could’ crash on Trump victories and they could crash on Brexit, but any numbers attached to these potential events are 100% made up. It’s hilarious to see Treasurer George Osborne declare with a straight face that a Brexit would cause UK home prices to fall by 18%, but that’s all it is.

First question is: you sure it’s not 18.5%? What genius advisor came up with that number? Or did they have a committee of wise men in a week-long cigar-fueled brainstorming session that split their differences? Second question: do you guys realize that falling home prices are exactly what at least half of Britain is looking for? That distorting your real estate market to the extent that nobody can afford a home anymore is a dead-end street that kills cities and communities and people in the process?

I should stop here right? I can write a book about this, not because Brexit is such a huge subject (just see if anyone in Europe cares), but because the EU is such a yuuge disaster, and there will be many more opportunities to return to the topic. I have tons more little notes scribbled down, and a flood more crazy claims and comments will be made by various parties in the ‘fight’. Just wanted to say that this whole ‘debate’ -if you can call it that- has so far been very different from what it should have been.

Why would you want to belong to a team like the EU? I know that Cameron does, and so does Corbyn, but none of that is reason you should too. Nor should you want to ‘Leave’ because Boris Johnson wants to. You need to look out over the whole landscape. But that’s just me.

May 252016
 
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Alfred Palmer Conversion. Beverage containers to aviation oxygen cylinders 1942


Hillary Clinton Loves To Trumpet Bill’s Budget Surplus. She Shouldn’t. (Week)
Jeff Gundlach Says US Stock Market Is ‘Dead Money’ (R.)
Eurozone Hails ‘Breakthrough’ With Greece, IMF Debt Deal (R.)
Draghi Running Out Of Options After Draining Bond Market by $800 Billion (BBG)
China Weakens Yuan Fixing to Lowest Since 2011 (BBG)
China Says It Has Conquered Commodities Trading Frenzy (BBG)
New York, London on Notice as China Targets Commodities Pricing (BBG)
Mark Carney Denies Brexit Bias And Goldman Influence (BBG)
Your Brain Does Not Process Information And It Is Not A Computer (Aeon)
NATO Struggles to Recover after Years of Budget Cuts (Spiegel)
Logging Of Europe’s Last Primeval Forest Starts Despite Protests (G.)
Turkish Journalist Jailed, Stripped Of Her Parental Rights (Al-M)
Turkey Threatens To Block EU Migration Deal Without Visa-Free Travel (G.)
Over 5,600 Refugees Rescued Off Lybia In 2 Days (R/AFP)

Very interesting, and a pity I don’t have more space here. Do read the original. Steve Keen has been saying the same thing about deficits and surpluses for a long time. A government surplus means a deficit for everyone else.

Hillary Clinton Loves To Trumpet Bill’s Budget Surplus. She Shouldn’t. (Week)

[Bill] Clinton’s budget surplus wasn’t everything it’s cracked up to be. In fact, it might have hurt the economy pretty badly. The key to understanding why rests with an underappreciated economic tool called “sectoral balances” analysis. As Eric Tymoigne — an economics professor as Lewis and Clark College in Portland — explained to The Week, it’s incredibly useful for understanding macro-economic trends. Let’s walk through how it works. A sectoral balances analysis starts with the recognition that the U.S. economy, like any national economy, is roughly comprised of three sectors.

There’s the government sector: the federal government, the Federal Reserve, and the state and local governments. There’s the private domestic sector: individuals, households, businesses, the banks, all the major industries, etc. And then there’s the foreign sector: i.e. the rest of the world, or every entity outside the U.S. national border that we trade with. Each of these three sectors are in a state of surplus or deficit at any given moment. The government is either taxing more than it spends (surplus) or spending more than it taxes (deficit). Households and businesses in the private domestic sector are either saving more than they’re spending (surplus) or vice versa (deficit). And the rest of the world is either exporting more to America than it imports (surplus), or importing from the U.S. more than it exports (deficit). (Perhaps confusingly, the foreign sector balance is the inverse of the U.S. trade balance; i.e. a surplus in the foreign sector actually means a U.S. trade deficit.)

And because of the way we calculate GDP, the sum of the deficits or surpluses of these three sectors will always be zero. So if the domestic private sector is running a surplus of 4% of GDP, for instance, then the government and foreign sectors might each run a deficit of 2%. You can see how this works in the real world in the graph below, which was provided by Scott Fullwiler, an economics professor at Wartburg College. The government sector is in red, the private domestic sector is in blue, and the foreign sector is in green:

As you can see, the government sector has almost always been in deficit since the mid-20th century while the private sector has almost always been in surplus. But what do you notice about the late 1990s? Something weird happened: The private domestic sector (the blue bars) went into deficit for the first time since 1952. Then it did it again in the second half of the 2000s. There’s no way for the spending of private households and businesses to collectively outpace saving unless its being driven by unsustainable debt. So what we’re seeing here is the stock bubble of the late ’90s, which burst in 2001, and the out-of-control mortgages and household debt of the mid-to-late ’00s, which culminated in the 2008 financial crisis. The graph also illustrates why the persistent foreign sector surplus (which, remember, means a U.S. trade deficit) that opened up in the 1990s is such a problem: It must be balanced by either a government sector deficit or a private domestic sector deficit.

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A.k.a. zombie money.

Jeff Gundlach Says US Stock Market Is ‘Dead Money’ (R.)

Jeffrey Gundlach, the chief executive officer of DoubleLine Capital, said on Tuesday that the rally in U.S. stocks, which began on Monday, feels like a short squeeze and characterized U.S. stocks as “dead money.” “The market is not incredibly healthy,” Gundlach said in a telephone interview, noting recent corporate earnings have come in weak. Gundlach, who oversees $95 billion at Los Angeles-based DoubleLine, said the S&P 500 index .SPX “has gone nowhere in the past 12 months to 18 months.” On the Federal Reserve, Gundlach said it is still 50/50 odds that the U.S. central bank will raise interest rates in June. He said many Fed officials are “dying to raise rates,” but that it is Fed chair Janet Yellen’s opinion that matters the most.

“All that matters is Yellen. She is still there. I feel like we are back in December again, where everyone thinks that there is a super secret that some Fed officials have this knowledge that the economy is really good.” Last week, New York Federal Reserve President William Dudley said the U.S. economy could be strong enough to warrant an interest rate increase in June or July, reinforcing the drum beat from within the Fed in recent days that rate increases are coming soon. A range of policymakers with normally varying views on monetary policy are now stating a rate increase is possible at the next policy meeting in June.

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They -yet again- found a way to offer debt relief without offering debt relief. Only in 2018, and only ‘if necessary’. It never will be, the numbers will be spun to make sure of that. Greece will ‘receive’ money next month that will go straight to the ECB, and for which taxes have been raised once again, a move that will shrink the economy even more. Just two days ago, the IMF called for ‘unconditional’ debt relief. That is not what this is: ‘if necessary’ is a condition.

Eurozone Hails ‘Breakthrough’ With Greece, IMF Debt Deal (R.)

The euro zone gave Greece its firmest offer yet of debt relief in what finance ministers called a breakthrough deal that won a commitment from the IMF finally to return to taking part in the bailout for Athens. After talks that lasted into the small hours of Wednesday, the Eurogroup ministers gave a nod to releasing €10.3 billion in new funds for Greece in recognition of painful fiscal reforms pushed through by Prime Minister Alexis Tsipras’s leftist-led coalition, subject to some final technical tweaks. But a bigger step forward was a deal by which the euro zone agreed to offer Athens debt relief in 2018 if that is necessary to meet agreed criteria on its payments burden. That was enough to secure an agreement from the IMF to again join the euro zone in funding the bailout of Greece.

“We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme,” Eurogroup President Jeroen Dijsselbloem, the Dutch finance minister, told a news conference. “This is stretching what I thought would have been possible not so long ago.” Acknowledging the “political capital” European ministers invested to reach the deal – a nod to strong German objections to debt relief – Dijsselbloem called it a “new phase” in a six-year drama to stabilise Greece’s finances that has taken the 16-year-old euro zone to the brink of break-up. Mutual trust was returning to the talks, he said, nearly a year after Tsipras’s rejection of austerity measures pushed Athens close to be pushed out of the euro.

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“Everything is on the table..” “Whenever they meet resistance, they get around it by adjusting the rules..” “They are basically building the boat in the open sea..”

Draghi Running Out Of Options After Draining Bond Market by $800 Billion (BBG)

The biggest buyer of European government bonds may have to start spreading its money around a bit more widely. The ECB expanded the size of its debt-buying program in April by a third to €80 billion a month and appears to be running out of securities eligible under its own rules. Monetary policy makers increased purchases of Irish and Portuguese bonds last month by less than it did for German debt, suggesting demand already threatens to outstrip supply from some countries. Banks say it might have to include more bonds or risk diluting the stimulus to the economy the quantitative easing is designed to inject. “Everything is on the table,” said Richard McGuire at Rabobank. “Whenever they meet resistance, they get around it by adjusting the rules, adjusting the limits or targeting new asset classes.”

Purchases at the moment are based on the size of a country’s economy and there are exclusions linked to debt restructuring. Rabobank estimates €1.13 trillion of bonds currently off limits could be eligible should the ECB change the parameters. The ECB started buying sovereign debt in March last year and has spent more than $800 billion. An ECB spokesman said on Tuesday that the bank is confident the program will continue to be implemented smoothly and it sees no shortage of eligible assets under the current rules. President Mario Draghi said a month ago that there were no plans to make any changes. The securities are acquired through each country’s central bank and broadening the remit would particularly help relieve pressure on Germany. While the country has a lower amount of outstanding debt compared with say Italy, the Bundesbank currently must buy a greater amount because its economy is the largest.

“Germany is definitely affected very much by lack of eligible bonds,” said Daniel Lenz at DZ Bank in Frankfurt. “Outstanding volumes compared to other countries are low and new bond issuances are also low.” German bonds have been the best performers among the 10 largest markets eligible in the ECB program, returning 2.2% over the 14 months of its lifespan. But at today’s pace of bond buying, Germany would exhaust the supply of sovereign bonds by September 2016 or February 2017 if the debt of German regions is included. “They are basically building the boat in the open sea,” McGuire said.

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Xi has taken the full reins again of something he does not oversee.

China Weakens Yuan Fixing to Lowest Since 2011 (BBG)

China’s central bank weakened its currency fixing to the lowest since March 2011 as the dollar strengthened. The reference rate was lowered by 0.3% to 6.5693 per dollar. A gauge of the dollar’s strength rose to a two-month high Tuesday as traders boosted wagers that U.S. interest rates will rise. The yuan weakened 0.1% to 6.5636 in a third day of losses as of 10:27 a.m. in Hong Kong. A resurgent greenback is shaking up a strategy that the People’s Bank of China pursued over the past three months –a steady rate against the dollar, combined with depreciation against other major currencies.

Traders are now pricing in a better-than-even chance of the Federal Reserve boosting borrowing costs by its July meeting, with officials lining up to indicate their willingness to support such a move, should the current strength in the economy be sustained. “It could be because the authorities want to alleviate some of the depreciation pressure before the Fed interest rate decision in June,” said Christy Tan, head of markets strategy at National Australia Bank Ltd. in Hong Kong. “If there are signs of panic dollar buying, the PBOC will step in.”

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Sometimes you get the impression they actually believe they can control world markets. They’ll find out.

China Says It Has Conquered Commodities Trading Frenzy (BBG)

China’s leading market regulator said that its clampdown on speculation in raw materials futures has successfully reined in the frenzy, and pledged to beef up oversight as the country seeks to dislodge rivals and become the global center for commodities pricing. “Recently, we experienced huge volatility and trading volumes in some commodity futures,” Fang Xinghai, vice chairman of China Securities Regulatory Commission, said at the Shanghai Futures Exchange’s annual conference in the city on Wednesday. “We supervised the exchanges to take measures, which have seen a notable effect.” Raw-material markets in Asia’s top economy were seized by a speculative frenzy in March and April that spurred a rapid run-up in prices and unprecedented volumes.

The outburst prompted a crackdown from the CSRC and exchanges, which tightened rules and raised fees to discourage the surge amid concern it was excessive and could jeopardize efforts to cut back excess industrial capacity. For China to now expand its role as a global pricing center, effective supervision is critical, according to Fang. “We’re facing a chance of a lifetime to become a global pricing center for commodities,” Fang told the audience in China’s commercial capital. “On the way to realize this goal, we’ll see very intense competition. We have the advantage of trading size and economic growth, but our legislation is still not sound and we lack enough talent.”

China is the world’s largest user of metals and energy, but its traders and companies rely on financial centers outside the country to set benchmark prices for the commodities they handle and consume. While raw materials trading in the nation remains largely off-limits to overseas investors, who also face currency restrictions, China has long pledged to open up. “We plan to use crude oil, iron ore and natural-rubber futures as the starting point in our efforts to open the domestic market to more foreign investors,” said Fang. “To become global pricing centers for commodities, we need appropriate and effective supervision measures.” He added: “According to our experience, the challenge for supervisors is not systematic financial risks from bringing in foreign participants, but rather the challenge is to prevent non-compliant trading by individuals with technical advantages.”

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Follow up to the “we can control world markets” article above.

New York, London on Notice as China Targets Commodities Pricing (BBG)

China has put the world’s traditional financial centers on notice that it wants to develop its raw material markets as hubs for setting prices, seeking to marry the country’s commercial heft with a much greater say in determining how much commodities cost. “We’re facing a chance of a lifetime to become a global pricing center for commodities,” Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said at the Shanghai Futures Exchange’s annual conference in the city on Wednesday. “On the way to realize this goal, we’ll see very intense competition. We have the advantage of trading size and economic growth, but our legislation is still not sound and we lack enough talent.”

China is the world’s largest user of metals and energy, but its traders and companies rely on financial centers outside the country – typically London and New York – to set benchmark prices for most of the commodities they handle and consume. While raw materials trading in the nation remains largely off-limits to overseas investors – who also face currency restrictions – China has long pledged to open up. Fang vowed to press on with that process, while also seeing tough challenges from rival centers as it does so. “We plan to use crude oil, iron ore and natural rubber futures as the starting point in our efforts to open the domestic market to more foreign investors,” Fang told the audience. China shouldn’t underestimate “the determination of current pricing centers to maintain their status,” he said.

Raw-material futures markets in Asia’s top economy became a focal point earlier this year after being engulfed in a speculative frenzy, with a rapid run-up in prices and unprecedented volumes in March and April. The outburst prompted a crackdown from the CSRC and exchanges, which tightened rules and raised fees. The intervention was successful, and for China to now expand its role as a global center, effective supervision is critical, according to Fang. “Recently, we experienced huge volatility and trading volumes in some commodity futures,” said Fang. “We supervised the exchanges to take measures, which have seen a notable effect.”

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If you ask me, it’s pretty out there, period, to have banks fund one side of the referendum. Who does he think he’s fooling.

Mark Carney Denies Brexit Bias And Goldman Influence (BBG)

“Wow.” That was how Bank of England Governor Mark Carney responded to a query about whether his former employer, Goldman Sachs, had encouraged him to warn on the risks of the U.K. leaving the European Union. The question came from Conservative lawmaker Steve Baker, a self-confessed critic of the central bank, who noted that Goldman, where Carney worked for 13 years until 2003, has been a contributor to the Remain campaign. “Can I just give you the opportunity to refute any suggestion that Goldman Sachs may have put pressure on you?” Baker asked during the testimony, which lasted more than two hours and was dominated by Brexit. As Carney answered, sitting beside him was another Goldman alum, BOE Deputy Governor Ben Broadbent, who shook his head.

The governor’s full response was: “I refute it categorically and I am stunned to even have it raised.” Baker’s questioning followed a lengthy grilling from pro-Brexit lawmaker Jacob Rees-Mogg, who questioned Carney’s independence from government and said he’s dishing out the “same propaganda” as the Treasury. The governor was quick to reply: “I don’t accept that at all.” These comments on the referendum implications were probably Carney’s last, as a pre-vote purdah period begins this week. While he’s due to give a big speech in June, he plans to stay away from EU-related topics. He also acknowledged he can’t win when it comes to his commentary. “All we can do is just call the economics as we see them and our words and analysis will be used by both sides. That’s fair game.”

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How little we know. Long but worth a read.

Your Brain Does Not Process Information And It Is Not A Computer (Aeon)

No matter how hard they try, brain scientists and cognitive psychologists will never find a copy of Beethoven’s 5th Symphony in the brain – or copies of words, pictures, grammatical rules or any other kinds of environmental stimuli. The human brain isn’t really empty, of course. But it does not contain most of the things people think it does – not even simple things such as ‘memories’. Our shoddy thinking about the brain has deep historical roots, but the invention of computers in the 1940s got us especially confused. For more than half a century now, psychologists, linguists, neuroscientists and other experts on human behaviour have been asserting that the human brain works like a computer. To see how vacuous this idea is, consider the brains of babies.

Thanks to evolution, human neonates, like the newborns of all other mammalian species, enter the world prepared to interact with it effectively. A baby’s vision is blurry, but it pays special attention to faces, and is quickly able to identify its mother’s. It prefers the sound of voices to non-speech sounds, and can distinguish one basic speech sound from another. We are, without doubt, built to make social connections. A healthy newborn is also equipped with more than a dozen reflexes – ready-made reactions to certain stimuli that are important for its survival. It turns its head in the direction of something that brushes its cheek and then sucks whatever enters its mouth. It holds its breath when submerged in water. It grasps things placed in its hands so strongly it can nearly support its own weight.

Perhaps most important, newborns come equipped with powerful learning mechanisms that allow them to change rapidly so they can interact increasingly effectively with their world, even if that world is unlike the one their distant ancestors faced. Senses, reflexes and learning mechanisms – this is what we start with, and it is quite a lot, when you think about it. If we lacked any of these capabilities at birth, we would probably have trouble surviving. But here is what we are not born with: information, data, rules, software, knowledge, lexicons, representations, algorithms, programs, models, memories, images, processors, subroutines, encoders, decoders, symbols, or buffers – design elements that allow digital computers to behave somewhat intelligently. Not only are we not born with such things, we also don’t develop them – ever.

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There is nothing more dangerous to us than NATO. It has to make up narratives or it will cease to exist.

NATO Struggles to Recover after Years of Budget Cuts (Spiegel)

RAND Corporation simulations aren’t for the faint of heart. The think tank in Santa Monica, California is a progeny of the Cold War and the 1960 study conducted by legendary systems theorist Herman Kahn — which examined the consequences of nuclear war – has not been forgotten. He believed the aftermath could be managed. Following a nuclear conflict, Kahn proposed, contaminated food should be reserved for the elderly since they would likely die before contracting cancer as a result of radiation. The researcher thus became one of the inspirations for Stanley Kubrick’s film satire “Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb. Several weeks ago, the California-based game theorists released another study that received a fair amount of attention.

Financed by the Pentagon, they created a series of simulations for a hypothetical Russian invasion of the two Baltic states of Estonia and Latvia. “The outcome was, bluntly, a disaster for NATO,” the RAND researchers wrote in their report. In each simulation, the Russians were able to either circumvent the outnumbered NATO units, or even worse, destroy them. Between 36 and 60 hours after the beginning of hostilities, Russian troops stood before the gates of Riga or Tallinn – or both. The RAND simulation triggered heated debate. In an article headlined “How I Learned to Stop Worrying and Love NATO’s Crushing Defeat by Russia,” American military expert Michael Kofman questioned strategic parameters used in the simulations. “No one can intelligently articulate the benefits of such potential actions for the Russians,” he wrote.

But the game theorists from Santa Monica aren’t the only ones simulating grim scenarios these days. The Russians are conducting giant military exercises to practice for a war with the West. At the same time, they are reinforcing military units stationed in the exclave of Kaliningrad, located between Poland and Lithuania. NATO in turn intends to station rotating battalions to the Baltic States as a signal to Moscow that the alliance takes its commitment to mutual assistance seriously. Security experts and generals, though, are complaining that such moves are not enough and are pushing for the stationing of larger and – especially – more permanent units on the alliance’s eastern flank.

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Money changes everything.

Logging Of Europe’s Last Primeval Forest Starts Despite Protests (G.)

Poland has started logging in the ancient Bialowieza forest, which includes some of Europe’s last primeval woodland, despite fierce protests from environmental groups battling to save the World Heritage site. “The operation began today,” national forest director Konrad Tomaszewski said of the plan to harvest wood from non-protected areas of one of the last vestiges of the immense forest that once stretched across Europe. He said the goal was “to stop forest degradation” – by combating what the environment ministry says is a spruce bark beetle infestation – and protect tourists and rangers from harm by cutting down trees that risk falling on trails.

But environmental campaigners warn that the tree chopping will destroy an ecosystem unspoiled for more than 10,000 years that is home to the continent’s largest mammal, the European bison, and to its tallest trees. “We’re calling on the European Commission to intervene before the Polish government allows for the irreversible destruction of the Bialowieza forest,” Greenpeace Poland activist Katarzyna Jagiello said in a statement. Campaigners have taken issue with the government rationale for the project, saying the beetle’s presence does not pose any threat to the forest’s ecosystem. “The minister does not understand that this insect is a frequent and natural visitor, that it has always existed and the forest has managed to survive,” Jagiello said.

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Our friends in need.

Turkish Journalist Jailed, Stripped Of Her Parental Rights (Al-M)

Turkish female journalist Arzu Yildiz was this week sentenced to 20 months in prison for her reporting on alleged Turkish arms shipments to Syria, a highly controversial issue that has riled Ankara and landed both journalists and judicial officials in jail. The court, however, did not stop there, and stripped Yildiz also of her parental rights. While the imprisonment of journalists may have become commonplace in Turkey, now ranking 151st on the World Press Freedom Index, the restriction of Yildiz’s parental rights marks a new milestone in the extent the pressure on journalists has reached, affecting even their familial ties and social standing. Yildiz is an experienced journalist who, after working for various media outlets, was left jobless a couple of years ago.

Together with other jobless colleagues, she co-founded the nonprofit Grihat news site, where her reporting on the trucks controversy led to her conviction. The story in question was related to the interception of Syria-bound trucks in the southern provinces of Hatay and Adana in January 2014. Acting on tip-offs, prosecutors had issued search warrants for the trucks. But when stopped by police and gendarmerie officers, the men in the vehicles identified themselves as members of the National Intelligence Organization (MIT) and resisted the searches. President Recep Tayyip Erdogan claimed at the time the trucks carried humanitarian supplies, but few were convinced. All judicial officials and security forces involved in the attempted search are behind bars today.

The Cumhuriyet daily’s Editor-in-Chief Can Dundar and Ankara representative Erdem Gul also found themselves behind bars for their reports on the story. Though they were released three months later, they received jail terms for revealing state secrets earlier this month. Another journalist who covered the issue, Fatih Yagmur, remains on trial. In an interview with Al-Monitor, her lawyer, Alp Deger Tanriverdi, explained what the ruling means. “Let me tell you the most significant part: The ruling strips Arzu Yildiz of her motherhood rights,” he said. “She can no longer register her kids to school, open bank accounts for them or do other similar things on their behalf. She can’t even go abroad with them.”

Asked about the grounds on which the court made the decision, the lawyer said, “The court was [actually] supposed to suspend the sentence because Yildiz had no other conviction before. That was her legal right. Yet the court arbitrarily went ahead on grounds she committed the crime willfully, which automatically brought the decision to strip her from her rights. The court could have withheld this decision as well. Such restrictions are based on the following logic: ‘You’ve committed a crime willfully, so you are guilty before society as well. Thus, you must not be allowed to have a [bad] influence on your children.’ Such is the intention of the clause, yet the court applied it to Yildiz — to humiliate her.”

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Really, Europe, this is what the EU stands for? Really? And you can’t see the warning signs?

Turkey Threatens To Block EU Migration Deal Without Visa-Free Travel (G.)

Recep Tayyip Erdogan has warned the European Union that Turkey would block laws related to the landmark deal to stem the flow of migrants to Europe if Ankara was not granted its key demand of visa-free travel within the bloc. At the close of the World Humanitarian Summit in Istanbul, Turkey’s president said: “If that is not what will happen…no decision and no law in the framework of the readmission agreement will come out of the parliament of the Turkish republic.” Germany’s chancellor Angela Merkel warned after talks with Erdogan on Monday that the target of the end of this month to agree visa-free travel for Turks was unlikely to be met. The agreement, which is already being implemented, saw Turkey pledge to work to stop migrants cross the Aegean to Europe and also re-admit migrants who crossed illegally.

EU officials have hailed the success of the deal, but Ankara has grown increasingly uneasy about the bloc’s wariness to grant it the visa-free travel to the passport-free Schengen area it was offered in return. Erdogan also complained about the EU’s wariness in handing over to Turkey a promise of €3bn followed by another €3bn to help Syrian refugees. “Turkey is not asking for favours – what we want is honesty,” Erdogan said in an angry tirade that overshadowed the end of the summit. “Turkey is supposed to fulfil criteria? What criteria are these I ask you?” EU leaders are insisting that Turkey abides by 72 conditions before the visa exemption takes place, with a demand to change counter-terror laws proving particularly contentious. The EU wants Ankara to narrow its definition of terror to stop prosecuting academics and journalists for publishing “terror propaganda”.

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Meanwhile, over by the patio door…

Over 5,600 Refugees Rescued Off Lybia In 2 Days (R/AFP)

Some 3,000 migrants were saved off the Libyan coast in a single day, in 23 separate rescue missions, the Italian coastguard said in a statement. The coastguard said this meant more than 5,600 migrants had been rescued from various boats and dinghies in the southern Mediterranean in just two days. Coastguard boats, vessels from the EU’s naval operation EUNAVFOR Med and its border agency Frontex, a boat from NGO SOS Mediterranee and two tug boats from an offshore oil platform were all involved in the rescue operations. Every search and rescue asset in the area was deployed, the coastguard said.

No breakdown of the nationalities of the people rescued was immediately available. Humanitarian organisations say the sea route between Libya and Italy is now the main route for asylum seekers heading for Europe after an EU deal on migrants with Turkey dramatically slowed the flow of people reaching Greece. Officials fear the numbers trying to make the crossing to Italy will increase as weather conditions continue to improve. Earlier this month, Italy said some 31,000 migrants, mainly from Africa, had reached the country by boat, slightly down on 2015 levels. However, the number of new arrivals has picked up markedly in recent days.

Read more …

May 242016
 
 May 24, 2016  Posted by at 9:40 am Finance Tagged with: , , , , , , , , , , ,  No Responses »
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Lewis Hine A heavy load for an old woman. Lafayette Street below Astor Place, NYC 1912


‘Massive Bailout’ Needed in Debt-Saddled China: Charlene Chu (BBG)
SOE Debt Could Easily Overwhelm China’s Banking System (Abc.au)
China Takes Back Control Over Yuan (WSJ)
Negative Rates Prompt Japan Banks to Opt Out Via Derivatives (BBG)
Iron Ore Price Falls 27% In Past Month (BI)
Deutsche Bank Ratings Cut by Moody’s (BBG)
Greece Is Never Going To Grow Its Way Out Of Debt (Coppola)
Austerity Means Privatizing Everything We Own (G.)
US Court Opens Door Over Libor Claims (FT)
Italy Helps Rescue 2,600 Migrants From Sea In 24 Hours (R.)
Greece Starts Clearing Makeshift Refugee Camp On Border (R.)

Selling vehicles to vehicles: “The WMPs [wealth management product] used to be predominantly sold to the public, but now they’re increasingly being sold to banks and other WMPs.”

‘Massive Bailout’ Needed in Debt-Saddled China: Charlene Chu (BBG)

Charlene Chu, a banking analyst who made her name warning of the risks from China’s credit binge, said a bailout in the trillions of dollars is needed to tackle the bad-debt burden dragging down the nation’s economy. Speaking eight days after a Communist Party newspaper highlighted dangers from the build-up of debt, Chu, a partner at Autonomous Research, said she was yet to be convinced the government is serious about deleveraging and eliminating industry overcapacity. She also argued that lenders’ off-balance-sheet portfolios of wealth-management products are the biggest immediate threat to the nation’s financial system, with similarities to Western bank exposures in 2008 that helped to trigger a global meltdown.

The former Fitch Ratings analyst uses a top-down approach to calculating China’s bad-debt levels as the credit to GDP ratio worsens, requiring more credit to generate each unit of GDP. She’s on the bearish side of the debate about the outlook for China and has sounded warnings since the nation’s credit binge began in 2008. “China’s debt problems are large and severe, but in some respects a slow burn. Over the near term, we think the biggest risk is banks’ WMP [wealth management product] portfolios. The stock of Chinese banks’ off-balance-sheet WMPs grew 73% last year. There is nothing in the Chinese economy that supports a 73% growth rate of anything at the moment.

Regardless of all of the headlines and announcements about the authorities cracking down on WMPs, they have done very little, really, and issuance continues to accelerate. “We call off-balance-sheet WMPs a hidden second balance sheet because that’s really what it is – it’s a hidden pool of liabilities and assets. In this way, it’s similar to the Special Investment Vehicles and conduits that the Western banks had in 2008, which nobody paid attention to until everything fell apart and they had to be incorporated on-balance-sheet. “The mid-tier lenders is where these second balance sheets are very large. China Merchants Bank is a good example. Their second balance sheet is close to 40% of their on-balance-sheet liabilities. Enormous.”

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“Although contributing to less than one-third of economic output and employment, SOEs take up nearly half of bank lending..”

SOE Debt Could Easily Overwhelm China’s Banking System (Abc.au)

Chinese banks are looking down the barrel of a staggering RMB 8 trillion – or $1.7 trillion – worth of losses according to the French investment bank Societe Generale. Put another way, 60% of capital in China’s banks is at risk as authorities start the delicate and dangerous process of reining in the debt-bloated and unprofitable state-owned enterprise (SOE) sector. Disturbingly though, debt is not only not shrinking, it is accelerating, making the eventual reckoning far worse. China’s overall non-financial debt grew by 15.2% in 2015 to RMB 167 trillion ($35 trillion) or almost 250% of GDP. That is up from 230% of GDP the year before and the 130% it was eight years ago before the global financial crisis hit.

The problem is largely centred on China’s 150,000 or so SOEs, which suck-up an entirely disproportionate amount of the nation’s capital. “Although contributing to less than one-third of economic output and employment, SOEs take up nearly half of bank lending (RMB 37 trillion) and more than 80% of corporate bond financing (RMB 9.5 trillion),” Societe Generale found. “While the inefficiency of SOEs is gradually dragging down economic growth, recognising even a small share of SOEs’ non-performing debt would easily overwhelm the financial system.” Despite their moribund financial performance, the SOEs still enjoy a considerable advantage in access to funding through the banking system than the private sector.

“To put things into perspective, a quarter of SOEs’ loans and bonds are equivalent to the entire capital base of commercial banks plus their loan-loss reserves, equivalent to 23% of GDP,” Societe Generale’s China economist Wei Yao said. On the bank’s figures, if just 3% of loans to SOEs sour, commercial banks’ non-performing loans would double.

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Wanting to control the yuan exchange rate is a threat to reserves.

China Takes Back Control Over Yuan (WSJ)

Behind closed doors in March, some of China’s most prominent economists and bankers bluntly asked the People’s Bank of China to stop fighting the financial markets and let the value of the nation’s currency fall. They got nowhere. “The primary task is to maintain stability,” said one central-bank official, according to previously undisclosed minutes of the meeting reviewed by The Wall Street Journal. The meeting left little doubt China’s top leaders have lost interest in a major policy shift announced in a surprise move just nine months ago. In August 2015, the PBOC said it would make the yuan’s value more market-based, an important step in liberalizing the world’s second-largest economy.

In reality, though, the yuan’s daily exchange rate is now back under tight government control, according to meeting minutes that detail private deliberations and interviews with Chinese officials and advisers who spoke with The Wall Street Journal about the country’s currency policy. On Jan. 4, the central bank behind closed doors ditched the market-based mechanism, according to people close to the PBOC. The central bank hasn’t announced the reversal, but officials have essentially returned to the old way of adjusting the yuan’s daily value higher or lower based on whatever suits Beijing best. The flip-flop is a sign of policy makers’ deepening wariness about how much money is fleeing China, a problem driven by its slowing economy.

For now, at least, officials believe the benefits of freeing the yuan are outnumbered by the number of threats. Re-emphasizing the yuan’s stability would also bring a sigh of relief to trading partners who worried a weaker currency would boost Chinese exports at the expense of those produced elsewhere. Freeing the yuan, the biggest overhaul of China’s currency policy in a decade, was meant to empower consumers and help invigorate the economy. The negative reaction, from financial markets world-wide and Chinese who sped their efforts to take money out of the country, was so jarring that the top leadership, headed by President Xi Jinping, began to have second thoughts.

At a heavily guarded conclave of senior Communist Party officials in December, Mr. Xi called China’s markets and regulatory system “immature” and said “the majority” of party officials hadn’t done enough to guide the economy toward more sustainable growth, according to people who attended the meeting. To the central bank, there was only one possible interpretation: Step on the brakes.

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Turns out, it can still get worse.

Negative Rates Prompt Japan Banks to Opt Out Via Derivatives (BBG)

Japanese banks reluctant to pay for the privilege of lending are opting out by using derivatives. The options set a floor on rates used to determine interest on loans, and the holder will be paid if the rates fall below that level, according to Aozora Bank and Tokyo Star Bank. The benchmark three-month Tokyo interbank offered rate has plunged to a record low of 6 basis points since the Bank of Japan announced it would start charging fees on some lenders’ reserves in January. Options with floors at zero% or minus rates have been traded recently, according to Aozora Bank. “There’s a need to hedge against money-losing lending that could happen if the Tibor falls to negative levels,” said Tetsuji Matsuka, the head of the ALM planning treasury department at Tokyo Star Bank.

“We think demand will increase” for such products, he said. Japanese banks are getting hurt as the negative-rate policy compresses their lending margins, with the top-three firms including Mitsubishi UFJ Financial forecasting this month that net income will fall a combined 5.2% in the year started April 1. The BOJ’s radical stimulus has already dragged yields on more than 70% of Japanese government bonds to below zero, meaning that investors will have to effectively pay a fee to hold such debt to maturity. In the yen London interbank offered rate market, where some rates are already below zero, options have been traded with floors as low as minus 1%, according to Nobuyuki Takahashi, the general manager of the derivatives sales division at Aozora Bank.

The three-month yen Libor was at minus 0.02% on Friday. Companies that borrow at floating rates may also be able to use floor options to ensure that interest-rate swaps they use to hedge against rising rates don’t end up costing them due to negative rates, Takahashi said. Actual trades of such derivatives are still not that common because the contracts are expensive to buy now, he said. “It will be hard to price these options unless we get more liquidity,” said Tateo Komatsu, a deputy general manager of global markets at Sumitomo Mitsui Trust Bank Ltd. “It will take time for the market to get used to minus rates.”

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Roller coaster in a casino.

Iron Ore Price Falls 27% In Past Month (BI)

The iron ore price is imploding. Following the ugly lead provided by Chinese futures on Monday, the spot iron ore price followed suit, suffering one of the largest declines seen in years. According to Metal Bulletin, the spot price for benchmark 62% fines fell by 6.69%, or $3.67, to $51.22 a tonne, leaving it down 27.3% from the multi-year peak of $70.46 a tonne struck on April 21. The decline was the third-largest in percentage terms in the past two years, and left the price at the lowest level seen since March 3 this year. The losses in physical and futures markets followed news that Chinese iron ore port inventories swelled to over 100 million tonnes last week, leaving them at the highest level seen since March last year.

That followed the revelation that Chinese crude steel output contracted in April after hitting a record high in March, declining marginally according to figures released by the China Iron and Steel Association (CISA). Given the increasing correlated relationship between the two, it’s also clear that an unwind of speculative positioning in Chinese iron ore futures is also impacting prices in the physical iron ore market. After watching prices in many bulk commodity futures rally more than 50% in less than two months, regulators at both the Dalian Commodities Exchange and Shanghai Futures Exchange introduced measures in recent weeks to discourage excessive levels of speculation in these markets.

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Slow death?!

Deutsche Bank Ratings Cut by Moody’s (BBG)

Deutsche Bank had its credit rating cut by Moody’s Investors Service, which said the German lender faces mounting challenges in carrying out its turnaround. The bank’s senior unsecured debt rating was lowered to Baa2 from Baa1, Moody’s said Monday in a statement. That left the grade two levels above junk. The firm’s long-term deposit rating fell to A3 from A2. “Deutsche Bank’s performance over the last several quarters has been weak, and substantial operating headwinds, including continuing low interest rates and macroeconomic uncertainty, will challenge the firm,” Moody’s said in the statement. CEO John Cryan’s planned overhaul of the bank, laid out in October, ran into an industrywide slump in trading and investment banking, as well as interest rates that have gone from low to negative in parts of Europe and Asia.

Net income fell 61% in the first quarter, leaving the company at risk of a second straight annual loss this year as it tries to resolve legal cases. Results so far and the challenges ahead, including a chance of further slumps in retail and market-linked businesses, will probably force Deutsche Bank to balance restructuring costs with the need to amass capital for stiffened regulatory requirements, Moody’s wrote. “The plan they’re trying to execute is a good plan for the bondholder in the long run, but they face some pretty challenging headwinds when you look at the current operating environment,” Peter Nerby, a senior vice president at Moody’s, said in a phone interview. “They’re working on it, but it’s tougher than it was.”

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“A whole generation will have been consigned to the scrapheap.”

Greece Is Never Going To Grow Its Way Out Of Debt (Coppola)

The IMF has just released its latest Debt Sustainability Analysis (DSA) for Greece. It makes grim reading. Greece is never going to grow its way out of debt. And the 3.5% primary surplus to which the Syriza government seems hell-bent upon committing is frankly unbelievable: the IMF thinks sustaining even 1.5% would be a stretch. Banks will need another €10bn (on top of the €43bn the Greek government has already borrowed to bail them out). Asset sales are a lost cause, mainly because the banks – which were a large proportion of the assets up for sale – won’t be worth anything for the foreseeable future. Like it or not, debt relief will be necessary. If there is no debt relief, by 2060 debt service will soar to an impossible 60% of government spending. Of course, Greece would default long before that – but that would make the situation in Greece even worse.

None of this is news. The IMF has been saying for nearly a year now that Greece will need debt relief. This latest DSA is designed to shock the Europeans into giving it serious consideration. It is not surprising, therefore, that the debt sustainability projections are significantly worse than in previous DSAs. No doubt the European creditors will disagree with them, the Syriza government will side with the Europeans because the only alternative is Grexit, and the European Commission will claim there is “progress” when all that is really happening is that a very battered can is being kicked once again. But buried in the IMF’s report are some very unpleasant numbers indeed – the IMF’s projections for population and employment out to 2060. And I think the world should know about them. Here is what the IMF has to say about the outlook for Greek unemployment:

Demographic projections suggest that working age population will decline by about 10 percentage points by 2060. At the same time, Greece will continue to struggle with high unemployment rates for decades to come. Its current unemployment rate is around 25%, the highest in the OECD, and after seven years of recession, its structural component is estimated at around 20%. Consequently, it will take significant time for unemployment to come down. Staff expects it to reach 18% by 2022, 12% by 2040, and 6% only by 2060. So even if the Greek economy returns to growth and its creditors agree to debt relief, it will take 44 years to reduce Greek unemployment to something approaching normal. For Greece’s young people currently out of work, that is all of their working life. A whole generation will have been consigned to the scrapheap.

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Think Britain is bad? Try Greece.

Austerity Means Privatizing Everything We Own (G.)

Almost everyone who gives the matter serious thought agrees that George Osborne and David Cameron want to reshape Britain. The spending cuts, the upending of the NHS, even this month’s near-miss over the BBC: signs lie everywhere of how this will be a decade, maybe more, of massive change. Yet even now it is little understood just how far Britain might shift – and in which direction. Take austerity, the word that will define this government. Even its most astute critics commit two basic errors. The first is to assume that it boils down to spending cuts and tax rises. The second is to believe that all this is meant to reduce how much the country is borrowing. What such commonplaces do is reduce austerity to a technical, reversible project.

Were it really so simple all we would need to do is turn the spending taps back on and wash away all traces of Osbornomics. Austerity is far bigger than that: it is a project irreversibly to transfer wealth from the poorest to the richest. It’s doing the job very nicely: while the typical British worker is still earning less after inflation than he or she was before the banking crash, the number of UK-based billionaires has nearly quadrupled since 2009. Even while he slashes benefits, Osborne is deep into a programme to hand over much of what is still owned by the British public to the wealthiest. Privatisation is the multibillion-pound centrepiece of Osborne’s austerity – yet it rarely gets a mention from either politicians or press. The Queen mentioned it in her speech last week, but the headline writers ignored it.

And if you don’t know that this Thursday is the closing date for consultation on the sale of the Land Registry, our public record of who owns what property, that’s hardly your fault – I haven’t spotted it in the papers, either. But without getting rid of prize assets, Osborne’s austerity programme falls apart. At a time when tax revenues are more weak stream than healthy flood, those sales bring much-needed cash into the Treasury and make his sums add up. The independent Office for Budget Responsibility has ruled that the only reason the chancellor met his debts target last year was because he flogged off our public assets. And what a fire sale that was, with everything from our last remaining stake in the Royal Mail to shares in Eurostar shoved out the door in the biggest wave of privatisations of any year in British history.

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And maybe sometime in the next century something will be done. But they’re all still too big to fail.

US Court Opens Door Over Libor Claims (FT)

A US appeals court has opened the door for more claims against the big banks for rigging benchmark interest rates, by overturning a three-year-old ruling which threw out a host of private antitrust-related lawsuits. Monday’s decision by the 2nd US Circuit Court of Appeals in Manhattan could be a setback for the likes of Bank of America, JPMorgan Chase and Citigroup, which had hoped that most of the wave of post-crisis litigation was behind them. The decision reverses a lower court decision from 2013, in which US District Judge Naomi Reice Buchwald dismissed claims on the grounds that the plaintiffs had failed to plead antitrust injury.

The lawsuits had accused 16 major banks of collusion in manipulating the London interbank offered rate, or Libor, which approximates the average rate at which a select group of banks can borrow money. Beginning in 2007, the plaintiffs argued, the banks engaged in a horizontal price-fixing conspiracy, with each submitting an artificially low cost of borrowing US dollars in order to drive Libor down. At the time of her rejection, Judge Buchwald reasoned that the Libor-setting process was co-operative rather than competitive, and so any attempt to depress the rate did not cause investors to suffer anti-competitive harm. At best, she said, investors had a fraud claim based on misrepresentation.

But the appeals court on Monday disagreed and sent the case back to the lower court for further proceedings. A three-judge panel found that price-fixing was an antitrust violation in itself, and therefore needed no separate plea of harm. “The crucial allegation is that the banks circumvented the Libor-setting rules, and that joint process thus turned into collusion,” the panel said. The private suits are separate from the criminal and civil probes into Libor rigging, which have ensnared banks and traders around the world and drawn about $9bn so far in penalties.

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Do we even still notice?

Italy Helps Rescue 2,600 Migrants From Sea In 24 Hours (R.)

Italian vessels have helped rescue more than 2,600 migrants from boats trying to reach Europe from North Africa in the last 24 hours, the coastguard said on Monday, indicating that numbers are rising as the weather warms up. Some 2,000 migrants were rescued off the Libyan coast from 14 rubber dinghies and one larger boat in salvage operations by the Italian navy and coastguard, the medical charity Medecins Sans Frontieres and an Irish navy vessel, the coastguard said. Another 636 migrants were rescued from two boats in Maltese waters, in operations involving Maltese and Italian vessels, it said. It gave no information about the nationalities of those saved. More than 31,000 migrants have reached Italy by boat so far this year, slightly fewer than in the same period of 2015.

Humanitarian organizations say the sea route between Libya and Italy is now the main route for asylum seekers heading for Europe, after an EU deal on migrants with Turkey dramatically slowed the flow of people reaching Greece. Officials fear the numbers trying to make the crossing to southern Italy will increase as conditions improve in warmer weather. More than 1.2 million Arab, African and Asian migrants fleeing war and poverty have streamed into the European Union since the start of last year. Most of those trying to reach Italy leave the coast of lawless Libya on rickety fishing boats or rubber dinghies, heading for the Italian island of Lampedusa, which is close to Tunisia, or toward Sicily.

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Peaceful until now.

Greece Starts Clearing Makeshift Refugee Camp On Border (R.)

Greek police started moving migrants and refugees out of a sprawling tent camp on the sealed northern border with Macedonia on Tuesday where thousands have been stranded for months trying to get into western Europe. Reuters witnesses saw several bus loads of migrants leaving the makeshift camp of Idomeni early on Tuesday morning, with about another dozen buses lined up. It appeared to be mainly families who were on the move. Greek authorities said they planned to move individuals gradually to state-supervised facilities further south in an operation expected to last several days. “The evacuation is progressing without any problem,” said Giorgos Kyritsis, a government spokesman for the migrant crisis.

A Reuters witness on the Macedonian side of the border said there was a heavy police presence in the area but no problems were reported as people with young children packed up huge bags with their belongings. Media on the Greek side of the border were kept at a distance and a group of people dressed as clowns waved balloon hearts and animals as the buses drove past. “Those who pack their belongings will leave, because we want this issue over with. Ideally by the end of the week. We haven’t put a strict deadline on it, but more or less that is what we estimate,” Kyritsis told Reuters. At the latest tally, 8,199 people were camped at Idomeni after a cascade of border shutdowns throughout the Balkans in February barred migrants and refugees from central and northern Europe. More than 12,000 lived in the camp at one point.

Read more …

May 232016
 
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Harris&Ewing Hancock’s, the Old Curiosity Shop, 1234 Pennsylvania Avenue 1914


Japan April Imports Fall 23.3%, Exports Drop 10.1% (BBG)
Japan May Factory Activity Shrinks Most In Over Three Years (R.)
Investors Check Out of Europe (WSJ)
US Dollar Will Be The Winner When The EU Volcano Erupts (CNBC)
Saudi Financial Crisis ‘Could Leave Oil At $25’ As Bills Get Paid In IOUs (AEP)
The IMF And Calling Berlin’s Bluff Over Greece (Münchau)
Athens Agrees Fiscal Measures In Exchange For Debt Relief Talks (FT)
China Steps Up War On Banks’ Bad Debt (FT)
We MUST Quit The EU, Says Cameron’s Guru (DM)
Support For EU Falls Sharply In Britain’s Corporate Boardrooms (G.)
Swiss To Vote On $2,500 a Month Basic Income (BBG)
Snowden Calls For Whistleblower Shield After Claims By New Pentagon Source (G.)
R.I.P., GOP: How Trump Is Killing the Republican Party (Taibbi)
Turks Won’t Get EU Visa Waiver Before 2017: Bild (R.)
Greek Police Poised To Evacuate Idomeni Refugee Camp (Kath.)

In praise of Abenomics…

Japan April Imports Fall 23.3%, Exports Drop 10.1% (BBG)

Japan’s exports fell for a seventh consecutive month in April as the yen strengthened, underscoring the growing challenges to Prime Minister Shinzo Abe’s efforts to revive economic growth. Overseas shipments declined 10.1% in April from a year earlier, the Ministry of Finance said on Monday. The median estimate of economists surveyed by Bloomberg was for a 9.9% drop. Imports fell 23.3%, leaving a trade surplus of 823.5 billion yen ($7.5 billion), the highest since March 2010. Even after coming off an 18-month high earlier this month, the Japanese currency has gained 9% against the dollar this year, eroding the competitiveness of the nation’s products overseas and hurting the earnings of exporters.

Concern about the impact of the yen was on show over the weekend as Finance Minister Taro Aso and his U.S. counterpart disagreed over the seriousness of recent moves in the foreign-exchange market. “Exports are getting a hit from the yen’s gains and weakness in overseas demand, especially in emerging nations,” said Yuichi Kodama at Meiji Yasuda Life Insurance in Tokyo, who added that last month’s earthquakes in Kumamoto also will likely slow exports. “There’s a high chance that Japan’s economy will return to contraction in the April-June period as domestic consumption and exports look weak.”

Read more …

Calling Peter Pan!

Japan May Factory Activity Shrinks Most In Over Three Years (R.)

Japanese manufacturing activity contracted at the fastest pace in more than three years in May as new orders slumped, a preliminary survey showed on Monday, putting fresh pressure on the government and central bank to offer additional economic stimulus. The Markit/Nikkei Flash Japan Manufacturing Purchasing Managers Index (PMI) fell to 47.6 in May on a seasonally adjusted basis, from a final 48.2 in April. The index remained below the 50 threshold that separates contraction from expansion for the third month and showed that activity shrank at the fastest since December 2012. The index for new orders fell to a preliminary 44.1 from 45.0 in the previous month, also suggesting the fastest decline since December 2012.

The aftermath of earthquakes in southern Japan in April may still be weighing heavily on some producers, a statement from Markit said, while foreign demand also contracted sharply. Japan escaped a technical recession in the first quarter, GDP data showed last week, but economists warned the underlying trend for consumer spending remains weak. There are also concerns that companies have already started to delay business investment due to uncertainty about overseas economies. Speculation is growing that Prime Minister Shinzo Abe will delay a nationwide sales tax hike scheduled for next April to focus on measures that will strengthen domestic demand. Economists also expect the Bank of Japan will ease monetary policy even further by July as a strong yen and still-sluggish economy threaten its ability to meet its ambitious inflation target, a Reuters poll showed.

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“Banks are Europe’s worst-performing sector, having fallen nearly 19%.”

Investors Check Out of Europe (WSJ)

Investors are fleeing Europe. Fund managers are pulling cash out of European equity and debt markets in response to concerns about the continent’s fractious politics, ultralow interest rates and weak banks, and relentless economic malaise. Investors have sold exchange-traded funds tracking European shares for nearly 15 weeks—the longest stretch since 2008—according to UBS. Meanwhile, annual net outflows from eurozone bonds were running at over half a trillion euros as of the end of March, according to a Pictet Wealth Management analysis of data from the ECB. That is happening as investors are turning away from Europe’s growing pool of negative-yielding debt. The money is finding a home in places from U.S. Treasurys to emerging economies, helping to push up prices in those markets.

Just last year, Europe was a top pick by global fund managers as it recovered from the sovereign-debt crisis of 2010 to 2012. The current retreat shows that this rehabilitation has faded, and fast. “It’s a one-way flow out of Europe,” said Ankit Gheedia, equity and derivatives strategist at BNP Paribas SA. “You buy something that doesn’t give you a return, you sell.” Last year, ECB monetary stimulus and a fledgling economic recovery brought investors back to Europe after they fled during the eurozone debt crisis. The Stoxx Europe 600 gained 6.8% in 2015, while the S&P 500 lost almost 1%. Now people are leaving again. In recent weeks, investors have been selling equities around the world over concerns about the global economy. But the selling in Europe has been particularly pronounced.

Funds have sold around $22.6 billion worth of ETFs that track European equity since March, which is equivalent to roughly 9.4% of the total held of these investments, according to Mr. Gheedia. Meanwhile, global fund managers’ allocation to eurozone equities dropped to 17-month lows in May, according to a survey by Bank of America Merrill Lynch. When prospects seemed sunnier last year, a net 55% of fund managers favored the region. This is already taking a toll on European markets. The Stoxx Europe 600 is down nearly 8% this year, compared with a roughly flat S&P 500. Banks are Europe’s worst-performing sector, having fallen nearly 19%.

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And when the China Ponzi bursts.

US Dollar Will Be The Winner When The EU Volcano Erupts (CNBC)

Europe’s apparent inability to secure its monetary union leaves the world without any credible dollar alternatives. Those who were expecting that a legal tender of an economic system nearly matching the size of the American economy would offer an effective instrument of portfolio diversification have to accept a simple reality: The dollar remains an irreplaceable global transactions currency and, by far, the world’s most important reserve asset. The pious hopes of the French President François Mitterrand and the German Chancellor Helmut Kohl that a common currency would bond their countries and the rest of Europe into a peaceful and prosperous union could soon be dashed. Their political offspring has become a symbol of European discord and a cause of seemingly irreconcilable French-German economic and political divisions.

These historical divides are now aggravated by violent street demonstrations and frightening civil war rhetoric in France, where the country’s mainstream politicians are trying to fight off extreme right and left parties, commanding nearly half of the popular vote and demanding an immediate exit from the EU and the euro. Investors would be well advised to take this seriously. Even if relatively moderate French center-right forces were able to keep the anti-EU parties at bay, a long-brewing clash with Germany appears inevitable. For many French politicians of all stripes, Germany has gone too far in bossing the rest of Europe around, and in causing a huge economic, social and political damage to France, Italy, Spain, Portugal and Greece with the imposition of its mean-spirited and misguided fiscal austerity.

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It’s a bout the dollar peg, again. Said ages ago it would be untenable.

Saudi Financial Crisis ‘Could Leave Oil At $25’ As Bills Get Paid In IOUs (AEP)

Saudi Arabia faces a vicious liquidity squeeze as capital continues to leak out the country, with a sharp contraction of the money supply and mounting stress in the banking system. Three-month interbank offered rates in Riyadh have suddenly begun to spiral upwards, reaching the highest since the Lehman crisis in 2008. Reports that the Saudi government is to pay contractors with tradable IOUs show how acute the situation is becoming. The debt-crippled bin Laden group is laying off 50,000 construction workers as austerity bites in earnest. Societe Generale’s currency team has advised clients to short the Saudi riyal, betting that the country will be forced to ditch its long-standing dollar peg, a move that could set off a cut-throat battle for global share in the oil markets.

Francisco Blanch, from Bank of America, said a rupture of the peg is this year’s number one “black swan event” and would cause oil prices to collapse to $25 a barrel. Saudi Arabia’s foreign reserves are still falling by $10bn (£6.9bn) a month, despite a switch to bond sales and syndicated loans to help plug the huge budget deficit. The country’s remaining reserves of $582bn are in theory ample – if they are really liquid – but that is not the immediate issue. The problem for the Saudi central bank (SAMA) is that reserve depletion automatically tightens monetary policy. Bank deposits are contracting. So is the M2 money supply. Domestic bond sales do not help because they crowd out Saudi Arabia’s wafer-thin capital markets and squeeze liquidity. Riyadh now plans a global bond issue.

While crude prices have rallied 80pc to almost $50 a barrel since mid-February, this has not yet been enough to ease Saudi Arabia’s financial crunch. The rebound in crude is increasingly fragile in any case as tough talk from the US Federal Reserve sends the dollar soaring, and Canada prepares to restore 1.2m barrels a day (b/d) of lost output. “We feel that markets have moved too high, too far, too soon. We still face a large inventory overhang and supply outages are reversible,” said BNP Paribas. Total chief Patrick Pouyanne told the French senate last week that prices could deflate as fast as they rose. “The market won’t come back into balance until the end of the year,” he said.

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Germany is blowing up the EU, step by step. There is no other way out of this. Berlin has become the schoolyard bully. And not everyone bends over for the bully.

The IMF And Calling Berlin’s Bluff Over Greece (Münchau)

At one level, the recurring Greek crises fit the idea from Karl Marx of history repeating itself, first as tragedy then as farce. Greece came close to a eurozone exit last summer. While it will probably come close this year, it is unlikely to leave. But prepare for some tense moments in the next few weeks and months as Greece and its creditors struggle to agree the first review of last year’s bailout. The IMF has concluded that Greek public debt, at 180% of GDP is unsustainable; as is the agreed annual primary budget surplus, before interest payments, of 3.5% of GDP. The fund insists on debt relief, but Germany resists. A year ago Angela Merkel and Wolfgang Schäuble, her finance minister, sold the Greek bailout to their party and parliament as a loan only. They argued that once you accept a debt writedown, you turn a loan into a transfer.

And once you accept the principle of a one-off transfer to Greece, you are on a slippery road to what the Germans call a transfer union, one where they pay and others receive. In private, senior German government officials agree that Athens needs debt relief. They are not blind. But they are trapped in the lie that Greece is solvent, which is what their own backbenchers were told. Without that lie, Greece would no longer be a eurozone member. But the lie cannot be sustained. IMF insistence on debt relief is what could expose this lie. Christine Lagarde, managing director, last year set debt relief talks as a condition for the fund’s participation in a bailout. Mr Schäuble reluctantly agreed yet managed to insert the words “if needed”, which give him wriggle room. But Berlin imposed another condition: the IMF must participate in the bailout, too. This is what makes the German position vulnerable.

We know IMF staff are steadfast in their opposition to being involved in a bailout without an agreement on debt relief. The trouble is that the policies are not determined by the staff but by the IMF shareholders. The Europeans and the US are the dominant shareholders so the outcome of this battle will depend to a large extent on the view taken by Washington. To get himself out of a hole, Mr Schäuble recently made a counterproposal: Germany accepts debt talks in principle but only from 2018. The date was chosen with care. It is well after the next federal elections. It is not clear whether he will still be finance minister or indeed in government. I suspect the Christian Democratic Union, his party, will lead the next government; the electoral arithmetic makes other constellations improbable. Nevertheless, he is proposing to commit any successor to this course of action. Such a commitment has no credibility.

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Why Tsipras keeps doing these things is hard to fathom.

Athens Agrees Fiscal Measures In Exchange For Debt Relief Talks (FT)

Alexis Tsipras has defended his leftwing government’s adoption of new fiscal measures in return for talks on debt relief, saying Greece was “turning a page” after an unprecedented six-year recession “Spring may be almost over but we are looking forward to an economic spring and a return to growth this year,” the prime minister told parliament, wrapping up a two-day debate on a €1.8bn package of indirect tax increases. As expected, all 153 legislators from the premier’s Syriza party and its coalition partner, the rightwing Independent Greeks, backed the bill, while 145 opposition deputies voted against. There were two abstentions. The latest measures complete a €5.4bn package of fiscal reforms aimed at ensuring a primary budget surplus, before payments of principal and interest on debt, amounting to 3.5% of national output by 2018.

But the legislation also included a provision for “contingency” measures, including wage and pension cuts, that would take effect automatically if budget targets were derailed next year. An upbeat Mr Tsipras insisted that budget projections would be outperformed, saying: “Greece has shown it keeps its promises..I’m certain [contingency] measures will not have to be put into effect.” A senior Greek official said after the vote he was confident that eurozone finance ministers would unlock up to €11bn from Greece’s €86bn third bailout at a meeting scheduled for Tuesday. The funding, to be disbursed in several tranches linked to implementing the reforms, would enable Athens to meet sovereign debt repayments for the remainder of the year and also channel funds to public services such as the healthcare system.

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This is getting weird. It’s like Beijing is reinventing finance. The government is paying off debt to the shadow banks.

China Steps Up War On Banks’ Bad Debt (FT)

Beijing has stepped up its battle against bad debt in China’s banking system, with a state-led debt-for-equity scheme surging in value by about $100bn in the past two months alone. The government-led programme, which forces banks to write off bad debt in exchange for equity in ailing companies, soared in value to hit more than $220bn by the end of April, up from about $120bn at the start of March, according to data from Wind Information. Industry watchers have fiercely debated how far Beijing will go to recapitalise the financial system, with bad loans taking up an ever higher percentage of banks’ balance sheets — as much as 19% by some estimates. The latest figures for the debt-to-equity swap, and a debt-to-bonds swap initiated last year, show a subtle bailout is already under way.

“One can argue the government-led recapitalisation is already happening in an atypical way and thus reducing the need for recapitalisation in its written sense,” said Liao Qiang at S&P Global Ratings in Beijing. Chinese media reported that up to Rmb4tn ($612bn) had been approved in 2015 for the debt-to-bonds swap, which has seen state-controlled banks trade short-term loans to companies connected to local governments in exchange for bonds with much longer maturities. That programme has been hailed a success in that it relieved the pressure on local governments that were forced to take out bank loans to proceed with public works projects in the absence of municipal bond markets.

The debt-to-equity project has received far less enthusiasm from analysts, who say that coercing banks to become stakeholders in companies that could not pay back loans will further weigh down profits this year. Instead of underpinning stability at banks, Mr Liao says the efforts undermine it. The programmes are just two fronts in Beijing’s battle against bad debt. The state-controlled asset management companies that bailed out the country’s four national commercial banks 15 years ago have become increasingly active over the past two years in buying up portfolios of bad debt. Regional asset managers run by provincial governments are doing the same business on a local level. The government is also reopening the market for securitising bad debt with two deals worth Rmb534m due this month.

The efforts have even gone online, with debt managers hawking off bad loans on China’s biggest online retail site. The average rate of non-performing loans at China’s commercial banks hit an official 1.75% at the end of March, according to the banking regulator. That marks the 11th straight quarter that the government-approved figures have risen. But the official data does not include a much larger stockpile of so-called zombie loans that some analysts say could in future require a more formal bailout for the banks. Francis Cheung, analyst at CLSA, estimates that bad debt accounted for 15-19% of banks’ loan books at the end of last year and that the government may have to add Rmb10.6tn of new capital to the banking system, or 15.6% of GDP.

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“As I say to my American friends who don’t really get what the EU is: ‘All you need to know is that it has three presidents, none of whom is elected.’”

We MUST Quit The EU, Says Cameron’s Guru (DM)

David Cameron’s closest friend in politics today breaks ranks to say Britain must leave the ‘arrogant and unaccountable’ EU. In a shattering blow to the Prime Minister, Steve Hilton claims the UK is ‘literally ungovernable’ as a democracy while it remains in a club that has been ‘corruptly captured’ by a self-serving elite. And in an attack on Project Fear, the former No 10 adviser dismisses claims by Mr Cameron, the IMF and the Bank of England that being in the EU makes us more secure. In an exclusive Daily Mail article, Mr Hilton – who persuaded Mr Cameron to stand for Tory leader – also delivers a devastating assessment of the PM’s referendum deal. He says Mr Cameron made only ‘modest’ demands of Brussels – and that even these were swatted contemptuously aside.

He also warns that Brussels will take revenge on Britain for the referendum if it votes to stay, by imposing fresh diktats. Mr Hilton concludes: ‘A decision to leave the EU is not without risk. But I believe it is the ideal and idealistic choice for our times: taking back power from arrogant, unaccountable, hubristic elites and putting it where it belongs – in people’s hands.’ His declaration for Brexit with exactly a month to go until polling day will send tremors through No 10. Along with Michael Gove, he provided the intellectual heft behind Mr Cameron’s rise to power. Both men now argue that the PM is wrong to urge voters to remain in what Mr Hilton condemns as the ‘grotesquely unaccountable’ Brussels club.

[..] Mr Hilton, who remains close to the Prime Minister, had previously declined to be drawn into what is already a bitter ‘blue on blue’ row. But today he claims the key issue for him is that Britain cannot make its own laws and control its own destiny from inside the EU. Mr Hilton says Brussels directives have crept into every corner of Whitehall and that less than a third of the Government’s workload is the result of trying to fulfil its own promises and policies. The rest is generated either by the ‘anti-market, innovation-stifling’ EU or a civil service dancing to the tune of Brussels, he says. Mr Hilton continues: ‘It’s become so complicated, so secretive, so impenetrable that it’s way beyond the ability of any British government to make it work to our advantage.

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The vote is not done yet.

Support For EU Falls Sharply In Britain’s Corporate Boardrooms (G.)

The number of FTSE 350 company boards that believe EU membership is good for their business has dropped significantly over the past six months, with just over a third now saying the EU has a positive impact. The biannual FT-ICSA boardroom bellwether survey, which canvasses the views of the FTSE 350, reported a substantial fall in the number who believe their company benefits from EU membership to 37%, down from 61% in December 2015. It found many were indifferent to a Brexit, with barely half (49%) of boards having considered the implications of the UK leaving the EU. Approximately 43% said they believe a UK exit from Europe would be potentially damaging. Respondents from the FTSE 100 regarded EU membership more favourably than the 250, with more than twice as many (55%) of FTSE 100 companies believing that EU membership has a positive impact.

This compared with 24% of the FTSE 250. John Longworth, chairman of the Vote Leave business council, said the survey findings showed that the remain camp’s economic argument was failing. “The remain camp’s concerted campaign to do down the economy has failed. In fact it has had the opposite effect as the EU supporters have failed to make a positive case for continuing to hand Brussels more control of our economy, our democracy and our borders. He added: “Business recognises it is possible for Britain to continue trading across Europe, part of the free trade zone that exists from Iceland to Turkey, without handing Brussels £350m a week and EU judges ultimate power over our laws. On 23 June the safe option is to take back control.”

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Switzerland is notoriously expensive to live in.

Swiss To Vote On $2,500 a Month Basic Income (BBG)

The Swiss are discussing paying people $2,500 a month for doing nothing. The country will vote June 5 on whether the government should introduce an unconditional basic income to replace various welfare benefits. Although the initiators of the plan haven’t stipulated how large the payout should be, they’ve suggested the sum of 2,500 francs ($2,500) for an adult and a quarter of that for a child. It sounds good, but — two things. It would barely get you over the poverty line, typically defined as 60 percent of the national median disposable income, in what’s one of the world’s most expensive countries. More importantly, it’s probably not going to happen anyway. Plebiscites are a common part of Switzerland’s direct democracy, with multiple votes every year. The basic income initiative is taking place after the proposal gathered the required 100,000 signatures, though current polls suggest it won’t get any further.

The idea of paying everyone a stipend has also piqued interest in other countries, such as Canada, the Netherlands and Finland, where an initial study began last year. The initiators say the sum they’ve mentioned would allow for a “decent existence.” Still, on an annual basis, it would provide only 30,000 francs — just above the 2014 poverty line of 29,501 francs. Nearly one in eight people in Switzerland were below the level in that year, according to the statistics office. That’s more than in France, Denmark and Norway. Among those over 65, one in five were at risk of being poor. “It’s not like you see abject poverty in Switzerland,” said Andreas Ladner, professor of political science at the University of Lausanne. “But there are a few people who don’t have enough money, and there are some people who work and don’t earn enough.”

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But it won’t materialize.

Snowden Calls For Whistleblower Shield After Claims By New Pentagon Source (G.)

Edward Snowden has called for a complete overhaul of US whistleblower protections after a new source from deep inside the Pentagon came forward with a startling account of how the system became a “trap” for those seeking to expose wrongdoing. The account of John Crane, a former senior Pentagon investigator, appears to undermine Barack Obama, Hillary Clinton and other major establishment figures who argue that there were established routes for Snowden other than leaking to the media. Crane, a longtime assistant inspector general at the Pentagon, has accused his old office of retaliating against a major surveillance whistleblower, Thomas Drake, in an episode that helps explain Snowden’s 2013 National Security Agency disclosures. Not only did Pentagon officials provide Drake’s name to criminal investigators, Crane told the Guardian, they destroyed documents relevant to his defence.

Snowden, responding to Crane’s revelations, said he had tried to raise his concerns with colleagues, supervisors and lawyers and been told by all of them: “You’re playing with fire.” He told the Guardian: “We need iron-clad, enforceable protections for whistleblowers, and we need a public record of success stories. Protect the people who go to members of Congress with oversight roles, and if their efforts lead to a positive change in policy – recognize them for their efforts. There are no incentives for people to stand up against an agency on the wrong side of the law today, and that’s got to change.” Snowden continued: “The sad reality of today’s policies is that going to the inspector general with evidence of truly serious wrongdoing is often a mistake. Going to the press involves serious risks, but at least you’ve got a chance.”

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Excellent Taibbi, once again.

R.I.P., GOP: How Trump Is Killing the Republican Party (Taibbi)

If this isn’t the end for the Republican Party, it’ll be a shame. They dominated American political life for 50 years and were never anything but monsters. They bred in their voters the incredible attitude that Republicans were the only people within our borders who raised children, loved their country, died in battle or paid taxes. They even sullied the word “American” by insisting they were the only real ones. They preferred Lubbock to Paris, and their idea of an intellectual was Newt Gingrich. Their leaders, from Ralph Reed to Bill Frist to Tom DeLay to Rick Santorum to Romney and Ryan, were an interminable assembly line of shrieking, witch-hunting celibates, all with the same haircut – the kind of people who thought Iran-Contra was nothing, but would grind the affairs of state to a halt over a blow job or Terri Schiavo’s feeding tube.

A century ago, the small-town American was Gary Cooper: tough, silent, upright and confident. The modern Republican Party changed that person into a haranguing neurotic who couldn’t make it through a dinner without quizzing you about your politics. They destroyed the American character. No hell is hot enough for them. And when Trump came along, they rolled over like the weaklings they’ve always been, bowing more or less instantly to his parodic show of strength. In the weeks surrounding Cruz’s cat-fart of a surrender in Indiana, party luminaries began the predictably Soviet process of coalescing around the once-despised new ruler. Trump endorsements of varying degrees of sincerity spilled in from the likes of Dick Cheney, Bob Dole, Mitch McConnell and even John McCain.

Having not recently suffered a revolution or a foreign-military occupation, Americans haven’t seen this phenomenon much, but the effortless treason of top-tier Republicans once Trump locked up the nomination was the most predictable part of this story. Politicians, particularly this group, are like crackheads: You can get them to debase themselves completely for whatever’s in your pocket, even if it’s just lint.

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Greece should brace itself for a huge new influx of refugees.

Turks Won’t Get EU Visa Waiver Before 2017: Bild (R.)

The German government does not expect Turks to get visa-free entry into the European Union before 2017 because Ankara will not fulfil the conditions for that by the end of this year, newspaper Bild cited sources in Berlin as saying on Monday. Turkey and the EU have been discussing visa liberalisation since 2013 and agreed in March to press ahead with it as part of a deal to stop the flow of illegal migrants from Turkey to the EU. EU officials and diplomats say the EU is set to miss an end-June deadline due to a dispute over Turkish anti-terrorism law. [..] Turkey’s government says it has already met the EU’s criteria for visa-free travel.

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Another thing Tsipras should simply refuse to do.

Greek Police Poised To Evacuate Idomeni Refugee Camp (Kath.)

It appears that Greek authorities are poised to put into action a plan to evacuate the refugee camp in Idomeni, on the border with the Former Yugoslav Republic of Macedonia. According to sources, nine squads of riot police received orders on Monday to travel from Athens to Kilkis so they can take part in the operation if their contribution is needed. Authorities will attempt to move the refugees from the unofficial camp to other sites that have been made ready in various parts of northern Greece. Police sources told Kathimerini that the plan to remove people from Idomeni would be put into action in the coming days, although no decision has been as to exactly when the operation will take place. One source said that it is most likely the orders will be given on Wednesday.

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May 222016
 
 May 22, 2016  Posted by at 9:29 am Finance Tagged with: , , , , , , , ,  No Responses »
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Unknown Medical supply boat Planter, General Hospital wharf on the Appomattox, City Point, VA 1865


G-7 Warns on Weak Global Growth as Japan Bristles Over Yen (BBG)
Jeremy Corbyn Calls For New Economics To Tackle ‘Grotesque Inequality’ (G.)
“We Are Becoming Convinced That The System Won’t Stabilize” (Matt King)
Greece Braces for More Austerity Amid EU-IMF Quarrel About Debt (BBG)
This Time, The IMF Comes Bearing Gifts For The Greeks (G.)
Europe Should Heed The Lessons of 1913 (Horvat)
New Evidence About The Dangers Of Monsanto’s Roundup (Intercept)
Technology Is Changing Our Hands (G.)
The Worst Famine Since 1985 Looms Across Africa (G.)

The US risks forcing Japan into a position it cannot afford to be in.

G-7 Warns on Weak Global Growth as Japan Bristles Over Yen (BBG)

Finance chiefs from the world’s biggest developed economies meeting in Japan underscored concerns that global growth is flagging and reaffirmed a pledge not to deliberately weaken their currencies, even as Japan again warned on the yen’s surge. At the end of two days of talks, Group of Seven central bank governors and finance ministers highlighted risks from terrorism, refugee flows, political conflicts and the potential for a U.K. exit from the EU. While officials agreed not to target currencies to stoke growth and warned of the negative consequences from disorderly moves in exchanges rates, host Japan repeated a stance that recent trading in the yen has been one sided and speculative.

Comments on the yen’s moves by Finance Minister Taro Aso hint at a growing frustration inside Japan’s government about the impact on exporters after the currency surged 9% this year, spurring speculation that the government may intervene. Aso raised the issued in a meeting with U.S. Treasury Secretary Jacob J. Lew on Saturday. “I told him that one-sided, abrupt, and speculative moves were seen in the FX market recently, and abrupt moves in the currency market are undesirable and the stability of currencies is important,” Aso said to reporters. Tensions over the yen were evident over the course of the meetings, which were held at a hot springs resort in the country’s north. As Japan warned about the impact of disorderly trading, Lew repeated his view that the yen’s movement hasn’t been overly volatile.

“It’s a pretty high bar to have disorderly conditions,” Lew told reporters. To be sure, Japan remains a long way from its first intervention since 2011, when the G-7 sanctioned selling the yen to aid the country’s recovery after a devastating earthquake, tsunami and nuclear meltdown. A strengthening dollar amid rising bets that the Federal Reserve may lift interest rates over coming moths is helping ease pressure on Japan’s exporters. Aso also made it clear that the difference of opinion with the U.S. is manageable. “They have an election and we have an election and we both have TPP talks,” Aso said. “There are various things on our plates and we of course have to say various things as that’s our jobs.”

Still, by choosing to be so vocal on the yen, Aso is both attempting to jawbone the currency lower and put a marker down in the event the currency again starts to appreciate rapidly. “There’s no sign that Japan and the U.S. will move closer together,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center.

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Left, right, everyone wants growth. But what if that is quite literally a broken record? What if the ‘New Economics’ should be one that questions perpetual growth? After all, growth is no more than an assumption, and there are others.

Jeremy Corbyn Calls For New Economics To Tackle ‘Grotesque Inequality’ (G.)

Jeremy Corbyn said the UK needed a serious debate about wealth creation, as he called for a new style of economics to tackle Britain’s “grotesque inequality”. Closing a Labour state of the economy conference in central London on Saturday, the party’s leader said: “Wealth creation is a good thing: we all want greater prosperity. But let us have a serious debate about how wealth is created, and how that wealth should be shared.” Corbyn also said a Labour government would “chase down the tax avoiders and the tax evaders” and ensure HMRC had the resources it needed to do so. Labour needed to be ambitious and bold to win the next election, he said. In the meantime, he insisted that the party could make a difference despite the frustrations of being in opposition.

“We must continue to stand up against the Conservative six-year record of mismanagement of the economy – and stand up for the vital services on which we all depend.” George Osborne had vowed six years ago that austerity would wipe out the deficit, Corbyn said. “That’s the wonderful thing about George Osborne’s five-year plans: they’re always five years away,” he added. Shopfloor workers, entrepreneurs and technicians should be put in the driving seat, the Labour leader said. “We want to see a genuinely mixed economy of public and social enterprise, alongside a private sector with a long-term private business commitment, that will provide the decent pay, jobs, housing, schools, health and social care of the future. Labour will always seek to distribute the rewards of growth more fairly. But to deliver that growth demands real change in the way the economy is run,” Corbyn said.

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Citi’s Matt King on markets that are supposed to self-stabilize, a still popular notion. Despite the fact that, as Minsky noted quite a while ago, stability breeds instability.

“We Are Becoming Convinced That The System Won’t Stabilize” (Matt King)

Take market liquidity, for example. Despite near-record notional volumes on TRACE, and policymakers’ protestations that nothing has really changed, market participants continue to lament that bid-offer is misleading, and depth is not what it used to be. Worse, many managers have struggled to make money on the basis of traditional single-name fundamentals, and poor performance is contributing to a steady leakage of flows away from traditional benchmarked funds towards totalreturn funds, indices and ETFs. The shift is not unique to credit: in European equities, futures-to-cash ratios – one convenient measure of index trading versus single-name trading – have reached all-time highs, for example (Figure 1).

Traditional thinking would not read too much into this. A decline in active single-name trading by some market participants should lead to greater dislocations, and hence greater opportunities for others. As index, or asset class, or factor investing becomes more popular, so it should become harder to make money there, and money should return to single-name trading. The system should stabilize. We are becoming more and more convinced this is wrong. In ways that were underappreciated at the time, the pre-crisis era of unlimited leverage led to a veritable bonanza for sellside and buyside alike, in which trading begat more trading, and liquidity begat liquidity. Cyclicals vs non-cyclicals. Value vs momentum. On-the-runs vs off-the-runs. Cash vs CDS. Single names vs indices. The constant arbitraging of relative value relationships led to regular patterns of mean reversion, which in turn encouraged more investors to trade.

In the post-crisis era, this process is running in reverse. Yet what started as a simple desire by regulators to curtail excesses of leverage risks is having much more farreaching repercussions. The curtailment of the hedge fund bid means that many relationships which previously mean reverted are now failing to do so, or at a minimum are doing so much more erratically. Cyclicals vs non-cyclicals. Value vs momentum. On-the-runs vs off-the-runs. Cash vs CDS. Single names vs indices. In principle, these aberrations do constitute trading opportunities – but only for investors with sufficiently strong stomachs and long time horizons, which these days nobody has. Central bank distortions have exacerbated these movements, making investor interest more one-sided and leading one market after another to exhibit more bubble-like tendencies, rising exponentially and then falling back abruptly.

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More broken records.

Greece Braces for More Austerity Amid EU-IMF Quarrel About Debt (BBG)

Greek Prime Minister Alexis Tsipras braces for yet another vote on additional austerity measures, as European creditors remain at loggerheads with the IMF about how much debt relief the country will get for its pain. Lawmakers in Athens are scheduled to vote Sunday evening on an omnibus bill that includes measures ranging from the taxation of diamond dust and coffee to the transfer of thousands of real estate assets from the state to a new privatization fund. The debate will test the resilience of Tsipras’s three-seat parliamentary majority, as euro-area states resist calls from the IMF to set less ambitious fiscal targets and hand Greece more generous debt relief.

Approval of the measures is one of the prior actions Greece has to fulfill to unlock the next tranche of emergency loans from the European Stability Mechanism, the currency bloc’s crisis-fighting fund. The Eurogroup of 19 finance ministers will convene Tuesday to assess the country’s compliance with its latest bailout agreement struck in the summer of 2015. A positive assessment is also a condition for the Eurogroup to ease the servicing terms for over €200 billion of bailout loans handed to the country since 2010.

[..] The Washington-based IMF proposed that interest and principal payments on Greece’s European bailout loans be deferred until 2040, and that maturities on those loans will be extended to 2080, according to a document obtained by Bloomberg News. Even though European counter-proposals acknowledge that current Greek debt dynamics are unsustainable, they fall short of what the IMF wants, according to people familiar with the discussions that took place between government officials over the past week. Instead, the euro area expects Greece to maintain a budget surplus level which the IMF has said is a “far-fetched fantasy.”

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Really? Are you sure IMF and EU are not playing good cop bad cop here?

This Time, The IMF Comes Bearing Gifts For The Greeks (G.)

Another Sunday, another vote in the Greek parliament, another self-imposed punishment beating as the parliament in Athens votes through fresh austerity measures. There will be higher VAT and an increase in taxes on all the pleasures of life: coffee, booze, fags, gambling, even pay TV. And just in case Greece might need to tighten its belt by another couple of notches to meet stringent budget targets, there will be additional measures that will kick in if there is any fiscal slippage over the next couple of years. George Harrison started his song Taxman with the words: “Let me tell you how it will be/There’s one for you, nineteen for me.” The Greeks know exactly what he meant. Greece’s predicament is simple. It has debt repayments to make this summer and it doesn’t have the money to pay the bills.


David Simonds/Observer

The EU can solve this acute cashflow problem by unlocking the funds pledged to Greece under the terms of last summer’s bailout agreement, but it will only do so if Athens demonstrates that it is serious about sorting out its budget. Austerity today will lead to generosity from EU finance ministers when they meet on Tuesday. That, at least, is the hope of Alexis Tsipras, Greece’s prime minister, who is looking for a package in which he gets debt relief in return for austerity. Here’s where things get interesting. The difference between this Sunday and all the other tension-packed Sundays that have studded the Greek crisis over the past six and a half years is that, this time, the battle is not between Greece and the “troika” of the European commission, the ECB and the IMF. Instead, there is a face-off between Europe and the IMF.

The Europeans badly want the fund to be part of Greece’s bailout and to contribute money to it. But Christine Lagarde, the IMF’s managing director, says her support is conditional on two things: a credible deficit reduction plan and a decent slug of debt relief. Hardline EU governments, led by Germany, have resisted this idea, fearing the Greeks will interpret any writedown of its debts as a sign of weakness that Athens will exploit to avoid meeting its budgetary commitments.

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“Back to 1913. Isn’t it one of the most curious facts that all these historical figures [Tito, Hitler, Stalin, Trotsky, Freud and Franz Ferdinand] lived at the same time at the same place, maybe only a few hundred metres apart? Did any of them ever meet? Were they drinking coffee at the same place? Would the world history look different if Hitler had been psychoanalysed by Freud?”

Europe Should Heed The Lessons of 1913 (Horvat)

Imagine the following group of curious characters living in the same city: a worker from Croatia, one unsuccessful painter, two Russians, a guy who analyses dreams and a young Austrian soldier and trophy hunter. Tito, Hitler, Stalin, Trotsky, Freud and Franz Ferdinand might make for unusual neighbours but, as Charles Emmerson describes in his recent book, 1913: In Search of the World Before the Great War, they spent plenty of time in the same two square miles of the capital of the Austro-Hungarian empire, Vienna, in 1913. Only one year later, Franz Ferdinand would become the Archduke of the empire, and his assassination in Sarajevo would lead to the first world war. In 1917, the two Russians became the leading figures of the October revolution and, about the same time, Tito – who would soon become leader of Yugoslavia – became active in the communist movement too.

Sixteen years later, on 30 January 1933, the unsuccessful painter became German Reichskanzler – the second world war was just around the corner. And Freud? After Nazi Germany annexed Austria in 1938, the Gestapo came after him and he became a refugee in London. In short, 1913 was one in which the course of history could have altered significantly. I am in no doubt that now might be another such period. At its collapse, the Austro-Hungarian empire consisted of 15 nations and more than 50 million inhabitants. The EU consists of 28 member states – with some now threatening to exit – and a population of 500 million.

Today’s Austria is facing one of its biggest political crises with the resignation of its chancellor, Werner Faymann, a second round of presidential elections looming on 22 May – which will in all likelihood result in a turn to the right – and, at the same time, nationalist calls for a referendum on Tyrol unification. We don’t know if some future Stalin or Hitler is living in Vienna, but the whole of Europe seems to be on the verge of an abyss. Recent news about a Syrian refugee who was shot by guards on the border between Slovakia and Hungary, and Turkish forces using live bullets to drive away Syrian refugees fleeing violence in their home towns point in that direction. If countries such as Denmark and Switzerland start to seize refugees’ assets, what is left of the European project nominally based on solidarity and brotherhood (“Alle Menschen werden Brüder …”, as the official anthem of the EU claims)?

The refugee crisis wasn’t – and can’t be – solved by investing €6bn in Turkey and “outsourcing” the “redundant humans” to the periphery of Europe again. Moreover, the case of German comedian Jan Boehmermann, who was charged for allegedly insulting the Turkish president, Recep Erdogan, shows that the EU’s only foreign policy is something we might call “export-import”. First we export wars (to Libya or Syria), then we import refugees. Then we export the refugees again (to Turkey), and then we import authoritarian values from Turkey, which is now killing one of the foundations of the European project – free speech. And humour.

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And there’s more…

New Evidence About The Dangers Of Monsanto’s Roundup (Intercept)

Some European governments have already begun taking action against one {Roundup’s] co-formulants, a chemical known as polyethoxylated tallowamine, or POEA, which is used in Monsanto’s Roundup Classic and Roundup Original formulations, among other weed killers, to aid in penetrating the waxy surface of plants. Germany removed all herbicides containing POEA from the market in 2014, after a forestry worker who had been exposed to it developed toxic inflammation of the lungs. In early April, the French national health and safety agency known as ANSES took the first step toward banning products that combine glyphosate and POEA. A draft of the European Commission’s reregistration report on glyphosate proposed banning POEA.

[..] manufacturers of weed killers are required to disclose only the chemical structures of their “active” ingredients — and can hide the identity of the rest as confidential business information — for many years no one knew exactly what other chemicals were in these products, let alone how they affected health. In 2012, Robin Mesnage decided to change that. A cellular and molecular toxicologist in London, Mesnage bought nine herbicides containing glyphosate, including five different formulations of Roundup, and reverse engineered some of the other components. After studying the chemicals’ patterns using mass spectrometry, Mesnage and his colleagues came up with a list of possible molecular structures and then compared them with available chemical samples.

“It took around one year and three people (a specialist in pesticide toxicology, a specialist of chemical mixtures, and a specialist in mass spectrometry) to unravel the secrets of Monsanto’s Roundup formulations,” Mesnage explained in an email. The hard work paid off. In 2013, his team was able not only to deduce the chemical structure of additives in six of the nine formulations but also to show that each of these supposedly inert ingredients was more toxic than glyphosate alone. That breakthrough helped scientists know exactly which chemicals to study, though obtaining samples remains challenging. “We still can’t get them to make experiments,” said Nicolas Defarge, a molecular biologist based in Paris. Manufacturers of co-formulants are unwilling to “sell you anything if you are not a pesticide manufacturer, and even less if you are a scientist willing to assess their toxicity.”

So when Defarge, Mesnage, and five other scientists embarked on their most recent research, they had to be creative. They were able to buy six weed killers, including Roundup WeatherMax and Roundup Classic, at the store. But, finding pure samples of the co-formulants in them was trickier. The scientists got one from a farmer who mixes his own herbicide. For another, they went to a company that uses the chemical to make soap. “They were of course not aware that I was going to assess it for toxic and endocrine-disrupting effects,” said Defarge. András Székács, one of Defarge’s co-authors who is based in Hungary, provided samples of the other three co-formulants studied, but didn’t respond to inquiries about how he obtained them.

In February, the team published its findings, which showed that each of the five co-formulants affected the function of both the mitochondria in human placental cells and aromatase, an enzyme that affects sexual development. Not only did these chemicals, which aren’t named on herbicide labels, affect biological functions, they did so at levels far below the concentrations used in commercially available products. In fact, POEA — officially an “inert” ingredient — was between 1,200 and 2,000 times more toxic to cells than glyphosate, officially the “active” ingredient.

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Interesting thoughts. Long article. Not sure how fast our hands could change, though, and quite sure our present tech push will be interrupted.

Technology Is Changing Our Hands (G.)

The new era of the internet, the smartphone and the PC has had radical effects on who we are and how we relate to each other. The old boundaries of space and time seem collapsed thanks to the digital technology that structures everyday life. We can communicate instantly across both vast and minute distances, Skyping a relative on another continent or texting a classmate sitting at the next table. Videos and photos course through the web at the touch of a screen, and social media broadcast the minutiae of both public and private lives. On the train, the bus, in the cafe and the car, this is what people are doing, tapping and talking, browsing and clicking, scrolling and swiping.

Philosophers, social theorists, psychologists and anthropologists have all spoken of the new reality that we inhabit as a result of these changes. Relationships are arguably more shallow or more profound, more durable or more transitory, more fragile or more grounded. But what if we were to see this chapter in human history through a slightly different lens? What if, rather than focusing on the new promises or discontents of contemporary civilisation, we see today’s changes as first and foremost changes in what human beings do with their hands? The digital age may have transformed many aspects of our experience, but its most obvious yet neglected feature is that it allows people to keep their hands busy in a variety of unprecedented ways.

The owner of the Shakespeare and Company bookshop describes the way young people now try to turn pages by scrolling them, and Apple have even applied for patents for certain hand gestures. Patent application 7844915, filed in 2007, covered document scrolling and the pinch-to-zoom gesture, while the 2008 application 7479949 covered a range of multitouch gestures. Both were ruled invalid, not because gestures can’t be patented, but because they were already covered by prior patents. At the same time, doctors observe massive increases in computer- and phone-related hand problems, as the fingers and wrist are being used for new movements that nothing has prepared them for.

Changes to both the hard and soft tissues of the hand itself are predicted as a consequence of this new regime. We will, ultimately, have different hands, in the same way that the structure of the mouth has been altered, it is argued, by the introduction of cutlery, which changed the topography of the bite. The edge-to-edge bite that we used to have up to around 250 years ago became the overbite, with the top incisors hanging over the lower set, thanks to new ways of cutting up food that the table knife made possible. That the body is secondary to the technology here is echoed in the branding of today’s products: it is the pad and the phone that are capitalised in the iPad and iPhone rather than the “I” of the user.

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The world risks reaching crisis fatigue. Largely because of how the media present them.

The Worst Famine Since 1985 Looms Across Africa (G.)

Countries are just waking up to the most serious global food crisis of the last 25 years. Caused by the strongest El Niño weather event since 1982, droughts and heatwaves have ravaged much of India, Latin America and parts of south-east Asia. But the worst effects of this natural phenomenon, which begins with waters warming in the equatorial Pacific, are to be found in southern Africa. A second consecutive year without rain now threatens catastrophe for some of the poorest people in the world. The scale of the crisis unfolding in 10 or more southern African countries has shocked the United Nations. Lulled into thinking that Ethiopia in 1985 was the last of the large-scale famines affecting many millions, donor countries have been slow to pledge funds or support. More than $650m and 7.9m tonnes of food are needed immediately, says the UN. By Christmas, the situation will have become severe.

The scale of the crisis unfolding in 10 or more southern African countries has shocked the United Nations. Lulled into thinking that Ethiopia in 1985 was the last of the large-scale famines affecting many millions, donor countries have been slow to pledge funds or support. More than $650m and 7.9m tonnes of food are needed immediately, says the UN. By Christmas, the situation will have become severe. Malawi, Mozambique, Lesotho, Zimbabwe, Namibia, Madagascar, Angola and Swaziland have already declared national emergencies or disasters, as have seven of South Africa’s nine provinces. Other countries, including Botswana and the Democratic Republic of the Congo, have also been badly hit. President Robert Mugabe has appealed for $1.5bn to buy food for Zimbabwe and Malawi is expected to declare that more than 8 million people, or half the country, will need food aid by November.

More than 31 million people in the region are said by the UN to need food now, but this number is expected to rise to at least 49 million across almost all of southern Africa by Christmas. With 12 million more hungry people in Ethiopia, 7 million in Yemen, 6 million in Southern Sudan and more in the Central African Republic and Chad, a continent-scale food crisis is unfolding. “Food security across southern Africa will start deteriorating by July, reaching its peak between December 2016 and April 2017,” says the UN’s office for humanitarian affairs. The regional cereal deficit already stands at 7.9m tonnes and continues to put upward pressure on market prices, which are already showing unprecedented increases, diminishing purchasing power and thereby reducing food access. As food insecurity tightens and water scarcity increases due to the drought, there are early signs of acute malnutrition in Madagascar, Malawi, Mozambique and Zimbabwe.

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May 212016
 
 May 21, 2016  Posted by at 9:17 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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NPC National Service Co. front, 1610 14th Street N.W., Washington DC 1920


One-Third Of Chinese Real Estate Companies Are “Zombies” (Nikkei)
Defaults Throw Wrench in China’s $3 Trillion Company Bond Engine (BBG)
Easy Money = Overcapacity = Deflation (Rubino)
Cash-Stuffed US Balance Sheets No Match for Even Bigger Debt Loads (BBG)
US, Japan FX Row Overshadows G7 Meeting (R.)
Crude Tanker Storage Fleet Off Singapore Points To Stubborn Oil Glut (R.)
How Freddie and Fannie Are Held Captive (Morgenson)
TTIP: The Most Toxic Acronym In Europe (G.)
Monsanto Weedkiller Faces Recall From Europe After EU Fail To Agree Deal (G.)
Turkey Faces United EU Front in Row Over Visa-Free Travel (BBG)
EU Ministers Press Greece to Send More Syrians Back to Turkey (WSJ)
Syrian Refugee Wins Appeal Against Forced Return To Turkey (G.)

“..on the brink of default but still taking on more debt.”

One-Third Of Chinese Real Estate Companies Are “Zombies” (Nikkei)

As China’s economy continues to sputter, many local companies are having difficulty servicing their debts. A look at 3,000 listed Chinese businesses by French investment bank Natixis found that interest costs exceeded cash flow for 18.5% of them last year, compared with 8% in 2010. Real estate, the most debt-ridden sector, saw its leverage level reach 197% last year, nearly double the figure for 2008, according to Natixis. The investment bank estimates that almost one-third of listed companies in the sector are “zombies” – businesses that are on the brink of default but still taking on more debt.

“The share of zombies in the real estate sector literally doubles the average in [corporate] China,” said Iris Pang, senior economist for greater China at Natixis. Evergrande Real Estate, for example, saw its ratio of total liabilities to earnings before interest, taxes, depreciation and amortization – or EBITDA – leap to 15.4% at the end of 2015 from 8.5% a year earlier. The figure climbed to 28.6% from 14.9% at Greenland Holdings, 26.8% from 9.7% at Sunac China Holdings, and 58.5% from 20% at Shui On Land. A study released in May by brokerage CLSA of China’s property, mining, manufacturing, utilities, construction, and wholesale and retail sectors counted potential problem debts of 14 trillion yuan ($2.14 trillion) as of the end of 2015.

The property sector represented over half the total, at 54.1%, with industries plagued by excess capacity, such as utilities, steel and coal, accounting for much of the rest. Notably, most of the recent corporate bond defaults have come from these loss-making sectors too, including state-owned power equipment manufacturer Baoding Tianwei and Dongbei Special Steel. Worries about large-scale layoffs, especially in the steel and coal industries, have held the government back from pushing strongly on necessary capacity cutbacks. Instead, state banks have continued to extend more loans, said Francis Cheung at CLSA. Cheung estimates that the actual proportion of questionable debts on the books of China’s banks stands at 15-20%, compared with the 5.76% total reported by the central bank at the end of the first quarter for nonperforming loans and so-called special mention loans.

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Needing new debt to pay off the old. 72% of new debt is one year or less. Hmm..

Defaults Throw Wrench in China’s $3 Trillion Company Bond Engine (BBG)

Defaults and pulled sales are starting to gum up China’s bond refinancing machine. Chinese companies issued 382.7 billion yuan ($58.5 billion) of notes onshore this month, down 11% from the same period in April and 57% March, data compiled by Bloomberg show. With just eight trading days to go, fundraising may fall short of the record 547.3 billion yuan of debt due. That would mark a shift after sales were 83% more than maturities in April and almost three times higher in March. The faltering $3 trillion corporate bond market will test Premier Li Keqiang’s determination to weed out zombie companies dragging on growth in the world’s second-biggest economy. At least 10 issuers have reneged on onshore debt obligations this year, while 153 Chinese firms have pulled 175 billion yuan of domestic sales this quarter.

Shandong Iron & Steel, which canceled a 3 billion yuan bond offering on May 4, has 3 billion yuan of securities due this month and 30 billion yuan to repay this year. “Many Chinese companies are relying on new borrowings to repay their old debt,” said Liu Dongliang, a senior analyst at China Merchants Bank in Shenzhen. “If they can’t get the money they need, more will default.” Debt-laden companies are struggling to lock in stable, longer-term financing. Sales of onshore bonds maturing in one year or less accounted for 72% of issuance by Chinese coal and steel producers from May 2015 to April 2016, as many were unable to sell longer debt, according to Fitch Ratings. Most of the proceeds were used to refinance maturing notes, Fitch wrote in a May 13 report. “Only the best companies, which have strong profitability or trustworthy credit profiles, are able to sell bonds,” said Qiu Xinhong at First State Cinda Fund Management. “Confidence won’t rebound in the short term.”

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It really is that easy.

Easy Money = Overcapacity = Deflation (Rubino)

Somewhere back in the depths of time the world got the idea that easy money — that is, low interest rates and high levels of government spending — would produce sustainable growth with modest but positive inflation. And for a while it seemed to work. But that was an illusion. What actually happened was textbook, long-term, surreally-vast misallocation of capital in which individuals, companies and governments were fooled into thinking that adding new factories, stores and infrastructure at a rate several times that of population growth would somehow work out for the best.

China, as with so many other things, was the epicenter of this delusion. In response to the 2008-2009 financial crisis it borrowed more money than any other country ever, and spent most of the proceeds on infrastructure and basic industry. It’s steel-making capacity, already huge by 2008, kept growing right through the Great Recession, and now dwarfs that of any other country.

China steel produciton

The result was indeed higher prices for iron ore and finished steel up front (that is, the inflation the architects of the easy money era expected and desired). But this was soon followed by falling prices as the rest of the world’s steel makers tried to stay in the game.

Steel price

It’s the same story pretty much everywhere. Miners that produced the raw materials for the infrastructure/industrial build-out started projects based on inflated price projections and now have no choice but to keep producing to cover variable costs and avoid bankruptcy. Prices of virtually every commodity have as a result plunged. In the US, retailers built new stores at a pace that vastly exceeded population growth, apparently on the assumption that consumers would keep borrowing in order to buy ever-greater amounts of semi-useless stuff. And now bricks and mortar retailing is suffering a mass-die-off.

Retail space per capita

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Something’s got to give at some point.

Cash-Stuffed US Balance Sheets No Match for Even Bigger Debt Loads (BBG)

There’s more cash sitting on company balance sheets than ever before. For the first time since 2012, that’s not enough. Combining all of the corporate cash in the U.S. wouldn’t cover the $1.8 trillion of corporate debt that’s coming due in the next five years, according to a report by Moody’s Investors Service on Friday. That’s because U.S. companies have been borrowing more quickly than they’ve built up the record $1.68 trillion of cash on their balance sheets. And more of that debt comes due sooner. “You’re seeing more and more borrowing,” Richard Lane, a senior vice president at Moody’s, said by phone. “The increase in leverage has been notable. Cash coverage of near-term maturities hasn’t fallen below 100% since 2012, and hasn’t been as low as its current 93% since the year before that, according to Moody’s.

One reason may be that companies are making less money from merely running their businesses. Cash flow from operations declined 0.2% to $1.54 trillion in the 12 months ended in December 2015, the first time the metric declined in Moody’s data going back to 2007. To cope with sluggish global growth, companies went to the bond market to raise cash at rock-bottom rates. They issued a record $1.4 trillion of bonds last year, according to data compiled by Bloomberg. That helped lead to a 17% increase in the amount of company debt outstanding that matures in the next five years. In contrast, cash holdings only increased by 1.8% among U.S. non-financial companies at the end of 2015, according to Moody’s. The credit rater’s definition of cash includes short-term investments and liquid long-term investments.

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Was always inevitable.

US, Japan FX Row Overshadows G7 Meeting (R.)

The United States issued a fresh warning to Japan against competitive currency devaluation on Saturday, exposing a rift on exchange-rate policy that overshadowed a Group of 7 finance leaders gathering hosted by the Asian nation. Japan and the United States are at logger-heads over currency policy with Washington saying Tokyo has no justification to intervene in the market to stem yen gains, given the currency’s moves remain “orderly”. In bilateral talks ahead of the second day of G7 talks in Sendai, Japan on Saturday, U.S. Treasury Secretary Jack Lew told Japanese Finance Minister Taro Aso that it was important to refrain from competitive currency devaluation.

“Secretary Lew underscored that the commitments made by the G-20 in Shanghai to use all policy tools to promote growth – fiscal policy, monetary policy and structural reforms – and to refrain from competitive devaluation and communicate closely have helped to contribute to confidence in the global economy in recent months,” according to a statement by the Treasury Department.

“He noted the importance of countries continuing to adhere to those commitments,” the statement said. As years of aggressive money printing stretch the limits of monetary policy, the G7 policy response to anemic inflation and subdued growth has become increasingly splintered. Germany has shown no signs of responding to calls from Japan and the United States to boost fiscal spending. Washington also warned Tokyo against relying too much on monetary policy with a senior U.S. Treasury official saying structural reforms are being put in place in Japan “but slowly.”

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“..traders fully aware that they will not make a profit from storing the oil. This isn’t a trade play, it’s the oil market looking for places to store unsold fuel..”

Crude Tanker Storage Fleet Off Singapore Points To Stubborn Oil Glut (R.)

Prices for oil futures have jumped by almost a quarter since April, lifted by severe supply disruptions caused by triggers such as Canadian wildfires, acts of sabotage in Nigeria, and civil war in Libya. Yet flying into Singapore, the oil trading hub for the world’s biggest consumer region, Asia, reveals another picture: that a global glut that pulled down prices by over 70% between 2014 and early 2016 is nowhere near over, and that financial traders betting on higher crude oil futures may be in for a surprise from the physical market. “I’ve been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers,” said a senior European oil trader a day after arriving in the city-state.


Red dots are ships at anchor or barely moving, oil tankers or cargo (ZH)

As Asia’s main physical oil trading hub, the number of parked tankers sitting off Singapore’s coast or in nearby Malaysian waters is seen by many as a gauge of the industry’s health. Judging by this, oil markets are still sickly: a fleet of 40 supertankers is currently anchored in the region’s coastal waters for use as floating storage facilities. The tankers are filled with 47.7 million barrels of oil, mostly crude, up 10% from the previous week, according to newly collected freight data in Thomson Reuters Eikon. That’s enough oil to satisfy five working days of Chinese demand, suggesting recent supply disruptions – which have mostly occurred in the Americas, Africa and Europe – have done little to tighten supply in Asia as Middle East producers keep output near record volumes in a bid to win market share.

[..] the need to store oil is so strong that traders are calling up banks to finance storage charters despite there being no profit in keeping fuel in tankers at current rates. “We are receiving unusually high amounts of queries to finance storage charters,” said a senior oil trade financier with a major bank in Asia. “These queries come from traders fully aware that they will not make a profit from storing the oil. This isn’t a trade play, it’s the oil market looking for places to store unsold fuel,” he added.

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This story is getting very strange. The level of secrecy is off the charts.

How Freddie and Fannie Are Held Captive (Morgenson)

When Washington took over the beleaguered mortgage giants Fannie Mae and Freddie Mac during the collapse of the housing market and the financial crisis of 2008, it was with the implicit promise that they would be returned to shareholders after being nursed back to health. But now, with the unsealing of documents this week that were produced as part of a lawsuit filed against the government, new evidence is coming to light on how intimately the White House was involved in the Treasury’s decision in August 2012 to divert all the companies’ profits to the Treasury Department. That move effectively maintained Fannie and Freddie’s status as wards of the state.

An email from Jim Parrott, then a top White House official on housing finance, was sent the day the so-called profit sweep was announced. It said that the change was structured to ensure that the companies couldn’t “repay their debt and escape as it were.” The documents also show Treasury moving to modify the terms of the mortgage finance giants’ $187.5 billion bailout shortly after a July 2012 meeting when the Federal Housing Finance Agency, Fannie’s and Freddie’s regulator, learned that they were about to enter “the golden years” of profitability. Since then, Fannie and Freddie have returned to the Treasury over $50 billion more than they received in the bailout. The amount they owe to the government remains outstanding.

The new materials cast further doubt on arguments made in court by government lawyers that the profit sweep came about because Fannie and Freddie were in a death spiral and taxpayers needed protection from future losses. Documents unsealed last month also served to undermine that legal stance. The trickle of documents comes years after Fannie and Freddie shareholders filed suits against the government, contending that its decision regarding the companies’ profits was illegal. Defending against an array of these suits, lawyers for the Justice Department have requested confidential treatment for thousands of pages of materials. In a case brought in Federal Claims Court, the government’s lawyers asserted presidential privilege in 45 documents.

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Falling apart pretty fast.

TTIP: The Most Toxic Acronym In Europe (G.)

David Cameron narrowly avoided the parliamentary defeat of his Queen’s speech this week – an event that, theoretically, triggers the fall of a government and hasn’t happened since 1924. That was only achieved through an embarrassing U-turn on TTIP, the Transatlantic Trade and Investment Partnership, which he ardently supports. One of the primary concerns about TTIP is that it could pave the way to further privatisation of the NHS. Yesterday, a group of MPs gave notice that they would table an amendment to the Queen’s speech, lamenting the fact that the government had not included a bill to protect the NHS from TTIP in its programme. The cross-party group was led by Peter Lilley, a long-time supporter of free trade and a former minister under Margaret Thatcher and John Major, and was supported by at least 25 Tory MPs – easily enough to overturn the government’s majority.

Though many were Brexiters, by no means all were, and some, such as Sarah Wollaston, appear to have changed their position on TTIP. Realising he faced one of the most embarrassing defeats of his premiership – one not suffered since a similar motion removed Stanley Baldwin from office in 1924 – Cameron quickly said he’d support the amendment. Make no bones about it, this is a humiliation. The prime minister has repeatedly told MPs that TTIP poses no threat to the NHS. Yet to avoid the abyss, his government has supported an amendment contrary to these assertions. We must be under no illusions that he has any intention of moving to protect the NHS in TTIP. How did it come to this? The obvious answer is the EU referendum, which has brought into the open fundamental divisions within the Tory party.

But this only provided the opportunity for parliamentary defeat. If this had gone to a vote, the vast majority of MPs opposing the government in fact support remaining in the EU, and wouldn’t take part in anything that would make Brexit more likely. The reasons go deeper – and they mirror what is happening all over the EU and US. TTIP started out as an obscure trade agreement that would create the world’s biggest “free trade zone” between the US and EU, and received little media coverage or parliamentary debate. Two years ago very few politicians or journalists had even heard of it. Yet a movement has built against this deal, one that has stunned the negotiators and forced the EU trade commissioner to call TTIP “the most toxic acronym in Europe”.

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“More than 99% of people in one recent German survey were found to have traces of the compound in their urine, 75% of them at levels five times the safe limit for water or above.”

Monsanto Weedkiller Faces Recall From Europe After EU Fail To Agree Deal (G.)

Bestselling weedkillers by Monsanto, Dow and Syngenta could be removed from shops across Europe by July, after an EU committee failed for a second time to agree on a new license for its core ingredient, glyphosate. The issue has divided EU nations, academics and the WHO itself. One WHO agency found it to be “probably carcinogenic to humans” while another ruled that glyphosate was unlikely to pose any health risk to humans, in an assessment shaded by conflict of interests allegations earlier this week. EU officials say that while there could be a voluntary grace period of six-12 months, unless a compromise can be found, the product’s license will be allowed to expire on 30 June. One told the Guardian that after its proposal to cutting the authorisation to nine years was rejected, the bloc was now in “uncharted territory” with no clear path to a deal that could reach consensus.

“Our position is clear,” he said. “If we can reach a qualified majority on a text we will go ahead. Otherwise, we have to leave the authorisation to expire and on 30 June member states will need to start withdrawing products containing glyphosate from the market.” Glyphosate is Europe’s most widely used weedkiller, and its parent RoundUp herbicide accounts for a third of Monsanto’s total earnings. The compound is routinely – but not exclusively – used on crops that have been genetically engineered to resist it. Several studies have linked blanket spraying with damage to surrounding flora, fauna and the entire food chain. But the commission moved to relicense it last November, after a crucial European food safety authority (Efsa) report declared it unlikely to cause cancer, although that paper sparked controversy.

Philip Miller, Monsanto’s vice president of global regulatory affairs, condemned the EU’s failure to reapprove glyphosate as “scientifically unwarranted” and “an unprecedented deviation from the EU’s legislative framework”. Writing in a blog post, he said: “This delay undermines the credibility of the European regulatory process and threatens to put European farmers and the European agriculture and chemical industries at a competitive disadvantage.” Richard Garnett, the head of Monsanto’s regulatory affairs unit said that the situation was “discriminatory, disproportionate and wholly unjustified”. The US agri-giant is currently the subject of a takeover bid by the German chemicals multinational, Bayer. Under bloc rules, the commission could now go to an appeals committee but this would have the same balance of countries as the standing committee that has now twice failed to take a decision.

It could also go over the heads of the EU states and independently reauthorise glyphosate as a draft measure. EU president Jean-Claude Juncker has said that he opposes doing this and officials doubt it will happen, although the procedure has been used to approve GM crops for import. A short-term license might also be possible. Glyphosate is so ubiquitous that its residues are commonly found in breads, beers and human bodies. More than 99% of people in one recent German survey were found to have traces of the compound in their urine, 75% of them at levels five times the safe limit for water or above. But the very definition of a safe limit for chemicals such as glyphosate is contested, and linked to a broader regulatory divide between the US’s risk-based approach which errs towards product approvals where doubt cannot be quantified, and the EU’s hazard-based approach, which leans towards a precautionary principle in such situations.

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“.. If not, well, then not. It’s as simple as that.”

Turkey Faces United EU Front in Row Over Visa-Free Travel (BBG)

EU governments showed Turkey a united front in the battle over visa-free travel, insisting Ankara narrow its terrorism legislation to qualify for the perk. The stance by European home-affairs ministers underscores a threat to an EU-Turkey agreement that has stemmed Europe’s biggest refugee wave since World War II and eased domestic political pressure on leaders including German Chancellor Angela Merkel. Turkey sought EU visa-free status in return for signing up to the mid-March deal, under which irregular migrants who enter the EU in Greece are sent back to Turkey and Syrian refugees in Turkish camps are resettled in Europe. The EU has said Turks can win visa-free status by mid-year as long as the Turkish government fulfills five remaining criteria – including on the terrorism law – out of a total of 72.

Turkish President Recep Tayyip Erdogan has signaled he won’t bow to the European demand over terrorism legislation, citing terror risks in Turkey that his critics say are being used as cover to jail political opponents. “We have a clear statement and a clear agreement on visa liberalization: it goes through if you meet the criteria,” Klaas Dijkhoff, migration minister of the Netherlands, current holder of the 28-nation EU’s rotating presidency, told reporters on Friday in Brussels after chairing a meeting with his counterparts from the bloc. “We will see if, over the next few weeks, the criteria are met. If so, we will go ahead. If not, well, then not. It’s as simple as that.” The standoff pits EU political principles against Turkish geopolitical power. Migrant flows into Europe via Turkey during the past year have handed Erdogan leverage over the EU, which has lambasted him for cracking down on domestic dissenters and kept Turkey’s longstanding bid for membership of the bloc largely on hold.

Along with the reintroduction of internal European border checks that shut a migratory route north from Greece, the March 18 EU agreement with Ankara has caused a slump in refugee sea crossings from the Turkish coast to nearby Greek islands. Arrivals in Greece fell to 3,650 last month from 26,971 in March and 57,066 in February, according to the UN refugee agency. On May 6, when commenting on the EU call for Turkish terrorism-rule changes, Erdogan said “we are going our way and you go yours.” He also dared the bloc to “go make a deal with whoever you can.” Erdogan’s position poses a “problem,” said Theo Francken, Belgium’s state secretary for asylum and migration. “It’s clear that all the conditions have to be fulfilled,” Francken told reporters at Friday’s EU meeting. “To get visa liberalization, it’s important that they change their terrorism law.”

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Europe speaks with forked tongue.

EU Ministers Press Greece to Send More Syrians Back to Turkey (WSJ)

European interior ministers on Friday pressured Greece to speed up asylum procedures and send more Syrians back to Turkey. Under a deal signed in March between the EU and Turkey, all migrants, including Syrian refugees are to be sent back to Turkey once they have their asylum applications assessed and rejected by Greek judges. But the first decisions—coming nearly two months after the deal went into effect—ruled mostly in favor of the Syrians applying for asylum. These early figures are raising concerns among EU officials that the intent of the plant to serve as a deterrent will be lost. Austrian minister Wolfgang Sobotka said if the trend continues, it would “at least undermine, if not annul the Turkey agreement.”

Germany, which championed the EU-Turkey deal, in particular pressed Greece for an acceleration in returning migrants to Turkey. German Interior Minister Thomas De Maiziere said that while Turkey is sticking to its part of the deal and arrivals in Greece have dropped, “on the Greek side, procedures take too long and the returns to Turkey are not happening with enough determination.” Mr. De Maiziere said he spoke to his Greek counterpart about the first appeal case won by a Syrian on Friday against a ruling to send him back to Turkey. He said “it was up to Greek authorities to establish what happened,” while insisting that Turkey is a safe country for Syrian refugees.

“Turkey has sheltered 2.5 million refugees, this is a tremendous performance. Despite all political debates that we can have and which are justified. we can’t doubt Turkey’s safe country status,” Mr. De Maiziere said, in reference to a decision Friday by Turkey’s parliament to strip lawmakers critical of the government of their immunity. Given that the Greek appeals body isn’t controlled by the government, the Greek minister asked for support from the EU to state that Turkey is a safe country where Syrian refugees can be sent back, according to one participant in the debate. “Member states today made it clear that they support Greece in considering Turkey a safe country for the return of migrants,” EU migration commissioner Dimitris Avramopoulos said.

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Can’t very well ignore your own judges. But the pressure will be relentless.

Syrian Refugee Wins Appeal Against Forced Return To Turkey (G.)

The EU-Turkey migration deal has been thrown further into chaos after an independent authority examining appeals claims in Greece ruled against sending a Syrian refugee back to Turkey, potentially creating a precedent for thousands of other similar cases. In a landmark case, the appeals committee upheld the appeal of an asylum seeker who had been one of the first Syrians listed for deportation under the terms of the EU-Turkey deal. In a document seen by the Guardian, a three-person appeals committee said Turkey would not give Syrian refugees the rights they were owed under international treaties and therefore overturned the applicant’s deportation order by a verdict of two to one. The case will now be re-assessed from scratch.

The committee’s conclusion stated: “The committee has judged that the temporary protection which could be offered by Turkey to the applicant, as a Syrian citizen, does not offer him rights equivalent to those required by the Geneva convention.” The decision undermines the legal and practical basis for the EU-Turkey deal, which European leaders had hoped would deter refugees from sailing to Europe by ensuring the swift deportation of most people landing on the Greek islands. After signing the deal on 18 March, EU officials claimed these deportations would be legally justified on the basis that Turkey respects refugee rights. But the EU’s executive has little control over Greek asylum protocols. The committee rejected the logic of the EU-Turkey deal, citing some of the EU’s own previous directives as explanations for their decision.

While nearly 400 other asylum seekers have been returned to Turkey under the terms of the deal, no one of Syrian nationality had been sent back against their will – making Friday’s decision a watershed moment. “At its very first test, the EU-Turkey deal crumbles,” said Gauri van Gulik, Amnesty International’s deputy Europe director. The Greek government, which played no part in the independent decision, admitted the judgment had created “a very difficult situation”. Greece’s deputy minister in charge of migration policy, Yannis Mouzalas, said by phone from Brussels: “I have only just learned of the decision by the appeals committee and I have to be in Greece to study it. They are, as you know, independent committees so it is very difficult for me to say anything – but if they think this way, we will have a very difficult situation.” Such a decision goes against all the directives of the UN and UNHCR, Mouzalas claimed. “Really I don’t know how they arrived at it.”

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May 202016
 
 May 20, 2016  Posted by at 8:59 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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John Vachon Window in home of unemployed steelworker. Ambridge, PA 1941


Lacking New Ideas, G7 To Agree On ‘Go-Your-Own-Way’ Approach (R.)
Japan And US Are Headed For A Showdown Over Currency Manipulation (MW)
Kuroda Stresses Readiness to Act if Yen Rise Threatens Inflation Goal (WSJ)
US Business Loan Delinquencies Spike to Lehman Moment Level (WS)
China Steelmakers Attack US 522% Tariff Move; Say Need More Time (R.)
The Iron Mountain on China’s Doorstep Tops 100 Million Tons (BBG)
Big Chinese Banks Issue New Yuan-Denominated Debt In US (WSJ)
Mass Layoffs Are Looming in South Korea (BBG)
‘Central Banks Can Do Nothing’: Steen Jakobsen (Saxo)
Making Things Matters. This Is What Britain Forgot (Chang)
Germany Strives to Avoid Housing Bubble (BBG)
Bayer Eyes $42 Billion Monsanto in Quest for Seeds Dominance (BBG)
Bayer’s Mega Monsanto Deal Faces Mega Backlash in Germany (BBG)
EU Declines To Renew Glyphosate Licence (EUO)
Ai Weiwei Says EU’s Refugee Deal With Turkey Is Immoral (G.)

In a strong sign of how fast the crisis is deepening, and in between the usual blah blah, the G7 is falling apart.

Lacking New Ideas, G7 To Agree On ‘Go-Your-Own-Way’ Approach (R.)

A rift on fiscal policy and currencies is likely to set the stage for G7 advanced economies to agree on a “go-your-own-way” response to address risks hindering global economic growth at their finance leaders’ gathering on Friday. As years of aggressive money printing stretch the limits of monetary policy, the G7 policy response to anemic inflation and subdued growth has become increasingly splintered. Finance leaders gathering in Sendai, northeast Japan, sought advice from prominent academics, including Nobel Prize-winning economist Robert Shiller, on ways to boost growth in an informal symposium ahead of an official G7 meeting on Friday.

Participants of the symposium agreed that instead of relying on short-term fiscal stimulus or monetary policy, structural reforms combined with appropriate investment are solutions to achieving sustainable growth, a G7 source said. If so, that would dash Japan’s hopes to garner an agreement on the need for coordinated fiscal action to spur global demand. Germany showed no signs of responding to calls from Japan and the United States to boost fiscal stimulus, instead warning of the dangers of excessive monetary loosening. “There is high nervousness in financial markets” fostered by huge government debt and excess liquidity around the globe, German Finance Minister Wolfgang Schaeuble said on Thursday.

But G7 officials have signaled that they would not object if Japan were to call for stronger action using monetary, fiscal tools and structural reforms – catered to each country’s individual needs. That means the G7 finance leaders, while fretting about risks to outlook, may be unable to agree on concrete steps to bolster stagnant global growth. “I expect there to be a frank exchange of views on how to achieve price stability and growth using monetary, fiscal and structural policies reflecting each country’s needs,” Bank of Japan Governor Haruhiko Kuroda told reporters on Thursday.

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The interests are too different to reconcile, and it’s by no means just Japan and the US that are involved in the showdown.

Japan And US Are Headed For A Showdown Over Currency Manipulation (MW)

Investors will be watching for signs of tension between Japanese and U.S. powers this weekend, when central bankers and finance chiefs face off in Sendai, a city northeast of Tokyo, for the latest Group of 7 summit. The two countries have sparred over the dollar-yen exchange rate in the months since the Japanese currency began a prolonged rise against the dollar. The yen has lost nearly 9% of its value relative to the dollar since the beginning of the year. Last week, Japanese Finance Minister Taro Aso spoke publicly about the continuing disagreement between U.S. and Japanese policy makers over whether the rise in the yen seen since the beginning of the year has been severe enough to warrant an intervention.

Japan might favor a weaker currency primarily because it makes the country’s exports more attractive. “We’ve have often been arguing over the phone,” Aso said, according to The Wall Street Journal. He also reiterated that Japanese officials wouldn’t hesitate to intervene in the market if the currency continued its sharp moves. Plus, he said, the Treasury Department’s decision to put Japan on a currency manipulation monitoring list “won’t constrain” the country’s currency policy. The Treasury published the list for the first time this year, including it as part of a semiannual report on currency practices released late last month. Japan was joined on the list by China, Germany, Taiwan and Korea.

To be included on the Treasury’s watch list, a country must meet at least two of three criteria: A trade surplus with the U.S. larger than $20 billion, a current-account surplus larger than 3% of its GDP—or it must engage in persistent one-sided intervention in the currency market, which the Treasury qualifies as repeated purchases of foreign currency amounting to more than 2% of a country’s GDP over the course of a year.

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And so are all other central bankers.

Kuroda Stresses Readiness to Act if Yen Rise Threatens Inflation Goal (WSJ)

Bank of Japan Gov. Haruhiko Kuroda said he would act quickly if the yen’s rise threatens his inflation goal, highlighting his caution over exchange rates ahead of a major international convention. “Be it exchange rates or anything, if it has negative effects on our efforts to achieve our price-stability target, and from that perspective if we figure that action is necessary, we will undertake additional easing measures,” Mr. Kuroda told reporters Thursday. The remarks by Mr. Kuroda come at a time of tension between the U.S. and Japan over whether the yen’s appreciation seen earlier this year is sharp enough to warrant intervention by authorities. Investors are closely watching whether Tokyo and Washington will continue to clash over yen policy during a meeting in northern Japan Friday and Saturday of finance chiefs from the Group of Seven leading industrialized nations.

Mr. Kuroda defended his policy stance, saying it is no different from that of central banks abroad. He also reiterated that the BOJ has kept in place massive stimulus to achieve its target of 2% inflation, not to guide the yen lower. Mr. Kuroda said that while he is watching how the bank’s negative-rates policy affects the economy, “this doesn’t mean that we will sit idly by until trickle-down effects become clear.” The BOJ will review the need for fresh steps “at every policy meeting,” he added. Speaking of risks facing Japan’s economy, Mr. Kuroda acknowledged that he is “paying close attention” to the coming British referendum to decide whether to leave the European Union.

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“Business loan delinquencies are a leading indicator of big economic trouble.”

US Business Loan Delinquencies Spike to Lehman Moment Level (WS)

This could not have come at a more perfect time, with the Fed once again flip-flopping about raising rates. After appearing to wipe rate hikes off the table earlier this year, the Fed put them back on the table, perhaps as soon as June, according to the Fed minutes. A coterie of Fed heads was paraded in front of the media today and yesterday to make sure everyone got that point, pending further flip-flopping. Drowned out by this hullabaloo, the Board of Governors of the Federal Reserve released its delinquency and charge-off data for all commercial banks in the first quarter – very sobering data. So here a few nuggets. Consumer loans and credit card loans have been hanging in there so far.

Credit card delinquencies rose in the second half of 2015, but in Q1 2016, they ticked down a little. And mortgage delinquencies are low and falling. When home prices are soaring, no one defaults for long; you can sell the home and pay off your mortgage. Mortgage delinquencies rise after home prices have been falling for a while. They’re a lagging indicator. But on the business side, delinquencies are spiking! Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail.

Between Q4 2014 and Q1 2016, delinquencies spiked 137% to $27.8 billion. They’re halfway toward to the all-time peak during the Financial Crisis in Q3 2009 of $53.7 billion. And they’re higher than they’d been in Q3 2008, just as Lehman Brothers had its moment. Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:

Business loan delinquencies are a leading indicator of big economic trouble. They begin to rise at the end of the credit cycle, on loans that were made in good times by over-eager loan officers with the encouragement of the Fed. But suddenly, the weight of this debt poses a major problem for borrowers whose sales, instead of soaring as projected during good times, may be shrinking, and whose expenses may be rising, and there’s no money left to service the loan.

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Hadn’t seen this claim before: “..local steelmakers are more efficient (and enjoy far lower costs) than their international counterparts.”

China Steelmakers Attack US 522% Tariff Move; Say Need More Time (R.)

Chinese steelmakers attacked new U.S. import duties on the country’s steel products as “trade protectionism” on Thursday, saying the world’s biggest producer needs time to address its excess capacity. “There’s too much trade friction and it’s not good for the market,” Liu Zhenjiang, secretary general of the China Iron and Steel Association told Reuters when asked if China will appeal U.S. anti-dumping duties at the WTO. China said it will continue its tax rebates to steel exporters to support the sector’s painful restructuring after the United States said on Tuesday it would impose duties of 522% on Chinese cold-rolled flat steel. China, which accounts for half the world’s steel output, is under fire after its exports hit a record 112 million tonnes last year, with rivals claiming that Chinese steelmakers have been undercutting them in their home markets.

In the four months to April, China’s steel exports have risen nearly 7.6% to 36.9 million tonnes. “It’s not just China’s problem to tackle overcapacity. Everyone should play a part. China needs time,” Liu told an industry conference. “Trade protectionism hurts consumers, (it’s) against free trade and competition,” he added. China’s Commerce Ministry said on Wednesday the United States had employed “unfair methods” during an anti-dumping investigation into Chinese cold-rolled steel products. While a flood of cheap Chinese steel has been blamed for putting some overseas producers out of business, China denies its mills have been dumping their products on foreign markets, stressing that local steelmakers are more efficient and enjoy far lower costs than their international counterparts.

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All we got to do is wait till they run out of space to store it.

The Iron Mountain on China’s Doorstep Tops 100 Million Tons (BBG)

There’s a mountain of iron ore sat right on China’s doorstep. Stockpiles at ports have climbed above 100 million metric tons, offering fresh evidence of increased supplies in the world’s top user that may hurt prices. The inventories swelled 1.6% to 100.45 million tons this week, the highest level since March 2015, according to data from Shanghai Steelhome Information Technology. The holdings, which feed the world’s largest steel industry, have expanded 7.9% this year, and are now large enough to cover more than five weeks’ of imports. Iron ore has traced a boom-bust path over the past two months after investors in China piled into raw-material futures, then changed course after regulators clamped down.

While mills in China churned out record daily output in April to take advantage of a steel price surge, production in the first four months was 2.3% lower than a year earlier. Port inventories in China may continue to increase, BHP Billiton forecast this week. “There’s a lot of optimism actually that steel demand in China will increase,” Ralph Leszczynski at shipbroker Banchero Costa , said by phone. “It’s a bit of an ‘if’ as the economy is still quite fragile,” he said, calling the rise in port stocks “probably excessive.” The raw material with 62% content sank 5.8% to $53.47 a dry ton on Thursday, according to Metal Bulletin Ltd. Prices have tumbled 24% since peaking at more than $70 a ton in April, paring the gain so far in 2016 to 23%.

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A stronger dollar makes this a huge gamble.

Big Chinese Banks Issue New Yuan-Denominated Debt In US (WSJ)

Two of China’s largest banks are issuing new local currency debt in the U.S., offering attractive yields for investors willing to take some currency risk. Industrial and Commercial Bank of China, the world’s largest bank by assets, said it plans on Friday to raise 500 million yuan ($76 million) through 31-day certificates of deposit in the U.S. that will yield 2.6%. Agricultural Bank of China, the third-largest bank in the world, this week sold a 117 million yuan one-year bill that yields 3.35%. Both issues came at a significant premium to the 0.621% yield on the one-year U.S. Treasury bill. But the yuan-denominated debt could pay out less if the currency falls in value. Fed officials last month discussed the possibility of raising interest rates at their June policy meeting, according to minutes from the April meeting released on Wednesday.

A rate increase could cause the yuan to weaken against the dollar. China’s 3% devaluation in August sparked a selloff in yuan-denominated bonds, driving up interest rates in the offshore market, also known as the dim sum market. The new offerings will test demand for Chinese debt in local currency, the first issued by any Chinese bank in the U.S. since last year. China’s one-month interbank rate is currently 2.84%, which means some Chinese banks can borrow at better rates in the U.S. and other foreign markets than at home. The debt also promotes the use of the yuan abroad, one of the conditions set by the IMF when it said last year it would add the Chinese currency to its basket of reserve currencies. The IMF’s inclusion of the yuan is a step toward making the currency fully convertible.

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Take that, G7.

Mass Layoffs Are Looming in South Korea (BBG)

The South Korean government’s push to restructure debt-laden companies is set to cost tens of thousands of workers their jobs in an economy where social security is limited and a rigid labor market reduces the likelihood of getting rehired in a full-time position. Many of the layoffs will be in industrial hubs along the southeast coastline, where shipyards and ports dominate the landscape. These heavy industries, which helped propel South Korea’s growth in previous decades, have seen losses amid a slowdown in global growth, overcapacity and rising competition from China. As a condition of financial support, creditor banks and the government are pushing companies to cut back on staff and sell unprofitable assets. In Korea, losing a permanent, full-time job often means sliding toward poverty, one reason why labor unions stage strikes that at times lead to violent confrontations with employers and police.

A preference for hiring and training young employees, rather than recruiting experienced hands, means that many workers who get laid off drift into day labor or low-wage, temporary contracts that lack insurance and pension benefits, according to Lee Jun Hyup, a research fellow for Hyundai Research Institute. “The possibility of me getting a new job that offers similar income and benefits is about 1%,” said one of about 2,600 employees to be laid off following a previous restructure, of Ssangyong Motor in 2009. The 45-year-old worker, who asked only to be identified by the surname Kim as he tries to get rehired, initially delivered newspapers and worked construction after losing his permanent job. He’s now on a temporary contract at a retailer and taking night shifts as a driver to get by. Despite having these two jobs, his income has been halved. Being fired was “like being pushed into a desert with no water,” Kim said.

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Jakobsen’s always interesting. This is quite a long piece.

‘Central Banks Can Do Nothing’: Steen Jakobsen (Saxo)

TradingFloor.com: The “new nothingness” thesis was based on zero rates, zero growth, zero reforms. But you hinted that all of this nothingness has spilled over into culture and politics as well… do these macro facts hinder peoples’ imagination, or their ability to deal with the problem?

Steen Jakobsen: Yes, I think so. This year, we see a growing gap between the central banks’ narrative – which is that you have a trickle-down impact from lower rates – and [the situation on the ground]. People understand that zero interest rates are a reflection of zero growth, zero inflation, zero hope for changes, and zero reforms. In my opinion as an economist and a market observer, people are smarter than central banks. And because they are smarter, they can live with policy mistakes for a while because the narrative is very strong and because people like (ECB head Mario) Draghi and (Fed chief Janet) Yellen have these platforms from which they not only talk but occasionally shout, and they are deemed to be “credible”, scare quotes mine…

We see [this gap] in the Brexit debate as well, where the elite and the academics talk down to the average voter. By doing that, of course, they alienate the voters from their representatives. That’s what we see globally, that’s why Brazil is going to change presidents, why Ireland could not get its government re-elected with 6% growth. It’s not about the top line, but about the average person seeing that we need real, fundamental change.

TF: Earlier this year, you said that the social contract – the agreement between rulers and the ruled – is broken. It made me think of this year’s Davos meeting, which showed a leadership class terrified of slowing jobs growth and enamoured with the idea that population movements might be used to address this. Given the current unpopularity of globalisation and its effects, would you say that there are some things it is impossible for 21st century leaders and the led to agree upon? Is a social contract impossible?

SJ: No, it could be re-established, but it needs to be established on terra firma. Right now, we have a panacea in the form of low rates and the idea that things will somehow improve in six months. This has led to buyback programmes, a lack of motivation [and all the rest]. We as a society have to recognise that productivity comes from raising the average education level. People forget that all the revolutionary trends, the changes we’ve seen in history, have come from basic research. I don’t mean research driven by profit, but by an individual’s particular interest in one very minute area of a specific topic. This is what creates new inventions.

The second thing we often forget is that the military has been behind a lot of the industrial revolution. Mobile telephony, for example, had nothing to do with private citizens or companies – instead, it had a lot to do with the US military. The key thing here is that we need to be more productive. If everyone has a job, there is no need to renegotiate the social contract. The world has become elitist in every way. Before, you could start a company and build a small franchise; now, you have to be global, you have to have a billion users (if you’re an IT company), and [the pursuit of this] does not necessarily provide the best technologies, but only the biggest ones, the ones backed by [the firms with] the deepest pockets and largest web of connections.

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It’s what many countries ‘forgot’.

Making Things Matters. This Is What Britain Forgot (Chang)

It’s being blamed on the Brexit jitters. But the weakness in the UK economy that the latest figures reveal is actually a symptom of a much deeper malaise. Britain has never properly recovered from the 2008 financial crisis. At the end of 2015, inflation-adjusted income per capita in the UK was only 0.2% higher than its 2007 peak. This translates into an annual growth rate of 0.025% per year. How pathetic this performance is can be put into perspective by recalling that Japan’s per capita income during its so-called “lost two decades” between 1990 and 2010 grew at 1% a year. At the root of this inability to stage a real recovery is the serious imbalance that has developed in the past few decades – namely, the over-development of the UK financial sector and the atrophy of manufacturing.

Right after the 2008 financial crisis there was a widespread recognition that the ballooning financial sector needed to be reined in. Even George Osborne talked excitedly for a while about the “march of the makers”. That march never materialised, however, and manufacturing’s share of GDP has stagnated at around 10%. This is remarkable, given that the value of sterling has fallen by around 30% since the crisis. In any other country a currency devaluation of this magnitude would have generated an export boom in manufactured goods, leading to an expansion of the sector. Unfortunately manufacturing had been so weakened since the 1980s that it didn’t have a hope of staging any such revival. Even with a massive devaluation, the UK’s trade balance in manufacturing goods (that is, manufacturing exports minus imports) as a proportion of GDP has hardly budged.

The weakness of manufacturing is the main reason for the UK’s ever-growing deficit, which stood at 5.2% of GDP in 2015. Some play down the concerns: the UK, we hear, is still the seventh or eighth largest manufacturing nation in the world – after the US, China, Japan, Germany, South Korea, France and Italy. But it only gets this ranking because it has a large population. In terms of per capita output, it ranks somewhere between 20th and 25th. In other words, saying that we need not worry about the UK’s manufacturing sector because it is still one of the largest is like saying that a poor family with lots of its members working at low wages need not worry about money because their total income is bigger than that of another family with fewer, high-earning members.

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Just keep rates low enough for long enough and you’ll screw up any economy.

Germany Strives to Avoid Housing Bubble (BBG)

The German government, after years of warnings, is about to clamp down on rising home prices and mortgage lending. The government is preparing to implement measures to prevent real estate bubbles, the Finance Ministry said in an e-mail late on Wednesday. These policies may include capping borrowers’ loan-to-income ratio in order to reduce the probability of default, Handelsblatt reported on Thursday. The government continues to study the consequences of low interest rates on financial stability, a finance ministry spokesman said in the e-mail. However, there are currently no signs that German residential real estate lending is causing acute risks, he said.

With mortgage rates at record lows and savings accounts earnings almost nothing – thanks to a string of ECB rate cuts – Germans are buying homes at the fastest rate in decades. That’s pushed prices in cities including Berlin, Hamburg and Munich up by more than 30% in five years. New mortgages jumped by 22% in 2015 after five years of rising at 3% or less, according to the Bundesbank. In March, Bundesbank board member Andreas Dombret said he sees “clouds gathering on the horizon” and that the central bank is keeping a close eye on mortgages. Finance Minister Wolfgang Schaeuble, who has been critical of the ECB’s policy of pushing growth with cheap cash, in December said the hunt for yield could lead to the “formation of bubbles and excessive asset values.”

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Don’t think I can say in public what I think should happen to companies like Monsanto, Bayer, Syngenta et al. The people who brought you Agent Orange, Zyklon B and chemical warfare are coming for your food, all of it. A start might be to figure out who holds shares in these things. Your money fund, your pension fund? This is the industry of death, as much as arms manufactureers are.

Bayer Eyes $42 Billion Monsanto in Quest for Seeds Dominance (BBG)

Bayer made an unsolicited takeover offer for Monsanto Co. in a bold attempt by the German company to snatch the last independent global seeds producer and become the world’s biggest supplier of farm chemicals. The St. Louis-based company, with a market value of $42 billion, said it’s reviewing the offer in a statement Thursday. It didn’t disclose the terms of the proposal. Bayer, confirming the bid, said the combination would bolster its position as a life sciences company. Shares of Bayer plunged amid concern that a large purchase would weigh on its credit rating and force the company to sell more stock. The proposal by Werner Baumann, who’s been at Bayer’s helm for less than a month, follows Monsanto’s failed attempt to buy Syngenta and the proposed merger of Dow Chemical and DuPont.

To help finance its quest to buy the world’s largest seed maker, Bayer is considering asset disposals and a share sale, according to people familiar with the matter, who asked not to be identified because discussions are private. The German company is exploring the potential disposal of its animal-health business and the remaining 69% stake in plastics business Covestro, the people said. Animal health could fetch $5 billion to $6 billion, according to one of the people, and the Covestro holding is worth about €4.9 billion. If Bayer buys Monsanto, it could be the biggest acquisition globally this year and the largest German deal ever, according to data compiled by Bloomberg. A takeover of Monsanto would require an enterprise value of as much as €65 billionß, according to analysts at Citigroup.

[..]Merging Monsanto with the company that invented aspirin would bring together brands such as Roundup, Monsanto’s blockbuster herbicide, and Sivanto, a new Bayer insecticide. Monsanto is particularly vulnerable to a takeover after piling up a mountain of problems this year. The company has cut its earnings forecast, clashed with some of the world’s largest commodity-trading companies and become locked in disputes with the governments of Argentina and India. Shares are down 19% in the past 12 months. “It’s a relentless string of bad news,” Jonas Oxgaard, an analyst with Sanford C. Bernstein in New York, said. “It’s almost like they forgot to sacrifice a goat to the gods.”

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Bayer won’t be able to sell its new ‘products’ at home.

Bayer’s Mega Monsanto Deal Faces Mega Backlash in Germany (BBG)

Bayer’s proposed mega deal to buy Monsanto is likely to create a mega public relations challenge for the German company at home. Bayer faces a backlash against Germany’s biggest planned acquisition because of two products from the St. Louis-based company that are widely detested in the country: genetically modified seeds and the weedkiller Roundup, which uses a compound called glyphosate that some believe can cause cancer. “Germans view Monsanto as the main example of American corporate evil,” said Heike Moldenhauer, a biotechnology expert at German environmental group BUND. “It may not be such a good idea to take over Monsanto as that means incorporating its bad reputation, which would also make Bayer more vulnerable.”

A German Environment Ministry study released last month found 75% of citizens are against genetic engineering of plants and animals. Aware of voter suspicions, members of Chancellor Angela Merkel’s junior coalition partner, the Social Democrats, have already come out against the deal, which would turn Bayer into the biggest supplier of farm chemicals. Monsanto, which has a market value of $42 billion, said Thursday it’s studying the offer. Neither party has disclosed the terms. A merger would “strengthen the economic power of genetic engineering in Germany, which we see as very problematic as the majority of the population in Germany is opposed to the technology,” said Elvira Drobinski-Weiss, the lawmaker responsible for formulating policy positions on genetic engineering for the Social Democrats.

BASF four years ago abandoned research into genetically modified crops in Germany, citing a lack of acceptance of the technology in many parts of Europe from consumers, farmers and politicians. The German company moved the unit to the U.S. and halted development of products targeted for Europe to focus on crops for the Americas and Asia. “There’s virtually no market for genetically modified seeds in Europe because they’re so unpopular,” said Dirk Zimmermann, a GMO expert at Greenpeace in Hamburg. A deal combining Bayer and Monsanto would “hurt the future of sustainable agriculture.”

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The EU is good for something after all. The pro-Roundup arguments get an eery left field feel to them though: “We use it for some farming practices such as no-till and minimum-tillage, helping to ensure less greenhouse gas emissions and soil erosion.”

EU Declines To Renew Glyphosate Licence (EUO)

European experts failed again to take a decision on whether to renew a licence for glyphosate, the world’s widest-used weedkiller, during a meeting on Wednesday and Thursday (18-19 May). The EU standing committee on plants, animals, food and feed (Paff), which brings together experts of all EU member states, failed to organise a vote. There was no qualified majority for such a decision. The current licence expires on 30 June. The Paff committee was expected to settle on the matter already in March, but postponed the vote after France, Italy, the Netherlands and Sweden raised objections, mainly over the impact of glyphosate on human health. The European Commission has since tabled two new proposals, both of which failed to convince the member states.

The health commissioner Vytenis Andriukaitis insists that member states decide with a qualified majority because of the controversies involved. A spokesperson said the commission will reflect on the discussions. ”If no decision is taken before 30 June, glyphosate will be no longer authorised in the EU and member states will have to withdraw authorisations for all glyphosate based products”, the spokesperson said. Pekka Pesonen, the secretary general of agriculture umbrella organisation Copa-Cogeca, told EUobserver he regretted the outcome. ”This adds to uncertainty in an already pressured business”, he said. Glyphosate is widely used by European farmers because it is cost-efficient and widely available on the market.

”Without it, production will be jeopardised. This raises questions about food safety, competitiveness of European farmers, as well as our commitments to climate change,” Pesonen said. “We use it for some farming practices such as no-till and minimum-tillage, helping to ensure less greenhouse gas emissions and soil erosion.” ”Glyphosate is also recognised as safe by the EU food safety authority [Efsa]”, he added.

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“It is not legal or moral, it is shameful and it is not a solution. It will cause problems later.”

Ai Weiwei Says EU’s Refugee Deal With Turkey Is Immoral (G.)

The Chinese artist Ai Weiwei described the EU’s refugee deal with Turkey as shameful and immoral as he unveiled the artistic results of his stay on the Greek island of Lesbos. Speaking in Athens, where the works are going on public display for the first time from Friday, Ai said that although he had seen and experienced extreme and violent conditions in China, he “could never have imagined conditions like this”. Lesbos last year became the main European entry point for tens of thousands of Syrian and Iraqi refugees, but arrivals have fallen dramatically since the implementation of an agreement between Brussels and Ankara to return migrants from the Greek islands to Turkey. Of the agreement, Ai said: “It is not legal or moral, it is shameful and it is not a solution. It will cause problems later.”

The artist told the Guardian: “These people have nothing to do with Europe; they are like people from outer space, but they have to come. They have been pushed out and they are being totally neglected by Europe. They are sleeping in the mud and rain and it is only volunteers giving them food or clothes.” Ai arrived on Lesbos in December, having been invited to stage an exhibition at the Museum of Cycladic Art in Athens. The island seemed like a good starting point for thinking about ancient Greece and its mythologies, philosophies and values. Instead Ai became caught up in what he said was the biggest, most shameful humanitarian crisis since the second world war. He had told his girlfriend and young son it was a holiday, but five months later he and his studio are still there. He said he has been changed by what he has seen.

“It is such a beautiful island – blue water, sunshine, tourists – and to see the boats come in with desperate children, pregnant women and elderly people, some 90 years old, and they all have fear and they all have it in their eyes … You think: how could this happen? I got completely emotionally involved.” Ai said Europe needed to understand that the refugees were fleeing their countries because they had to. It was leave or die, he said. The exhibition at the MCA, Ai’s first in Greece, includes an enormous collage of 12,030 small pictures taken on his camera phone, documenting his time on the island. He is also exhibiting photographs taken by six Greek amateur photographers, in partnership with the Photographic Society of Mytilene.

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May 192016
 
 May 19, 2016  Posted by at 9:13 am Finance Tagged with: , , , , , , , ,  No Responses »
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Harris&Ewing Streamlined street car passing Washington Monument 1938


Not All Death Crosses Are Created Equal (BBG)
China’s Communist Party Goes Way Of Qing Dynasty As Debt Hits Limit (AEP)
China’s Housing Bubble Is So Big, Goldman Will “Need A Bigger Chart” (ZH)
Emerging-Market Assets Under Pressure as Fed Minutes Lift Dollar (BBG)
The Case For Germany Leaving The Euro #Gexit (Bibow)
Europe’s Troubled Push For Bank Bail-Ins (FT)
Euro Area Shifts Greek Focus to Debt Relief to Win IMF Support (BBG)
All Economics Is Political (WSJ)
5 Banks Sued In US For Rigging $9 Trillion Agency Bond Market (R.)
Another Year of Anger for Deutsche Bank’s Investors (BBG)
First Look At Explosive Hillary Documentary, ‘Clinton Cash’ (NY Post)
Earth Breaks 12th Straight Monthly Heat Record (AP)
India To Start Massive Project To Divert Ganges And Brahmaputra Rivers (G.)

Difference is in 2001, 2008 there were no people as nuts as Draghi, Kuroda and Yellen. Or, if there were, they were not in charge.

Not All Death Crosses Are Created Equal (BBG)

In a note to clients, Intermarket Strategy Chief Executive and Strategist Ashraf Laidi points out that the S&P 500’s 50-week moving average is falling below its 100-week moving average. This “statistically significant” death cross has only happened twice is the past two decades, Laidi points out. The first took place in 2001 and was followed by a 37% decline in the index, while the second pattern occurred in 2008 and preceded a 48% drop. With investors already growing increasingly nervous about prospects for equities, a death cross of grave proportions could give extra reason for caution.

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“With luck, the rest of us outside China will have three or four more months to order our own affairs before the storm gathers.”

China’s Communist Party Goes Way Of Qing Dynasty As Debt Hits Limit (AEP)

[..] The latest stop-go credit cycle began in mid-2015 and has since accelerated to an epic blow-off, with the M1 money supply now growing at 22.9pc, by the fastest pace since the post-Lehman blitz. Wei Yao from Societe Generale estimates that total loans rose by $1.15 trillion in the first quarter, equivalent to 46pc of quarterly GDP. “This looks like an old-styled credit-backed investment-driven recovery, which bears an uncanny resemblance to the beginning of the ‘four trillion stimulus’ package in 2009. The consequence of that stimulus was inflation, asset bubbles and excess capacity,” she said. House sales rose 60pc in April, despite curbs to cool the bubble. New starts were up 26pc. Prices jumped 63pc in Shenzhen, 34pc in Shanghai, 20pc in Beijing, and 18pc in Hefei. Panic buying is spreading to the smaller Tier 3 and 4 cities with the greatest glut.

It all has echoes of the stockmarket boom and bust last year. “Investors are convinced that the government will guarantee that housing prices won’t fall,” said Professor Zhu Ning from the Shanghai Advanced Institute of Finance, speaking to the South China Morning Post. It also sounds like Britain. There was a slight cooling in April but less than headlines suggested. The old measure of total social financing (TSF) slipped but this was more than offset by record bond issuance of $180bn. Together they reached a 26-month high. Capital Economics says budgeted funds must be disbursed by the end of this quarter under new finance ministry rules, implying another $310bn of bonds by late June. The fiscal boost will be ‘front-loaded’. The money will pile up in accounts and flood the economy over the late summer. If the usual time-lags hold, the mini-boom will last for a few more months. Then the trouble will start. Needless to say, markets may roll over long before the economy itself.

[..] .. this year the China bears may get their revenge, if they have any money left to play with. The rot in the country’s $7.7 trillion bond markets is metastasizing. Bo Zhuang from Trusted Sources said more than 100 firms cancelled or delayed bond issues in April due to widening credit spreads. Ten companies have defaulted this year, with the shipbuilder Evergreen, Nanjing Yurun Foods, and the solar group Yingli Green Energy all in trouble this month. But what has really spooked markets is the suspension of nine bonds issued by the AA+ rated China Railways Materials, the first of the big central SOE’s to signal default. “This has greatly weakened investors’ long-standing expectation of implicit government support,” he said.

Bo Zhuang said investors have poured money into bonds in the latest frenzy. The stock of corporate bonds has jumped by 78pc to $2.3 trillion over the last year. It is the epicentre of leverage through short-term ‘repo’ transactions, and it is now coming unstuck. “The experience with the stock market shows how difficult it can be to contain a reversal in leveraged bets. In our view, a bond market crisis would be much more destructive,” he said. With luck, the rest of us outside China will have three or four more months to order our own affairs before the storm gathers. Whether it is bumpy landing, a hard landing, or a crash landing, depends on who the “authoritative person” in Beijing turn out to be.

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“..year-over-year price growth in tier-1 cities [..] 28.3%..”

China’s Housing Bubble Is So Big, Goldman Will “Need A Bigger Chart” (ZH)

One of the stated reasons for the Shanghai Composite’s 1.3% drop (and it would have been worse had the PPT not launched its infamous last minute buying blitz) was also the most amusing one: the stock market bubble is in danger of popping even more as a result of a housing bubble that is now raging at a pace not seen since the last Chinese housing bubble, and thus threatens to soak up even more cash from China’s chronic gamblers-cum-speculators.

So just how high of a housing number did the NBS report that spooked stocks so much? Well, as Goldman summarizes, housing prices in the primary market increased 1.1% month-over-month after seasonal adjustment in April, higher than the growth rate in March. Out of 70 cities monitored by China’s National Bureau of Statistics (NBS), 63 saw housing prices increase from the previous month. On a year-over-year, population-weighted basis, housing prices in the 70 cities were up 6.9% (vs. 5.5% yoy in March).  According to an alterantive set of calculations by MarketNews, aggregate home prices rose 12.4% Y/Y in April after rising 10.4% in March. Since both numbers are ridiculously high, we’ll just leave them at that.

However, it was not the overall market bubble that is troubling, but that focused on the most desired, top – or Tier 1 – cities. Here, April price growth was 2.6% month-over-month after seasonal adjustment, vs. 3.0% in March.

But the real shocker was that on a year-over-year price growth in tier-1 cities continue to rise however, reaching 28.3% vs. 26.0% yoy in March. In fact it is so bad that Goldman, which tried to show the surge in the second chart below, clearly needs a bigger chart. Incidentally, total property sales in tier-1 cities accounted for around 5% of nationwide property sales in volume terms, and around 15% in value terms (2015 data).

And the stunning charts: Home price inflation month over month

And year over year: to show the Tier 1 housing bubble, Goldman will need a bigger chart.


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Can’t keep the dollar down forever.

Emerging-Market Assets Under Pressure as Fed Minutes Lift Dollar (BBG)

Emerging-market stocks and currencies fell to two-month lows as the dollar got a boost from minutes of the Federal Reserve’s last meeting that showed officials want to raise interest rates in June. The MSCI Emerging Markets Index headed for its biggest two-day drop in two weeks after minutes of the April 26-27 meeting released Wednesday in Washington showed most officials judged it “likely would be appropriate” to hike next month provided incoming data are in line with a second-quarter pickup. China’s yuan, South Korea’s won, Malaysia’s ringgit and Taiwan’s dollar fell to the weakest levels since March, while Indonesia’s rupiah and Thailand’s baht reached February lows.

The release of the minutes and speeches by regional Fed bank presidents warning investors not to dismiss the chance of a June increase have seen the chance of such a move increasing to 32% from 4% at the beginning of the week, Fed Funds futures show. Developing-nation stocks have now wiped out all of their gains this year and there’s a risk of outflows accelerating if the dollar keeps strengthening. “Investors should avoid any additional investments in emerging markets because their currencies and stocks will be under huge pressure from the strong dollar,” said Komsorn Prakobphol at Tisco Financial in Bangkok. Energy stocks will probably be resilient as the oil price is being driven more by supply and demand dynamics, he said.

A gauge of the greenback against 10 peers was steady after jumping 0.8% overnight, the most since November. The Bloomberg Dollar Index has rallied 3.1% in May, on track for its best month since January 2015. Overseas investors have pulled $2.9 billion from Taiwanese stocks this month and close to a combined $1 billion from Indian, Indonesian and Thai bonds, exchange data show. “Asian currency weakness has been exacerbated by portfolio outflows from the region and we see little respite in the weeks and months ahead,” said Mitul Kotecha at Barclays in Singapore. The ringgit, baht, rupiah and, to an extent, the Taiwan dollar are the most vulnerable Asian currencies to a Fed rate increase, while India’s rupee and the Korean won are better placed, he said.

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“It is undeniable that the euro has turned out to be an instrument of widespread impoverishment rather than shared prosperity.”

The Case For Germany Leaving The Euro #Gexit (Bibow)

The case for or against a British exit from the EU – #Brexit – is headline news. For the moment the earlier quarrel about a possible Greek exit from the Eurozone – #Grexit – seems to have taken the back seat – with one or two exceptions such as Christian Lindner, leader of Germany’s liberal FDP. Most EU proponents are deeply concerned about these prospects and the repercussions either might have on European unity. Yet, while highly important, neither of them should distract Europe from zooming in on the real issue: the dominant and altogether destructive role of Germany in European affairs today. There can be no doubt that the German “stability-oriented” approach to European unity has failed dismally. It is high time for Europe to contemplate the option of a German exit from the Eurozone – #Gexit – since this might be the least damaging scenario for Europe to emerge from its euro trap and start afresh.

Germany’s membership of the Eurozone and its adamant refusal to play by the rules of currency union is indeed at the heart of the matter. Of course, it was never meant to be this way. And it was not inevitable for Europe to end up in today’s state of never-ending crisis that impoverishes and disunites its peoples. I have always supported the idea of a common European currency as I believed that it could potentially provide a monetary order that is far superior to the status quo ante of deutschmark hegemony: the Bundesbank – in pursuit of its German price stability mandate – pulling the monetary strings across the continent. While I have also always held that the euro – the peculiar regime of Economic and Monetary Union agreed at Maastricht – was deeply flawed, I kept up my hopes that the political authorities would reform that regime along the way to make the euro viable.

In this spirit I proposed my “Euro Treasury” plan that would, among other things, fix the Maastricht regime’s most serious flaw: the divorce between the monetary and fiscal authorities that is leaving all key players vulnerable and short of the powers required to steer a large economy like the Eurozone through anything but fair weather conditions, at best. Watching developments over in Europe from afar my hopes are dwindling by the day that the failed euro experiment will usher in reforms that could save it. Instead, the likelihood of some form of eventual euro breakup seems to be rising constantly. It is undeniable that the euro has turned out to be an instrument of widespread impoverishment rather than shared prosperity.

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“For US investors it will become very different to follow.”

Europe’s Troubled Push For Bank Bail-Ins (FT)

When Ignazio Visco, governor of the Bank of Italy, spoke in Florence this month, his focus turned to regulation. At a sensitive moment for Italian lenders, whose shares had collapsed over recent months, the governor chose to address what he called “regulatory uncertainty” in the wake of new European-wide rules for failing banks. “We must strike the right balance,” he said. “We should not rule out the possibility of temporary public support in the event of systemic bank crises, when the use of a bail-in is not sufficient”. Taxpayer support for banks, however, was precisely what the new European rules introduced at the start of this year aimed to avoid. To protect taxpayers, investors in banks bonds – mostly untouched during the bailouts of the last crisis – now face losses, or “bail-ins”.

The tension between the Italian central bank and European regulations is related to who owns this debt. In Italy, many retail investors hold exposed bank bonds, and a “bail-in” of small Italian banks in November last year was politically sensitive for this reason. But Mr Visco’s comments also reflect the challenges of implementing continent-wide rules in very different individual countries, with contrasting banking systems. So how else might this regulatory uncertainty, and the role of national governments, complicate a European vision for dealing with bank failure? Under the Bank Recovery and Resolution Directive (BRRD), European banks are now required to have a certain amount of bonds that are exposed to losses. The key issue is who suffers losses first. Whereas senior bank bonds ranked alongside depositors during the crisis, new bonds need to be subordinated to take losses.

But the actual instruments that count towards this measure are determined by national legislation. As a result, different countries have taken different approaches. Italy has raised corporate depositors above bondholders. France is currently legislating for a new class of bank debt, which will sit below depositors and existing senior bonds. In Germany, the law has been changed to subordinate outstanding senior bonds. In the UK, banks sell bonds from their holding companies, which will rank below other senior bank bonds. In the Netherlands, it is unclear how the rules will work. Robert Muller, treasurer at Rabobank, says the bank is strongly leaning towards the French approach, rather than the German. For investors, this represents a challenge. “At this point in time it’s very difficult for investors to see how this pans out,” says Mr Muller. “For US investors it will become very different to follow.”

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Why am I thinking deck chairs? Anyway, can’t see Germany agree to spend its money on buying up loans.

Euro Area Shifts Greek Focus to Debt Relief to Win IMF Support (BBG)

Euro-area officials are weighing a proposal to purchase loans that member states made to Greece in a move that would ease the nation’s debt burden, a precondition for the IMF’s involvement in a bailout program. Senior finance ministry officials held a conference call on Wednesday night to discuss ways to make Greece’s €321 billion of obligations sustainable, according to two people with knowledge of the talks. One option would be for the European Stability Mechanism, the euro-area’s financial backstop, to purchase loans individual euro nations made to Greece and reduce the interest payments, said the people, who asked not to be named because the discussions are private. About €52.9 billion of bilateral loans were made in 2010 and 2011.

Greece’s creditors are struggling to complete a review of the nation’s third bailout, which would pave the way for the disbursal of much-needed aid. The IMF has made its participation in the program contingent upon debt relief, a prospect euro-area finance ministers began discussing last week during an emergency meeting meant to resolve the impasse in unlocking the funds. Nations including Germany have said that the IMF needs to be involved in any future bailout program. The ESM is also considering purchasing the IMF’s loans as a way to give Greece a financial boost since its debt terms are more lenient than those of the Washington-based fund, according to a sustainability report prepared by the European institutions.

Buying back the IMF loans “amounts to debt relief,” European Commission Vice President Valdis Dombrovskis said in remarks in Brussels on Wednesday at a Politico conference. The officials mulled three debt-relief options during the call: have the ESM purchase bilateral loans made to Greece from individual countries; have the ESM purchase the IMF’s obligations; and extending the maturities of Greece’s debt and reducing the interest rates, one of the people said.

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Economics is politics in disguise.

All Economics Is Political (WSJ)

The models have been run and the numbers crunched: Bernie Sanders’s presidential platform, if enacted, would create 26 million jobs and 5.3% growth. An economist has done the calculating, and there’s no use arguing with mathematics. CNN’s headline reads: “Under Sanders, income and jobs would soar, economist says.” When I run that line by Russ Roberts, he replies with a joke: “How do you know macroeconomists have a sense of humor? They use decimal points.” Mr. Roberts is a fellow at the Hoover Institution, a University of Chicago Ph.D., and the gregarious host of EconTalk, a weekly podcast that celebrated its 10th anniversary in March. He is also an evangelist for humility in economics. “The world’s a complicated place,” he says. “We demand things from economics that it can’t provide, and we should be honest about that.”

What’s striking is Mr. Roberts isn’t talking only about politically contrived agitprop. Nobody believes that stuff: One of President Obama’s former economic advisers stirred ire from Sandernistas earlier this year when he said that getting Bernie’s agenda to add up requires assuming “magic flying puppies with winning Lotto tickets tied to their collars.” The deeper question is: How much better—more credible, or reliable, or falsifiable—are the economic forecasts pouring out of respectable think tanks, the White House and Congress? Mr. Roberts’s answer: not all that much. He cites the Congressional Budget Office reports calculating the effect of the stimulus package—for instance, one in late 2009 suggesting it had increased employment by between 600,000 and 1.6 million.

Leaving aside the incredible range of the estimate, how did the CBO come up with those numbers? Did it somehow measure employment in the real world? Nope: The CBO gnomes simply went back to their earlier stimulus prediction and plugged the latest figures into the model. “They had of course forecast the number of jobs that the stimulus would create based on the amount of spending,” Mr. Roberts says. “They just redid the estimate. They just redid the forecast. And you’re thinking, that can’t be what they really did.”

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Definitely the new normal.

5 Banks Sued In US For Rigging $9 Trillion Agency Bond Market (R.)

Five major banks and four traders were sued on Wednesday in a private U.S. lawsuit claiming they conspired to rig prices worldwide in a more than $9 trillion market for bonds issued by government-linked organizations and agencies. Bank of America, Credit Agricole, Credit Suisse, Deutsche Bank and Nomura were accused of secretly agreeing to widen the “bid-ask” spreads they quoted customers of supranational, sub-sovereign and agency (SSA) bonds. The lawsuit filed in Manhattan federal court by the Boston Retirement System said the collusion dates to at least 2005, was conducted through chatrooms and instant messaging, and caused investors to overpay for bonds they bought or accept low prices for bonds they sold.

“Only through collusion could a dealer quote a wider spread than market conditions otherwise dictate without losing market share and profits,” the complaint said. “Defendants reaped millions of dollar(s) in profits at the expense of plaintiff and members of the class as result of their misconduct.” The proposed class-action lawsuit seeks triple damages, and follows probes by U.S. and European Union antitrust regulators into possible SSA bond price rigging.

[..] The lawsuit is one of many in the Manhattan federal court seeking to hold banks liable for alleged price-fixing in bond, commodity, currency, derivatives, interest rate and other financial markets. One such lawsuit, concerning competition in the credit default swaps market, led last September to a $1.86 billion settlement with a dozen banks. SSA bonds are sold in various currencies by issuers such as regional development banks, infrastructure borrowers including highway and bridge authorities, and social security funds. Many carry explicit or implicit backing from governments, and thus enjoy high investment-grade ratings.

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Will Deutsche self-destruct?

Another Year of Anger for Deutsche Bank’s Investors (BBG)

Deutsche Bank investors expressed their frustration with management at the company’s annual meeting a year ago. Weeks later, co-Chief Executive Officer Anshu Jain was gone. Now it’s Chairman Paul Achleitner and Jain’s replacement, John Cryan, who are set to feel the displeasure of shareholders when they gather in Frankfurt on Thursday. With revenue plunging and the need for capital mounting, some investors worry it may be just a matter of time before they’re asked to stump up and buy new stock. “The mood’s going to be bad, maybe even worse than at last year’s meeting,” said Klaus Nieding, vice president of DSW, a German firm that advises shareholders on company proposals.

Deutsche Bank shares dropped by more than half in the past year – erasing about $22.6 billion in market value – as plans to bolster capital and slash costs failed to revive confidence and profits shriveled across the industry. For Achleitner, a supervisory board dispute in April raised questions about his commitment to rooting out misconduct at Germany’s largest bank. Jain, 53, resigned in June after he and co-CEO Juergen Fitschen received the lowest approval rating in at least a decade in a vote at last year’s annual meeting. Fitschen, 67, will stand down on Thursday, leaving Cryan as sole CEO. Cryan, a British citizen who chaired the audit committee of the supervisory board before becoming co-CEO, has been outspoken about the company’s shortcomings, criticizing excessive pay, spiraling legal costs and outdated technology.

He suspended the dividend to bolster capital and pledged to shed about 9,000 jobs, or almost 10% of the workforce, and shrink the investment bank by scaling back the debt-trading empire built by Jain. While some investors applauded the cost reductions as long overdue, others expressed concern the cutting would eat too deeply into sales, especially during a trading slump. Debt-trading revenue, Deutsche Bank’s largest source of income, fell 29% in the first quarter from a year before, while net income dropped 61%. Cryan told analysts last month that his efforts to overhaul the company and settle outstanding legal matters may lead to a second straight annual loss. “The issue that we have is that we want to get an awful lot done this year,” he said.

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Sorry for doing politics, but this is going to be a really big item. Question’s going to be: who can fill in for Hillary once she’s behind bars?

First Look At Explosive Hillary Documentary, ‘Clinton Cash’ (NY Post)

Hillary Clinton says that when she and her husband moved out of the White House 15 years ago, they were “dead broke.” Today, they’re worth more than $150 million. In the new documentary “Clinton Cash,” it becomes all too clear how the former first couple went from rags to filthy rich — with the emphasis on filthy. As the movie shows, the Clintons are political Teflon dons compared with another Beltway power couple, former Virginia Gov. Bob McDonnell and his wife, Maureen. The McDonnells were convicted of accepting more than $150,000 in gifts from a businessman while the governor was in office. Meanwhile, the Clintons raked in 700 times that amount – $105 million – under the pretext of speaking fees while Hillary was in public office.

Yet while the McDonnells face time in the Big House, the Clintons are once again aiming for the White House. The documentary is based on a book by former Hoover Institution fellow Peter Schweizer and was just screened during the Cannes Film Festival. It is set to be shown in major US cities, including Philadelphia during the Democratic National Convention there in July. Schweizer’s research has withstood a year of intense scrutiny from critics because it is fact, not fiction. And the facts are compelling. The film whisks you around the globe, retracing how the Clintons personally pocketed six-figure speaking fees and collected billions of dollars for their family foundation. How? By trading on Hillary’s position as secretary of state and possible future president.

She and her ex-president husband sold out to titans, dictators and shady characters in Nigeria, Congo, Kazakhstan and the United Arab Emirates, not to mention at Goldman Sachs and TD Bank. Along the way, the Clintons betrayed the values they profess on the campaign trail: human rights, environmentalism and democracy. That’s why Schweizer is bringing the documentary to the Democratic convention — to show the party faithful how the Clintons used and abused their liberal principles to amass a fortune. The Clintons earned the bulk of their money from speaking fees. It was simple: Bill’s fees skyrocketed when Hillary became secretary of state in 2009, suggesting that countries and companies hiring him counted on getting more than just Bill — they also expected to land what his wife had to offer.

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“The last month that wasn’t record hot was April 2015. ”

Earth Breaks 12th Straight Monthly Heat Record (AP)

Earth’s heat is stuck on high. Thanks to a combination of global warming and an El Nino, the planet shattered monthly heat records for an unprecedented 12th straight month, as April smashed the old record by half a degree, according to federal scientists. The National Oceanic and Atmospheric Administration’s monthly climate calculation said Earth’s average temperature in April was 58.7 degrees (14.8 degrees Celsius). That’s 2 degrees (1. 1 degrees Celsius) warmer than the 20th century average and well past the old record set in 2010. The Southern Hemisphere led the way, with Africa, South America and Asia all having their warmest Aprils on record, NOAA climate scientist Ahira Sanchez-Lugo said. NASA was among other organizations that said April was the hottest on record. The last month that wasn’t record hot was April 2015.

The last month Earth wasn’t hotter than the 20th-century average was December 1984, and the last time Earth set a monthly cold record was almost a hundred years ago, in December 1916, according to NOAA records. “These kinds of records may not be that interesting, but so many in a row that break the previous records by so much indicates that we’re entering uncharted climatic territory (for modern human society),” Texas A&M University climate scientist Andrew Dessler said in an email. At NOAA’s climate monitoring headquarters in Asheville, North Carolina, “we are feeling like broken records stating the same thing” each month, Sanchez-Lugo said. And more heat meant record low snow for the Northern Hemisphere in April, according to NOAA and the Rutgers Global Snow Lab.

Snow coverage in April was 890,000 square miles below the 30-year average. Sanchez-Lugo and other scientists say ever-increasing man-made global warming is pushing temperatures higher, and the weather oscillation El Nino — a warming of parts of the Pacific Ocean that changes weather worldwide — makes it even hotter. The current El Nino, which is fading, is one of the strongest on records and is about as strong as the 1997-1998 El Nino. But 2016 so far is 0.81 degrees (0.45 degrees Celsius) warmer than 1998 so “you can definitely see that climate change has an impact,” Sanchez-Lugo said. Given that each month this year has been record hot, it is not surprising that the average of the first four months of 2016 were 2.05 degrees (1.14 degrees Celsius) higher than the 20th-century average and beat last year’s record by 0.54 degrees (0.3 degrees Celsius).

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Complete and utter idiots. Everything that can go wrong, will. And then some.

India To Start Massive Project To Divert Ganges And Brahmaputra Rivers (G.)

India is set to start work on a massive, unprecedented river diversion programme, which will channel water away from the north and west of the country to drought-prone areas in the east and south. The plan could be disastrous for the local ecology, environmental activists warn. The project involves rerouting water from major rivers including the Ganges and Brahmaputra and creating canals to interlink the Ken and Batwa rivers in central India and Damanganga-Pinjal in the west. The minister of water resources, Uma Bharti, said this week that work could start in a few days. A spokesperson from her department told the Guardian that the government is still waiting for clearance from the environment ministry. The project will cost an estimated 20 lakh crore rupees (£207bn) and take 20-30 years to complete.

The government of Narendra Modi, the prime minister, is presenting the project as the solution to India’s endemic water problems. For years, parts of India have suffered from devastating spells of drought. As average temperatures in India rise, and the growing population puts increasing demands on water resources, millions of people are without a reliable water supply. This year, 330 million Indians have been affected by drought. State governments used emergency measures to deliver water by train in the western state of Maharashtra; in other areas, schools and hospitals were forced to close, and hundreds of families were forced to migrate from villages to nearby cities where water is more easily accessible.

According to the National Water Development Agency, which will oversee the rivers project, “the water availability even for drinking purposes becomes critical, particularly in the summer months … On the other hand excess rainfall occurring in some parts of the country create[s] havoc due to floods.” The scheme is a pet project of Modi, who has made several promises to end India’s long-term water problems. In the first few months of his premiership, Modi’s cabinet revived the idea of linking 30 rivers across India. The water resources ministry spokesperson said: “The idea is old, but the Modi government has done all the work on it.” Plans to interlink rivers were drawn up in the 1980s by Indira Gandhi’s government, and were gathering dust as central governments repeatedly failed to win the approval of states. Now, with a supreme court mandate, and government backing, save the rubber stamp of the environment ministry, the project could get under way in a matter of days.

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