Glencore Archives - The Automatic Earth

China has been selling U.S. debt but it’s not alone. Lots of emerging markets like Brazil, India and Mexico are also selling U.S. Treasuries. Not that long ago all these countries were all huge buyers of U.S. debt, which is viewed as one of the safest places to park money. “Five or six years ago, the big concern was that China was going to own the United States,” says Gus Faucher, senior economist at PNC Bank. “Now the concern is that China is selling them.” Foreign governments have sold more U.S. Treasury bonds than they’ve bought in the 10 consecutive months through July 2015, the most recent month of available data from the Treasury Department. Just in the first seven months of the year, foreign governments sold off $103 billion of U.S. debt, according to CNNMoney’s analysis of Treasury Department data.

Last year there was an overall increase of nearly $45 billion. It’s a reality of the global economic slowdown. When commodity prices boomed a decade ago, emerging market countries took their profits and invested them in U.S. Treasury bonds and other types of assets that are similar to cash. Now that commodity prices are falling, countries that rely on commodities – Brazil, Mexico, Indonesia – just don’t have the cash they once did to invest in safe assets like U.S. Treasury bonds. “Slow growth means that they just don’t have the same appetite for dollars because they don’t have cash to put to work,” says Lori Heinel, chief portfolio strategist at State Street Global Advisors. “The bigger issue is ‘do they have the dollars flowing into the economies to keep investing in Treasuries?'”

Interesting thought on PQE. Too little too late though.

• Inequality To Drive ‘Massive Policy Shift’: Bank of America (CNBC)

Rising income inequality and a deflationary global economic picture are going to lead to big changes in 2016, according to one Wall Street forecast. Quantitative easing and zero interest rates are on their way out in the U.S., and Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, believes they will be replaced with massive infrastructure spending. The result would benefit Main Street more than Wall Street, which has had a banner seven-year run helped by historically easy Federal Reserve monetary policy. “If the secular reality of deflation and inequality is intensified by recession and rising unemployment, investors should expect a massive policy shift in 2016,” Hartnett said in a note to clients. “Seven years after the West went ‘all-in’ on QE and ZIRP, the U.S./Japan/Europe would shift toward fiscal stimulus via government spending on infrastructure or more aggressive income redistribution.”

A reversal in trend would have a substantial impact on investing. Investors should move to assets that benefit in reflationary times, like Treasury Inflation Protected Securities, gold (which Hartnett thinks will bottom in 2016), commodities and small-cap Chinese stocks, Hartnett said. TIPs have been around flat for the year, while gold has dropped nearly 2% and commodities overall are off nearly 13%. Easy-money measures have helped boost Wall Street, with the S&P 500 up about 200% since the March 2009 lows as companies have spent some $2 trillion on stock repurchases. Dividend payments also have soared during the period, with the second quarter’s $105 billion increase the biggest in 10 years, according to FactSet.

Asset returns have jumped while global economic growth has been anemic in what Hartnett called “the most deflationary expansion of all time.” GDP gains in the U.S. have averaged barely 2% during the post-Great Recession recovery, while some economists believe a global recession could hit in 2016. The clamor for some of that asset wealth to find its way into the larger economy is growing and giving rise, according to Hartnett, to populist presidential candidates like Donald Trump and Bernie Sanders in the U.S. and similar movements around the world. “Deflation exacerbates ‘inequality’ of income, wealth, profits, asset valuations,” Hartnett wrote. “The gap between winners and losers is being driven wider and wider by excess liquidity and technological disruption (trends synonymous with the 1920s, another period infamous for ‘inequality’).”

China exports fell 20%. US exports are pluning. See the trend.

• At US Ports, Exports Are Coming Up Empty (WSJ)

One of the fastest-growing U.S. exports right now is air. Shipments of empty containers out of the U.S. are surging this year, highlighting the impact the economic slowdown in China is having on U.S. exporters. The U.S. imports more from China than it sends back, but certain American industries—including those that supply scrap metal and wastepaper—feed China’s industrial production. Those exporters have suffered this year as China’s economy has cooled. In September, the Port of Long Beach, Calif., part of the country’s busiest ocean-shipping gateway, handled 197,076 outbound empty boxes. They accounted for nearly a third of all containers that moved through the port last month. September was the eighth straight month in which empty containers leaving Long Beach outnumbered those loaded with exports.

The empties are shipping out at a faster rate at many U.S. ports, particularly those closely tied to trade with China, while shipments of containers loaded with goods are declining as exporters find it tougher to make foreign sales. That’s at least partly because the strong dollar makes American goods more expensive. Normally, after containers filled with consumer goods are delivered to the U.S. and unloaded, they return to export hubs. There, they typically are stuffed with American agricultural products, certain high-end consumer goods and large volumes of the heavy, bulk refuse that is recycled through China’s factories into products or packaging. Last month, however, Long Beach and the Port of Oakland both reported double-digit gains in exports of empty containers.

So far this year, empties at the two ports are up more than 20% from a year earlier. Long Beach’s containerized exports were down 8.2% this year through September, while Oakland’s volume of outbound loaded containers fell 12.7% from a year earlier in the January-September period. “This is a thermometer,” said Jock O’Connell at Beacon Economics. “The thing to worry about is if the trade imbalance starts to widen.” Trade figures released Tuesday in Beijing underscored China’s faltering demand. China’s imports fell 20.4% year-over-year in September following a 13.8% decline in August. As of June, U.S. exports of scrap materials were down 36% from their peak of $32.6 billion in 2011.

This is what deflation truly is: “The math is pretty simple: A lack of purchasing power for consumers has led to a lack of pricing power for companies.”

• Consumers Shutting Down As US Economy Deflates (CNBC)

The math is pretty simple: A lack of purchasing power for consumers has led to a lack of pricing power for companies. When it comes to the U.S. economy big-picture outlook, the ramifications are more complicated, and not particularly pleasant. Wednesday’s producer price index reading, showing a monthly decline of 0.5%, demonstrates a larger problem: At a time when policymakers are hoping to generate the kind of inflation that would indicate strong growth, the reality is that deflation is looming as the larger threat. Declining prices often would be treated as a net positive by consumers, but income weakness is offsetting the effects. Even Wall Street is feeling the heat. Prices for brokerage-related services and financial advice dropped 4.3% in September, accounting for about a quarter of the entire slide for final demand services.

The prospects heading into year’s end are daunting. In addition to the punk PPI number, retail sales gained by just 0.1% in September. Excluding autos, gasoline and building materials, sales actually declined 0.1%. On top of that, the August retail numbers were revised lower, with the headline rate now flat from the originally reported 0.2% gain. On the same day as the two disappointing data releases, Wal-Mart warned that the weakness is likely to extend through its fiscal year, with sales expected to be flat. The warning sent its shares tumbling 9% in morning trade, the worst performance in 15 years. All in all, then, not a great environment in which to raise rates, which the Federal Reserve hopes to do before the end of the year.

“Consumers are growing increasingly uncertain regarding their future income streams and are less willing to finance today’s spending with the prospect of tomorrow’s improved, future earnings,” Lindsey Piegza, chief economist at Stifel Fixed Income, said in a note to clients. “With gasoline prices at multiyear lows, consumers should be spending gangbusters but they aren’t.” Wage growth remains elusive for most workers, with the average hourly earnings rising just 2.2% annually. Job growth has slowed as well, with average monthly nonfarm payroll additions in the third quarter down nearly 28% from the previous quarter. The data on the ground shoot holes in a number of theories that were expected to drive the economy, market behavior and Fed policymaking.

Prices rise only in the West.

• The US Is Closer To Deflation Than You Think (CNBC)

Deflation talk these days is mostly centered on the euro zone and parts of emerging markets, but the U.S. is dancing on the brink itself. In fact, if not for a comparatively high inflation rate in the Western quadrant, the U.S. itself actually would have had a negative consumer price index rating in August, driving its economy into the same deflationary malaise found in other slow-growth regions. Of the four Census regions, only the West had a positive CPI for August, according to the most recent figures from the Bureau of Labor Statistics. And it hasn’t just been a recent occurrence. “All price growth in the U.S. in the past eight months came from the West,” the St. Louis Federal Reserve said in a report on geographic inflation influences. Inflation in the West has been a full percentage point above the other three regions, all of which experienced deflation.

Excluding the West, the national rate of inflation as measured by the CPI would have been -0.19% in August, as compared to the already anemic national rate of 0.2%, according to the St. Louis Fed. (The September reading will be released Thursday morning.) Annualized inflation in the West was 1.3% in August. In the Northeast it was -0.1%, -0.2% in the South and -0.3% in the Midwest. Much of the deflationary pressure came through falling energy prices – down 9.5% annualized in the West, 14.5% in the Midwest, 18.3% in the East and 17.1% in the South. Low inflation, and the possibility of deflation, presents a daunting conundrum for Fed officials, who have dismissed falling energy prices as transitory despite the fundamental factor of slowing global demand.

Wall Street has been waiting all year for signs the U.S. central bank would start down the path to normalizing monetary policy by raising rates for the first time in more than nine years. However, liftoff has been delayed as the FOMC has fussed over when conditions will be ideal for the move. More hawkish members want to raise because they worry the Fed will be too late once inflation accelerates, while also citing the need simply to have wiggle room for policy accommodation that the Fed does not have as long as it keeps its key rate near zero. Futures traders do not believe the Fed will hike until March 2016.

The direct result of falling consumer spending.

• Walmart Share Plunge Wipes Out $21 Billion In Market Cap In One Day (USA Today)

The Waltons had a bad – and expensive – day. Retailing giant Walmart stunned investors Wednesday when it gave disappointing guidance for growth and profit, sending its stock down 10% to $60.03. The stock drop, which was the biggest in decades, instantly wiped out more than $21 billion in shareholder wealth. That drop was bad for anyone who owns shares of Walmart. But it was especially painful for the company’s top 10 shareholders, who collectively own two-thirds of Walmart’s outstanding stock and saw $14.7 billion in wealth vanish Wednesday. The dive in Walmart shares hurt some of the wealthiest people in America including Walton family members Alice, Jim, John and S. Robson. Famed investor Warren Buffett’s Berkshire Hathaway also is a huge owner of Walmart stock.

Each was on the front line for one of the biggest implosions of a blue-chip stock in recent years. Walton Enterprises, an investment vehicle controlled by several members of the Walmart family, suffered the biggest hit. This investment vehicle owns 1.4 billion shares of Walmart, or 44% of the total shares outstanding, S&P Capital IQ says. Its holdings took a $9.5 billion hit. When you Include the holdings of other Walton family-controlled entities, such as the 197 million shares owned by S. Robson Walton and another 194 million held in the Walton Family name, the day’s loss jumps to more than $12 billion. Buffett’s Berkshire Hathaway owns 60.4 million shares of Walmart and lost nearly $405 million.

Don’t think it’s just a “rich person’s problem,” either. Walmart’s drop hit many individual investors closer to home. Index fund behemoth Vanguard is the fourth largest owner of Walmart stock because Walmart’s huge market value makes it a key holding in many index funds, which are widely held by individual investors. Vanguard’s 98.6 million shares brought home a $660 million daily loss directly to Vanguard investors. The pain of owning a big chunk of a single stock became painfully clear again Wednesday – especially if your last name is Walton.

As the no. 1 drops, so must the smaller fish.

• Wal-Mart Just Made Things Worse For Everybody Else (CNBC)

Wal-Mart shares had their worst day in 15 years Wednesday, after the world’s largest retailer said sales will be flat in fiscal 2016, while its earnings will slide to between $4.40 and $4.70 a share — down from $4.84 last year. Shares of competitors including Target, Macy’s, Kohl’s and J.C. Penney fell in sympathy, as Wal-Mart said it would invest billions into price over the next two years. With Wal-Mart already undercutting much of its peers, the move will put added pressure on its competitive set, which is already struggling to grow sales against a backdrop of steep price cuts and rock-bottom starting prices. Deflation in the retail sector was one reason why the National Retail Federation said that holiday sales will increase 3.7% this year, representing a deceleration from 2014.

Analysts and brands alike have said the holiday shopping season is already shaping up to be cutthroat, as retailers will do almost anything to get consumers to spend in their stores. “It’s a never-ending battle to capture their share of the overall spend,” Steve Barr, U.S. retail and consumer leader at PricewaterhouseCoopers, said Tuesday. It’s easy to understand why Wal-Mart, once the undisputed leader in pricing, is putting such an emphasis on delivering the best value to shoppers. According to PwC’s holiday forecast, 87% of shoppers said price is the primary driver behind their holiday spending choices. This is even more pronounced among what the consulting firm has dubbed “survivalists,” those who earn an annual income of less than $50,000.

According to PwC, 90% of survivalists said price is the No. 1 factor behind their holiday purchase decisions. Separately, a study released by coupon website RetailMeNot found consumers said a discount has to offer more than 34% off to be deemed a good deal. “I think we’ll see individuals taking advantage of the fact that prices haven’t moved against them this year,” the NRF’s chief economist, Jack Kleinhenz, said on a call after the trade group’s sales forecast.

“The most chilling words in the news release? “These are exciting times in retail given the pace and magnitude of change.”

• The Chilling Thing Wal-Mart Said About Financial Engineering (WolfStreet)

Wal-Mart had a bad-hair day. Its shares plunged $6.71, the largest single-day cliff-dive in its illustrious history. They ended the day down 10%, at $60.02, a number first kissed in 2001. Shares are 34% off their peak in January. So it wasn’t just today. But Wal-Mart didn’t do anything that special at its annual investor meeting today. It announced big “capital investments,” (we’ll get to the quotation marks in a moment), a crummy outlook, and a huge share buyback program. All of which it has done many times before. Only this time, the outlook is even worse, but the promised share buybacks are even larger. Wal-Mart proffered its strategies on how it would try to boost revenue growth in an environment where its primary customers – the 80% that got trampled by the Fed’s policies – are struggling to make ends meet.

A problem Wal-Mart has had for years. The news release hints at these new initiatives, spells out costs, and forecasts the resulting earnings debacle. Wal-Mart will goose “capital investments” by $11 billion in Fiscal 2017, on top of the $16.4 billion it’s spending on “capital investments” in fiscal 2016. This will maul earnings per share. In 2017, they’re expected to drop 6% to 12%, when the analyst community had forecast an increase of 4%. But 2019 is back in the rosy scenario of earnings growth. These capital investments aren’t computers, buildings, or new shelves. They’re largely “investments in wages and training,” which isn’t a capital investment at all, but an ordinary expense. “75% of next year’s investment will be related to people,” CEO Doug McMillon clarified.

That’s why they’ll hit earnings right away. A true capital investment would be an asset that is depreciated over time, with little earnings impact upfront. So sales in fiscal 2016 would be flat, which Wal-Mart blamed on “currency exchange fluctuations.” Would that be the strong dollar? But sales were also flat for the prior three fiscal years when the dollar was weak. Don’t lose hope, however. In the future, starting in fiscal 2017, sales would edge up 3% to 4%. To accomplish this, management is now desperately praying for inflation. The most chilling words in the news release? “These are exciting times in retail given the pace and magnitude of change.”

Then there was the announcement of a $20-billion share buyback program. $8.6 billion remaining from the $15 billion buyback program authorized in 2013 would be retired. That $15-billion program was on top of $36 billion in buyback programs over the preceding four years. Buybacks is what Wal-Mart does best.

Derivatives.

• Glencore Collapse Could Be Even Worse Than Feared (MM)

“Editor’s Note: We’re sharing this update on Glencore’s collapse with you because it’s shaping up to be even worse than Michael originally thought. Glencore still poses a “Lehman Brothers”-level risk to the global economy – but it’s now clear the world’s biggest commodities trader is on the hook for hundreds of billions in “shadow debt” that it simply refuses to address. This crisis is one small step away from upending our financial system, so here’s what you need to know…”

A lot of powerful voices have joined me in warning about the potential threat that Glencore poses to global financial markets. Bank of America, for instance, has published a report on the true size of the fallout. As you’ll see in a moment, it’s staggering. But since we talked about Glencore late last month, something insane has happened: The stock has gone up. But not for any good reason. The company has not righted the ship. The surge is only due to short-sellers covering their positions. The ugly truth is, the company is still a “shining” example of exactly what’s wrong with these markets. And I fear individual investors will get caught in the mess and wiped out on a stock like this or some of the others around it. That’s why I want to call out the misapprehensions and lies that are causing this “fauxcovery” and show you what’s next.

Because it could end up even worse than I thought…Since hitting a low of £0.69 ($1.05) per share on Sept. 28, Glencore stock has doubled to £1.29 ($1.97) per share. Even its credit default swap spreads have recovered to 650 basis points from a panic peak of 900 basis points. To place the last point in context, however, markets are pricing the company like a weak single B credit instead of a CCC credit. So while the major credit rating agencies still consider Glencore an investment-grade company, the actual credit markets have a much dimmer view of its prospects. Naturally, the company is doing everything possible to calm markets. First, last week it took the unusual step of publishing a six-page “funding factsheet” designed to dispel market concerns about its liquidity and solvency.

This factsheet shed very little light on what is really going on at the company, however. It said virtually nothing about Glencore’s derivatives contracts, other than stating that its derivatives contracts were undertaken within “industry standard frameworks.” Here’s the thing – “industry standard frameworks” normally require companies to post additional cash collateral upon the loss of an investment-grade rating, so the company’s statement should not have made anybody feel better. That suggests to me that the rise in the company’s stock price was largely a matter of short covering, not investors suddenly deciding that everything is hunky-dory in the House of Glencore.

Remember the metals bought with stored and unpaid metals as collateral?

• Unwinding Of Carry Trade May Unmask China’s True Metal Demand (Bloomberg)

The great mystery of metals is the amount used to finance the Chinese carry trade, or collateral used to borrow cheap dollars to buy yuan-backed high-interest-carrying notes. The Bank for International Settlements says this trade may be $1 trillion to $2 trillion, tying up tens of millions of metric tons of iron ore, aluminum and other metals. About a year of global copper consumption (22 million mt) equals just 5% to 10% of the estimate. The true figure will determine real China metal demand and future inventory. The impact of the Chinese metal carry trade is in the distortion of the true underlying copper demand, and a buildup in the metal’s inventory, strictly for collateral in financing. China accounts for 46% of global copper demand, according to the Word Bureau of Metals Statistics.

One question analysts must ask: What if it’s just 35%? The potential stopping of this trade, and normalization of the distorted demand, will provide understanding of China’s true copper needs and their potential growth. Nickel prices have fallen by half since year-end 2013, when they surged after No. 1 global exporter Indonesia banned exports of nonprocessed ore. Inventories are near record levels. The likely culprits for the higher inventory and price crash are the large amounts of the metal held off exchanges because they were used as collateral in a carry trade that took advantage of China’s high interest rates. A warehouse scandal at the Qingdao complex prompted banks to call in these trades, pummeling nickel prices.

The lucrative practice of using commodities as collateral to make money from interest-rate differentials inside and outside of China, a practice known as the carry trade, could cause significant pressure on commodity markets, were the trade to unravel. The Bank for International Settlements says this trade exceeds $1.2 trillion worth of commodities and could reach $2 trillion. Any major change in the direction of this trade could flood the market with more supply.

Actually, it’s a second defeat device. And that means it’s company policy, not a freak incident involving only technicians.

• VW: Secret Emissions Tool In 2016 Cars Is Separate From ‘Defeat’ Cheat (AP)

US regulators say they have a lot more questions for Volkswagen, triggered by the company’s recent disclosure of additional suspect engineering of 2016 diesel models that potentially would help exhaust systems run cleaner during government tests. That’s more bad news for VW dealers looking for new cars to replace the ones they can no longer sell because of the worldwide cheating scandal already engulfing the world’s largest automaker. Depending on what the Environmental Protection Agency eventually finds, it raises the possibility of even more severe punishment. Volkswagen confirmed to AP on Tuesday that the “auxiliary emissions control device” at issue operates differently from the “defeat” software included in the company’s 2009 to 2015 models and revealed last month.

The new software was first revealed to EPA and California regulators on 29 September, prompting the company last week to withdraw applications for approval to sell the 2016 model cars in the US. “We have a long list of questions for VW about this,” said Janet McCabe at EPA. “We’re getting some answers from them, but we do not have all the answers yet.” The delay means that thousands of 2016 Beetles, Golfs and Jettas will remain quarantined in US ports until a fix can be developed, approved and implemented. Diesel versions of the Passat sedan manufactured at the company’s plant in Chattanooga, Tennessee, also are on hold. Volkswagen already faces a criminal investigation and billions of dollars in fines for violating the Clean Air Act for its earlier emissions cheat, as well as a raft of state investigations and class-action lawsuits filed on behalf of customers.

If EPA rules the new software is a second defeat device specifically aimed at gaming government emissions tests, it would call into question repeated assertions by top VW executives that responsibility for the cheating scheme lay with a handful of rogue software developers who wrote the illegal code installed in prior generations of its four-cylinder diesel engines. That a separate device was included in the redesigned 2016 cars could suggest a multi-year effort by the company to influence US emissions tests that continued even after regulators began pressing the company last year about irregularities with the emissions produced by the older cars.

VW has provided precious little info for its clients. That’ll backfire.

• VW Customers Demand Answers And Compensation Over Emissions Scandal (Guardian)

Nine out of 10 Volkswagen drivers in Britain affected by the diesel emissions scandal believe they should receive compensation, increasing the pressure on the carmaker as it attempts to recover from the crisis. Almost 1.2m diesel vehicles in Britain are involved in the scandal, out of 11m worldwide, and VW faces a hefty bill if it is forced to make payouts to motorists. The company has put aside €6.5bn (£4.8bn) to deal with the cost of recalling and repairing the affected vehicles, but it also faces the threat of fines and legal action from customers and shareholders. There is a growing frustration among VW drivers in the UK over the lack of information about how their vehicle will be repaired, according to the consumer watchdog Which?. VW has sent letters to affected customers, arriving this week.

However, the letters state that the company is still working on its plans and another letter will be sent when these are confirmed. Paul Willis, the managing director of VW UK, told MPs on Monday that the recall of vehicles may not be completed by the end of 2016 and that it was premature to discuss compensation. However a survey by Which? has found that nine out of 10 affected motorists want compensation. Richard Lloyd, the executive director of Which?, said: “Many VW owners tell us they decided to buy their car based on its efficiency and low environmental impact, so it’s outrageous that VW aren’t being clear with their customers about how and when they will be compensated.

“Volkswagen UK must set out an urgent timetable for redress to the owners of the affected vehicles. We also need assurances from the government that it is putting in place changes to prevent anything like this happening again.” In the wake of the scandal, 86% of VW drivers are concerned about the environmental impact of their car, while 83% questioned the impact on its resale value and 73% feared the performance of their vehicle would be affected. More than half of the VW customers said they had been put off from buying a VW diesel car in the future. A total of 96% stated that fuel efficiency was an important factor in buying the diesel vehicle, while 90% said it was the seemingly limited environmental impact. Both these issues are affected by the scandal.

“..it’s unclear “why the results of so many combat sorties are so insignificant.”

• Lavrov: Unclear What Exactly US Is Doing In Syria (RT)

The Russian Foreign Ministry has questioned the effectiveness of the US-led year-long air campaign in Syria, saying it’s unclear “why the results of so many combat sorties are so insignificant.” Failing to curb ISIS, the US has now “adjusted” its program. “We have very few specifics which could explain what the US is exactly doing in Syria and why the results of so many combat sorties are so insignificant,” Russian Foreign Minister Sergey Lavrov told Russian channel NTV. “With, as far as I know, 25,000 sorties they [US-led air campaign] could have smashed the entire [country of] Syria into smithereens,” the minister noted.

Lavrov questioned the Western coalition’s objectives in their air campaign, stressing that Washington must decide whether its aim is to eliminate the jihadists or to use extremist forces to pursue its own political agenda. “Maybe their stated goal is not entirely sincere? Maybe it is regime change?” Lavrov said, as he expressed doubts that weapons and munitions supplied by the US to the so-called “moderate Syrian opposition” will end up in terrorists’ hands. “I want to be honest, we barely have any doubt that at least a considerable part of these weapons will fall into the terrorists’ hands,” Lavrov said. American airlifters have reportedly dropped 50 tons of small arms ammunition and grenades to Arab groups fighting Islamic State (IS, formerly ISIS/ISIL) in northern Syria.

US officials assure concerned parties that the fighters have been screened and are really confronting IS. “We do not want the events, when [some countries] not only cooperated with terrorists but plainly relied on them, to happen again,” Lavrov said, recalling that the French, for instance supplied weapons to anti-government forces in Libya in violation of a UN Security Council resolution. Lavrov has called on the US to “transcend themselves” and decide what is more important, either “misguided self-esteem realization” or getting rid of the “greatest threat” that is challenging humanity.

Scary.

• Two-Thirds Of British Hospitals Offer Substandard Care (Guardian)

Two-thirds of hospitals are offering substandard care, according to the NHS regulator, which also warns that pressure to cut costs could lead to a further worsening of the health service in the coming years. The Care Quality Commission also said that levels of safety are not good enough in almost three-quarters of hospitals, with one in eight being rated as inadequate. In its annual report, the watchdog detailed examples including one hospital where A&E patients were kept on trolleys overnight in a portable unit and not properly assessed by a nurse; while in another, medicine was given despite the patient’s identity not being properly confirmed. In some care homes, residents either received their medication too late or were given too much of it, leading to overdoses.

Understaffing and money problems are already contributing to a situation where 65% of hospitals, mental health and ambulance services either require improvement or are providing inadequate care.Too many patients are already receiving care that is unacceptably poor, unsafe or highly variable in its quality, from staff who range from the exceptional to those who lack basic compassion, it adds. In the report, England’s health and social care regulator raises concerns that patients could suffer as the service seeks to make the £22bn of efficiency savings by 2020 that NHS England has offered and health secretary Jeremy Hunt is pressing it hard to start delivering. “The environment for health and social care will become even more challenging over the next few years,” it states. “Tensions will arise for providers about how to balance the pressures to increase efficiency with their need to improve or maintain the quality of their care”.

As much humanity as refugees receive. “They can guard the car with 10,000 police officers if they wish..”

• Assange ‘In Constant Pain’ As UK Denies Safe Passage To Hospital For MRI (RT)

The UK has refused to grant Julian Assange safe passage to a hospital for an MRI scan and diagnosis, WikiLeaks has said, adding that he has been in “severe pain” since June. Assange’s lawyer has accused the UK of violating his client’s basic rights. WikiLeaks said that the UK government refused to satisfy Assange’s request to visit a hospital unhindered after the Ecuadorian Embassy filed one on his behalf on September 30. An MRI was recommended by a doctor, Laura Wood, back in August, according to the statement read aloud at a press conference given by Ecuadorian Foreign Minister Ricardo Patino on Wednesday.

“He [Julian Assange] has been suffering with a constant pain to the right shoulder region…[since June 2015]. There is no history of acute injury to the area. I examined him and all movements of his shoulder (abduction, internal rotation and external rotation) are limited due to pain. I am unable to elicit the exact cause of his symptoms without the benefit of further diagnostic tests, [including] MRI,” Patino read, citing a letter from the doctor. The UK’s Foreign and Commonwealth Office (FCO) issued a reply stating that Assange could not be guaranteed unhindered passage for a more thorough medical diagnosis on October 12.

Patino has criticized the decision saying that “even in times of war, safe passage are given for humanitarian reasons.” The Ecuadorian Embassy asked the UK authorities to offer a safe passage for a few hours for Assange into a London Hospital “under conditions agreed upon by UK and Ecuador,” Patino said, according to the WikiLeaks press release. “They can guard the car with 10,000 police officers if they wish,” the FM stressed, according to the press-release.

If Canada elects Harper again, forget about the country.

• Will Trudeaumania Sweep Canada’s Liberals Into Power – Again? (Guardian)

In the longest official federal election period in the nation’s history, it now appears Liberal leader Justin Trudeau may well be the nation’s next prime minister, with polls showing him establishing a commanding lead over his rivals, and the trend continuing to grow. It’s a stunning development in an election that could be described as an epic cliffhanger. Many, if not most, Canadians are eager for a change from prime minister Stephen Harper and his Conservative government, but with two worthy and eager rivals – the New Democratic party’s Thomas Mulcair and the Liberal party’s Justin Trudeau – where those change-hungry voters will place their bet has been difficult to decipher. When Harper announced the campaign in early August, it was met with immediate cynicism.

The extended campaign time (79 days as opposed to what had been the standard 37 days) gave the Conservatives an immediate advantage, given that their financial war chest is considerably larger than that of the Liberals or NDP. The Conservative strategy seemed a sound one: let the two opposition parties battle it out while the ruling party would float as much advertising as possible, handily winning over another majority. But the ruling party has faced considerable obstacles, including an astonishingly embarrassing ongoing scandal involving appointees to the unelected Senate (the Canadian version of the House of Lords) and a flagging economy. Polls have indicated many Canadians want change.

Ironically enough, one of the main reasons Canadians may have shifted their allegiances to the Liberal party leader is precisely because of the most famous negative ad campaign of the election, paid for and put into heavy rotation by the Conservatives. The ad, first rolled out in May by the Conservatives, has a group of people looking over an application by Justin Trudeau for the PM’s job. Perhaps most striking for its laughably bad acting, the ad has people concluding Trudeau is a lightweight who is “just not ready” for the job, with one concluding “nice hair, though”.

The ad attempts to suggest that not only is Trudeau simply not ready but voting for him is tantamount to a risky foray into untested waters, given the turbulent global economy and nagging threats of terror (the Cons have been playing both up at every turn). But a funny thing happened on the way through this fear-mongering: by just about any standards, Trudeau has run an excellent campaign. In late August he unveiled a campaign promise to invest billions of dollars in Canada’s roads, bridges, public transit and other public facilities. He suggested these were all necessary investments, which would help to stimulate the moribund economy, and went one step further, suggesting if he formed government, he would be open to deficit spending – moderate deficits, he cautioned, which would be over by 2019.

Europe has it coming.

• EU Need for Turkey to Halt Refugee Flow Collides With History (Bloomberg)

The EU needs Turkey more than ever to halt the flow of refugees from the Middle East – and has little to offer in return. With its decade-old bid to join the 28-nation union stalled, Turkey will be the topic without being at the table at a summit of EU leaders Thursday in Brussels. On the same mission, Angela Merkel plans to travel to Istanbul on Sunday to meet Turkish leaders. Relations have been all downhill since EU membership talks with Turkey began in 2005, years before civil war in neighboring Syria sent refugees streaming toward Europe. Turkey is stymied in part by Cyprus, its Mediterranean rival, and an anti-expansion mood in northern Europe. Meantime, a blossoming Turkish economy fed the sense that the country of 77 million could get along fine on its own.

“Many people in the EU are regretting the unproductive approach they had to the accession negotiations with Turkey, blocking the process and creating a deep sense of resentment in Ankara,” said Amanda Paul, an analyst at the European Policy Centre in Brussels. “If it were going along normally, it would be easier to reach this sort of agreement with Turkey.” Contacts are so strained that after President Recep Tayyip Erdogan went to Brussels on Oct. 5 to consider an “action plan” on migration, Turkish officials said the plan wasn’t discussed. EU Commission President Jean-Claude Juncker’s spokesman downgraded it to “an accord in principle to undertake a process.”

After Syria descended into war in 2011, European governments were content to let neighboring states such as Turkey, Lebanon and Jordan cope with the refugee influx. Only once Turkey amassed 2.2 million and they started heading northwest did European leaders wake up, finding themselves in the biggest refugee crisis since World War II. Germany, with a population of 81 million, is being roiled by this year’s expected arrival of at least 800,000 refugees, which is causing strains in Merkel’s governing coalition. “Turkey fears that even more refugees will come because the fighting in Syria isn’t letting up,” Merkel said Wednesday in a speech in eastern Germany. “I will fly to Turkey on Sunday to see how we can help on the ground so Turkey’s burden is shouldered more widely.”

“It’s just a political issue that is being ramped up by those who can use the excuse of even the smallest community as a threat to the sort of national purity of the state..”

• Refugee Rhetoric Echoes 1938 Summit Before Holocaust: UN Official (Guardian)

The dehumanising language used by UK and other European politicians to debate the refugee crisis has echoes of the pre-second world war rhetoric with which the world effectively turned its back on German and Austrian Jews and helped pave the way for the Holocaust, the UN’s most senior human rights official has warned. Zeid Ra’ad Al Hussein, the UN high commissioner for human rights, described Europe’s response to the crisis as amnesiac and “bewildering”. Although he did not mention any British politicians by name, he said the use of terms such as “swarms of refugees” were deeply regrettable. In July, the UK prime minister, David Cameron, referred to migrants in Calais as a “swarm of people”.

At this month’s Conservative party conference, the home secretary, Theresa May, was widely criticised for suggesting that mass migration made it “impossible to build a cohesive society”. In an interview, the high commissioner said the language surrounding the issue reminded him of the 1938 Evian conference, when countries including the US, the UK and Australia refused to take in substantial numbers of Jewish refugees fleeing Hitler’s annexation of Austria on the grounds that they would destabilise their societies and strain their economies. Their reluctance, Zeid added, helped Hitler to conclude that extermination could be an alternative to deportation.

Three-quarters of a century later, he said, the same rhetoric was being deployed by those seeking to make political capital out of the refugee crisis. “It’s just a political issue that is being ramped up by those who can use the excuse of even the smallest community as a threat to the sort of national purity of the state,” he said. “If you just look back to the Evian conference and read through the intergovernmental discussion, you will see that there were things that were said that were very similar.”

“..there are cases of Afghan children drowning off Greece that would touch the public deeply if publicised..”

• ‘Lesbos Is Carrying The Sins Of The Great Powers’ (ES)

Four rubber boats arrive in an hour, 40 to 50 people in each. One man nudges his two-year-old daughter towards me while he fetches his son. I try to soothe her tears. While two French doctors attend the injured, most of the new arrivals seem in good health and high spirits. Many of them, with their fashionable sportswear and smart backpacks, could be day-trippers. But it feels very different as night falls and the coach bearing me and my fellow Startup Boat activists — young volunteers trying to find tech and strategic solutions to the problems posed by the refugee crisis — takes us past a crowd of 150. None of the promised buses have arrived to take them to refugee camps at Moria and Karatape, 20 miles away.

Welcome to Lesbos, where in recent weeks 1,500-3,000 people — predominantly Syrians, then Iraqis and Afghans — have arrived daily, paying traffickers €1,200 for the short passage from Turkey. The former military camp at Moria has an official capacity of 410 but at times has housed 1,000, with hundreds camped outside. Karatape, set up specifically for Syrians, can take 1,000. While we were on Lesbos, a 24-hour period when police were off duty left Karatape at twice capacity, and food stores exhausted. The situation, says Lesbos mayor Spyros Galinos, is like “a bomb in my hands”. “I believe Lesbos is carrying the sins of great powers,” he says. “If this dot on the map could manage to accommodate such high numbers, all member states can help us.”

The problems extend beyond Syrian refugees. In Athens, young Afghan Mohammad Mirzay tells me why EU nations have made a “big mistake”, allowing Syrians the right to remain, however many countries they have travelled through, but not extending this to others. The Taliban are persecuting the Hazaras, he says, while there are cases of Afghan children drowning off Greece that would touch the public deeply if publicised. He takes me to Galatsi Olympic Hall, a venue at the 2004 Games, now designated a safe house. Families are camped in the fetid space. “Why should we be divided?” says Mirzay. “We should push in altogether. We should support ‘human’.”

Debt Rattle October 12 2015

Oct 122015

October 12, 2015 Posted by Raúl Ilargi Meijer at 9:02 am Finance Tagged with: commodities, contagion, deflation, Glencore, housing, panic, QE, refugees, spending, Syria, VW 4 Responses »

Dorothea Lange Country filling station, Granville County, NC July 1939

• The Golden Age Of Central Banks Is At An End – Time To Tax And Spend? (Guardian)

• QE Causes Deflation, Not Inflation (Josh Brown)

• Western Economies Still Too Weak To Handle Fed Rate Rise, Says China (Guardian)

• The World Still Needs A Way To Stop Hot Money Scalding Us All (Guardian)

• Glencore Shares Halted Pending Statement On Proposed Asset Sales (Bloomberg)

• Commodity Contagion Sparks Second Credit Crisis As Investors Panic (Telegraph)

• Japan Inc. Sounds Alarm On Consumer Spending (Reuters)

• World Cannot Spend Its Way Out Of A Slump, Warns OECD Chief (Telegraph)

• Growing Government Debt Will Test Euro-Zone Solidarity (Paul)

• EU Bank Chief ‘Could Recall Volkswagen Loans’ (BBC)

• UK Government Emissions Tester Paid £80 Million By Car Firms (Telegraph)

• Volkswagen’s Home City Enveloped In Fear, Anger And Disbelief (FT)

• The Russians Are Fleeing London’s Stock Market (Bloomberg)

• Soaring London House Prices Sucking Cash Out Of Economy (Guardian)

• Australia Housing Bust Now The Greatest Recession Risk (SMH)

• Don’t Let The Nobel Prize Fool You. Economics Is Not A Science (Joris Luyendijk)

• The Tragic Ending To Obama’s Bay Of Pigs: CIA Hands Over Syria To Russia (ZH)

• EU Must Stop ‘Racist Criteria’ In Refugee Relocation – Greece (Reuters)

“The world is one recession away from a period of stagnation and prolonged deflation in which the challenge would be to avoid a re-run of the Great Depression of the 1930s.”

• The Golden Age Of Central Banks Is At An End – Time To Tax And Spend? (Guardian)

Turn those machines back on. So demands the unscrupulous banker, Mortimer Duke, when he finds he and his brother Randolph have been ruined by their speculative scam in the film Trading Places. Having lost all his money betting wrongly on orange juice futures, Mortimer demands that trading be restarted so that he can win it back. It’s not known whether Christine Lagarde is a secret fan of John Landis movies. As a French citizen, François Truffaut might be more her taste. There is, though, more than a hint of Trading Places about the advice being handed out by Lagarde’s IMF to global policymakers. To Europe and Japan, the message is to print some more money. Keep those machines turned on, in other words.

To the US and the UK, there was a warning that raising interest – something central banks in both countries are contemplating – could have nasty spillover effects around the rest of the world. Think long and hard before turning those machines off because you may have to turn them back on again before very long, Lagarde is saying, because the big risk to the global economy is not that six years of unprecedented stimulus has caused inflation but that the recovery is faltering. These are indeed weird times. Share prices are rising and so is the cost of crude oil, but the sense in financial markets is that the next crisis is just around the corner. The world is one recession away from a period of stagnation and prolonged deflation in which the challenge would be to avoid a re-run of the Great Depression of the 1930s.

That fate was avoided in 2008-09 by strong and co-ordinated policy action: deep cuts in interest rates, printing money, tax cuts, higher public spending, wage subsidies and selective support for strategically important industries. But what would policymakers do in the event of a fresh crisis? Would they double down on measures that have already been found wanting or go for something more radical? Ideas are already being floated, such as negative interest rates that would penalise people for holding cash, or the creation of money by central banks that would either be handed straight to consumers or used to finance public infrastructure, also known as “people’s QE”.

Time people understood this. “QE is deflationary because it shrinks net interest margins for banks via depressing treasury bond yields. It also enriches the already wealthy via asset price inflation but they do not raise their consumption in response..”

• QE Causes Deflation, Not Inflation (Josh Brown)

Why were the inflation hawks so wrong about quantitative easing? Why didn’t all the money printing lead to commodity prices skyrocketing? One answer is that, while bank reserves were boosted, lending didn’t take off and there was no uptick in the velocity of money the speed at which capital zooms through the economy and turns over. Absent velocity of money, QE could be looked at as either ineffective or actually causing a deflationary environment, where capital is hoarded and everyone is too petrified to risk it on productive endeavors. Christopher Wood (CLSA) explains further in his new GREED & fear note:

To GREED & fear the best way to illustrate that quantitative easing is not working is the continuing decline in velocity and the resulting lack of a credit multiplier since the unorthodox monetary regime was introduced. In America, Japan and the Eurozone velocity has continued to decline since the financial crisis in 2008. Thus, US, Japan and Eurozone money velocity, measured as the nominal GDP to M2 ratio, has declined from 1.94x, 0.7x and 1.29x respectively in 1Q98 to 1.5x, 0.55x and 1.05x in 2Q15 (see Figure 3).

Indeed, US money velocity is now at a six-decade low. This is why those who have predicted a surge in inflation in recent years caused by the Fed printing money have so far been proven wrong. For inflation, as defined by conventional economists like Bernanke in the narrow sense of consumer prices and the like, will not pick up unless the turnover of money increases. This is the problem with the narrow form of mechanical monetarism associated with the likes of American economist Milton Friedman.

Wood goes on to make the point that QE is deflationary because it shrinks net interest margins for banks via depressing treasury bond yields. It also enriches the already wealthy via asset price inflation but they do not raise their consumption in response, because how much more shit can they possibly buy? Finally, it leads to a preference of share buybacks vs investment spending because the payback from financial engineering is so much easier and more immediate.

And China too.

• Western Economies Still Too Weak To Handle Fed Rate Rise, Says China (Guardian)

The slow recovery of western economies means the US Federal Reserve should not raise interest rates yet, according to the Chinese finance minister. Speaking on the sidelines of the annual meeting of the World Bank and International Monetary Fund in Lima, Lou Jiwei said developed economies were to blame for the global economic malaise because their slow recoveries were not creating enough demand. “The United States isn’t at the point of raising interest rates yet and under its global responsibilities it can’t raise rates,” Lou said in an interview published in the China Business News on Monday. The minister said the US “should assume global responsibilities” because of the dollar’s status as a global currency.

Lou’s comments were published hours after Fed vice-chairman Stanley Fischer said policymakers were likely to raise interest rates this year, but that that was “an expectation, not a commitment”. Asked about the global economic situation, Lou said the problem was not with developing countries. “Rather, it is the continued weak recovery of developed countries” that’s hindering the global economy, he said. “Developed countries should now have faster recoveries to give developing countries some external demand.” Lou welcomed the structural reforms in Europe as a positive development, but said geopolitics and the Syrian refugee crisis would have an impact on its economy. He described the slowdown in China’s economy as a healthy process, but said policy makers needed to manage it carefully.

“The slowing of China’s economic growth is a healthy process, but it is a sensitive period. The Chinese government must make accurate adjustments, keeping the economy within a predictable space while continuing to promote internal structural reforms,” he said.

Stop issuing it?!

• The World Still Needs A Way To Stop Hot Money Scalding Us All (Guardian)

Bill Gross, America’s “bond king”, who made his fortune betting on IOUs from companies and governments, is suing his erstwhile employer for $200m, we learned last week. He says his colleagues were driven by greed and “a lust for power”. His chutzpah was a timely reminder of the vast sums won and lost in the world of globalised capital, but also of the power that still lies in the hands of men (they are mostly men) like Gross, who sit atop a system that remains largely untamed despite the lessons of the past seven years. To those caught up in it, America’s sub-prime crash and its aftermath felt like a unique – and uniquely dreadful – chain of events, a financial and human disaster on an unprecedented scale. Yet it was just the latest in a series of periodic convulsions in modern capitalism, from the east Asia crisis to the Argentine default, to Greece’s humiliation at the hands of its creditors.

The first tremors of the next earthquake could be sensed by the central bankers and finance ministers gathered in Lima for the IMF’s annual meetings this weekend. Many were fretting about the knock-on effects of the downturn in emerging economies – led by China. Take a step back, though, and both the emerging market slowdown and the boom that preceded it are just the latest symptom of the ongoing malaise afflicting the global financial system. Seven years on from the Lehman collapse in September 2008, there has been some re-regulation – the Bank of England will soon announce details of the Vickers reforms, which will make banks split their retail arms from the riskier parts of their business – but many elements of the financial architecture remain unchallenged.

Capital swills unchecked around the world; governments feel compelled to prioritise the whims of international investors such as Gross – who tend to have a neoliberal bent – over the needs of domestic businesses; and credit ratings agencies remain all-powerful, despite their dismal record. The theory behind free-flowing capital is that it allows the world’s savings to find the most profitable opportunities – even far from home – and provides the impetus for investment and entrepreneurialism, aids economic development and boosts growth. Yet as Unctad, the UN’s trade and development arm, detailed in its annual report last week, the reality is very different. Capital flows are often driven more by the global financial weather than by the investment prospects in emerging economies; they can be disproportionately large; and they can change abruptly with the market mood, overwhelming domestic efforts to promote stable development.

Not a good sign: “The company is seeking to raise more than $1 billion by selling future production of gold and silver”

• Glencore Shares Halted Pending Statement On Proposed Asset Sales (Bloomberg)

Glencore, which has flagged divestments as part of a plan to cut debt by about $10 billion after commodity prices plunged, halted trading in Hong Kong Monday pending an announcement on proposed asset sales in Australia and Chile. The Swiss trader and miner said last month it’s planning to raise about $2 billion from the sale of stakes in its agricultural assets and precious metals streaming transactions. While the company didn’t identify specific assets in the statement requesting the trading halt, it has copper operations in Chile and coal, zinc and copper mines in Australia. The potential sales are part of the debt-cutting program that Glencore CEO Ivan Glasenberg announced in early September. The plan includes selling $2.5 billion of new stock, asset sales, spending cuts and suspending the dividend. Taken together, the measures aim to reduce debt from $30 billion nearer to $20 billion.

The company is seeking to raise more than $1 billion by selling future production of gold and silver, two people familiar with the situation said Oct. 1. The company produced 35 million ounces of silver last year and 955,000 ounces of gold from mines in South America, Australia and Kazakhstan. Investors including Qatar Holding, the direct investment arm of the Gulf state’s sovereign wealth fund, have expressed an interest in buying a minority stake in Glencore’s agriculture business, according to three people familiar with the conversations. Citigroup, one of the banks hired to run the sale alongside Credit Suisse, said earlier this month that the whole business could be worth as much as $10.5 billion. The company has also announced cuts to copper and zinc output in an effort to support metal markets.

“Without the oxygen of cheap debt, commodity trading houses are finished. Each trade in oil or iron ore might generate only 1pc to 2pc in margin – but this greatly increases when magnified by debt. The only limit on profits is then how much you can borrow. Greed drives returns. ”

• Commodity Contagion Sparks Second Credit Crisis As Investors Panic (Telegraph)

The collapse in commodity prices has sparked a second credit crisis as investors dump high-yield bonds, shattering the fragile confidence necessary to support global markets. Those calling it a Lehman moment forget their history. Current events have chilling similarities to the Bear Stearns collapse and mark the start of a new crisis, not the end. The world of commodity trading has been thrown into chaos as the cost of borrowing to fund operations soars. Glencore has become the poster child for the sector’s woes as its shares have more than halved in value during the past six months. More worrying has been the impact on the group’s credit profile. Glencore’s US bonds due for repayment in 2022 have collapsed to around 82 cents in the dollar. Only four months earlier, they had been stable at around 100 cents, implying that those who lent money would get it back plus interest.

Now for every dollar lent to Glencore, banks face losses, and as the price of bonds falls the yield has risen to 7.4pc. Without the oxygen of cheap debt, commodity trading houses are finished. Each trade in oil or iron ore might generate only 1pc to 2pc in margin – but this greatly increases when magnified by debt. The only limit on profits is then how much you can borrow. Greed drives returns. Glencore is a profitable business when it can borrow at around 4pc, but if it has to refinance at 7pc to 10pc those slim profit margins evaporate. The fear of those holding Glencore debt can be seen in the soaring price for the insurance against a default, or credit default swaps (CDS). Glencore five-year CDS has soared to 625, from about 280 just a month ago. A rule of thumb is that a CDS above 400 means a serious risk of a default, or about a 25pc chance in the next five years.

Glencore has taken drastic action to reduce its $50bn debts, or $30bn if all its stocks of metals are deducted, which it reported at the end of September. A $2.5bn equity raising has been completed, the dividend has been axed and assets sold as part of a $10bn debt reduction plan. However, if borrowing costs remain where they are, the game may already be over. If Glencore itself were to fold, it would be a huge problem with its $221bn in annual revenues, but when combined with the other commodity trading houses, Trafigura, Vitol and Noble, the fallout would be disastrous. Trafigura is not listed but its debt is publicly traded and the bonds have collapsed to 86 cents in the dollar, or a yield of 8.9pc. Noble, the Singapore trading house, has also seen its shares collapse as commodity prices slump. First-half profits from Noble’s metals trading have fallen 98pc to just $3m. This has been offset by strong results in oil trading, but the problems remain.

Deflation.

• Japan Inc. Sounds Alarm On Consumer Spending (Reuters)

Do not believe in official statistics, Japanese retailers seem to be saying, as they cut earnings forecasts and warn of lackluster consumer spending, a key growth engine for Japan at a time when exports and factory output are stalling. If you go by the larger-than-expected 2.9% gain in household spending in August – the first year-on-year rise in three months – then consumption looks like it is finally alive and well again, after a sales tax hike last year stifled the economy. But profits of retailers suggest the spending data, which has a small sample size, has not captured the full picture. Restrained household consumption raises the stakes for a central bank policy meeting on Oct. 30, and for the government’s plan to flesh out new economic policies before the year-end.

“Consumer spending has ground to a halt,” said Noritoshi Murata, president of Seven & i Holdings (3382.T). “There are a lot of concerns about the global economy and not many positives for consumption. Weak spending could continue into the second half of the fiscal year.” Seven & i, which operates Japan’s ubiquitous 7-Eleven convenience stores, on Oct. 8 trimmed its full-year profit forecast by 1.6% to 367 billion yen ($3.05 billion) and cut its revenue forecast by 3.9% to 6.15 trillion yen, triggering a fall in its shares in Tokyo. The main problem is wages are not rising fast enough to keep pace with rising food prices, and consumers are starting to cut back on other goods. Real wages, adjusted for inflation, rose 0.5% in July from a year earlier. That was the first gain in 27 months.

But wage growth subsequently slowed to 0.2% in August, and summer bonuses fell from last year, government data shows. Another problem is more and more workers are getting stuck in jobs with low pay. Part-time and irregular workers comprised a record 37.4% of the workforce last year, according to the National Tax Bureau. Irregular workers earn on average less than half of what regular full-time workers earn, tax data show. The third problem is the government plans to raise the nationwide sales tax again, to 10% in 2017 from 8%, and households are already changing their behavior.

Structural changes for the OECD means opening stores on Sundays. It doesn’t get more clueless.

• World Cannot Spend Its Way Out Of A Slump, Warns OECD Chief (Telegraph)

Countries that try to spend their way out of crisis risk becoming stuck in a permanent malaise, according to the head of the Organisation for Economic Co-operation and Development (OECD). Angel Gurria said central banks were running out of firepower to boost economies in the event of another sharp slowdown, while governments had limited space to ramp up spending. The secretary general said structural reforms and more international co-operation were badly needed in a world of deteriorating growth. “Countries that say: I’ll spend my way out of this third slump. I say: no you won’t, because you’ve already done that, and you ran out of space,” Mr Gurria said on the sidelines of the IMF’s annual meeting in Lima, Peru.

“Now countries are trying to reduce the deficit and debt because that’s a sign of vulnerability and the rating agencies are breathing down their neck – they’ve already downgraded Brazil and France. “We don’t have room to inflate our way out of this one. So we go back to the same issue: it’s structural, structural, structural.” The OECD has been working with countries such as Greece to liberalise product markets, which deal with competitiveness issues and labour laws. Mr Gurria, who has urged countries for years to implement structural reforms, said he was frustrated at the lack of progress: “If you listen to the conversations we have on opening on Sundays you wouldn’t believe it. Or the debates we have about [the] 35 hour [working week]. These are the real issues.

“The people, the trade unions, they all have a stake and their arguments are strong. But where countries have room is to make structural changes, and central banks can help by continuing to ease. “[With quantitative easing] there is a question of whether we’re entering a territory of diminishing returns. Of course we must use it, but there’s not a lot of room left.” Mr Gurria conceded that the benefits of reform were gradual. “Germany modified its labour laws 12 years ago, and it’s reaping the benefits brilliantly and gallantly because of much better performance during the crsis. Spain did it three years ago, and they’re reaping the benefits now. Italy did it last month, and it will take a couple of years.”

France as the black shhep. But Germany’s recent woes should not be underestimated.

• Growing Government Debt Will Test Euro-Zone Solidarity (Paul)

The German chancellor and the French president stood side by side last Wednesday to address the European Parliament. But beneath that show of solidarity lies a story of two diverging economies at the heart of the euro zone. At the time the euro was born, Germany’s economy – bearing close to $2 trillion in reunification costs – looked not too dissimilar to France’s. Today, however, the gap between the two countries is the widest since the reunification. Not only is the debt-to-gross-domestic-product ratio of France and Germany the widest in 20 years, but – more importantly in a currency union without a federal state – the latter has a huge and increasing current surplus, while the former is in deficit.

This is not surprising. Germany, while benefiting greatly from the opened markets of its fixed exchange rate partners, undertook a series of reforms to improve its economic position. France was not only unable to reform but indulged in the 35-hour workweek. If we were still living under the European Monetary System that predated the euro, France would simply have had to devalue, as it did many times before the euro. Under the euro, helped by its trade surplus, Germany kept a tighter budget, while the French state kept spending an ever-higher percentage of its GDP in repeated attempts to support its faltering economy. As a result, its debt is now close to the symbolic 100% of GDP level, not accounting for unfunded pension liabilities, and the rating agencies have stripped it of its AAA rating and continue to downgrade it. The European Commission, in its last assessment, speaks of France facing “high sustainability risk” in the medium term.

This is not just a French problem though; it’s a euro-zone one. According to Eurostat, in the first quarter of 2015, the euro-zone debt-to-GDP ratio was 92.9% — the highest it has been since the creation of the euro. Never has the zone been so far away from its own Maastricht fiscal sustainability criteria. Huge differences between countries exist, but the only country of the original 12 euro-zone members still respecting the debt and deficit levels is tiny Luxembourg. What does this say for the future of the euro?

More billions to slide out of VW coffers.

• EU Bank Chief ‘Could Recall Volkswagen Loans’ (BBC)

The European Investment Bank (EIB) could recall loans it gave to Volkswagen, its president told a German newspaper. Werner Hoyer told Sueddeutsche Zeitung that the EIB gave loans to the German carmaker for things like the development of low emissions engines. He said they could be recalled in the wake of VW’s emissions cheating. The paper reported that about €1.8bn of those loans are still outstanding. Mr Hoyer is quoted as saying that the EIB had granted loans worth around €4.6bn to Volkswagen since 1990. “The EIB could have taken a hit [from the emissions scandal] because we have to fulfil certain climate targets with our loans,” the Sueddeutsche Zeitung quoted Mr Hoyer as saying. Mr Hoyer was attending the IMFs meeting in Lima, Peru. He added that the EIB would conduct “very thorough investigations” into what VW used the funds for.

Mr Hoyer told reporters that if he found that the loans were used for purposes other than intended, the EU bank would have to “ask ourselves whether we have to demand loans back”. He also said he was “very disappointed” by Volkswagen, adding the EIB’s relationship with the carmaker would be damaged by the scandal. Volkswagen admitted that about 11 million of its vehicles had been fitted with a “defeat device” – a piece of software that duped tests into showing that VW engines emitted fewer emissions than they really did. Mr Hoyer’s comments come days after VW’s US chief Michael Horn faced a Congress panel to answer questions about the scandal, which has prompted several countries to launch their own investigations into the carmaker. On Monday, VW’s UK managing director Paul Willis is due to appear before members of parliament at an informal hearing.

TEXT

• UK Government Emissions Tester Paid £80 Million By Car Firms (Telegraph)

The state agency that carries out emissions tests on new vehicles has been paid more than £80 million by car companies over the last decade, The Daily Telegraph can disclose. The Vehicle Certification Agency, whose chief will appear on Monday before a Commons committee looking at the Volkswagen scandal, has reported a year-on-year rise in profits, receiving almost £13 million in 2014/15 alone. Campaigners claim Europe’s national certification agencies are competing so fiercely for business it is not in their interests to catch out car-makers. Samples of new cars must undergo checks by approval agencies to ensure they meet European performance standards. Once a car has been type-approved by the manufacturer s chosen national agency, it can be sold anywhere in Europe.

“Car makers are able to go type-approval shopping around Europe to get the best deals for them”, said Greg Archer, of campaign group Transport & Environment. “No one is checking that type approval authorities are doing an impartial or good job and this needs to change”, he added. Last month Volkswagen admitted that it had systematically installed software in VW and Audi diesels since 2009 to deceive regulators who were measuring their exhaust fumes. Since 2005 the VCA -an executive agency of the Department for Transport- has received a total of £84million from “product certification/type-approval services”, according to a Greenpeace investigation. It said the VCA’s outgoing CEO Paul Markwick, interim chief executive Paul Higgs and chief operating officer John Bragg had held senior positions with major car manufacturers.

MPs on the Commons select committee on transport will question Volkswagen bosses, Transport Secretary Patrick McLoughlin and the VCA’s acting chief, Mr Higgs, over the emissions violations. A Department for Transport spokesman said the VCA charged car-makers in order to cover its operating costs and to provide value for taxpayers. He added: “Whilst the VCA charges the industry for its services, its governance framework is set by government.” It claimed there was “a conflict of interest” . A Greenpeace spokesman said: The Government s testing regime failed the public. The question is why? “Our evidence suggests it’s not actually in the VCA’s interests to catch out the car-makers. Their business model -and it has become a business- is to attract manufacturers to test their cars with them. It’s a conflict of interest.”

They’re right to be scared.

• Volkswagen’s Home City Enveloped In Fear, Anger And Disbelief (FT)

Few cities are as dependent on one company as Wolfsburg. Situated 200km west of Berlin, it is home not just to the world’s biggest factory and Volkswagen’s headquarters, it also has a VW Arena where Champions League football is played, a VW bank, and even a VW butcher that makes award-winning curried sausage. “VW is God here,” says a Turkish baker on the main shopping street of Porschestrasse. But news of VW’s diesel emissions scandal has hit the city hard, sparking anger and dismay as well as worries of the financial and employment consequences for both the carmaker and Wolfsburg. Some are even invoking the decline of another motor city Detroit in the US.

“I am worried. It’s not good for Wolfsburg. Detroit stands as a negative example for what can happen: the city has collapsed. The same here is also thinkable,” says Uwe Bendorf, who was born and raised in Wolfsburg and now works at a health insurer. VW’s sprawling factory employs about 72,000 in a city with just 120,000 inhabitants. Over an area of more than 6 sq km, three times the size of the principality of Monaco, the plant churns out 840,000 cars a year, including the VW Golf, Tiguan and Touran models. Among workers, the scandal dominates rather like the chimney stacks of the factory’s power station tower over Wolfsburg.

“It was shock. Then anger. How could they be so stupid?” says one worker, describing his emotions on hearing last month that VW had admitted to large scale cheating in tests on its diesel vehicles for harmful emissions of nitrogen oxides. Another worker says: “Everyone is worried. Will we get our bonus still? Will there be job cuts? There is so much uncertainty.” Outside the factory gates, few are keen to be seen speaking to the media. But this is a city in which VW is omnipresent, and a VW worker never far away.

“Total equity sales by Russian companies this year are set to be about 30 times lower than the 2007 peak..”

• The Russians Are Fleeing London’s Stock Market (Bloomberg)

Russian expansionism is going into reverse, at least on the London stock market. Three of Russia’s major commodity-related companies are already preparing to withdraw their listings after the bursting of the raw-materials boom and a slump in share sales by the nation’s companies from more than $30 billion in 2007 to below $1 billion this year. Eurasia Drilling, the country’s largest oil driller, said last week its owners and managers offered to buy shareholders out and take the company private. That follows a move by potash miner Uralkali PJSC to buy back a major part of its free float, saying in August it may delist shares in London as a result. Billionaire Suleiman Kerimov’s family also plans to take Polyus Gold private.

More may follow as their owners’ interest in using foreign shares as a route to expansion wanes in tandem with overseas investors’ appetite for raw-material and emerging-market stocks, said Kirill Chuyko at BCS Financial Group in Moscow. “Each company has a specific reason, but the common one is that investors’ appetite for commodities-related stocks, especially from the emerging markets, is exhausted,” Chuyko said. “At the same time, the owners see that the companies’ valuations don’t reflect their hopes and wishes, while maintaining the listing requires some effort and expenditure.” Total equity sales by Russian companies this year are set to be about 30 times lower than the 2007 peak, when global commodity prices were about 90% higher than current levels.

A gauge of worldwide emerging-market stocks has declined 14% in the past year. Russia has been among the hardest-hit emerging economies as prices of oil and gas, making up half of the national budget, collapsed since last year. The economy shrank 4.6% in the second quarter from a year earlier. That’s a reversal from when oil prices and growth were high and local companies talked up expanding overseas. Polyus planned to merge with a global rival to become one of the world’s top three gold miners, billionaire Mikhail Prokhorov, who controlled the company at the time, said in December 2010. The producer, which redomiciled to the U.K. in 2012 as part of the plan, never achieved his goal.

How on earth has this not been obvious for years now?

• Soaring London House Prices Sucking Cash Out Of Economy (Guardian)

Soaring London house prices are costing the economy more than £1bn a year and preventing the creation of thousands of jobs, as individuals plough money into buying and renting instead of spending their cash elsewhere, a report has claimed. London’s housing market recovered quickly from the financial downturn of 2008-2009 and in recent years rents and house prices have rocketed. House prices are more than 46% above their pre-crisis peak, at an average of £525,000 according to the Office for National Statistics, while rents in the private sector have risen by a third over the past decade. The report, by business group London First and consultancy CEBR, found that workers in many sectors were now priced out of the capital, while companies were being forced to pay more to attract staff and help them meet living expenses.

The report said there was a knock-on effect on consumer spending, with money being spent on expensive mortgages and rents rather than other goods. It said as much as £2.7bn could have been spent elsewhere in 2015 if housing costs had kept in line with inflation over the past decade. This additional spending could have supported almost 11,000 more jobs, and meant a boost to the economy of more than £1bn this year. Workers in shops, cafés and restaurants, and those performing administrative office roles would have to pay their entire pre-tax salary to rent an average private home in London, the report found, while social workers, librarians, and teachers faced rents equivalent to more than half their salaries.

It said only the best-paid workers, including company directors and those working in financial services, earned enough to rent in central London “affordably”; that is paying less than one-third of their salaries on housing. “The housing crisis is making it difficult to attract and retain staff in retail, care and sales occupations,” it said. “Even if they spend a limited amount on other goods and services, they are effectively priced out of living independently in the capital. They need to co-habit with partners, friends or family, or be eligible for social housing in the capital.” To compensate for high housing costs, employees expected higher salaries, which meant firms were paying an average of £1,720 a year more to workers than they would have had accommodation costs risen only in line with inflation since 2005. This meant an extra wage bill for firms of £5bn this year, and the figure was set to grow to £6.1bn by 2020.

No worries, mate, there’ll be loud denials right up to the end.

• Australia Housing Bust Now The Greatest Recession Risk (SMH)

House prices are set for a 7.5% decline from March next year, with the resulting slowdown in housing lending and construction activity set to hit the broader economy, according to a range of investment banks. “Our economics team are forecasting quarter-on-quarter house prices to fall from the March 2016 quarter before beginning to recover from June 2017,” said Macquarie Research in a briefing note entitled: “Australian Banks: What goes up, must come down”. Macquarie said there would be a “7.5% reduction from peak to trough”. Another economist says heavy household debt and softening house prices pose a greater recession risk to the Australian economy than the slowdown in China.

Bank of America Merrill Lynch Australian economist Alex Joiner says high historic indebtedness, coupled with the chance of a downturn in house-building and prices, could further crimp consumer spending and property investment once the Reserve Bank of Australia was forced to tackle inflation by lifting interest rates. He said while the chance of a “hard landing” in the Chinese economy – on which Australia depends heavily for exports and inward investment – was small, a sharp decline in demand for housing in overheated markets such as Melbourne and Sydney was more probable and would drag the broader economy with it. “We are not forecasting collapse or the bursting of any perceived bubble,” Mr Joiner wrote in a note.

“That said, it is not difficult to envisage a more hard landing scenario in the property market. “This would clearly have a greater negative macro-economic impact channelled through households and the residential construction cycle,” he said. His fears are based on current household indebtedness measures, which have soared to the highest ever. These include the dwelling price-to-income ratio, currently at “never before observed” levels of five and a half times, and a household debt-to-gross-domestic-product ratio, which is at a “record high” 133.6%.

I know Joris has read at least some of the many articles I wrote on the topic. Wonder what he took away from that.

• Don’t Let The Nobel Prize Fool You. Economics Is Not A Science (Joris Luyendijk)

Business as usual. That will be the implicit message when the Sveriges Riksbank announces this year’s winner of the “Prize in Economic Sciences in Memory of Alfred Nobel”, to give it its full title. Seven years ago this autumn, practically the entire mainstream economics profession was caught off guard by the global financial crash and the “worst panic since the 1930s” that followed. And yet on Monday the glorification of economics as a scientific field on a par with physics, chemistry and medicine will continue. The problem is not so much that there is a Nobel prize in economics, but that there are no equivalent prizes in psychology, sociology, anthropology. Economics, this seems to say, is not a social science but an exact one, like physics or chemistry – a distinction that not only encourages hubris among economists but also changes the way we think about the economy.

A Nobel prize in economics implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modelling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths. To illustrate just how dangerous that kind of belief can be, one only need to consider the fate of Long-Term Capital Management, a hedge fund set up by, among others, the economists Myron Scholes and Robert Merton in 1994. With their work on derivatives, Scholes and Merton seemed to have hit on a formula that yielded a safe but lucrative trading strategy. In 1997 they were awarded the Nobel prize.

A year later, Long-Term Capital Management lost $4.6bn in less than four months; a bailout was required to avert the threat to the global financial system. Markets, it seemed, didn’t always behave like scientific models. In the decade that followed, the same over-confidence in the power and wisdom of financial models bred a disastrous culture of complacency, ending in the 2008 crash. Why should bankers ask themselves if a lucrative new complex financial product is safe when the models tell them it is? Why give regulators real power when models can do their work for them?

Excellent overview by Tyler Durden.

• The Tragic Ending To Obama’s Bay Of Pigs: CIA Hands Over Syria To Russia (ZH)

One week ago, when summarizing the current state of play in Syria, we said that for Obama, “this is shaping up to be the most spectacular US foreign policy debacle since Vietnam.” Yesterday, in tacit confirmation of this assessment, the Obama administration threw in the towel on one of the most contentious programs it has implemented in “fighting ISIS”, when the Defense Department announced it was abandoning the goal of a U.S.-trained Syrian force. But this, so far, partial admission of failure only takes care of one part of Obama’s problem: there is the question of the “other” rebels supported by the US, those who are not part of the officially-disclosed public program with the fake goal of fighting ISIS; we are talking, of course, about the nearly 10,000 CIA-supported “other rebels”, or technically mercenaries, whose only task is to take down Assad.

The same “rebels” whose fate the AP profiles today when it writes that the CIA began a covert operation in 2013 to arm, fund and train a moderate opposition to Assad. Over that time, the CIA has trained an estimated 10,000 fighters, although the number still fighting with so-called moderate forces is unclear.

The effort was separate from the one run by the military, which trained militants willing to promise to take on IS exclusively. That program was widely considered a failure, and on Friday, the Defense Department announced it was abandoning the goal of a U.S.-trained Syrian force, instead opting to equip established groups to fight IS.

It is this effort, too, that in the span of just one month Vladimir Putin has managed to render utterly useless, as it is officially “off the books” and thus the US can’t formally support these thousands of “rebel-fighters” whose only real task was to repeat the “success” of Ukraine and overthrow Syria’s legitimate president: something which runs counter to the US image of a dignified democracy not still resorting to 1960s tactics of government overthrow. That, and coupled with Russia and Iran set to take strategic control of Syria in the coming months, the US simply has no toehold any more in the critical mid-eastern nation. And so another sad chapter in the CIA’s book of failed government overthrows comes to a close, leaving the “rebels” that the CIA had supported for years, to fend for themselves. From AP:

CIA-backed rebels in Syria, who had begun to put serious pressure on President Bashar Assad’s forces, are now under Russian bombardment with little prospect of rescue by their American patrons, U.S. officials say. Over the past week, Russia has directed parts of its air campaign against U.S.-funded groups and other moderate opposition in a concerted effort to weaken them, the officials say. The Obama administration has few options to defend those it had secretly armed and trained.

The Russians “know their targets, and they have a sophisticated capacity to understand the battlefield situation,” said Rep. Mike Pompeo, R-Kan., who serves on the House Intelligence Committee and was careful not to confirm a classified program. “They are bombing in locations that are not connected to the Islamic State” group.

Seems racism is the only way they can barely keep their distribution plans alive.

• EU Must Stop ‘Racist Criteria’ In Refugee Relocation – Greece (Reuters)

The EU must stop countries picking and choosing which refugees they accept in its relocation programme, otherwise it will turn into a shameful “human market”, Greece’s new migration minister said. The EU has approved a plan to share out 160,000 refugees, mostly Syrians and Eritreans, across its 28 states in order to tackle the continent’s worst refugee crisis since World War Two. The first 19 Eritrean asylum seekers were transferred from Italy to Sweden on Friday. Some countries, such as Slovakia and Cyprus, have expressed a preference for Christian refugees and Hungary has said the influx of large numbers of Muslim migrants threatens Europe’s “Christian values”. Migration Minister Yannis Mouzalas said that Greece was having trouble finding refugees to send to certain countries because the receiving nations had set what he called “racist criteria”.

He declined to name the states concerned. “Views such as ‘we want 10 Christians’, or ’75 Muslims’, or ‘we want them tall, blonde, with blue eyes and three children,’ are insulting to the personality and freedom of refugees,” Mouzalas told Reuters. “Europe must be categorically against that.” An EU official said a group of Syrian refugees was due to be relocated from Greece to Luxembourg under the EU scheme around Oct. 18, the first to be officially reassigned from Greece. A gynaecologist and founding member of the Greek branch of aid agency Doctors of the World, Mouzalas urged the EU to enforce strict quotas “otherwise it will turn into a human market and Europe hasn’t got the right to do that”. The refugees are generally not allowed to select the country to which they are assigned.

Greece has seen a record of about 400,000 refugees and migrants – mainly from Syria, Afghanistan and Iraq – arrive on its shores this year from nearby Turkey, hoping to reach wealthier northern Europe. Those who can afford it move on quickly to other countries, sometimes on tour buses taking them straight from the main port of Piraeus, near Athens, to the Macedonian border. But several thousand, mostly Afghans, have ended up trapped in Greece for lack of money. European authorities are reluctant to treat Afghans systematically as refugees, and a result, they are shut out of the relocation process. “It’s absurd to think that Afghans are coming to find better work. There is a long-lasting war, you aren’t safe anywhere, that’s the reality,” Mouzalas said.

Debt Rattle October 8 2015

Oct 082015

October 8, 2015 Posted by Raúl Ilargi Meijer at 9:49 am Finance Tagged with: Apple, coral, EM, Germany, Glencore, Greece, IMF, Monsanto, nuke waste, oil, refugees, VW 3 Responses »

Ben Shahn L.F. Kitts general store in Maynardville, Tennessee Oct 1935

• IMF: Next Financial Crash Inevitable, With Same Flaws As Last Time (Guardian)

• IMF Warns Emerging Market Companies Have Overborrowed $3 Trillion (Reuters)

• Banks’ Exposure To Glencore Is a $100 Billion ‘Gorilla’: BofA (Bloomberg)

• Deutsche Bank Sees $7 Billion In Q3 Losses, Writedowns (NY Times)

• Germany’s Exports Plunge 5.2% In August, Most Since January 2009 (Bloomberg)

• Once the Biggest Buyer, China Starts Dumping U.S. Government Debt (WSJ)

• Powerful Democratic Senator Launches Inquiry Into Bank Misconduct (WSJ)

• Four Ways the Oil Price Crash Is Hurting the Global Economy (Bloomberg)

• For Volkswagen, New Questions Arise on US Injury Reporting (Bloomberg)

• Apple’s Real Cash Pile Is 99% Smaller Than You Think (MarketWatch)

• Brazil President Dilma Rousseff Loses Legal Battle, Faces Impeachment (Guardian)

• The World’s Silliest Empire (Dmitry Orlov)

• EU Court Dismisses Investors’ Claims Against ECB Over Greek Debt (Reuters)

• 40% EU Budget For Greece Migration Goes To Security, Border Control (Fotiadis)

• Merkel Rules Out Freeze On Refugee Intake (DW)

• Monsanto To Cut 2600 Jobs, Lose $500 Million, Shares Down 24% In 2015 (Forbes)

• St. Louis Girds For Catastrophe As 5-Year Underground Fire Nears Nuke Waste (AP)

• World’s Oceans Facing Biggest Coral Die-Off In History (Guardian)

• Coral Reefs Worth Four Times As Much As UK Economy: Earth Index (Guardian)

Lagarde forgot to set her alarm sometime in 2010.

• IMF: Next Financial Crash Inevitable, With Same Flaws As Last Time (Guardian)

The next financial crisis is coming, it’s a just a matter of time – and we haven’t finished fixing the flaws in the global system that were so brutally exposed by the last one. That is the message from the IMF’s latest Global Financial Stability report, which will make sobering reading for the finance ministers and central bankers gathered in Lima, Peru, for its annual meeting. Massive monetary policy stimulus has rekindled growth in developed economies since the deep recession that followed the collapse of Lehman Brothers in 2008; but what the IMF calls the “handover” to a more sustainable recovery – without the extra prop of ultra-low borrowing costs – has so far failed to materialise.

Meanwhile, the cheap money created to rescue the developed economies has flooded out into emerging markets, inflating asset bubbles, and encouraging companies and governments to take advantage of unusually low borrowing costs and load up on debt. “Balance sheets have become stretched thinner in many emerging market companies and banks. These firms have become more susceptible to financial stress,” the IMF says. Meanwhile, the failure to patch up the international financial system after the last crash, by ensuring that banks in emerging markets hold enough capital, and constraining risky borrowing, for example, means that a new Lehman Brothers-type shock could spark another global panic.

“Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes,” the IMF says, warning that some markets appear to be “brittle”. So as the US Federal Reserve lays the groundwork for a return to peacetime interest rates, from the emergency levels of the past seven years, financial markets face what the IMF calls an “unprecedented adjustment”; and the world looks woefully underprepared.

Total’s much higher than that.

• IMF Warns Emerging Market Companies Have Overborrowed $3 Trillion (Reuters)

Emerging market companies have an estimated $3 trillion in overextended loans that threaten to trigger a sharp credit crunch and capital outflows in economies that have already been hit hard by low commodity prices, the IMF said on Wednesday. The IMF warned that a messy withdrawal of stimulus measures in advanced economies could start a “vicious cycle of fire sales, redemptions, and more volatility.” The U.S. Federal Reserve has said it is on track to raise rates for the first time in almost a decade by the end of this year. Overborrowing in emerging market economies likely adds up to an average of 15% of their gross domestic product, and 25% of China’s GDP, the IMF said.

Emerging markets where companies tapped easy credit to soften the impacts of the global financial crisis are now on the verge of a credit downturn, the IMF said. Many of the borrowers are state-owned enterprises and the lenders are often local banks. “Corporate and bank balance sheets are currently stretched,” it said in its Global Financial Stability Report. “Immediate prudential attention is needed.” China’s exposure to credit risks as it transitions to a more market-based economy is especially worrisome, the Fund said. China’s August stock market crash and sudden devaluation in August rattled global markets. “Direct financial spillovers include a possibly adverse impact on the asset quality of at least $800 billion of cross-border bank exposures,” the Fund said. The IMF said China should improve access to it equity market to provide companies an alternative to bank financing.

Lehman redux.

• Banks’ Exposure To Glencore Is a $100 Billion ‘Gorilla’: BofA (Bloomberg)

Global financial firms’ estimated $100 billion or more exposure to Glencore Plc may draw more scrutiny as regulatory stress tests approach after the commodity giant’s stock plunge this year, according to Bank of America. Bank shareholders and regulators may be concerned that Glencore’s debt and trade finance deals, of which a “significant majority” are unsecured, will reveal higher-than-expected risk and require more capital once the lenders are put through U.S. and U.K. stress tests, BofA analysts said Wednesday. Adding an estimated $50 billion of committed lines to the company’s own reported gross debt, the analysts say financial firms’ exposure may be three times larger than Glencore’s reported adjusted net debt of less than $30 billion.

“The banking industry may have significantly more exposure to Glencore than is generally appreciated in the market,” analysts including Alastair Ryan and Michael Helsby said in a note titled “The $100 Billion Gorilla In the Room.” The commodity-price bust and “stress in Glencore’s share price and debt spreads may spur a review by investors, supervisors and bank management,” while “bank shareholders may pressure managements to reduce exposures,” they said. Loans to the industry have come under scrutiny as the price of oil, copper and other commodities fell to the lowest in 16 years amid weakening demand from China. Glencore, the Swiss producer and trader of commodities led by billionaire Ivan Glasenberg, has pledged to cut debt by $10 billion and revealed more detail about its financing to mollify investors. On Dec. 1, the Bank of England releases its second round of stress tests, in which it has pledged to examine U.K. banks’ commodities exposure.

[..]Glencore has $35 billion in bonds, $9 billion in bank borrowings, $8 billion in available drawings and $1 billion in secured borrowings, in addition to $50 billion in committed credit lines, against which it draws letters of credit to finance trading, according to BofA. That compares with more than $90 billion in property, plant, equipment and inventories.

Losing $2+ billion each month. That should end well.

• Deutsche Bank Sees $7 Billion In Q3 Losses, Writedowns (NY Times)

Deutsche Bank, the giant German bank that has a big presence on Wall Street and is facing much regulatory scrutiny in the United States, on Wednesday warned that it expects to post a hefty loss in the third quarter. The bank, Germany’s largest, forecast a net loss of €6.2 billion for the quarter. It comes just months into the tenure of Deutsche Bank’s new co-chief executive, John Cryan, who is trying to overhaul the institution. Along with the scandal and upheaval at Volkswagen, Deutsche’s struggles point to some of the weaknesses of Germany’s corporate culture. “The news is not good, and I expect a number of you will be very disappointed by it,” Mr. Cryan said in a memo to employees. “We expect to report a sizable loss for the third quarter.”

Deutsche also said that it would recommend reducing or eliminating its dividend for the rest of 2015. A dividend cut is a jarring move for any bank. It often suggests that a bank is trying to conserve its capital, the financial foundation of a bank that can protect it from shocks and losses. On some measures, Deutsche has less capital than some of its better-performing peers. The net loss is driven by a combined $8.5 billion in financial hits. New chief executives often take “kitchen sink” financial charges to clean up problems or complete unfinished tasks left by the former leaders — and this may be what’s happening at Deutsche. But at troubled companies, the first set of charges is often not the last.

Still, shareholders of Deutsche might take heart from the fact that the third-quarter loss stemmed mostly from a $6.5 billion write down of so-called intangible assets. These can be assets that reflect past paper gains, so reducing their value is not thought to be as serious as slashing the value of, say, financial assets like bonds or loans. Still, the write-downs of intangible assets appeared to be prompted by higher capital requirements by regulators. Since many regulatory capital changes have been known for a while, it is not clear why Deutsche would be taking the charge now. Cutting the value of intangible assets may not have much of an impact on an important regulatory capital measurement, something that Deutsche noted in its news release.

Pre-VW. Expectation was 0.9% drop.

• Germany’s Exports Plunge 5.2% In August, Most Since January 2009 (Bloomberg)

German exports slumped the most since the height of the 2009 recession in a sign that Europe’s largest economy is vulnerable to risks from weakening global trade. Foreign sales declined 5.2% in August from the previous month, the Federal Statistics Office in Wiesbaden said on Thursday. That’s the steepest since January 2009. Economists predicted a drop of 0.9%. Imports fell 3.1%. The trade surplus shrank to €15.3 billion from €25 billion in July, according to the report. Germany is grappling with a slowdown in China and other emerging markets, which have been key destinations for its exports.

With factory orders from countries outside the 19-nation euro region down more than 13% in July and August combined, the focus is shifting to strengthening domestic spending fueled by pent-up investment demand and consumption. The decline is the latest sign that prospects for the economy are deteriorating. Germany’s leading economic institutes are set to lower their growth forecast for 2015 to about 1.8% from a previous estimate of 2.1%, Reuters reported on Wednesday. The ECB will publish an account of its Sept. 2-3 monetary-policy meeting later on Thursday. Investors are looking for signs that policy makers are getting closer to increasing stimulus.

The Treasury game is over.

• Once the Biggest Buyer, China Starts Dumping U.S. Government Debt (WSJ)

Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis. Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt. While central banks have been selling, a large swath of other buyers has stepped in, including U.S. and foreign firms. That buying, driven in large part by worries about the world’s economic outlook, has helped keep bond yields at low levels from a historical standpoint. But many investors say the reversal in central-bank Treasury purchases stands to increase price swings in the long run.

It could also pave the way for higher yields when the global economy is on firmer footing, they say. Central-bank purchases over the past decade are widely perceived to have “helped depress the long-term Treasury bond yields,” said Stephen Jen, managing partner at SLJ Macro Partners and a former economist at the IMF. “Now, we have sort of a reverse situation.” Foreign official net sales of U.S. Treasury debt maturing in at least a year hit $123 billion in the 12 months ended in July, said Torsten Slok, chief international economist at Deutsche Bank Securities, citing Treasury Department data. It was the biggest decline since data started to be collected in 1978. A year earlier, foreign central banks purchased $27 billion of U.S. notes and bonds.

In the past decade, large trade surpluses or commodity revenues permitted many emerging-market countries to accumulate large foreign-exchange reserves. Many purchased U.S. debt because the Treasury market is the most liquid and the U.S. dollar is the world’s reserve currency. Foreign official purchases rose as high as a net $230 billion in the year ended in January 2013, the Deutsche Bank data show. But as global economic growth weakened, commodity prices slumped and the dollar rose in anticipation of expected Federal Reserve interest-rate increases, capital flowed out of emerging economies, forcing some central banks to raise cash to buy their local currencies. In recent months, China’s central bank in particular has stepped up its selling of Treasurys.

Don’t hold your breath.

• Powerful Democratic Senator Launches Inquiry Into Bank Misconduct (WSJ)

A powerful Democratic senator has launched an inquiry into bank misconduct, asking top financial institutions to turn over information about the settlements they have entered into with federal agencies over the past decade. Sherrod Brown of Ohio, the top Democrat on the Senate Banking Committee, asked banks in a letter dated Sept. 30 to provide details of any “legally enforceable judgment, agreement, settlement, decree or order dated January 1, 2005 to the present,” involving 15 federal agencies including the Department of Justice, the Federal Reserve, the Securities and Exchange Commission, and several Treasury Department units. The inquiry could add fuel to growing criticism by lawmakers and others that such settlements have failed to deter repeated bank misbehavior.

The letter asks for the impact of the settlements, including sanctions paid, personnel or board changes or other compliance fixes that followed, whether any individuals were punished, and whether the bank had sought any waivers from any disqualifications that followed such settlements. The questions touch on issues that recent settlements have raised, including whether certain penalties were largely offset by corresponding tax benefits, or whether the SEC has too readily provided waivers to the disqualifications that banks face when hit with criminal penalties. Federal prosecutors have also described how banks predicted catastrophic consequences to potential criminal charges, even though such consequences never materialized.

Many of the largest U.S. and foreign banks with large U.S. operations received the letter, including JPMorgan, Wells Fargo, Deutsche Bank, Citigroup and HSBC, according to people familiar with the letters. Representatives of several of the banks have discussed the letters with each other and are strategizing how to respond, some of the people said. Mr. Brown’s letter was not signed by Sen. Richard Shelby (R. Ala.), the chairman of the banking committee. It set an Oct. 28 deadline for response, and said Mr. Brown was acting as the committee’s top minority member under authority granted to him by the rules of the Senate. Mr. Shelby questioned Mr. Brown’s interpretation of those rules. “I’m not sure he has the authority to do that..” He said Mr. Brown couldn’t send the letter on the committee’s behalf, but “if he sends a letter personally, he can do that.”

As we said when prices first started falling: oil is simply too big a part of the entire economy for lower prices to be beneficial.

• Four Ways the Oil Price Crash Is Hurting the Global Economy (Bloomberg)

Lower oil prices were roundly celebrated as a tailwind for global growth. In theory, the movement of wealth from commodity producers, which often stow away oil revenue in sovereign wealth funds, to consumers, which spend a far larger portion of their income, is a positive for economic activity. But strategists at Credit Suisse believe that so far, the global economy has seen only the storm from lower crude, not the rainbow that follows. “The fall in the oil price was considered by many investors, and ourselves, to be a significant positive for global GDP growth,” a team led by global equity strategist Andrew Garthwaite admitted. The net effect of this development, according to their calculations, has turned out to be a 0.2% hit to the global economy.

The negative effects of lower oil—namely the large-scale cuts to capital expenditures—are having a large and immediate impact on global gross domestic product. “The problem is that commodity-related capex accounts for circa 30% of global capex (with oil capex down 13% and mining capex down 31% in the past 12 months),” wrote the strategists, “and thus the fall in U.S. and global commodity capex and opex has taken at least circa 0.8% off U.S. GDP growth in the first half 2015 and circa 1% off global GDP growth over the last year.” Garthwaite and his group highlight three other channels through which soft oil prices have adversely affected the American economy: employment, wages, and dividend income.

Employment in oil and oil-related industries has declined by roughly 8% since October 2014, with initial jobless claims in North Dakota, a prime beneficiary of the shale revolution, at extremely elevated levels. During this period, average hourly wages for those employed in oil and gas extraction shrank nearly 10% after growing at a robust clip in the previous two years. And the payouts to investors who own oil stocks have also been cut, which Credit Suisse deems to be a modest negative for household income. “A fall in capex brings with it a fall in direct employment and earnings (total payroll income in the U.S. energy sector is down by 18% since November last year, for example), as well as second-round effects on other industries servicing the capex process, from machinery producers to catering and hotels,” the team wrote.

“They are also significantly below the reporting of automakers that have already been cited for non-compliance.”

• For Volkswagen, New Questions Arise on US Injury Reporting (Bloomberg)

Volkswagen reported death and injury claims at the lowest rate of any major automaker in the U.S. over the last decade. The numbers are so good that some industry experts wonder if they add up. The average reporting rate of the 11 biggest automakers was nine times higher than Volkswagen’s, according to an analysis of government data completed last week by financial advisory firm Stout Risius Ross at the request of Bloomberg News. This year, two of Volkswagen’s competitors, Honda and Fiat Chrysler’s U.S. unit, have said they underreported claims to the U.S. government, and Honda paid a fine. Volkswagen’s rate is lower than Honda and Chrysler’s underreported numbers, the data show. To ensure fair comparisons among carmakers of different sizes, the rates were calculated per million vehicles on the road.

“The data demonstrates that even on a fleet-adjusted basis, the number of reported incidents by Volkswagen is significantly below what one would expect based on those reported by other automakers,” said Neil Steinkamp, a Stout Risius managing director. “They are also significantly below the reporting of automakers that have already been cited for non-compliance.” The reporting of death and injury claims is part of the National Highway Traffic Safety Administration’s so-called early-warning system to spot vehicle-defect trends in an attempt to reduce fatalities. [..] NHTSA is focused on improving the system of reporting potential defects, both through monitoring automaker reports and making its analysis of the data more effective, spokesman Gordon Trowbridge said in an e-mail.

The agency is implementing recommendations of an audit by the Transportation Department’s inspector general, including more actively following up on fatality reports and lawsuits, he said. He had no comment on specific automakers’ compliance. Clarence Ditlow, executive director of the Washington-based watchdog Center for Auto Safety, said that Volkswagen’s numbers are so low that he questions how they were compiled. “NHTSA doesn’t have the resources to police all of this, but now they’re asking the automakers to tell them whether they’re in compliance,” Ditlow said. “For the automakers, it’s a time of reckoning.”

“That spare cash is mostly an illusion, even a shell game, as a new report has just confirmed..”

• Apple’s Real Cash Pile Is 99% Smaller Than You Think (MarketWatch)

You’re one of millions of loyal Apple stockholders. And if there’s anything you love more than your new iPhone 6s, it’s the huge $203 billion in spare cash that the company says is sitting in its bank accounts. That’s the number widely reported in the media. It’s the number that appears on Page 8 of the company’s most recent quarterly financial report. It’s a record cash pile for any American company. It’s a $50 billion increase in the past 12 months alone. And it’s equal to $36 per share, a juicy amount for shares you can buy for around $110. There’s just one problem: That spare cash is mostly an illusion, even a shell game, as a new report has just confirmed. In reality, the amount of spare cash that Apple has on its balance sheet is a tiny fraction of that. Actually, it’s about the same as the estimated net worth of its CEO, Tim Cook.

First, Apple’s nominal cash hoard includes an astonishing $181.1 billion held offshore in tax shelters to avoid paying Uncle Sam, as Citizens for Tax Justice, a think tank, points out in new report published on Tuesday. It’s easy to say, “Oh, that’s just a claim by some liberal think tank.” But the real source of the number is Apple itself, which reports the same figure on Page 31 of its most recent quarterly report. Citizens for Tax Justice is taking aim at tax avoidance by U.S. corporations across the board, not merely targeting Apple, and its report will be discussed most keenly by all those interested in politics or economics. But it also has deep implications for those interested in finance, and especially those with stock in Apple.

As the CTJ report observes, Apple would have to pay about $59.2 billion in U.S. taxes if it tried to repatriate that money. So if it ever tried to return the cash to investors, through dividends or stock buybacks, it would lose a third of the money in taxes first. OK, the company says it has no plans to bring the money back to the U.S. But so long as the stock is beyond the reach of U.S. tax authorities, it is also beyond the reach of investors. And that makes it much less valuable, and significant, for stockholders. And that’s not the only bad news. Apple’s balance sheet also reveals that it owes $147.5 billion in debts, accounts payable and other liabilities, plus another $31.5 billion in “off-balance-sheet” liabilities such as leases and purchasing commitments. When you add it all up, Apple’s spare cash is a tiny, tiny fraction of the $203 billion reported.

Cats in a sack thrown into the sea off Copacabana.

• Brazil President Dilma Rousseff Loses Legal Battle, Faces Impeachment (Guardian)

Brazil’s besieged president, Dilma Rousseff, has lost a major battle after the federal audit court rejected her government’s accounts from 2014, paving the way for her opponents to try to impeach her. In a unanimous vote the federal accounts court, known as the TCU, ruled Rousseff’s government manipulated its accounts in 2014 to disguise a widening fiscal deficit as she campaigned for re-election. The ruling, the TCU’s first against a Brazilian president in nearly 80 years, is not legally binding but will be used by opposition lawmakers to argue for impeachment proceedings against the unpopular leftist leader in an increasingly hostile congress. Opposition leaders hugged and cheered when the ruling was announced in Congress, though it was not clear how quickly they would move or whether they have enough support to impeach the president.

“This establishes that they doctored fiscal accounts, which is an administrative crime and President Rousseff should face an impeachment vote,” said Carlos Sampaio, leader of the opposition PSDB party in the lower house. “It’s the end for the Rousseff government,” said Rubens Bueno, a congressman from the PPS party. He said the opposition has the votes to start proceedings in the lower house though perhaps not the two-thirds majority needed for an impeachment trial in the senate. In a last-ditch bid to win time, the government had asked the supreme court to delay Wednesday’s ruling, but it refused.

“How can you even now fail to understand what a mess you have made?”

• The World’s Silliest Empire (Dmitry Orlov)

I couldn’t help but notice that over the past few weeks the Empire has become extremely silly so silly that I believe it deserves the title of the World’s Silliest Empire. One could claim that it has been silly before, but recent developments seem to signal a quantum leap in its silliness level. The first bit of extreme silliness surfaced when Gen. Lloyd J. Austin III, the head of the United States Central Command, told a Senate panel that only a very small number of Syrian fighters trained by the United States remained in the fight perhaps as few as five. The tab for training and equipping them was $500 million. That’s $100 million per fighter, but that’s OK, because it’s all good as long as the military contractors are getting paid.

Things got even sillier when it later turned out that even these few fighters got car-jacked by ISIS/al Qaeda in Syria (whatever they are currently calling themselves) and got their vehicles and weapons taken away from them. General Austin’s previous role as as Lt. General Casey in Tim Burton’s film Mars Attacks! It was already a very silly role, but his current role is a definite career advancement, both in terms of rank and in terms of silliness level. The next silly moment arrived at the UN General Assembly meeting in New York, where Obama, who went on for 30 minutes instead of the allotted 15 (does Mr. Silly President know how to read a clock?) managed to use up all of this time and say absolutely nothing that made any sense to anyone.

But it was Putin’s speech that laid out the Empire’s silliness for all to see when he scolded the US for making a bloody mess of the Middle East with its ham-handed interventions. The oft-repeated quote is “Do you understand what you have done?” but that’s not quite right. The Russian can be more accurately translated as “How can you even now fail to understand what a mess you have made?” Words matter: this is not how one talks to a superpower before an assembly of the world’s leaders; this is how one scolds a stupid and wayward child. In the eyes of the whole world, this made the Empire look rather silly.

Second highest court. To be continued.

• EU Court Dismisses Investors’ Claims Against ECB Over Greek Debt (Reuters)

An EU court on Wednesday dismissed claims by more than 200 Italian investors against the ECB over Greek debt restructuring in 2012, saying their losses were part of normal financial market risk. More than 200 Italian investors were seeking to sue the ECB for damages of more than €12 million. They argued that the ECB negotiated a secret swap agreement with Greece early in 2012, receiving new better-structured bonds and so granting itself preferred creditor status to the detriment of others. Other Greek bond holders received new securities with a substantially lower nominal value and a longer maturity period. The General Court of the European Union, the second highest EU court, said in its ruling that the ECB had exclusively acted with the objective of stabilizing markets.

They should do all they can to prevent more children from drowning. But that’s not a European priority.

• 40% EU Budget For Greece Migration Goes To Security, Border Control (Fotiadis)

Despite the Internal Security Fund (ISF) will be a key factor in shaping population and border control mechanisms during the next six years throughout the EU, its importance and scope is still very often underestimated by the public as well as organisations directly affected by it. The complete picture of the European Commission’s investment in security and surveillance equipment in the next six years, facilitated in a great extent through ISF, can provide a good base for reflection regarding the security environment within immigration policy will evolve. National ISF budget proposals are not made publicly accessible by the Commission and many of the procurements budgeted on them are considered classified by national authorities.

The Greek National ISF Programme was leaked last month by the British Whistler-blower Statewatch. It was submitted mid July to the EC including extensive proposals for projects on the VISA and BORDER CONTROL fields. Though the program is named “National” it is striking that the national priorities expressed in the document match entirely the EC’s policy priorities on surveillance, data processing systems and various aspects of the security apparatus the EU is promoting on its external borders. Among other Greece is asking funding for upgrading and completing development of the VISA Information System as well as to facilitate upgrades necessary for entry-exit system (Smart Borders package) – €4.269.000.

In the frame of developing its EUROSUR capacities the country will get €67.500.000. This money goes…

– for the extension of the automated surveillance system on the rest of river Evros (partly established since 2011-12)
– for development of an Integrated Maritime Surveillance System (HCG) by mid 2021
– for supporting the implementation of Integrated Border Management, Greece will expand and develop further its Automated Identification System (AIS)
– for development + relocation of the National Coordination Center

She’s smart enough to see she can’t.

• Merkel Rules Out Freeze On Refugee Intake (DW)

Angela Merkel has ruled out any freeze on migrants entering Germany, claiming that it would be impractical. In a television interview, the chancellor said she was “convinced” that the country would cope. Asked in a television interview with German public broadcaster ARD, the chancellor said the introduction of a migrant limit would not be practical. “How should that work?” Merkel told talk show host Anne Will. “You cannot just close the borders.” “There is no sense in my promising something that I cannot deliver,” she stated, repeating an earlier assertion that German was able to deal with the crisis. “We will manage,” said Merkel. “I am quite strongly convinced of that.” The chancellor said that her duty was “to do everything possible and have optimism and inner certainty that this problem can be solved.”

Merkel responded to criticism from Bavarian state premier Horst Seehofer, leader of Merkel’s conservative coalition partner the CSU, that Berlin had no plan. “Yes, I have a plan,” she stressed. Seehofer warned on Wednesday that he might introduce “emergency measures” if the government did not limit the influx. He warned that Bavaria might send refugees straight on to other states, and set up transit zones. Earlier in the day, Merkel had told the European Parliament that Europe needed to rewrite its rules on immigration. “Let’s be frank. The Dublin process, in its current form, is obsolete,” Merkel told the assembly in Strasbourg, referring to the Dublin rules under which refugees must apply for asylum in the first EU country that they enter. The chancellor was delivering a joint appeal alongside French President Francois Hollande. Merkel appealed for a new procedure to redistribute asylum seekers “fairly” throughout the 28-nation bloc.

I like.

• Monsanto To Cut 2600 Jobs, Lose $500 Million, Shares Down 24% In 2015 (Forbes)

Agricultural giant Monsanto didn’t have a lot of great news to share with investors when it reported its fourth quarter earnings on Wednesday. Shares dropped 1% before turning positive in morning trading as investors digested the info. Here are six highlights from the report:

1. The company is losing more money. Monsanto reported a net loss of $495 million, or $1.06 per share, in the quarter. This was much steeper than the net loss of $156 million, or 31 cents per share, a year ago.

2. It did even worse than analysts expected. Monsanto disappointed on both its top and bottom line. The company reported an adjusted per-share loss of 19 cents in the quarter, a far cry from the two cent loss analysts were expecting. Net sales of $2.35 billion also missed analyst estimates of $2.76 billion.

3. Corn sales fell again. Monsanto is selling less and less corn, with corn seed sales dropping 5% to $598 million. This is still Monsanto’s biggest-selling product, but has been on the decline as farmers plant fewer acres of the vegetable.

4. The future doesn’t look so bright. ”There is no doubt 2016 will be a tough year for the industry,” said chief financial officer Pierre Courduroux on a call with investors. Due to headwinds relating to falling commodity prices and unfavorable currency exchange rates, Monsanto is now forecasting per-share earnings for its new fiscal year in the range of $5.10 to $5.60, which is well below analyst forecasts of $6.19.

5. It’s cutting thousands of jobs. Monsanto announced plans to get rid of 2,600 jobs in the next two years as part of an effort to cut costs. It’s also exiting the sugarcane business as it slims down and streamlines its operations. Restructuring is expected to yield cost-savings of up to $300 million a year starting in fiscal 2017.

6. It’s returning money to shareholders. Monsanto announced a new $3 billion accelerated share repurchase program. It had suspended share buybacks during its pursuit of Syngenta , a months-long effort it has now given up on, and will now be able to buy back its stock at multi-year lows.

Shares are down 24% this year and fell another 1% before turning positive on Wednesday morning.

“Republic Services is spending millions of dollars to ease or eliminate the smell..”

• St. Louis Girds For Catastrophe As 5-Year Underground Fire Nears Nuke Waste (AP)

Beneath the surface of a St. Louis-area landfill lurk two things that should never meet: a slow-burning fire and a cache of Cold War-era nuclear waste, separated by no more than 1,200 feet. Government officials have quietly adopted an emergency plan in case the smoldering embers ever reach the waste, a potentially “catastrophic event” that could send up a plume of radioactive smoke over a densely populated area near the city’s main airport. Although the fire at Bridgeton Landfill has been burning since at least 2010, the plan for a worst-case scenario was developed only a year ago and never publicized until this week, when St. Louis radio station KMOX first obtained a copy. County Executive Steve Stenger cautioned that the plan “is not an indication of any imminent danger.”

“It is county government’s responsibility to protect the health, safety and well-being of all St. Louis County residents,” he said in a statement. Landfill operator Republic Services downplayed any risk. Interceptor wells — underground structures that capture below-surface gasses — and other safeguards are in place to keep the fire and the nuclear waste separate. “County officials and emergency managers have an obligation to plan for various scenarios, even very remote ones,” landfill spokesman Russ Knocke said in a statement. The landfill “is safe and intensively monitored.” The cause of the fire is unknown. For years, the most immediate concern has been an odor created by the smoldering. Republic Services is spending millions of dollars to ease or eliminate the smell by removing concrete pipes that allowed the odor to escape and installing plastic caps over parts of the landfill.

Nor a surprise.

• World’s Oceans Facing Biggest Coral Die-Off In History (Guardian)

Scientists have confirmed the third-ever global bleaching of coral reefs is under way and warned it could see the biggest coral die-off in history. Since 2014, a massive underwater heatwave, driven by climate change, has caused corals to lose their brilliance and die in every ocean. By the end of this year 38% of the world’s reefs will have been affected. About 5% will have died forever. But with a very strong El Niño driving record global temperatures and a huge patch of hot water, known as “the Blob”, hanging obstinately in the north-western Pacific, things look far worse again for 2016. For coral scientists such as Dr Mark Eakin, the coordinator of the US National Oceanic and Atmospheric Administration Coral Reef Watch programme, this is the cataclysm that has been feared since the first global bleaching occurred in 1998 .

“The fact that 2016’s bleaching will be added on top of the bleaching that has occurred since June 2014 makes me really worried about what the cumulative impact may be. It very well may be the worst period of coral bleaching we’ve seen,” he told the Guardian. The only two previous such global events were in 1998 and 2010, when every major ocean basin experienced bleaching. Professor Ove Hoegh-Guldberg, director of the Global Change Institute at the University of Queensland, Australia, said the ocean was now primed for “the worst coral bleaching event in history”. “The development of conditions in the Pacific looks exactly like what happened in 1997. And of course following 1997 we had this extremely warm year, with damage occurring in 50 countries at least and 16% of corals dying by the end of it,” he said. “Many of us think this will exceed the damage that was done in 1998.”

Yes, but we want profit today.

• Coral Reefs Worth Four Times As Much As UK Economy: Earth Index (Guardian)

Coral reefs are worth £6tn a year in services they provide for people – almost four times as much as the UK economy – an assessment of the value of natural assets has found. The ‘Earth Index’ drawn up for BBC Earth also found bees contributed £106bn to the world economy in pollinating crops, and that vultures were worth £1.6bn for clearing up animal carcasses and preventing human health hazards. Vultures are an example of the price of losing nature, with the birds suffering severe declines across the Indian subcontinent due to a veterinary drug which is lethal to them. The declines led to an increase in feral dogs which spread rabies, causing an estimated 50,000 more deaths, and significant clean-up costs.

The assessment even puts a price on the value of freshwater of almost £46tn a year, the equivalent of the entire world economy as without freshwater the economy would not exist. Coral reefs were worth £6.2tn in protection from storms, providing fish, tourism and storing carbon emissions, compared with the £1.7tn value of the UK economy and almost three times the annual price-tag of oil at just under £2.2tn. The Earth Index is being published in the financial sections of newspapers around the world to put nature on the stock exchange.

Neil Nightingale, creative director of BBC Earth said: “When you see the figures in black and white it’s illuminating to see that the annual revenues of the world’s most successful companies – Apple, General Motors, Nestle, Bank of China – all pale in comparison to the financial return to our economy from natural assets.” Fish are worth £171bn and tiny plankton, which form the basis of food webs in the world’s oceans, have a value of £139bn a year for their role in storing carbon alone. The index is based on a study of existing data, and aims to pilot a model for reporting the financial contribution nature makes to the global economy. Canada’s polar bears are worth £6.3bn, while in the UK, the value of nature has been estimated at 1.5tn, with soils generating £5.3bn a year and bees generating £651m.

Debt Rattle October 1 2015

Oct 012015

October 1, 2015 Posted by Raúl Ilargi Meijer at 8:41 am Finance Tagged with: credit boom, dams, diesel, emissions, Glencore, Greece, Iceland, junk, oil, PMI, refugees, VW 1 Response »

John Vachon Beer signs on truck, Little Falls, Minnesota Oct 1940

• 2015 Is Turning Out to Be a Terrible Year for Investors (Bloomberg)

• End Of World’s Biggest Ever Credit Boom Means More “Glencores” Ahead (Howell)

• Traders Start Pricing Glencore Bonds Like Junk (FT)

• Why Dow’s Three-Quarter Losing Streak Is A Big Deal (MarketWatch)

• October 1 2015: China Factory Activity Picks Up To Beat Expectations (BBC)

• Futures Soar After Chinese Composite PMI Drops To Lowest On Record (Zero Hedge)

• China Cuts Minimum Home Down Payment for First-Time Buyers (Bloomberg)

• Oil Suffers A Loss Of 24% For The Quarter (MarketWatch)

• Market Moves That Aren’t Supposed to Happen Keep Happening (Tracy Alloway)

• Wide Range Of Cars Emit More Pollution In Realistic Driving Conditions (Guardian)

• VW Emissions Scandal: 1.2 Million UK Cars Affected (Guardian)

• VW Board Considering Steps To Prop Up Credit Rating (Reuters)

• Eurozone Inflation Turns Negative, Putting ECB In Corner (Reuters)

• Tsipras Finds ‘Open Ears’ In US To Greek Appeal For Debt Relief (Kath.)

• Greek Regulator Bans Short-Selling Of Bank Shares (Reuters)

• How Greece Could Collapse The Eurozone (Satyajit Das)

• Greek Shipowners Prepare to Weigh Anchor on Prospect of Higher Taxes (WSJ)

• Iceland’s Next Collapse Is “Unavoidable,” Employers Union Warns (Bloomberg)

• Obama Hands $1 Billion In Military Aid To Goverments Using Child Soldiers (CNN)

• Millions Of Illegal Immigrants Will Overrun Trump’s ‘Beautiful Wall’ (Farrell)

• Farmers Driven From Homes ‘Like Pests’ As Asia Plans 500 Dams (Bloomberg)

Debt. Deflation.

• 2015 Is Turning Out to Be a Terrible Year for Investors (Bloomberg)

For investors around the world, 2015 is turning into a year to forget. Stocks, commodities and currency funds are all in the red, and even the measly gains in bonds are being wiped out by what little inflation there is in the global economy. Rounding out its steepest quarterly descent in four years, the MSCI All Country World Index of shares is down 6.6% in 2015 including dividends. The Bloomberg Commodity Index has slumped 16%, while a Parker Global Strategies index of currency funds dropped 1.8%. Fixed income has failed to offer much of a haven: Bank of America’s global debt index gained just 1%, less than the 2.5% increase in world consumer prices shown in an IMF index. After three years in a virtuous cycle of rising share prices and unprecedented monetary easing, markets are now sinking as emerging economies from China to Brazil weaken and corporate profits slump.

Analysts have cut their global growth estimates for 2015 to 3% from 3.5% at the start of the year, and the turmoil has added pressure on central banks to prolong their stimulus programs, with traders scaling back forecasts for a Federal Reserve interest-rate increase by year-end. “There was an element of people believing they had found some sort of holy grail to investing, then this breakdown occurs and it breaks down in a way that’s remarkable,” said Tobias Levkovich, Citigroup’s chief U.S. equity strategist. “What seemed to trigger this all was China. It sent us on a wave of downward fears.” Investors suffered the brunt of this year’s losses in the third quarter. MSCI’s global equity index sank about 10% in the period, while the Bloomberg commodity index lost 14% in its biggest slump since the global financial crisis seven years ago.

The average level of Bank of America’s Market Risk index, a measure of price swings in equities, rates, currencies and raw materials, was the most this quarter since the end of 2011. The Chicago Board Options Exchange Volatility Index, a gauge of turbulence known as the VIX, reached the highest since 2011 in August. China has been the biggest source of anxiety for investors, after turmoil in the nation’s financial markets fueled concern that the country’s worst economic slowdown since 1990 was deepening. The Shanghai Composite Index fell 29% in the third quarter, the most worldwide, and the yuan weakened 2.4% after authorities devalued the currency in August. That sent a shudder around the world.

And all over the world too.

• End Of World’s Biggest Ever Credit Boom Means More “Glencores” Ahead (Howell)

It’s the great unwind show. Admittedly, Glencore’s latest problems may run deeper and look more specific, but together with Vale and Rio, the other great international mining houses plus their suppliers, like America’s Caterpillar, all are suffering the fall-out from the end of the world’s biggest ever credit boom. Oil is testing recent lows and commodity prices almost across the board are skidding. Alongside, emerging market currencies are being trashed and some even fear that this turmoil will spill-over into a recession by next year. It will. Your white-knuckle ride is far from over. So how did we get here? The answer comes in three parts.

Firstly, the fragile global financial system that disintegrated spectacularly in 2008 has simply been taped back together and not fundamentally rebuilt, so leaving it vulnerable to a renewed bust of funding problems. Secondly, debt problems have not been tackled. By demanding “austerity”, many governments have simply reshuffled debts from their balance sheets on to more fragile private sector ones. Debt burdens across emerging markets, for example, have jumped since 2007. Lastly, the biggest factor is China. China is only just starting to adjust to its huge credit boom. Since the year 2000, the size of its asset economy has jumped an eye-watering 12-fold.

This includes the construction of new cities, thousands of miles of motorway, several airports and, as the brochures once advertised, a new skyscraper every 14-days, pushing up her credit markets to a bloated $25 trillion. History teaches us that there are four stages to every credit cycle: (1) 20-30% rates of new loan growth; (2) asset price bubbles in real estate, commodities, equities and often art; (3) banking problems, corruption and state intervention, and (4) currency collapse. China already ticks the first three boxes, and a pen is hovering over the fourth. The decision to weaken the renminbi in August may have less to do with exchange rate politics, as some have suggested, and more to do with a plain shortage of US dollars.

“..trading in the $36bn of bonds outstanding has moved to a cash basis, where prices are quoted in terms of cents on the dollar of face value.”

• Traders Start Pricing Glencore Bonds Like Junk (FT)

Traders have started to quote prices for Glencore debt in a manner normally associated with lower-quality paper, commonly known as junk bonds. The shift in pricing dynamics in the private over-the-counter markets this week came as shares in Glencore swung wildly as investors worry about the ability of the miner and trading house to manage its debt pile in a commodity downturn. The group retains an investment grade credit rating according to rating agencies and its $36bn of outstanding bonds have up to now been bought and sold on the basis of their yield, which moves inversely to price. But this week, dealers and investors say trading in the $36bn of bonds outstanding has moved to a cash basis, where prices are quoted in terms of cents on the dollar of face value. This form of pricing is generally used for junk bonds, which have a higher risk of default.

Pressure on the company’s debt and equity has intensified as analysts debate the effect of falling raw materials prices and rising debt costs. One investment bank warned on Monday that the group’s equity might be worthless if commodity prices did not recover swiftly. The company said it retained “strong lines of credit and access to funding”. Unsecured senior Glencore debt maturing in May 2016 traded below 93 cents on the dollar on Tuesday, with some trades occurring below 90 cents, according to investors. A buyer of the debt should receive a 0.85 cent coupon in November, and a dollar of principal back in eight months’ time. The return available from doing so is equivalent to around a 13% yield on an annual basis. Prices for longer-term debt fell even further as investors began to assess the potential recovery values for Glencore debt, most of which is unsecured. “Everything beyond five years is trading around or below 70 cents on the dollar,” Zoso Davies at Barclays said.

The history of three-quarter losing streaks is not pretty.

• Why Dow’s Three-Quarter Losing Streak Is A Big Deal (MarketWatch)

The Dow Jones Industrial Average has suffered a third-straight quarterly decline for the first time since the Great Recession. This marks just the third time in nearly 40 years that a quarterly losing streak for the blue-chips benchmark stretched at least that long. The Dow surged 236 points on Wednesday, but has lost 1,335 points, or 7.6%, since the end of June. The Dow had lost 156.61 points, or 0.9%, over the second quarter and 46.95 points, or 0.3%, over the first quarter. The last time the Dow had a three-quarter losing streak was the six-quarter stretch ending the first quarter of 2009. Before that, there was a five-quarter losing streak ending with the first quarter of 1978, according to FactSet data.

In the Dow’s 119-year history, there have now been 20 quarterly losing streaks that stretched at least three quarters. The longest losing streak is six quarters, suffered twice, through the first quarter of 2009 and through the second quarter of 1970. There have been 12 quarterly losing streaks that have lasted longer than three quarters. If the current quarterly losing streak were to be snapped in the fourth quarter, the total three-quarter loss of 8.6% would be the smallest of all the other three-quarter losing streaks.

What a difference a week makes, and/or a survey…

• October 1 2015: China Factory Activity Picks Up To Beat Expectations (BBC)

Factory activity in China picked up in September, beating expectations, according to the government’s official manufacturing survey. The manufacturing purchasing managers’ index (PMI) was up to 49.8 from 49.7 in August, but the sector did shrink for the second consecutive month.

• 23 September 2015: China Factory Activity Contraction Worsens (BBC)

China’s factory activity contracted at the fastest pace for six and a half years in September, according to a preliminary survey of the vast sector. The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 47 in September, below forecasts of 47.5 and down from 47.3 in August.

More of that discrepancy in China numbers.

• Futures Soar After Chinese Composite PMI Drops To Lowest On Record (Zero Hedge)

Chinese markets may be closed for the next week due to a national holiday but China’s goalseeked manufacturing survey(s), which were the most anticipated data points of the evening, came right on schedule (or rather, were leaked just ahead of schedule). And they certainly did not disappoint in their disappointment. First, it was the official NBS September PMI, which at 49.8 was the smallest possible fraction above both the previous and expected, both of which were 49.7. The number was leaked about 6 minutes before the official statement, and while the leaked print which all humans were aware of well before the official release time at 9pm Eastern, had no impact on markets, it was the flashing red headline which confirmed the leak and which was read by machine-reading algos everywhere, that sent the E-mini spasming higher.

But while the official “data” was bad, and confirmed the economy remains in contraction, the Caixin – aka the new HSBC – Markit PMIs were absolutely atrocious. We bring you… the HSBC Manufacturing print, which dropped from 47.3 to 47.2, and which according to Caixin was the lowest print since March 2009. From the report:

A key factor weighing on the headline index was a sharper contraction of manufacturing output in September. According to panellists, worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September. Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009.

Reflective of lower workloads, manufacturing companies cut their staff numbers again in September. Moreover, the latest reduction in employment was the fastest seen in 80 months. Meanwhile, reduced production capacity led to an increased amount of unfinished work, though the pace of backlog accumulation was only slight.

Manufacturing companies noted a further steep decline in average cost burdens during September. Furthermore, the rate of deflation was the sharpest seen since April. Reports from panellists mentioned that lower raw material prices, particularly for oil-related products, had cut overall input costs. Increased competition for new work led manufacturing companies to generally pass on their savings to clients, as highlighted by a solid decline in output charges.

“It’s one policy that’s part of a grand strategy to revive property investment and the whole national economy.”

• China Cuts Minimum Home Down Payment for First-Time Buyers (Bloomberg)

China’s central bank cut the minimum home down payment required of first-time buyers for the first time in five years, stepping up support for the property market after five interest-rate reductions since November failed to reverse an economic slowdown. The People’s Bank of China cut the minimum down payment for buyers in cities without purchase restrictions to 25% from 30%, according to a statement released on its website Wednesday. The previous requirement had been in place since 2010, when the government boosted the ratio from 20% to help curb property speculation.

The move extends a year of loosening in the property market as Premier Li Keqiang seeks to boost demand in the world’s second-largest economy after fiscal and monetary stimulus produced few signs of a rebound. Growth will slow to 6.8% this year, according to the median of economist estimates compiled by Bloomberg. That’s below the government’s target for an expansion of about 7%. “Amid China’s economic slowdown, property’s role as a growth pillar has become even more important, and the government clearly sees it,” said Shen Jianguang at Mizuho in Hong Kong. “It’s one policy that’s part of a grand strategy to revive property investment and the whole national economy.”

While property investment has remained weak, home sales have recovered after mortgage policy easing and removal of purchase restrictions helped support demand. New-home prices rose in 35 of 70 cities in August, up from 31 in July and just two cities in February. UBS Group has estimated the real-estate industry accounts for more than a quarter of final demand in the economy when including property-related goods including electric machinery and instruments, chemicals and metals. The government also has urged some cities to allow citizens to borrow more from housing funds to help buyers, and encouraged cities to securitize more of those loans, according to a statement on the housing ministry’s website.

In Q4, a lot of ‘reserves’ must be marked to much more realistic levels. That’s going to hurt.

• Oil Suffers A Loss Of 24% For The Quarter (MarketWatch)

Oil futures tallied a loss of 24% for the third quarter, after ending Wednesday lower on the back of a report revealing the first U.S. crude-supply increase in three weeks. The report also showed a modest decline in domestic production, helping prices limit losses for the session. November West Texas Intermediate crude settled at $45.09 a barrel, down 14 cents, or 0.3%, on the New York Mercantile Exchange, trading between a high of $45.85 and a low of $44.68, according to FactSet data. WTI prices, based the front-month contracts, lost 8.4% for the month and were 24% lower for the quarter. Year to date, they’re down by more than 15%. November Brent crude on London’s ICE Futures exchange tacked on 14 cents, or 0.3%, to $48.37 a barrel.

Year to date, prices have fallen more than 15%. The U.S. Energy Information Administration reported Wednesday an increase of four million barrels in crude supplies for the week ended Sept. 25. That was the first climb in three weeks. Analysts polled by Platts expected supplies to be unchanged, while the American Petroleum Institute Tuesday said supplies jumped 4.6 million barrels. Part of the reason for the increase in crude supplies was less demand from refineries, where activity decreased with maintenance season in effect. Refinery utilization fell to 89.8% last week from 90.9%.

Volatility. Way outside Fed control.

• Market Moves That Aren’t Supposed to Happen Keep Happening (Tracy Alloway)

A counterpoint to Bill Dudley’s Wednesday speech on bond market liquidity comes courtesy of TD Securities. While the New York Fed president argued that there’s little evidence so far that new financial regulation has cut into the ease of trading U.S. Treasuries, TD analysts Priya Misra and Gennadiy Goldberg think otherwise. They point to daily, wild swings in the bond market as evidence of diminished liquidity.

Our findings show that daily changes in 10-year Treasury yields exceeded one standard deviation (√) 58% of the time so far in 2015, considerably higher than the 49% observed last year. The 58% measure is the highest reading going back to 1975, suggesting that recent volatility in Treasury markets is unprecedented. As if a record number of “choppy days” were not enough, 10-year yield movements also exceeded 3√ in as many as 9% of trading days this year. This is higher than the average of 6% of days since 1975.

It’s a point that’s been brought up before, notably by Bank of America Merrill Lynch’s Barnaby Martin. These observers argue that the number of assets registering large moves four or more standard deviations away from their normal trading range has been growing in recent months. Moves greater than one standard deviation should (based on a normal distribution of probabilities) happen about 32% of the time. Instead as the TD analysts point out, they are happening 58% of the time in U.S. Treasuries. Moves greater than three standard deviations should be happening about 1% of the time, not 9%.

While Dudley finds little evidence of average bond market liquidity having deteriorated, TD reckons the problem lies in so-called “tail events,” in which increased regulation and changes to market structure exacerbate the potential for extreme moves. Looking at average liquidity conditions won’t show much evidence of a problem, therefore. That might go some way toward explaining why all those market moves that are supposed to not happen very often keep occurring with some regularity.

If everybody does it, who are you going to punish?

• Wide Range Of Cars Emit More Pollution In Realistic Driving Conditions (Guardian)

New diesel cars from Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and other manufacturers have all been found to emit substantially higher levels of pollution when tested in more realistic driving conditions, according to new data seen by the Guardian. Research compiled by Adac, Europe’s largest motoring organisation, shows that some of the diesel cars it examined released over 10 times more NOx than revealed by existing EU tests, using an alternative standard due to be introduced later this decade. Adac put the diesel cars through the EU’s existing lab-based regulatory test (NEDC) and then compared the results with a second, UN-developed test (WLTC) which, while still lab-based, is longer and is believed to better represent real driving conditions. The WLTC is currently due to be introduced by the EU in 2017.

[..] Emissions experts have warned for some time that there were problems with official lab-based NOx tests, meaning there was a failure to limit on-the-road emissions. “Gaming and optimising the test is ubiquitous across the industry,” said Greg Archer, an emissions expert at Transport & Environment. A recent T&E round-up of evidence found this affected nine out of 10 new diesel cars, which were on average seven times more polluting in the real world. But the Adac data are the first detailed list of specific makes and models affected. Adac also measured a Volvo S60 D4 producing NOx emissions over 14 times the official test level [..]

T&E argues that the Adac WLTC tests are minimum estimates of actual on-the-road emissions. Archer said the EU must back up the WLTC with on-the-road tests and end the practice of carmakers paying for the tests at their preferred test centres. “It is more realistic but it still isn’t entirely representative,” said Archer. “We still think there is a gap of about 25% between the WLTC test and typical average new car driving.”

“The admission means that the UK is one of the countries worst affected by the scandal..”

• VW Emissions Scandal: 1.2 Million UK Cars Affected (Guardian)

Volkswagen has revealed that almost 1.2m vehicles in the UK are involved in the diesel emissions scandal that has rocked the carmaker, meaning more than one in 10 diesel cars on the country’s roads are affected. VW said the diesel vehicles include 508,276 Volkswagen cars, 393,450 Audis, 76,773 Seats, 131,569 Skodas and 79,838 Volkswagen commercial vehicles. The total number of vehicles affected is 1,189,906. This is the first time VW has admitted how many of the 11m vehicles fitted with a defeat device to cheat emissions tests are in the UK.

The admission means that the UK is one of the countries worst affected by the scandal and will increase the pressure on the government to launch a full investigation. Figures from the Department for Transport show that there were 10.7m diesel cars on Britain s roads at the end of 2014 and that an estimated 5.3m of the petrol and diesel cars are Volkswagens or one of the groups sister brands. Patrick McLoughlin, the transport secretary, said: The government s priority is to protect the public and I understand VW are contacting all UK customers affected. I have made clear to the managing director this needs to happen as soon as possible. “The government expects VW to set out quickly the next steps it will take to correct the problem and support owners of these vehicles already purchased in the UK.”

VW said 2.8m vehicles in Germany are involved, while 482,000 cars have been recalled in the US. The company intends to set up a self-serve process that will allow UK motorists to find out if their vehicle is affected. Dealers will also be sent the vehicle identification numbers of those involved. Affected customers will be contacted about visiting a mechanic to have their cars refitted. The cars fitted with a defeat device have EA 189 EU5 engines. However, VW is yet to reveal the full details of the recall plan, which will need to be approved by regulators. The carmaker said: “In the meantime, all vehicles are technically safe and roadworthy. Volkswagen Group UK is committed to supporting its customers and its retailers through the coming weeks.”

Buyback!

• VW Board Considering Steps To Prop Up Credit Rating (Reuters)

Members of Volkswagen’s supervisory board are concerned about the carmaker’s credit rating and are considering steps to prop it up but have no plans to sell off assets, two sources close to the board said. Volkswagen declined to comment on the sources, who spoke to Reuters late on Wednesday evening. They said that following recent actions from credit rating agencies Fitch and Moody’s, there were worries that a downgrade could inflict higher borrowing costs on the company, hampering its ability to win back the trust of investors. As a result, the board is considering cost cuts and revenue-generating measures. However no discussions on selling off VW assets or brands have taken place, the sources said. The Wolfsburg-based company has been hammered by the revelations that it manipulated diesel emissions tests.

An endless supply of stupidity. Or is it perfidiousness?

• Eurozone Inflation Turns Negative, Putting ECB In Corner (Reuters)

Eurozone inflation turned negative again in September as oil prices tumbled, raising pressure on the European Central Bank to beef up its asset purchases to kick start anaemic price growth. Prices fell by 0.1% on an annual basis, the first time since March that inflation has dipped below zero, missing analysts’ expectations for a zero reading after August’s 0.1% increase. The negative reading is a headache for the ECB, which is buying €60 billion of assets a month to boost prices. It has already said it may have to increase or extend the QE scheme because inflation may fall short of its target of almost 2% even in 2017.

Long term inflation expectations have dropped to their lowest since February, before the ECB’s asset purchases started, as China’s economic slowdown, the commodity rout and paltry euro zone lending growth reinforce pessimistic predictions. Even Finnish central bank chief Erkki Liikanen, normally considered an inflation hawk, has warned that euro zone growth is at risk from the slowdown in emerging markets and that inflation could fall short of already modest expectations. “We believe the ECB will extend its QE programme beyond September 2016, most likely until mid-2018, and that it could reach €2.4 trillion – more than twice the original €1.1 trillion commitment,” credit ratings agency Standard & Poor’s said on Wednesday.

Let’s see it first.

• Tsipras Finds ‘Open Ears’ In US To Greek Appeal For Debt Relief (Kath.)

Prime Minister Alexis Tsipras on Wednesday indicated that Greece’s appeal for debt relief had been received far better in New York than in Brussels, continuing his US visit which included talks with Secretary of State John Kerry. “The Greek government has found far more open ears [here] than in Brussels for the need for there to be a fair resolution of the crisis and a necessary reduction of the unbearable and unsustainable public debt that has accumulated all those years,” Tsipras told reporters. He was speaking on the fifth day of an official visit to the US and following meetings with representatives of the Greek-American community in New York who he described as “the best ambassadors for Hellenism in the US, a country which plays the most significant role globally in all the crucial decisions that relate to our country’s future.”

Tsipras said Greeks have been “the victim of choices that led to the gradual erosion of the country’s national sovereignty and to the need for borrowing which resulted in the enforcement of measures which have… weakened the production base and the economy.” The comments came just a few days before representatives of Greece’s international creditors are to return to Athens for negotiations on the prior actions that Greek authorities must legislate to secure crucial rescue loans.

Yeah, that’ll do the trick…

• Greek Regulator Bans Short-Selling Of Bank Shares (Reuters)

The Greek securities regulator said on Wednesday it had banned short-selling of Greek bank shares to avoid pressure on prices ahead of the recapitalization of the sector. “The decision will come into effect starting Oct. 1 and will last until Nov. 9,” the Capital Markets Commission said in a statement. It affects the shares of the country’s four largest banks – National Bank, Alpha Bank, Eurobank and Piraeus Bank – and also the smaller Attica Bank.

“At a deeper level, the EU’s actions are promoting political radicalization on both the political right and left with unknown consequences.”

• How Greece Could Collapse The Eurozone (Satyajit Das)

The Greek debt affair has also harmed the European Project, potentially irreparably. The problem is not that the eurozone found itself facing serious economic challenges. The issue is its failure to anticipate the risk of such a crisis ever happening, the lack of contingency planning, and the eurozone’s inability to deal with the problem on a timely basis. The Greek crisis is now over five years old, with no signs of a permanent solution. There are only unpalatable choices. Some concessions will not solve the problem. Other eurozone members will have to continue to provide additional financing to Greece, further increasing their risk. Favorable treatment for the Greek government risks opening a Pandora’s Box of demands from other countries to relax austerity measures.

Demands for relaxation of budget deficit and debt level targets are likely from Spain, Portugal, Ireland, Italy, and France. A write-down of debt would crystallize losses. It might threaten the governments of Spain, Portugal, Italy, Finland, the Netherlands, and Germany. If Greece leaves the euro, then the consequences for the eurozone are unclear. Should Greece prosper outside the single currency, it reduces the attraction of the eurozone for weaker members. Given the absence of painless solutions, it seems for the moment that neither Greece nor its creditors have any objectives other than avoiding having their fingerprints on the instrument that triggers default, the world’s largest sovereign debt restructuring or a breakup of the euro.

The approach of the EU has also undermined the European project. Major countries such as Germany have reacted to the inability to resolve the crisis by resorting to economic and political repression, entailing less, not more, flexibility, with tougher rules and stricter enforcement, including tighter supervision of national budgets. [..] The EU fails to recognize that its actions may destabilize Europe in unexpected ways. Greece has the potential to undermine Western security, creating a large corridor of vulnerability through the Balkans, the Levant, the Middle East, and Caucasus. While a member of the EU, Greece can veto sanctions reducing European power. Its actions or lack thereof can aggravate the serious refugee crisis confronting Europe. An embittered Greece, hostile to European partners and NATO, has caused alarm in the US. At a deeper level, the EU’s actions are promoting political radicalization on both the political right and left with unknown consequences.

Age old threat.

• Greek Shipowners Prepare to Weigh Anchor on Prospect of Higher Taxes (WSJ)

Many of Greece’s world-leading shipowners are actively exploring options to leave their home country, reacting to the prospect of sharply higher shipping taxes in the debt-ridden nation. Dominated by some 800 largely family-run companies that control almost a fifth of the global shipping fleet from their base at the main Greek port of Piraeus, the industry has long been a source of national pride. But at the behest of Greece’s international creditors, the newly re-elected Syriza-led government has reluctantly agreed to raise taxes on the long-protected sector. While Greek owners have agreed to voluntarily double until 2017 the amount they pay in tonnage tax-a fixed annual rate based on the size of each vessel-they are adamant on keeping their tax-free status on ship profits and money generated from ship sales.

Yet Greece’s creditors want taxes gradually to be applied on all shipping operations and are pushing for a permanent increase in the tonnage tax. Senior Greek government officials, who asked not to be named, said the finance ministry is trying to find alternative sources of income to avoid saddling owners with more taxes, but one said that “the exercise is proving very difficult.” Final decisions on the matter are expected by the end of October. Income-based shipping taxes, levied in countries such as the U.S., China and Japan, can raise much more revenue than tonnage taxes, levied in most European countries. An owner of a midsize vessel in Greece would pay a flat tonnage tax of $50,000 a year at the temporary double rate.

A comparable U.S. owner, depending on daily freight rates, might pay about $3.7 million in annual taxes, and a Japanese owner could pay $7 million. However, while European owners have to pay the tonnage tax every year regardless of profitability, U.S. and Japanese owners get substantial tax refunds if their vessels lose money. Many in the Greek shipping world say any increase in taxes on shipping operations would prompt a mass exodus of the country’s shipowners. Relatively low-tax global shipping centers such as Cyprus, London, Singapore and Vancouver are positioning themselves to benefit.

Rising wages.

• Iceland’s Next Collapse Is “Unavoidable,” Employers Union Warns (Bloomberg)

The head of Iceland’s main employers’ group says the nation is displaying some worrying signs. Wages are soaring much too fast and will ruin the economy if they continue unchecked, according to Thorsteinn Viglundsson, managing director of Business Iceland. “Another economic collapse is unavoidable, if we’re going to keep going down this path,” Viglundsson said in a phone interview in Reykjavik. Pay is set to rise about 30% through 2019 in many industries. Unions wanted increases as high as 50%, to compensate for years of moderate pay growth, but some were forced to settle for less after the government put the matter to an arbitration court. Icelanders, who work longer hours than their Nordic peers according to the OECD, are demanding a bigger share of the island’s economic recovery after eight years of belt-tightening.

Pay growth has barely kept pace with inflation, with real wages rising little more than 3% in the six years through 2014, statistics office figures show. Over the same period, real gross domestic product grew 29%. Viglundsson says wage growth above 25% through 2019 will have “very serious economic consequences.” “It will mean a surge in inflation, to which the central bank will respond by raising rates considerably,” he said. Iceland’s main policy rate is already above 6%, a developed-world record. “It will mean that, in the end, the krona will lose its value, like it has always done in the past under similar circumstances,” Viglundsson said.

To bring democracy. And protect our freedom.

• Obama Hands $1 Billion In Military Aid To Goverments Using Child Soldiers (CNN)

When the extremist group the Islamic State of Iraq and Syria (ISIS) abducts boys from Friday prayers at mosques or indoctrinates children as young as 10 to become fighters or suicide bombers, there is little the United States can do. But when recipients of U.S. military aid recruit children into their forces as soldiers, the United States has a lot of leverage. It is disappointing that the Obama administration has been reluctant to use it. This week, U.S. President Barack Obama is expected to make his annual announcement about the issue, on whether he will waive sanctions on military foreign aid under U.S. law for any of the eight governments currently on the State Department’s list for using child soldiers.

In 14 countries around the world, according to the United Nations, children are recruited and used in armed conflicts as informants, guards, porters, cooks, and often, as front-line armed combatants. In some, only non-state armed groups are responsible for the practice, but in others, the perpetrators are rebel forces and governments alike. In South Sudan, child recruitment spiked sharply last year, with estimates that 12,000 children were fighting with both government and non-state armed groups. In Yemen, where UNICEF has estimated that one-third of all fighters are under 18, all sides to the ongoing conflict, including the government, use child soldiers. Yet both governments have received millions of dollars in U.S. military assistance.

In 2008, Congress enacted a law based on two simple ideas: first, that U.S. tax dollars should not support the use of child soldiers, and second, that suspending U.S. military assistance could be a powerful incentive to prompt governments to end this reprehensible practice. The law, the Child Soldiers Prevention Act, took effect in 2010, restricting U.S. military support to governments using children in their armed forces. But the Obama administration’s implementation of the law has fallen far short of the law’s goals. Our analysis found that during the five years the law has been in effect, President Obama has invoked “national interest” waivers to authorize nearly $1 billion in military assistance and arms sales for countries that are still using child soldiers. In contrast, we found that only $35 million in military assistance and arms sales – a mere 4% of what was sanctionable under the law – was actually withheld from these abusive governments.

Farrell may be on to something.

• Millions Of Illegal Immigrants Will Overrun Trump’s ‘Beautiful Wall’ (Farrell)

Warning to the next president, to all future U.S. presidents: They’re coming. More illegal immigrants. More refugees. Millions more than conservatives fear are here already. Millions more coming, like Syrian refugees storming Europe. This warning is targeted specifically for a future President Donald Trump. You cannot stop them. Nobody can. They will overrun America, add trillions more debt. Brag all you want, this is one deal you will never, never negotiate successfully. Never win. Worse, you lose, we lose big.

Can’t win? No, not even if you’re bankrolled with unlimited funds, a blank-check from a GOP-controlled Congress and Treasury … not even if you win carte blanche clearance to build your “classy, beautiful” dream wall to your specs … build it extra high… superthick … not even if you staff it with thousands of well-armed special-ops soldiers … add new guard towers … patrolled by thousands of drones, sonar ships, nuclear subs … all to stop every illegal coming by aircraft, by boats, using battering rams, secretly entering through an ever-increasing vast underground network built by drug cartels … a near impenetrable system operating as an integrated high-tech network designed by our best minds to keep out the new flood of illegal immigrants that you so fear … it still won’t stop them.

Give it up you guys: Nobody can stop the coming tidal wave rising dead ahead. Not you, Mr. Next President, not Congress, nor any combination of our Armed Forces, FBI, ATF, CIA will ever stop the coming flood, a tsunami of illegals and refugees. Why? Because they’re escaping dying lands, doing what is natural, fighting, desperate, in survival mode, for themselves, their families, future generations, escaping climate-caused natural disasters, droughts, water and food shortages, starvation, genocide, pandemics, dust bowls, and so many more dark consequences of global warming climate change. Yes, all this is so obvious, so predictable. In the next few decades the same conditions that created the Syrian civil war between President Bashar al-Assad and his people will overwhelm the American southwest.

As climate change puts increasing pressure on the 160 million people in Mexico and Central America, millions of refugees and illegal immigrants will escape north into the United States, overrunning us by the end of this century. Of course, this human tsunami will not be understood by the clueless mind of America’s climate-science-denying GOP Congress held captive by Big Oil. Nor by the candidates in the GOP presidential debates. Worse, this would be a total fantasy to a GOP President Trump who’s sole obsession is a slogan “Make America Great Again” by building a “beautiful” wall to keep out illegal refugees. Except they’re all just making matters worse, delaying the inevitable collapse of America.

Clean energy.

• Farmers Driven From Homes ‘Like Pests’ As Asia Plans 500 Dams (Bloomberg)

Developing nations are in the middle of the biggest dam construction program in history to generate power, irrigate fields, store water and regulate flooding. Yet governments are finding it harder to move people, who have become less trusting of officials and more connected to information about the effects of the dams. Corruption and wrangles over payments have stalled projects from Indonesia to India for decades and frustrated governments are increasingly turning to the ultimate threat: Move, or we will flood you out. Jatigede is the latest example, and it is unlikely to be the last. Indonesia plans to build 65 dams in the next 4 years, 16 of which are under construction. India aims to erect about 230.

China is in the middle of a program to add at least 130 on rivers in the mountainous southwest and Tibetan plateau, including barriers across major rivers like the Mekong and Brahmaputra that flow into other countries. It is reported to have relocated people before inundating land. Like Jatigede, many are financed by Chinese banks and led by the nation s biggest dam builder, Sinohydro Corp. China is involved in constructing some 330 dams in 74 different countries, according to environmental lobbying group International Rivers, based in Berkeley, California. “Sending rising waters to flood out people like pests is barbaric”, said Professor Michael Cernea at the Brookings Institution. “Indonesia has the resources and know-how to resettle these people decently”.

“The relocation program is the responsibility of the government”, Sinohydro President Liang Jun said in an interview on Aug. 31 at the Jatigede dam. West Java governor Ahmad Heryawan said the dam will irrigate 90,000 hectares of land and provide water to Cirebon, a city of about 300,000 people on the northern coast of Java. At a ceremony on top of the dam on Aug. 31 to begin filling the reservoir, he acknowledged that not everyone had received compensation and that thousands remained in their homes. Those being relocated were “heroes of development, not victims”, he said. “We don t want them to suffer, we want to improve their welfare”. [..] Protests against dams have multiplied across Asia as activists mobilize residents and media against large projects and question their long-term benefits.

Indian Prime Minister Narendra Modi plans about 200 hydropower projects on the mountainous rivers in northeast India, as well as a program of 30 large dams that would help link major rivers across the country. “We are considering approvals for about 20 to 30 hydro and about 15 irrigation dam projects at the moment,” said Ashwinkumar Pandya, chairman of India’s Central Water Commission, which gives technical and economic clearances for dams. “Dams are an important aspect of planning and they ensure that water and power requirements for the nation are met.” “There is not a single dam – not a single one – for which India has done proper rehabilitation of people,” said Himanshu Thakkar at South Asia Network on Dams, Rivers and People. “And typically, all of them have seen costs escalate and delays in building.”

Debt Rattle September 29 2015

Sep 292015

September 29, 2015 Posted by Raúl Ilargi Meijer at 8:46 am Finance Tagged with: commodities, crisis, Glencore, Jamaica, Obama, oil, Putin, refugees, sanctuary, Saudi, stocks, UN, VW 1 Response »

Gottscho-Schleisner L Motors at 175th Street and Broadway, NYC 1948

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• Commodity Rout Beginning to Look Like a Full-Blown Crisis (Bloomberg)

• Glencore Shares Obliterated After Analysts Warn They Could Be Worthless (Tel.)

• Is Glencore Worth $26 Billion Or $98 Billion? Analysts Can’t Decide (Bloomberg)

• Global Stocks Set to Fall As $800 Billion Wipeout Boosts Yen, Bonds (Bloomberg)

• Three Major Trends that Shaped Global Economy for Decades Set to Change (BBG)

• Big Oil Faces Shrinking Prospects (FT)

• Why Shell Quit Drilling In Arctic After Spending $7 Billion On Single Well (BBG)

• Saudi Arabia Withdraws Billions From Markets to Plug Budget Deficit (BBG)

• The Collapse Of Saudi Arabia Is Inevitable (Nafeez Ahmed)

• Deutsche Bank Predicted To Cut 10,000 Jobs (Telegraph)

• UK Steel Industry Buckles Under The Weight Of Cheap Chinese Product (Guardian)

• VW Stock to Be Removed From Dow Jones Sustainability Indexes (Bloomberg)

• Tick Tick Tick (Jim Kunstler)

• Putin: West’s Rampant ‘Egotism’ To Blame For Syria, Ukraine, Isis (Guardian)

• Obama Deifies American Hegemony (Paul Craig Roberts)

• Barclays, HSBC Named In Swiss Precious Metals Price Fixing Investigation (TiM)

• It’s Time To Unpick Corporate Welfare (Kevin Farnsworth)

• Jamaica Seeks Billions Of Pounds In British Reparations For Slavery (Guardian)

• New Zealand’s New Ocean Sanctuary One Of World’s Largest Protected Areas (Gua.)

• More Than 1,100 Migrants Rescued Off Libyan Coast On Monday (DW)

Not beginning, continuing.

• Commodity Rout Beginning to Look Like a Full-Blown Crisis (Bloomberg)

The 15-month commodities free-fall is starting to resemble a full-blown crisis. Investors are reacting to diminished demand from China and an end to the cheap-money era provided by the Federal Reserve. A Bloomberg index of commodity futures has fallen 50% since a 2011 high, and eight of the 10 worst performers in the Standard & Poor’s 500 Index this year are commodities-related businesses. Now it all seems to be coming apart at once. Alcoa, the biggest U.S. aluminum producer, said it would break itself into two companies amid a glut stemming from booming production. Shell announced it would abandon its drilling campaign in U.S. Arctic waters after spending $7 billion.

And the carnage culminated Monday with Glencore, the commodities powerhouse that came to symbolize the era with its initial public offering in 2011 and bold acquisition of a rival in 2013, falling by as much as 31% in London trading. “With China slowing down and a lot of uncertainty, fears in the market have intensified, and the reduction in the pace of demand growth for all commodities has seemed to send everybody off the cliff,” said Ed Hirs, managing director of a small oil producer who teaches energy economics at the University of Houston. Peak prices in gold and silver are four years old, oil’s plummet since June 2014 has been pushed along by OPEC’s November decision to keep pumping despite excess supply and U.S. natural gas prices have fallen to less than a fourth of their 2008 value.

It’s about to get worse, according to analysts John LaForge and Warren Pies of Venice, Florida-based Ned Davis Research Group. Commodities may be in the fourth year of a 20-year “bear super-cycle,” according to an Aug. 14 research note. The analysts looked at commodity busts dating to the 18th century and found them driven by factors such as market momentum rather than fundamentals, LaForge said Monday in an interview.

“More than 85% has been wiped off the stock so far this year..”

• Glencore Shares Obliterated After Analysts Warn They Could Be Worthless (Tel.)

Glencore shares plunged 30pc in afternoon trading to a new record low after analysts warned the stock could be worthless if commodity prices remain at current levels. The shares went into freefall after analysts at Investec issued a note warning that heavily indebted companies such as the Swiss-based mining and trading giant could see almost all their equity value eliminated under current commodity prices, leaving nothing for shareholders. Almost £2bn was wiped off the value of Glencore as investors panicked and dumped the stock. It puts further pressure on Glencore, which has already been hit hard by the slump in commodity prices. Earlier this month the miner was forced to raise $2.5bn through a share placement, selling 1.3 billion new shares at 125p apiece.

It has also has announced plans in recent weeks to suspend its dividend and sell off assets as part of debt reduction measures to bolster its balance sheet. Hunter Hillcoat, an analyst at Investec, said: “Mining companies gorged themselves on cheap debt in a race to grow production following the Chinese stimulus that occurred in the wake of the great financial crisis. “The consequences are only now coming home to roost, as mines take a long time to build. We expect commodity markets to remain subdued for several years to come given that excess supply has coincided with a slowdown in demand.”

Even a move by chief executive Ivan Glasenberg to instil confidence in investors by buying 110 million shares has had little effect on sentiment. More than 85pc has been wiped off the stock so far this year and it is trading far below its listing price in May 2011 of 530p. The analysis from Investec looked at the entire debt pile of Glencore, while the company itself has always argued its stockpiles of metals can quickly be sold to rapidly reduce the debt levels. However, the broker warned that: “If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate.”

How about nothing?

• Is Glencore Worth $26 Billion Or $98 Billion? Analysts Can’t Decide (Bloomberg)

Glencore, the commodity trader that lost about a third of its value Monday, is worth either $98 billion or $26 billion, depending on which analyst you ask. At Sanford C. Bernstein, price targets published by Paul Gait suggest the Baar, Switzerland-based resource company can rally sevenfold to 450 pence, the top end of predictions tracked by Bloomberg. At the bottom, Nomura Holdings’s 120-pence forecast implies a market value that is $72 billion lower. The dispersion shows the difficulty in valuing a company caught between China’s slowing economy and mounting concerns about its debt load.

In addition to diverging views on copper prices, questions about how to evaluate Glencore’s trading business, unique among big mining companies, are muddling the equation, according to Clarksons Platou Securities’ Jeremy Sussman. “Glencore does have a unique trading business that is different from their competitors, and it’s a much more difficult business to model than a straight ‘you mine it, you sell it, and take whatever margin’ one,” said Sussman, an analyst for Clarksons Platou in New York. He recommends holding the stock, which he estimates will rise to 190 pence. Analysts “with targets in the higher end are probably in the camp that think trading will return to levels where it had been in the past couple of years.”

There goes your recovery. Not going to happen.

• Global Stocks Set to Fall As $800 Billion Wipeout Boosts Yen, Bonds (Bloomberg)

Global equities looked set to extend Monday’s $800 billion rout as U.S. and European index futures followed Asian stocks south amid a selloff in commodity-trading firms that’s sent investors toward the safety of the yen and sovereign bonds, while sending the cost of insuring debt skyward. Glencore dropped by a record in Hong Kong, tracking losses in London and dragging shares of Noble Group, Mitsui and BHP Billiton lower. The MSCI Asia Pacific Index is heading for its biggest quarterly loss since the global financial crisis, with every major benchmark in the region retreating on Tuesday. The yen was stronger against all 16 major peers, while the cost of insuring Asian debt jumped to the highest since October 2013. Australian and German bonds tracked Treasury gains.

A 15-month rout in raw materials and energy prices is colliding with surging corporate borrowing costs to challenge the business models of previously high-flying commodity firms such as Glencore, whose London shares have dropped 73% since June. The yield on U.S. non-investment grade corporate notes has risen for 11 straight days amid slowing Chinese growth and doubts about whether the U.S. economy is strong enough to handle higher Federal Reserve interest rates. “Glencore’s problems have heightened already deep concerns about the financial health of commodity companies,” said Win Udomrachtavanich at One Asset Management. “The outlook of commodity prices will continue to be very weak because of the prolonged global economic slowdown. Investors just face an even tougher environment with this as sentiment was already weakened by the U.S. interest-rate outlook.”

Demographics. Cute, but very one-sided.

• Three Major Trends that Shaped Global Economy for Decades Set to Change (BBG)

Demographics can explain two-thirds of everything, University of Toronto professor David K. Foot famously quipped. And according to Charles Goodhart, professor at the London School of Economics and senior economic consultant to Morgan Stanley, demographics explain the vast majority of three major trends that have shaped the socioeconomic and political environments across advanced economies over the past few decades. Those three would be declining real interest rates, shrinking real wages, and increasing inequality. Goodhart & Co.’s contentions aren’t necessarily novel, with versions of these conclusions having been articulated by Toby Nangle, head of multi-asset management at Columbia Threadneedle Investments, and given a U.S. focus by Matt Busigin and Guillermo Roditi Dominguez, portfolio managers at New River Investments.

But Goodhart’s work is a particularly thorough and forceful manifesto. The conditions that fostered these three intertwined major developments are nearly obsolete, writes the former member of the Bank of England’s Monetary Policy Committee and other analysts from Morgan Stanley, and this has profound implications for the framework of the global economy in the decades to come. Goodhart argues that since roughly 1970, the world has been in a demographic sweet spot characterized by a falling dependency ratio, or in plainer terms, a high share of working age people relative to the total population. At the same time, globalization provided multinational companies the ability to tap into this new pool of labor. This positive supply shock was a negative for established workers, forcing down the price of labor as capital flowed to these areas.

“More worrying, from Shell’s point of view, is the prospect of a declining reserves base. In common with several of the other oil majors, it is pumping oil faster than it can book new reserves of bankable assets.”

• Big Oil Faces Shrinking Prospects (FT)

One hundred and fifty miles from the Alaskan coast lies what must be the most expensive oil well ever drilled. Shell’s decision to abandon the Burger J prospect, along with its entire Arctic exploration campaign, marks an outcome that many at the oil major must have dreaded since it bought the leases in 2008. That is not because of the cost — enormous though it is — of setting up remote platforms and drilling into rock that lies beneath 140ft of water. Shell is reckoned to have spent about $7bn on the exploration effort; some estimates put the figure even higher. But its balance sheet is strong enough to absorb the loss. Nor will the public ill-will generated by years of exploration in pristine Arctic waters last for ever.

Indeed, for some senior executives at Shell, the prospect of success in the Arctic was more worrying than the possibility of failure. Building the permanent facilities needed for actual production would have been far more contentious than the limited (if sometimes hapless) exploration work. Among the people on record as opposing Arctic drilling is Hillary Clinton, the frontrunner for the Democratic nomination for president. That is a battle that Shell will no longer have to fight. More worrying, from Shell’s point of view, is the prospect of a declining reserves base. In common with several of the other oil majors, it is pumping oil faster than it can book new reserves of bankable assets. This was the reason for pushing on in the Arctic against public criticism and deteriorating economic prospects for so long.

If, as some of the company’s executives believed, the Chukchi Sea blocks held about 35bn barrels of oil, Shell’s reserve base would have been secured and much effort would have been devoted to winning hearts and minds and pushing down costs. As it stands, the reserve base will continue to decline. Shell’s $70bn purchase of BG Group, if completed, will bring access to some identified resources — for instance off the coast of Brazil — but the cost of development is high and success is very uncertain. In the long run, this is little short of an existential challenge. Can the existing reserves base be replaced with resources that can be developed commercially? Or is a period of corporate decline inevitable? For the past three years Shell has failed to find sufficient resources to replace production despite heavy exploration expenditure. In 2014 it replaced only 26% of its oil and gas production. Over the past three years the figure is just 67%.

How to spell desperation.

• Why Shell Quit Drilling In Arctic After Spending $7 Billion On Single Well (BBG)

Royal Dutch Shell’s abrupt announcement today that it would cease all offshore drilling in the Arctic is surprising for several reasons. One is the unusual degree of confidence the company expressed as recently as mid-August that it had identified 15 billion barrels of oil beneath the well known as Burger J it’s now abandoning. What on earth happened? After spending $7 billion over several years to explore a single well this summer, Shell said in a statement that it “found indications of oil and gas … but these are not sufficient to warrant further exploration.” This contrasts sharply with Shell officials’ statements as recently as July and August that based on 3D and 4D seismic analysis of core samples, its petroleum geologists were “very confident” drillers would find plentiful oil.

The geologists’ expectations were the main reason Shell spent all that money on a project that entailed much-higher-than-average operational risks and international environmental condemnation. Giving up has got to hurt at a company that prides itself on scientific and technical prowess. Shell said it would take an unspecified financial charge related to the folding of its Arctic operation, which carries a value of $3 billion on the company’s balance sheet. In late July, when Ann Pickard, Shell’s top executive for the Arctic, explained the economics of drilling in the Chukchi Sea, she readily acknowledged that if oil prices remained below $50 a barrel, the off-shore adventure would be for naught. At $70, Chukchi oil would be “competitive,” she told Bloomberg Businessweek, and at $110—a reasonable projection, according to the company’s economists—it would be a huge winner.

She was talking about prospective prices 15 years from now. Well, in recent weeks, Shell appears to have lost some of its bravado about where prices will be in 2030—according to a person familiar with the company’s thinking. Otherwise, it wouldn’t have given up altogether on the Chukchi, where it continues to hold 275 Outer Continental lease blocks. Indeed, Marvin Odum, director of Shell Upstream Americas, said in the written statement that the company “continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.”

Indeed: “None of this should come as much surprise..”

• Saudi Arabia Withdraws Billions From Markets to Plug Budget Deficit (BBG)

Saudi Arabia has withdrawn as much as $70 billion from global asset managers as OPEC’s largest oil producer seeks to plug its budget deficit, according to financial services market intelligence company Insight Discovery. “Fund managers we’ve spoken to estimate SAMA has pulled out between $50 billion to $70 billion from global asset managers over the past six months,” Nigel Sillitoe, chief executive officer of the Dubai-based firm, said by telephone Monday. “Saudi Arabia is withdrawing funds because it’s trying to cut its widening deficit and it’s financing the war in Yemen,” he said, declining to name the fund managers. Saudi Arabia is seeking to halt the erosion of its finances after oil prices halved in the past year.

The Saudi Arabian Monetary Authority’s reserves held in foreign securities have fallen about 10% from a peak of $737 billion in August 2014, to $661 billion in July, according to central bank data. The government is accelerating bond sales to help sustain spending.
“Foreign-exchange reserve depletion, rather than accumulation, is the new reality for Saudi Arabia,” Jason Tuvey, Middle East economist at Capital Economics, said in an e-mailed note Monday. “None of this should come as much surprise,” given the current-account deficit and risk of capital flight, he said. Saudi Arabia’s attempts to bolster its fiscal position contrast with smaller and less-populated nations in the Arabian peninsular such as Qatar.

The world’s richest nation on a per capita basis plans to channel about $35 billion of investment into the U.S. over the next five years as it seeks to move away from European deals. That’s on top of plans to set up a $10 billion investment venture with China’s Citic Group. With income from oil accounting for about 80% of revenue, Saudi Arabia’s budget deficit may widen to 20% of gross domestic product this year, according to the IMF. SAMA plans to raise between 90 billion riyals ($24 billion) and 100 billion riyals in bonds before the end of the year as it seeks to diversify its $752 billion economy, people familiar with the matter said in August.

Theer are rumblings inside the House of Saud as we speak.

• The Collapse Of Saudi Arabia Is Inevitable (Nafeez Ahmed)

On Tuesday 22 September, Middle East Eye broke the story of a senior member of the Saudi royal family calling for a “change” in leadership to fend off the kingdom’s collapse. In a letter circulated among Saudi princes, its author, a grandson of the late King Abdulaziz Ibn Saud, blamed incumbent King Salman for creating unprecedented problems that endangered the monarchy’s continued survival. “We will not be able to stop the draining of money, the political adolescence, and the military risks unless we change the methods of decision making, even if that implied changing the king himself,” warned the letter. Whether or not an internal royal coup is round the corner – and informed observers think such a prospect “fanciful” – the letter’s analysis of Saudi Arabia’s dire predicament is startlingly accurate.

Like many countries in the region before it, Saudi Arabia is on the brink of a perfect storm of interconnected challenges that, if history is anything to judge by, will be the monarchy’s undoing well within the next decade. The biggest elephant in the room is oil. Saudi Arabia’s primary source of revenues, of course, is oil exports. For the last few years, the kingdom has pumped at record levels to sustain production, keeping oil prices low, undermining competing oil producers around the world who cannot afford to stay in business at such tiny profit margins, and paving the way for Saudi petro-dominance. But Saudi Arabia’s spare capacity to pump like crazy can only last so long. A new peer-reviewed study in the Journal of Petroleum Science and Engineering anticipates that Saudi Arabia will experience a peak in its oil production, followed by inexorable decline, in 2028 – that’s just 13 years away.

This could well underestimate the extent of the problem. According to the Export Land Model (ELM) created by Texas petroleum geologist Jeffrey J Brown and Dr Sam Foucher, the key issue is not oil production alone, but the capacity to translate production into exports against rising rates of domestic consumption. Brown and Foucher showed that the inflection point to watch out for is when an oil producer can no longer increase the quantity of oil sales abroad because of the need to meet rising domestic energy demand. In 2008, they found that Saudi net oil exports had already begun declining as of 2006. They forecast that this trend would continue. They were right. From 2005 to 2015, Saudi net exports have experienced an annual decline rate of 1.4%, within the range predicted by Brown and Foucher.

A report by Citigroup recently predicted that net exports would plummet to zero in the next 15 years. This means that Saudi state revenues, 80% of which come from oil sales, are heading downwards, terminally. Saudi Arabia is the region’s biggest energy consumer, domestic demand having increased by 7.5% over the last five years – driven largely by population growth. The total Saudi population is estimated to grow from 29 million people today to 37 million by 2030. As demographic expansion absorbs Saudi Arabia’s energy production, the next decade is therefore likely to see the country’s oil exporting capacity ever more constrained.

Add Deutsche to Merkel’s bailout list. VW, refugees etc etc

• Deutsche Bank Predicted To Cut 10,000 Jobs (Telegraph)

Deutsche Bank’s new chief executive has to focus on rapid cost cuts if he wants to turn the struggling German giant around and win over investors, according to a top banking analyst’s assessment of the lender. JP Morgan’s Kian Abouhossein expects Deutsche’s John Cryan to announce plans to cut expenses at the bank by at least €2.5bn (£1.8bn) by 2018, chop 10,000 staff and cut back on 10,000 of the external consultants paid for by the group. Mr Cryan was given the top job in June following the departure of former co-chief executives Anshu Jain and Jurgen Fitschen, who quit after a three-year reign at the bank that was marred by the biggest ever Libor fine and a failure to impress shareholders. The bank’s stock shot up 8pc on the day it was announced that the co-chiefs were leaving, although the shares have since slide to 23.7 cents, which is 14pc below the price when Mr Cryan took over.

Mr Abouhossein believes the new boss has a difficult task ahead to prove his worth to shareholders, as the investor base has been let down repeatedly in the past by executives who have failed to turn the bank around. “In our view, DB [Deutsche Bank] management should focus on creating shareholder value by growing retained earnings and the key is to cut costs – a task which DB has failed to achieve in the past, and hence, on which we believe has little ‘goodwill’ with investors,” said the analyst in a research note to investors. He argued that “Deutsche Bank’s cost management has been poor historically”, resulting in a workforce of 84,000 full time staff plus an army of 30,000 external consultants, after excluding the group’s retail arm, Postbank.

Globalization frees up everyone!

• UK Steel Industry Buckles Under The Weight Of Cheap Chinese Product (Guardian)

Britain’s steel industry has been in meltdown for years: slowing demand and a flood of cheap Chinese steel into the market has hammered high-cost western producers. About half of the 1.6bn tonnes of steel made globally each year now comes from China. But an already perilous situation for British steelmakers has exacerbated in the past year as the Chinese economy slowed sharply, forcing Beijing to aggressively chase foreign cash for its wares. Tom Blenkinsop, chairman of the all-party parliamentary group on steel and MP for Middlesbrough South and East Cleveland, summed up the dilemma: “China is pouring steel into the European and world market for any currency it can get.” Flooding the market with cheap Chinese product has forced the price of slab steel down by 45% in just 12 months, from $500 (£330) a tonne to about $280.

As a result, China’s steel exports have grown 53% in the last year. In Britain, imports of Chinese steel have ballooned from 2% of UK demand in 2011 to 8% this year. This influx of cheap steel is a threat to all but the fittest western players – bad news for SSI UK, which is one of the weakest. Britain’s second biggest steelmaker has confirmed plans to axe 1,700 jobs and mothball its Redcar plant. It threatens to bring the curtain down on 160 years of steelmaking in the Teesside region of north-east England. It is the latest grisly chapter for Britain’s once mighty steel industry. Steel produced on Teesside was used to build well-known UK structures including Birmingham’s Bullring and Canary Wharf in east London. However, the industry now employs about 20,000 workers, a 10th of the number employed in the sector during the 1970s.

As if anyone cares apart from those who seek to turn green into green.

• VW Stock to Be Removed From Dow Jones Sustainability Indexes (Bloomberg)

Volkswagen AG’s stock will be removed from the Dow Jones Sustainability indexes after the automaker cheated on emissions tests. The Sept. 18 admission by VW that it systematically manipulated U.S. emissions tests prompted a review of its status, S&P Dow Jones Indices LLC and RobecoSAM said in a statement Tuesday. The stock will be pulled after the close of trading Oct. 5 from the DJSI World, DJSI Europe and all other related indexes, according to the statement. S&P Dow Jones Indices and RobecoSAM manage the Dow Jones sustainability indexes, which track the performance of companies that rank the best in their industries in terms of economic, environmental and social criteria.

The Dow Jones Sustainability World Index, introduced in 1999, was the first global such benchmark, according to the companies. Volkswagen’s stock has plunged 39% since Sept. 18, cutting the company’s market value by €27 billion, and prosecutors in Germany said Monday that they’ve started a criminal probe of the company that includes an investigation of former Chief Executive Officer Martin Winterkorn.

Jim’s dead on on Putin.

• Tick Tick Tick (Jim Kunstler)

Did Charlie Rose look like a fucking idiot last night on 60-Minutes, or what, asking Vladimir Putin how he could know for sure that the US was behind the 2014 Ukraine coup against President Viktor Yanukovych? Maybe the idiots are the 60-Minutes producers and fluffers who are supposed to prep Charlie’s questions. Putin seemed startled and amused by this one on Ukraine: how could he know for sure? Well, gosh, because Ukraine was virtually a province of Russia in one form or another for hundreds of years, and Russia has a potent intelligence service (formerly called the KGB) that had assets and connections threaded through Ukrainian society like the rhizomorphs of the fungus Armillaria solidipes through a conifer forest. Gosh, Charlie, it’s like asking Obama whether the NSA might know what’s going on in Texas.

And so there is Vladimir Putin, a former KGB officer, having to spell it out for the American clodhopper super-journalist. “We have thousands of contacts with them. We know who and where, and when they met with someone, and who worked with those who ousted Yanukovych, how they were supported, how much they were paid, how they were trained, where, in which country, and who those instructors were. We know everything.” The only thing Vlad left out of course was the now-world-famous panicked yelp by Assistant Secretary of State Victoria Nuland crying, “Fuck the EU,” when events in Kiev started getting out of hand for US stage-managers. But he probably heard about that, too. Charlie then voice-overed the following statement: “For the record, the US has denied any involvement in the removal of the Ukrainian leader.”

Right. And your call is important to us. And your check is in the mail. And they hate us for our freedom. This bit on Ukraine was only a little more appalling than Charlie’s earlier segment on Syria. Was Putin trying to rescue the Assad government? Charlie asked, in the context of President Obama’s statement years ago that “Assad has to go.” Putin answered as if he were explaining something that should have been self-evident to a not-very-bright high school freshman: “To remove the legitimate government would create a situation which you can witness in other countries of the region, for instance Libya, where all the state institutions have disintegrated. We see a similar situation in Iraq. There’s no other solution to the Syrian crisis than strengthening the government structure.”

And Putin’s dead on when it comes to distorted western power games.

• Putin: West’s Rampant ‘Egotism’ To Blame For Syria, Ukraine, Isis (Guardian)

“Egotism” was a word Vladimir Putin used more than once as he gave a thinly veiled dressing down to the United States on Monday. His speech covered little new ground but sharpened his critique of the current world order and called on the world to come together to fight terrorism in the Middle East. Putin bemoaned “a world in which egotism reigns supreme” and railed against the arrogant hubris of the west. Putin has been giving much the same speech since he first laid out his grievances in February 2007: the “unipolar” world in which Washington dominates, he says, has led to a more dangerous world than that of the cold war, when an imperfect but useful balance stopped any one country from dominating.

This speech, his first to the United Nations general assembly since 2005, comes as Putin visits the US for the first time since the Ukraine crisis prompted acrimony, mistrust and sanctions. It was notable for its intonation. Putin adopted the tone of a wise elder, alternately angered by the bellicosity and saddened by the naivety of the west. “You want to ask the people who created this situation: ‘Do you at least understand what you’ve done?’ But I fear that the question would just hang in the air, because after all, they have not turned their back on policies based on self-certainty, a sense of superiority and impunity.” The chaos in the Middle East and the rise of the Islamic State? That was the fault of the west, who armed those it naively thought to be secular freedom fighters.

The military conflict in Ukraine (or, as Putin put it, the “armed coup organised from abroad followed by civil war”)? Also down to the meddling of the west. Washington, said Putin, was repeating the mistakes of the Soviet Union by trying to export its own model of development to other countries. It has forced post-Soviet countries to make a “false choice between east and west”, sowing chaos and prompting unrest, he said. It was a description of events that would not have gone down well with the Ukrainian delegation – though they were not there to hear it, having walked out before Putin took to the podium.

Obama’s speech at the UN yesterday was an exercise in severe embarrassment to himself and the US.

• Obama Deifies American Hegemony (Paul Craig Roberts)

On this 70th anniversary of the UN, I have spent much of the day listening to the various speeches. The most truthful ones were delivered by the presidents of Russia and Iran. The presidents of Russia and Iran refused to accept the Washington-serving reality or Matrix that Obama sought to impose on the world with his speech. Both presidents forcefully challenged the false reality that the propagandistic Western media and its government masters seek to create in order to continue to exercise their hegemony over everyone else. What about China? China’s president left the fireworks to Putin, but set the stage for Putin by rejecting US claims of hegemony: “The future of the world must be shaped by all countries.” China’s president spoke in veiled terms against Western neoliberal economics and declared that “China’s vote in the UN will always belong to the developing countries.”

In the masterly way of Chinese diplomacy, the President of China spoke in a non-threatening, non-provocative way. His criticisms of the West were indirect. He gave a short speech and was much applauded. Obama followed second to the President of Brazil, who used her opportunity for PR for Brazil, at least for the most part. Obama gave us the traditional Washington spiel: “The US has worked to prevent a third world war, to promote democracy by overthrowing governments with violence, to respect the dignity and equal worth of all peoples except for the Russians in Ukraine and Muslims in Somalia, Libya, Iraq, Afghanistan, Syria, Yemen, and Pakistan.” Obama declared Washington’s purpose to “prevent bigger countries from imposing their will on smaller ones.”

Imposing its will is what Washington has been doing throughout its history and especially under Obama’s regime. All those refugees overrunning Europe? Washington has nothing to do with it. The refugees are the fault of Assad who drops bombs on people. When Assad drops bombs it oppresses people, but when Washington drops bombs it liberates them. Obama justified Washington’s violence as liberation from “dictators,” such as Assad in Syria, who garnered 80% of the vote in the last election, a vote of confidence that Obama never received and never will. Obama said that it wasn’t Washington that violated Ukraine’s sovereignty with a coup that overthrew a democratically elected government. It was Russia, whose president invaded Ukraine and annexed Crimera and is trying to annex the other breakaway republics, Russian populations who object to the Russophobia of Washington’s puppet government in Ukraine.

[..] Did the UN General Assembly buy it? Probably the only one present sufficiently stupid to buy it was the UK’s Cameron. The rest of Washington’s vassals went through the motion of supporting Obama’s propaganda, but there was no conviction in their voices. Vladimir Putin would have none of it. He said that the UN works, if it works, by compromise and not by the imposition of one country’s will, but after the end of the Cold War “a single center of domination arose in the world”—the “exceptional” country. This country, Putin said, seeks its own course which is not one of compromise or attention to the interests of others. In response to Obama’s speech that Russia and its ally Syria wear the black hats, Putin said in reference to Obama’s speech that “one should not manipulate words.” Putin said that Washington repeats its mistakes by relying on violence which results in poverty and social destruction. He asked Obama: “Do you realize what you have done?”

UBS to get lenient treatment, squeal on all others in a LIBOR repeat.

• Barclays, HSBC Named In Swiss Precious Metals Price Fixing Investigation (TiM)

UK banks Barclays and HSBC are among seven financial institutions being investigated by Swiss officials amid allegations of price fixing in the precious metals market. According to the Bern-based Weko commission, the probe will look at possible collusion of bid/ask spreads in the metals market for gold, silver, platinum and palladium. Also under investigation are two Swiss banks, UBS and Julius Baer, as well as three foreign banks – Deutsche Bank, Morgan Stanley and Mitsui. Weko said in a statement: ‘We have indications that possible prohibited competitive agreements in the trading of precious metals were agreed among the banks mentioned.’ Weko said it was looking at what effects any possible collusion would have had on the Swiss market.

Findings are expected to be published by 2017 and banks found to have flouted Switzerland’s competition laws could be fined as much as 10% of revenue. Weko’s inquiry follows similar investigations by the European Commission and the US Department of Justice and is the latest in a long line of probes into manipulation of the precious metals and foreign exchange markets. Last year, Switzerland’s financial regulator FINMA said it had found a ‘clear attempt’ to manipulate precious metals price benchmarks during a cross-market investigation into trading at UBS. HSBC said this year that the US Department of Justice requested documents from the bank in November in relation to a criminal antitrust investigation in to precious metals.

In January, the US Commodity Futures Trading Commission also issued a subpoena to the bank, seeking documents relating to its precious metals trading operations. And in April, the European Commission issued a request for information related to HSBC’s precious metals operations and the bank is currently co-operating with authorities. The UK’s FCA has already taken action and last year fined Barclays £26million after an options trader was found to have manipulated the London gold fix.

“I write “debated”, but this is too generous to some of those who have passed judgment on the work.”

• It’s Time To Unpick Corporate Welfare (Kevin Farnsworth)

I am the person behind the second most-debated figure of the Labour leadership race – the £93bn corporate welfare bill. I write “debated”, but this is too generous to some of those who have passed judgment on the work. Once Jeremy Corbyn had begun campaigning on the basis that some of the £93bn could be saved, proper analysis and discussion gave way to myth making and conjecture, and I didn’t recognise many of the arguments that were attributed to me. Despite being mentioned at some point by just about all of the media outlets, the only journalist who contacted me before writing about my research was Aditya Chakrabortty, who wrote the original front-page splash for the Guardian based on my report.

I’m hardly surprised then, if disappointed, that publications as venerable as the Economist have got basic things confused in their rush to write off Corbyn and my research. The report was published in July by the Sheffield Political Economy Research Institute and builds on years of researching and writing about public and social policies. Each category of corporate welfare I identify – made up of the various forms of state provision that service the needs of businesses – builds on the work of British and international academics, journalists, governmental organisations, politicians, policymakers and think tanks. Businesses could not do business without huge amounts of government support.

They require legal protections, a state-backed currency, the right frameworks to hire and fire and essential infrastructure. They depend on financial backing to exploit innovations and invest. And public policies operate to socialise various corporate risks. Employers need educated and healthy workers. Unemployment benefits and pensions increase labour market flexibility, making it easier to hire, fire and retire employees. The annual Global Competitiveness Report clearly illustrates the importance of comprehensive state provision to economic growth, productivity, profitability and national competitiveness. And it is published by the World Economic Forum – the organisation that runs the Davos gathering, so hardly a mouthpiece of the left.

The £93bn estimate, in fact, excludes most of the above. It is made up only of more direct benefits and services. It doesn’t include the indirect benefits that accrue to businesses from the social welfare system and the legacy costs linked to the bank bailouts. It doesn’t even include the cost of in-work tax credits, which have been labelled corporate welfare by others, including Conservative MPs. The more direct categories of corporate welfare identified in my report include official estimates of the cost of subsidies and grants to companies, worth about £15bn a year. Beyond this, the report identifies tax benefits as a major component of corporate welfare, at £44bn. Not surprisingly, this has proved to be the most controversial category of all.

“You are a grandson of the Jamaican soil who has been privileged and enriched by your forebears’ sins of the enslavement of our ancestors … You are, Sir, a prized product of this land and the bonanza benefits reaped by your family and inherited by you continue to bind us together like birds of a feather..”

• Jamaica Seeks Billions Of Pounds In British Reparations For Slavery (Guardian)

David Cameron is facing calls for Britain to pay billions of pounds in reparations for slavery ahead of his first official visit to Jamaica on Tuesday. Downing Street said the prime minister does not believe reparations or apologies for slavery are the right approach, but the issue is set to overshadow his trade trip to the island, where he will address the Jamaican parliament. Ahead of his trip, Sir Hilary Beckles, chair of the Caricom Reparations Commission, has led calls for Cameron to start talks on making amends for slavery and referenced the prime minister’s ancestral links to the trade in the 1700s through his cousin six times removed, General Sir James Duff.

In an open letter in the Jamaica Observer, the academic wrote: “You are a grandson of the Jamaican soil who has been privileged and enriched by your forebears’ sins of the enslavement of our ancestors … You are, Sir, a prized product of this land and the bonanza benefits reaped by your family and inherited by you continue to bind us together like birds of a feather. “We ask not for handouts or any such acts of indecent submission. We merely ask that you acknowledge responsibility for your share of this situation and move to contribute in a joint programme of rehabilitation and renewal. The continuing suffering of our people, Sir, is as much your nation’s duty to alleviate as it is ours to resolve in steadfast acts of self-responsibility.”

Professor Verene Shepherd, chair of the National Commission on Reparation, told the Jamaica Gleaner that nothing short of an unambiguous apology from Cameron would do, while a Jamaican MP, Mike Henry, called on fellow parliamentarians to turn their back on Cameron if reparations are not on the agenda, noting that the Jamaican parliament has approved a motion for the country to seek reparation from Britain. “If it is not on the agenda, I will not attend any functions involving the visiting prime minister, and I will cry shame on those who do, considering that there was not a dissenting voice in the debate in parliament,” he told the newspaper.

Sweet.

• New Zealand’s New Ocean Sanctuary One Of World’s Largest Protected Areas (Gua.)

New Zealand will create one of the largest marine protected areas in the world, spanning an area of 620,000 sq km. The Kermadec ocean sanctuary will be one of the world’s most significant fully protected ecosystems, the prime minister of New Zealand, John Key, told the UN general assembly in New York. The sanctuary is in the South Pacific Ocean, about 1000km north-east of New Zealand, and expands a marine reserve that surrounds a clutch of small islands. The area is considered crucial in terms of biodiversity, featuring nearly 35 species of whales and dolphins, 150 types of fish and three of the world’s seven sea turtle species. It is also geologically significant, encompassing the world’s longest chain of submerged volcanoes and the second deepest ocean trench, plunging to 10km underwater – deeper than Mount Everest is tall.

The scale of the sanctuary will dwarf any previous New Zealand protected area, spanning twice the size of the country’s landmass. It will cover 15% of New Zealand’s exclusive economic zone. Commercial and recreational fishing will be completely banned, as will oil, gas and mineral prospecting, exploration and mining. Key’s government aims to pass legislation establishing the sanctuary next year. “The Kermadecs is a world-class, unspoiled marine environment and New Zealand is proud to protect it for future generations,” Key said.

Every single day our shame grows bigger.

• More Than 1,100 Migrants Rescued Off Libyan Coast On Monday (DW)

The Italian coast guard coordinated the rescue of 1,151 migrants in nearly a dozen separate operations on Monday off the coast of Libya, it said. In one instance, a coast guard ship picked up more than 440 people from four inflatable boats. Separately, the charity Doctors Without Borders (MSF) said one of its boats had rescued 373 people, tweeting a picture of a distressed 6-year-old child. Libya is one of the major crossing points for African migrants trying to get to Europe. The European Union is trying to combat people smuggling and will go after suspected traffickers in the international waters of the Mediterranean Sea as of next week. Beginning October 7, the next phase of what’s known as Operation Sophia will allow naval forces belonging to EU member states to board, search and seize suspicious vessels. The operation has so far centered on saving those drifting on the high seas, but will now include directly targeting trafficking operations.