Jul 072018
 
 July 7, 2018  Posted by at 9:10 am Finance Tagged with: , , , , , , , , ,  4 Responses »


Claude Monet Water lilies 1904

 

Fed Discards Flattening Yield Curve as Recession Indicator (WS)
Theresa May Secures Approval From Cabinet To Negotiate Soft Brexit (G.)
Boris Johnson’s Gang Outgunned By Theresa May At Chequers (G.)
UK Government Has No Clue How To Execute Brexit Without Harm – Airbus CEO (G.)
Despite 213K Jobs Gain, Unemployment Up by 499K (Mish)
Russia Hikes Duties On US Imports, Pledges More Retaliation (R.)
US Border Agents Stop Canadian Fishermen In Disputed Waters Off Maine (G.)
More Ways Your Phone Is Spying On You (ZH)
Summer of Tough Love (Jim Kunstler)
Twitter Suspends Over 70 Million Accounts In Two Months (R.)
Tax Arbitrage Is An Issue (Setser)
Mainstream Politicians Short-Sighted, Don’t See World Changing – Grillo (RT)
Number Of Planes In The Sky To More Than Double In Next 20 Years (Ind.)
Pope Warns Earth Turning Into Vast Pile Of ‘Rubble, Deserts And Refuse’ (AP)

 

 

Seems like a risky gamble.

Fed Discards Flattening Yield Curve as Recession Indicator (WS)

In the minutes of the FOMC meeting on June 12 and 13, released this afternoon, there was a doozie, obscured somewhat by the dynamics of the rate hike plus the indication that there would be two more rate hikes this year, for a total of four, up from three at the prior meeting, with more hikes to come in 2019, along with other changes [..] But the doozie in the minutes was about the flattening “yield curve.” The yield curve is formed by Treasury yields of different maturities: normally, the two-year yield is quite a bit lower than the 10-year yield. Over the last several decades, each time the yield curve “inverted” – when the two-year yield ended up higher than the 10-year yield – a recession followed. The last time, the Financial Crisis followed.

So this has become a popular recession indicator that has cropped up a lot in the discussions of various Fed governors since last year. Today, the two-year yield closed at 2.55% and the 10-year yield at 2.84%. The spread between them was just 29 basis points, the lowest since before the Financial Crisis. The chart below shows the yield curves on December 14, 2016, when the Fed got serious about raising rates (black line); and today (red line). Note how the red line has “flattened” between the two-year and the 10-year markers, and how the spread has narrowed to just 29 basis points:

The chart below shows the two-year yield (black) and the 10-year yield (red) going back to 1992. Note how the spread has been narrowing in recent months.

The chart below tracks this spread for every day back to 2008. Today, the spread, at just 29 basis points, is the lowest since before the Financial Crisis:

There has been a lot of handwringing about this being an indicator that the next recession is nearing and that the Fed should back off with its rate hikes. But this Fed is getting seriously hawkish: In the minutes today, it revealed that instead of thinking about backing off with its rate hikes, it’s throwing out the flattening yield curve.

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She’s threatened to fire them. But Brexit looks less likely to happen by the day.

Theresa May Secures Approval From Cabinet To Negotiate Soft Brexit (G.)

Theresa May has secured approval to negotiate a soft Brexit deal with the European Union, signing up her fractious cabinet at a Chequers awayday to a controversial plan to match EU standards on food and goods. The prime minister released a statement following the critical afternoon session of the long-awaited summit that alarmed Tory hard Brexiters, in which she confirmed she had won over the cabinet to new customs arrangements ending political deadlock on the issue. May said the cabinet had “agreed our collective position for the future of our negotiations with the EU”. That included a proposal to “create a UK-EU free trade area which establishes a common rule book for industrial goods and agricultural products” after Brexit.

Tory Brexiters voiced concern at the agreement, while soft Brexiters expressed relief. Andrea Jenkyns, a hardline MP, complained that “British businesses will continue to be a rule taker from the EU” and said she would “pray” that the detail was not as bad as she feared. Heidi Allen, a moderate, said she was “pleased to report Theresa May has secured cabinet agreement for a sensible, soft Brexit”. On Thursday, when the common rule book proposal was first leaked, hardline Brexiter cabinet ministers and Conservative MPs voiced alarm that it could prevent the UK striking a trade deal with the US, which has different standards in goods and foods, such as allowing chickens to be washed in chlorine.

But May was able to release the text of a three-page agreed statement before cabinet, following a relatively undramatic day of discussions, sat down for dinner to listen to No 10 communications chiefs make a presentation on how to sell the new proposals. Michel Barnier, the EU’s chief Brexit negotiator, appeared to react warmly to the proposals, noting in a tweet that the “Chequers discussion on future to be welcomed. I look forward to white paper. We will assess proposals to see if they are workable and realistic”. The prime minister made clear that she expected ministers would be sacked if they did not remain in line with her soft Brexit blueprint.

She wrote to Tory MPs to explain her plans and included a clear warning about discipline: “As we developed our policy on Brexit, I have allowed cabinet colleagues to express their individual views. Agreement on this proposal marks the point where that is no longer the case and collective responsibility is now fully restored.”

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It doesn’t matter one bit unless the EU agrees.

Boris Johnson’s Gang Outgunned By Theresa May At Chequers (G.)

Theresa May has won the battle with her Brexiter rebels in the cabinet, but the war will be a long one. She gambled that the Brexit purists – those who gathered on the eve of the Chequers summit at the Foreign Office with Boris Johnson – would be outgunned at Chequers when the full cabinet was assembled. The choreography was impressive – May locked her ministers inside the Buckinghamshire retreat without their phones or special advisers. The final agreement – sent out on behalf of “HM government” came to journalists an hour before advisers had even seen it – and before they could get in contact with their ministers to know what concessions had been made. Within the hour, out came a letter to Conservative MPs warning the days of debate over the government’s Brexit position were over.

“Collective responsibility is now fully restored,” May warned. The deal clinched with her most difficult members of her cabinet, architects of the leave campaign such as Johnson and Michael Gove, gave May the leverage to demand similarly hardline MPs get in line. Downing Street has been briefing in a strident tone, practically daring hard Brexiter ministers to give it all up to walk down the Chequers drive. The numbers that will matter now are those in her parliamentary party. Some will express predictable fury, though in the hours since the deal was reached, Jacob Rees-Mogg was telling MPs to keep their powder dry. Key will be whether this is a deal that can win over mainstream backbenchers.

In recent weeks, a number of Conservative MPs had begun to express frustration that the prime minister was not prepared to face down one side of her party and lead. [..] On Monday, the prime minister will address the 1922 committee of backbenchers, though the timing of the summit means angry MPs will have the weekend to either cool off or come to the boil. “I’ll wait to see if this collective responsibility lasts the weekend,” another MP said. Perhaps just as crucially there are still some concerns about the future deal for UK services, around 80% of the UK economy. The agreement states the UK would “strike different arrangements for services, where it is in our interests to have regulatory flexibility, recognising the UK and the EU will not have current levels of access to each other’s markets”.

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And that’s the whole point.

UK Government Has No Clue How To Execute Brexit Without Harm – Airbus CEO (G.)

The chief executive of Airbus has accused the government of having “no clue” on how to leave the EU without harming the economy, as the prime minister aimed at uniting the cabinet behind a Brexit plan. The criticism from the aerospace firm, which employs 14,000 people in the UK, is the strongest intervention yet from the business community on the risk of a hard Brexit and came in the same week that Jaguar Land Rover, Britain’s largest carmaker, warned its were under threat. Speaking at a briefing in London before the Farnborough air show later this month, the Airbus chief executive, Tom Enders, said: “The sun is shining brightly on the UK, the English team is progressing towards the [World Cup] final, the RAF is preparing to celebrate its centenary and Her Majesty’s government still has no clue, no consensus on how to execute Brexit without severe harm.”

Enders said Airbus, a Franco-German group that supports a further 100,000 UK jobs in its supply chain, was wary of all types of Brexit, including a worst-case no-deal scenario. “Rest assured that we are taking first preparations as we speak in order to mitigate consequences from whatever Brexit scenario may follow,” he said. “Brexit in whatever form, soft or hard, light or clean, whatever you call it, will be damaging for industry, for our industry and damaging for the UK, whatever the outcome will be.”

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600,000 more looking for a job. Out of 95 million not in labor force. All new jobs are part-time. Full-time jobs fell.

Despite 213K Jobs Gain, Unemployment Up by 499K (Mish)

Today’s establishment survey shows jobs rose by 213,000. Revisions were positive. The unemployment rate rose from 3.8% to 4.0% as the labor force rose by 601,000. More people are starting to look for jobs but employment only rose by 102,000. Nonfarm wage growth was +0.2% vs an Econoday consensus of +0.3%. The Phillips’ curve is a joke, but it’s still widely believed. The change in total nonfarm payroll employment for April was revised up from +159,000 to +175,000, and the change for May was revised up from +223,000 to +244,000. With these revisions, employment gains in April and May combined were 37,000 more than previously reported

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Putin meets Trump in 9 days.

Russia Hikes Duties On US Imports, Pledges More Retaliation (R.)

Russia said on Friday it was imposing additional import duties on some U.S. industrial goods after the United States slapped tariffs on steel and aluminum imports, and warned that more retaliatory steps could be in the pipeline. The economy ministry said Russia would impose extra tariffs on some goods from the United States for which there are Russian-made substitutes.The extra duties of 25 to 40 percent will apply to imports of fiber optics and equipment for road construction, the oil and gas industries and metal processing and mining.

The ministry said the measures, signed by Russian Prime Minister Dmitry Medvedev, were intended to compensate for $87.6 million of damage suffered by Russian export-focused companies as a result of the U.S. metals tariffs. The U.S. tariff hike will cost an overall $537.6 million and Russia has the right to impose more compensatory measures in the future, the economy ministry said.

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Feels like Python.

US Border Agents Stop Canadian Fishermen In Disputed Waters Off Maine (G.)

Canada’s government is investigating reports that US border patrol officers have intercepted and questioned crew members on more than 20 Canadian vessels in disputed waters off the coast of Maine. The reports have thrust a longstanding territorial dispute between the two countries into the spotlight; since the late 1700s tensions have simmered over a pair of tiny, treeless islands that sit between Maine and the Canadian province of New Brunswick. Primarily inhabited by nesting puffins, the islands of North Rock and Machias Seal remain the only disputed lands between US and Canada, with both claiming sovereign jurisdiction over the islands and their surrounding waters.

As a result, the area has long hosted lobster fisherman from both sides of the border. The question of jurisdiction flared up recently after the Grand Manan Fishermen’s Association said a Canadian vessel had been stopped by US border patrol while fishing in the waters near Machias Seal Island in late June. “He informed them he was a Canadian vessel legally fishing in Canadian waters,” wrote Laurence Cook of the association on Facebook. He said he was “not surprised to see the Americans trying to push people around”, describing them as “typical American bullies.”

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In ways we didn’t yet know.

More Ways Your Phone Is Spying On You (ZH)

For years, conspiracy theories about smart phones listening to users without their permission to show them advertisements have abounded. While some researchers have shown this could happen, a first of its kind study just found something far more insidious. Academics at Northeastern University have just proven that your phone is recording your screen – as in taking video – and uploading it to third parties. For the last year, Elleen Pan, Jingjing Ren, Martina Lindorfer, Christo Wilson, and David Choffnes ran an experiment involving more than 17,000 of the most popular Android apps using ten different phones. Their findings were alarming, to say the least.

As Gizmodo points out, during the study, the researchers started to see that screenshots and video recordings of what people were doing in apps were being sent to third-party domains. For example, when one of the phones used an app from GoPuff, a delivery start-up for people who have sudden cravings for junk food, the interaction with the app was recorded and sent to a domain affiliated with Appsee, a mobile analytics company. The video included a screen where you could enter personal information – in this case, their zip code.

GoPuff did not disclose in its terms of use that its app was recording users screens and uploading this data to a third party. What’s more, when they were contacted by the researchers GoPuff merely added a disclosure to their policy acknowledging that “ApSee” might receive users PII. The fact that these apps can record your screen without you knowing and use this data is chilling. It illustrates how easy it would be for a malicious actor to be able to look at your private messages, personal information, passwords, photos, and videos. None of this is stopped by your phone’s security either as it is a function built into the apps and you don’t have an option to disallow it.

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“Mr. Mueller will come up with someone to indict on something, even if it’s ninety-seven ham sandwiches.”

Summer of Tough Love (Jim Kunstler)

The blowup of the bond and stock markets later this year will put to a gloomy rest the ludicrous notion that America has been enjoying a great economic boom. It’s actually been an engineered hallucination, thanks to the global monetary authorities applying the magic of limitless credit to a bad habit of credulous speculation. The central banks have launched a program of so-called “quantitative tightening (QT)” — an idiotic phrase meant to counterpoise the equally fatuous “quantitative easing (QE),” PhD economist-speak for grotesque interference in the bond markets — that will choke down the credit supply at exactly the moment that governments and giant corporations need new loans to pay the interest on old loans. The trajectory there is obvious.

The big question, of course — hardly ever asked in the public arena — is what that will do to currencies, i.e., money. It can really only go two ways: either make money very scarce, in which case a lot of people and enterprises go broke, or, if the monetary authorities respond to the predicament by enabling a return to bottomless credit issuance, the money will become worthless — they’ll be plenty of it, but it won’t buy much. Such a turn of events will make an already-unhinged nation fly apart. [..] Oh, yes, there is also that Hieronymus Bosch Garden of Earthly Delights known as the Mueller Investigation, with its dreary outposts in the executive suite of the FBI, and all the tangled mysteries entailed there.

Mr. Mueller will come up with someone to indict on something, even if it’s ninety-seven ham sandwiches. I suspect Mr. Trump will manage to dump Attorney General Jeff Sessions and Deputy AG Rod Rosenstein. And then the pardons will fly, like so many winged demons flapping from the mouth of Hades. Constitutional crisis may be too mild a word for what ensues. By holiday time in early winter, much will clarified about the actual direction of the country. By then, the “Walk Away” movement may even include the obdurate shills at CNN and The New York Times, and the Intellectual-Yet-Idiots on the college campuses. And the Golden Golem of Greatness will lie upended in the swamp that he just didn’t try hard enough to drain.

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How many fake accounts do they have?

Twitter Suspends Over 70 Million Accounts In Two Months (R.)

Twitter Inc suspended more than one million accounts a day in recent months to reduce the flow of misinformation on the platform, the Washington Post reported. Twitter and other social media platforms such as Facebook Inc have been under scrutiny by U.S. lawmakers and international regulators for doing too little to prevent the spread of false content. The companies have been taking steps such as deleting user accounts, introducing updates and actively monitoring content to help users avoid being a victim to fake content. Twitter suspended more than 70 million accounts in May and June, and the pace has continued in July, the Post reported on Friday, citing data it obtained.

“It’s hard to believe that 70 million accounts were affected when Twitter has only 336 million monthly active users (MAU),” Wedbush analyst Michael Pachter said. Twitter’s MAU is expected to grow nearly 3 percent to 337.06 in the second quarter, according to Thomson Reuters I/B/E/S. “My guess is that a large number of these suspended accounts were dormant … it should have little impact on the company,” Pachter told Reuters. If the 70 million were mostly active accounts, the affected accounts would have been “screaming bloody murder”, added the analyst.

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Tax havens.

Tax Arbitrage Is An Issue (Setser)

The impact of the U.S. tax reform on the U.S. trade balance was a hot item of debate last December. There was an argument that reducing the headline tax rate—and creating an even lower tax for the export of intangibles—would reduce the incentive for firms to book profits abroad in offshore tax centers. Booking those profits at home would raise U.S. services exports—while the service “exports” of countries like Ireland and Luxembourg (really re-exports of intellectual property created in the U.S) would fall. This would have no overall effect on the balance of payments. The rise in the recorded exports of intellectual property from the U.S. would be offset by a fall in the offshore income of U.S. firms.

For example, Google (U.S.) would show a bigger profit as offshore sales would be booked as exports of IP held in the U.S. (a service export) while Google (Bermuda) would show a smaller profit —and that would translate both into a smaller trade deficit and a smaller surplus on foreign direct investment income.* But shifting paper profits around would bring down the measured trade deficit—a potential win for Trump. It is obviously too soon to assess the full impact of the tax reform. But it isn’t too soon to start looking for some clues. The q1 balance of payments data doesn’t suggest that firms have lost their appetite for booking profits abroad, or their appetite for booking the bulk of their offshore profits in low tax jurisdictions. This shouldn’t be a surprise—the lowest rate in the new U.S. tax code is the new global minimum rate on intangibles.

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The existing “ideologies have outlived their usefulness,” Grillo said. “There are just good and bad ideas..”

Mainstream Politicians Short-Sighted, Don’t See World Changing – Grillo (RT)

Mainstream political parties have outlived their purpose as they cannot adapt to the changes in the political system and are out of step with the voters, Beppe Grillo, the founder of the Italian Five Star Movement (M5S), said. “The world of the old politics and old political parties,” which expect the people to trust them with defending the public interests, is “slowly dying out,” Grillo, a former Italian satirist and activist, told Ex-Ecuador President Rafael Correa during the “Conversations with Correa” show on RT Spanish. People are no more willing to just blindly follow some political forces, they are much more informed now, they seek for information in the internet and want to form their own opinions, he explained.

“The world is changing at a fantastic speed. However, the current generation of politicians does not feel these changes. They just do not see it,” Grillo said, adding that the politicians are oriented “on a short-term horizon.” Meanwhile, the society, particularly the young people, is no longer attracted by the ideas propagated by the mainstream parties. The existing “ideologies have outlived their usefulness,” Grillo said. “There are just good and bad ideas,” he added, explaining that “they are not divided into ‘right’ and ‘left’ anymore.” The self-described anti-establishment activist then criticized the mainstream politicians for hiding their own inability to adapt behind the warnings about the perceived threat of populism.

As for the populism, I am proud to be a populist, if the word ‘populus’ (the people) is still of some importance,” Grillo told Correa. “Our goal is to reach out to people, to encourage them to think for themselves, to give them instruments to fulfill their own ideas,” he added. He agreed with Correa’s statement that the so-called “anti-populism” is what really poses a threat to the modern society as it seeks to keep the system unchanged. He particularly agreed that “anti-populism” is in fact a “means of attack” as it sees everything that challenges the system as populism and seeks to clamp it down.

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It’s going to be so annoying people will stop flying.

Number Of Planes In The Sky To More Than Double In Next 20 Years (Ind.)

The number of aircraft in the skies will more than double by 2037, according to the latest Global Market Forecast by Airbus. The Toulouse-based plane maker says half the present 21,450 aircraft flying will still be aloft in 20 years. With 37,390 new planes predicted to take off, the world’s total will increase by 123 per cent to 47,990. The expected total number of aircraft is 11.3 per cent higher than it was in the last big forecast by Airbus, a year ago. The vast majority of the new planes will be smaller, narrow-bodied jets. More than three-quarters of deliveries will be from the Airbus A320 and Boeing 737 families, or aircraft of a similar scale from other manufacturers.

Assuming the 737 is still being made in 2037, it will be the most enduring aircraft in aviation history, having first flown 70-years earlier. Of the 28,550 predicted new narrow-bodied planes, one of Airbus’s leading hopes is the A321 NEO, a re-engined version of an aircraft that attracted little attention when it was launched as a stretched A320 in the early 1990s. The latest version can hold up to 244 passengers, and the long-range variant can fly 4,600 miles – the distance from Manchester to Seattle. The economics of the A321 are very tempting to 21st-century airlines, particularly for “long, thin” routes.

[..] Last month, Eamonn Brennan, director general of the air-traffic provider, Eurocontrol, warned: “On our most likely scenario, there won’t be enough capacity for approximately 1.5 million flights or 160 million passengers in 2040. “Many airports will become much busier, with higher delays. By 2040, 16 airports will be highly congested operating at close to capacity for much of the day, up from six airports today. “As a result of this congestion the number of passengers delayed by between one and two hours will grow from around 50,000 each day now to around 470,000 a day in 2040.”

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You’re going to need a lot tougher words than that.

Pope Warns Earth Turning Into Vast Pile Of ‘Rubble, Deserts And Refuse’ (AP)

Pope Francis urged governments on Friday to make good on their commitments to curb global warming, warning that climate change, continued unsustainable development and rampant consumption threatens to turn the Earth into a vast pile of “rubble, deserts and refuse”. Francis made the appeal at a Vatican conference marking the third anniversary of his landmark environmental encyclical “Praise Be.” The document, meant to spur action at the 2015 Paris climate conference, called for a paradigm shift in humanity’s relationship with Mother Nature. In his remarks, Francis urged governments to honor their Paris commitments and said institutions such as the IMF and World Bank had important roles to play in encouraging reforms promoting sustainable development.

“There is a real danger that we will leave future generations only rubble, deserts and refuse,” he warned. The Paris accord, reached by 195 countries, seeks to avoid some of the worst effects of climate change by curbing global greenhouse gas emissions via individual, non-binding national plans. President Donald Trump has said the US will pull out of the accord negotiated by his predecessor unless he can get a better deal. Friday’s conference was the latest in a series of Vatican initiatives meant to impress a sense of urgency about global warming and the threat it poses in particular to the world’s poorest and most marginalised people. Recently, Francis invited oil executives and investors to the Vatican for a closed-door conference where he urged them to find alternatives to fossil fuels. He warned climate change was a challenge of “epochal proportions”.

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Mar 052018
 
 March 5, 2018  Posted by at 11:04 am Finance Tagged with: , , , , , , , , , , , ,  6 Responses »


Astor Theater, Times Square NYC 1945

 

Monetary Policy In The Grip Of A Pincer Movement (BIS)
The Arithmetic of Risk (John Hussman)
BOJ’s Kuroda Joins Queue of Central Banks Looking Toward Exit (BBG)
Trump’s Trade War Is For The Forgotten People (Eric Peters)
Italy Faces Political Gridlock After 5-Star Surges (R.)
China Sets 2018 GDP Target at About 6.5%, Turns Fiscal Screws (BBG)
Tax the Wealth of Older Britons to Help the Young, Report Argues (BBG)
Eliminate The Deficit? Eliminate Economic Hope, More Like (McDuff)
15,000 New Manchester Homes And Not A Single One ‘Affordable’ (G.)
The Tyranny of Algorithms (G.)
US Embassy In Turkey Closed Due To Security Threat (R.)
Erdogan Advisor Says Ankara Ready To ‘Strike’ In Eastern Med (K.)
Australia: Global Deforestation Hotspot (G.)
Europe Tree Loss Pushes Beetles To The Brink (BBC)

 

 

Financial cycles appear to have grown in amplitude and length. Next move could be really wild.

Monetary Policy In The Grip Of A Pincer Movement (BIS)

The emergence of disruptive financial cycles and the limited sensitivity of inflation to domestic slack may at first sight seem to be unrelated. In fact, there may be a common thread: the behaviour of monetary policy. Consider each in turn. The first major development is that, since around the early 1980s, financial cycles appear to have grown in amplitude and length. There is no unique definition of the financial cycle. A useful one refers to the self-reinforcing processes between funding conditions, asset prices and risk-taking that generate expansions followed by contractions. These processes operate at different frequencies. But if one is especially interested in those that cause major macroeconomic costs and banking crises, probably the most parsimonious description is in terms of credit and property prices.

Graph 1 illustrates the phenomenon for the United States using some simple statistical filters, although the picture would not be that different for many other countries or using other techniques (eg peak-trough analysis). The graph shows that the amplitude and length of the fluctuations has been increasing, that the length of the financial cycle is considerably longer than that of the traditional business cycle (blue versus red line) and that banking crises, or serious banking strains, tend to occur close to the peak of financial cycle. Another key feature of financial cycles is that the bust phase tends to generate deeper recessions. Indeed, if the bust coincides with a banking crisis, it causes very long-lasting damage to the economy.

There is evidence of permanent output losses, so that output may regain its pre-crisis long-term growth trend while evolving along a lower path. There is also evidence that recoveries are slower and more protracted. And in some cases, growth itself may also be seriously damaged for a long time. Some recent work with colleagues sheds further light on some of the possible mechanisms at work. Drawing on a sample of over 40 countries spanning over 40 years, we find that credit booms misallocate resources towards lower-productivity growth sectors, notably construction, and that the impact of the misallocations that occur during the boom is twice as large in the wake of a subsequent banking crisis.

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“.. I continue to expect the S&P 500 to lose about two-thirds of its value over the completion of the current market cycle…”

The Arithmetic of Risk (John Hussman)

At present, I view the market as a “broken parabola” – much the same as we observed for the Nikkei in 1990, the Nasdaq in 2000, or for those wishing a more recent example, Bitcoin since January. Two features of the initial break from speculative bubbles are worth noting. First, the collapse of major bubbles is often preceded by the collapse of smaller bubbles representing “fringe” speculations. Those early wipeouts are canaries in the coalmine. In July 2007, two Bear Stearns hedge funds heavily invested in sub-prime loans suddenly became nearly worthless. Yet that was nearly three months before the S&P 500 peaked in October, followed by a collapse that would take it down by more than 55%.

Observing the sudden collapses of fringe bubbles today, including inverse volatility funds and Bitcoin, my impression is that we’re actually seeing the early signs of risk-aversion and selectivity among investors. The speculation in Bitcoin, despite issues of scalability and breathtaking inefficiency, was striking enough. But the willingness of investors to short market volatility even at 9% was mathematically disturbing. See, volatility is measured by the “standard deviation” of returns, which describes the spread of a bell curve, and can never become negative. Moreover, standard deviation is annualized by multiplying by the square root of time. An annual volatility of 9% implies a daily volatilty of about 0.6%, which is like saying that a 2% market decline should occur in fewer than 1 in 2000 trading sessions, when in fact they’ve historically occurred about 1 in 50.

The spectacle of investors eagerly shorting a volatility index (VIX) of 9, in expectation that it would go lower, wasn’t just a sideshow in some esoteric security. It was the sign of a market that had come to believe that stock prices could do nothing but advance, and could be expected to do so in an uncorrected diagonal line. I continue to expect the S&P 500 to lose about two-thirds of its value over the completion of the current market cycle. With market internals now unfavorable, following the most offensive “overvalued, overbought, overbullish” combination of market conditions on record, our market outlook has shifted to hard-negative. Rather than forecasting how long present conditions may persist, I believe it’s enough to align ourselves with prevailing market conditions, and shift our outlook as those conditions shift.


Annotation in blue by Mish

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Perhaps this is truly a coordinated effort. The BIS could be doing the coordination.

BOJ’s Kuroda Joins Queue of Central Banks Looking Toward Exit (BBG)

The end of the easy money era which spanned the global economy for the last decade came into even sharper focus as the Bank of Japan gave fresh insight into when it might slow its stimulus program. Governor Haruhiko Kuroda’s remarks on Friday that the central bank will start thinking about how to complete its unprecedented easing around the fiscal year starting April 2019 was the clearest signal yet that a conclusion might be in sight to emergency support for the Japanese economy. While Kuroda’s statement in response to questions from lawmakers was in some ways stating the obvious – the BOJ forecasts inflation to reach its 2% target in fiscal 2019 – the significance is that he’s put down a marker in public that he can be held to.

“It’s notable how over the past few weeks Kuroda has been forced into talking more specifically about the exit,” said Izumi Devalier, head of Japan economics at BofAML. “A year and a half ago he would have shut down the discussion altogether with the blanket ‘it’s too early to talk about it’ statement.” That means the last of the big central banks is finally thinking out loud about policy normalization or how to begin the process of unwinding years of asset purchases and ultra-low interest rates that were used to stoke growth after the 2008 financial crisis sparked the worst global recession in decades. The Fed, Bank of Canada and Bank of England have already raised interest rates and may do so again soon, while the ECB is debating how soon to end its own bond-buying. China’s central bank is sticking to what it describes as neutral policy settings and is ratcheting up money market rates to cool the pace of borrowing.

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Peters is never boring.

Trump’s Trade War Is For The Forgotten People (Eric Peters)

“The import restrictions announced by the US President are likely to cause damage not only outside the US, but also to the US economy itself, including to its manufacturing and construction sectors, which are major users of aluminum and steel,” warned the IMF, their army of nerds in full sweat. Panic. Just 200k Americans work in steel, aluminum and iron. 5.5mm of our 154mm workers are employed by businesses that use steel. “How could the Americans make such an idiotic mistake?” howled the nerds. But of course, they entirely miss the point. “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US. They make it impossible for our cars (and more) to sell there. Big trade imbalance!” tweeted Trump.

The US currently imposes a 2.5% tariff on EU auto imports. The EU imposes a 10% tariff on US auto imports. Germany exports $25bln of autos to America annually. “US auto prices will rise,” warned the Washington Post. But of course, they entirely miss the point. “Trade wars are good, easy to win,” tweeted Trump, knowing the statement would trigger every nerd with a college degree. Some worried about their jobs. But not terribly. Because their unemployment rate is just 2%, their labor force participation is 74%. They’re as well off as they’ve ever been. Particularly when set against those who never went to college, 5% of whom are unemployed, and 50% don’t even participate in the labor force. They’ve given up. These trade policies are for these forgotten people. To hell with the consequences. That’s the point.

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More for forgotten people. Beppe got them where he wanted; largest party by a huge margin. Merkel and Macron’s “More Europe” plans can be shelved. But first, expect more tricks to keep the old guard in power.

Italy Faces Political Gridlock After 5-Star Surges (R.)

Italy faces a prolonged period of political instability after voters delivered a hung parliament on Sunday, spurning traditional parties and flocking to anti-establishment and far-right groups in record numbers. With votes counted from more than 75% of polling stations, it looked almost certain that none of the three main factions would be able to govern alone and there was little prospect of a return to mainstream government, creating a dilemma for the EU. A rightist alliance including former prime minister Silvio Berlusconi’s Forza Italia (Go Italy!) held the biggest bloc of votes. In a bitter personal defeat that appeared unlikely last week, the billionaire media magnate’s party looked almost certain to be overtaken by its ally, the far-right League, which campaigned on a fiercely anti-migrant ticket.

But the anti-establishment 5-Star Movement saw its support soar to become Italy’s largest single party by far, and one of its senior officials said on Monday that forming a coalition without it would be impossible. The League’s economics chief on Monday raised the possibility of an alliance with 5-Star. Any government based on that combination would be euro-skeptic, likely to challenge EU budget restrictions and be little interested in further European integration. The full result is not due until later on Monday and, with the centre-right coalition on course for 37% of the vote and 5-Star for 31%, swift new elections to try to break the deadlock are another plausible scenario.

Despite overseeing a modest economic recovery, the ruling centre-left coalition trailed a distant third on 22%, hit by widespread anger over persistent poverty, high unemployment and an influx of more than 600,000 migrants over the past four years.

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Plus huge cuts to steel production. China is hurting.

China Sets 2018 GDP Target at About 6.5%, Turns Fiscal Screws (BBG)

China stepped up its push to curb financial risk, cutting its budget deficit target for the first time since 2012 and setting a growth goal of around 6.5% that omitted last year’s aim for a faster pace if possible. The deficit target – released Monday as Premier Li Keqiang delivered his annual report to the National People’s Congress in Beijing – was lowered to 2.6% of GDP from 3% in the past two years. The 6.5% goal is consistent with President Xi Jinping’s promise to deliver a “moderately prosperous” society by 2020. Policy makers dropped a target for M2 money supply growth, saying it’s expected to expand at similar pace to last year. Authorities reiterated prior language saying prudent monetary policy will remain neutral this year and that they’ll ensure liquidity at a reasonable and stable level.

Xi has ratcheted up his drive to curb debt risk, pollution and poverty at a time when the world’s second-largest economy is on a long-term growth slowdown. His efforts to rein in spending contrast with an historic expansion of U.S. borrowing under Donald Trump during a period of economic expansion. The 2018 targets “suggest slower growth and a fiscal drag,” said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore. “This makes sense for China in the context of the new focus on financial de-risking, poverty alleviation and environmental clean-up, but is less good news at the margin for those economies that have high export exposure to China.”

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Is it too late to close the gap in a peaceful manner?

Tax the Wealth of Older Britons to Help the Young, Report Argues (BBG)

Britain should impose higher wealth taxes on the older generation to ease the growing burden on young people, according to the Resolution Foundation. In a speech Monday, Executive Chair David Willetts will warn that welfare spending is set to rise by the equivalent today of 60 billion pounds ($83 billion) by 2040 as aging “baby boomers” drive up the cost of health care. “The time has come when we Boomers are going to have reach into our own pockets,” he will say. “The alternative could be an extra 15 pence on the basic rate of tax, paid largely by our kids. Is that kind of tax really the legacy we – a generation who own half the nation’s wealth – want to bequeath our children and grandchildren?”

Willetts, a former minister in the ruling Conservative Party, will make the case for reform of council tax – a property-based levy that helps fund local services – and of inheritance tax. Failure to act could fuel a sense of grievance among young people who are already struggling to match to the living standards enjoyed by older generations, he will say.

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“..deficits aren’t only not bad, they’re necessary…”

Eliminate The Deficit? Eliminate Economic Hope, More Like (McDuff)

Congratulations, everyone! We did it! The deficit has been eliminated! George Osborne, the architect of austerity, emerged from one of his non-jobs as the editor of the London Evening Standard to tell us all it was a “remarkable national effort” on Twitter, as if he’d ever broken a sweat over it. David Cameron, who will go down as arguably the worst prime minister in history thanks to the gigantic power move of doing a Brexit and running away, simply added: “It was the right thing to do” – safe in the knowledge that he was now out of the line of fire from tough questions.

That will all be cold comfort to the thousands of homeless people struggling to cope with sub-zero temperatures, or those having to choose between keeping the heating on, or risk going into rent arrears and losing their home entirely; to public sector workers in the NHS or local government, trying to keep the wheels from falling off as they deliver vital services in the face of budget cuts; and to disabled and unemployed people, bearing the brunt of the government’s spending cuts and facing harassment from the authorities. Forget all that. We’ve eliminated the deficit, and all we had to do was attack the poor and vulnerable with a relentless fury, create a new generation of young people for whom the concept of pensions or even steady wages is a fantasy, and undermine public services to such a grotesque extent that it will take years to rebuild what we’ve lost. Hooray!

[..] As Richard Murphy of Tax Research UK points out: “A growing economy requires general price increases, or inflation. Except under unusual circumstances, a general increase in prices requires an increasing money supply. A fiscal deficit is the only way in which money can be injected into an economy continuously. It follows that governments must run a near perpetual deficit or face the risk of creating a liquidity crisis due to a shortage in the money supply, which would then create a risk of deflation.” In other words, deficits aren’t only not bad, they’re necessary. Without them we get deflation, an over-indebted household sector, and an explosion in inequality.

The government is not like your household. It does not “run out of money,” because its job is to match the quantity of money to the desired economic activity. Its “debts” are not like your debts – they’re your savings and your pension funds. Osborne’s “remarkable national effort” was always and only to ensure that the government sector took more money out of the economy than it put into it. His great legacy is that we’re now at the stage where for every pound the government spends in day-to-day services, it taxes, and therefore destroys, more than a pound somewhere else. And we put people on the streets to freeze to achieve it. Go us.

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Thatcher-inflicted pain continues.

15,000 New Manchester Homes And Not A Single One ‘Affordable’ (G.)

Some of the UK’s biggest cities are allowing developers to plan huge new residential developments containing little or no affordable housing. In Manchester, none of the 14,667 homes in big developments granted planning permission in the last two years are set to be “affordable”, planning documents show – in direct contravention of its own rules, and leading to worries that London’s affordable housing crisis is spreading. In Sheffield – where house prices grew faster last year than in any other UK city, according to property portal Zoopla – just 97 homes out of 6,943 (1.4%) approved by planners in 2016 and 2017 met the government’s affordable definition. That says homes must either be offered for social rent (often known as council housing), or rented at no more than 80% of the local market rate.

In Nottingham, where the council aims for 20% of new housing to be affordable, just 3.8% of units given the green light by council planners meet the definition, Guardian research found. In Manchester, named by Deloitte earlier this month as one of Europe’s fastest growing cities and where property now sells three times as quickly as in London, planners have routinely waved through huge new developments – some containing swimming pools, tennis courts and more than 1,000 flats. Not one of the swanky apartments meets the national definition of “affordable” – leading critics to accuse the council of social cleansing. Others worry the city could become like London, where people on average salaries can no longer afford to live anywhere central.

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Aka the terror of social media.

The Tyranny of Algorithms (G.)

For the past couple of years a big story about the future of China has been the focus of both fascination and horror. It is all about what the authorities in Beijing call “social credit”, and the kind of surveillance that is now within governments’ grasp. The official rhetoric is poetic. According to the documents, what is being developed will “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step”. As China moves into the newly solidified President Xi Jinping era, the basic plan is intended to be in place by 2020. Some of it will apply to businesses and officials, so as to address corruption and tackle such high-profile issues as poor food hygiene.

But other elements will be focused on ordinary individuals, so that transgressions such as dodging transport fares and not caring sufficiently for your parents will mean penalties, while living the life of a good citizen will bring benefits and opportunities. Online behaviour will inevitably be a big part of what is monitored, and algorithms will be key to everything, though there remain doubts about whether something so ambitious will ever come to full fruition. One of the scheme’s basic aims is to use a vast amount of data to create individual ratings, which will decide people’s access – or lack of it – to everything from travel to jobs. The Chinese notion of credit – or xinyong – has a cultural meaning that relates to moral ideas of honesty and trust.

There are up to 30 local social credit pilots run by local authorities, in huge cities such as Shanghai and Hangzhou and much smaller towns. Meanwhile, eight ostensibly private companies have been trialling a different set of rating systems, which seem to chime with the government’s controlling objectives. The most high-profile system is Sesame Credit – created by Ant Financial, an offshoot of the Chinese online retail giant Alibaba. Superficially, it reflects the western definition of credit, and looks like a version of the credit scores used all over the world, invented to belatedly allow Chinese consumers the pleasures of buying things on tick, and manage the transition to an economy in which huge numbers of people pay via smartphones. But its reach runs wider.

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What does Washington have to say?

US Embassy In Turkey Closed Due To Security Threat (R.)

The U.S. embassy in Turkey’s capital Ankara will be closed to the public on Monday due to a security threat and only emergency services will be provided, it said in a statement on Sunday. The embassy advised U.S. citizens in Turkey to avoid large crowds and the embassy building and to be aware of their own security when visiting popular tourist sites and crowded places. It did not specify what the security threat was that prompted the closure. Additional security measures were taken after intelligence from U.S. sources suggested there might be an attack targeting the U.S. embassy or places U.S. citizens were staying, the Ankara governor’s office said in a statement. Visa interviews and other routine services would be canceled on Monday, the embassy said, adding that it would make an announcement when it was ready to reopen.

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Same guy said if Greeks set foot on -their own- Imia islets, it will basically mean war.

Erdogan Advisor Says Ankara Ready To ‘Strike’ In Eastern Med (K.)

A close advisor of Turkish President Recep Tayyip Erdogan has warned of a “strike” in the eastern Mediterranean if any attempt to explore or drill for hydrocarbons goes ahead without Ankara’s approval. Yigit Bulut, who is known for his incendiary remarks, was quoted by the Cyprus News Agency as telling Turkish state broadcaster TRT that Erdogan is prepared to call a “strike” at any “attempt at provocation.” “Have no doubt about it,” he said. Ankara has vowed to prevent any exploration for oil or gas around Cyprus and last month was accused to threatening to use force against a drillship chartered by Italy’s Eni to explore Block 3 of Cyprus’s exclusive economic zone.

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3 million hectares to be lost over 15 years.

Australia: Global Deforestation Hotspot (G.)

Australia is in the midst of a full-blown land-clearing crisis. Projections suggest that in the two decades to 2030, 3m hectares of untouched forest will have been bulldozed in eastern Australia. The crisis is driven primarily by a booming livestock industry but is ushered in by governments that fail to introduce restrictions and refuse to apply existing restrictions. And more than just trees are at stake. Australia has a rich biodiversity, with nearly 8% of all Earth’s plant and animal species finding a home on the continent. About 85% of the country’s plants, 84% of its mammals and 45% of its birds are found nowhere else. But land clearing is putting that at risk. About three-quarters of Australia’s 1,640 plants and animals listed by the government as threatened have habitat loss listed as one of their main threats.

Much of the land clearing in Queensland – which accounts for the majority in Australia – drives pollution into rivers that drain on to the Great Barrier Reef, adding to the pressures on it. And of course land clearing is exacerbating climate change. In 1990, before short-lived land-clearing controls came into place, a quarter of Australia’s total greenhouse gas emissions were caused by deforestation. Emissions from land clearing dropped after 2010 but are rising sharply again. “It has gotten so bad that WWF International put it on the list of global deforestation fronts, the only one in the developed world on that list,” says Martin Taylor, the protected areas and conservation science manager at WWF Australia. In Queensland, where there is both the most clearing and the best data on clearing, trees are being bulldozed at a phenomenal rate.

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And more deforestation. Sometimes you wonder what will be left of Europe in 100 years. Or 50.

Europe Tree Loss Pushes Beetles To The Brink (BBC)

The loss of trees across Europe is pushing beetles to the brink of extinction, according to a new report. The International Union for the Conservation of Nature assessed the status of 700 European beetles that live in old and hollowed wood. Almost a fifth (18%) are at risk of extinction due to the decline of ancient trees, the European Red List of Saproxylic Beetles report found. This puts them among the most threatened insect groups in Europe. Saproxylic beetles play a role in natural processes, such as decomposition and the recycling of nutrients. They also provide an important food source for birds and mammals and some are involved in pollination.

“Some beetle species require old trees that need hundreds of years to grow, so conservation efforts need to focus on long-term strategies to protect old trees across different landscapes in Europe, to ensure that the vital ecosystem services provided by these beetles continue,” said Jane Smart, director of the IUCN Global Species Programme. Logging, tree loss and wood harvesting all contribute to the loss of habitat for the beetles, said the IUCN. Other major threats include urbanisation and tourism development, and an increase in wildfires in the Mediterranean region. Conservation efforts need to focus on long-term strategies to protect old trees and deadwood across forests, pastureland, orchards and urban areas, the report recommended.

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May 132017
 
 May 13, 2017  Posted by at 8:47 am Finance Tagged with: , , , , , , , , ,  1 Response »


Fred Stein Subway Steps New York 1943

 

Hackers Hit Dozens of Countries Exploiting Stolen NSA Tool (NYT)
UK Health Service, Targeted in Cyberattack, Ignored Warnings for Months (NYT)
Hurricane Bearing Down on the Casino (Stockman)
$500 Trillion in Derivatives “Remain an Important Asset Class” – NY Fed (WS)
The Great Misconception of a Return to “Normal” (Econimica)
US Nears $100 Billion Arms Deal For Saudi Arabia (R.)
Wells Fargo Bogus Accounts Balloon To 3.5 Million (R.)
EU To Decide Future Of Uber, Airbnb In Europe (NE)
A Populist Storm Stirs in Italy (WSJ)
Macron To Visit Germany To Seek Support For A Beefed Up Eurozone (G.)
Blood Sports (Jim Kunstler)
Greece and the Bond Market. Friends Reunited? (BBG)
China’s Xi Offers Indebted Greece Strong Support (R.)
Varoufakis Accuses Tsipras, Tsakalotos Of Giving In To Creditors (K.)
IMF, Eurozone Say Need More Time To Reach Greek Debt Relief Deal (R.)

 

 

Edward Snowden @Snowden: “In light of today’s attack, Congress needs to be asking @NSAgov if it knows of any other vulnerabilities in software used in our hospitals.”

Hackers Hit Dozens of Countries Exploiting Stolen NSA Tool (NYT)

Hackers exploiting malicious software stolen from the National Security Agency executed damaging cyberattacks on Friday that hit dozens of countries worldwide, forcing Britain’s public health system to send patients away, freezing computers at Russia’s Interior Ministry and wreaking havoc on tens of thousands of computers elsewhere. The attacks amounted to an audacious global blackmail attempt spread by the internet and underscored the vulnerabilities of the digital age. Transmitted via email, the malicious software locked British hospitals out of their computer systems and demanded ransom before users could be let back in – with a threat that data would be destroyed if the demands were not met.

By late Friday the attacks had spread to more than 74 countries, according to security firms tracking the spread. Kaspersky Lab, a Russian cybersecurity firm, said Russia was the worst-hit, followed by Ukraine, India and Taiwan. Reports of attacks also came from Latin America and Africa.[..] The hackers’ weapon of choice on Friday was Wanna Decryptor, a new variant of the WannaCry ransomware, which encrypts victims’ data, locks them out of their systems and demands ransoms. Researchers said the impact and speed of Friday’s attacks had not been seen in nearly a decade, when the Conficker computer worm infected millions of government, business and personal computers in more than 190 countries, threatening to overpower the computer networks that controlled health care, air traffic and banking systems over the course of several weeks.

One reason the ransomware on Friday was able to spread so quickly was that the stolen N.S.A. hacking tool, known as “Eternal Blue,” affected a vulnerability in Microsoft Windows servers. Hours after the Shadow Brokers released the tool last month, Microsoft assured users that it had already included a patch for the underlying vulnerability in a software update in March. But Microsoft, which regularly credits researchers who discover holes in its products, curiously would not say who had tipped the company off to the issue. Many suspected that the United States government itself had told Microsoft, after the N.S.A. realized that its hacking method exploiting the vulnerability had been stolen.

Privacy activists said if that were the case, the government would be to blame for the fact that so many companies were left vulnerable to Friday’s attacks. It takes time for companies to roll out systemwide patches, and by notifying Microsoft of the hole only after the N.S.A.’s hacking tool was stolen, activists say the government would have left many hospitals, businesses and governments susceptible. “It would be deeply troubling if the N.S.A. knew about this vulnerability but failed to disclose it to Microsoft until after it was stolen,” Patrick Toomey, a lawyer at the American Civil Liberties Union, said on Friday. “These attacks underscore the fact that vulnerabilities will be exploited not just by our security agencies, but by hackers and criminals around the world.”

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Don’t just blame the hospitals. Blame the government that squeezes them so dry they have to choose patients over computers.

UK Health Service, Targeted in Cyberattack, Ignored Warnings for Months (NYT)

Britain’s National Health Service ignored numerous warnings over the last year that many of its computer systems were outdated and unprotected from the type of devastating cyberattack it suffered on Friday. The attack caused some hospitals to stop accepting patients, doctor’s offices to shut down, emergency rooms to divert patients, and critical operations to be canceled as a decentralized system struggled to cope. At some hospitals, nurses could not even print out name tags for newborn babies. At the Royal London Hospital, in east London, George Popescu, a 23-year-old hotel cook, showed up with a forehead injury. “My head is pounding and they say they can’t see me,” he said. “They said their computers weren’t working. You don’t expect this in a big city like London.”

In a statement on Friday, the N.H.S. said its inquiry into the attack was in its early phases but that “at this stage we do not have any evidence that patient data has been accessed.” Many of the N.H.S. computers still run Windows XP, an out-of-date software that no longer gets security updates from its maker, Microsoft. A government contract with Microsoft to update the software for the N.H.S. expired two years ago. Microsoft discontinued the security updates for Windows XP in 2014. It made a patch, or fix, available in newer versions of Windows for the flaws that were exploited in Friday’s cyberattacks. But the health service does not seem to have installed either the newer version of Windows or the patch.

“Historically, we’ve known that N.H.S. uses computers running old versions of Windows that Microsoft itself no longer supports and says is a security risk,” said Graham Cluley, a cybersecurity expert in Oxford, England. “And even on the newest computers, they would have needed to apply the patch released in March. Clearly that did not happen, or the malware wouldn’t have spread this fast.” Just this month, a parliamentary research briefing noted that cyberattacks were viewed as one of the top threats facing Britain. The push to make medical records systems more interconnected might also make the system more vulnerable to attack. Britain plans to digitize all patient records by 2020.

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The anti-Trump battle will be fought with financial weapons. And the Donald is walking into that trap.

Hurricane Bearing Down on the Casino (Stockman)

Yesterday I said the Donald was absolutely right in canning the insufferable James Comey, but that he has also has stepped on a terminal political land-mine. And he did. That’s because the entire Russian meddling and collusion narrative is a ridiculous, evidence-free attempt to re-litigate the last election. And now that the powers that be have all the justification they need. And what is already an irrational witch-hunt will be quickly turned into a scorched-earth assault on a sitting president. I have no idea how this will play out, but as a youthful witness to history back in 1973-1974 I observed Tricky Dick’s demise in daily slow motion. But the most memorable part of the saga was how incredibly invincible Nixon seemed in early 1973. Nixon started his second term, in fact, with a massive electoral landslide, strong public opinion polls and a completely functioning government and cabinet.

Even more importantly, he was still basking in the afterglow of his smashing 1972 foreign policy successes in negotiating detente and the anti-ballistic missile (ABM) treaty with Brezhnev and then the historic opening to China on his Beijing trip. So I’ll take the unders from anyone who gives the Donald even the 19 months that Nixon survived. After all, Trump lost the popular vote, is loathed by official Washington, barely has a functioning cabinet and is a whirling dervish of disorder, indiscipline and unpredictability. To be sure, the terms of the Donald’s eventual exit from the Imperial City will ultimately by finalized by the 46th President in waiting, Mike Pence. But I’m pretty sure of one thing: Between now and then, there is not a snow ball’s chance in the hot place that Donald’s severance package will include the ballyhooed Trump Tax Cut and Fiscal Stimulus.

Markets slipped today because of carnage in the retail sector (which I’ve been warning readers about). But these fantasies are apparently still “priced-in” to a market that has now become just plain stupid. What is surely coming down the pike after the Comey firing, however, is just the opposite. That is, Washington will soon become a three-ring circus of investigations of Russia-gate and the “hidden” reasons for Trump’s action. The Imperial City will get embroiled in bitter partisan warfare and the splintering of the GOP between its populist and establishment wings. In that context, what passes for “governance” will be reduced to a moveable Fiscal Bloodbath that cycles between debt ceiling showdowns and short-term continuing resolution extensions.

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The swamp that can’t be drained without causing explosions.

$500 Trillion in Derivatives “Remain an Important Asset Class” – NY Fed (WS)

Economists at the New York Fed included this gem in their report on a two-day conference on “Derivatives and Regulatory Changes” since the Financial Crisis: “Though the notional amount [of derivatives] outstanding has declined in recent years, at more than $500 trillion outstanding, OTC derivatives remain an important asset class.” An important asset class. A hilarious understatement. Let’s see… the “notional amount” of $500 trillion is 25 times the GDP of the US and about 7 times global GDP. Derivatives are not just an “important asset class,” like bonds; they’re the largest “financial weapons of mass destruction,” as Warren Buffett called them in 2003.

Derivatives are used for hedging economic risks. And they’re used as “speculative directional exposures” – very risky one-sided bets. It’s all tied together in an immense and opaque market interwoven with the banks. The New York Fed: The 2007-09 financial crisis highlighted weaknesses in the over-the-counter (OTC) derivatives markets and the increased risk of contagion due to the interconnectedness of market participants in these markets. This chart from the New York Fed shows how derivatives ballooned 150% – or by $360 trillion – in less than four years before the Financial Crisis. They ticked down during the Financial Crisis, then rose again during the Fed’s QE to peak at $700 trillion. After the end of QE, they declined, but recently ticked up again to $500 trillion. I added in red the Warren Buffett moment:

The vast majority of the derivatives are interest rate and credit contracts (dark blue). Banks specialize in that. For example, according to the OCC’s Q4 2016 Report on Derivatives, JPMorgan Chase holds $47.5 trillion of derivatives at notional value and Citibank $43.9 trillion. The top 25 US banks hold $164.7 trillion, or 8.5 times US GDP. So even a minor squiggle could trigger some serious heartburn.

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Try use “normal” and “derivatives” in one sentence and put on a straight face.

The Great Misconception of a Return to “Normal” (Econimica)

Since 2009, there has been ongoing discussion of the size & composition of major central bank balance sheets (I’m focusing on the Federal Reserve Bank, European Central Bank, and the Bank of Japan) but little discussion of why these institutions felt (and continue to feel) compelled to “buy” assets. The chart below highlights the ongoing collective explosion of these bank “assets” since 2009 after a previous period of relative stability. These institutions clearly have the capability and willingness to digitally conjure “money” from nothing and have felt compelled to remove over $10 trillion worth of assets from the markets since 2009. This swap of illiquid assets for liquid cash had (and continues to have) the effect of squeezing the prices of the remaining assets higher (more money chasing fewer assets=price appreciation).

A prime example of that squeeze, the US stock market total valuation (represented by the Wilshire 5000, below) is $10 trillion higher than the “bubble” peak of 2008…and $11 trillion higher than the 2001 “bubble” peak. Likewise, US federal debt since 2008 has increased by…you guessed it, $10 trillion. The narrative seems to be that 2009 was a one off event and that the central banks role was and still is to “stabilize” the situation until things “normalize”. But right there…that idea that 2009 was a “one-off” or “abnormal” couldn’t be more wrong. So what is “normal” growth, at least from a consumption standpoint? Normal is never the same twice…it is ever changing and must be constantly rediscovered.

To determine “normal” growth in consumption, all we need do is figure the change in the quantity of consumers (annual population growth) and the quality of those consumers (their earnings, savings, and utilization of credit). The chart below details the ever changing “normal” that is the annual change in the under 65yr/old global population broken down by wealthy consuming nations (blue line) and the rest of the (generally poor) world (red line). The natural rate of growth in consumption has been declining ever since 1988 (persistently less growth in the population on a year over year basis)…but central banks and central governments have substituted interest rate cuts and un-repayable debt to maintain an unnaturally high consumption growth rate.

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If we don’t put a stop to this, we have no chance. This is where it all begins and ends.

US Nears $100 Billion Arms Deal For Saudi Arabia (R.)

The United States is close to completing a series of arms deals for Saudi Arabia totaling more than $100 billion, a senior White House official said on Friday, a week ahead of President Donald Trump’s planned visit to Riyadh. The official, who spoke to Reuters on condition of anonymity, said the arms package could end up surpassing more than $300 billion over a decade to help Saudi Arabia boost its defensive capabilities while still maintaining U.S. ally Israel’s qualitative military edge over its neighbors. “We are in the final stages of a series of deals,” the official said. The package is being developed to coincide with Trump’s visit to Saudi Arabia. Trump leaves for the kingdom on May 19, the first stop on his maiden international trip.

Reuters reported last week that Washington was pushing through contracts for tens of billions of dollars in arms sales to Saudi Arabia, some new, others already in the pipeline, ahead of Trump’s visit. The United States has been the main supplier for most Saudi military needs, from F-15 fighter jets to command and control systems worth tens of billions of dollars in recent years. Trump has vowed to stimulate the U.S. economy by boosting manufacturing jobs. The package includes American arms and maintenance, ships, air missile defense and maritime security, the official said. “We’ll see a very substantial commitment … In many ways it is intended to build capabilities for the threats they face.” The official added: “It’s good for the American economy but it will also be good in terms of building a capability that is appropriate for the challenges of the region. Israel would still maintain an edge.”

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How many executives in jail, you said?

Wells Fargo Bogus Accounts Balloon To 3.5 Million (R.)

Wells Fargo may have opened as many as 3.5 million unauthorized customer accounts, far more than previously estimated, according to lawyers seeking approval of a $142 million settlement over the practice. The new estimate was provided in a filing late Thursday night in the federal court in San Francisco, and is 1.4 million accounts higher than previously reported by federal regulators, in what became a national scandal. Keller Rohrback, a law firm for the plaintiff customers, said the higher estimate reflects “public information, negotiations, and confirmatory discovery.” The Seattle-based firm also said the number “may well be over-inclusive, but provides a reasonable basis on which to estimate a maximum recovery.”

Wells Fargo spokesman Ancel Martinez in an email said the new estimate was “based on a hypothetical scenario” and unverified, and did not reflect “actual unauthorized accounts.” Nonetheless, it could complicate Wells Fargo’s ability to win approval for the settlement, which has drawn opposition from some customers and lawyers who consider it too small. “This adds more credence to the fact there is not enough information to assess whether the settlement is fair and adequate,” Lewis Garrison, a partner at Heninger Garrison Davis in Birmingham, Alabama who represents some objecting customers, said in an interview. U.S. District Judge Vince Chhabria in San Francisco is scheduled to consider preliminary approval at a May 18 hearing. The accounts scandal mushroomed after Wells Fargo agreed last September to pay $185 million in penalties to settle charges by authorities including the U.S. Consumer Financial Protection Bureau.

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They better be thorough, or individual countries must each formulate their own responses.

EU To Decide Future Of Uber, Airbnb In Europe (NE)

An opinion issued by the European Court of Justice on May 11 could prevent people from using or working for services such as Uber and Airbnb. The opinion from the Advocate General of the European Court of Justice follows a case that has been brought by Spanish taxi drivers against the ride sharing service Uber. It found that Uber should be regulated like a transportation company, not as an “information society service”. If the opinion is upheld, these services could be required to apply for specific licences or be restricted in number as is the case with taxis in various European cities in an attempt to keep prices artificially high.

The court is slated to deliver a final ruling on whether Uber should be classified as a transport company or as a passive internet intermediary, in the coming months. Usually, the judges follow the opinion of the Advocate General. It remains to be seen whether the case will impact other so-called sharing economy services as Airbnb. Speaking after the opinion was issued, Dan Dalton, European Conservatives and Reformists (ECR) spokesman on the EU internal market said: “The opinion given today has huge implications for innovative, consumer driven digital services all across Europe… It is right that there are safeguards for consumers, but applying analogue era regulation to the digital world only strangles innovation and entrenches privileged monopolies.”

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Beppe always had one goal first: get rid of corruption. The WSJ can talk all it wants about M5S teething problems, but there are bigger issues here.

A Populist Storm Stirs in Italy (WSJ)

Europe’s establishment breathed a sigh of relief after the pro-European Union centrist Emmanuel Macron was elected French president this week. But another populist storm is brewing in Italy, where the euroskeptic 5 Star Movement has remained strong. Fueled by discontent with slow growth, high unemployment and disillusionment with mainstream politicians, 5-Star has won local elections in Rome, Turin and elsewhere, partly on the strength of its leaders’ call for a referendum on Italy’s use of the European single currency. Pollsters say about 30% of Italian voters support the movement founded by comedian Beppe Grillo, a level of popularity that has stood firm despite a series of high-profile stumbles, especially by its mayor in Rome.

The self-described association of free citizens has replaced the center-left Democratic Party at the top of most polls ahead of national elections to be held by May 2018. Now, the group that has flouted the rules of the game for establishment parties in Italy is experiencing growing pains as it prepares for the possibility of taking power. The prospect of Mr. Grillo and his supporters winning and forming a government has made investors nervous and pushed up yields on Italian bonds in recent months. On Friday, the spread between Italian and German 10-year sovereign bond yields was 1.85 percentage points, nearly five times the corresponding spread between French and German bonds.

Mr. Grillo and 5 Star waged a successful campaign to block constitutional changes sought by former Democratic Italian Prime Minister Matteo Renzi, effectively forcing him from office in December. Since then, a caretaker government has run Italy. The movement has vowed to institute tougher anticorruption laws and deliver a minimum guaranteed income for all working-age and retired Italians if it emerges from upcoming elections as head of a minority government or in a governing coalition with other euroskeptic parties.

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There is no support for a beefed up EU or eurozone. Besides, Macron will be fighting the unions over the summer.

Macron To Visit Germany To Seek Support For A Beefed Up Eurozone (G.)

Emmanuel Macron will take power as French president on Sunday and immediately face the twin challenges of European Union reform and loosening strict labour laws in France. After walking up the red carpet to the Élysée Palace on Sunday morning, being briefed on the nuclear deterrent by the outgoing Socialist leader François Hollande, and making his first speech, Macron will on Monday fly to Berlin to meet the German chancellor, Angela Merkel. It is traditional for French leaders to make Berlin their first European trip. The pro-European centrist Macron wants to boost the French-German motor at the heart of Europe and press for closer cooperation, including creating a parliament and budget for the eurozone. Merkel welcomed Macron’s decisive election victory over the far-right Marine Le Pen, saying he carried “the hopes of millions of French people and also many in Germany and across Europe”.

But if Macron is to push for eurozone reform, he must also prove to Berlin and other European allies that he can deliver the changes he has promised on France’s sluggish economy and deficit problem. The German finance minister, Wolfgang Schäuble, in an interview with the weekly Spiegel, kept up his country’s pressure on France to reduce its budget deficit to the EU ceiling of 3%. “France can make it,” he said. Macron, 39, France’s youngest elected leader, vowed during his campaign that he would immediately loosen France’s rigid labour regulations, giving businesses more power over setting working hours and deciding working conditions. He said that if needed, he would push through these changes by decree soon after taking office. Trade unions and leftwing demonstrators are warning of street protests if changes are not handled carefully.

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Jim waxes nostalgic on Nixon.

Blood Sports (Jim Kunstler)

I remember that sweaty August day that he threw in the towel. (I was a young newspaper reporter when newspapers still mattered.) It was pretty much a national orgasm. “NIXON RESIGNS!” the headlines screamed. A moment later he was on the gangway into the helicopter for the last time. Enter, stage right, the genial Gerald Ford…. Forgive me for getting caught up in the very nostalgia I castigate. And now here we are in the mere early months of Trumptopia about to hit the replay button on a televised inquisition. In my humble opinion, Donald Trump is a far more troubling personality than Tricky Dick ever was, infantile, narcissistic, at times verging on psychotic, but the RussiaGate story looks pretty flimsy. At this point, after about ten months of NSA-FBI investigation, nothing conclusive has turned up about Trump’s people “colluding” with Russia to gain unfair advantage in the election against You-Know-Who.

Former NSA chief James Clapper has publicly stated twice in no uncertain terms that there’s no evidence to support the allegations (so far). And there remains the specter of the actual content of the “collusion” — conveniently ignored by the so-called “Resistance” and its water-carriers at The New York Times — the hacked emails that evince all kinds of actual misbehavior by Secretary of State HRC and the DNC. The General Mike Flynn episode seems especially squishy, since it is the routine duty of incoming foreign affairs officials to check in with the ambassador corps in Washington. Why do you think nations send ambassadors to other countries? The upshot of all this will be a political circus for the rest of the year and the abandonment of any real business in government, at a moment in history when some very weighty black swans circle above the clouds waiting to crash land. Enjoy the histrionics if you dare, and pay no attention to collapsing economy as it all plays out.

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Draghi need to buy Greek bonds, and bring down those rates.

Greece and the Bond Market. Friends Reunited? (BBG)

Greece is considering tapping the capital markets for the first time in three years. Let’s hope its second attempt to regain market access goes more smoothly for investors than its first. A bond sale in July or September is being considered – if a deal on debt relief is reached, and the ECB adds Greek debt to the shopping list of securities it can buy through its quantitative easing program, according to the Wall Street Journal. The news comes as the U.S. presses European officials to ease Greece’s debt burden at informal talks during the Group of Seven gathering currently taking place in Italy.Investors can be forgiven if they feel a sense of déjà vu.In April 2014, Greece sold €3 billion of 4.75% bonds repayable in 2019 in its first issue for almost four years.

The country had sought to raise €2.5 billion; orders from more than 550 investors, though, exceeded €20 billion, and, five months later, the bond was increased by a further €1 billion. The then PM Antonis Samaras called the sale “one more decisive step toward exiting the crisis.”Except … it turned out Greece was about to get worse, not better. The day after the sale, the price of the bonds slipped by a bit more than half a point. By the end of the year, they’d lost almost 20% of their value. And by the middle of 2015, they slumped to as low as 40% of face value as the government was forced to introduce capital controls in an effort to stanch the flood of money leaving the country’s banking system. The bond price recovered as the Greek government dropped its defiance against the terms demanded by its lenders, implemented pension and labor market reforms and accelerated the sale of government assets.

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Does Brussels really want China to buy up Greece?

China’s Xi Offers Indebted Greece Strong Support (R.)

Chinese President Xi Jinping offered the prime minister of deeply indebted Greece strong support on Saturday, saying the two countries should expand cooperation in infrastructure, energy and telecommunications. Xi told Prime Minister Alexis Tsipras that Greece was an important part in China’s new Silk Road strategy. “At present, China and Greece’s traditional friendship and cooperation continues to glow with new dynamism,” China’s Foreign Ministry cited Xi as saying. Cooperation in infrastructure, energy and telecommunications should be “deep and solid”, Xi added, without giving details. Tsipras is in Beijing to attend a summit to promote Xi’s vision of expanding links between Asia, Africa and Europe underpinned by billions of dollars in infrastructure investment called the Belt and Road initiative.

Greek infrastructure development group Copelouzos has signed a deal with China’s Shenhua Group to cooperate in green energy projects and the upgrade of power plants in Greece and other countries, the Greek company said on Friday. The deal will involve total investment of €3 billion, Copelouzos said in a statement, without providing further details. China has been investing heavily in Greece in recent years. Its biggest shipping company, COSCO Shipping, bought a majority stake in Piraeus Port Authority last year under a plan to turn Greece into a transhipment hub for rapidly growing trade between Asia and Eastern Europe. Xi said China and Greece should focus their efforts on turning the Piraeus port into an important international transhipment hub and key part of the new Silk Road, the Chinese ministry said.

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Yanis says Greece’s future is Kosovo, Steve Keen said Somalia. They’re both right.

Varoufakis Accuses Tsipras, Tsakalotos Of Giving In To Creditors (K.)

In an interview Friday on Skai TV, former finance minister Yanis Varoufakis hit out at his erstwhile government colleagues, accusing both his successor Euclid Tsakalotos and Prime Minister Alexis Tsipras of giving in to the country’s international creditors. “There is no new agreement, just a new surrender,” he said of the latest deal with Greece’s lenders. “The first memorandum burned Papandreou, the second Samaras, the third Tsipras. The fourth will require a new prime minister,” he said. As for Greece’s prospects, his prediction was bleak. “We will become Kosovo, a protectorate run by an employee of the European Union.”

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Never seen a more broken record.

IMF, Eurozone Say Need More Time To Reach Greek Debt Relief Deal (R.)

The IMF and eurozone government lenders need more time to reach an agreement on debt relief for Greece because the eurozone is still not sufficiently clear in its intentions, IMF chief Christine Lagarde said on Friday. Top eurozone officials and Lagarde met on Friday morning to discuss debt relief for Athens which eurozone finance ministers, or the Eurogroup, promised in May 2016, but under strict conditions. “We will carry on working on this debt relief package. There is not enough clarity yet. Our European partners need to be more specific in terms of debt relief, which is an imperative,” Lagarde told reporters in the city of Bari in Italy. German Finance Ministers Wolfgang Schaeuble, also at the meeting of the G7 advanced economies in Bari, asked if he would be prepared to ease the conditions for debt relief, said: “We are prepared to stick to what we have agreed in May 2016. That is the basis on which we are working … I am still in favor of getting a solution, at least a political solution, in the Eurogroup on the 22nd of May.”

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Jan 242017
 
 January 24, 2017  Posted by at 10:09 am Finance Tagged with: , , , , , , , , , ,  8 Responses »


Jack Delano Cars being precooled at the ice plant, San Bernardino, CA 1943

UK Supreme Court Rules Parliament Must Have Vote On Triggering Article 50 (G.)
Global Markets Turn Back On Euro As Economic Woes Reinforce Dollar (Tel.)
Trump Withdraws From TPP Amid Flurry Of Orders (G.)
Beppe Grillo Agrees With ‘Moderate’ Trump, Blasts EU ‘Total Failure’ (Exp.)
Trump is the start of Global Regime Change (Artemis)
Protest In The Era Of Trump (Krieger)
The White House Can’t Easily Repair Its Relationship With The Media (Atl.)
Congressman Introduces Bill To Withdraw The US From The United Nations (MU)
He Is Risen… But For How Long? (Jim Kunstler)
Fed Debate Over $4.5 Trillion Balance Sheet Looms In 2017 (BBG)
Greek Island Mayors Ask PM To Transfer Refugees To Mainland (Kath.)
Thousands Of Refugee Children Sleeping Rough In Sub-Zero Serbia (G.)

 

 

A country well on its way to irrelevance.

UK Supreme Court Rules Parliament Must Have Vote On Triggering Article 50 (G.)

Parliament’s approval is needed before the government can trigger article 50 and formally initiate the UK’s departure from the European Union, the supreme court has ruled. The government’s executive powers, inherited through the royal prerogative, are not sufficient to uproot citizens’ rights gained through parliamentary legislation such as the 1972 European Communities Act, the justices have declared. The justices ruled against the government by a majority of eight to three. The eagerly awaited decision by the largest panel of judges ever assembled in Britain’s highest court routes the protracted Brexit process through parliament, handing over to MPs and peers the authority to sanction the UK’s withdrawal. A summary of the decision, which has far-reaching constitutional implications, was delivered by the president of the supreme court, Lord Neuberger of Abbotsbury.

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So much for the overvalued dollar.

Global Markets Turn Back On Euro As Economic Woes Reinforce Dollar (Tel.)

Banks are using the euro less and less in international transactions, with financiers preferring to use dollars – indicating the euro’s declining importance in the global economy. Economists believe sustained political risk in the eurozone, fears that the currency area could fall apart, and the continuing hangover from the sovereign debt crisis have all contributed to the currency’s relative decline. Figures from the Bank of International Settlements show that the euro is being used less in international banking, while the US dollar continues to grow in importance. At the end of September, the BIS figures show, outstanding cross-border business in US dollars amounted to $13.9 trillion (£11.1 trillion), a rise of almost $60bn over previous three months.

By contrast, outstanding cross-border claims in euros fell by almost $160bn to a total of $8.1 trillion. Overall claims globally amount to $28.2 trillion, meaning the US dollar accounts for almost 50pc of the total. The euro is next with 29pc, while the yen is in third place – its $1.7 trillion of claims is 6pc of the total. Sterling is fourth at $1.3 trillion, or a 5pc share. By contrast, in 2012, the euro was a bigger player, with around $11 trillion of cross-border claims, but has faded sharply since then. Around half of the decline in recent years is due to the euro’s fall in value relative to the dollar, making the euro transactions appear smaller when they are compared in a common currency. But the other half is made up in large part by the eurozone’s own problems.

The most fundamental is the fear that the currency area will be stuck in permanent low growth, making investments risky. With the rise of anti-EU politicians such as Marine Le Pen in France there is also the worry that, in extreme circumstances, the euro could break up. “Partly as a result of the sovereign debt crisis, we know from investors outside Europe that they have a lot of question marks about the viability of the eurozone,” said David Owen, chief European economist at Jefferies. He was joined by Alastair Winter at Daniel Stewart, who said: “It may not be politically correct but there is a case that the euro may not survive much beyond this year. The dollar is popular because it offers a standard for value, a bit like the old gold standard. All of the other major currencies present problems.”

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Why not so the same with TISA etc. at the same time?

Trump Withdraws From TPP Amid Flurry Of Orders (G.)

Donald Trump has begun his effort to dismantle Barack Obama’s legacy, formally scrapping a flagship trade deal with 11 countries in the Pacific rim. The new president also signed executive orders to ban funding for international groups that provide abortions, and placing a hiring freeze on non-military federal workers. Trump’s decision not to join the Trans-Pacific Partnership (TPP) came as little surprise. During his election campaign he railed against international trade deals, blaming them for job losses and focusing anger in the industrial heartland. Obama had argued that this deal would provide an effective counterweight to China in the region. “Everyone knows what that means, right?” Trump said at Monday’s signing ceremony in the White House. “We’ve been talking about this for a long time. It’s a great thing for the American worker.”

The TPP was never ratified by the Republican-controlled Congress, but several Asian leaders had invested substantial political capital in it. Their countries represent roughly 13.5% of the global economy, according to the World Bank. Trump’s election opponent, the Democrat Hillary Clinton, had also spoken out against the TPP. The move also intensified speculation over the future of the 17-year-old North American Free Trade Agreement (Nafta). There were reports that Trump would sign an executive order on Monday to begin renegotiating terms with Canada and Mexico. He did move to reinstate a ban on providing federal money to international non-government organizations that perform abortions or provide information about them. The policy also prohibits taxpayer funding for groups that lobby to legalize abortion or promote it as a family planning method.

Republican administrations have tended to institute such a ban while Democrats have reversed it, most recently President Obama in 2009. Trump signed it one day after the anniversary of the supreme court’s 1973 Roe v Wade decision that legalized abortion in the US. Activists fear that the precedent is now under threat. The administration was criticized after footage appeared to show only one woman in the room as this executive order, along with the other two, were signed. Only four of Trump’s cabinet picks are women.

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Beppe knows the importance for Italy of ‘protectionism’. It’s the only way to keep Italian (small) business alive.

Beppe Grillo Agrees With ‘Moderate’ Trump, Blasts EU ‘Total Failure’ (Exp.)

Italy’s populist Five Star Movement leader Beppe Grillo has welcomed Donald Trump’s extraordinary rise to power and dismissed the European Union (EU) as a total failure. Mr Grillo described the controversial new US President as a “moderate whose image has been distorted”. He declared he was “very optimistic” about the Trump presidency which he said would reignite the US economy and stop it from playing world police enforcer. In an interview with French magazine Journal du Dimanche, the former stand-up comic expressed his fundamental agreement with Mr Trump’s populist presidential platform. He said: “I read one of his books in which he says some really sensible things on the need, for example, to bring economic activity back to the United States.

“He said what he had to say about Chinese protectionism as well.” Mr Grillo said Mr Trump would use fiscal policy to entice large companies to keep their business in the US instead of taking it south of the border to Mexico and that he would also “relaunch small and medium enterprises”. He said: “Mr Trump will also recall the US Army stationed at the four corners of the world and I agree with all this.” The Italian nationalist accused the media of twisting the “moderate message” of Mr Trump who then “simply adapted to what was being said about him”. He said: “We consequently have a deformed perception of him.” Looking closer to home, M Grillo described the EU as “a total failure” that needed to be re-imagined.

He said: “It is an enormous apparatus, with two parliaments, in Brussels and Strasbourg, to please the French. “Europe was born with Jean Monnet but then was progressively transformed. “I liked the word ‘community’ but then it was called union for the currency, which was to be common and not unique.” He continued: “I am in favour of a different Europe, where each state can adopt its fiscal and monetary system. “I want the Eurobond, a 20% devalued euro for southern European countries, protecting our products against those arriving from abroad, and a revision of the 3% deficit budgetary rule. “I no longer feel the spirit of Europe.”

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From a much longer article on volatility trading.

Trump is the start of Global Regime Change (Artemis)

Trump is the first “populist” US president since Andrew Jackson in 1829 and takes office with a mandate to reverse the course of globalization. Denial is not a strategy and it’s time to face the reality that is coming… the good, the bad, and the ugly. First off, stop underestimating this man – you don’t become leader of the free world through stupidity and luck. The rants and twitter storms are part of a strategy of media control and distraction. Trump knows that if you can’t win, then you change the rules of the game – this is what he has already done with American politics – and what he is about to do to the entire Post-Bretton Woods World Order. If you really want to know a person, watch what they do, and not what they say… or what they tweet. Trump’s business career was largely comprised of three core strategies 1) Leverage 2) Restructure 3) Brand… in that order.

Throughout the late 1970s and 1980s Trump rode a generational decline in interest rates and debt binge to purchase a range of high profile real estate projects including the Grand Hyatt (1978). Trump Tower (1983), the Plaza Hotel (1988) and the Taj Mahal (1988). In the 1990s he went through a total of 6 bankruptcies due to over-leveraged hotel and casino businesses in Atlantic City and New York. In the 2000s he pivoted to move away from debt-driven property investments to building a global brand through the “Apprentice” TV show. Trump will run the country as he ran his businesses…. He will lever, and lever, and lever, and lever… and lever… and then restructure his way to success, or whatever success is defined as by the broadest measure of popularity at any given time. Trumponomics, if it delivers, will be a supply side free for all: massive tax cuts, deficit spending to create jobs, financial and energy deregulation, business creation, and trade protectionism all driving inflation.

More importantly, Trump sees bankruptcy as a tool and not an obligation and will have no problem pushing the US to the limits of debt expansion. “I do play with bankruptcy laws, they’re very good to me!” he once said. Trump may be willing to bring the US to the brink of default if it produces middle class jobs and popularity, and what he understands is that nobody can stop him, not Europe, not China. In a Trump mindset, the US national debt and deficits, or prior commitments (e.g. NATO), are not to be taken seriously as long as we hold all the cards… namely the biggest military in the world, energy independence, world reserve currency, and the world’s largest buyer of consumer goods. He is dangerously right, these geo-political solvency tools are far more powerful than the bankruptcy laws he used to protect his casino assets… the US is just another, bigger, badder, more bankrupt casino with air craft carriers.

The media doesn’t seem to understand that Trump’s overtures to Russia and Taiwan are not diplomatic gaffes but rather forms of economic leverage. He is reminding Europe that NATO is nothing without the US, and reminding China that creditor nations lose trade wars. As a negotiating tactic, it may work … or may drive the world to a hot war… or both. Like it or not – the old rules are gone. Diplomacy has been replaced by Twitter, and the unexpected is now to be expected. Trump’s world is a zero-sum game – and this means a shock doctrine of US centric re-positioning in trade in a dramatic change from the post-World War II order. The US has the largest military, the best geography, best technology innovation, the largest economy, best demographics in the developed world, and shale-driven energy independence to boot.

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A discussion that makes a lot of sense. What is being protested? If this is unclear, isn’t that perhaps counterproductive? Can you effectively protest some of Trump’s measures after having demonized him in a wide and general fashion for a long time? Shouldn’t there be millions in the streets right NOW to protest the medieval Golden Gag Rule? Where are they?

Protest In The Era Of Trump (Krieger)

The best way to control the opposition is to lead it.

[..] I’d say the most common sign seems to have been some derivative of “Women’s Rights = Human Rights.” I unquestionably agree with this statement, which begs the question, who doesn’t? Well many of the barbaric, feudalist monarchies in the Middle East for starters. Saudi Arabia being a prime example, a place where women are not permitted to drive. Fortunately for them, their money is still green and the Clinton Foundation took plenty of it (between $10 million and $25 million to be exact). Democrats protested that by rigging the primary for her. I didn’t personally attend any of the protests, so I asked my followers on Twitter who did attend to reach out to me and tell me about what they saw. I received lengthy responses from three people. One was a Gary Johnson voter, one a Hillary voter and one didn’t vote at all.

They all pretty much confirmed what you could deduct from the signs. It was a message of “women power,” seemingly focused on women’s rights, specifically abortion and contraception. This brings me to another observation, which will serve as a segue to the final thrust of this article. It appears the emotional driver of the protest was two fold — a serious concern that certain women’s rights will be rolled back, and a form of catharsis for people still reeling from the election loss. This is interesting, because the focal point appears to be not just driven by identify politics, but on preserving already existing rights. Ok, fine, but what about all the ills currently at play? The destruction of the middle class, the surveillance state, the fact that Wall Street owns every single administration no matter who wins. What about the wars and the rapidly metastasizing military-industrial-intelligence complex.

These are things that are currently happening, and have been getting worse under both Republican and Democratic administrations. Does it make sense for all this energy to be focused on a potential threat, as opposed to all of the many ongoing unethical, destructive aspects of American life in 2017? Which brings us to the most important point of this entire article. I don’t want to be too judgmental here. While much of the messaging from the Women’s March seems to have been pretty unserious and divorced from the reality of the many serious issues plaguing the nation, I want to see a silver lining here. I think there’s little doubt that Trump’s election resulted in a certain percentage of the population finally waking up to how much trouble this country is in.

The problem is that many of these people see Trump as the problem to be eliminated, as opposed to the symptom of a sick, destructive society that he actually is. This is where the entire “resistance” can be easily co-opted by the DNC and the rapidly emerging neocon/neoliberal alliance rooted in identity politics, which poses no actual threat to the people actually in power. In this sense, all of this potentially productive energy could tragically be redirected into simply bringing back the same Democratic types that were forcefully rejected during the 2016 election.

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The Trump White House couldn’t care less. “The Media” means the Old Media, and they get that.

The White House Can’t Easily Repair Its Relationship With The Media (Atl.)

After harshly condemning the media over the weekend for its coverage of President Donald Trump’s inauguration, White House Press Secretary Sean Spicer struck a less combative tone during a press conference on Monday. But he nevertheless continued to argue that the media is trying to undermine the president, and stood by a debunked statement that the inauguration drew the “largest audience” of all time. “I believe we have to be honest with the American people,” Spicer said at the briefing, responding to a reporter’s question about his commitment to truth-telling. He added: “I’m going to come out here and tell you the facts as I know them, and if we make a mistake I’ll do our best to correct it.”

Later, however, he lamented that there is a “constant theme to undercut the enormous support” he said Trump has. “There’s an overall frustration when you turn on the television over and over again and get told that there’s this narrative.” The press secretary’s pledge to tell the truth may indicate that the administration hopes to improve its relationship with the media, or at least the appearance of it, following criticism and mockery of Spicer’s hostile interaction with reporters over the weekend. At the same time, his insistence that the media treats Trump with a double standard, and his complaints that the media has created an anti-Trump narrative, highlights how difficult it will be to repair the relationship between the administration and the media.

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Shake the cage.

Congressman Introduces Bill To Withdraw The US From The United Nations (MU)

A new bill has been introduced which would allow the United States to withdraw from the United Nations, and is now beginning to turns heads.

Representative Mike Rogers from Alabama introduced H.R. 193 American Sovereignty Act of 2017 in early January but is just now getting media exposure. The full bill can be seen here on congress.gov. The bill requires: (1) the President to terminate U.S. membership in the United Nations (U.N.), including any organ, specialized agency, commission, or other formally affiliated body; and (2) closure of the U.S. Mission to the United Nations.

The bill prohibits: (1) the authorization of funds for the U.S. assessed or voluntary contribution to the U.N., (2) the authorization of funds for any U.S. contribution to any U.N. military or peacekeeping operation, (3) the expenditure of funds to support the participation of U.S. Armed Forces as part of any U.N. military or peacekeeping operation, (4) U.S. Armed Forces from serving under U.N. command, and (5) diplomatic immunity for U.N. officers or employees.

Clearly, many people would be in favor of such a move and many would oppose it. Many who would support the move believe that the United Nations Agenda 30 is a blueprint for a unipolar world order with a destructive agenda, as Zerohedge reported last year. Regardless of one’s beliefs or opinions on the UN being a front for  a new world order, this bill is a direct and bold move against the elite’s plans. For any nation to reclaim true sovereignty from the United Nations is setting a powerful example for the rest of the world. It sends a message that a country does not need a global governing body, but instead can run itself without global oversight.

Essentially, if the U.S. reclaimed sovereignty from the United Nations, it would be the equivalent of what Britain did by reclaiming it’s sovereignty from the European Union…times 10. Perhaps the biggest revelations to come from such news would be the eventual exposure of the level of theft, deception and criminal activity done by the registered corporation known as The United Nations (yes it is a registered corporation).

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“..the ruins of industry stand like tombstones on the landscape.”

He Is Risen… But For How Long? (Jim Kunstler)

Returning to the first forty-eight hours of the new regime, first the ceremony itself: there was, to my mind, the disturbing sight of Donald Trump, deep in the Capitol in the grim runway leading out onto the inaugural dais. He lumbered along, so conspicuously alone between the praetorian ranks front and back, overcoat open, that long red slash of necktie dangling ominously, with a mad gleam in his eyes like an old bull being led out to a sacrificial altar. His speech to the multitudes was not exactly what had once passed for presidential oratory. It was not an “address.” It was blunt, direct, unadorned, and simple, a warning to the assembled luminaries meant to prepare them for disempowerment. Surely it was received by many as a threat.

Indeed an awful lot of official behavior has to change if this country expects to carry on as a civilized polity, and Trump’s plain statement was at face value consistent with that idea. But the disassembly of such a vast matrix of rackets is unlikely to be managed without generating a lot of dangerous friction. Such a tall order would require, at least, some finesse. Virtually all the powers of the Deep State are arrayed against him, and he can’t resist taunting them, a dangerous game. Despite the show of an orderly transition, a state of war exists between them. Anyway, given Trump’s cabinet appointments, his “swamp draining” campaign looks like one set of rackets is due to be replaced by a new and perhaps worse set.

Trump was correct that the ruins of industry stand like tombstones on the landscape. The reality may be that an industrial economy is a one-shot deal. When it’s gone, it’s over. Even assuming the money exists to rebuild the factories of the 20th century, how would things be produced in them? By robotics or by brawny men paid $15-an-hour? If it’s robotics, who will the customers be? If it’s low-wage workers, how are they going to pay for the cars and washing machines? If the brawny men are paid $40 an hour, how would we sell our cars and washing machines in foreign markets that pay their workers the equivalent of $1.50 an hour. How can American industry stay afloat with no export market? If we don’t let foreign products into the US, how will Americans buy cars that are far more costly to make here than the products we’ve been getting? There’s no indication that Trump and his people have thought through any of this.

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Eric Rosengren, stop it, you’re killing me: “If you think the economy is growing more rapidly then you want..”

Fed Debate Over $4.5 Trillion Balance Sheet Looms In 2017 (BBG)

It’s time to talk about the balance sheet. Eight years after the Federal Reserve launched the first of three controversial bond-buying campaigns to help save the U.S. economy, its holdings are stuck at $4.5 trillion, and the question of when to let them shrink is beginning to simmer. Several policy makers have pushed publicly to get the debate started. How the discussion plays out could have big implications for the pace of future interest-rate hikes and for the dollar. “They should start framing this for the market,” said Michael Gapen, chief U.S. economist at Barclays Plc. Investors need to hear what the “balance of policy” will be between the balance sheet and the central bank’s main tool, the federal funds rate, he said.

The sheer weight of the balance sheet helps hold down long-term U.S. borrowing costs, which is why the Fed bought bonds in the first place. If officials allow holdings to mature without continuing their current practice of reinvesting the principal, they could push yields higher by reducing demand in the bond market. The topic has shot to renewed prominence as the outlook for the U.S. economy has brightened. The Fed has raised rates twice in the last 13 months and penciled in three quarter-point moves this year. Moreover, newly-inaugurated President Donald Trump has put expansionary fiscal policy on the horizon. If fiscal stimulus begins to overheat the economy, the Fed might tighten policy more sharply. St. Louis Fed President James Bullard said he’d prefer to use the balance sheet to do some of that lifting, echoing remarks by his Boston colleague Eric Rosengren.

“If you think the economy is growing more rapidly then you want, you can either continue to raise short-term rates, or you can also do balance sheet in conjunction with that,” Rosengren said in a Jan. 9 interview. At the very least, he said, the Fed should be talking about the issue soon. San Francisco Fed President John Williams, Atlanta’s Dennis Lockhart, Philadelphia’s Patrick Harker and Dallas chief Robert Kaplan have all agreed. None of them has expressed urgency, and the topic may not be on the agenda when the Federal Open Market Committee convenes again on Jan. 31. But each knows it can take the FOMC several meetings to make big decisions, and they are likely eyeing where rates will be a year from now. Rosengren is thought by Fed watchers to favor four hikes this year. “I don’t think it’s something they’ll do in 2017,” said Mark Zandi at Moody’s. “My guess is they view this as a 2018 project.”

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It’s not in Tsipras’ hands. The EU demands the refugees stay on the islands so they cannot move further north. The EU also makes sure conditions on the islands are miserable with the idea that this keeps others from coming to Europe. And thirdly, they claim moving refugees to the mainland would violate the treaty with Turkey.

Greek Island Mayors Ask PM To Transfer Refugees To Mainland (Kath.)

The mayors of Lesvos, Chios, Samos, Kos and Leros on Monday jointly presented their demands for measures to ease severe overcrowding at migrant reception centers on their islands during a meeting in Athens with Prime Minister Alexis Tsipras. According to government sources, the meeting was held in a cordial climate and both sides agreed it remained imperative that an agreement between Ankara and the EU to curb human smuggling across the Aegean must not be allowed to collapse. However, though the sources described the mayors’ demands as “logical,” it remained unclear what action, if any, the government plans to respond with. In the meeting with Tsipras, which was also attended by senior officials of the Central Union of Municipalities and Communities of Greece (KEDKE), the mayors emphasized that the situation on the islands was very tense and required immediate action.

They called for the transfer of hundreds of migrants to facilities on the Greek mainland, the improvement of the asylum process so that migrants can leave islands without delay, and measures to boost local economies which have been hit hard by the refugee crisis on top of the country’s financial crisis. Separately, in comments to the News247.gr website, Migration Minister Yiannis Mouzalas remarked that the mass transfer of migrants to the Greek mainland would lead the EU-Turkey deal “to collapse.” He added that while in 2015 refugees accounted for 70 to 80% of arrivals, now 70% of arrivals are economic migrants. According to a report by the Athens-Macedonian News Agency, the interior and defense ministers of several Balkan and Central European countries are planning to meet in Vienna on February 8 to discuss ways of bolstering their borders against illegal immigration.

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Europe’s shameful disgrace deepens and widens.

Thousands Of Refugee Children Sleeping Rough In Sub-Zero Serbia (G.)

Hundreds of new refugees and migrants, many of them children, are arriving in Serbia every day despite the prospect of sleeping rough in sub-zero temperatures and reports of violent treatment, Save the Children has said, as it calls on the EU to do more to help. The EU-Turkey deal, which was supposed to stem the flow of refugees arriving in Europe by boat, has meant many refugees are being forced to take a deadlier land route to cross the Balkans, with children as young as eight experiencing harsh weather conditions, dog bites and violent treatment by police and smugglers. Although Serbia is not part of the European Union, it borders Hungary, Bulgaria and Romania, and has become a transit point for those hoping to reach western Europe. About 6,000 people are stuck in Serbia not able to cross the border into Hungary, which is the direction of travel most would like to take.

Serbia does have asylum centres but when space becomes available, many migrants and refugees are too anxious to go to them, fearing that they will be detained indefinitely or deported illegally. Many of them are turning to smugglers for help instead, charities claim. In the past two months, Save the Children estimates that 1,600 cases of illegal push-backs from Hungary and Croatia have been alleged by refugees and migrants, who have been forced – often violently – back into Serbia, despite already having crossed its border. The UN’s refugee agency (UNHCR) confirmed in its weekly briefing that it was continuing to receive hundreds of reports of foreign nationals being expelled from EU countries in the Balkans and sent back to Serbia.

An average of 30 cases a day of “unlawful and clandestine push-backs” highlights a disregard for the human right to an individual assessment of the need for international protection, according to Save the Children. Belgrade “risks becoming a dumping zone, a new Calais where people are stranded and stuck” the humanitarian group Médecins Sans Frontières has warned.

[..] Save the Children estimates that there are up to 100 refugees and migrants arriving in Serbia every day and is supporting the government to refurbish safe spaces and support services prioritising lone children. About 46% of refugee and migrant arrivals in Serbia are children and 20% are unaccompanied. The UNHCR said at least five refugees had died of cold since the start of the year. “Saving lives must be a priority and we urge state authorities across Europe to do more to assist and protect refugees and migrants,” a UNHCR spokeswoman, Cecile Pouilly, told a press briefing in Geneva on Friday. This week, the Serbian authorities made additional temporary space available to get people off the snowy streets and into shelters. The charities have warned, however, that it still far from enough to meet the needs of people who are sleeping rough.

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Jan 092017
 
 January 9, 2017  Posted by at 10:34 am Finance Tagged with: , , , , , , , , , ,  7 Responses »


AFP Photo/Johannes EISELE Giant Trump Chicken

Locating Fascism on the Home Map (Ford)
‘The Bull Market Is In Its Final Inning’ (CNBC)
Chinese Warns Trump: End One China Policy And China Will Take Revenge (R.)
It’s Gonna Be Huge: China Factory Hatches Giant Trump Chickens (AFP)
How Meaningful Will China “Opening Up” Markets To Foreigners Be? (BBG)
China Tightens Rules After Anti-Corruption Staff Caught Up In Graft (R.)
China’s Pyrrhic Growth Victory Spurs 2017 Shift To Contain Risks (BBG)
The Rise, Fall and Comeback Of China’s Economy Over The Last 800 Years (BI)
Australia Predicts Dramatic Fall In Iron Ore Prices (BBC)
FBI Arrests Volkswagen Exec on Conspiracy Charges in Emissions Scandal (NYT)
UK Motorists Launch Class-Action Suit Against VW (G.)
Le Pen: I’ll Come To Brussels And Dismantle France’s Relationship With EU (EUK)
Beppe Grillo Calls For Five Star Movement Vote On Quitting Farage Bloc (G.)
New Cold Snap, Heavy Snowfall Causes Problems Across Greece (Kath.)

 

 

Hear hear!

Locating Fascism on the Home Map (Ford)

In decadence and decline, the U,S. has produced two strong strains of fascism that now vie for supremacy. The First Black President, now outgoing, represents the “cosmopolitan, global obsessed” variety of fascist. Donald Trump hails from an older fascist strain, “crude and petty, too ugly for global prime time.” At this stage in history, the two corporate parties seem incapable of producing anything other than fascists of one kind or the other.

Barack Obama was a savior – of a drowning ruling class. Under his administration, Wall Street rose from near-death to new heights of speculative frenzy, awash in capital brutally extracted from the vanishing assets and past and future earnings of the vast majority of the population, or gifted in the form of trillions in free money at corporate-only Federal Reserve windows. The Big Casino, reduced to a rubble of its own contradictions in 2008, ushered in the New Year just shy of the once-fantastical 20,000 mark. Analysts credited Donald Trump’s victory for the bankers’ bacchanal, but it was Obama who made the party possible by overseeing the restructuring of the U.S. economy to accommodate and encourage the hyper-consolidation of capital – another way to describe the deliberate deepening of economic (and political) inequality. Having accomplished the mission assigned him by Wall Street in return for record-breaking contributions to his first campaign, Obama is said to be angling for a hot-money squat in Silicon Valley, the super-rich sector that was most supportive of his presidency.

Meanwhile, Hillary Clinton is melting quicker than the Wicked Witch of the West, principally due to the failure of traditionally Democratic working (and out of work) people of all races to turn out on November 8 – a perfectly understandable response to a party and a system that offers them absolutely nothing but grief, in ever quickening increments. The merciless downsizing of the American worker is a central element of Obama’s legacy. Real wages had been frozen or declining for decades. However, economic restructuring in the Age of Obama demanded that millions of workers be crushed all the way through the floor to a lower level of hell: temporary, contract, not-really-a-job, part-time “gig” employment. If the 1930s squatter shanty-towns called “Hoovervilles” were testaments to President Herbert Hoover’s economic policies, then the maddeningly precarious, no guaranteed hours, no benefits, zero job security, fraction of a shift, arbitrarily scheduled employment of today should be called ObamaJobs. A new study by economists at Princeton and Harvard universities shows that an astounding 94% of the 10 million jobs created during the First Black President’s two terms in office were ObamaJobs.

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“Risk has been priced out of the market..”

‘The Bull Market Is In Its Final Inning’ (CNBC)

As investors await the Dow Jones 20,000 with baited breath, one widely followed chart watcher believes the current market rally is actually on its last legs. On Friday, blue chip shares in the Dow Industrial Average flirted with the psychologically charged 20,000 level, which have largely been driven higher by anticipation over President-elect Donald Trump’s business-friendly policies. Yet a few observers think the party is nearly over, and the punch bowl is about to run dry. “Risk has been priced out of the market,” said Sven Henrick of NorthmanTrader.com on CNBC’s “Futures Now.” Henrich, who is known online as the Northman Trader, said that despite the abundance of optimism on the part of investors, technical indicators could be pointing to some near-term pain.

According to the Northman’s chartwork, every time the S&P 500 Index has hit new highs, it eventually retreats back towards its 25-day moving average line, which would translate to a 4% pullback from current levels. The S&P 500 has rallied 6% since the election, and hit an intraday record high on Friday. “I would expect that at some point there would be a buying opportunity for people who may want to invest in this market,” said Henrich. “But if this line breaks, we may see significantly more downside that we’ve seen in previous corrections as well.” What’s more, Henrich also believes that the S&P 500 has continued to trade in a “bearish wedge pattern” that began just after the end of the last recession.

The wedge pattern Henrich speaks of consists of two trend lines: One that runs along the S&P’s highs and a second that runs along its lows, that look to meet sometime in 2017. It is at that point that Henrich believes the rally will have run its course, and a downside will soon follow. On a fundamental basis, the Northman Trader is troubled by “record debt levels” that the global governments have incurred. “In 2016, the U.S. government ran a deficit of over $600 billion,” explained Henrich.” “If we now add tax cuts and stimulus spending, you’re either going to have to cut a significant amount of programs somewhere, or you’re going to end up with an even larger deficit.”

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For domestic use only?

Chinese Warns Trump: End One China Policy And China Will Take Revenge (R.)

State-run Chinese tabloid Global Times warned U.S. President-elect Donald Trump that China would “take revenge” if he reneged on the one-China policy, only hours after Taiwan’s president made a controversial stopover in Houston. Taiwanese President Tsai Ing-wen met senior U.S. Republican lawmakers during her stopover in Houston on Sunday en route to Central America, where she will visit Honduras, Nicaragua, Guatemala and El Salvador. Beijing had asked Washington not to allow Tsai to enter the United States and that she not have any formal government meetings under the one China policy. A photograph tweeted by Texas Governor Greg Abbott shows him meeting Tsai, with a small table between them adorned with the U.S., Texas and Taiwanese flags. Tsai also met Texas Senator Ted Cruz.

“Sticking to (the one China) principle is not a capricious request by China upon U.S. presidents, but an obligation of U.S. presidents to maintain China-U.S. relations and respect the existing order of the Asia-Pacific,” said the Global Times editorial on Sunday. The influential tabloid is published by the ruling Communist Party’s official People’s Daily. Trump triggered protests from Beijing last month by accepting a congratulatory telephone call from Tsai and questioning Washington’s commitment to China’s position that Taiwan is part of one China. “If Trump reneges on the one-China policy after taking office, the Chinese people will demand the government to take revenge. There is no room for bargaining,” said the Global Times.

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“..mimic his signature hand gestures with their tiny wings.”

It’s Gonna Be Huge: China Factory Hatches Giant Trump Chickens (AFP)

A Chinese factory is hatching giant inflatable chickens resembling Donald Trump to usher in the Year of the Rooster. The five-metre (16-foot) fowls sport the distinctive golden mane of the US president-elect and mimic his signature hand gestures with their tiny wings. Cartoon figures of animals from the Chinese zodiac are ubiquitous around Chinese New Year at the end of this month. The balloon factory is selling its presidential birds for as much as 14,400 yuan ($2,080) on Chinese shopping site Taobao for a 10-metre version.


A golden mane and tiny wings that mimic his hand gestures – the resemblence of inflatable chickens produced for the Chinese New Year to US President-elect is unmistakable (AFP Photo/Johannes EISELE)

“I saw his image on the news and he has a lot of personality, and since Year of the Rooster is coming up I mixed these two elements together to make a Chinese chicken,” factory owner Wei Qing told AFP. “It is so funny, so we designed it and tried to sell it and it turned out to be popular.” The cartoon balloon appeared to be based on a sculpture designed by US artist Casey Latiolais, which was unveiled at a shopping mall last month in Taiyuan, capital of the northern province of Shanxi. Wei said he was not aware that the American designer had created the original, but added that “there are some differences in the facial expression. And that one is glass. Ours is inflatable.”

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“If we do get any reforms this year, they are going to be Potemkin reforms. The veneer will look like they are moving to a market economy, and the reality will be anything but.”

How Meaningful Will China “Opening Up” Markets To Foreigners Be? (BBG)

China’s recent policy of opening its markets to foreigners is expected to continue this year, but there are questions about how meaningful the change will be amid a clampdown on money leaving the country. While China loosened restrictions on its interbank bond market and relaxed rules for offshore investors trading stocks, it also saw $762 billion head overseas in the first 11 months of last year, according to Bloomberg Intelligence estimates, as investors sought safety in foreign assets. That helped push the yuan down 6.5% against the dollar in 2016, the most since 1994. Seeking to stem the flow, mainland authorities tightened rules that contributed to MSCI Inc. refusing to add Chinese-listed shares to its global indexes.

China’s regulators have indicated that this year foreigners might be allowed to access commodity futures and bond derivatives, while MSCI will again consider adding mainland stocks. But concerns remain about how open China’s markets will be, especially on the issue of taking assets out of the country. The contrast highlights the tension authorities face between inviting more investment while keeping control of the financial sector. “I’d describe China’s strategy as a pipeline strategy. Essentially what they do is to create various pipelines of inflows and outflows,” said John Greenwood, London-based chief economist at Invesco Asset Management. “The problem is the flows are always in the opposite direction of what they want.”

Among last year’s steps, Beijing lifted almost all quotas on China’s interbank bond market and scrapped some constraints under the Qualified Foreign Institutional Investor program, which governs how offshore funds invest in mainland markets. The Shenzhen-Hong Kong stock exchange link, the second between the mainland and the former British colony, opened in December. Expectations then rose as an official with the People’s Bank of China said the central bank is committed to further opening the interbank market, including giving foreign investors access to foreign-exchange and interest-rate derivatives to hedge risks, and expanding trading hours. Even as China opens up to incoming funds, it has been clamping down on outflows.

Officials have banned the use of friends’ currency quotas, made it more difficult to buy insurance policies in Hong Kong and prepared restrictions on overseas acquisitions by Chinese companies. Grants of new quotas for domestic fund managers to invest overseas were frozen, according to data compiled by Bloomberg. The tightening of outflow rules makes it hard for some to say that the country is fully embracing financial reform. “We have already seen in China’s case, markets only work when they go up. You are not allowed to go down,” said Michael Every at Rabobank in Hong Kong. “If we do get any reforms this year, they are going to be Potemkin reforms. The veneer will look like they are moving to a market economy, and the reality will be anything but.”

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“500,000-plus corruption investigators..” Who are corrupt.

China Tightens Rules After Anti-Corruption Staff Caught Up In Graft (R.)

China’s top anti-corruption watchdog has tightened supervision of its 500,000-plus corruption investigators, after some of its own staff were caught in graft probes. The Central Commission for Discipline Inspection (CCDI) said in a statement on its website late on Sunday that a new regulation would be applied to procedures such as evidence collection and case reviews, without providing further details. “Trust cannot replace supervision,” the CCDI said in the statement, released after it held an annual 3-day meeting. “We must make sure the power granted by the (Communist) Party and the people is not abused,” it said.

State newspaper the China Daily, which did not indicate its sources, said the new regulation would set clear standards on how to handle corruption tips, how to handle ill-gotten assets, and would encourage audio and video recordings to be made throughout interrogations. More than 7,900 disciplinary officials have been punished for wrongdoing since 2012, the newspaper said, citing CCDI figures. Of those, 17 were CCDI staffers who were put under investigation for graft, it said. On Friday, state news agency Xinhua quoted Chinese President Xi Jinping as saying that the battle against corruption “must go deeper”, and called for the Communist Party to be governed “systematically, creatively and efficiently”.

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Stuck.

China’s Pyrrhic Growth Victory Spurs 2017 Shift To Contain Risks (BBG)

As China’s top leaders tallied the cost of another year of debt-fueled growth at a December meeting, the imperative for stability as a leadership reshuffle loomed later this year prompted an unexpected conclusion. The price was too high, the leaders agreed, according to a person familiar with the situation. The buildup of debt used to fuel smokestack industries from steel to cement had helped win the short-term battle for growth, but the triumph itself undermined the foundations of long-term expansion, the leaders decided, according to the person, who asked not to be named because the meeting was private. What followed was an order to central and local government officials that if they are forced to choose this year, stability must be the priority while everything else, including the growth target and economic reform, is secondary, said another four people familiar with the situation.

Other concerns aired at the meeting that contributed to the policy shift were the short-term risk of a confrontation with the U.S. under President-elect Donald Trump over trade or Taiwan, and longer-term challenges including how to spur the innovation needed to prevent economic stagnation as well as cleaning up toxic air that enrages and poisons citizens, said the person. Left unsaid was that economic growth underpins the legitimacy of Communist Party rule. “China’s reaching the point where it has to pick its poison and giving up a half%age point of growth would be far less politically damaging than instability in the bond or currency markets,” said David Loevinger, a former China specialist at the U.S. Treasury and now an analyst at fund manager TCW in Los Angeles. “Looking past the Party Congress later in the year, President Xi Jinping may realize that unlike his predecessor, Hu Jintao, he can’t kick the can to his successor, even more so if he plans on extending his term” beyond 2022.

At the December meeting, officials expressed alarm over the nation’s rapid accumulation of total debt, with some present noting that other nations have experienced crises after allowing debt to climb to about 300% of gross domestic product, the person said. China’s credit boom may have pushed overall debt at the end of 2016 to 265% of GDP. Also aired at the meeting was the risk that China falls into the so-called Thucydides trap, a theory attributed to the eponymous Greek philosopher that says a rising power will clash with an established force. So menacing is the array of economic and political challenges confronting the nation that some leaders at the meeting said there’s no prospect for yuan appreciation against the dollar until at least 2020, said the person. “Tapping the brakes may help avoid the economy skidding off the road,” said Frederic Neumann at HSBC in Hong Kong.

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Interesting point of view.

The Rise, Fall and Comeback Of China’s Economy Over The Last 800 Years (BI)

China’s economy led its European counterpart by leaps and bounds at the start of the Renaissance. China was so far ahead, in fact, that economic historian Eric L. Jones once argued that the Chinese empire “came within a hair’s breadth of industrializing in the fourteenth century.” At the start of the 15th century, China already had the compass, movable type print, and excellent naval capacity. In fact, Chinese Admiral Zheng He commanded expeditions to Southeast Asia, South Asia, Western Asia, and East Africa from about 1405-1433 – about a century before the Portuguese reached India. He also had ships several times the length of Christopher Columbus’ Santa Maria, the largest of Columbus’ three ships that crossed the Atlantic.

Still, it’s hard to understand the magnitude of the shift China’s economic fortunes have seen just with historical anecdotes. And so, in a recent note to clients, Macquarie Research’s Viktor Shvets included two fascinating charts showing the changes China saw over the last 800 years, which we included below. The first chart shows the estimated percent share of a given country’s economy as a part of the overall world economy. In the 15th and 16th centuries, China was about 25-30% of the global economy, but come 1950-1970, after the destruction of World War II and under the rule of Mao Zedong, it was under 5%. Today, its economy is about 17% of the global economy – roughly the same as the US.

The second chart compares GDP per capita in China, Japan, and the US to the British GDP per capita measured in 1990 US dollars. In this case, the British GDP per capita in each year is 100, so if a number from China, Japan, or the US is above 100, then its GDP per capita is greater than in Britain, and if the number falls below 100, per capita output is lower than that in Britain. As Shvets writes, on a per capita basis, China was the wealthiest part of the world in the 1200-1300s — aside from Italy. Even as late as the 1600s it was roughly on par with the Brits. However, after that, the GDP per capita relative to Britain declines all the way up to the 1970s, when it was below 10% of the British standard of living. Around 1990, it starts to pick up again, but it has yet to recover to levels seen in 1200-1600.

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And what does this say about China?

Australia Predicts Dramatic Fall In Iron Ore Prices (BBC)

Shares in Australian mining companies have fallen after the government forecasted a dramatic decline in iron ore prices. The government forecast an iron ore price of $46.70 a tonne by 2018, almost half the current level of $80. The current price is supported by resurgent demand from China. But the Department of Industry, Innovation and Science said that demand was unlikely to continue over the coming years. The department also lowered its forecast for iron ore exports by 2% to 832.2 million tonnes for the fiscal year 2016-17. Australia is the world’s biggest supplier of iron ore and shares in the country’s main mining companies fell after the report was released. Hardest hit was Fortescue Metals which fell more than 3% in early trade, while commodity giants BHP Billiton and Rio Tinto also saw their shares prices drop. In its forecast early last year, the department had predicted an iron ore price of $44.10 per tonne, but an increase in Chinese demand spurred the price to above $80.

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This guy’s been lying outright to US authorities.

FBI Arrests Volkswagen Exec on Conspiracy Charges in Emissions Scandal (NYT)

The Federal Bureau of Investigation has arrested a Volkswagen executive who faces charges of conspiracy to defraud the United States, two people with knowledge of the arrest said on Sunday, marking an escalation of the criminal investigation into the automaker’s diesel emissions cheating scandal. Oliver Schmidt, who led Volkswagen’s regulatory compliance office in the United States from 2014 to March 2015, was arrested on Saturday by investigators in Florida and is expected to be arraigned on Monday in Detroit, said the two people, a law enforcement official and someone familiar with the case. [..] In a statement, Jeannine Ginivan, a spokeswoman for Volkswagen, said that the automaker “continues to cooperate with the Department of Justice” but that “it would not be appropriate to comment on any ongoing investigations or to discuss personnel matters.”

Lawsuits filed against Volkswagen by the New York and Massachusetts state attorneys general accused Mr. Schmidt of playing an important role in Volkswagen’s efforts to conceal its emissions cheating from United States regulators. Starting in late 2014, Mr. Schmidt and other Volkswagen officials repeatedly cited false technical explanations for the high emissions levels from Volkswagen vehicles, the state attorneys general said. In 2015, Mr. Schmidt acknowledged the existence of a so-called defeat device that allowed Volkswagen cars to cheat emissions tests. Volkswagen eventually said that it had fitted 11 million diesel cars worldwide with illegal software that made the vehicles capable of defeating pollution tests. [..] James Liang, a former Volkswagen engineer who worked for the company in California, pleaded guilty in September to charges that included conspiracy to defraud the federal government and violating the Clean Air Act. But Mr. Schmidt’s arrest brings the investigation into the executive ranks.

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Settling the UK alone could cost VW £3.6 billion.

UK Motorists Launch Class-Action Suit Against VW (G.)

Thousands of British motorists have launched a lawsuit against Volkswagen over the “dieselgate” emissions scandal, in a claim that could end up costing the carmaker billions of pounds. The group of 10,000 VW owners has filed a class action lawsuit against the German car firm, seeking £30m, or £3,000 each. If VW ends up having to pay the amount to each one of the 1.2 million people in the UK who own affected cars, including its Skoda, Audi and Seat marques, it would cost the company around £3.6bn.The German firm has yet to reach a settlement with British and European owners affected by the scandal, in which the company admitted using “defeat devices” to cheat emissions tests, making its cars appears greener than they were.

It has not compensated British owners despite reaching a £15bn settlement with 500,000 US drivers, offering instead to fix affected vehicles. The class action suit, which is being led by law firm Harcus Sinclair, is expected to claim that drivers should be compensated because they paid extra for what they thought were clean diesel cars. In fact, the claimants will allege, the cars emitted far higher levels of NOx – a mixture of pollutants nitrogen oxide and nitrogen dioxide – than stated. Damon Parker, head of litigation at Harcus Sinclair, told the Daily Mail that claimants were “angry and believe that VW might get away with it”. “They feel that they have been left with no choice but to take legal action,” Parker said. “We have paved the way for consumers who trusted but were let down by VW, Audi, Seat and Skoda to seek redress through our courts.

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My guess is pollsters and media will get this as wrong as they got Brexit and Trump.

Le Pen: I’ll Come To Brussels And Dismantle France’s Relationship With EU (EUK)

Marine Le Pen announced her first foreign visit would be to Brussels to dismantle France’s relationship with the EU if elected president later this year. The National Front leader has been a long-time critic of the EU and has promised to push back the sprawling European superstate and take back sovereignty to France. The 48-year-old said: “I would go to Brussels to immediately launch negotiations allowing me to give back to the French people their sovereignty.” The right-wing leader attacked the faltering euro currency as one of the root problems of the EU and described her main economic proposals as “economic patriotism, intelligent protectionism and a return to monetary independence”. She added: “The euro is a major obstacle to the development of our economy.”

Le Pen mooted that she was in favour of maintaining a form of common currency mechanism between France and the EU to help prevent sharp currency fluctuations. Recent opinion polls predicted that Le Pen would finish second in April’s first round of voting – putting her through to the next round in a run-off against Les Repubicain’s François Fillon. If pollsters are correct, France would be guaranteed a right-wing leader after five years of left-wing leadership from Francois Hollande.

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Farage got his price, Grillo still has nothing. Weird to ally himself with Verhofstadt, but it’s how Brussels is set up: you either force yourself into some group or you don’t count.

Beppe Grillo Calls For Five Star Movement Vote On Quitting Farage Bloc (G.)

The founder of Italy’s populist Five Star Movement (M5S) has asked members to vote on splitting from a Eurosceptic bloc of MEPs co-chaired by Nigel Farage. Beppe Grillo, a comedian turned politician, said in a post on his blog that since Farage had led Ukip to Britain voting to leave the EU, the two parties no longer shared common goals and he recommended leaving the Europe of Freedom and Direct Democracy (EFDD). “Recent events in Europe, such as Brexit, have led us to reconsider the nature of the EFDD group,” Grillo wrote. “With the extraordinary success of the leave campaign, Ukip achieved its political objective: to leave the EU. “Let’s discuss the concrete facts: Farage has already abandoned the leadership of his party and British MEPs will leave the European parliament in the next legislature. Until then, our British colleagues will be focused on developing the choices that will determine the UK’s political future.”

Grillo and Farage forged an alliance over lunch in Brussels after 2014’s European elections, in which Ukip took the largest share of the vote in Britain and M5S came second in Italy after winning 17 seats. Both said at the time that the group was aimed at “restoring freedom and national democracy”, with Farage adding: “Expect us to fight the good fight to take back control of our countries’ destinies.” In a move that would see his party mesh with European liberals, Grillo has called an online referendum, scheduled for Sunday and Monday, on breaking away and instead forming a new group with the Alliance of Liberals and Democrats for Europe (ALDE), led by the former Belgian prime minister, Guy Verhofstadt, who is also the EU’s chief Brexit negotiator. Grillo has long called for a referendum on Italy’s membership of the euro currency, but not on Italy leaving the EU.

With ALDE’s 68 MEPs, the alliance could become the “third political force in the European parliament”, Grillo wrote, while pointing to the fact that his party had only voted alongside Ukip about 20% of the time within the past few years. He said the two shared values linked to “direct democracy, transparency, freedom and honesty”. “With our vote we can make a difference and influence the result of many important decisions to counter the European establishment,” Grillo added. Farage said in a statement: “In political terms it would be completely illogical for Five Star to join the most Euro fanatic group in the European parliament. The ALDE group doesn’t support referenda or the basic principle of direct democracy. ALDE are also the loudest voice for a EU army. I suspect if Five Star joins ALDE it’s support will not last long.” A Ukip spokesman said: “Both Ukip and Five Star are free to choose to stay or quit a political relationship. While it’s interesting that some Five Star MEPs adamantly wish to stay in the EFDD group, as adults we wish them all the best whatever they do.”

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The scandal spreads and deepens. Tens of millions have been handed to NGOs to prepare for winter, and they simply haven’t done it. While those of us that could make it happen don’t have the money. People have to die first?

New Cold Snap, Heavy Snowfall Causes Problems Across Greece (Kath.)

A new cold snap brought snowfall to many parts of the country, leaving the Sporades islands of Alonissos and Skopelos without a ferry connection to the mainland and the Aegean islands of Lesvos and Chios struggling to care for hundreds of migrants amid freezing temperatures. Schools remained closed in many parts of the country due to heavy snowfall, including in the northern suburbs of Athens. According to meteorologists, the bad weather is set to continue through Wednesday. From Monday evening, the cold snap is forecast to spread to eastern Macedonia, Thrace, Halkidiki, the northern Aegean, the Sporades and across Crete. Storms are also likely at sea.


Moria camp, Lesbos, Jan 7

Temperatures are set to drop to -16 degrees Celsius in western Macedonia. The icy conditions left many households in the Thessaloniki region without water as pipes froze or broke. Most schools in the region were to remain closed on Monday due to heavy snowfall and low temperatures. The cold snap has made road travel risky in many parts of the country with motorists advised to fit their cars with anti-skid chains in northern areas.


Moria camp, Lesbos, Jan 7

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Jan 052017
 
 January 5, 2017  Posted by at 10:22 am Finance Tagged with: , , , , , , , , ,  1 Response »


Pablo Picasso The Dream 1932

Chinese Media Say ‘Big Sticks’ Await Trump If He Seeks Trade War (BBG)
Donald Trump Plans Revamp of Top US Spy Agency and CIA (WSJ)
Schumer Calls Eight Trump Cabinet Picks ‘Troublesome’ (BBG)
Ford’s Truck Trumps Mexico and Tesla (BBG)
So What’s The Big Idea, European Union? (G.)
Italy’s 5 Star Movement Part Of Growing Club Of Putin Sympathisers In West (G.)
Beppe Grillo Accuses Journalists Of ‘Manufacturing False News’ (DM)
Ukraine Moves To Blacklist Le Pen Over Crimea Comments (R.)
UK Credit Binge Approaching Levels Not Seen Since 2008 Crash (G.)
China Can’t Quit the Dollar (Balding)
India’s Cash Woes Are Just Beginning (BBG)
Head of Russian Central Bank Named European Banker of the Year (RT)
Steve Keen: Rebel Economist With A Cause (AFR)

 

 

Xi has all the state media, and all Trump has is Twitter. Isn’t it fun? Then again, for Xi to let the Global Times come with this sort of childish language is below him.

Chinese Media Say ‘Big Sticks’ Await Trump If He Seeks Trade War (BBG)

Chinese state media warned U.S. President-elect Donald Trump that he’ll be met with “big sticks” if he tries to ignite a trade war or further strain ties. “There are flowers around the gate of China’s Ministry of Commerce, but there are also big sticks hidden inside the door – they both await Americans,” the Communist Party’s Global Times newspaper wrote in an editorial Thursday in response to Trump’s plans to nominate lawyer Robert Lighthizer, who has criticized Beijing’s trade practices, as U.S. trade representative.

The latest salvo from state-run outlets followed others last month aimed at Peter Navarro, a University of California at Irvine economics professor and critic of China’s trade practices whom Trump last month named to head a newly formed White House National Trade Council. Those picks plus billionaire Wilbur Ross, the nominee for commerce secretary, will form an “iron curtain” of protectionism in Trump’s economic and trade team, the paper wrote. The three share Trump’s strong anti-globalization beliefs and seem unlikely to keep building the current trade order, it said, adding that they will be more interested in disrupting the world trade order.

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Don’t think they saw this coming. And that’s perhaps not so intelligent. The CIA leaked a lot of wild anti-Trump stuff during the election campaign, and now claims he MUST trust them. But if he leaves the same people in place, when will they turn on him again?

Donald Trump Plans Revamp of Top US Spy Agency and CIA (WSJ)

President-elect Donald Trump, a harsh critic of U.S. intelligence agencies, is working with top advisers on a plan that would restructure and pare back the nation’s top spy agency, people familiar with the planning said, prompted by a belief that the Office of the Director of National Intelligence has become bloated and politicized. The planning comes as Mr. Trump has leveled a series of social media attacks in recent months and the past few days against U.S. intelligence agencies, dismissing and mocking their assessment that the Russian government hacked emails of Democratic groups and individuals and then leaked them last year to WikiLeaks and others in an effort to help Mr. Trump win the White House.

One of the people familiar with Mr. Trump’s planning said advisers also are working on a plan to restructure the CIA, cutting back on staffing at its Virginia headquarters and pushing more people out into field posts around the world. The CIA declined to comment on the plan. “The view from the Trump team is the intelligence world [is] becoming completely politicized,” said the individual, who is close to the Trump transition operation. “They all need to be slimmed down. The focus will be on restructuring the agencies and how they interact.”

In one of his latest Twitter posts on Wednesday, Mr. Trump referenced an interview that WikiLeaks editor in chief Julian Assange gave to Fox News in which he denied Russia had been his source for the thousands of emails stolen from Democrats and Hillary Clinton advisers, including campaign manager John Podesta, that Mr. Assange published. Mr. Trump tweeted: “Julian Assange said ‘a 14 year old could have hacked Podesta’—why was DNC so careless? Also said Russians did not give him the info!”

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This will dominate the news going forward. Main question: what crazy stories will the WaPo come up with to discredit the nominees? Should be interesting. Meanwhile: YOU LOST, Schumer. Big time. Stop digging.

Schumer Calls Eight Trump Cabinet Picks ‘Troublesome’ (BBG)

Senate Democratic leader Chuck Schumer said his party views eight of Donald Trump’s Cabinet choices as being “the most troublesome” and wants at least two days of hearings for each of them. “We have asked for fair hearings on all of those nominees,” Schumer of New York told reporters Wednesday in Washington. “There are a lot of questions about these nominees.” Confirmation hearings begin next week for a number of the president-elect’s Cabinet picks, and several already overlap on a single day, Jan. 11. Majority Leader Mitch McConnell said minutes earlier that he hopes the Senate would be ready to confirm some of the nominees shortly after Trump is inaugurated on Jan. 20, just as it did when President Barack Obama first took office.

Under current Senate rules, Democrats can delay Senate confirmation of nominees but can’t block them on their own. Schumer’s office said the eight nominees targeted by Democrats for extra scrutiny are Rex Tillerson for secretary of State, Betsy DeVos for Education, Steven Mnuchin for Treasury, Scott Pruitt for the Environmental Protection Agency, Mick Mulvaney for budget director, Tom Price for Health and Human Services, Andy Puzder for Labor and Wilbur Ross for Commerce. Schumer said he wants their full paperwork before hearings are scheduled, adding that only a few have turned it in while most haven’t. Schumer said he also wants their tax returns, particularly because some are billionaires and given the potential for conflicts of interest.

The hearing for DeVos is scheduled for Jan. 11, “and we don’t have any information on her, and she in addition has a $5 million fine outstanding that she’s refused to pay,” Schumer said. Democrats have called on a political action committee led by DeVos to pay a $5.2 million fine imposed by Ohio officials over campaign finance violations in 2008. “There are so many issues about so many of them that to rush them through would be a disservice to the American people,” the Democratic leader said. While many of Obama’s nominees were confirmed quickly, his team had its paperwork in early, Schumer said.

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Our God is the car.

Ford’s Truck Trumps Mexico and Tesla (BBG)

On its first day back from the holidays, America’s auto industry began with a Mexican standoff and ended with Tesla just being off. Ford announced early on Tuesday it was scrapping plans to build a new plant in Mexico, apparently under pressure from President-elect Donald Trump. The PEOTUS then turned his signature industrial-policy-by-tweet on General Motors, threatening them over shipping Mexican-made Chevy Cruze cars back home .Meanwhile, after the market closed on Tuesday, Tesla Motors Inc. reported it missed its (reduced) guidance for vehicle deliveries in 2016. The stock fell in after-hours trading, as some were clearly caught by surprise – a reaction that, let’s face it, is itself a bit surprising at this point. In any case, a timely tour of the Gigafactory scheduled for Wednesday will no doubt snap the market’s attention back away from those pesky number thingies.

What links these stories is Ford’s other announcement on Tuesday morning, which got a bit lost in the shuffle; namely, its plans to electrify some of its marquee models – including the F-150 pickup truck.Rather than a battery-only version or even a plug-in hybrid model, Ford is committing merely to a basic hybrid version of the F-150 by 2020 – more Priusizing than Teslarizing it. So we aren’t about to see Ford’s trucks vanish from gasoline stations anytime soon. But this is still a big deal. The F-Series is America’s biggest-selling vehicle and represents one of every three full-size pickups sold. Also, pickups are archetypal gas guzzlers, and gas guzzlers are doing really well right now because of cheap gasoline. And even as Trump lobs Twitter-bombs at the car-makers’ foreign factories, his administration also looks likely to ease up on fuel-efficiency standards.

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So What’s The Big Idea, Guardian? How can you have your own Jennifer Rankin in Brussels, Thomas Kirchner and Alexander Mühlauer of Suddeutsche Zeitung and Cécile Ducourtieux of Le Monde, all contribute to a long article, and still not touch on a single one prime issue with the EU? How do you do it?

So What’s The Big Idea, European Union? (G.)

A few weeks ago, a significant anniversary in Maastricht slipped by almost unnoticed: 25 years ago, the historic treaty that ushered in the euro was drafted. But there was no fanfare, no commemoration in the European parliament, no mention at all by the commission. There was just a rather lacklustre speech by the EU president, Jean-Claude Juncker, in which he lamented that people were not sufficiently proud of what had been achieved on 9 December 1991. This air of resignation perfectly epitomises an EU in retreat. Battered, bothered and bewildered on all sides by a succession of crises – Brexit, the euro, refugees – the union is short of ideas, perhaps shorter than it has ever been. In his state of the union speech last autumn, the very best that Juncker could come up with was free Wi-Fi for every EU town and village by 2020, though even this sounded more like an aspiration than a concrete policy.

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Oh, wait, that hollow ‘article’ on the EU was just a lead in to this Guardian smear piece in the honored tradition of the WaPo. Up to and including “Russian interference in Italian elections”.

Italy’s 5 Star Movement Part Of Growing Club Of Putin Sympathisers In West (G.)

Ten years ago, in the wake of the murder of the leading Russian journalist Anna Politkovskaya, a popular comedian-turned-blogger in Italy named Beppe Grillo urged tens of thousands of his readers to go out and buy Putin’s Russia, her searing exposé of corruption under the leadership of Vladimir Putin. “Russia is a democracy based on the export of gas and oil. If they didn’t export that, they would go back to being the good old dictatorship of once upon a time,” Grillo wrote in a mournful 2006 post about the journalist’s murder. But today, Grillo’s position on Russia has radically changed. He is now part of a growing club of Kremlin sympathisers in the west – an important shift given that the comedian has become one of the most powerful political leaders in Italy and his Five Star Movement (M5S), the anti-establishment party he created in 2009, is a top contender to win the next Italian election.

[..] As the M5S’s rhetoric has become pro-Russian, it is simultaneously becoming more critical of the EU, including a vow to hold a referendum on the euro. Such a vote would be likely to have a destabilising effect on European unity, even if in practice it would be difficult to execute a departure from the single currency. Grillo has also called for a “review” of the EU’s open borders under the Schengen agreement, in response to the shooting in Milan of Anis Amri, the suspected terrorist behind last month’s attack on a Berlin Christmas market.

[..] Foreign diplomats in Rome said it was easy to overestimate the M5S’s chances of winning the next Italian election and that expected changes to Italy’s electoral rules would make an M5S victory difficult. That calculation is based on the fact that the M5S has always opposed forging governing alliances with other parties, which has made it impossible so far for the party to achieve a majority coalition in parliament. But a handful of diplomats have also suggested that the ruling Democratic party, which is still led by former prime minister Matteo Renzi, may not be fully alert to the potential threat of Russian interference in Italian elections, and is not as concerned about the issue as it should be.

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This is Italy, so what does the other side say? Fascism. To propose a public jury on what news is false is fascism. As Italy is no. 77 in the World Press Freedom Index. This will get very ugly.

Beppe Grillo Accuses Journalists Of ‘Manufacturing False News’ (DM)

The leader of Italy’s populist Five Star movement has caused a stir by accusing the country’s journalists of ‘manufacturing false news’. Comic Beppe Grillo, founder of the anti-euro movement, lashed out at print and TV journalists, accusing them of fabricating news to keep his party, the Five Stars, down. ‘Newspapers and television news programmes are the biggest manufacturers of false news in the country, with the aim of ensuring those who have power keep it,’ he said on his blog on Tuesday. He called for ‘a popular jury to determine the veracity of the news published,’ and said in cases of fake news ‘the editor must, head bowed, make a public apology and publish the correct version at the start of the programme or on the paper’s front page’.

Grillo said members of the general public ‘picked at random’ would be shown newspaper articles and programmes and asked ‘to determine their accuracy.’ The blog was accompanied by a montage of the banners and logos of Italy’s main newspapers and television news programmes. The media world was enraged by comments, as were politicians from Italy’s traditional parties. The news director of the private TG La7 channel, Enrico Mentana, said he would sue the comedian, while journalists’ union FNSI slammed the ‘lynching of all journalists’. The opposition Five Stars was running neck-and-neck with the ruling centre-left Democratic Party (PD) before Matteo Renzi’s downfall last month and Grillo is campaigning hard for the next general election, which could be held in coming months.

What Grillo is proposing ‘is called Fascism, and those who play it down are accomplices,’ PD senator Stefano Esposito said. The centre-right Forza Italia (FI) party, founded by ex-prime minister Silvio Berlusconi, said Grillo wanted a ‘minculpop 2.0’, a reference to the propaganda and censorship ministry under dictator Benito Mussolini. Grillo has had a difficult relationship with the media since launching the Five Stars (M5S) in 2009, banning members from appearing on talk shows and giving international media priority over their Italian counterparts at his rallies. His claim that journalists were to blame for the country’s poor standing on the World Press Freedom Index – where it ranks 77th – was dismissed by the editor in chief of the Repubblica daily.

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The Crimeans voted in huge numbers to join -stay with- Russia, but you can’t say that. Not even if it’s true and you live 2000 miles away. I doubt Le Pen was planning any trips to Kyiv anytime soon to begin with, but so who’s next? She can’t go to Poland anymore either soon? But still get elected president of France? Bring it on.

Ukraine Moves To Blacklist Le Pen Over Crimea Comments (R.)

Ukraine indicated on Wednesday it would bar French presidential candidate Marine Le Pen from entering the country after comments she made that appeared to legitimize Russia’s annexation of Crimea in 2014. Le Pen’s office dismissed the threat, saying she had no intention of visiting Ukraine. Kiev is nervous about the shifting political landscape in 2017. U.S. President-elect Donald Trump has adopted a friendlier tone toward Russia while another French presidential candidate, Francois Fillon, favours lifting sanctions against Moscow. Relations between Ukraine and Russia soured after Russia’s annexation of Crimea and the subsequent outbreak of pro-Russian separatist fighting in eastern Ukraine that has killed around 10,000 people, despite a ceasefire being notionally in place.

Alluding to Le Pen, the Ukrainian foreign ministry said in a statement: “Making statements that repeat Kremlin propaganda, the French politician shows disrespect for the sovereignty and territorial integrity of Ukraine and completely ignores the fundamental principles of international law. “…Such statements and actions in violation of the Ukrainian legislation will necessarily have consequences, as it was in the case of certain French politicians, who are denied entry to Ukraine,” it said. The far right leader was quoted by French television as saying Russia’s annexation of Crimea was not illegal because the Crimean people had chosen to join Russia in a referendum, a position Kiev vehemently disputes. The referendum was also declared illegal by the United Nations General Assembly.

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What keeps Britain together. Credit and whining. And fog. Boy, what a sorrowful place it’s becoming.

UK Credit Binge Approaching Levels Not Seen Since 2008 Crash (G.)

A credit boom that is close to levels not seen since the 2008 financial crash should set alarm bells ringing in Theresa May’s government, debt charities have warned. The latest figures from the Bank of England show unsecured consumer credit, which includes credit cards, car loans and second mortgages, grew by 10.8% in the year to November to £192.2bn, picking up pace on the previous month to grow at its fastest rate in more than 11 years. In September 2008, the month that Lehman Brothers collapsed and the banking crash triggered a worldwide recession, the level of UK consumer credit debt hit a peak of £208bn. Credit card debts, which accounted for £66.7bn of the total, hit a record high last month as Britons used the plastic to fund shopping as never before in the run-up to Christmas.

The debt charity StepChange said the rise in debt levels would leave thousands of families vulnerable to higher levels of inflation and changes in income from wage cuts, divorce or redundancy. Its head of policy, Peter Tutton, said: “Levels of outstanding borrowing are approaching the 2008 peak, and the growth rate of net lending is at its highest since 2005. Alarm bells should be ringing. “Previous experience shows how such increases in the levels of borrowing can leave households over-indebted and vulnerable to sudden changes in circumstances and drops in income that can pitch them into hardship. “Lenders, regulators and the government need to ensure that the mistakes made in the lead-up to the financial crisis are not repeated and that there are better policies in place to protect those who fall into financial difficulty.”

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All you need, as if it wasn’t obvious: “..the link between the yuan and the dollar remains as tight as ever. In November 2016, 98% of turnover in China’s foreign-exchange market took place between those two currencies.”

China Can’t Quit the Dollar (Balding)

China’s leaders are hardly disguising their fears about money leaving the country. They’ve just imposed new disclosure rules limiting how Chinese – who are allowed to convert up to $50,000 worth of yuan into foreign currency each year – can spend that money overseas. Simultaneously, they’re striving to tamp down worries about the tumbling yuan, which has fallen to an eight-year low against the U.S. dollar. At the end of December, the government added 11 currencies to the basket against which it now values the yuan. While the Chinese currency fell 6.5% against the dollar in 2016, its value measured against the broader basket has remained largely stable since July. The idea, at least in part, is to persuade ordinary Chinese that their nest eggs are safe in renminbi. Unfortunately, this latest effort isn’t likely to work any better than earlier ones.

The yuan remains inextricably bound to the U.S. dollar – and everyone knows it. The People’s Bank of China created the exchange-rate basket roughly a year ago. The goal was twofold – to shift attention away from the yuan’s precipitous decline against the dollar and to reduce China’s dependence on the U.S. currency. The latter was widely seen as humiliating – an affront to a rising superpower and the world’s second-largest economy. That resentment helped drive China’s effort – since stalled – to internationalize its currency. Yet any cursory review makes clear that the link between the yuan and the dollar remains as tight as ever. In November 2016, 98% of turnover in China’s foreign-exchange market took place between those two currencies. Flows of capital into and out of China show an only slightly less lopsided pattern.

Between them, the U.S. and Hong Kong dollars (the latter is hard-pegged to the U.S. currency) account for 91% of China’s non-yuan international bank transactions. The smaller currencies that make up nearly half of the basket comprise only 1.7% of international bank payments and receipts. Even the BIS estimates that 80% of China’s local loans in foreign currency are denominated in dollars. That’s the number that really matters: If the yuan continues to fall against the dollar, companies are going to have a harder time paying back those loans regardless of what the renminbi is or isn’t worth against the government’s official basket. All this is clear to ordinary investors. During my nearly eight years in China, I’ve never heard any Chinese citizen worry about the value of the yuan against the Emirati dirham.

So as long as the yuan continues to depreciate in dollar terms, Chinese are going to look for ways to get their money out of the country, despite any barriers the government might throw in their way. China’s options for preventing further outflows are limited. The PBOC could continue to deplete the country’s $3 trillion in foreign exchange reserves in an effort to prop up the yuan. That’s a risky game, though, as it reduces the stockpiles of hard currency needed to repay foreign-denominated debt and provide liquidity for international trade. As others have argued, reserves should be deployed strategically, not squandered defending bad policy.

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I see helicopter money. Digital basic income will come too late. At the every least half the people don’t even have plastic. And Modi can’t afford to wait for that.

India’s Cash Woes Are Just Beginning (BBG)

“Give me 50 days, friends,” Indian Prime Minister Narendra Modi asked citizens after he canceled 86% of the country’s currency notes. After Dec. 30, if Indians saw his decision as flawed, he promised to “suffer any punishment.” But, he said confidently, if they could bear 50 days of disruption, they would have the “India of their dreams.” It is now January. While Modi’s deadline has passed, the pain hasn’t. Indeed, it may just be beginning: Measured by the purchasing managers’ index, or PMI, Indian manufacturing actually began to contract last month for the first time in all of 2016. This can’t be blamed on sluggish global demand; the equivalent measure from China suggested that manufacturing there is expanding quicker than expected. Indian companies are suffering from supply-chain disruptions and customers with no cash in their wallets.

True, in some ways things aren’t as bad, at least in metropolitan India, as they were a few weeks ago. The lines at ATMs are shorter and the government even felt comfortable enough to raise the limits for ATM withdrawals from 2,500 rupees a pop to 4,500 rupees (from $37 to $66). But overall cash limits haven’t been eased; most Indians can still only withdraw 24,000 of their own hard-earned rupees – a little over $350 – a week, or 50,000 rupees if one has a business account. That’s simply not enough cash to keep supply chains going. Lines at ATMs thus aren’t the most useful indicator. Even if more cash is getting into the economy, the question is whether Indians are still artificially constrained in how much cash they can access. If so, things haven’t returned to “normal.” And the longer there’s a cash constraint, the larger the ripple effect on the economy.

Here’s a thought experiment, based on how informal, cash-based economies work. For the first or second month that you’re short of cash, your creditors and your debtors, the people you buy from and the people you sell to, are all short of cash as well. Plus, everyone knows the cash crunch isn’t your fault; it doesn’t reveal any adverse information about how healthy your business is or isn’t. So you extend and receive credit relatively easily. Things can run on such relationships for awhile in the informal economy. But when the outside world – the formal economy – intrudes, the system breaks down. When it comes time to pay your electricity bill, or a loan installment to the banks, you’re forced to call in your debts. You may not face enough formal demands in the first month or two to pose a problem. But as time passes, they add up.

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Way ahead of you! I wrote this in April 2015: Russia’s Central Bank Governor Is Way Smarter Than Ours.

Head of Russian Central Bank Named European Banker of the Year (RT)

Elvira Nabiullina, the head of Russia’s central bank, has been named the best Central Bank Governor in Europe in 2016 by the international financial magazine, The Banker. The influential publication praised her for having “helped steer the country through the difficulties,” with Russia “set to return to economic growth in 2017.” “Having started 2016 with consumer price inflation of 12.9% – highs not seen since 2008 – Ms Nabiullina highlighted the need to lower inflation to improve economic growth in Russia,” the outlet writes in an article dedicated to the award. Established in 1926, The Banker is considered one of the leading international finance magazines, read in almost 180 countries.

“Ms Nabiullina’s efforts saw the rate drop below 6% by the end of 2016,” the magazine writes. This, as inflation in Russia “had never fallen under 6,1%”, according to the publication, citing figures by the International Monetary Fund going back to 1992. Nabiullina said she viewed the past year as a kind of turning point with regard to inflation. “Importantly, in 2016 there was a turning point in the sentiment of the population and professionals regarding inflation expectations,” she is quoted as saying by the outlet. “At the beginning of 2016, inflation expectations of market participants were well above our target, but now they have reduced to close to our [end-2017] 4% inflation target, at between 4.5% and 4.7%.”

In December last year, the chief of the IMF, Christine Lagarde lauded Nabiullina for doing “a fantastic job” while tackling the financial problems in Russia, and inflation in particular. Nabiullina served as economic adviser to Russian President Vladimir Putin between 2012 and 2013, when she was appointed to head Russia’s Central Bank. She was Minister of Economic Development and Trade for 5 years from September 2007 to May 2012. Forbes rates Nabiullina 56th among the world’s 100 most powerful women. In 2015, Nabiullina was named central bank governor of the year by Euromoney magazine.

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Even on vacation he still finds a way to get his face in the media.

Steve Keen: Rebel Economist With A Cause (AFR)

Keen’s views and policy prescriptions remain firmly and proudly unconventional – unworkable even. But as somebody who saw the GFC coming when most did not, and as a long-time disciple of the now in-vogue Austrian economist Hyman Minsky, it may be that Keen’s economic views are finally entering mainstream thought. In a sign of the times, none other than the new chief economist of the World Bank, Paul Romer, has admitted that “for more than three decades, macroeconomic theory has gone backwards”. In a piece titled The trouble with macroeconomics, Romer in September wrote that “theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as ‘tight monetary policy can cause a recession’.”


Australian private and government debt as a percentage of GDP. Steve Keen

And there is a strong need for fresh remedies. There is more debt in the world now than before the GFC – a crisis precipitated by excess borrowing. Low and zero interest rates and unconventional monetary policies such as QE have pumped up asset prices but done little to spark productivity gains or business investment in advanced economies. Private debt in Australia is now equivalent to around 210% of GDP, from 180% in 2007. Australian households are more indebted than ever, the RBA says. Keen is perhaps most critical of central bankers’ unwillingness to incorporate the link between credit growth and financial stability into their decision making. “Conventional economic thinking completely ignores where money comes from,” Keen says. “All this theory is effectively based on the idea that money is like nuts that chipmunks drop from trees and you can run out of it and if you don’t have enough of it you are going to starve over winter, and it’s a completely naive view of a monetary economy.”

While he acknowledges that RBA governor Philip Lowe has signalled a greater emphasis on “financial stability”, household indebtedness still continues to climb. “The Reserve Bank were so backward in their thinking. Their argument was, ‘oh well, the level of debt doesn’t matter because the households that have the debt are wealthy and they can continue servicing it’. But the real problem is demand for the economy comes out of turnover of the existing money plus credit. “Now, if you are relying on credit growth being equivalent to 15% of GDP, which is where it was in Australia just over six months ago, you’ve got to continue borrowing that 15% of GDP every year to maintain that trajectory. “If you simply stabilise, then, bang!, 15% of demand disappears. And that’s what we face and what I think will happen [in 2017].”

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Dec 072016
 


Arthur Gerlach Children point towards Christmas toys at The Fair Department Store, Chicago 1940

 

The world is facing the “first lost decade since the 1860s”, said Bank of England governor Mark Carney this week. Arguably good for soundbite of the day, but the buck stops there. The only way that buck could have kept rolling would have been for Carney to take a critical look at himself and his employer(s), but there was none of that.

The Canadian import governor has no doubts about anything he’s done, or if he does he shows none. Instead he puts the blame for all that’s gone awry, on some -minor- elements of what he think globalization means, not with the phenomenon itself, or his enduring support for, and belief in, it. The problem with that is it’s indeed belief only; he can’t prove an inch of what he says.

Globalization is an act of faith inside a politico-economic belief system, and all it needs according to Carney and many others in his ‘church’ is a little tweaking. That globalization itself could be the driving force behind Brexit, Trump and the defeat of Italian PM Renzi does not enter into the faith’s ‘thought’ system.

Neither does the possibility that globalization is what it is, in and of itself, a process that in the end cannot be tweaked. That globalization is simply yet another form of centralization that follows the same rules and laws all other forms do, where power and wealth always, of necessity, wind up in the hands of a few, through pretty basic centrifugal forces.

Carney Lays Out Vision to Revive Benefits of Globalization

Mark Carney launched a defense of globalization and set out a manifesto for central bankers and governments to boost growth and make the world economy more equal. The Bank of England Governor said they must acknowledge that gains from trade and technology haven’t been felt by all, improve the balance of monetary and fiscal policy, and move to a more inclusive model where “everyone has a stake in globalization.” Carney’s speech in Liverpool, England, comes amid rising disquiet about the state of the world economy and political status quo that helped propel Donald Trump to victory in the U.S. presidential election and boost support for the U.K.’s exit from the European Union.

Trump isn’t right to favor more protectionist policies in response to globalization , Carney said in a television interview broadcast after his speech. The answer is to “redistribute some of the benefits of trade” and ensure that workers are able to acquire new skills. “Weak income growth has focused growing attention on its distribution,” Carney said in the speech.

“Inequalities which might have been tolerated during generalized prosperity are felt more acutely when economies stagnate.” Describing the world as facing the “first lost decade since the 1860s,” the BOE governor said public support for open markets is under threat and rejecting them would be a “tragedy, but is a possibility.”

Carney also defended the central bank’s current policy stance. The BOE has faced criticism from politicians after officials took measures including cutting interest rates and expanding asset purchases in August to support the economy after Britain’s June vote to leave the EU. “Low rates are not the caprice of central bankers, but rather the consequence of powerful global forces, including debt, demographics and distribution,” he said, adding that they helped to prevent a deeper economic downturn.

People like Carney will insist that globalization spurs growth, right up to the moment where they’re either voted out or fired. And they’ll probably keep on insisting until their dying days. But why are we in that “first lost decade since the 1860s” then? Is that really only because ‘we’ failed to “redistribute some of the benefits of trade”, something that can allegedly be easily rectified by enabling workers to ‘acquire new skills’?

Where is the proof for that? And why have economies stagnated in the middle of the entire process of globalization? Is that solely because ‘some of’ the benefits were not distributed well enough? If that is so, and wealth distribution is the only problem with globalization, at what point do we redistribute ourselves into the realm of communism? Where’s the dividing line? It all feels mighty vague and unsatisfactory, and not a little goal-seeked.

 

Like a large part of the Brexit voters in Britain, millions of Italians have been on the losing side of globalism’s ‘benefits distribution’. And this weekend they found an outlet for their frustration about it. Like Brexiteers voted against Cameron and Osborne much more than they voted for anything in specific, and Trump won because Americans are fed up with the Obama/Clinton/GOP model, Italians voted against PM Renzi and his idea to take power away from parliament and give it to him.

Judging from poll numbers, they also seem to have gained confidence in Beppe Grillo’s, and the Five Star Movement’s, ability to do something real in politics. It has taken a while, and that makes sense because the movement doesn’t fit the model of politics as they’ve known it all their lives.

 


Wikipedia

 

Also, there are many Italians who have largely agreed with much of what Grillo has been saying all along, but were deterred by the way he delivered it. Ask an Italian and they’re likely to say “too angry, too rude” when it comes to Grillo. And it’s true, his style doesn’t seem to fit in with the rest. But then that’s also exactly his forte. Because there comes a point when everything that does fit in, becomes suspect.

The old guard, from Renzi to Berlusconi to the socialists, will double their efforts to keep Grillo out of the center of power now. President Mattarella is in on it: he asked Renzi to stay on as PM until after the budget has been pushed through, and is then likely to install another technocrat government, tasked with changing laws with the express intent of making it harder for Grillo to get into power.

And Renzi, of course, is on the same wavelength as Carney, and the entire EU -and global- cabal: globalize, reform, re-distribute ‘some benefits’, execute more austerity, rinse and repeat.

What’s particular about Italy in this sense is what it has been able to preserve, unlike most other nations. That is, Italy has a lot of small enterprises, often family owned, with highly skilled workers. That doesn’t fit today’s globalization model, since it’s deemed not competitive enough when you’re forced to fight for market share.

But if globalization, and the entire growth model, is over anyway, as I’ve often asserted, it’s a whole different story. If that is true, the country had better save what’s left of its business model, because it’s ideal for a post-centralized world. ‘Workers’ wouldn’t have to ‘acquire new skills, and leave old and proven skills to be forgotten and gather dust.

 

The world is changing rapidly and that will become even a lot more evident in 2017. The incumbent economic and political systems, as well as their proponents and cheerleaders, are on the way out. They have all failed miserably. What comes next will be profoundly chaotic for quite a while, and that will be perilous. There is not one single (belief) system to replace them, there will be many and they will often clash.

In some places, the political right will prevail, in others the left. In most, from the look of things, neither will, if only because at the end of the day both left and right are still part of incumbent systems. Europe has a number of elections coming up and in at least some of these, parties from outside the incumbent systems will come out on top.

Whether they can then go on to form governments is perhaps another story; the system will not give up easily. But it is done. Carney’s recipe of ‘some’ redistribution of wealth and acquiring new skills is widely shared in power circles, and that will be the system’s undoing. All it has to offer is more talk about more growth and more globalization, and while people protest only the latter, neither is on offer.

One of the tools the media use to discredit anything that comes from outside the system is to label it all ‘populist’. It’s a miracle it hasn’t become a honor label yet. In Europe, all new rightwing parties (a label in itself) get called populist, Le Pen, Wilders, Frauke Petry in Germany, the Lega Nord in Italy. But so does someone like Beppe Grillo, who politically has nothing in common with these people.

Moreover, many of their ideas are not to the right of existing parties at all. Despite some of his views, new French Republican candidate François Fillon is not called a populist, ostensibly because he’s from a large incumbent party, but so are Trump and Sanders in the US, and they do get called populist.

 

Empty labels, fake news and oceans of debt keep the systems -somewhat- going for now. But the genie’s long left the bottle. The ‘incumbents’ have failed their people for far too long, most of all economically. And they keep on claiming that everything will be alright, everyone will be better off if only we execute more globalization, and give them all a few pennies more.

It really is too silly to be true that that is what existing systems and their servants are still trying to make everyone believe. While it is so obvious that so many have long stopped believing. You would think they’d change their messages to reflect that change in society. But they don’t know how. And it’s that very inability that feeds those pesky ‘populists’.

The same François Fillon could be a contender in France against anti-EU Le Pen because he’s expressed doubts on Brussels. Dutch PM Rutte has cautiously critiqued the union too. But those shifts in words if not real opinions come far too late. Britain has said No and there’s zero chance that more nations will not do the same. Just give them the option, give them a vote.

The only way to keep Europe from descending into chaos is to abandon the EU, lock the doors and throw away the keys. The same is true on a global scale, with all the globalist trade agreements that most people have long lost faith in. We will either see a peaceful transition to a system not based on centralization, or we will not see peace, period.

And to think economic meltdown hasn’t even truly started yet, has been kept hidden behind a wall of debt, and so many people are already so fed up with the whole shebang.

Nov 272016
 
 November 27, 2016  Posted by at 10:14 am Finance Tagged with: , , , , , , , , , ,  1 Response »


Unknown Paris 1900

This Is The Greatest Suckers’ Rally Of All Time: David Stockman (CNBC)
More Than Half Of New Yorkers One Paycheck Away From Homelessness (Gothamist)
US Thanksgiving, Black Friday Store Sales Fall 10.4%, Online Rises (R.)
Dollar to Benefit if $2.5 Trillion in Cash Stashed Abroad Is Repatriated (WSJ)
China’s Property Frenzy And Surging Debt Raises Red Flag For Economy (AFP)
India’s Rural Economy Hit Hard As Informal Lending Breaks Down (R.)
UK MPs Launch New Attempt To Interrogate Tony Blair Over Iraq (G.)
First Brexit then Trump. Is Italy Next For The West’s Populist Wave? (G.)
Clinton Camp Splits From White House On Jill Stein Recount Push (G.)
Justin Trudeau Ridiculed Over Praise Of ‘Remarkable’ Fidel Castro (G.)
Military Veterans Seek New Role In South Africa Poaching War (AFP)

 

 

Sell everything!

This Is The Greatest Suckers’ Rally Of All Time: David Stockman (CNBC)

The Trump rally raged on this week with all major U.S. indexes hitting record highs, but despite the historic run, David Stockman is doubling down on his call for investors to sell everything. “This 5% eruption is meaningless. It’s some robo machine trying to tag new highs,” Stockman said Tuesday on CNBC’s “Fast Money,” in a dismissal of the S&P 500 rally. “I see a recession coming down the pike in 2017. The stock market is going to go down and it’s going to stay down long and hard because, for the first time in 25 years, there’s nothing to bail it out.” This echoed the initial call Stockman made Nov. 3, when he urged investors to sell stocks and bonds before the presidential election. However, since the Nov. 8 election, the Dow Jones industrial average has gained 4% en route to surpassing 19,000.

Additionally, the S&P 500 and Nasdaq also hit record highs in the same time period, gaining 3% and 4%, respectively. Yet Stockman, who was director of the Office of Management and Budget under President Ronald Reagan, reaffirmed that markets are heading for disaster. “My call stands. Sell the stocks, sell the bonds, get out of the casino,” Stockman explained to CNBC in an off-camera interview. “Bonds have already cratered by nearly $2 trillion worldwide and have miles to go. This isn’t a rotation into stocks, either. It’s the greatest sucker’s rally ever.” Stockman, author of “Trumped: A Nation on the Brink of Ruin… And How to Bring It Back,” lamented that there will be no Trump stimulus or Reagan-style boom.

He further added that he expects “an unprecedented fiscal bloodbath” resulting from the $20 trillion worth of debt that the U.S. currently has on the books. “This isn’t Ronald Reagan with a clean $1 trillion balance sheet and with a fluke GOP and a Southern Democratic coalition that only materialized because he got shot,” Stockman said in reference to John Hinkley Jr. attempting to assassinate Reagan in Washington, D.C., in 1981. “Nor is it LBJ in 1965 with a thundering electoral mandate and a massive congressional majority for the Great Society.” On the contrary, Stockman, who initially predicted that Trump would win the election, added that Washington will be in chaos by June. This is because he anticipates ongoing disruptions from the tea party, which Stockman doesn’t foresee as allowing additional deficit increases.

Read more …

“..landlords are increasingly claiming “chronic rent delinquency” after just a single late payment..”

More Than Half Of New Yorkers One Paycheck Away From Homelessness (Gothamist)

More than half of all New Yorkers don’t have enough money saved to cover them in the event of a lost job, medical emergency, or other disaster, according to a new report by the Association for Neighborhood & Housing Development. Nearly 60% of New Yorkers lack the emergency savings necessary to cover at least three months’ worth of household expenses including food, housing, and rent, but that statistic isn’t spread evenly across the five boroughs. The Bronx has the highest rate of families without adequate emergency savings: in Mott Haven, Melrose, Hunts Point, Longwood, Highbridge, South Concourse, University Heights, Fordham, Belmont, and East Tremont, 75% of families have inadequate emergency savings.

The Staten Island neighborhoods of Tottenville and Great Kills have the lowest rate, with just 41% of families lacking the funds necessary to cover three months’ worth of expenses. Without these savings, families who face emergencies could be at risk of eviction, foreclosure, damaged credit, and even homelessness. In Brooklyn, families in Brownsville (70%), Bed-Stuy (67%), Bushwick (68%), East New York (67%), and South Crown Heights/Prospect Heights (67%) are the most at-risk—in Manhattan, an average of 67% of families in Harlem, Washington Heights, and Inwood lack necessary savings. In Queens, the neighborhoods with the highest%age of these households were Elmhurst/Corona (64%), Rockaway/Broad Channel (60%), Sunnyside/Woodside (59%), and Jackson Heights (59%).

As DNAinfo notes, advocates say that rental assistance is crucial in preventing homelessness citywide, especially in neighborhoods where rents rise faster than incomes—many of which overlap with the neighborhoods where families lack adequate savings. And although an increase in rental assistance services like the one proposed by Queens Assemblyman Andrew Hevesi could cost the cost $450 million in state and federal funding, it would be more cost-effective than allowing more families to enter the chronically underfunded shelter system. Many tenants don’t know where to get emergency rental assistance, which can prevent them from falling behind on their rent. And landlords are increasingly claiming “chronic rent delinquency” after just a single late payment, which allows them to begin eviction proceedings earlier on than they would otherwise.

Read more …

“Net sales on Black Friday slid 10.4% for brick-and-mortar chains..”

US Thanksgiving, Black Friday Store Sales Fall 10.4%, Online Rises (R.)

Sales and traffic at U.S. brick-and-mortar stores on Thanksgiving Day and Black Friday declined from last year, as stores offered discounts well beyond the weekend and more customers shopped online. Internet sales rose in the double digits on both days, surpassing $3 billion for the first time on Black Friday, according to data released on Saturday. Data from analytics firm RetailNext showed net sales at brick-and-mortar stores fell 5.0% over the two days, while the number of transactions fell 7.9%. Preliminary data from retail research firm ShopperTrak showed that shopper visits to such stores fell a combined 1% during Thanksgiving and Black Friday when compared with the same days in 2015.

The data highlights the waning importance of Black Friday, which until a few years ago kicked off the holiday shopping season, as more retailers start discounting earlier in the month and opened their doors on Thanksgiving Day. “We knew it (holiday season) was going to be off to a slow start,” Shelley Kohan, vice president of retail consulting at RetailNext, said. “The first couple of weeks with the election were a complete distracter from the normal course of business and…a warmer climate in November may have made the sales more stubborn,” she said, adding that she saw sales picking up in December.

Net sales on Black Friday slid 10.4% for brick-and-mortar chains, according to RetailNext. “Stores that opened on Thursday were not very busy on Black Friday,… and while the Thanksgiving Day opt-outs were busier on Black Friday, they didn’t see the crowds they saw in previous years,” NPD group’s Chief Industry analyst Marshal Cohen said. Still, total holiday season sales are expected to jump 3.6% to $655.8 billion this year, according to the National Retail Federation, due to a tightening job market.

Read more …

Only if buybacks are banned.

Dollar to Benefit if $2.5 Trillion in Cash Stashed Abroad Is Repatriated (WSJ)

Part of $2.5 trillion in profits held overseas by companies such as Apple and Microsoft could be heading back to the U.S., a move analysts say could further fuel the U.S. dollar’s powerful rally. U.S. corporations have been holding billions in earnings and cash abroad to avoid paying a 35% tax that would be levied whenever the money is brought home. President-elect Donald Trump has said he would propose a one-time cut of the repatriation tax to 10% to lure money back to the U.S. that can be spent on hiring, business development and funding Mr. Trump’s fiscal stimulus proposals. Market optimism that the stimulus plan can generate U.S. economic growth and push the Federal Reserve to raise interest rates has buoyed the dollar against a basket of major trading partners toward 14-year-highs since the Nov. 8 presidential election.

Now, some say the prospect of companies repatriating perhaps hundreds of billions of dollars could offer more impetus to the U.S. currency’s rally. “However small, however big this flow of money will be, it will be positive for the case of dollar strength,” said Daragh Maher at HSBC. “There will most likely be an inflow into dollars.” When a company repatriates earnings from abroad, it may have to exchange the local currency for the U.S. dollar. The $2.5 trillion hoard of overseas earnings is highly concentrated in the technology and pharmaceutical sectors, according to Capital Economics. Microsoft held about $108 billion in earnings overseas as of 2015, while pharmaceutical giant Pfizer had $80 billion. General Electric had $104 billion overseas, according to Capital Economics. Analysts note that many companies already hold their overseas earnings in U.S. dollar assets, which would mute the demand for dollars.

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Famous last words: “The notion that Chinese people do not like to borrow is clearly outdated..”

China’s Property Frenzy And Surging Debt Raises Red Flag For Economy (AFP)

Chinese household debt has risen at an “alarming” pace as property values have soared, analysts have said, raising the risk that a real estate downturn could wreak havoc on the world’s second largest economy. Loose credit and changing habits have rapidly transformed the country’s famously loan-averse consumers into enthusiastic borrowers. Rocketing real estate prices in major Chinese cities in recent years have seen families’ wealth surge. But at the same time they have fuelled a historic boom in mortgage lending, as buyers race to get on the property ladder, or invest to profit from the phenomenon. Now the debt owed by households in the world’s second largest economy has surged from 28% of GDP to more than 40% in the past five years.

“The notion that Chinese people do not like to borrow is clearly outdated,” said Chen Long of Gavekal Dragonomics. The share of household loans to overall lending hit 67.5% in the third quarter of 2016, more than twice the share of the year before. But this surge has raised fears that a sharp drop in property prices would cause many new loans to go bad, causing a domino effect on interest rates, exchange rates and commodity prices that “could turn out to be a global macro event”, ANZ analysts said in a note. While China’s household debt ratio is still lower than advanced countries such as the US (nearly 80% of GDP) and Japan (more than 60%), it has already exceeded that of emerging markets Brazil and India, and if it keeps growing at its current pace will hit 70% of GDP in a few years.

It still has some way to go before it outstrips Australia, however, which has the world’s most indebted households at 125% of GDP. The ruling Communist party has set a target of 6.5-7% economic growth for 2017, and the country is on track to hit it thanks partly to a property frenzy in major cities and a flood of easy credit. But keeping loans flowing at such a pace creates such “substantial risks” that it could be a “self-defeating strategy”, Chen said. China’s total debt – including housing, financial and government sector debt – hit 168.48 trillion yuan ($25 trillion) at the end of last year, equivalent to 249% of national GDP, according to estimates by the Chinese Academy of Social Sciences, a top government think tank.

Read more …

“..the informal sector accounts for [..] 80% of employment..”

India’s Rural Economy Hit Hard As Informal Lending Breaks Down (R.)

Life was good for Mitharam Patil, a wealthy money lender from a small village in the Indian state of Maharashtra. Small-time financiers like Patil would typically lend cash to farmers and traders every day, providing a vital source of funding for a rural economy largely shut out of the banking sector, albeit at interest rates of about 24%. All that came crashing down on Nov. 8, when Prime Minister Narendra Modi banned 500 and 1,000 rupee ($7.30-$14.60) banknotes, which accounted for 86% of currency in circulation. The action was intended to target wealthy tax evaders and end India’s “shadow economy”, but it has also exposed the dependency of poor farmers and small businesses on informal credit systems in a country where half the population has no access to formal banking.

Patil was stuck with 700,000 rupees ($10,144) of worthless cash. He can also only withdraw up to 24,000 rupees from his account every week, barely enough for his own personal needs given he also works as a farmer. That is bad news for farmers and traders who had come to depend on Patil, despite his high interest rates, given that bank branches are located far from the village, while the process to obtain loans is long and cumbersome. It may also hurt India’s economy, as the informal sector accounts for 20% of GDP and 80% of employment. The country is due to report July-September GDP on Wednesday. “Sowing of winter crops has been started and farmers badly need money. But I couldn’t lend (to) them due to restrictions on withdrawal,” Patil said.

Some farmers and small businesses say India’s informal credit system has ground to a virtual halt, despite government measures to steer more funds to them, including 230 billion rupees in crop loans. Not only are money lenders struggling to lend, they are also struggling to get paid. Saumya Roy, CEO of Vandana Foundation, a micro finance firm, said it has encountered difficulties in collecting payments from borrowers, which will have a knock-on effect on how much they can lend to others. “We can’t go on lending and suffer losses,” she said. “How can we force people to pay back when they don’t have money to buy food. How will they pay us?”

Read more …

That should be fun.

UK MPs Launch New Attempt To Interrogate Tony Blair Over Iraq (G.)

A cross-party group of MPs will make a fresh effort to hold Tony Blair to account for allegedly misleading parliament and the public over the Iraq war. The move, which could see Blair stripped of membership of the privy council, comes as the former prime minister tries to re-enter the political fray, promising to champion the “politically homeless” who are alienated from Jeremy Corbyn’s Labour and the Brexit-promoting government of Theresa May. The group, which includes MPs from six parties, will put down a Commons motion on Monday calling for a parliamentary committee to investigate the difference between what Blair said publicly to the Chilcot inquiry into the war and privately, including assurances to then US president George W Bush.

Backing the motion are Alex Salmond, the SNP MP and former first minister of Scotland; Hywel Williams, Westminster leader of Plaid Cymru; and Green party co-leader Caroline Lucas. Senior Tory and Labour MPs are also backing the move, which reflects widespread frustration that the publication of the Chilcot report in July, after a seven-year inquiry, did not result in any government action or accountability for Blair. Salmond said some MPs believe that senior civil servants were “preoccupied with preventing previous and future prime ministers being held accountable”. He said: “An example should be set, not just of improving government but holding people to account.”

He pointed to last week’s Observer story revealing that, according to documents released under the Freedom of Information Act, the inquiry was designed by senior civil servants to “avoid blame” and reduce the risk that individuals and the government could face legal proceedings. Salmond also noted that documents show many officials involved in planning the inquiry, including current cabinet secretary Sir Jeremy Heywood, were involved in the events that led to war. The new motion will be debated on Wednesday in Commons time allotted to the SNP.

Read more …

What Renzi’s Dec. 4 constitutional referendum tries to achieve: “They’re sealing the system off so it can’t be changed in the future.”

First Brexit then Trump. Is Italy Next For The West’s Populist Wave? (G.)

On a bitterly cold evening, MPs and senators representing the Five Star Movement (M5S), launched by Beppe Grillo, the comedian-turned-political rabble rouser, implored a packed piazza to use a referendum on the constitution on Sunday 4 December to send the prime minister, Matteo Renzi, packing. Renzi, the telegenic, youthful leader of the centre-left Democratic party (PD), has placed his authority behind proposals to limit the powers of the senate, Italy’s second chamber. His plan involves cutting the number of senators from 315 to 100, all of whom would be appointed – rather than elected, as at present – and restricting their power to influence legislation.

Since 1948 the Italian constitution has preserved a perfect balance of powers between the two houses of parliament, frequently leading to legislative gridlock in Rome. Renzi claims that slimming down the role of the senate will, along with other reforms to strengthen executive power, finally free governments to govern. Crucially, he has indicated he will step down if the vote goes against him. In other eras, a dry and technical debate might have preoccupied a few constitutional cognoscenti. But these are not ordinary times in western democracies. In Ferrara’s Piazza Trento e Trieste, Alessandro Di Battista, a rising star of Grillo’s movement, issued a populist call to arms. Renzi’s referendum, he told the crowd, was just the latest gambit by a political class determined to insulate itself from the people it should serve.

“This unelected senate will be constituted by the arselickers of the various parties”, said Di Battista, “and by those who are in trouble with the courts and need parliamentary immunity. They’re sealing the system off so it can’t be changed in the future.” Such a devious manoeuvre should, he said, come as no surprise: “There are two Italys: on the one side the very wealthy few who look after themselves, and on the other the masses who live every day with problems of transport and public health.” As his audience launched into a favourite Five Star chant, “A casa! A casa!” (“Send them home”), Di Battista referenced the political earthquake that was in everyone’s mind. “The election of Donald Trump is the American people’s business,” he said. “But what that election does show is that so many citizens are simply not taking the establishment’s bait any more.”

Read more …

Did Stein really raise more money for this than for her entire 2016 campaign?

Clinton Camp Splits From White House On Jill Stein Recount Push (G.)

Hillary Clinton’s presidential campaign said on Saturday it would help with efforts to secure recounts in several states, even as the White House defended the declared results as “the will of the American people”. The campaign’s general counsel, Marc Elias, said in an online post that while it had found no evidence of sabotage, the campaign felt “an obligation to the more than 64 million Americans who cast ballots for Hillary Clinton”. “We certainly understand the heartbreak felt by so many who worked so hard to elect Hillary Clinton,” Elias wrote, “and it is a fundamental principle of our democracy to ensure that every vote is properly counted.”

In response, President-elect Donald Trump said in a statement: “The people have spoken and the election is over, and as Hillary Clinton herself said on election night, in addition to her conceding by congratulating me, ‘We must accept this result and then look to the future.’” Wisconsin began recount proceedings late on Friday after receiving a petition from Jill Stein, the Green party candidate. Stein claims there are irregularities in results reported by Wisconsin as well as Michigan and Pennsylvania, where she plans to request recounts next week, having raised millions of dollars from supporters. Trump called Stein’s effort a “scam” and said it was “just a way … to fill her coffers with money, most of which she will never even spend on this ridiculous recount”. “The results of this election should be respected instead of being challenged and abused,” he added, “which is exactly what Jill Stein is doing.”

Read more …

I bet you there’s hardly a single American -or European- who knows Cuba has been one of Canada’s most popular holiday destinations for many years.

Justin Trudeau Ridiculed Over Praise Of ‘Remarkable’ Fidel Castro (G.)

Justin Trudeau, the Canadian prime minister, has been mocked and criticised over his praise of the late Cuban leader Fidel Castro. Following the death of Castro, Trudeau, whose father had a close relationship with the revolutionary, released a statement mourning the loss of a “remarkable leader”. Castro, who died on Friday aged 90, won support for bringing schools and hospitals to the poor but also created legions of enemies for his ruthless suppression of dissent. Trudeau’s comments were markedly more positive than most western leaders, who either condemned Castro’s human rights record or tip-toed around the subject. Instead, Trudeau warmly recalled his late father’s friendship with Castro and his own meeting with Castro’s three sons and brother – Raul, Cuba’s current president – during a visit to the island nation earlier this month.

“While a controversial figure, both Mr Castro’s supporters and detractors recognized his tremendous dedication and love for the Cuban people who had a deep and lasting affection for ‘el Comandante’,” Trudeau said in the statement. He called Castro “larger than life” and “a legendary revolutionary and orator”. Fidel Castro was an honorary pall bearer at the 2000 funeral of Trudeau’s father, former prime minister Pierre Trudeau. In 1976, the senior Trudeau became the first Nato leader to visit Cuba under Castro’s rule, at one point exhorting “Viva Castro!”. “I know my father was very proud to call him a friend and I had the opportunity to meet Fidel when my father passed away,” Trudeau said.

Read more …

Better be careful with private armies getting involved.

Military Veterans Seek New Role In South Africa Poaching War (AFP)

In another life, Lynn was a sniper in Afghanistan, Damien trained paramilitary forces in Iraq, and John worked undercover infiltrating drug cartels in central America. Now all three are back in action, this time fighting what they describe as a “war” against poachers in southern Africa as the killing of rhinos escalates into a crisis that threatens the survival of the species. In 2008, less than 100 rhinos were poached in South Africa, but in recent years numbers have rocketed with nearly 1,200 killed in 2015 alone. Faced with such slaughter, conservationists and government authorities have been desperately searching for ways to protect the animals.

Many ideas have been tried, including drones, tracking dogs, satellite imagery, DNA analysis, hidden cameras and even cutting horns off live animals before poachers can get to them. But the killing has continued, and now military veterans from the United States, Australia and elsewhere have been drafted to bring their expertise to the uphill battle to save the rhinos. “You have animals who are targeted by people using automatic weapons,” Damien Mander, a former Australian Navy special forces officer, told AFP. “You can not go to the communities and ask them nicely to stop. This is a war. We are fighting a war out there.”

Read more …

Jul 062016
 
 July 6, 2016  Posted by at 10:56 am Finance Tagged with: , , , , , , , ,  12 Responses »


LOOK Detroit’s 1960 look. Sneak preview of the new models. Dodge Polara 1959

Remember the referendum in April in which voters in the Netherlands rejected the EU-Ukraine trade deal? Seems forever ago, doesn’t it? But to date nothing has been done with the outcome of the vote, even though Dutch law requires a government to implement referendum outcomes as swiftly as possible.

PM Mark Rutte told parliament this week that ‘changing’ the deal would be very difficult, and that talks on the topic in the European Council ‘don’t make him happy’. Since one of the things Rutte has demanded from the EU is a pledge that Ukraine will not become an EU member, none of this should be surprising.

But more importantly, the Dutch didn’t vote for Rutte to renegotiate the deal, they outright rejected it. Ergo, Rutte is playing fast and loose with the integrity and credibility of the Dutch legal and political systems as much as the FBI does with America’s in the Clinton email sleight of hand, and as later today Britain will do with its credibility following the Chilcot report on Tony Blair et al.

As if the Brexit fall-out hasn’t done enough damage to that credibility. One might get the distinct impression that the powers-that-be could get awfully annoyed with the riff-raff out there wanting a say in their own lives. But the riff-raff don’t just want a say anymore, they are getting mighty annoyed with the powers-that-be too.

And that is guaranteed to increase if more ‘incidents’ happen like FBI director Jim Comey’s announcement yesterday that Hillary won’t be charged. At some point credibility must come with accountability, or else. The Hillary files bring the US awfully close to that point, as well as to ‘or else’.

Eric Zuesse explains very well why that is:

In Clinton Case, Obama Administration Nullifies 6 Criminal Laws

There can be no excuse for Obama’s depriving the public, via a grand jury decision, of the right to determine whether a full court case should be pursued in order to determine in a jury trial whether Hillary Clinton’s email system constituted a crime (or several crimes) under U.S. laws. The Obama Administration’s ‘finding’ that “clearly intentional and willful mishandling of classified information” would need to have been proven, in order for her to have been prosecuted under any U.S. criminal law, is a flagrant lie..

[..] anyone who in the future would be charged with violating any one of those six laws could reasonably cite the precedent that Ms. Clinton was not even charged, much less prosecuted, for actions which clearly fit the description provided in each one of those U.S. criminal laws. Anyone in the future who would be charged under any one of these six laws could prove discriminatory enforcement against himself or herself.

It is highly irresponsible for any government to play such games, and it’s skating on the edge of the law, something a government should always attempt to avoid. That is essential.

Someone who’s not known to be overly bothered by accountability or integrity is everybody’s favorite wino, European Commission President Jean-Claude Juncker. But Juncker, whatever else may be wrong with him, is not a stupid man. And unless I’m gravely mistaken, he has just saddled the European Union with a problem that could well trigger its undoing.

What happened was that at some point last week, reports started coming out that several parties, especially in Germany, were planning to oust Juncker from his plush job. He read them too, of course. And he may have gotten other signals as well in Brussels backrooms.

Then, Germany and France began to clamor for their parliaments to have a say in the ratification of CETA, the Comprehensive Economic and Trade Agreement between the EU and Canada. And Juncker must have seen his chance for revenge. Because yesterday he announced that all 27 parliaments of EU member nations get to have a crack at CETA.

That is Pandora’s box, and I don’t believe for a second that Juncker is not aware of it. Here’s what Deutsche Welle had to say:

EU Commission: CETA Should Be Approved By National Parliaments

European Commission chief Jean-Claude Juncker is expected to scrap plans to fast-track a trade agreement with Canada through the EU. After pressure from Germany and France, Juncker appears to be backtracking. Juncker will reportedly propose a mixed agreement – one that requires both the approval of the European parliament and national legislatures – at an European Commission meeting on Tuesday. Last week he was reported saying he “personally couldn’t care less” whether lawmakers get to vote on the deal. A report in the Financial Times noted that Germany and France wanted their national parliaments to be involved, which would inevitably lengthen the process.

That Juncker quote indicates something had been brewing for a while. Given the position he’s in, it’s quite funny, though

The deal was scheduled to be signed at the end of October during a summit in Brussels with Canadian Prime Minister Justin Trudeau, and it was due to be implemented in 2017. Trade ministers in Germany, France, Italy, the Netherlands and UK have reportedly said they will support the Comprehensive Economic and Trade Agreement, or CETA. CETA is similar to the agreement under negotiation between the EU and US and has drawn strong criticism in EU countries. Canadian and EU leaders concluded CETA in 2014, but implementation was delayed due to last-minute objections in Europe. This was related to an investment protection system to shield companies from government intervention.

Yes, CETA is TTiP on a smaller scale. A sort of test. The nonsensical audacity of ‘an investment protection system to shield companies from government intervention’ says it all.

With opposition to the EU’s impending free trade deal with Canada apparently growing, German Chancellor Angela Merkel said recently that the German parliament should be consulted on the EU’s free trade deal with Canada. “It is a highly political agreement that has been widely discussed,” said Merkel, adding that the “Bundestag is allowed to be involved of course… in national decisions”. German Economy Minister Sigmar Gabriel told the Tagesspiegel daily that Juncker’s comment was “incredibly stupid” and “would stoke opposition to other free trade deals,” including with the US. German media has also described Juncker’s position as badly timed given the growing skepticism among European voters about the EU.

What Gabriel actually said was that Juncker was “unglaublich töricht”, I looked it up. And it wasn’t his reaction to a ‘comment’, but to Juncker’s initial decision to NOT let national parliaments get their say on CETA. It’s brilliant and hilarious, isn’t it? I think I think quite a bit higher of Juncker now.

Because it was Germany itself that insisted they wanted the Bundestag to get involved (under domestic pressure). But they thought that would be it, that and the French parliament. And Jean-Claude threw it right back in their faces. Since they were going to get rid of him anyway, he decided to leave them the perfect parting gift, the ultimate poisoned chalice.

Getting back to the Dutch referendum on EU and Ukraine, one of the things to know about how this works is that the Dutch can ask for a referendum not on any topic, but only on bills the government sends to parliament to discuss. CETA will now be such a case, and a referendum looks at least quite possible.

I don’t know what comparable legislation is in other EU countries, but no doubt in many countries it’s enough to have their parliaments discuss the issue, to cause havoc. That will mean huge delays and/or worse (just what Juncker initially sought to prevent).

The ‘worse’ in this regard -in the eyes of the politicians- is the possibility of referendums, on CETA, and then on TTiP. And before you know it somewhere in Europe such a referendum will be combined with the question whether the country where it’s held should Remain in the EU or Leave it. It seems for all intents and purposes, inevitable.

How the EU can be kept together is a behemoth conundrum already, even without all these new issues. But now we can be absolutely sure that Brexit is only the beginning.

Beppe Grillo’s Five Star Movement (M5S) came out as no. 1 in a poll in Italy yesterday. When I visited Beppe almost 5 years ago in Genoa he was still torn over the EU and the euro, but he has since made up his mind: he’s determined to take Italy out of the unholy Union. Europe’s powers-that-be are in for troubled times.

And Jean-Claude Junker will be sitting somewhere in the world in a beach chair by one of his luxurious summer homes, with a big smile on his face and a stiff drink in his hand.

Sep 182015
 
 September 18, 2015  Posted by at 9:57 am Finance Tagged with: , , , , , , , ,  8 Responses »

John Vachon Assassin of Youth November 1938

The Fed Gives Growth a Chance (NY Times ed.)
Fed Delay Looks Like 2013 All Over Again-Rate Hike in December? (Bloomberg)
Fed Rate Decision Roils Emerging-Market Currencies (WSJ)
It’s a New World: How China Growth Concerns Kept the Fed on Hold (Bloomberg)
Europe Lacks Strategy to Tackle Crisis, but Refugees March On (NY Times)
Losing Control Of Refugees, Croatia Closes Serbia Border Crossings (Reuters)
Croatia’s Resources Stretched as Thousands of Refugees Arrive (Bloomberg)
OPEC Assumes Oil Price Will Recover Gradually to $80 in 2020 (Bloomberg)
Defaults Mount in Beleaguered US Energy Industry (WSJ)
Central Banks’ Lesson: Easy Money Alone Isn’t a Growth Salve (WSJ)
China Outflows Said To Surpass A Staggering $300 Billion In Just 75 Days (ZH)
China’s Top Financial Firms Get Green Light for $3 Billion IPOs (WSJ)
Here’s Why China Could Drag The US Into Recession (Fortune)
Primary Dealers Rigged Treasury Auctions, Investor Lawsuit Says (Bloomberg)
Bitcoin Is Officially a Commodity, According to US Regulator (Bloomberg)
Beppe Grillo Gets One Year Jail Sentence for “Defamation” (Tenebrarum)
Scorching Year Continues With the Hottest Summer on Record (Bloomberg)

No, this is not the Onion. But it sure is funny, and not just the headline, try this one: “..the economy shows no signs of overheating..”

The Fed Gives Growth a Chance (NY Times ed.)

The Federal Reserve did the right thing on Thursday when it opted not to begin raising interest rates. By holding steady, the Fed is acknowledging, correctly, that the economy shows no signs of overheating. Price inflation, for example, has been below the Fed’s 2% target for years and shows no signs of accelerating. The Fed also acknowledged the dampening effect global economic weakness and financial-market volatility may have on the American economy. In the past, the Fed played down those dangers, assuming they would be transitory or bearable. In the statement released after its policy-making committee meeting, it shifted, saying international and financial conditions could slow the domestic economy, making an interest-rate increase to restrain the economy unnecessary, at least for now.

In one important respect, however, the Fed appears to be doing the right thing for the wrong reasons. Judging from its statement and its economic projections, the Fed believes that the labor market has largely returned to health. That suggests it will be poised to raise rates as soon as the global headwinds abate. But the labor market is not healthy, and until it is, rate increases would be premature. Unemployment, at 5.1% in August, is still higher than it was before the recession. The share of part-time workers who need full-time jobs is still elevated, while the share of working-age adults with jobs is still well below its prerecession level. Most telling, broad wage growth — the clearest sign of labor market health — has been virtually nil during the six-year-old recovery.

The Fed is supposed to conduct policy in a way that fosters full employment, meaning rates should not be raised until jobs and wages are on a robust growth trajectory. But it seems more concerned with its mandate to fight inflation. That focus would be questionable even if there were nascent signs of inflation; in the absence of any signs, it is indefensible. In fact, inflation has been so low for so long now, it could run somewhat above the Fed’s target for an extended period without being disruptive and, in the process, allow wages to grow in line with productivity.

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Just the fact that after two years we’re still stuck in the same spot should say plenty.

Fed Delay Looks Like 2013 All Over Again-Rate Hike in December? (Bloomberg)

Federal Reserve Chair Janet Yellen shows signs of taking a page out of her predecessor’s policy playbook as she inches toward the central bank’s first interest rate increase in nine years: Delay action in September only to move in December. While the Fed on Thursday opted to keep rates pinned near zero for now, Yellen told a press conference that most policy makers still expect to raise rates this year. She highlighted the strength of the U.S. economy, tying the decision to delay liftoff to fresh uncertainty about the outlook abroad and to financial market turbulence over the past month. “I do not want to overplay the implications of these recent developments, which have not fundamentally altered our outlook,” she said. “The economy has been performing well, and we expect it to continue to do so.”

Yellen’s approach has parallels to the strategy that former Fed Chairman Ben Bernanke pursued in 2013 as officials debated whether to start scaling back bond purchases. Citing uncertainties to the outlook, Bernanke put off a move to begin tapering in September before deciding to go ahead in December. Just like today, much of the Fed’s initial reservations about acting in 2013 centered on developments in emerging markets, which had been rocked by Bernanke’s suggestion a few months earlier that a taper was on its way. Looming in the background then, as it is now, was the threat of a U.S. government shutdown. Today’s situation “lines up in so many ways” with that of 2013, said Aneta Markowska at SocGen, pointing to the upcoming fiscal showdown and emerging market concerns. “If all of that is resolved by December, my expectation is that the data will definitely support a hike.”

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No matter what the Fed does, emerging markets can’t win.

Fed Rate Decision Roils Emerging-Market Currencies (WSJ)

Many emerging-market currencies slumped against the dollar on Thursday despite the Federal Reserve’s decision to hold interest rates near zero for now. Currencies in Brazil, Turkey and South Africa, which have been among the hardest-hit by fears of a U.S. rate increase, enjoyed a short-lived reprieve after the central bank’s announcement. But they gave back all the gains within hours, as investors realized the Fed is still on track to raise interest rates later in the year. Many investors said the Fed’s reluctance to raise rates on Thursday signaled policy makers’ concerns about slowing global growth, which reflects a deepening economic malaise across emerging markets.

Many emerging countries rely on external capital flows to finance growth. The prospect of higher rates in the U.S. has led to outflows from these countries, contributing to weakening currencies and higher bond yields that drive up borrowing costs. The continuation of easy-money policies in the U.S. “buys some time for further adjustments by emerging-market economies, but this decision also confirms the fact that the U.S. economy continues to expand at a modest pace, which is not particularly emerging-market friendly,” said George Hoguet at State Street Global Advisors.

The Brazilian real took a roller-coaster ride. The currency, which was under pressure early in the day, rallied immediately upon the release of the Fed statement at 2 p.m. Eastern time, rising as much as 1.3% against the dollar. But the gains quickly dissipated. By late afternoon, the real lost 1.5% against the dollar to 3.8974, the weakest level in 13 years. Indonesia’s rupiah, after a brief rally, closed at its lowest level against the greenback since July 1998. Both the South African rand and the Turkish lira appreciated against the dollar shortly after the Fed announcement, but ended the day with losses.

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A neat excuse to hide their ignorance behind.

It’s a New World: How China Growth Concerns Kept the Fed on Hold (Bloomberg)

Here’s the latest sign of China’s arrival as a global economic power: It’s roiled financial markets enough to nudge the Federal Reserve away from raising interest rates. Fed policy makers left their benchmark rate near zero Thursday, saying the U.S. economy and inflation may be restrained by “recent global economic and financial developments.” Fed Chair Janet Yellen elaborated in a press briefing, saying the financial turmoil reflected investor concerns about risks to Chinese growth. “If it weren’t for China and all the turmoil surrounding China, I think the Fed would have hiked rates,” said Mickey Levy at Berenberg in New York, who has analyzed Fed policy for more than 30 years.

The focus on China comes after a market rout that wiped $5 trillion in value off the nation’s stocks and after a sudden move on Aug. 11 to change its exchange rate regime, a decision which triggered the yuan’s biggest depreciation in two decades and roiled global markets. The world’s second-largest economy is set to grow at its slowest pace in a quarter century this year even after five central bank interest rate cuts and fiscal stimulus. “China was an influence in this meeting, whereas in the past that would have been much less important,” said Tai Hui at JPMorgan Asset Management in Hong Kong. China affects the world more than ever before, and its influence over global markets will only increase as it approaches the U.S. economy in size. It accounted for 13.3% of global gross domestic product last year, from less than 5% a decade earlier, according to World Bank data.

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Croatia gave it their best, but they too need help.

Europe Lacks Strategy to Tackle Crisis, but Refugees March On (NY Times)

Europe’s failure to fashion even the beginnings of a unified solution to the migrant crisis is intensifying confusion and desperation all along the multicontinent trail and breeding animosity among nations extending back to the Middle East. With the volume of people leaving Syria, Afghanistan and other countries showing no signs of ebbing, the lack of governmental leadership has left thousands of individuals and families on their own and reacting day by day to changing circumstances and conflicting messages, most recently on Thursday when crowds that had been trying to enter Hungary through Serbia diverted to Croatia in search of a new route to Germany.

Despite the chaos, there were few signs that EU leaders, or the governments of other countries along the human river of people flowing from war and poverty, were close to imposing any order or even talking seriously about harmonizing their approaches and messages to the migrants. Instead, countries continue to improvise their responses, as Croatia did Thursday, and Slovenia — the next stop along the rerouted trail — is likely to do in coming days. The migrants did not shift course to Croatia on a whim. When Hungary effectively blocked their access on Tuesday with a border crackdown — which resulted in an ugly skirmish Wednesday between the police and migrants — they had few options.

And Macedonian and Serbian officials, along with many aid organizations, were urging them to circumvent a hostile Hungary and even providing maps and nonstop bus service to the Croatian frontier. Initially, Croatia’s foreign minister, Vesna Pusic, seemed to encourage them, too. “They can move freely in this period,” she said. “We will try to restore a decent face to this part of Europe.” So, since Wednesday morning, more than 11,000 migrants have entered Croatia, and officials said 20,000 more were already in Serbia, making their way to the Croatian border and likely to arrive soon — while untold tens of thousands more waited in Turkey and Greece for a clear signal about whether to follow.

But what the first arriving migrants found on the Croatian border was only more fog. The Croatian interior minister said that the country would abide by European Union rules and register all arriving asylum seekers and that they could not simply pass through the country unfettered. Then late Thursday, swamped by the crush of migrants, Croatia announced that the border would be closed altogether, indefinitely. Slovenian officials said that, no matter how many migrants Croatia lets through, they would register all arrivals and turn back any who do not qualify as refugees — a task that Hungary can attest is easier said than done.

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Dear MSM: Stop calling refugees ‘migrants’. And stop calling a meeting next week an ‘emergency’ meeting.

Losing Control Of Refugees, Croatia Closes Serbia Border Crossings (Reuters)

Croatia has closed seven of eight road border crossings with Serbia after complaining of being overwhelmed by an influx of more than 11,000 migrants who evaded police, trekked through fields and tried to sneak into Slovenia by train in a march westwards that is dividing Europe. Only the main Bajakovo crossing, on the highway between Belgrade and Zagreb, appeared to be open to traffic on Friday, while neighboring Slovenia stopped all rail traffic on the main line from Croatia after halting a train carrying migrants on the Slovenian side of the border. Migrants have been streaming into European Union member Croatia for two days, their path into the bloc via Hungary blocked by a metal fence, the threat of imprisonment and riot police who fired teargas and water cannon on Wednesday to drive back stone-throwing men.

There were desperate scenes at a railway station on Croatia’s eastern frontier with Serbia, where thousands were left stranded overnight under open skies. The EU has called an emergency summit next week to overcome disarray in the 28-nation bloc. Croatian Interior Minister Ranko Ostojic warned on Thursday that Croatia would close its border with Serbia if the flow of migrants continued at the same rate, saying his country was full to capacity. The president of Croatia told the military to be ready to join the effort to stop thousands of people criss-crossing the Western Balkans in their quest for sanctuary in the wealthy bloc. Late on Thursday, police announced they had banned all traffic at seven border crossings. “The measure is valid until further notice,” police said in a statement.

Serbia’s main highway north into Hungary is already closed by Hungarian riot police on the border. It remained unclear whether or how police would stop migrants, many of them refugees from Syria, from streaming through fields across the border away from official crossings, though their path across much of the frontier is made more difficult by the Danube river. Serbia warned its neighbors against shutting down the main arteries between them. “We want to warn Croatia and every other country that it is unacceptable to close international roads and that we will seek to protect our economic and every other interest before international courts,” Aleksandar Vulin, Serbia’s minister in charge of migration, told the Tanjug state news agency.

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And so we move from country to country and border to border, while Europe refuses to set up a meeting. To them, it’s an emergency only for refugees.

Croatia’s Resources Stretched as Thousands of Refugees Arrive (Bloomberg)

Croatia wavered in its commitment to accept a growing influx of migrants after 5,600 refugees poured into the country in one day, underscoring the massive task facing Europe as people flee war and poverty. “If migrants continued to arrive in larger numbers, Croatia would have to consider an entirely different approach,” Interior Minister Ranko Ostojic said in a statement on Thursday. Prime Minister Zoran Milanovic said Croatia will help refugees “as long as we can,” after throwing open its doors Wednesday. The people have been stranded in Serbia trying to enter the European Union through Hungary, which closed its southern frontier and fired tear gas and water cannons at migrants trying to break through a barrier on the border. Police said they used force to repel the crowd after refugees threw rocks and other projectiles.

European leaders have been at odds for weeks over how to deal with the region’s biggest refugee crisis since World War II, with Hungarian Prime Minister Viktor Orban fortifying his border to keep refugees out and German Chancellor Angela Merkel saying Europe has a moral responsibility to help. Orban has built a razor-wire fence along the border with Serbia and announced plans to extend the barrier to part of the frontier with Romania. The crisis claimed its first political casualty in Germany, with the government’s point person on the refugee crisis stepping down. The Interior Ministry announced Thursday that Manfred Schmidt, who headed the office for migration and refugees, was leaving for personal reasons.

Schmidt’s office was responsible for the initial decision to allow all Syrians entering the country to stay – a departure from an EU agreement requires refugees to be registered in the country where the arrive in the bloc and remain there to have their asylum applications processed. “The dramatically increased number of asylum seekers in Germany present the federal agency, as well as the states and municipalities, with an enormous challenge,” Interior Minister Thomas de Maiziere said in a statement thanking Schmidt for his “excellent work.” The departure comes after Merkel was criticized in recent days by some in her own coalition for her handling of the crisis as the country struggles to keep up with the influx. The chancellor has defended her decision to allow in refugees.

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What else are they going to say?

OPEC Assumes Oil Price Will Recover Gradually to $80 in 2020 (Bloomberg)

OPEC is assuming the oil price will rise gradually to $80 a barrel in 2020 as supply growth outside the group weakens, a slower recovery than several member nations have said they need. The average selling price of the Organization of Petroleum Exporting Countries’ crude will increase by about $5 annually to 2020 from $55 this year, according to an internal research report from the group seen by Bloomberg News. Iran and Venezuela said they would like to see a price of at least $70 this month and most member countries cannot balance their budgets at current prices. “It’s much harder for OPEC to lift prices” after the revolution of U.S. shale oil, said Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB, which forecasts Brent crude at $73 by the end of the decade.

“Eighty dollars by 2020 is pretty close to consensus view.” The price of crude has tumbled more than 50% in the past year as OPEC followed Saudi Arabia’s strategy of defending its share of the global market against competitors like U.S. shale oil. While both OPEC and the International Energy Agency expect growth in global supply to slow as low prices bite, Goldman Sachs predicts that a persistent glut will keep crude low for the next 15 years. Production from nations outside OPEC will be 58.2 million barrels a day in 2017, 1 million lower than previously forecast, according to the internal report.

The impact low prices is “most apparent on tight oil, which is more price reactive than other liquids sources,” according to the report. “Supply reductions in U.S. and Canada from 2014 to 2016 are clearly revealed.” OPEC expects little stimulus to global demand in the medium term as a result of cheaper oil, with daily consumption growing by about 1 million barrels a year to 97.4 million in 2020, according to the report. While demand from China, Russia and OPEC members will grow more slowly than forecast a year ago, developing nations with still account for the bulk the expansion, it said.

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Debt dominoes.

Defaults Mount in Beleaguered US Energy Industry (WSJ)

The well is running dry for deeply indebted energy companies. Samson Resources became the latest, and largest, victim of an industry downturn, as it filed for chapter 11 protection late Wednesday. Industry experts say more oil-and-gas companies are poised to follow the Tulsa, Okla., company into bankruptcy as oil prices remain low following a steep drop that began last year. The default rate among U.S. energy companies has accelerated in recent months to 4.8%, the highest level since 1999 and up from 3.3% in August, according to Fitch Ratings. Within that group, exploration and production companies like Samson are defaulting at an even higher rate, 8.5%, Fitch said. Default volume for such companies is the highest it has been in five years, at $10.4 billion in debt.

The broader U.S. corporate default rate is 2.9%, according to Fitch. Meanwhile, the yield on a basket of U.S. junk-rated energy bonds has risen to 11%, just off its highest level since July 2009 and up from 5.9% a year ago, according to Barclays PLC. The increase indicates a lack of investor confidence that the bonds will be repaid in full. Yields on debt rise as prices fall. “Everything has been turned upside down,” said Marc Lasry, head of hedge- fund firm Avenue Capital Group, which recently raised $1.3 billion for an energy-focused fund. “If you’re equity it’s been total devastation. If you’re the high-yield guys you’re in total shock and you have no idea what to do,” he said, referring to investors in stocks and risky debt.

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It took 8 years to figure that one out?!

Central Banks’ Lesson: Easy Money Alone Isn’t a Growth Salve (WSJ)

Central bankers have injected roughly $8 trillion into the global economy since the financial crisis. In return, the world has remained in a low-growth rut. The Federal Reserve cited market turmoil and a weak economic picture overseas in deciding Thursday not to back off from one of the most aggressive global monetary policies in decades. Whenever the Fed moves to raise interest rates, one lesson remains: Cheap money alone can’t solve the world’s economic ills. The Fed noted positive developments at home, including increased household spending and business investment, but worried conditions overseas could restrain U.S. growth and put further downward pressure on near-term inflation.

“A lot of our focus has been on risks around China, but not just China—emerging markets more generally and how they may spill over to the U.S.,” said Fed Chairwoman Janet Yellen, noting “the significant economic and financial interconnections between the U.S. and the rest of the world.” Her unease underscores in part the limits of loose monetary policy as a singular response to economic weakness. Instead of using the breathing room of low interest rates to revamp their economies, governments around the globe have failed to enact longer-lasting policy overhauls as they try to combat an array of demographic and other challenges.

“Finance, especially as motivated by central banks, is really only a lubricant to growth,” said Raghuram Rajan, head of the Reserve Bank of India, at a recent meeting of top global finance officials. “It can’t be the underlying driver of growth.” Since the financial crisis began in 2007, the average key interest rate set by central banks has fallen by around 4 percentage points in advanced countries and 2 points in emerging markets. Central banks have also bought bonds and other assets equal to 10% of global output to stir growth in the postcrisis era.

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TEXT

China Outflows Said To Surpass A Staggering $300 Billion In Just 75 Days (ZH)

We’ve detailed the story exhaustively, so we won’t endeavor to recap it all here, but the short version is that what was billed as a move to give the market a greater role in setting the yuan’s exchange rate actually had the opposite effect – at least in the short run. That is, the PBoC used to manipulate the fix to control the spot and now they simply manipulate the spot to control the fix, but unabated devaluation pressure has forced China to intervene on a massive scale and that intervention recently moved into the offshore market as well, as Beijing scrambled to close the onshore/offshore spread. This is costing China dearly in terms of FX reserves, the liquidation of which was so massive in August as to prompt Deutsche Bank to brand it “Quantitative Tightening”, as the reserve drawdowns are effectively QE in reverse.

This is of course the same dynamic that’s been taking place in Saudi Arabia in the wake of the petrodollar’s demise and mirrors the response across EMs which are struggling to support commodity currencies as prices collapse. Attempts to quantify the scope of China’s reserve burn have become ubiquitous, as the cost of offsetting the outflows from China effectively serves as a proxy for the extent to which the Fed would, were they to hike, be “tightening into a tightening”, as we’ve put it. On Wednesday we showed that Beijing liquidated $83 billion in Treasurys in July. That, as we also noted, “is before China announced its devaluation on August 11 and before, as we also first reported, it sold another $100 billion in Treasurys in August.”

Today, we get a fresh look at the numbers courtesy of SAFE which shows that on net, banks sold $128 billion in FX to Chinese non-banks in August. Nothing too surprising there, given that we already knew positioning for FX purchases for the banking sector as a whole dropped by $115 billion for the month. As Goldman notes however, when you include banks’ forward books the picture worsens materially. An alternative gauge that we believe is a closer reflection of the underlying trend of currency demand shows a significantly larger outflow of $178bn. Today’s data at US$178bn on our preferred gauge of underlying currency demand (i.e., outright spot plus freshly-entered forward contracts) is significantly higher than any of [the previous] releases.

This means, as Goldman goes on to point out, that outflows are actually far worse than what’s indicated by simply looking at China’s reserve drawdown, as banks look to be shouldering some of the burden themselves. So between July and August (inclusive of freshly entered forwards), outflows total around $261 billion. But that’s not all. Nomura is out with an estimate of what’s taken place since the start of September. Between onshore spot intervention and offshore spot and forward intervention, the bank estimates China has spent some $47 billion month-to-date stabilizing the yuan, $25 billion of which in the offshore market, reinforcing what we said a week ago after CNH soared the most on record [..]

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What grandmas can move their savings in.

China’s Top Financial Firms Get Green Light for $3 Billion IPOs (WSJ)

China International Capital and China Reinsurance each received approval from the Hong Kong stock exchange late Thursday to hold initial public offerings worth a combined $3 billion, people familiar with the deals said, signaling a possible revival of what has been a quiet quarter for the city’s capital market. CICC, which is China’s top investment bank, and China Reinsurance, its biggest reinsurer, have yet to decide when to go public due to volatile stock markets, though they are aiming to do so this year, the people said. The turmoil in Chinese stocks is hurting investor appetite for initial public offerings in Hong Kong, the world’s top venue for listings this year. In the third quarter, IPOs in Hong Kong have raised $1.8 billion, down significantly from $5.4 billion in the same period last year..

The two IPOs would be the first major offering since China Railway Signal & Communication’s $1.4 billion Hong Kong IPO in August. Hong Kong’s Hang Seng Index, which is weighted heavily with mainland Chinese stocks, has fallen 17% in the third quarter so far, as mainland stocks have tumbled. Those declines have weighed on investor sentiment. On Monday, the short-haul carrier Hong Kong Airlines called off indefinitely a planned listing in which it had hoped to raise $500 million. The potential listing of CICC would give its shareholders, including KKR & Co. and TPG Capital, the chance to exit their investments despite turmoil in Chinese stocks. Central Huijin Investment, the domestic investment arm of China’s sovereign-wealth fund, is the largest shareholder in CICC with a 43.35% stake.

Singapore’s sovereign-wealth fund GIC Pte. Ltd. holds 16.35%, while TPG Capital owns 10.3% and KKR holds 10%, according to its annual report. CICC was formed in 1995 by Morgan Stanley and China Construction Bank. as China’s first Sino-foreign joint-venture investment bank. Morgan Stanley sold its stake in December 2010 to a consortium that included GIC; Great Eastern Holdings, the insurer controlled by Oversea-Chinese Banking; and the private-equity firms KKR and TPG Capital. CICC has played a key role in advising the Chinese government on state-owned enterprise reform and guiding the listing of the country’s major overseas IPOs.

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Investment. In productive areas, that is.

Here’s Why China Could Drag The US Into Recession (Fortune)

No one can say for sure just how bad China’s economic situation has become, but analysts in the United States have been taking comfort in the fact that U.S. trade to China, and the Pacific Rim in general, constitutes a small sliver of U.S. GDP. And while the emerging world makes up a much bigger share of the global economy than it did a generation ago, the U.S. economy is still the largest in the world. When capital flees riskier economies like Brazil or Turkey, the U.S. is where it will run to. There’s one problem. These arguments ignore the fact that economists don’t agree on what, exactly, causes recessions. True, the Asian financial crisis of 1998 didn’t lead to slower growth in the U.S. But that doesn’t mean that a recession in the emerging world will fail to drag us down this time.

David Levy, economist and chairman of The Jerome Levy Forecasting Center, has been predicting that China would suffer an economic crisis and he believes that turmoil in emerging markets can take down the U.S. economy. Levy subscribes to what he calls “the profits perspective,” which examines global profits rather than country-specific GDP for indications of economic turmoil. How can global profits help predict recessions? Profits are the main factor that guides economic activity: when profits are high, businesses will invest and hire workers, and lenders will extend credit. When profits are low, the opposite occurs.

As it turns out, the largest contributor to global profits is net investment. When firms invest in capital equipment or when an individual invests in residential real estate, this is an act of wealth creation that does not require an immediate expense, in accounting terms. On a global scale, then, when investment is rising, we should also see profits rise and the global economy expand. But when we start to see investment stagnate or decline, we should expect profits to fall, putting recessionary conditions right around the corner.

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Slap that wrist!

Primary Dealers Rigged Treasury Auctions, Investor Lawsuit Says (Bloomberg)

The same analytical technique that uncovered cheating in currency markets and the Libor rates benchmark – resulting in about $20 billion of fines – suggests the dealers who control the U.S. Treasury market rigged bond auctions for years, according to a lawsuit. The analysis was part of a 115-page lawsuit filed in Manhattan federal court on Aug. 26 by Quinn Emmanuel Urquhart & Sullivan LLP and other law firms. The plaintiffs built their case against the 22 primary dealers who serve as the backbone of Treasury trading – including Goldman Sachs JPMorgan and Morgan Stanley – using data from Rosa Abrantes-Metz, an adjunct associate professor at New York University who has provided expert testimony in rigging cases.

Her conclusion: More than two-thirds of a certain type of Treasury auction appear to have been rigged. She found issues with other auctions, too. “The only plausible explanation is that Defendants coordinated artificially to influence the results of the auctions in the primary market,” according to the complaint filed by the Cleveland Bakers and Teamsters Pension Fund and other investors. The lawsuit, which seeks unspecified damages, comes as the U.S. Justice Department probes whether information in the Treasury auction market is being shared improperly by financial institutions, three people with knowledge of the investigation said in June.

Treasury traders at some banks learn of customer demand hours before auctions, and were communicating with their counterparts at other firms via chat rooms as recently as last year, Bloomberg News reported earlier this year. Abrantes-Metz’s analysis is similar to one used in lawsuits claiming bank and broker manipulation of the London interbank offer rate, or Libor. Those cases resulted in about $9 billion in settlements from the financial firms. Banks and brokers have paid about $9.9 billion in fines to global regulators related to manipulation of currency markets as of May.

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Bitcoin, rhubarb, it’s all the same.

Bitcoin Is Officially a Commodity, According to US Regulator (Bloomberg)

Virtual money is officially a commodity, just like crude oil or wheat. So says the Commodity Futures Trading Commission (CFTC), which on Thursday announced it had filed and settled charges against a Bitcoin exchange for facilitating the trading of option contracts on its platform. “In this order, the CFTC for the first time finds that Bitcoin and other virtual currencies are properly defined as commodities,” according to the press release. While market participants have long discussed whether Bitcoin could be defined as a commodity, and the CFTC has long pondered whether the cryptocurrency falls under its jurisdiction, the implications of this move are potentially numerous.

By this action, the CFTC asserts its authority to provide oversight of the trading of cryptocurrency futures and options, which will now be subject to the agency’s regulations. In the event of wrongdoing, such as futures manipulation, the CFTC will be able to bring charges against bad actors. If a company wants to operate a trading platform for Bitcoin derivatives or futures, it will need to register as a swap execution facility or designated contract market, just like the CME Group. And Coinflip—the target of the CFTC action—is hardly the only company that provides a platform to trade Bitcoin derivatives or futures.

“While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets,” said Aitan Goelman, the CFTC’s director of enforcement, in a statement. A request for comment sent to Coinflip’s chief executive via LinkedIn was not immediately returned. Coinflip consented to the order without admitting or denying any of its findings or conclusions. Since Coinflip is not alone in providing a platform to trade Bitcoin derivatives or futures, Goelman’s words imply that other unregulated exchanges could soon attract the attention of the CFTC.

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For calling a tool a tool.

Beppe Grillo Gets One Year Jail Sentence for “Defamation” (Tenebrarum)

Former Italian prime minister Silvio Berlusconi – the cavaliere – has been successful in fighting off legal challenges ranging from sex with minors to alleged tax fraud involving humungous amounts for well over adecade. On a number of occasions, the Italian State even created new laws specifically designed to keep the cavaliere out of jail. We admittedly just loved his constant successful evasions of justice. First of all, we were deeply worried by the thought of potentially losing this unsurpassed master of political entertainment. Secondly, when the Eurocracy decided it didn’t like him anymore, he was basically putsched out of office, and we greatly dislike the meddlers administering the Moloch in Brussels. Incidentally, ever since he has lost political power, Berlusconi’s successes in evading justice have been waning rather rapidly.

What was of course also great about Berlusconi’s brushes with the law was that they demonstrated unequivocally that the concept of “equality before the law” is a basically a bad joke. They showed the hoi-polloi that the modern-day rulers of the “democratic” societies of the West are in many respects really not much different from the feudal robber barons of the past. This seemed eminently useful from an educational perspective to us. This week we have been provided with yet another interesting demonstration by Italy’s justice system. An oppositional critic of the establishment who is seen as a genuine danger to the “European project” and the structures of the State because he enjoys massive voter support can evidently not hope to evade the long arm of the law as easily as the cavaliere was able to do in his heyday.

Beppe Grillo, leader of the wildly successful “5 Star Movement” has been handed a one year jail sentence (suspended, but still – one more misstep, and he’s locked up) and has been ordered to pay altogether 51,250 euro in fines and restitution. What was his crime? Did he defraud the tax man? Did he engage in bunga-bunga with minors? Did he have truck with the mafia? Nope – his alleged crime is defamation – and it appears that the law’s definition of “defamation” is “saying something about a public personality that said person doesn’t like”. Here is what happened, according to the press:

“Ascoli Piceno, September 14 – A judge here handed a suspended sentence of one year to 5-Star Movement (M5S) leader Beppe Grillo on Monday, for defamation of university professor Franco Battaglia. Grillo publicly insulted Battaglia during a speech on nuclear energy in May 2011 in the town of San Benedetto del Tronto, over an appearance Battaglia had made on the TV program Anno Zero. Referring to Battaglia’s comments, Grillo said, “You can’t let an engineer (…) go on television and say, with nonchalance, that no one died in Chernobyl. I’ll kick your ass, I’ll throw you out of television, I’ll report you to the police and send you to jail”. Battaglia testified that his car was also vandalized and he received a “strange phone call” prior to the act of vandalism. Grillo was ordered to pay a fine of €1,250 , and Battaglia was awarded compensation of €50,000.

It is well known that Beppe Grillo doesn’t mince words, but we can be reasonably sure that he was neither the man behind the “strange phone call” (we only have Battaglia’s say-so regarding this call), and that he probably didn’t vandalize the good professor’s car either. Most press reports didn’t go into too many details though – after all, Grillo had it coming, right?

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“Are the record temperatures due to climate change or due to El Niño? The answer is yes..”

Scorching Year Continues With the Hottest Summer on Record (Bloomberg)

Last month was the hottest August on record, topping out the hottest summer on record, according to data released on Thursday by the National Oceanic and Atmospheric Administration. It was the sixth month this year to set a new record: February, March, May, June, July, and August. This has been the hottest start to a year on record and the hottest 12 months on record. It follows the hottest calendar year (2014), and the hottest decade. In 136 years of global temperature data, we are in uncharted territory. And this year’s extremes are likely to continue as a strong El Niño weather pattern in the Pacific Ocean continues to rip more heat into the atmosphere. There’s now a 97% chance that 2015 will set yet another record, according to NOAA.

Results from the world’s top monitoring agencies vary slightly. NOAA and the Japan Meteorological Agency both listed August as the hottest month. NASA rated it one degree cooler than the previous record, set last year. All three agencies agree that 2015 is on track to be the hottest yet, by a long shot. The heat was experienced differently across the world, but few places escaped it altogether. In the U.S., chances are growing that above-normal temperatures will persist in Alaska and along the West Coast, as well as in the upper Midwest and Northeast, through February. That’s in line with what can happen during a strong El Niño. “Are the record temperatures due to climate change or due to El Niño? The answer is yes,” said Deke Arndt, chief of NOAA’s climate monitoring branch in Asheville, N.C.. “Long-term climate change is like climbing a flight of stairs. El Niño is like standing on tippy toes while you are on one of those stairs.”

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