The Automatic Earth

Jack Delano Freight train on the Chicago & North Western, Chicago to Clinton, Iowa 1943

Criminal behavior. “What is so disturbing is that this fire sale is going on with the blessings of European creditors. That makes it hard to brand it an asset looting. The loss for Greek taxpayers is enormous.”

• The $400 Billion Ripoff That Could Destroy The Greek Bailout (CNBC)

As if Greece didn’t have enough economic market woes, last week foreign investment funds managed to take control of four of the country’s largest banks — Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank — through $6.42 billion worth of capital increases and a complex set of legal manipulations. As a result, bank shares sold like penny stocks, diluting state ownership in these important institutions that have assets totaling $358 billion. The country’s stake in the National Bank of Greece dropped to 24% from 57%, and in Eurobank it fell to 2.4% from 35%, while its stake in Alpha Bank was reduced to 11% from 64% and in Piraeus Bank it dropped to 22% from 67%. This translates to a loss of almost $44 billion that Greek taxpayers gave to bail out the banks over the past three years.

Greek stock market and legal experts believe that the maneuvers were engineered after a statutory legal provision was amended by the Greek Parliament that allowed private investors to price bank shares using a so-called “book-building method.” Under this method, the share price in capital increases is not predetermined, and investors set the price at which they want to buy the shares. It also made it mandatory for the country’s regulatory body, the Hellenic Financial Stability Fund, to accept book-building prices, even if they were not properly reflecting share values. According to Greek banking sources, Capital Group, Pimco, WLR Recovery Fund, Wellington, Fairfax, Brookfield Capital Partners and Highfields Capital Management are among those who jumped at the opportunity to invest in Greek banks at below-market value this month.

The foreign investors valued the four banks at about $800 million, which is more than three times less than their current market value of $3 billion. Moreover, from Nov. 4 to Nov. 20, when the book building took place, the index of bank shares on the Greek stock market fell nearly 70%. This has hit the banks hard, according to Nikos Chryssochoidis, an Athens-based stockbroker. “In just 13 trading sessions, Alpha Bank’s stock dropped to .055 euros from its 0.125 euros closing on Nov. 4, losing 56%.” “These are horrendous figures,” Emilios Avgouleas, a professor of banking law at the University of Edinburgh, told CNBC. “What is so disturbing is that this fire sale is going on with the blessings of European creditors. That makes it hard to brand it an asset looting. The loss for Greek taxpayers is enormous.”

As the dust settles, the blame game is in full swing. The HFSF argues that its decisions are lawful and in line with the legislation passed by the Greek Parliament. The country’s creditors and euro zone officials have waived their responsibilities. In the meantime, there are worries about how this could affect overall trading on the Hellenic Stock Exchange. On Monday, Euro-area member states agreed to disperse €10 billion for the recapitalization of Greek banks after the nation completed the first set of milestones that included the overhaul of bank governance rules, eased restrictions on home foreclosures and raised wine and road taxes. These funds will be released to the Hellenic Financial Stability Fund on a case-by-case basis, as required by the European Commission.

At the same time, Greek creditors want the country’s authorities to tackle the remaining vulnerabilities in the banking system, notably those arising from $114 billion worth of nonperforming loans. If there is a capital shortfall in Greek banks that private investors cannot cover in 2016, then the EU will impose a surcap on unsecured bank deposits that are more than €100,000, like they did in Cyprus during its financial crisis three years ago. At that time, a €10 billion by the Eurogroup, European Commission and the IMF resulted in the closure of the country’s second-largest bank and a onetime bank deposit levy on all uninsured bank depositors. To date, the European Union has lent $49.22 billion to bail out Greek banks.

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“..they have literally never before had so much stuff they need to sell…”

• Good News, Holiday Shoppers: Retailers Are Desperate (MarketWatch)

As Black Friday kicks off and you prepare for the annual shopping orgy, here’s something you may find useful to know: The retailers need your money. I mean, they really, really need your money. The companies you know down at your local mall are under incredible pressure this Christmas season. They have sky-high inventories, flat-lining sales and collapsing stock prices on Wall Street. And they’ve got a few weeks to turn that around. You think you want a deal? Oh, boy, these guys need to make a deal. Let’s start with the inventories. The people running the stores place their Christmas orders many months in advance — often, in fact, as much as a year in advance. And when it came time to buy inventories for this season, they were super-optimistic and they went large.

As a result, they have literally never before had so much stuff they need to sell. They’re piled high with cashmere sweaters and pashminas and diamond earrings and plastic action figures and “Frozen” tiaras and embroidered oven mittens and exercise bikes and “Italian Stallion” golf balls. The managers are feeling sick just looking at it all. According to U.S. government data, America’s retailers are entering this holiday season with an incredible $584 billion in inventory to sell — equal to almost $5,000 per household. When compared with annual sales, these inventory levels are the highest since the financial crisis. When adjusted for inflation, they’ve never been so high. Christmas is the key period for retailers. It’s when they make their money.

The Christmas shopping season makes or breaks their entire financial year. In fact, “Black Friday” is traditionally the day of the year when retailers finally move into profit. With all that stuff to sell, it’s no wonder that “Cyber Monday” has now been brought forward to Sunday — and Black Friday apparently started about a week ago. These guys are nervous. They’re under a lot of pressure. Shock profit warnings, including those from stalwarts such as Macy’s, have revealed that all is not well down at the mall. Shoppers aren’t buying as much as hoped. And they’re buying more of it online — at lower margins. Take a look at stock prices. They tell a story. And they’re in free-fall.

Best Buy is off 20% so far this year. Wal-Mart and Bed Bath & Beyond are down about 30%. Gap, Ralph Lauren and Urban Outfitters are down by about a third. Macy’s is down more than 40%. And even the high-end is hurting. Tiffany and Nordstrom are each down about 30%. Bad news for them. Great news for you. There are plenty of sensible strategies for making sure the holiday season doesn’t bankrupt you. They include setting a budget, setting gift value limits, agreeing on a Christmas truce or just adopting the Secret Santa strategy so everyone gets one gift. I’ll confess I am so over the Christmas shopping mania. But no matter what strategy you adopt, if you’re looking for deals, you should know your enemy. The retailers look like they’re hurting. And that should mean that the longer you wait, the better the deals you’ll find.

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Shanghai closed at -5.48%, Shenzhen -6.11%.

• China’s Stocks Sink Most in Three Months as Broker Probes Widen (Bloomberg)

China’s stocks tumbled as some of the largest brokerages disclosed regulatory probes, the nation’s industrial profits fell and two companies flagged bond payment difficulties. [..] Citic Securities and Guosen Securities plunged more than 9% in Shanghai after saying they were under investigation for alleged rule violations, while Reuters reported Haitong Securities Co. is also being probed after the company suspended trading in its shares. Industrial profits slid 4.6% last month, data showed Friday, compared with a 0.1% drop in September. The crackdown in the finance industry comes as the government widens an anti-corruption campaign and seeks to assign blame for a $5 trillion stock-market rout.

Authorities are also testing a bull-market rebound by paring emergency support measures, including lifting a freeze on initial public offerings and scrapping a rule requiring brokerages to hold net-long positions. A Chinese fertilizer maker and a pig iron producer became the latest companies to struggle to repay bonds after at least six defaults this year as the earliest economic indicators for November show a deterioration. “The investigations may be related to their roles in the stock rout,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai, who’s keeping his holdings unchanged. “The regulator will probably further step up oversight and crack down that area. In the short term, the market will be pressured by that.”

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“The mining industry was the laggard with profits falling 56.3% in the first 10 months of the year from a year earlier..”

• China October Industrial Profits Fall For Fifth Straight Month (Reuters)

Profits earned by Chinese industrial companies fell 4.6% in October from a year earlier, data from the statistics bureau showed on Friday, declining for the fifth consecutive month. Industrial profits – which cover large enterprises with annual revenue of more than 20 million yuan ($3.13 million) from their main operations – fell 2.0% in the first 10 months of the year compared with the same period a year earlier, the National Bureau of Statistics (NBS) said on its website. In September, profits fell 0.1% from a year earlier. The impact of foreign exchange and lower investment income on companies’ profits were less pronounced in October than in prior months, the statistics bureau said in a statement. Falling sales, rising costs and hits to profit in the oil, steel and coal industries all contributed to October’s disappointing industrial profits, the NBS said.

The mining industry was the laggard with profits falling 56.3% in the first 10 months of the year from a year earlier, the NBS data showed. China’s Premier Li Keqiang said on Tuesday that China was on track to reach its economic growth target of about 7% this year, and the economy was going through adjustments to maintain reasonable medium- to long-term growth. China’s customs authorities announced a number of new measures on Wednesday to help exporters and importers, describing the current foreign trade environment as “complicated and grim.” The new policies include lowering various costs for importers and exporters, streamlining the clearance of goods at customs and gathering more accurate statistics.

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Broad investigations going on.

• China’s Stock-Market Regulator is Investigating Citic Securities (WSJ)

China’s securities regulator has launched a probe into Citic Securities for suspected violations of securities rules, escalating a crackdown on the country’s largest stockbroker at the center of a broad campaign to clean up the financial sector following the summer’s stock-market rout. In a statement to the Shanghai Stock Exchange, Citic Securities said that it has received notification from the China Securities Regulatory Commission regarding the investigation, without offering further details. The Beijing-based brokerage said it will cooperate with the authorities and that the firm’s operations remain normal.

The latest move by the Chinese authorities marks a significant shift in the nature of its probe into the brokerage, which has been at the forefront of Beijing’s effort to modernize its underdeveloped capital market and globalize the reach of its state-owned financial behemoths over the past decades. Guosen Securities, China’s third-largest broker by assets, also said on Thursday that it received investigation notification from the CSRC over suspected violation of securities rules, according to the company’s filing to the Shanghai Stock Exchange. No details were provided regarding the probe.

In recent months, Beijing has confined its investigation to Citic Securities’ employees, according to the company’s filings and reports by the official Xinhua news agency, with the Chinese police leading the effort after detaining a number of senior executives from the company. “The scope and depth of official crackdown on financial irregularities since the stock-market plunge in June has surpassed expectations,” said Hao Hong, managing director at Bank of Communications. “The probe into China’s leading broker serves as a clear warning to market participants.” Since August, several senior employees at Citic Securities, including general manager Cheng Boming , have been detained by the Chinese police over suspected illegal practices, such as insider trading.

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Can’t force spending. The more you try, the more people save, out of fear.

• Japan Spending Slumps Even As Unemployment Hits 20-Year Low (Reuters)

Japanese household spending unexpectedly fell in October for a second straight month, even as unemployment hit a two-decade low, underscoring the challenge facing premier Shinzo Abe in persuading reluctant companies to boost wages. Consumer price inflation fell for the third consecutive month, but after excluding the effect of lower energy bills, household costs rose. The data underlined the difficulty Abe faces as he campaigns for companies to spend more of their record profits on wages and investment, in the hope of pulling Japan out of recession. “Job offers are surging but the average sum each employee is earning isn’t rising much. That’s why household income isn’t increasing and consumption remains weak,” said Taro Saito, senior economist at NLI Research Institute.

“It’s quite difficult to generate a positive economic cycle just by applying political pressure on companies.” The jobless rate fell to 3.1% in October from 3.4% in September, hitting the lowest level since 1995, government data showed on Friday. Household spending fell 2.4% in October from a year earlier, against market forecasts for a 0.1% rise, and disposable income slid 0.3%, separate data showed. The core consumer price index (CPI), which excludes volatile fresh food but includes oil costs, fell 0.1% in the year to October, matching a median market forecast.

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Abe’s games become more dangerous as time goes by and Abenomics is increasingly exposed as the failure it always was.

• Japan Prime Minister Debuts New Social Programs to Help Economy (WSJ)

Japanese Prime Minister Shinzo Abe said Thursday he would increase spending on social programs and raise the minimum wage as he tries to jump-start the flagging economy ahead of an election next summer. Mr. Abe said the government would give cash handouts to the elderly poor, and build child-care and elder-care facilities to help people enter and stay in the workforce, as part of a stimulus package expected to cost at least ¥3 trillion ($24 billion). Mr. Abe hopes to revive an economy that has slipped into recession for the second time in two years, heightening skepticism about whether Abenomics will ultimately succeed in generating sustainable growth. He announced a “second phase” of the growth program in September, offering few details but pledging to expand the economy by 20% by 2020, a target many economists dismissed as unrealistic.

The measures outlined Thursday, though modest in scope, reflect a new focus for Abenomics, which has been criticized for benefiting mostly big businesses while average Japanese struggle to keep up. Mr. Abe said the theme of the second phase is “inclusion,” while the goal is to help more people contribute to and benefit from economic activity. Kazumasa Oguro, professor of economics at Hosei University, described the package as “not bad as a first step,” but warned that it would take a long time to lift labor-force participation or growth. One of the biggest obstacles to growth has been stagnant wages, something a higher minimum wage is supposed to address. Mr. Abe and the Bank of Japan have urged businesses to share more of their record profits with workers, with limited success.

The government will also give ¥30,000 ($245) in cash to each of the nation’s 10 million elderly poor, whose numbers are on the rise. These people wouldn’t benefit from the push for higher wages but because they are on fixed incomes they suffer when prices rise. To ease a shortage of workers, the government plans to make working easier for people with children or elderly parents who need care. It will build enough public child-care facilities to accommodate more than 500,000 additional children by fiscal 2017 and make more temporary workers eligible for child-care leave. Mr. Abe said the government would also build enough new nursing homes to accommodate 500,000 additional elderly people by the fiscal year 2020, and offer scholarships to those wishing to become certified care givers.

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Rock and a hard place.

• Japan’s Debt Trap Won’t Fix Itself (Bloomberg)

When even Paul Krugman is worried about the national debt, you know you have a problem. The country in question isn’t Greece or the U.S., but Japan. With low unemployment and high labor force participation, Japan has essentially no idle resources. The scope for boosting the economy with fiscal stimulus or easy money is almost nil. But Japan continues to run an enormous budget deficit every year. In 2014, the government had a deficit of 7.7% of gross domestic product, with a primary deficit – which excludes interest payments – of just under 6%. Things are looking somewhat better for 2015. A hike in the consumption tax in 2014 has swelled revenues. Government coffers have also been boosted by increased profits at Japanese companies – which is then subject to the country’s high corporate tax rate.

As a result, the primary deficit is projected to be only about 3.3% in 2015. But 3.3% is still way too high. In the long run, any deficit that stays higher than the rate of nominal GDP growth is unsustainable. Japan’s nominal GDP growth is now about zero. Its long-term potential real GDP growth is no more than 1% (due to shrinking population), and the Bank of Japan has not managed to increase core inflation to the 2% target despite Herculean efforts. Even if interest rates stay at zero forever – allowing the country to eventually refinance all its debt in order to bring interest payments down to zero – borrowing 3.3% of GDP every year is just too much. And if interest rates rise, deficits would explode. The government, of course, knows this, and has pledged to cut the primary deficit to 1% by 2018 and to zero by 2020.

But its projections rely on unrealistically fast growth assumptions; it would require Japan to expand well above its long-term potential rate. As in the U.S., Japanese administrations are in the habit of over-optimism. The Ministry of Finance, full of sober-minded bureaucrats, projects that under more realistic growth assumptions, the primary deficit will shrink only to 2.2%. Even that improvement would require tax hikes, spending cuts or some combination of the two. A primary deficit of 2.2% would be at the very edge of long-term sustainability. If we assume a 1% real potential growth rate and 1.5% inflation, then a 2.2% deficit will be just barely under the maximum sustainable level of 2.5%. So Japan does have a chance to avoid disaster. But the risk is still high. A growth slowdown, a rise in interest rates or a fall in corporate profitability could easily nudge the government back to excessive debt growth. A secure future will require more serious deficit reduction.

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Saudi’s talk the talk. But there’s palpable uncertainty. And that’s what attracts predators.

• Bad Saudi PR Fuels Riyal Devaluation Talk (Reuters)

“If Saudi cannot resist the gravitational forces created by a persistently strong U.S. dollar and de-pegs the riyal to follow the Russian or Brazilian currencies, oil could collapse to $25 per barrel,” Bank of America Merrill Lynch wrote this week. In fact Riyadh is determined to avoid devaluation at almost any cost, the Gulf bankers said. The resulting market panic and import cost surge would outweigh the benefit to state finances from higher oil revenue after conversion from dollars to riyals. Saudi Arabia imports much of its food, consumer goods and machinery, and their rapid price inflation could stoke political discontent in the event of a devaluation. The state has reserves to support its currency for years to come. With Brent averaging $57.55 a barrel between March and September, the central bank’s foreign assets shrank at an annual rate of $87 billion, leaving it holding $647 billion.

Even if the asset depletion accelerated, it would take several more years to reach $225 billion, or a generous 18 months of import cover – twice the cushion most nations enjoy. Such arithmetic does little to ease market jitters, however, when Saudi officials have yet to explain how they will handle the pressure. Rare public pronouncements have so far been confined to general assurances of economic health, leaving many investors unconvinced. Earlier this month, as dwindling oil receipts drove interbank money rates SAIBOR= to their highest levels since 2009, the central bank governor brushed off what he called a “slight” rise in rates, insisting that banks had liquidity aplenty. Borrowing costs have since risen further.

In a country renowned for government secrecy, reluctance to engage with the markets may have been heightened by leadership changes ushered in with new King Salman’s accession in January. His son, Mohammed bin Salman, has taken over much of the economic policy apparatus just as it grapples with an oil price slump whose extent may have caught officials off-guard. The last serious bout of market speculation on a Saudi devaluation was handled by their predecessors, in 1998. Another reason to keep likely countermeasures under wraps is their political sensitivity. Curbing public sector wages, trimming subsidies and slowing construction projects would hit the lavish welfare policies that have helped maintain Saudi Arabia’s social peace. In a sign of their delicacy, Oil Minister Ali al-Naimi has toned down comments last month that domestic energy prices may have to rise.

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Pointless.

• EU Warns 12 Eurozone Nations Including Germany Over Imbalances (Bloomberg)

The European Commission flagged up potential economic troubles in 12 of the 19 euro-zone countries, from the export powerhouse Germany to the perpetually debt-ridden Italy. The commission said on Thursday that it will have a closer look at imbalances in those countries, under a monitoring policy introduced at the height of the euro debt crisis. In a repeat of criticism from last year, export-oriented Germany was faulted for a high trade surplus that leaves it vulnerable to an economic slowdown elsewhere. “The very large and increasing external surplus and strong reliance on external demand expose growth risks and underlines the need for continued rebalancing toward domestic sources,” the commission said.

Overall, the commission said it will conduct further analysis of Germany, France, Italy, Ireland, the Netherlands, Portugal, Spain, Belgium, Slovenia and Finland; it added Austria and Estonia to the list. Six countries not using the euro – Britain, Sweden, Romania, Bulgaria, Croatia and Hungary – also face renewed monitoring Findings will be published in February. Governments that ignore repeated warnings face financial penalties, though none have been imposed since the imbalances system was set up in 2011.

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President lost.

• Portugal’s Anti-Austerity Left Take Power In Watershed Moment For Euro (AEP)

Portugal’s anti-austerity Left has taken power with the support of Communists and radical forces after eight weeks of bitter wrangling, breaking Germany’s grip on economic policy and setting the scene for a bruising fight with Brussels on budget plans. The triumph of the triple-Left alliance under Socialist leadership is a historic moment for the country and implies a sweeping reversal of austerity cuts imposed by the now-departed EU-IMF Troika. President Anibal Cavaco Silva warned the Socialists that he will sack the government if it violates eurozone deficit rules and the Fiscal Compact, or endangers the “external credibility” of the country. “It is an illusion to think that Portugal can dispense with the institutions and creditors,” he said. Yet his rhetoric cannot disguise the fact that an establishment centre-Left party has, for the first time, defied the prevailing ideology in the eurozone.

The Germans can no longer count on Lisbon to make the austerity case for them, and to provide political cover. “They have lost their best ally for fiscal discipline,” said Ricardo Amaro, from Oxford Economics. Portugal’s revolt is not a replay of the Syriza saga in Greece. The country escaped Troika tutelage last year, and is not dependent on money from the eurozone rescue fund (EMS). “We have no leverage,” said one EU official. The pro-European Socialist leader, Antonio Costa, has gone out of his way to reassure bankers and business leaders that he will avoid the sort of showdown that brought Greece to its knees. Yields on Portugal’s 10-year bonds have settled down to 2.33pc since spiking earlier this month – though this could change when the Europe Central Bank stops buying its bonds under quantitative easing.

The new finance minister is Mario Centeno, a Harvard-trained labour economist with “Blairite” leanings, deemed to be a cautious team-player. “He is not another Yanis Varoufakis,” said Rui Tavares, a Portuguese commentator. Yet the picture remains chaotic and fraught with danger. The Socialists are to rule by minority, with no encompassing coalition agreement. The Communists and the Left Bloc reserve the right to dissent, and have made it clear that they will do so. “It could break over Syria, or TTIP (trade deal), or anything,” said Mr Tavares. Mr Cavaco initially deemed the triple-Left grouping too dangerous for power, warning that there could be no government in Portugal that relied on parties opposed to the euro, the Fiscal Compact or Nato. He reappointed a Right-wing minority government even though it had lost its parliamentary majority, and openly urged rebel Socialists to switch sides.

This gambit failed. The Left held rock solid. He has been forced to back down. The issues of euro membership, debt restructuring and Nato have been finessed but have not gone away. While the Socialists vow to abide by eurozone budget rules, their policies are incompatible with the Fiscal Compact and go against the grain of market reforms. They will reverse wage cuts and a pension freeze for state workers. The minimum wage will be lifted to €600 a month, plus two months’ bonus. Electricity will be subsidized for poor families. VAT be will cut for restaurants. They will halt privatization of the water group EGF and the airline TAP, and suspend plans to open transport in Lisbon and Oporto to private competition.

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Every carmaker is included.

• VW’s Emissions Scandal Exposes Far Deeper Problems In Europe (Bloomberg)

The Volkswagen diesel emissions scandal might have started in the U.S., but it’s becoming clear that the controversy has opened far deeper wounds in Europe. Though the European Union is known for its strict vehicle carbon dioxide emissions standards, the Volkswagen ordeal – which centers around nitrogen oxides (NOx), a hazardous type of diesel pollutant – has revealed profound weaknesses in the EU’s entire regulatory system. With millions of diesel vehicles on the road across Europe, the stakes are high – and environmental groups are anxious not to let this scandal go to waste. Leading the charge against what he calls major weaknesses in regulation is Axel Friedrich, a chemist and activist who has spent the last 35 years agitating for cleaner auto emissions.

Friedrich, with help from environmental group Deutsche Umwelthilfe (DUH), says the NOx emissions testing scandal extends well beyond VW. Vehicles from General Motors’s European division Opel and French automaker Renault have been tested under his guidance and found wanting: Opel’s Zafira 1.6 CDTi emitted up to 17 times the legally allowed levels of NOx in DUH tests, and Renault’s Espace 1.6 dCi exceeded the Euro 6 level by as much as 25 times. Friedrich argues that these results – along with those from a number of other automakers that he says DUH will reveal in the coming weeks – is mounting proof that VW’s scandal is just the tip of a massive iceberg. Behind Europe’s reputation for strict environmental regulation, he argues, lies a broken system.

And the damage he is trying to head off is not distant and only potentially controversial, as so many emissions issues are. Rather, NOx is a carcinogen whose concentrations in Europe’s urban centers are not dropping as fast as official emissions. “People need to understand that this is not a game,” he told me. “People are dying.” And yet the automakers that are failing Friedrich’s tests are playing legal gymnastics to defend themselves. Opel and Renault – just as VW initially did – say DUH’s testing methods deviate from official procedure and that, when “properly” tested, their vehicles meet all relevant regulations.

But this defense actually makes Friedrich and DUH’s point for them: Official test procedures are so specific that automakers can program their vehicles in myriad ways to recognize testing conditions and perform better in the tests than they do in the real world. The fact that NOx emissions rise above legal levels as soon as official testing conditions are abandoned shows that automakers essentially teach to the test, making emissions monitoring tools nearly irrelevant. By focusing on a merely legal approach to compliance, Friedrich says, regulators and automakers alike are hiding the problem of real-world NOx emissions from the public, whose health it directly affects.

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Incredible that some people still deny Sydney’s in a bubble.

• ‘Classic Ponzi Scheme’: Sydney House Prices Are 12 Times The Annual Income (SMH)

Sydney houses now cost 12 times the annual income, up from four times when Gough Whitlam was dismissed. As many first time buyers turn to the bank of mum and dad to top up their deposits, a new report “Parental guidance not recommended” warns Australians are being caught up in a classic “Ponzi scheme”. The report by economic consultancy LF Economics – which has previously sensationally warned of a “bloodbath” when Sydney’s property bubble bursts – estimates it will now take the average first time buyer in Sydney nine years to save a deposit, up from three years in 1975. Baby boomers, who have benefited from skyrocketing prices, are increasingly able to fast track their children’s path to property ownership by either stumping up part of the deposit or putting up their own homes as collateral.

LF Economics, founded by Lindsay David and Philip Soos, warns this may be helping a new generation to over-leverage into mortgages they can’t afford, leaving their parents’ homes exposed. “Unfortunately, this loan guarantee strategy in a rising housing market for securing ever-larger amounts of debt is essentially pyramid or Ponzi finance. This leaves many parents in a dangerous predicament should their children experience difficulties making loan payments, let alone defaulting and suffering foreclosure.” “In reality, many parents – the Baby Boomer cohort – are asset-rich but income-poor. The blunt fact is few parents have enough savings and other liquid assets on hand to meet their legal obligations without selling their home if their children default,” the report warns.

Property experts disagree furiously about whether prices are in a bubble and about the best measure of housing affordability. LF Economics argues that price gains have outstripped the fundamental worth of properties. “Financial regulators have ignored the Ponzi lending practices by lenders, believing the RBA will have the adequate ability to bail them out at taxpayers’ expense the day this classic Ponzi lending scheme breaks down.”

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Wonderful.

• Biggest Overhaul Of Chinese Armed Forces In Six Decades (Bloomberg)

President Xi Jinping announced a major overhaul of China’s military to make the world’s largest army more combat ready and better equipped to project force beyond the country’s borders. Under the reorganization, all branches of the armed forces would come under a joint military command, Xi told a meeting of military officials in Beijing, the official Xinhua News Agency reported. Bloomberg in September reported details of the plan, which may also seek to consolidate the country’s seven military regions to as few as four. The Chinese president said the reform aimed to “build an elite combat force” and called on the officials to make “breakthroughs” on establishing the joint command by 2020, Xinhua said. Xi announced the changes at the end of a three-day meeting attended by about 200 top military officials, Xinhua said.

Xi, who also became chairman of the Central Military Commission upon taking power in 2012, is directly managing the overhaul. He made a public display of his commitment to the reforms when he announced that the People’s Liberation Army would shed 300,000 troops at a September military parade in Beijing to mark the 70th anniversary of Japan’s defeat in World War II. “This is the biggest military overhaul since the 1950s,” said Yue Gang, a retired colonel in the PLA’s General Staff Department. “The reform shakes the very foundations of China’s Soviet Union-style military system and transferring to a U.S. style joint command structure will transform China’s PLA into a specialized armed force that could pack more of a punch in the world.”

Under Xi, China has been more assertive over territorial claims in the East China Sea and South China Sea, raising tensions with neighbors such as Japan and the Philippines, as well as the U.S. Xi’s policy marks a shift from China’s previous approach of keeping a low profile and not attracting attention on the world stage, a philosophy laid out by former paramount leader Deng Xiaoping. “The reform enhanced the power of the Central Military Commission and its chairman,” Yue said. “This is also a lesson learned from last generation of military leaders, as the former CMC chairman had little real power over the armed forces.”

The plan also seeks to strengthen the Communist Party’s grip on the military. The army was urged to strictly follow the Party’s orders, and the plan called for enhancing the military leadership of the Party, Xinhua said. Xi also said the PLA would build a new disciplinary structure and a new legal and political committee to make sure the army is under the rule of law. Xi has also made the military one of the targets of his anti-corruption campaign as he consolidates his power over the PLA. Two former CMC vice-chairman were both expelled from the party since Xi took power in 2012, as were dozens of generals accused of everything from embezzling public funds to selling ranks.

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The exact opposite of what Erdogan wants.

• Hollande, Putin Propose Closing Turkey-Syria Border (AFP)

Russia vowed Thursday to cooperate in the fight against terrorism as French President Francois Hollande began the last leg of a diplomatic bid to step up efforts to crush the Islamic State group. Sitting down to talks with Hollande at the Kremlin, Russian President Vladimir Putin pointed to the November 13 assaults in Paris which 130 people were killed, and the IS-claimed bombing of a Russian jetliner over Egypt on October 31, with the loss of all 224 people onboard. These “make us unite our efforts against the common evil,” Putin said. “We are ready for this cooperation.” Hollande, pitching a message he had taken to other major capitals with varying degrees of success, said, “We have to form this large coalition together to strike against terrorism.” Moscow was the last stage of a whirlwind campaign by Hollande to intensify efforts to crush IS in Iraq and Syria.

[..] Hollande’s diplomatic foray suffered a heavy blow after Turkey shot down a Russian jet on Tuesday. Turkey’s military said the following day it did not know the jet was Russian but Moscow called the incident a “planned provocation”. The sole surviving pilot said he received no warning and the aircraft did not violate Turkish air space, but the Turkish military released audio recordings claiming to show the Russian jet was repeatedly warned to change course. “We still have not heard any articulate apologies from Turkey’s highest political level nor any proposals to compensate for the harm and damage,” Putin told Russian TV on Thursday. The Turkish foreign minister vowed that Ankara would not apologise for downing the plane, while Moscow said it was preparing a raft of retaliatory economic measures.

Moscow has intensified its strikes in Syria after IS claimed it brought down a Russian passenger plane over the Sinai. Ankara and Moscow have backed opposing forces in the four-year Syrian conflict, with Turkey supporting rebel groups opposed to President Bashar al-Assad, while Russia is one of his last remaining allies. Russian Foreign Minister Sergei Lavrov welcomed a proposal by Hollande to close off the Syria-Turkey border, considered the main crossing point for foreign fighters seeking to join IS. “I think this is a good proposal and… President Hollande will talk to us in greater detail about it. We would be ready to seriously consider the necessary measures for this,” Lavrov said.

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Russia will not forgive.

• Russia Raiding Turkish Firms And Sending Imports Back (Al Jazeera)

Russian police have been raiding Turkish companies in different regions of Russia and, in some cases, have suspended their operations, two Turkish businessmen with investments in the country have told Al Jazeera. Moscow has also started sending back Turkish trucks loaded with exports at the border and stopped Turkish tourists – who normally do not need visas – entering the country, at least two businessmen said. Turkish companies in Russia, particularly construction companies, are being raided. Moscow’s move comes after Turkish fighter jets shot down a Russian Sukhoi Su-24 warplane on Tuesday for allegedly violating Turkish airspace. The two sides, who are at odds over the Syrian crisis, have opposite claims over whether the airspace breach is true or not.

“Turkish companies in Russia, particularly construction companies, are being raided,” a Turkish executive with a manufacturing company active in Russia told Al Jazeera, on condition of anonymity. “They check if anyone with expired or no working visas is actively working in these companies or not. They check if working regulations were implemented or not. “There have been serious breaches in this area within construction companies and Russian authorities know it. Activities of some companies have been frozen on these grounds.” Cevdet Seylan, a businessman with trade relations in the city of Kazan, also confirmed that police had been raiding Turkish companies there. Osman Bagdatlioglu, the chairman of Turkey’s Ornamental Plants and Products Exporters Union, said that several trucks loaded with flowers returned back to Turkey on Wednesday after Russian authorities blocked their entry into the country.

“Six trucks came back yesterday. We stopped all deliveries. We stopped deliveries by planes as well,” Bagdatlioglu told Al Jazeera. [..] Meanwhile, several Turkish citizens confirmed to Al Jazeera that Russia was sending back Turkish tourists trying to enter the country by finding “excuses” and was delaying entry of Turks with work or residence permit. Turkish and Russian tourists have been able to travel between the two countries without a visa since 2011, following an agreement signed between the two countries.

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Fast track into the EU, anyone?

• Turkish Journalists Charged Over Claim Secret Services Armed Syrian Rebels (AFP)

A court in Istanbul has charged two journalists from the opposition Cumhuriyet newspaper with spying after they alleged Turkey’s secret services had sent arms to Islamist rebels in Syria. Can Dundar, the editor-in-chief, and Erdem Gul, the paper’s Ankara bureau chief, are accused of spying and ‘divulging state secrets’, Turkish media reported. Both men were placed in pre-trial detention. According to Cumhuriyet, Turkish security forces in January 2014 intercepted a convoy of trucks near the Syrian border and discovered boxes of what the daily described as weapons and ammunition to be sent to rebels fighting against Syrian president Bashar al-Assad. It linked the seized trucks to the Turkish national intelligence organisation (MIT).

The revelations, published in May, caused a political storm in Turkey, and enraged president Recep Tayyip Erdogan who vowed Dundar would pay a ‘heavy price’. He personally filed a criminal complaint against Dundar, 54, demanding he serve multiple life sentences. Turkey has vehemently denied aiding Islamist rebels in Syria, such as the Islamic State group, although it wants to see Assad toppled. “Don’t worry, this ruling is nothing but a badge of honour to us”, Dundar told reporters and civil society representatives at the court before he was taken into custody. Reporters Without Borders had earlier on Thursday urged the judge hearing the case to dismiss the charges against the pair, condemning the trial as political persecution .

The Cumhuriyet daily was awarded the media watchdog s 2015 Press Freedom Prize just last week, with Dundar travelling to Strasbourg to receive the award. “If these two journalists are imprisoned, it will be additional evidence that the Turkish authorities are ready to use methods worthy of a bygone age in order to suppress independent journalism in Turkey”, said RSF secretary general Christophe Deloire in a statement. Reporters Without Borders ranked Turkey 149th out of 180 in its 2015 press freedom index last month, warning of a dangerous surge in censorship .

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Rome fell because it didn’t protect its borders? Really?! Oh well, what do your voters know, right? Protect from whom, though? Barbarians? Is that what you now want to compare Syrian refugees to?

• Refugee Influx Threatens Fall Of EU, Warns Dutch PM (FT)

The EU risks suffering the same fate as the Roman empire if it does not regain control of its borders and stop the “massive influx” of refugees from the Middle East and central Asia, the Dutch prime minister has warned. Mark Rutte, whose government assumes the EU’s rotating presidency in January, said southern EU countries had yet to implement policies agreed to stem the flow, which has exceeded 850,000 arriving by sea so far this year, according to the International Organisation for Migration. Mr Rutte said Greece, where more than 700,000 have landed this year, might have to increase its “reception capacity” to at least 100,000. Athens has so far committed to about half that, insisting that it does not want to become a giant refugee camp.

Hundreds of thousands of refugees have travelled on from Greece and Italy to other EU countries -principally to Germany and Sweden- creating huge administrative and political strains across the union. “As we all know from the Roman empire, big empires go down if the borders are not well-protected”, said Mr Rutte in an interview with a group of international newspapers. “So we really have an imperative that it is handled.” His comments echoed a warning by Jean-Claude Juncker, president of the European Commission, that a breakdown of the EU s 26-country open-border system, known as Schengen, would put the whole union in peril. “We have to safeguard the spirit behind Schengen, Mr Juncker told the European Parliament on Wednesday.

“Yes, the Schengen system is partly comatose. But … a single currency does not exist if Schengen fails. It is one of the pillars of the construction of Europe”. Mr Rutte said the EU needed to act quickly to stem the migrant flow, adding that he was optimistic that Sunday’s summit in Brussels between President Recep Tayyip Erdogan of Turkey and EU leaders would help ease conditions by providing €3bn to improve refugee camps in Turkey and disrupting the “business model” of human smugglers channelling migrants in boats to Greece. “It’s not the case that you will close a deal and then, on Monday, everything is delivered”, he said. “It’s not like you buy a house. But I think, on both sides, we need confidence building.”

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Still plenty to learn: Reuters put this story in its ‘Lifestyle’ section.

• After Uproar, German Town Warms To Refugees Who Took Over Church (Reuters)

When Daniela Handwerk looked out of her window earlier this month and saw the church across the street being emptied out and turned into a refugee shelter, she panicked – and she was not alone. As news of the plan to house 50 refugees in the church and suspend Sunday services spread through this community on the outskirts of Oberhausen, in the Ruhr valley, angry residents pressed church and city officials to reconsider. Some worried about safety, others about real estate values and, at a raucous meeting of locals held in the church shortly before the refugees arrived, one man complained that his new Mercedes might get scratched. But nearly a month on, the uproar, played up at the start in the German media, has died down and residents are beginning to warm to the refugees, including 20 children, who are camped out in the ochre-colored brick church built in the early 20th century.

“Initially, there was fear among the neighbors and I don’t exclude myself,” said Handwerk. “I have two small children and of course I was worried about what was going to happen here.” Now she is part of a local support group that counts roughly 100 volunteers. They teach German, assist with bureaucratic hurdles and play with the refugee children. The Protestant church, surrounded by pointy-roofed stone buildings that were built to house miners, is the first in Germany to have been set aside for refugees since they began streaming into the country by the thousands in late summer. Germany expects about 1 million migrants to arrive this year, far more than any other European country.

German politicians are under intense pressure to stem the flow as local communities complain that they are being overwhelmed. But the story of the church in Oberhausen suggests that Germany’s “Willkommenskultur”, or welcome culture, remains alive and well in some pockets of the country. Local resident Sebastian Possner launched a neighborhood initiative nearly a month ago to protest against the conversion of the church. Now he says his kids are playing with the refugee children and that he’s donated bicycles and toys. “Some of them even manage to greet us in German now,” Possner said. Up to 140 refugees are landing in Oberhausen every week, forcing authorities to come up with new locations to house them. City officials say they had little choice but to use the church.

In early November, workers removed the altar and dozens of chairs, replacing them with metal beds, which are separated by makeshift partitions to give the church’s new residents a semblance of privacy. There was no question of removing the large metal cross that sits in the church, even though many of the new residents are Muslim. One reason for the initial uproar, locals say, was that many of them learned about the plans in the newspaper. “In the beginning, many older members of the parish couldn’t comprehend what was happening to the church they had been going to for so many years, but we’ve come a long way and people now appreciate the importance of Christian charity,” pastor Stefanie Zuechner said.

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Bad weather coming this weekend. Gale force winds and lots of rain.

• Stranded Migrants Try To Storm Into Macedonia, Tear Down Fence (Reuters)

Hundreds of Moroccans, Algerians and Pakistanis tried to storm the border between Greece and Macedonia on Thursday, tearing down part of the barbed wire fence at the crossing and demanding to be allowed to carry on into northern Europe. They were among about 1,500 migrants who have been stranded near Greece’s northern border town of Idomeni after Europe decided to filter migrants, allowing only those fleeing conflict in Syria, Afghanistan and Iraq to cross into the Balkans. Some threw stones at police while others fell to their knees shouting, “We want to go to Germany!” A few ran across into Macedonia but were quickly detained by police. Police in riot gear guarded a gap where migrants had torn down about 30-40 meters of fence, and a Reuters photographer saw riot police armed with assault rifles.

More than 800,000 refugees and migrants from the Middle East, Africa and Asia have arrived in Europe by sea so far this year, most through the Greek islands, seeking a better life in wealthier European countries such as Germany. Balkan countries have clamped down at their borders recently to stem the largely unchecked stream of people, leaving tens of thousands stranded in Macedonia, Serbia and Croatia. The United Nations has condemned the new restrictions on travel based on nationality. So far, only 148 refugees have been relocated from Italy and Greece to other EU countries under a plan for transferring 160,000 agreed by EU leaders in September.

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