Lehman Archives - The Automatic Earth

Lehman sold bad loans to banks for a fee so it could look better, only to buy them back days later. It was very basic fraud. And Dick Fuld walked away.

• Repo 105 (Ben Hunt)

Every time Dick Fuld’s publicists succeed in getting a “redemption story” published in the Wall Street Journal or New York Times, I’m going to write an Epsilon Theory brief about Repo 105, the fraudulent scheme that Lehman Brothers ran for years to hide its deteriorating financial condition from investors and regulators alike.

[..] Repo 105 was a multiyear scheme by Lehman to defraud the government and its own investors by falsifying the actual amount of loans it had on the books, making Lehman look safer than it actually was. It worked like this. A few days before the end of the calendar quarter, Lehman would “sell” billions of dollars worth of loans to another bank. I put “sell” in quotation marks, because Lehman ALSO had an agreement with these other banks to buy the loans back a few days after the quarter ended for the same price as they were sold, plus enough money to cover whatever the going interest rate was on that cash for the few days it was in Lehman’s hands. This is what’s called a repurchase agreement, or repo, hence the name Repo 105 (the 105 refers to the 5% overcollateralization that counterparty banks required to lend the cash to Lehman even for a few days – THEY knew Lehman was in trouble).

Since financial reporting happens at the end of the quarter, Lehman’s books would look like they had more cash and fewer loans than they actually did. Surely, you say, no law firm would bless this blatant attempt to cook the books? And I say, don’t call me Shirley. I say, well … no US law firm would bless this, so naturally Lehman found a UK firm, Linklaters, to say that this was, in fact, technically a “true sale”. Even then, to pull this off Lehman had to run Repo 105 through their offshore subsidiaries, not through their US-chartered entities. It was really expensive for Lehman to run Repo 105. But also entirely necessary, or else the entire house of cards that WAS Lehman would have collapsed well before September, 2008.

Risk. It’s back.

• The Everything Bubble” Threatens $400 Trillion In Assets (ZH)

By now, it’s a very familiar question: how high can the Fed hike rates before it causes a major market “event.” Two weeks ago, Stifel analyst Barry Banister became the latest to issue a timeline on how many more rate hikes the Fed can push through before the market is finally impacted. According to his calculations, just two more rate hikes would put the central bank above the neutral rate – the interest rate that neither stimulates nor holds back the economy. The Fed’s long-term projection of its policy rate has risen from 2.8% at the end of 2017 to 2.9% in June. As the following chart, every time this has happened, a bear market has inevitably followed.

A similar argument was made recently by both Deutsche Bank and Bank of America, which in two parallel analyses observed last year that every Fed tightening cycle tends to end in a crisis. In a report issued on Friday, BCA’s strategists make the key point that the performance of bonds – and stocks – in an inflation scare would depend on the relative size of the inflationary impulse compared with the disinflationary impulse that resulted from sharply lower risk-asset prices. They make the point that if central banks were more concerned about the inflationary impulse, which at least for Fed chair Powell appears to be the case for now – Janet Yellen’s “lower for longer revised forward guidance” notwithstanding – they would have to keep tightening – in which case, bond yields would be liberated to reach elevated territory.

Conversely, if the bigger worry was the disinflationary impulse, which arguably is the case from a legacy standpoint, central banks would quickly reverse course, and bond yields would return to the lowlands. Thus, the disinflationary impulse from lower risk-asset prices would end up as the bigger issue. [..] BCA estimates that the total value of global risk-assets is $400 trillion, equal to about five times the size of the global economy. The takeaway is that any inflationary impulse would – through higher bond yields – undermine the valuation support of global risk-assets that are worth several times the size of the global economy.

“In a rising housing market, delinquencies will always be low but are not an indicator of future default risks. But home prices are an indicator of default risk.”

• What Can Cause the Next Mortgage Crisis in the US? (WS)

Mortgage delinquencies at all commercial banks in the US inched down to 3.14% in the second quarter, the lowest since Q2 2007, according to the Federal Reserve. But after those soothingly low delinquency rates in 2007, something happened. By Q3 2008, the delinquency rate hit 5.2%, and in Q4 2009, it went over 10%, and stayed in the double-digits until Q1 2013. This was the mortgage crisis. And we’re a million miles away from it, thank God. Or are we? This chart compares home prices in the US (green, left scale) to delinquency rates (red, right scale). Delinquency rates started surging after home prices started falling. The inflection point is marked by the vertical purple line, labeled “it starts”:

Home prices began falling in 2006. By 2008, some homeowners were seriously “underwater” – they owed more on their house than the house was worth. When they ran into financial trouble because they were in over their heads, or because one of the breadwinners in the household lost their jobs, or because they’d lied on their mortgage application and never had enough income to begin with, or because they were investors who couldn’t make the math work out anymore, or whatever, they were stuck. In a rising housing market, they would just sell the home and pay off the mortgage. But they couldn’t sell their home because it was worth less than the mortgage, and default was the only option. The chart above shows the relationship between home prices and delinquencies. In a rising housing market, delinquencies will always be low but are not an indicator of future default risks. But home prices are an indicator of default risk.

“The U.S. government is “missing” $21 trillion between the DOD and HUD.”

• Dollar Dominant & Dangerous, System Not Stable – Catherine Austin Fitts (USAW)

Investment advisor and former Assistant Secretary of Housing, Catherine Austin Fitts, predicts the global financial system “will take some big hits before the end of the year.” Fitts explains, “Right now, economists say the dollar is ‘dangerous and dominant.’ It’s still, if you look at the market shares around the world, it’s still very, very significant portion of total reserves. So, it’s still very important. At the same time, the U.S. dollar hegemony is probably not going to last forever . . . So, I think the long term dollar looks very weak. Short term, it doesn’t look like it’s coming apart anytime soon, as far as I can see. What that means is when you have something that is dangerous and dominant, you have the possibility of extreme volatility events.

That’s the new code word for the ‘you know what’ hits the, you know what. Whether it’s different countries exploding economically, or we whether are pressuring people that makes them very uncomfortable, these kinds of fights over shrinking pies are very dangerous because they mean covert wars. They mean overt wars, and the more we steal pies from each other instead of make new pies, the worse the situation gets. That’s what you are seeing. The system is not stable.” [..] There is good reason people are going to real assets. The U.S. government is “missing” $21 trillion between the DOD and HUD. This fact was uncovered by Fitts and economist Dr. Mark Skidmore last year.

What was the government’s answer to this gigantic accounting fraud that is the size of the federal deficit? Give the government’s budgets basically classified national security status. Fitts says, “Apparently, the people leading the audit have come to them and said if we do this audit, we will disclose classified projects. So, the board (Federal Accounting Standards Advisory Board – FASAB) came out with a new policy. I say it is illegal. You cannot do it under the financial management laws, and you certainly cannot do it under the Constitution, and it said you can keep classified off the books, which means you can cook the books and you can basically do whatever you want.

What was that about reality and fiction?

• Shell Faces One Of The Biggest Corruption Cases In Corporate History (Ind.)

Giant oil companies, offshore accounts, ex-MI6 agents, champagne lunches, a former Nigerian president and allegations of one of the biggest bribes ever paid – the corruption case against Shell and Italy’s Eni filed by prosecutors in Milan over a shady $1.3bn deal for a vast African oil field has all the elements of an espionage thriller. The latest twists thicken the plot further with a cache of documents seized in a raid on a Swiss financier’s apartment that could be crucial to the case, leaving prosecutors in a race against time to get them to Milan as trial hearings get underway this week. The Geneva raid uncovered a briefcase belonging to Emeka Obi, a middleman who received millions of dollars from the deal and is in the dock along with several senior Shell and Eni executives.

Inside the briefcase, Swiss prosecutors found a laptop, two Nigerian passports, five sim cards and a hard drive containing 41,000 documents that prosecutors believe could be crucial to the trial playing out on the other side of the Alps. The stakes are high. Italian prosecutors allege that, of the total $1.3bn fee paid by Shell and Eni for the oil field, $1.1bn went not into the coffers of the Nigerian state but the accounts of former oil minister Dan Etete who then distributed hundreds of millions to well-connected individuals, including former president Goodluck Jonathan. The amount distributed as bribes is more than the entire Nigerian healthcare budget for 2018, in a country where 87 million people live in extreme poverty – more than any other country on earth.

She’s stuck. Dangerous position.

• Only Alternative To Chequers Is No Brexit Deal, Says Theresa May (G.)

May said: “I believe we will get a good deal. We will bring that back from the EU negotiations and put that to parliament. I think that the alternative to that will be not having a deal.” The Chequers plan prompted the resignations of David Davis and Boris Johnson. May tried again to remake the case for it by claiming the other options put forward by the EU were unacceptable. “The European Union had basically put two offers on the table. Either the UK stays in the single market and the customs union – effectively in the EU – that would have betrayed the vote of the British people,” she said.

“Or, on the other side, a basic free trade agreement but carving Northern Ireland out and effectively keeping Northern Ireland in the European Union and Great Britain out. That would have broken up the United Kingdom, or could have broken up the United Kingdom. Both of those were unacceptable to the UK. “We said ‘no’ … we’re going to put our own proposal forward and that’s what Chequers is about … It unblocked the negotiations.”

Preparing to blame the EU for failing.

• Brussels Nearing Impasse With May Over Irish Border Proposal (G.)

The EU is proving unable to convince Theresa May that by using “trusted trader schemes” and technology its proposal to in effect keep Northern Ireland in the customs union and single market will not draw a border in the Irish sea. The Brexit negotiations have reached an impasse over the failure to find an acceptable solution to avoiding a hard border on the island of Ireland after the UK leaves the EU. The solution proposed by Brussels in which Northern Ireland has a different status from the rest of the UK has been rejected by the prime minister as involving the economic and constitutional “dislocation” of the country. The EU’s chief negotiator, Michel Barnier, has nevertheless repeatedly insisted that the issue can be “de-dramatised”.

Barnier has sought to show that the level of trade between Belfast and the rest of the UK is minimal, and that the checks that would be required do not pose a constitutional threat to the British government. But according to what is described as a diplomatic note seen by the Times, the EU is struggling to convince the UK that it is significant that checks at a border could be avoided entirely for many companies through trusted trade schemes. The diplomatic note, said to have been drafted following a meeting of EU ambassadors last Wednesday with Barnier’s deputy, Sabine Weyand, reports that the UK has not been “helpful” over the issue. The note says: “The biggest unsolved problem is Northern Ireland. There is a political mobilisation in the UK in this regard. Therefore, we are trying to clarify the EU position. The controls or checks only have to be organised in a way that would not endanger the EU single market.”

How about you start by picking your own strawberries?

• Four In 10 Think British Culture Is Undermined By Multiculturalism (G.)

A large minority of people in the UK believe multiculturalism has undermined British culture and that migrants do not properly integrate, according to some of the broadest research into the population’s attitudes to immigration. The study, conducted over the last two years, also reflects widespread frustration at the government’s handling of immigration, with only 15% of respondents feeling ministers have managed it competently and fairly. On balance, the UK population appears to be slightly more positive than negative about the impact of immigration; however, 40% of respondents agreed that having a wide variety of backgrounds has undermined British culture. More than a quarter of people believe MPs never tell the truth about immigration and half the population wants to see a reduction in the numbers of low-skilled workers coming into Britain from the EU.

The study was based on a survey of 3,667 adults carried out in June by ICM, as well as 60 citizens’ panels carried out on behalf of the thinktank British Future and the anti-racism group Hope Not Hate. “The lack of trust we found in the government to manage immigration is quite shocking,” said Jill Rutter, the director of strategy for British Future. “People want to have their voices heard on the choices we make, and to hold their leaders to account on their promises. While people do want the UK government to have more control over who can come to the UK, most of them are ‘balancers’ – they recognise the benefits of migration to Britain, both economically and culturally, but also voice concerns about pressures on public services and housing.”

“Should be solved shortly..”

• Musk Says Tesla Now In ‘Delivery Logistics Hell’ (R.)

Tesla Inc’s Chief Executive Officer Elon Musk on Sunday acknowledged that the electric carmaker’s problems have now shifted to delivery logistics from production delays, the latest speed bump in its efforts to achieve profitability. “Sorry, we’ve gone from production hell to delivery logistics hell, but this problem is far more tractable. We’re making rapid progress. Should be solved shortly,” Musk said in a tweet here in response to a customer complaint on delivery delay. The 47-year-old billionaire who earlier this month faced investor ire over smoking marijuana on a live web show, has indicated in the past that Tesla’s customers may face a longer response time because of a significant increase in vehicle delivery volume in North America.

238 academics signed. But it’s not the conversation we’ll have.

• The EU Needs A Stability And Wellbeing Pact, Not More Growth (G.)

This week, scientists, politicians, and policymakers are gathering in Brussels for a landmark conference. The aim of this event, organised by members of the European parliament from five different political groups, alongside trade unions and NGOs, is to explore possibilities for a “post-growth economy” in Europe. For the past seven decades, GDP growth has stood as the primary economic objective of European nations. But as our economies have grown, so has our negative impact on the environment. We are now exceeding the safe operating space for humanity on this planet, and there is no sign that economic activity is being decoupled from resource use or pollution at anything like the scale required. Today, solving social problems within European nations does not require more growth. It requires a fairer distribution of the income and wealth that we already have.

Growth is also becoming harder to achieve due to declining productivity gains, market saturation, and ecological degradation. If current trends continue, there may be no growth at all in Europe within a decade. Right now the response is to try to fuel growth by issuing more debt, shredding environmental regulations, extending working hours, and cutting social protections. This aggressive pursuit of growth at all costs divides society, creates economic instability, and undermines democracy. Those in power have not been willing to engage with these issues, at least not until now. The European commission’s Beyond GDP project became GDP and Beyond. The official mantra remains growth — redressed as “sustainable”, “green”, or “inclusive” – but first and foremost, growth. Even the new UN sustainable development goals include the pursuit of economic growth as a policy goal for all countries, despite the fundamental contradiction between growth and sustainability.

Another way to put it. You could easily do this for 70 species, or 700, 7000.

• 7 Endangered Species That Could (Almost) Fit In A Single Train Carriage (G.)

Some species are so close to extinction, that every remaining member can fit on a New York subway carriage (if they squeeze). All estimates come from the IUCN Red List, 2018.

Ben Bernanke’s Waffle House

Sep 162018

September 16, 2018 Posted by Raúl Ilargi Meijer at 1:48 pm Finance Tagged with: Appalachia, Bernanke, central bank, Draghi, fools, Kuroda, Lehman, Waffle House, Yellen 4 Responses »

Salvador Dali Spain 1936-38

Yes, it is hard to believe, but still happening: 10 years after Lehman the very same people who either directly caused the financial crisis of 2008 or made things much much worse in its aftermath, are not only ALL walking around freely and enjoying even better paid jobs than 10 years ago, they are even asked by the media to share their wisdom, comment on what they did to prevent much much worse, and advise present day politicians and bankers on what THEY should do.

You know, what with all the wisdom, knowledge and experience they built up. because that’s the first thing you’ll hear them all spout: Oh YES!, they learned so many lessons after that terrible debacle, and now they’re much better prepared for the next crisis, if it ever might come, which it probably will, but not because of but despite what their wise ass class did back in the day.

Which never fails to bring back up the question about Ben Bernanke, who said right after Lehman that the Fed was entering ‘uncharted territory’ but ever after acted as if the territory had started looking mighty familiar to him, which is the only possible explanation for why he had no qualms about throwing trillion after trillion of someone else’s many at the banks he oversaw.

Somewhere along the line he must have figured it out, right, or he wouldn’t have done that?! He couldn’t still have been grasping in the pitch black dark the way he admitted doing when he made the ‘uncharted territory’ comment?! Thing is, he never returned to that comment, and was never asked about it, and neither were Draghi, Kuroda or Yellen. Did they figure out something they never told us about, or were and are they simple blind mice?

We have an idea, of course. Because we know central bankers serve banks and bankers, not countries or societies. Ergo, after Lehman crashed, whether that was warranted or not, Bernanke and the Fed focused on saving the banks that were responsible for the crisis, instead of the people in the country and society that were not.

They threw their out-of-thin-air trillions at making the asset markets look good, especially stock markets. Knowing that’s what people look at, and knowing foreclosures are of fleeting interest and can be blamed on borrowers, not lenders, anyway when necessary.

And obviously they knew and know they are and were simply blowing yet another bubble, just this time the biggest one ever, but the wealth transfer that has taken place under the guise of saving the economy has made the rich so much money they can’t and won’t complain for a while. They actually WILL eat cake.

Everyone else, sorry, we ran out of money, got to cut pensions and wages and everything else now. Healthcare? Nice idea, but sorry. Housing, foodstamps? Hey, what part of ‘the government is broke’ don’t you understand? You’re on your own, buddy. Remember the America Dream? Let that be your Yellow Brick Road.

The banking class is going to divest of their shares, while the individuals, money funds and pensions funds who are also in stocks because nothing else made money, will find their cupboards and cabinets replete with empty bags. Right after that the economy will start tanking, and for real this time. Want a loan to buy a home, a car, to start a business? Sorry, told you, there’s no money left.

But look, the banks are still standing! You don’t understand this, but that’s much more important. And oh well, those were all honest mistakes. And the ones that perhaps weren’t, shareholders paid big fines for those, didn’t they? See, we can’t have those banking experts in jail, because we need them to build the economy back up after the next crisis. The knowledge and experience, you just can’t replace that.

And it will be alright, you’ll see. Sure, it’ll be like Florence and all of her sisters blew themselves all over flyover country, but hey, that cleans up a lot of stuff too, right? And who needs all that stuff anyway? What is more important for the economy after all, Lower Manhattan or Appalachia?

And who are you going to blame for all this? We strongly suggest you blame Donald Trump, we sure as hell will at the Fed. So just fall in line, that’s better for everyone. Blame his tax cuts, or better even, blame his trade wars. Nobody likes those, and they sound credible enough to have caused the crash when it comes.

Anyway, while you’re stuck with the emergency menu at Waffle House, we hope your socks’ll dry soon, we really do, and we’re sorry about Aunt Mildred and the dogs and cats and chickens that have gone missing, but then that’s Mother Nature, don’t ya know?! Even we can’t help that. All we can really do is keep our own feet dry.

Central bankers haven’t merely NOT saved the economy, they have used the financial crisis to feed additional insane amounts of money to those whose interests they represent, and who already made similarly insane amounts, which caused the crisis to begin with. They have not let a good crisis go to waste.

But judging from the comments and ‘analyses’ on Lehman’s 10-year anniversary, the financial cabal still gets away with having people believe they’s actually trying to save the economy, and they just make mistakes every now and then, because they’re only human and uncharted territory, don’t you know?! Well, if you believe that, know that you’re being played for fools. Preferences and priorities are crystal clear here, and you’re not invited.

All the talk about how important it is that a central bank be independent is empty nonsense if that does not also, even first of all, include independence from financial institutions like commercial banks etc. Well, it doesn’t. Ben Bernanke’s Waffle House is nothing but a front for Grand Theft Auto.

Debt Rattle September 16 2018

Sep 162018

September 16, 2018 Posted by Raúl Ilargi Meijer at 9:50 am Finance Tagged with: Brexit, China, dairy, Florence, Gaddafi, Lehman, Mangkhut, meat, tariffs, Trump 9 Responses »

Pablo Picasso Tête de femme 1926

• Typhoon Mangkhut Heads Towards China As Dozens Killed In Philippines (G.)

• Florence Dumps ‘Epic’ Amounts Of Rain On Carolinas (BBC)

• ‘We’re Using the Future for a Fiscal Dumping Ground’ (Barron’s)

• The Lehman Brothers Bankruptcy (ET)

• Give Britain A New Referendum On Brexit – London Mayor (G.)

• Italy Faults France for Gaddafi’s Downfall and Migrant Crisis (Sp.)

• Trump ‘Likely’ To Announce New China Tariffs As Early As Monday (R.)

• Europe’s Meat And Dairy Production Must Halve By 2050 (G.)

Mangkhut is twize the size of Florence and a lot stronger. Tons of scary videos from Hong Kong.

• Typhoon Mangkhut Heads Towards China As Dozens Killed In Philippines (G.)

Typhoon Mangkhut killed at least 30 people in the Philippines as it obliterated homes and crops and caused massive flooding, and is now on course to plough into China’s southern coast. Presidential adviser Francis Tolentino said the heaviest casualty was recorded in the mountainous Cordillera region in northern Luzon, where heavy rains caused landslides that left 24 people dead and 13 more missing. Four others – including two children – were buried in a landslide in Nueva Ecija, another in Kalinga, and one person was killed by a falling tree in Ilocos Sur, Tolentino said.

The storm, which was the strongest the region has seen this year, was not as ferocious as feared, though due to the remote areas where the typhoon hit, the full death toll and extent of the destruction is still unknown. By Sunday morning, it was hurtling towards China’s heavily populated southern coast with winds of 177km/h (110mph). In Hong Kong, where the huge storm is expected to skirt just 100km (62 miles) south of the city, officials raised the storm alert to a T10, its highest level. Businesses have been boarded up and most flights cancelled.

Philippines (2018) – Typhoon Mangkhut – Seems like the world's ending
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.#Hurricane #hurricaneflorence #Florence #NorthCarolina #SouthCarolina #EastCoast #Virginia #NationalHurricaneCenter #landfall #TropicalStorm #Typhoon #TyphoonMangkhut #weather #hurricanes #MangKhut pic.twitter.com/MsGQPiiMrV

— Ruivismo (@blogruivismo) September 16, 2018

The water has nowhere to go.

• Florence Dumps ‘Epic’ Amounts Of Rain On Carolinas (BBC)

US east coast communities face “epic amounts of rainfall” from tropical storm Florence, which has been linked to at least 12 deaths. It has caused catastrophic flooding since arriving as a category one hurricane on Friday. Some towns have already seen 2ft (60cm) of rain in two days, with totals forecast to top 3.5ft (1m) in places. It is feared that more communities could become deluged as the storm crawls west at only 2mph (3km/h). “This system is unloading epic amounts of rainfall, in some places measured in feet and not inches,” North Carolina Governor Roy Cooper said on Saturday. He urged against residents attempting to return home, warning that “all roads in the state are at risk of floods”.

“There’s no snooze button on the national debt clock..”

• ‘We’re Using the Future for a Fiscal Dumping Ground’ (Barron’s)

There’s no snooze button on the national debt clock, though you wouldn’t know it by the way public alarm has quieted as the situation grows worse. October begins a new fiscal year for the U.S. government—and a faster ballooning of how much it owes. Barring a behavioral miracle in Congress, trillion dollar yearly budget shortfalls will return, perhaps as soon as the coming year. And unlike the ones brought by the financial crisis and Great Recession of 2007-09, these will start during a period of relative plenty, and won’t end. Debt held by the public, a conservative tally of what America owes, will swell from $15.7 trillion at the end of September, or 78% of GDP to $28.7 trillion in a decade, or 96% of GDP.

Those estimates, provided by the Congressional Budget Office, are based on reasonable assumptions about economic growth, inflation, employment, and interest rates, but they leave out some important things. They assume that the nation’s need for increased infrastructure investment, estimated by the American Society of Civil Engineers at $1.4 trillion through 2025, goes unmet. They don’t account for the possibility of another financial crisis, or war, or a rise in the frequency or severity of natural disasters, and they assume that some Trump tax cuts will expire in 2025.

There is no clear milestone that marks the moment a country loses control of its finances, but consider how the bar has already been lowered for what seems possible in Congress. Even debt scolds no longer talk seriously about America paying down what it owes, or holding the dollar amount steady. The new path of fiscal prudence involves containing debt at some manageable percentage of GDP, and the opportunity for that is slipping.

“If I have to blame anybody, I will blame Bernanke..”

• The Lehman Brothers Bankruptcy (ET)

Sept. 15 marks the 10th anniversary of the collapse of Lehman Brothers, which had unprecedented ramifications worldwide. Painful lessons have been learned, but the debate continues among economists about whether the crisis could have been handled better. Lehman was the fourth-largest U.S. investment bank before it filed for bankruptcy. With $639 billion in assets, it was the biggest bankruptcy in U.S. history. It was also the largest victim of the subprime mortgage crisis that swept through global financial markets. And its collapse intensified the market shock, which wiped out nearly $10 trillion from global equity markets in October 2008, the largest monthly decline on record. The policymakers who handled Lehman’s bankruptcy in 2008 argue they did all they could.

However, economist Steve Keen, author of “Can We Avoid Another Financial Crisis?”, believes policymakers had a great deal of responsibility for causing the crisis. Keen is a harsh critic of mainstream economists who ignored mounting private debt in their forecasts and policy recommendations. “They could have prevented the bubble burst in the first place,” he said. He thinks the former chairman of the Federal Reserve, Ben Bernanke, was one of those who failed to recognize the risk created by the private debt explosion. “All these regulators were collecting data on global private debt and not worrying about it because economic theory said it did not matter,” he said. “If I have to blame anybody, I will blame Bernanke,” he said, adding that Bernanke “was the main academic economist saying ‘Don’t worry about the level of private debt.’”

But when? It’ll take a long time still before it becomes an option, and by then Brexit will be much closer.

• Give Britain A New Referendum On Brexit – London Mayor (G.)

The mayor of London has issued a dramatic call for another referendum on EU membership, insisting that the people must be given the chance to reject a Brexit deal that will be bad for the economy, jobs and the NHS. Writing in the Observer, Sadiq Khan says that, with so little time left to negotiate, there are now only two possible outcomes: a bad deal for the UK or “no deal” at all, which will be even worse. “They are both incredibly risky and I don’t believe Theresa May has the mandate to gamble so flagrantly with the British economy and people’s livelihoods,” he writes. Khan says that backing a second referendum was never something he expected to have to do.

But so abject has been the government’s performance, and so great is the threat to living standards and jobs, he says, that he sees no alternative than to give people a chance to stay in the EU. “This means a public vote on any Brexit deal obtained by the government, or a vote on a ‘no-deal’ Brexit if one is not secured, alongside the option of staying in the EU,” he writes. “People didn’t vote to leave the EU to make themselves poorer, to watch their businesses suffer, to have NHS wards understaffed, to see the police preparing for civil unrest or for our national security to be put at risk if our cooperation with the EU in the fight against terrorism is weakened.” The intervention from one of Labour’s most powerful politicians will put yet more pressure on the party leader Jeremy Corbyn to throw his support behind another referendum at Labour’s annual conference, which opens in Liverpool next weekend.

Italy had signed -oil- deals with Gaddafi.

• Italy Faults France for Gaddafi’s Downfall and Migrant Crisis (Sp.)

In Rome, the responsibility for the influx of migrants is laid on France, which persuaded NATO countries to get rid of Gaddafi. As a result, Libya is now torn apart by rival factions and an ongoing conflict between its two governments. “It is clearly now undeniable that this country (Libya) finds itself in this situation because someone, in 2011, put their own interests ahead of those of the Libyan people and of Europe itself,” Italian Defense Minister Elisabetta Trenta wrote on Facebook. “France, from this point of view, is partly to blame,” she added. Italian parliamentary speaker Roberto Fico was even more explicit, pointing to “a serious problem that has come from France.”

Italy’s Deputy Prime Minister Matteo Salvini also chimed in, blaming former French President Nicolas Sarkozy for unleashing the war in Libya and the present government for adding fuel to the flames of the Libyan conflict. Italians are filled with nostalgia each time they recall the time when Rome and Tripoli signed an agreement to allow Italian companies to extract oil in Libya. The Gaddafi government was holding back the flow of migrants to Europe and the country’s GDP was the second biggest in Africa and the first among the Arabic-speaking states of the Maghreb. In Rome, the emphasis is that the decision to overthrow Gaddafi was made without taking into account the views of Italy.

Seven years on, the French look equally unenthusiastic about the so-called “Libyan Revolution,” with President Emmanuel Macron admitting that the intervention was a mistake. “I remember how some people decided to get rid of the Libyan leader without having any action plan for the future. We plunged Libya into a situation of lawlessness without having a chance to rectify the situation,” Macron said when speaking in the Tunisian parliament earlier this year.

Don’t stop talking.

• Trump ‘Likely’ To Announce New China Tariffs As Early As Monday (R.)

U.S. President Donald Trump is likely to announce new tariffs on about $200 billion on Chinese imports as early as Monday, a senior administration official told Reuters on Saturday. The tariff level will probably be about 10 percent, the Wall Street Journal reported, quoting people familiar with the matter. This is below the 25 percent the administration said it was considering for this possible round of tariffs. The upcoming tariffs will be on a list of items that included $200 billion worth of internet technology products and other electronics, printed circuit boards and consumer goods including Chinese seafood, furniture and lighting products, tires, chemicals, plastics, bicycles and car seats for babies.

It was unclear if the administration will exempt any of the products that were on the list, which was announced in July. On Friday, White House spokeswoman Lindsay Walters said Trump “has been clear that he and his administration will continue to take action to address China’s unfair trade practices. We encourage China to address the long-standing concerns raised by the Unites States.” Trump had already directed aides to proceed with tariffs, despite Treasury Secretary Steven Mnuchin’s attempts to restart trade talks with China.

Do you see it happening?

• Europe’s Meat And Dairy Production Must Halve By 2050 (G.)

Europe’s animal farming sector has exceeded safe bounds for greenhouse gas emissions, nutrient flows and biodiversity loss, and urgently needs to be scaled back, according to a major report. Pressure on livestock farmers is set to intensify this century as global population and income growth raises demand for meat-based products beyond the planet’s capacity to supply it. The paper’s co-author, Professor Allan Buckwell, endorses a Greenpeace call for halving meat and dairy production by 2050, and his report’s broadside is squarely aimed at the heart of the EU’s policy establishment.

Launching the report, the EU’s former environment commissioner Janez Potocnik said: “Unless policymakers face up to this now, livestock farmers will pay the price of their inactivity. ‘Protecting the status quo’ is providing a disservice to the sector.” The study calls for the European commission to urgently set up a formal inquiry mandated to propose measures – including taxes and subsidies – that “discourage livestock products harmful to health, climate or the environment”. Livestock has the world’s largest land footprint and is growing fast, with close to 80% of the planet’s agricultural land now used for grazing and animal feed production, even though meat delivers just 18% of our calories.

Debt Rattle September 14 2018

Sep 142018

September 14, 2018 Posted by Raúl Ilargi Meijer at 8:28 am Finance Tagged with: Bailouts, Brexit, China, extinction, Florence, Lehman, mass surveillance, Salvini, underwater 1 Response »

Claude Monet The sheltered path 1888

• The Bailouts for the Rich Are Why America Is So Screwed Right Now (Stoller)

• Ten Years After the Crash, We’ve Learned Nothing (Taibbi)

• Millions Of Americans Trapped In Underwater Homes 10 Years After Crisis (R.)

• No-Deal Brexit Could Lead To Financial Crisis As Bad As 2008 – Carney (Ind.)

• Europe’s Top Rights Court Rules Against Britain Over Mass Surveillance (AFP)

• S&P Sees Major Opportunity In China’s $11 Trillion Bond Market (CNBC)

• China Says World Trade System Not Perfect, Needs Reform (R.)

• ‘Little Mussolinis’: EU Chief Angers Italy With Comment On Far Right (R.)

• Third Of Earth’s Surface Must Be Protected To Prevent Mass Extinction (Ind.)

• Hurricane Florence Deluges Carolinas Ahead Of Landfall (R.)

And there are different ways…

• The Bailouts for the Rich Are Why America Is So Screwed Right Now (Stoller)

In 1933, when FDR took power, global banking was essentially non-functional. Bankers had committed widespread fraud on top of a rickety and poorly structured financial system. Herbert Hoover, who organized an initial bailout by establishing what was known as the Reconstruction Finance Corporation, was widely mocked for secretly sending money to Republican bankers rather than ordinary people. The new administration realized that trust in the system was essential. One of the first things Roosevelt did, even before he took office, was to embarrass powerful financiers. He did this by encouraging the Senate Banking Committee to continue its probe, under investigator Ferdinand Pecora, of the most powerful institutions on Wall Street, which were National City (now Citibank) and JP Morgan.

Pecora exposed these institutions as nests of corruption. The Senate Banking Committee made public Morgan’s “preferred list,” which was the group of powerful and famous people who essentially got bribes from Morgan. It included the most important men in the country, like former Republican President Calvin Coolidge, a Supreme Court Justice, important CEOs and military leaders, and important Democrats, too. Roosevelt also ordered his attorney general “vigorously to prosecute any violations of the law” that emerged from the investigations. New Dealers felt that “if the people become convinced that the big violators are to be punished it will be helpful in restoring confidence.” The DOJ indicted National City’s Charles Mitchell for tax evasion.

This was part of a series of aggressive attacks on the old order of corrupt political and economic elites. The administration pursued these cases, often losing the criminal complaints but continuing with civil charges. This bought the Democrats the trust of the public. When Roosevelt engaged in his own broad series of bank bailouts, the people rewarded his party with overwhelming gains in the midterm elections of 1934 and a resounding re-election in 1936. Along with an assertive populist Congress, the new administration used the bailout money in the RFC to implement mass foreclosure-mitigation programs, create deposit insurance, and put millions of people to work. He sought to save not the bankers but the savings of the people themselves.

Neil Barofsky on Twitter: “No need to write a retrospective on the bailouts, @mtaibbi has got it all covered here.”

Taibbi’s reply: “Wow. Can I unpublish so you will write one? (Neil wrote the definitive book on the subject)”.

(Barofsky was the SIGTARP, the Special United States Treasury Department Inspector General overseeing the Troubled Assets Relief Program from late 2008 till early 2011)

• Ten Years After the Crash, We’ve Learned Nothing (Taibbi)

Too Big To Fail shows Fuld on a rant: “People act like we’re crack dealers,” Fuld (James Woods) gripes. “Nobody put a gun to anybody’s head and said, ‘Hey, nimrod, buy a house you can’t afford. And you know what? While you’re at it, put a line of credit on that baby and buy yourself a boat.” This argument is the Wall Street equivalent of Reagan’s famous Cadillac-driving “welfare queen” spiel, which today is universally recognized as asinine race rhetoric. Were there masses of people pre-2008 buying houses they couldn’t afford? Hell yes. Were some of them speculators or “flippers” who were trying to game the bubble for profit? Sure. Most weren’t like that – most were ordinary working people, or, worse, elderly folks encouraged to refinance and use their houses as ATMs – but there were some flippers in there, sure.

People pointing the finger at homeowners are asking the wrong questions. The right question is, why didn’t the Fulds of the world care if those “nimrods” couldn’t afford their loans? The answer is, the game had nothing to do with whether or not the homeowner could pay. The homeowner was not the real mark. The real suckers were institutional customers like pensions, hedge funds and insurance companies, who invested in these mortgages. If you had a retirement fund and woke up one day in 2009 to see you’d lost 30 percent of your life savings, you were the mark. Ordinary Americans had their remaining cash in houses and retirement plans, and the subprime scheme was designed to suck the value out of both places, into the coffers of a few giant banks.

“As of June 30, nearly one in 10 American homes with mortgages were “seriously” underwater..”

• Millions Of Americans Trapped In Underwater Homes 10 Years After Crisis (R.)

School bus driver Michael Payne was renting an apartment on the 30th floor of a New York City high-rise, where the landlord’s idea of fixing broken windows was to cover them with boards. So when Payne and his wife Gail saw ads in the tabloids for brand-new houses in the Pennsylvania mountains for under $200,000, they saw an escape. The middle-aged couple took out a mortgage on a $168,000, four-bedroom home in a gated community with swimming pools, tennis courts and a clubhouse. “It was going for the American Dream,” Payne, now 61, said recently as he sat in his living room. “We felt rich.” Today the powder-blue split-level is worth less than half of what they paid for it 12 years ago at the peak of the nation’s housing bubble.

Located about 80 miles northwest of New York City in Monroe County, Pennsylvania, their home resides in one of the sickest real estate markets in the United States, according to a Reuters analysis of data provided by a leading realty tracking firm. More than one-quarter of homeowners in Monroe County are deeply “underwater,” meaning they still owe more to their lenders than their houses are worth. The world has moved on from the global financial crisis. Hard-hit areas such as Las Vegas and the Rust Belt cities of Pittsburgh and Cleveland have seen their fortunes improve. But the Paynes and about 5.1 million other U.S. homeowners are still living with the fallout from the real estate bust that triggered the epic downturn.

As of June 30, nearly one in 10 American homes with mortgages were “seriously” underwater, according to Irvine, California-based ATTOM Data Solutions, meaning that their market values were at least 25 percent lower than the balance remaining on their mortgages.

And he just signed up to oversee it till 2020.

• No-Deal Brexit Could Lead To Financial Crisis As Bad As 2008 – Carney (Ind.)

A no-deal Brexit could lead to a financial crisis as bad as the crash in 2008, the governor of the Bank of England has warned. Mark Carney told Theresa May and senior ministers that not getting a deal with the European Union would lead to a number of negative economic consequences. It is also understood that Mr Carney warned house prices could fall by up to 35 per cent over three years in a worst case scenario, an event that could cause the value of sterling to plummet and force the bank to push up interest rates. His bleak prognosis came as France said it could halt flights and Eurostar trains from the UK if there was no agreement when Britain leaves the EU in March 2019.

The Bank of England declined to comment on Mr Carney’s briefing to ministers. Following the three-and-a-half hour meeting of the cabinet, a Downing Street spokesman said ministers remained confident of securing a Brexit agreement, but had agreed to “ramp up” their no-deal planning.

So what changes now?

• Europe’s Top Rights Court Rules Against Britain Over Mass Surveillance (AFP)

Europe’s top rights court ruled Thursday that Britain’s programme of mass surveillance, revealed by whistleblower Edward Snowden as part of his sensational leaks on US spying, violated people’s right to privacy. Ruling in the case of Big Brother Watch and Others versus the United Kingdom, the European Court of Human Rights in Strasbourg, France, said the interception of journalistic material also violated the right to freedom of information. The case was brought by a group of journalists and rights activists who believe that their data may have been targeted. The court ruled that the existence of the surveillance programme “did not in and of itself violate the convention” but noted “that such a regime had to respect criteria set down in its case-law”.

They concluded that the mass trawling for information by Britain’s GCHQ spy agency violated Article 8 of the European Convention on Human Rights regarding the right to privacy because there was “insufficient oversight” of the programme. The court found the oversight to be doubly deficient, in the way in which the GCHQ selected internet providers for intercepting data and then filtered the messages, and the way in which intelligence agents selected which data to examine. It determined that the regime covering how the spy agency obtained data from internet and phone companies was “not in accordance with the law”.

China needs money, badly. Or it wouldn’t open up like this.

• S&P Sees Major Opportunity In China’s $11 Trillion Bond Market (CNBC)

Financial services and ratings giant S&P Global is honing in on China’s $11 trillion bond market, a move that may spell good news for international investors in search of more reliable ratings for bonds. Speaking to CNBC on Friday, S&P Global Chief Financial Officer Ewout Steenbergen explained that it’s a good time to enter China as Asia’s largest economy has lifted foreign ownership restrictions for credit ratings agencies. Elaborating on the company’s plan to offer ratings services for the bond market there, Steenbergen said that S&P Global intends to start a new entity for its mainland business.

“We are expanding our market intelligence business in China, very specific local content, for example for Chinese private company data … But the most attractive opportunity we have is in the ratings business,” he said on CNBC’s “Squawk Box.” “It is the third-largest domestic bond market in the world, we think it will overtake Japan soon to become the second-largest domestic bond market,” added Steenbergen, who is also an executive vice president at S&P Global. [..] Steenbergen said he hopes that S&P Global’s move to enter that market can create more confidence. “Today, Chinese domestic bonds, 2 percent are bought by international investors, 98 percent only by Chinese investors. And I think (how) we can help with the market is to create more maturity, more confidence.

Another way to protest tariffs.

• China Says World Trade System Not Perfect, Needs Reform (R.)

The current world trade system is not perfect and China supports reforms to it, including to the World Trade Organization, to make it fairer and more effective, Beijing’s top diplomat said. China is locked in a bitter trade war with the United States and has vowed repeatedly to uphold the multilateral trading system and free trade, with the WTO at its center. But speaking late on Thursday to reporters after meeting French Foreign Minister Jean-Yves Le Drian, Chinese State Councillor Wang Yi said some reforms could be good. While certain doubts have been raised about the current international trading system, China has always supported the protection of free trade and believes that multilateralism with the WTO at its core should be strengthened, Wang added.

[..] China will not buckle to U.S. demands in any trade negotiations, the major state-run China Daily newspaper said in an editorial on Friday, after Chinese officials welcomed an invitation from Washington for a new round of talks. The official China Daily said that while China was “serious” about resolving the stand-off through talks, it would not be rolled over, despite concerns over a slowing economy and a falling stock market at home. “The Trump administration should not be mistaken that China will surrender to the U.S. demands. It has enough fuel to drive its economy even if a trade war is prolonged,” the newspaper said in an editorial.

Brussels still feels superior.

• ‘Little Mussolinis’: EU Chief Angers Italy With Comment On Far Right (R.)

The EU’s top economic official has voiced fears that “little Mussolinis” might be emerging in Europe, drawing a furious response from Italy’s far-right interior minister who accused him of insulting his country and Italians. Pierre Moscovici, a Frenchman who is the European Union’s economics affairs commissioner, said the current political situation, with populist, far-right forces on the rise in many nations, resembled the 1930s when Germany’s Adolf Hitler and Italian fascist chief Benito Mussolini were in power. “Fortunately there is no sound of jackboots, there is no Hitler, (but maybe there are) small Mussolinis. That remains to be seen,” he told reporters in Paris, speaking in a jocular fashion.

Moscovici, a former French finance minister, mentioned no names, but Matteo Salvini, who is a deputy prime minister and heads Italy’s anti-immigrant League, took it personally. “He should wash his mouth out before insulting Italy, the Italians and their legitimate government,” Salvini said in a statement released by his office in Rome. Salvini took advantage of the spat to set out once again his grievances with France, which he accuses of not doing enough to help deal with migrants from Africa and of having plunged Libya into chaos by helping to oust former strongman Muammar Gaddafi. “EU commissioner Moscovici, instead of censuring his France that rejects immigrants … has bombed Libya and has broken European (budget) parameters, attacks Italy and talks about ‘many little Mussolini’ around Europe,” Salvini said.

Yeah. Not going to happen.

• Third Of Earth’s Surface Must Be Protected To Prevent Mass Extinction (Ind.)

Two leading scientists have issued a call for massive swathes of the planet’s land and sea to be protected from human interference in order to avert mass extinction. Current levels of protection “do not even come close to required levels”, they said, urging world leaders to come to a new arrangement by which at least 30 per cent of the planet’s surface is formally protected by 2030. Chief scientist of the National Geographic Society Jonathan Baillie and Chinese Academy of Sciences biologist Ya-Ping Zhang made their views clear in an editorial published in the journal Science.

They said the new target was the absolute minimum that ought to be conserved, and ideally this figure should rise to 50 per cent by the middle of the century. “This will be extremely challenging, but it is possible,” they said. “Anything less will likely result in a major extinction crisis and jeopardise the health and wellbeing of future generations.” Most current scientific estimates have the amount of space needed to safeguard the world’s animals and plants at between 25 and 75 per cent of land and oceans.

Nervous weekend ahead. In the Philippines too.

• Hurricane Florence Deluges Carolinas Ahead Of Landfall (R.)

Heavy rain, wind gusts and rising floodwaters from Hurricane Florence swamped the Carolinas early on Friday as the massive storm crawled toward the coast, threatening millions of people in its path with record rainfall and punishing surf. Florence was downgraded to a Category 1 storm on the five-step Saffir-Simpson scale on Thursday evening and was moving west at only 6 mph (9 km/h). The hurricane’s sheer size means it could batter the U.S. East Coast with hurricane-force winds for nearly a full day, according to weather forecasters. Despite its unpredictable path, it was forecast to make landfall near Cape Fear, North Carolina, at midday on Friday.

Debt Rattle October 20 2016

Oct 202016

October 20, 2016 Posted by Raúl Ilargi Meijer at 9:48 am Finance Tagged with: antibiotics, Brexit, cash, deportations, experts, Fed, Hillary, Lehman, Saudi, Trump, war 2 Responses »

Thomas Eakins Walt Whitman 1891

• Fed Risks Repeating Lehman Blunder As US Recession Storm Gathers (AEP)

• ECB Urges EU To Curb Virtual Money On Fear Of Losing Control (R.)

• Saudi Arabia’s Bond: a Defining Trade for 2016 (WSJ)

• How do Clinton and Trump’s Tax Plans Compare? (TF)

• Trump is a Pink Elephant (Scott Adams)

• California Launches Criminal Probe Into Wells Fargo Account Scandal (R.)

• Who’s Powering the War on Cash? (DQ)

• The Cult Of The Expert – And How It Collapsed (G.)

• Theresa May To Tell EU Leaders ‘There Will Be No Second Referendum'(G.)

• Australia Housing Boom Peak Has Passed – Morgan Stanley (BBG)

• Did the White House Declare War on Russia? (Stephen F. Cohen)

• What Obama’s Record Deportations Look Like (I’Cept)

• Use Of Strongest Antibiotics Rises To Record Levels On European Farms (G.)

“The Bank for International Settlements estimates that 60pc of the world economy is locked into the US currency system, and that debts denominated in dollars outside US jurisdiction have ballooned to $9.8 trillion.”

• Fed Risks Repeating Lehman Blunder As US Recession Storm Gathers (AEP)

The risk of a US recession next year is rising fast. The Federal Reserve has no margin for error. Liquidity is suddenly drying up. Early warning indicators from US ‘flow of funds’ data point to an incipent squeeze, the long-feared capitulation after five successive quarters of declining corporate profits. Yet the Fed is methodically draining money through ‘reverse repos’ regardless. It has set the course for a rise in interest rates in December and seems to be on automatic pilot. “We are seeing a serious deterioration on a monthly basis,” said Michael Howell from CrossBorder Capital, specialists in global liquidity. The signals lead the economic cycle by six to nine months. “We think the US is heading for recession by the Spring of 2017. It is absolutely bonkers for the Fed to even think about raising rates right now,” he said.

The growth rate of nominal GDP – a pure measure of the economy – has been in an unbroken fall since the start of the year, falling from 4.2pc to 2.5pc. It is close to stall speed, flirting with levels that have invariably led to recessions in the post-War era. “It is a little scary. When nominal GDP slows like that, you can be sure that financial stress will follow. Monetary policy is too tight and the slightest shock will tip the US into recession,” said Lars Christensen, from Markets and Money Advisory. If allowed to happen, it will be a deeply frightening experience, rocking the global system to its foundations. The Bank for International Settlements estimates that 60pc of the world economy is locked into the US currency system, and that debts denominated in dollars outside US jurisdiction have ballooned to $9.8 trillion.

The world has never before been so leveraged to dollar borrowing costs. BIS data show that debt ratios in both rich countries and emerging markets are roughly 35 percentage points of GDP higher than they were at the onset of the Lehman crisis. This time China cannot come to the rescue. Beijing has already pushed credit beyond safe limits to almost $30 trillion. Fitch Ratings suspects that bad loans in the Chinese banking system are ten times the official claim. The current arguments over Brexit would seem irrelevant in such circumstances, both because the City would be drawn into the flames and because the eurozone would face its own a shattering ordeal. Even a hint of coming trauma would detonate a crisis in Italy.

[..] The velocity of M1 money in the US has continued to slow, hitting a 40-year low of 5.75 over the summer, and markets are only just awakening to the unsettling thought that China’s latest boomlet has already topped out. Beijing is having to hit the brakes again. Crossborder said new rules for money market funds that came into force this month have complicated the picture, causing the stock of US commercial paper to shrivel by $200bn. Yet there are ways to filter out some of these effects. The plain fact is that 3-month lending rates in the off-shore ‘eurodollar’ markets in London have tripled since July to 0.93pc, sharply tightening conditions for global finance. Investors may have been too complacent in discounting these gyrations as part of a regulatory hiccup when something more sinister is emerging.

[..] Albert Edwards from Societe Generale says gross domestic income (GDI) was the most accurate gauge of the economy as the pre-Lehman crisis unfolded, and this measure has been flat for the last two quarters.”The pronounced weakness of GDI relative to GDP might be an ominous omen, for it may well be indicating that a US recession is already underway – just as it was in 2007,” he said.

A central bank that tells politicians what legislation it desires can never again claim independence anymore.

• ECB Urges EU To Curb Virtual Money On Fear Of Losing Control (R.)

The European Central Bank wants EU lawmakers to tighten proposed new rules on digital currencies such as bitcoin, fearing they might one day weaken its own control over money supply in the euro zone. The European Commission’s draft rules, aimed at fighting terrorism, require currency exchange platforms to increase checks on the identities of people exchanging virtual currencies for real ones and report suspicious transactions. In a legal opinion published on Tuesday, the ECB said EU institutions should not promote the use of digital currencies and should make clear they lack the legal status of currency or money.

“The reliance of economic actors on virtual currency units, if substantially increased in the future, could in principle affect the central banks’ control over the supply of money … although under current practice this risk is limited,” the ECB said in the opinion for the European Parliament and Council. “Thus (EU legislative bodies) should not seek in this particular context to promote a wider use of virtual currencies.” The ECB argues the Commission’s proposal does not go far enough as it does not cover the use of virtual money to buy goods and services. “Such transactions would not be covered by any of the control measures provided for in the proposal and could provide a means of financing illegal activities.”

Dissaving.

• Saudi Arabia’s Bond: a Defining Trade for 2016 (WSJ)

Want a single instrument that wraps together nearly every big political, financial and economic theme in today’s world? Saudi Arabia’s mammoth $17.5 billion bond issue, marking its debut in international markets, is it. The size of the deal is impressive but actually the least important thing about it. Big bond deals tend to build a momentum of their own. But it does speak to the search for yield. The $6.5 billion 30-year portion of Saudi Arabia’s bond is set to pay 2.1 percentage points more in yield than a comparable U.S. Treasury, or around 4.6%. That is a sizeable pickup in a world where developed-market bond yields are on the floor or in negative territory. That Saudi Arabia is doing the deal at all is a more telling factor: The oil bounty that has propelled the economy has run dry.

The 18-month-long rout in oil prices that started in 2014 sent the country hurtling from a budget surplus to a deficit in 2015 of 15.9% of GDP that is set to narrow only to 13% in 2016, according to the IMFd. In 2013, government debt stood at just 2.2% of GDP, according to Moody’s. By 2017, it is forecast to be 22.9%. The level isn’t a source of concern, but the swift change shows the country’s stark reversal of fortunes. In the near term, buyers of the bonds are betting largely on oil. Swings in the price are likely to have a direct impact on the perception of Saudi Arabia as a credit. The recovery in oil prices, which stand close to their high of the year, has eased concerns about financial stability and helps explain some of the enthusiasm for the deal. But further ahead, this is a bet on the ability and willingness of the country to transform itself while maintaining social and political stability.

Explanations at the link. h/t Mish

• How do Clinton and Trump’s Tax Plans Compare? (TF)

Both Hillary Clinton and Donald Trump have released tax plans during the campaign. The Tax Foundation has analyzed both the plans using our Taxes and Growth (TAG) model to estimate how their plans would impact taxpayers, federal revenues, and economic growth. Below, is a chart that contains all you need to know about the candidates’ plans.

“..if you are afraid that Donald Trump is a racist/sexist clown with a dangerous temperament, you have been brainwashed by the best group of brainwashers in the business right now..”

• Trump is a Pink Elephant (Scott Adams)

Here’s a little thought experiment for you: If a friend said he could see a pink elephant in the room, standing right in front of you, but you don’t see it, which one of you is hallucinating? Answer: The one who sees the pink elephant is hallucinating. Let’s try another one. If a friend tells you that you were both abducted by aliens last night but for some reason only he remembers it, which one of you hallucinated? Answer: The one who saw the aliens is hallucinating. Now let’s add some participants and try another one. If a crowd of people are pointing to a stain on the wall, and telling you it is talking to them, with a message from God, and you don’t see anything but a stain, who is hallucinating? Is it the majority who see the stain talking or the one person who does not? Answer: The people who see the stain talking are experiencing a group hallucination, which is more common than you think.

In nearly every scenario you can imagine, the person experiencing an unlikely addition to their reality is the one hallucinating. If all observers see the same addition to their reality, it might be real. But if even one participant can’t see the phenomenon – no matter how many can – it is almost certainly not real. Here I pause to remind new readers of this blog that I’m a trained hypnotist and a student of persuasion in all its forms. I’ve spent a lifetime trying to learn the tricks for discerning illusion from reality. And I’m here to tell you that if you are afraid that Donald Trump is a racist/sexist clown with a dangerous temperament, you have been brainwashed by the best group of brainwashers in the business right now: Team Clinton. They have cognitive psychologists such as Godzilla advising them. Allegedly.

I remind you that intelligence is not a defense against persuasion. No matter how smart you are, good persuaders can still make you see a pink elephant in a room where there is none (figuratively speaking). And Clinton’s team of persuaders has caused half of the country to see Trump as a racist/sexist Hitler with a dangerous temperament. That’s a pink elephant. As a public service (and I mean that literally) I have been trying to unhypnotize the country on this matter for the past year. I don’t do this because I prefer Trump’s policies or because I know who would do the best job as president. I do it because our system doesn’t work if you think there is a pink elephant in the room and there is not. That isn’t real choice. That is an illusion of choice.

Trump represents what is likely to be a once-in-a-lifetime opportunity to bring real change to a government that is bloated and self-serving. Reasonable people can disagree on policies and priorities. But Trump is the bigger agent for change, if that’s what you think the country needs. I want voters to see that choice for what it is. And it isn’t a pink elephant. If you are wondering why a socially liberal and well-educated cartoonist such as myself is not afraid of Trump, it’s because I don’t see the pink elephant. To me, all anti-Trumpers are experiencing a shared illusion.

If you don’t even jail people for this kind of stuff, your justice system is fast eroding.

• California Launches Criminal Probe Into Wells Fargo Account Scandal (R.)

The California Attorney General’s Office has launched a criminal investigation into Wells Fargo over allegations it opened millions of unauthorized customer accounts and credit cards, according to a seizure warrant seen by Reuters. Attorney General Kamala Harris authorized a seizure warrant against the bank that seeks customer records and other documents, saying there is probable cause to believe the bank committed felonies. The probe marks the latest setback for the bank in a growing scandal that led to the abrupt retirement of its chief executive officer, monetary penalties, compensation clawbacks, lost business and damage to its reputation.

[..] This is at least the second criminal probe to be opened into Wells Fargo since last month. In September a source told Reuters that federal prosecutors are also looking into the matter. An affidavit filed by Special Agent Supervisor James Hirt with the California Department of Justice reveals that interviews with possible victims of the fraud have already started. One victim, identified only as “Ms. B,” told the investigator that she had declined a request by a Wells Fargo teller in late 2011 or 2012 to open new accounts. But sometime in late 2013 or early 2014, she started to receive notices that she and her husband “allegedly owned on three life insurance policies held by the bank,” the affidavit says.

Everyone with power is.

• Who’s Powering the War on Cash? (DQ)

[..] cash’s days are numbered, as technological advances and changes in generational priorities dampen its allure. The world is brimming with individuals and institutions determined to put it out of its misery. Top of the list are the world’s central banks, which have the perfect motive for whacking cash: i.e. to make negative interest rates an eternal — or at least, more enduring — reality. And the only way to do that is to stop depositors from cashing out, as the Bank of England chief economist Andrew Hadlaine all but admitted in 2014. Japan and Europe are already deep into negative territory, and Fed Chair Janet Yellen has already said that the U.S. should be prepared for the same outcome. But as long as cash exists, there’s no way of preventing depositors from doing the logical thing – i.e. taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it.

Central banks are not the only ones who dream of a cash-free world. For credit card companies, cash is the ultimate rival. As such, it’s no surprise that the likes of Visa and MasterCard are among those pushing the hardest for a cashless economy. For banks, the benefits are no less obvious, including cost cuts, greater control over the flow of customer funds, and larger fees. As for politicians, Eurocrats and global plutocrats, including the senior servants of the IMF, World Bank and United Nations, they will enjoy even greater access to and dominion over the people’s funds. What better way of controlling the people than by controlling their access to the money they need to survive? It would amount to what Martin Armstrong calls “totalitarian control over the economy.”

These powerful agents have already created a perfect platform for achieving their dream: The Better Than Cash Alliance (BTCA), a UN-hosted partnership of governments, companies and international organizations. Its purpose, in its own words, is “to accelerate the transition from cash to digital payments globally through excellence in advocacy, knowledge and services to members.” The Better Than Cash Alliance’s membership list reads like a who’s who of some of the world’s most influential corporations and institutions. They include Coca Coca, Visa and Mastercard. Apple is, for now, conspicuously absent from the list, but in its place representing the tech industry is the Bill and Melinda Gates Foundation.

Also on the list are the Citi Foundation, the US Agency for International Development (USAID), and the World Saving Banks Institute, which represents 7,000 retail and savings banks worldwide. Member institutions range from powerful private foundations — including the Ford Foundation and the Clinton Development Initiative — to a bewildering alphabet soup of UN organizations, including WFP (the World Food Programme), UNFPA (the UN Population Fund), UNPD (the UN Development Program), IFAD (the International Fund for Agricultural Development) and UNCDF (the UN Capital Development Fund).

Interesting theme, but in an article of this length, confining your self to central bankers only seems a shame.

• The Cult Of The Expert – And How It Collapsed (G.)

When the history is written of the revolt against experts, September 2008 will be seen as a milestone. The $85bn rescue of the American International Group (AIG) dramatised the power of monetary gurus in all its anti-democratic majesty. The president and Congress could decide to borrow money, or raise it from taxpayers; the Fed could simply create it. And once the AIG rescue had legitimised the broadest possible use of this privilege, the Fed exploited it unflinchingly. Over the course of 2009, it injected a trillion dollars into the economy – a sum equivalent to nearly 30% of the federal budget – via its newly improvised policy of “quantitative easing”. Time magazine anointed Bernanke its person of the year. “The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world,” the magazine declared admiringly.

The Fed’s swashbuckling example galvanized central bankers in all the big economies. Soon Europe saw the rise of its own path-shaping monetary chieftain, when Mario Draghi, president of the European Central Bank, defused panic in the eurozone in July 2012 with two magical sentences. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he vowed, adding, with a twist of Clint Eastwood menace, “And believe me, it will be enough.” For months, Europe’s elected leaders had waffled ineffectually, inviting hedge-fund speculators to test the cohesion of the eurozone. But now Draghi was announcing that he was badder than the baddest hedge-fund goon. Whatever it takes. Believe me.

In the summer of 2013, when Hollywood rolled out its latest Superman film, cartoonists quickly seized upon a gag that would soon become obvious. Caricatures depicted central-bank chieftains decked out in Superman outfits. One showed Bernanke ripping off his banker’s shirt and tie, exposing that thrilling S emblazoned on his vest. Another showed the bearded hero hurtling through space, red cape fluttering, right arm stretched forward, a powerful fist punching at the void in front of him. “Superman and Federal Reserve chairman Ben Bernanke are both mild-mannered,” a financial columnist deadpanned. “They are both calm, even in the face of global disasters. They are both sometimes said to be from other planets.”

They’re going to roast her today, and not in a funny way.

• Theresa May To Tell EU Leaders ‘There Will Be No Second Referendum'(G.)

Theresa May is to warn her 27 fellow European Union leaders over a working dinner in Brussels that Britain’s decision to leave is irreversible and there can be no second referendum. Thursday’s meeting of the European council will be the prime minister’s first opportunity to address the leaders of all the other member states since the UK voted to leave the European Union in June. Donald Tusk, the European council president, has insisted Britain’s future relationship with the EU will not be on the formal agenda for the two-day meeting, but he will give May the opportunity to set out the “current state of affairs in the country” over coffee at the end of the meal.

A No 10 source said she would tell her fellow EU leaders: “The British people have made a decision and it’s right and proper that that decision is honoured. There will be no second referendum. The priority now has got to be looking to the future, and the relationship between the UK, once we leave”. The source added that the prime minister would also seek to reassure the other member states, amid growing fears that Brexit could unleash political and economic instability in Britain and the rest of Europe. “She wants the outcome at the end of this process to be a strong UK, as a partner of a strong EU,” the source said. “She doesn’t want the process of the UK leaving to be damaging for the rest of the EU. She wants it to be a smooth, constructive, orderly process.”

Painful times ahead.

• Australia Housing Boom Peak Has Passed – Morgan Stanley (BBG)

Australia’s housing boom has passed its peak, with a looming apartment glut set to lead to a sharp slowdown in future developments, according to Morgan Stanley. The slowdown in construction will hurt economic growth, put 200,000 jobs at risk and prompt the central bank to resume cutting interest rates next year, Morgan Stanley analysts led by Daniel Blake said in a note dated Oct. 19. “We believe the growth contribution from the housing boom has already peaked and look for a plateau over 2017 and decline through 2018,” the analysts said. The housing industry is also facing a “more imminent credit crunch” for purchases and developments, they said. “The greatest vulnerability is settlement risk on the 160,000 apartments we forecast being completed through the end of 2017,” they said in the report.

“Listed developers report low failure rates currently, but also confirm credit availability has tightened, especially for foreign investors. Non-bank credit is moving to plug the gap at higher interest rates, but we expect some projects will land with the receiver.” Shares of developer Lendlease Group slumped as much as 5.5% in Sydney trading Thursday after the company flagged a slowdown in building activity, saying Sydney apartment activity is peaking and the Melbourne apartment sector is facing a high level of supply. In May, all 391 apartments offered by Lendlease at a project in Sydney were snapped up in just four hours. A national housing oversupply of about 100,000 dwellings will develop by 2018, Morgan Stanley said, as a glut of apartment projects are completed, particularly in Sydney and Melbourne.

Cohen is the no. 1 American expert on Russia. Audio file at the link.

• Did the White House Declare War on Russia? (Stephen F. Cohen)

Nation Contributing Editor Stephen F. Cohen and John Batchelor continue their weekly discussions of the new US-Russian Cold War. Cohen reports that a statement by Vice President Joe Biden on NBC’s Meet the Press on October 16, released on October 14, stunned Moscow (though it was scarcely noted in the American media). In response to a question about alleged Russian hacking of Democratic Party offices, in order to disrupt the presidential election and even throw it to Donald Trump, Biden said the Obama administration was preparing to send Putin a “message,” presumably in the form of some kind of cyber-attack.

The Kremlin spokesman and several leading Russian commentators characterized Biden’s announcement as a virtual “American declaration of war on Russia” and as the first ever in history. Cohen observed that at this fraught stage in the new US-Russian Cold War, Biden’s statement, which clearly had been planned by the White House, could scarcely have been more dangerous or reckless—especially considering that there is no actual evidence or logic for the two allegations against Russia that seem to have prompted it. Biden was reacting to official US charges of Kremlin hacking for political purposes. Cohen points out that in fact no actual evidence for this allegation has been produced, only suppositions or, as Glenn Greenwald has argued, “unproven assertions.”

While the US political-media establishment has uncritically stated the allegation as fact, a MIT expert, professor Theodore Postol, has written that there is “no technical way that the US intelligence community could know who did the hacking if it was done by sophisticated nation-state actors.” Instead, Cohen suggests, the charges, leveled daily by the Clinton campaign as part of its McCarthyite Kremlin-baiting of Donald Trump, are mostly political, and he laments the way US intelligence officials have permitted themselves to be used for this unprofessional purpose. Moreover, it is far from clear that the Kremlin actually favors Trump, despite Clinton’s campaign claims.

“Obama is now on pace to deport more people than the sum of all 19 presidents who governed the United States from 1892-2000..”

• What Obama’s Record Deportations Look Like (I’Cept)

Donald Trump noted during the third presidential debate that the Democratic president, Barack Obama has deported millions of people. Indeed, Obama has deported more people than any modern president. From January, at Fusion.net: “Donald Trump’s bilious blather about immigrants reminds us—more often than most people need reminding—that words matter. But the Obama administration’s recent wave of police-state raids on Central American women and children, whose only crime is poverty and a lack of proper paperwork, reminds us that actions matter too. When it comes to getting tough on immigration, Republican candidates talk the talk, but Obama walks the walk. Obama has deported more people than any U.S. president before him, and almost more than every other president combined from the 20th century.

“Immigration-flow numbers are staggering in both directions. In 2014, it’s estimated that more than 200,000 Central Americans tried to emigrate to the United States without documentation. But the Obama government has been deporting them as fast as it can. Since coming to office in 2009, Obama’s government has deported more than 2.5 million people—up 23% from the George W. Bush years. More shockingly, Obama is now on pace to deport more people than the sum of all 19 presidents who governed the United States from 1892-2000, according to government data.

“And he’s not done yet. With the clock ticking down his final months in office, Obama appears to be running up the score in an effort to protect his title as deporter-in-chief from future presidents. To pad the numbers, Homeland Security is now going after the lowest-hanging fruit: women and children who are seeking asylum from violence in Central America. “This is the only time I remember enforcement raids on families of women and children who are fleeing some of the most violent places on the planet,” says Royce Bernstein Murray, director of policy for the National Immigrant Justice Center.

Intelligent species.

• Use Of Strongest Antibiotics Rises To Record Levels On European Farms (G.)

Use of some of the strongest antibiotics available to treat life-threatening infections has risen to record levels on European farms, new data shows. The report reinforces concerns about the overuse of antibiotics on farms, following revelations from the Guardian of the presence of the superbug MRSA in UK-produced meat, in imported meat for sale in UK supermarkets, and on British farms. According to the data from the European Medicines Agency, medicines classified as “critically important in human medicine” by the World Health Organisation appear to be in frequent use on farm animals across the major countries of the EU, including the UK.

This comes in spite of WHO advice that, because of their importance, these drugs should be used only in the most extreme cases, if at all, in treating animals. The latest report from the EMA collates data from member states on the sales of antibiotics for veterinary purposes in 2014, and shows that antibiotic use on farms fell by about 2% on the previous year overall, and by as much as 12% in many countries. But this disguises the rise in the use of the strongest medicines, such as colistin, which is a last resort for life-threatening human illness. The percentage of antibiotics sales made up by the most potent antibiotics remained steady or in some cases increased slightly, indicating an increase in the amount of so-called critically important antibiotics used.

For instance, sales of fluoroquinolones – the newest versions of which are used to treat life-threatening illnesses including pneumonia and Legionnaire’s disease – stood at 141 tonnes across the countries surveyed in 2013, and rose to 172 tonnes in 2014. Sales of macrolides, also classed as critically important to human health, rose from 59 to 67 tonnes in the same period. This shows that efforts to prevent the drugs most crucial for human health from being used in farming are failing.

Debt Rattle 4th of July 2016

Jul 042016

July 4, 2016 Posted by Raúl Ilargi Meijer at 8:23 am Finance Tagged with: arms, bailout, Brexit, crash, crisis, Ebay, Greece, Lehman, oil, recession 3 Responses »

Walker Evans “Sidewalk scene in Selma, Alabama.” 1935

• China Bank Bailout Calls Go Mainstream (BBG)

• Deutsche: Probability Of US Recession Surges To 60% (ZH)

• Druckenmiller, Soros, Spitznagel, Gross Warn Of Crisis (VW)

• Oil Rally Threatened as Gasoline Supply Surge Swamps US Demand (BBG)

• Brexit Is a Lehman Moment for European Banks (BBG)

• Angela Merkel ‘To Oust Juncker’ As Europe Splits Deepen Over Brexit (Tel.)

• Germany’s Schäuble Urges Post-Brexit Push to Curb EU Commission (BBG)

• French Economy Minister Macron Claims Euro-Clearing Business for Paris (BBG)

• Where Have Those Nice Britons Gone? (G.)

• Brexit Voters Are Not Thick, Not Racist: Just Poor (Spec.)

• German Arms Exports Almost Doubled In 2015 (R.)

• Kaczynski May Divert Polish Pension Cash to State Projects (BBG)

• Europe Puts Greece On Ebay (G.)

• How To Fix A Broken Auckland? Crash Home Prices By 40% (Grimes)

“Non-performing loans jumped by more than 40% in the 12 months ended March to 1.4 trillion yuan ($210 billion)..” “..CLSA estimating NPLs were probably closer to 11.4 trillion yuan at the end of last year..” That would be well over $2 trillion….

• China Bank Bailout Calls Go Mainstream (BBG)

Predictions of a Chinese banking system bailout are going mainstream. What was once the fringe view of permabears and short sellers is now increasingly being adopted by economists at some of the world’s biggest banks and brokerages. Nine of 15 respondents in a Bloomberg survey at the end of last month, including Standard Chartered and Commonwealth Bank of Australia, predicted a government-funded recapitalization will take place within two years. Among those who provided estimates of the cost, a majority said it will exceed $500 billion. While a bailout of that size would be a far cry from the $10 trillion forecast of U.S. hedge fund manager Kyle Bass in February, the responses reflect widespread concern that Chinese lenders will struggle to cope as bad loans surge.

Even as some analysts said a state recapitalization would put the banking system on a stronger footing, 80% of respondents predicted news of a rescue would weigh on Chinese markets – dragging down bank stocks and the yuan while pushing up government borrowing costs and credit risk. “A recapitalization will happen after the Chinese government comes clean with the true nonperforming loan figure,” said Kevin Lai at Daiwa Capital Markets. “That will require a lot of money creation.” [..] Chinese lenders are grappling with a growing mountain of bad debt after flooding the financial system with cheap credit for years to prop up economic growth.

Non-performing loans jumped by more than 40% in the 12 months ended March to 1.4 trillion yuan ($210 billion), or 1.75% of the total, according to government data. The figures are widely believed to understate the true scale of the problem, with CLSA estimating NPLs were probably closer to 11.4 trillion yuan at the end of last year.

Reading the yield curve.

• Deutsche: Probability Of US Recession Surges To 60% (ZH)

Over the weekend, following the latest collapse in long-term yields to new all time lows, Deutsche Bank looked at what implied recession odds are if one once-again adjust for Fed intervention. What it found, in the words of Deutsche Bank’s Dominic Konstam, is “worrisome.” From Deutsche Bank:

Since the UK referendum the US yield curve has flattened to new post-crisis lows. The 3m10y spread is now 115 bps compared to 210 bps at the start of the year, and the 2y10y spread is just 85 bps versus 120 bps on January 1. This relentless flattening of the curve is worrisome. Given the historical tendency of a very flat or inverted yield curve to precede a US recession, the odds of the next economic downturn are rising. In our probit model, the probability of a recession within the next 12 months has jumped to 60%, the highest it’s been since August 2008.

The model adjusts the 3m10y spread by the historically low level of short rates and it suggests that on an adjusted basis the curve has already appeared to be inverted for some time. The yield curve had successfully signaled the last two recessions when the model output rose above 70%. If 10y yields rally to 1.00% and the 3m rate is unchanged, the implied recession probability from our model will reach that number. At current market levels, the market is just 40 bps from that distinct possibility.

In other words, while the Fed is terrified of killing the recovery by “tightening” financial conditions, all that will take for the next recession to arrive is for the Fed and its central bank peers to ease just that much more to send the long end 40 bps lower, something which as we reported yesterday may happen even sooner than expected, now that pension funds are ready to throw in the towel and start buying 10Y and 30Y Tsys with wreckless (sic) abandon.

“One of the best indicators showing how healthy is the economy is the velocity of circulation of money.”

• Druckenmiller, Soros, Spitznagel, Gross Warn Of Crisis (VW)

Brexit referendum pushed financial markets into turmoil. Even if this is only the beginning of tough times the main reason behind this is definitely not the result of the UK referendum. What we see today is merely a result of financial markets being disconnected from the real condition of the global economy. The red flags signalling overpriced markets (especially in the case of the US) now are raised not only from statistical data but also from experienced investors having a good forecasting record.

From the start, I would like to focus on aforementioned statistical data. They can give us clear picture of the US economy and what happened after previous crisis until now. The financial situation of the US is crucial because it is the American stock exchange that delivers 44% of the global capitalisation of financial markets. American financial sector is responsible for setting trends and today those trends are pointing south. Developing markets are falling right behind the trendsetter. One of the best indicators showing how healthy is the economy is the velocity of circulation of money. The better the economy, the more money people and other participants of the economy spend – this increases money circulation.

At first glance, you can see that after 2008-09 crisis situation worsened. During official ‘post-crisis recovery’ velocity was slightly above 1.7 while during the first quarter of 20016 it fell below 1.5 (for comparison – before the crisis it around 2.0). The above chart is not the only data point. Low money velocity means also less consumption – this is visible in higher inventory-to-sales ratio. Below you can see a record of it. Today this indicator is above the Lehman level. What is more, it soon can match the levels of the worst phase of the 2008 meltdown. This clearly shows how American society is getting poorer.

Low prices, but falling demand.

• Oil Rally Threatened as Gasoline Supply Surge Swamps US Demand (BBG)

American drivers’ seemingly insatiable thirst for gasoline is running into a flood of supply. Refineries across the nation are operating full-out and imports are pouring into the East Coast, boosting gasoline supplies to a record. At the same time, consumption has turned out to be less robust than thought. That’s weighed on prices, threatening to stem oil’s rebound from a 12-year low. “Earlier this year there was a lot of hope that gasoline would lead crude higher,” said John Kilduff, partner at Again Capital, a New York hedge fund focused on energy. “That’s not turned out to be the case and gasoline will soon be a weight on the market.”

The Energy Information Administration said in a monthly report on June 30 that demand in April was 9.21 million barrels a day, down from 9.49 million seen in weekly data. “The monthly data for April raises doubts about the idea that we have reliably robust gasoline demand to support the entire complex,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. Gasoline stockpiles along the East Coast, which includes New York Harbor, the delivery point for U.S. futures contracts, surged to a record 72.5 million barrels in week ended June 24, EIA data show. Imports to the region jumped to a six-year seasonal high. Production climbed to a record in the previous week, as refiners typically run harder in the second quarter to meet summer peak driving season.

“When the biggest bank in Europe’s biggest economy, with annual revenue of about €37 billion, is worth about the same as Snapchat – a messaging app that generated just $59 million of revenue last year – you know something’s wrong.”

Italy’s efforts at aiding its banks risk leading to a big problem with Germany, but Brexit makes the latter hesitant. But it can’t give in, it would set a precedent the EU can’t handle. So is Italy the next Greece?

• Brexit Is a Lehman Moment for European Banks (BBG)

European banks are undergoing a real-life stress test in the wake of Britain’s vote to leave the European Union. Their share prices were already down 20% this year; since the referendum result was announced, they’ve doubled that decline. If the rot isn’t stopped soon, Europe will have found a novel solution to the too-big-to-fail problem — by allowing its banks to shrink until they’re too small to be fit for purpose. The answer is found in the adage never let a good crisis go to waste. The current situation should be both a motivation and an excuse to do what Europe failed to do after the 2008 collapse of Lehman Brothers brought the financial world to its knees: fix its banking system. Here’s a snapshot of this year’s drop in value of some of the region’s biggest institutions:

Deutsche Bank, which once had pretensions to be Europe’s contender on the global investment banking stage, is now worth just €17 billion. When the biggest bank in Europe’s biggest economy, with annual revenue of about €37 billion, is worth about the same as Snapchat – a messaging app that generated just $59 million of revenue last year – you know something’s wrong. No wonder the billionaire investor George Soros was betting against Deutsche Bank shares this month. Greece has recapitalized its banks three times, to almost no effect. Piraeus Bank, for example, is worth less than €1.5 billion, down from €4 billion in December after the last cash injection, and as much as €40 billion just two years ago.

UniCredit, Italy’s biggest bank, has suffered particularly badly this year. It has a market capitalization of just €12 billion, dwarfed by its non-performing loans worth €51 billion. Italian banks as a whole have non-performing debts worth €198 billion, a total that’s been rising ever since the financial crisis and is illustrative of Europe’s failure to tackle its banking problems. Add in so-called “sofferenze,” Italian for doubtful loans, and the total value of Italian debt at risk of non-payment rises to about €360 billion. That explains why Italy has seized upon Brexit to justify trying to shovel €40 billion of state aid into its banking system, much to the annoyance of Germany, which views the move as contravening rules on state aid.

The end of the ever closer union.

• Angela Merkel ‘To Oust Juncker’ As Europe Splits Deepen Over Brexit (Tel.)

Angela Merkel could move to oust Europe’s federalist chief Jean-Claude Juncker ‘within the next year’, a Germany government minister has said, in a sign of deepening European divisions over how to respond to Britain’s Brexit vote. The German chancellor’s frustration with the European Commission chief came as Europe split over whether to use the Brexit negotiations as a trigger to deepen European integration or take a more pragmatic approach to Britain as it heads for the exit door. “The pressure on him [Juncker] to resign will only become greater and Chancellor Merkel will eventually have to deal with this next year,” an unnamed German minister told The Sunday Times, adding that Berlin had been furious with Mr Juncker “gloating” over the UK referendum result.

Mr Juncker’s constant and unabashed calls for “more Europe”, as well as his reported drinking problem has led to several of Europe other dissenting members – including Poland, Hungary and the Czech Republic – to lay some of the blame for Brexit at his door. Since the June 23 vote both the Czech and Polish foreign ministers have called publicly for Mr Juncker to resign – moves that one senior EU official dismissed last week as “predictable”. However, the rumblings from Berlin now represent a much more serious threat to Mr Juncker’s tenure. The split also offers a glimmer of hope for British negotiators who are preparing for fractious EU-UK divorce talks and are desperate to avoid a repeat of February’s failed negotiations which – controlled as they were by Mr Juncker and the Commission – left David Cameron without enough ‘wins’ to avoid Brexit.

“Everyone is determined that this negotiation is handled in the European Council – i.e. between the 27 heads of government – and not by the Commission, the eurocrats and the EU ‘theologians’ in Brussels,” a senior UK source told The Telegraph. In a signal that battle has partly already been won, Mrs Merkel pointedly met with French and Italian leaders in Berlin last week, excluding Mr Juncker from the conversation. The Commission has also declined to fight the Council for the role of “chief negotiator”. British strategists hope that creating a much broader negotiation that includes the UK’s role in keeping Europe geopolitically relevant through its deep Nato ties, defence contributions and links to Washington, they can avoid a narrow tit-for-tat negotiation on trade where the UK has only very limited leverage.

The problem with the end of the ever closer union is who will then decide. And that can only be Germany. The quintessential EU conundrum is unsolvable.

• Germany’s Schäuble Urges Post-Brexit Push to Curb EU Commission (BBG)

Finance Minister Wolfgang Schaeuble signaled that Germany wants national governments to set the pace for future cooperation within the European Union, saying in a newspaper interview that they should sidestep the European Commission in Brussels if needed. Schaeuble’s comments to Welt am Sonntag outline the emerging response by Chancellor Angela Merkel’s government to the U.K. referendum on June 23 to leave the EU. It signals a looming clash with advocates of EU integration such as European Commission President Jean-Claude Juncker. EU countries must seek to reach agreements even if not all of the 27 non-U.K. members want to participate and should circumvent the commission, the EU’s executive arm, if it isn’t willing to cooperate, the newspaper quoted Schaeuble as saying.

“Now is the time for pragmatism,” Schaeuble told the newspaper. “If not all 27 want to pull together from the beginning, then we’ll just start with a few. If the Commission isn’t along, then we’ll take matters into our own hands and solve problems between governments.” Schaeuble expressed frustration that EU officials in Brussels took too long to respond to the refugee crisis last year. Many people’s dissatisfaction with the EU is because rules weren’t respected, including by the European Commission in its response to the sovereign-debt crisis, he was quoted as saying. The U.K. and the EU have a shared interest in starting exit talks quickly to limit the fallout and because “market pressure” may rise the longer it takes, Schaeuble told the newspaper.

Another sociopath striving for power.

• French Economy Minister Macron Claims Euro-Clearing Business for Paris (BBG)

Scruples be damned. The dust has barely settled on the June 23 British vote to take the U.K. out of the European Union, and the French Economy Minister Emmanuel Macron is claiming the euro-clearing business for Paris. Speaking Sunday in a Bloomberg interview, Macron laid out why the French capital is a contender for the business as other euro-area cities from Frankfurt to Dublin gear up for a battle for transactions currently done in London, Europe’s largest financial center. German officials have said Paris is dreaming if it thinks it can beat out Frankfurt, the home of the ECB and Deutsche Boerse’s Eurex operations. “On clearing, we will have a full discussion on a series of issues,” the 38-year-old French minister said.

“We have many more players now in Paris than in Frankfurt, and a much deeper market place.” London’s role in clearing trades in the $493 trillion derivatives market has returned as an issue since Britain voted to exit the 28-nation bloc. EU courts blocked a previous ECB effort to bring clearing under its regulatory control by shifting it to a euro-area country. But that was before the Brexit vote. While echoing President Francois Hollande’s insistence last week that euro-clearing won’t remain in London, Macron went further, saying that Paris may be the best place to move the process.

ECB Executive Board member Benoit Coeure warned his French compatriots to cool down on the prospect, insisting that London’s status as the biggest executor of euro financial transactions will depend on the kind of separation agreement the U.K. negotiates with the remaining 27 countries in the EU. “It is premature to have this type of discussion,” he said in Aix-en-Provence Saturday. “Everything will depend on the legal framework. This landscape, will it change? It depends on the relationship between the U.K. and the single market. Right now, we have no idea.” Separately, Macron also said he doesn’t rule out running for president next year, even though he insisted it was too early to declare.

Hi hi. “The rest of the EU wanted to be able to restrain eastern Europeans for another seven years. Most of us did. You kept true to your word and did not.”

• Where Have Those Nice Britons Gone? (G.)

Who are you and what have you done with those Britons I used to know and like so much? Have you no idea how disruptive uncertainty is for our countries, for business? Forgive me, of course you do – it’s you British who taught us that. The single market, for heaven’s sake, the EU’s largest and most formidably lucrative business venture, was very much down to you. It was your Lord Cockfield who worked out a plan, and if your then prime minister Margaret Thatcher had not used all her force to push it through in the face of reluctant protectionists on the continent, it might never had happened. Trade is your thing, after all and here it was: full freedom of movement for capital, goods, services and people. Yes, for people, including for eastern Europeans, not long after the Berlin Wall came down.

That happened because you British insisted on uniting the whole of Europe, the sooner, the better, while the French, the Italians and others all held back for as long as they could. They were so worried that the eastern European workers would come storming in their millions to the west, taking our jobs, pushing our wages down. But you insisted. Openness, inclusiveness, freedom – we have come to associate that with you. And you have, or had, such a way with words. You’re so gifted at persuasion, winning us over with your thoroughly prepared and elegant arguments. In the end, all agreed to do the enlargement your way. Except for the instant freedom of movement for all. The rest of the EU wanted to be able to restrain eastern Europeans for another seven years. Most of us did. You kept true to your word and did not.

You also have such a way with people. Your politicians are well schooled in parliament, aspiring to hold their own in any heated debate with their opponents. For decades, you have applied the brakes in the EU and watered down proposals to suit you. (Thanks by the way. You have never been an easy partner but the less-than-perfect compromise that is the EU has been improved by your hard work in Brussels.) And your Foreign Office comes better prepared than anyone else with numbers and facts, closely following what is going on in other countries, and sometimes managing diplomatic acrobatics that stun others into a deal. How on earth did Thatcher talk the others into giving one of the richest countries billions of pounds’ worth of a rebate to its EU fee? Permanently!

Amen.

• Brexit Voters Are Not Thick, Not Racist: Just Poor (Spec.)

The most striking thing about Britain’s break with the EU is this: it’s the poor wot done it. Council-estate dwellers, Sun readers, people who didn’t get good GCSE results (which is primarily an indicator of class, not stupidity): they rose up, they tramped to the polling station, and they said no to the EU. It was like a second peasants’ revolt, though no pitchforks this time. The statistics are extraordinary. The well-to-do voted Remain, the down-at-heel demanded to Leave. The Brexiteer/Remainer divide splits almost perfectly, and beautifully, along class lines. Of local authorities that have a high number of manufacturing jobs, a whopping 86% voted Leave. Of those bits of Britain with low manufacturing, only 42% did so.

Of local authorities with average house prices of less than £282,000, 79% voted Leave; where house prices are above that figure, just 28% did so. Of the 240 local authorities that have low education levels — i.e. more than a quarter of adults do not have five A to Cs at GCSE — 83% voted Leave. Then there’s pay, the basic gauge of one’s place in the pecking order: 77% of local authorities in which lots of people earn a low wage (of less than £23,000) voted Leave, compared with only 35% of areas with decent pay packets. It’s this stark: if you do physical labour, live in a modest home and have never darkened the door of a university, you’re far more likely to have said ‘screw you’ to the EU than the bloke in the leafier neighbouring borough who has a nicer existence.

Of course there are discrepancies. The 16 local authorities in Scotland that have high manufacturing levels voted Remain rather than Leave. But for the most part, class was the deciding factor in the vote. This, for me, is the most breathtaking fact: of the 50 areas of Britain that have the highest number of people in social classes D and E – semi-skilled and unskilled workers and unemployed people – only 3 voted Remain. Three. That means 47 very poor areas, in unison, said no to the thing the establishment insisted they should say yes to. Let’s make no bones about this: Britain’s poor and workless have risen up. And in doing so they didn’t just give the EU and its British backers the bloodiest of bloody noses. They also brought crashing down the Blairite myth of a post-class, Third Way Blighty, where the old ideological divide between rich and poor did not exist, since we were all supposed to be ‘stakeholders’ in society.

Amoral.

• German Arms Exports Almost Doubled In 2015 (R.)

German arms exports almost doubled last year to their highest level since the beginning of this century, a German newspaper said on Sunday, citing a report from the Economy Ministry that is due to be presented to the cabinet on Wednesday. Newspaper Welt am Sonntag said the value of individual approvals granted for exporting arms was €7.86 billion last year compared with €3.97 billion worth of arms exports in 2014. It said the Economy Ministry had pointed to special factors that boosted arms exports such as the approval of four tanker aircraft for Britain worth €1.1 billion.

It also pointed to the approval of battle tanks and tank howitzers along with munitions and accompanying vehicles worth €1.6 billion for Qatar – a controversial deal that the report said was approved in 2013 by the previous government. In February German Economy Minister Sigmar Gabriel said preliminary figures showed that Germany had given approval for around €7.5 billion worth of arms shipments in 2015. The Federal Office for Economics and Export Control (Bafa), a subsidiary of the economy ministry, is responsible for licensing arms export deals and Gabriel had promised to take a much more cautious approach to licensing arms exports, especially with regard to the Middle East. Germany is one of the world’s main arms exporters to EU and NATO countries and has been cutting its sales of light weapons outside those states.

This happens everywhere: pensions being moved into risky and/or politically driven ‘assets’. That will be the end of pensions.

• Kaczynski May Divert Polish Pension Cash to State Projects (BBG)

Poland is considering diverting funds from the country’s $35 billion pension industry and piling them into government-backed projects, ruling party leader Jaroslaw Kaczynski said. Poland’s privately run pension funds, set up in 1999 to provide long-term financing for the nation’s companies and make Warsaw into a regional capital hub, own a fifth of the shares traded on the Warsaw stock exchange. The proposed shift of money from the funds could help the eight-month-old government fulfill its election promises, including higher social benefits, cheap housing as well as state-backed investments into industries ranging from ship building to the production of coal and electric buses.

“We must think what to do with the money in the pension funds, there are already proposals,” Kaczynski, who was reappointed as head of the Law & Justice party on Saturday, said at the party’s congress. “That money is now losing its value,” while it could be the “basis for new, important investments, that will help build strong economic policy and support millions of Polish households.” Kaczynski said his party seeks to implement a new “economic order,” one based on redistributing wealth and rejection of free-market reforms. The Law & Justice government imposed the European Union’s highest levies on banks, rolled out unprecedented child benefits and is in a stand-off with the EU over democratic standards, which triggered the country’s first-ever credit rating downgrade and spooked investors.

From May 30. Just loved the Simpsons’ image.

• Europe Puts Greece On Ebay (G.)

In Greece today, government power comes with few trappings. Unable to tap capital markets and dependent wholly on international aid, the debt-stricken country’s senior officials are acrobats in a tightrope act. They are placating creditors, whose demands at times seem insatiable, and citizens, whose shock is never far away. Few know this better than Stergios Pitsiorlas, the head of Greece’s privatisation agency. The agency’s asset portfolio – readily available online – goes some way to explaining why. A catalogue of beaches, islands, boutique hotels, golf courses, Olympic venues and historic properties in Plaka on the slopes beneath the ancient Acropolis, it could be a shopping list for the scenery in a movie – rather than a list of possessions that Athens is under immense pressure to offload.

In the coming months, the list will grow as the contours of a “super fund” – established to expedite the sale of ailing utilities and state-owned properties – take shape. The fund, the product of last week’s agreement to disburse an extra €10.3bn (£7bn) in bailout loans in return for further reforms, takes the divestment of state holdings to new heights. More than 71,000 pieces of public property will be transferred to the umbrella entity in what will amount to the biggest privatisation programme on the continent of Europe in modern times. Seven years into Greece’s seemingly unstoppable financial crisis, lenders are not taking any chances. The EU and IMF, which to date have poured more than €250bn into Greece in the form of three bailouts, have demanded that the organisation operates for 99 years.

Greeks have reacted with anger and derision, viewing the fund as the lowest point in the country’s epic struggle to remain anchored to the eurozone. For many, it is the ultimate depredation, another dent to their dignity at a time of unprecedented unemployment, poverty and suffering. If this is the way, they say, then only the Acropolis will retain a patina of Greekness about it. “There is nothing we are not giving up,” splutters Maria Ethymiou, a small business owner encapsulating the mood. “The Germans are going to take everything. I hear that even beaches are up for sale. Is this the Europe that we want? Is this the united Europe of our dreams?”

Absolutely right and horribly mistaken at the same time. Arthur Grimes is former chief economist of the Reserve Bank.

• How To Fix A Broken Auckland? Crash Home Prices By 40% (Grimes)

In March 2016, the REINZ Auckland median house price reached $820,000. Four years previously, it was $495,000 – that’s a 66% increase in 4 years. What’s more alarming is that in 2012, many people considered that house prices were already getting of reach for most people. That was particularly the case for young people and low income earners. That extraordinary increase – coupled with the already high level in 2012 – was behind my call to a recent Auckland Conversations event that policy-makers should strive to cause a 40% collapse in house prices to bring the median back to around $500,000.

My call for policies to drive a house price collapse is driven by my personal value judgement that it’s great for young families and families on lower incomes, to be able to afford to buy a house if they wish to do so. My concern is not for older, richer families, couples or individuals who already own their own (highly appreciated) house. Others may have a different value judgement to mine – but rarely do they make such a judgement explicit. Or, they may argue that such a collapse would cause financial instability given banks’ loans to mortgage-holders. Luckily, New Zealand’s banks are well-capitalised and stress tests have shown that they can survive a large fall in house prices – mostly because the bulk of their loans pertain to older mortgages with plenty of equity behind them.

For those who share my wish to bring house prices back to a level at which ordinary people can afford, what is to be done? One possibility is to try and stem the demand. Many Aucklanders seem to want their city to remain something like a rural town. In world terms, however, Auckland is a smallish city; while in Australasian terms, it is a mid-sized city sitting between Adelaide and Perth in size, and well behind the big three (Sydney, Melbourne, Brisbane). If New Zealand is to have one city of moderate size where head offices, R&D facilities and other wealth-generating activities reside, Auckland needs to be that city. To curb its growth is tantamount to saying that development should take place in Australia, not here. I favour Auckland being competitive in attracting high-value activities at least within the Australasian context. So I am not in favour of curbing Auckland’s growth.

Debt Rattle May 7 2016

May 072016

May 7, 2016 Posted by Raúl Ilargi Meijer at 9:40 am Finance Tagged with: China, debt, Erdogan, IMF, Juncker, Lehman, mayor, Panama Papers, refugees, Solomon, steel 2 Responses »

George N. Barnard Federal picket post near Atlanta, Georgia 1864

• World Corporate Debt Far Exceeds Pre-Lehman Financial Bubble (IBT)

• Warnings Mount On World’s Corporate Debt, China Crisis (AEP)

• US Consumer Borrowing Increases at Fastest Pace Since 2001 (BBG)

• Trump Dips Toe Into Delicate US Debt Discussion (R.)

• China Commodities Selloff Deepens, Steel Has Worst Week Since 2009 (R.)

• UK Stores Post Steepest Sales Decline Since Financial Crisis (BBG)

• When Wall Street and Washington Got in Bed Together (Arnade)

• Central Banking Can Become An Opaque Creator Of Insider Deals (FT)

• Why Garbagemen Should Earn More Than Bankers (Evon.)

• The Emerging Markets Recovery Looks Fragile (Economist)

• Panama Papers Whistleblower Manifesto (John Doe)

• Sea-Level Rise Claims Five Islands In Solomons (AFP)

• IMF Tells Eurozone To Start Greek Debt Relief Talks (FT)

• Turkish Journalists Jailed For 5 Years, Hours After Courthouse Attack (R.)

• EU’s Juncker Sees Refugee Crisis At ‘Turning Point’ (R.)

Everyhting around you has been borrowed. You just don’t recognize it.

• World Corporate Debt Far Exceeds Pre-Lehman Financial Bubble (IBT)

Corporate debt across the world has reached extreme levels, warned the Institute of International Finance (IIF), a trade group of financial institutions. The global banking watchdog added that it far exceeded the pre-Lehman financial bubble. “As the credit cycle ages, following years of record-setting bond issuance, there are growing concerns about signs of stress in corporate balance sheets,” the IIF said. It said there was a double threat. While emerging markets had seen a five-fold increase in corporate debt to $25tn over the last 10 years, developed markets such as the US and Europe were seeing record junk bond issuance. Referring to the US, the IIF said companies were borrowing as if there was no tomorrow even though their profits began to decline in 2014.

It said the ratio of net debt to earnings (EBITDA) for companies was at 1.4. This had doubled since the 2007 subprime bubble, according to The Telegraph. “For the most part, this very significant amount of debt has been used to pay dividends, buy back shares and fund M&A transactions, rather than financing capital spending, which has been on a declining trend since 2012 (and fell 3.5pc in the first quarter on 2016),” the IIF explained. On junk bonds, a high-yielding high-risk security, typically issued by a company seeking to raise capital quickly, Europe and the US put together are reported to have issued them at double the pace when compared to the pre-Lehman period. “Of particular concern is that since US high-yield companies have increased their debt relative to assets, the recovery rate on defaulted bonds has declined sharply,” the IIF said.

It added that corporate defaults were at the highest levels since the financial crisis and it was “not restricted to the energy sector.” The IIF said the situation was complex as on the one hand there were cash-rich companies, on the other there very many smaller companies which had huge amounts of debt on their books. Cash that large businesses were holding onto was estimated at $1.6tn in the US, $2.2tn in Europe, and $2tn in Japan. The warning coincided with warnings issued by the Hong Kong Monetary Authority, the country’s currency board and de facto central bank. It said giving companies access to easy money over years had put the global systems in danger. Howard Lee, the executive director at the board said: “We are far from out of the woods, given new risks and headwinds on multiple fronts. There is the threat of a disorderly pullback in capital out of the region.”

The world has but one answer to warnings like this: borrow more.

• Warnings Mount On World’s Corporate Debt, China Crisis (AEP)

Corporate debt has reached extreme levels across much of the world and now far exceeds the pre-Lehman financial bubble by a host of measures, the global banking watchdog has warned in a deeply-disturbing report. “As the credit cycle ages, following years of record-setting bond issuance, there are growing concerns about signs of stress in corporate balance sheets,” said the Institute of International Finance in Washington. The body flagged a double threat: a five-fold rise in company debt to $25 trillion in emerging markets over the past decade; and record junk bond issuance in US and Europe, along with shockingly-irresponsible levels of US borrowing to buy back shares and pay dividends. The warning came as the Hong Kong Monetary Authority aired its own grim concerns that the global system is dangerously over-stretched after years of easy money, with Asia’s entire financial edifice potentially in danger.

“We are far from out of the woods, given new risks and headwinds on multiple fronts,” said Howard Lee, the body’s executive director. “There is the threat of a disorderly pullback in capital out of the region.” Mr Lee said the exodus of capital at the beginning of the year – mostly driven by fears of a Chinese devaluation – may be a foretaste of what is to come. “The next episode may be even more damaging given the financial imbalances built up over the past few years,” he told a forum in Hong Kong. “While the region has become a key driver of growth globally, this has come at the price of a pretty dramatic rise in debt fueled by easy global liquidity,” he said. “As we have witnessed in advanced economies, disorderly deleveraging may weigh heavily on the economy and may even risk the financial system.”

The IIF said the ratio of net debt to earnings (EBITDA) for US companies has doubled to 1.4 from 0.7 at the top of the subprime bubble in 2007. Firms continued to borrow as if there were no tomorrow even after their profits began to crumble in 2014. “For the most part, this very significant amount of debt has been used to pay dividends, buy back shares and fund M&A transactions, rather than financing capital spending, which has been on a declining trend since 2012 (and fell 3.5pc in the first quarter on 2016),” it said. Companies on both sides of the Atlantic have issued $1.9 trillion of junk bonds over this cycle, with volumes running at double the pre-Lehman pace. The weakest CCC-rated debt has grown in share and is already under stress, with yields spiking to 20pc in February. “The number of corporate defaults has reached the highest level since the financial crisis. It is not restricted to the energy sector,” said the report.

“Of particular concern is that since US high-yield companies have increased their debt relative to assets, the recovery rate on defaulted bonds has declined sharply,” it said. The recovery value has dropped to 29pc from 44pc two years ago. It is a complex picture because large corporations are also sitting on record levels of cash, estimated at $1.6 trillion in the US, $2.2 trillion in Europe, and $2 trillion in Japan. What emerges is a split market, divided into cash-rich giants and an army of smaller companies up to their necks in debt. Total corporate leverage is 70pc of GDP in the US and 100pc in Europe. Excesses in emerging markets are even greater, concentrated in Turkey, Brazil, Russia, and Indonesia, and above all in China where it has reached 175pc of GDP “This is the highest ratio in the world,” said the IIF.

Debt slavery next.

• US Consumer Borrowing Increases at Fastest Pace Since 2001 (BBG)

Household borrowing surged in March at the fastest pace since November 2001 as financing for automobiles picked up and Americans’ outstanding credit-card debt soared. The $29.7 billion increase, or an annualized 10%, exceeded the highest estimate in a Bloomberg survey and followed a revised $14.1 billion gain the prior month, Federal Reserve figures showed Friday. Revolving credit, which includes credit-card spending, posted the biggest annualized advance since July 2000. With employers still hiring at a decent clip, consumers may be growing more comfortable carrying bigger credit-card balances and taking out car loans.

The pickup in March helped drive up household borrowing in the first quarter to a 6.4 annualized pace, compared with a 6.2% rate in the final three months of 2015. Revolving debt jumped by $11.1 billion in March, or an annualized 14.2%, after a $2.9 billion increase, the Fed’s report showed. Non-revolving debt, which includes loans for education and automobile and mobile home purchases, increased $18.6 billion, the most since September. In the first quarter, student loans outstanding climbed $31.7 billion and lending for auto purchases increased $13.5 billion.

What I see when I read this kind of thing is the media creating a story where there is none: “Mr. Trump was clear in saying that he was not going to renegotiate U.S. debt, despite being asked multiple times, and that he would not default on U.S. debt, despite being asked multiple times,” said the adviser.”

And there’s something else too: “.. his campaign moves [..] to a general election competition where the media and members of the public expect more policy details from the candidates.” That line contains 2 false claims in one: 1) it paints the media as being on the side of the public, and 2) it denies that the media are part of the political machinery.

Actually, there’s a third implied yet unsubstantiated claim: that the media’s reporters are knowledgable when it comes to finance, economics, debt.

• Trump Dips Toe Into Delicate US Debt Discussion (R.)

Would Donald Trump really consider not paying portions of the U.S. debt? The prospect riled economists on Friday as stories in the New York Times and the conservative website The Blaze cast fresh scrutiny on comments Trump made a day earlier. Responding to a question about the national debt, the likely Republican presidential nominee said in an interview on CNBC on Thursday he would “borrow knowing that if the economy crashed you could make a deal.” When asked if that meant he had taken a page from his own playbook as a businessman and try to get U.S. creditors to accept less than the full value of the bonds they hold, he said “No,” but added: “I could see long-term renegotiations where we borrow long-term at very low rates.”

The reaction to his words on Friday offered the first-time political candidate a taste of how delicate the prospect of discussing economic and fiscal policy can be. It also highlighted a danger for Trump as his campaign moves from a crowded, personality-fueled contest for the Republican nomination to a general election competition where the media and members of the public expect more policy details from the candidates. “Such remarks by a major presidential candidate have no modern precedent,” the New York Times wrote in a story saying Trump’s plan implied he would “negotiate a partial repayment” of U.S. debt.

“It’s beyond ludicrous and irresponsible unless you’re, say, an emerging market country,” wrote the U.S. debt analyst David Ader, the head of rates strategy at CRT Capital, in a note to clients early Friday morning. A senior campaign adviser said Trump had not meant to suggest he would demur on any U.S. debt payments. “Mr. Trump was clear in saying that he was not going to renegotiate U.S. debt, despite being asked multiple times, and that he would not default on U.S. debt, despite being asked multiple times,” said the adviser. “All he said is that he believes that long term low interest Treasuries would be a better deal for the U.S. taxpayer.”

It’s moments like this when one must wonder if Beijing perhaps really doesn’t understand how things work.

• China Commodities Selloff Deepens, Steel Has Worst Week Since 2009 (R.)

Chinese commodities prices spiraled lower on Friday, with steel futures suffering their worst week since 2009, as more money flowed out of markets whose surge two weeks ago unnerved global investors and forced regulators to step in to restore calm. Indicating how authorities may now be alarmed after a collapse in volumes and prices, the Dalian Commodity Exchange on Friday said it will cut some trading fees on contracts such as iron ore and coking coal. The commodities slide spilled over into stocks, with the Shanghai Composite Index ending down 2.8%, its worst day since February, as commodity producers fell. Commodities linked to China’s steel sector, which led the mid-April rally, were the hardest hit on Friday, on worries that demand in the world’s biggest steel consumer could soon wane.

The selloff spread to agricultural products including soybeans, eggs and cotton. Some traders were concerned that China’s interest rate easing cycle could be over even as optimism about prospects for the world’s No.2 economy faded. The retreat pulled prices of many of the commodities below levels in mid-April, when a buying frenzy, pinned on retail investors, bloated volumes and drew comparison with the boom-and-bust cycle in China’s stock markets last year. “It’s panic now and capital is flowing out of commodities markets amid a cautious outlook on the economy,” said a trader at a fund in Shanghai. The price declines suggest that Chinese exchanges have more than succeeded in popping the bubble, after commodity platforms in Dalian, Shanghai and Zhengzhou launched measures to curb speculative buying.

Investors have been losing faith in Chinese steel demand for May and June.A tighter steel market following shutdowns of Chinese mills in the past year and a seasonal pickup in demand helped spur prices in the past two months. But producers have since ramped up output and once-shut plants have also resumed production. “The steel mills have started to become cautious towards the market after the really crazy rally. At the same time they don’t think demand will be sustainable,” said Wang Di, an analyst at CRU consultancy in Beijing.

Gotta be the (‘Cool spring) weather’…

• UK Stores Post Steepest Sales Decline Since Financial Crisis (BBG)

U.K. stores had their steepest sales decline since 2008 last month as British consumers shunned the country’s shopping streets. Like-for-like sales fell 6.1% compared with April last year, business advisory firm BDO said in its monthly report. Fashion retailers were hardest hit, with sales dropping 9.2% as stores ended seasonal discounting toward the end of the month. The figures confirm recent evidence of difficult trading for U.K. retailers. Clothing merchant Next cut its sales forecast for a second time this week, shortly after the collapses of department-store chain BHS and formalwear retailer Austin Reed. Cool spring weather, muted wage gains and uncertainty surrounding the upcoming EU referendum have caused consumers to defer purchases.
“Retailers are concerned that consumers aren’t inclined to spend at the moment because of the overall economy,” Charles Allen, an analyst at Bloomberg Intelligence, said by phone.

Obviously, the press is in that bed too.

• When Wall Street and Washington Got in Bed Together (Arnade)

My first evening of my first Wall Street business trip was spent in a Brazilian brothel. I was with a salesman from my firm who was entertaining his clients. I was brought there unexpectedly, and told to talk about markets when things got slow. Buying women for clients and then expensing it as a 10-bottle dinner wasn’t every salesperson’s thing, but in certain countries, with certain clients, it was pretty common on Wall Street. It also worked; the clients ended up buying a lot of bonds from us. The next morning I expressed my surprise to a senior trader. He laughed, “You think that’s bad? Did you look at the other guys around you? Did you see the Brazilian bankers entertaining politicians? That is the way it works here. Bankers buy the politicians.”

That was in Brazil in the 90s. On Wall Street outright corruption, like buying escorts for politicians, is exceedingly rare. The far more common, lucrative, and nuanced method of influencing politicians is to offer them high-paying jobs -or pay them for speeches. It’s such an ingrained part of the political culture that Hillary Clinton s speeches to banks after leaving the State Department, which earned her $2.9 million, isn’t odd. She did it because everyone in the political establishment does it. She doesn’t see it as wrong, because being part of that political establishment means being supported by, and supporting, the Wall Street establishment. Wall Street has always hired former government officials, mostly Republicans, and mostly for show. The jobs were ceremonial, used to wow clients and provide a firm a sheen of importance.

Bill Clinton’s first administration dramatically changed the practice, when as part of New Democrats rebranding, and to ride the popular support generated by Reagan, he pivoted towards Wall Street, embracing free trades and free markets. Wall Street was being deregulated, and rules of the game being rewritten, and so value of connections became all the higher. With both parties now aligned with bankers, prior checks on the process started dissolving. With both parties behind it, Wall Street fully embraced the political class. The embrace was mutual. Bankers also started going to work in D.C., taking central roles in writing banking regulations. It turned into a personally profitable merging of interest, with D.C. favoring Wall Street, and Wall Street rewarding D.C..

The model for the new “revolving door” was Robert Rubin, the CEO of Goldman Sachs. Determined to show Wall Street that he was a different type of Democrat, Bill Clinton hired Rubin as his second Treasury Secretary. Rubin’s four years in the administration were very good to Wall Street; the regulatory environment, with his support, swung aggressively in their favor, punctuated by the repeal of Glass-Steagall. Rubin left the administration to go back to a booming Wall Street, taking a high paying job at Citigroup, whose expansion to the world’s largest financial company was made possible by the repeal of Glass-Steagall. It was, even by Wall Street’s standards, an audacious move.

They can be a lot worse than that. We see it on a daily basis.

• Central Banking Can Become An Opaque Creator Of Insider Deals (FT)

Sed quis custodiet ipsos custodes? -Juvenal

Financial people are being given more good reasons to wonder, as Juvenal, the Roman poet, put it, who is guarding the guardians? This has not been a good week or two for anyone concerned about the honesty and independence of central bankers. One has to wonder how many times we can blame Goldman Sachs and JPMorgan, the US banks, for all the wrongdoing in the financial world while overlooking the regulators and central banks themselves. I have been saving bits of questionable-central-bank-behaviour string over the past couple of months, and it has become a giant ball. Consider the ECB’s report last week on “pre-announcement price drift” for US data releases. In plain language, the ECB pointed to the apparent use of inside information, including Federal Open Market Committee policy announcements, to trade instruments such as stock index futures.

The ECB’s methodology was quite interesting, and well thought out, as far as it went. It did not, of course, go to the measurement of any such “price drift” for its own announcements, or for the data released by any group under its own supervision. Anyone who has contact with the management of the upper reaches of regulated financial institutions will have noticed the increasing level of paranoia among them about the appearance of wrongdoing. Actually, it is not paranoia. If there is not a regulation that can be used to blame them for the next financial crisis, one will be written, retroactively if that is necessary. Who, though, is exempt from the web of capital ratios, counterparty risk controls and compliance officer full-employment requirements? That would be the central banks of the 189 member states of the IMF.

So, for example, there is not much in the way of treaty obligations or shared philosophy to prevent President Recep Tayyip Erdogan from taking closer control over the Central Bank of the Republic of Turkey in the coming days. The German government and ECB will not like that, but what are they going to say or do about it? As Robert Klitgaard, one of the founders of the sad discipline of corruption research put it back in 1988, “corruption equals monopoly plus discretion minus accountability”. The wonder is why we have not detected or measured more corruption in central banks than we have.

My own belief is that the natural tendency for administrative institutions to become corrupt was tempered in central banks by the original simplicity of their tasks and the immediate evidence of the results. They used to buy and sell a short list of assets against the short-term trends in the market. Their regulatory role was limited to specifying the assets they would buy, and their risk appetite was, proportionately, the smallest in the financial markets. The functions of “lender of last resort”, ie funder of politicians’ projects, and “cop on the beat” or micromanaging regulator, were not the day-to-day purposes of central banking.

Always a useful discussion provided people are prepared to prepare.

• Why Garbagemen Should Earn More Than Bankers (Evon.)

Thick fog envelops City Hall Park at daybreak on February 2, 1968. Seven thousand New York City sanitation workers stand crowded together, their mood rebellious. Union spokesman John DeLury addresses the multitude from the roof of a truck. When he announces that the mayor has refused further concessions, the crowd’s anger threatens to boil over. As the first rotten eggs sail overhead, DeLury realizes the time for compromise is over. It’s time to take the illegal route, the path prohibited to sanitation workers for the simple reason that the job they do is too important. It’s time to strike. The next day, trash goes uncollected throughout the Big Apple. Nearly all the city’s garbage crews have stayed home. “We’ve never had prestige, and it never bothered me before,” one garbageman is quoted in a local newspaper. “But it does now. People treat us like dirt.”

When the mayor goes out to survey the situation two days later, the city is already knee-deep in refuse, with another 10,000 tons added every day. A rank stench begins to percolate through the city’s streets, and rats have been sighted in even the swankiest parts of town. In the space of just a few days, one of the world’s most iconic cities has started to look like a slum. And for the first time since the polio epidemic of 1931, city authorities declare a state of emergency. Still the mayor refuses to budge. He has the local press on his side, which portrays the strikers as greedy narcissists. It takes a week before the realization begins to kick in: The garbagemen are actually going to win. “New York is helpless before them,” the editors of The New York Times despair. “This greatest of cities must surrender or see itself sink in filth.”

Nine days into the strike, when the trash has piled up to 100,000 tons, the sanitation workers get their way. “The moral of the story,” Time Magazine later reported, “is that it pays to strike.” Perhaps, but not in every profession. Imagine, for instance, that all of Washington’s 100,000 lobbyists were to go on strike tomorrow. Or that every tax accountant in Manhattan decided to stay home. It seems unlikely the mayor would announce a state of emergency. In fact, it’s unlikely that either of these scenarios would do much damage. A strike by, say, social media consultants, telemarketers, or high-frequency traders might never even make the news at all. When it comes to garbage collectors, though, it’s different. Any way you look at it, they do a job we can’t do without. And the harsh truth is that an increasing number of people do jobs that we can do just fine without.

Were they to suddenly stop working the world wouldn’t get any poorer, uglier, or in any way worse. Take the slick Wall Street traders who line their pockets at the expense of another retirement fund. Take the shrewd lawyers who can draw a corporate lawsuit out until the end of days. Or take the brilliant ad writer who pens the slogan of the year and puts the competition right out of business. Instead of creating wealth, these jobs mostly just shift it around.

I’m tempted to change the title into something that makes actual sense, but I’ll leave it. The Shanghai US dollar manipulation accord (a.k.a. sleight of hand) makes it possible for rags like the Economist to write drivel like this. In reality, the EM ‘recovery’ is entirely fake.

• The Emerging Markets Recovery Looks Fragile (Economist)

It is not easy to have faith in the rally in emerging-market currencies that has taken place since February. The ones that have risen most in recent weeks are typically those—the rouble, the real and the rand—that had lost most ground since May 2013, when the emerging-market sell-off began in earnest. What is there to like about Russia, Brazil and South Africa, with their wilting economies and dysfunctional politics? The proximate causes of the rally are clear. One was the fading of fears for China’s economy. At the start of 2016 capital appeared to be fleeing China at a rapid rate, in a vote of no confidence.

The yuan seemed in danger of losing its moorings against the dollar, raising fears of a round of competitive devaluations across Asia and beyond. Views changed around the time of the meeting of the G20, a club of big economies, in Shanghai in February. Informal pledges by the Chinese authorities not to let the economy slide were backed up by stimulus policies, including a big budget deficit and faster credit growth. Tighter capital controls stemmed the outflows from China. Prices of scorned commodities, such as iron ore, surged at the prospect of Chinese construction. Currencies of raw-material exporters rose too. A second trigger was a change of heart by the Federal Reserve. In December it raised its main interest rate for the first time in a decade and suggested four further increases were likely in 2016.

It has since backed away from these hawkish forecasts. Real interest rates, measured by the yield on inflation-proof bonds, have fallen to 0.14%. The dollar has slumped against even rich-world currencies. No wonder the high yields on offer in Brazil, Russia and other emerging markets are so tempting to rich-world investors, says Kit Juckes of Société Générale. The improved conditions for emerging markets may prevail for a while, but not indefinitely. China’s policy of loose credit only adds to its alarming debt pile. The Fed will eventually resume tightening. Even so, there is a bit more to the emerging-market rally than just a favourable backdrop.

Offering to work with authorities requires that one trust those authorities.

• Panama Papers Whistleblower Manifesto (John Doe)

[..] For the record, I do not work for any government or intelligence agency, directly or as a contractor, and I never have. My viewpoint is entirely my own, as was my decision to share the documents with Süddeutsche Zeitung and the International Consortium of Investigative Journalists (ICIJ), not for any specific political purpose, but simply because I understood enough about their contents to realize the scale of the injustices they described. The prevailing media narrative thus far has focused on the scandal of what is legal and allowed in this system. What is allowed is indeed scandalous and must be changed. But we must not lose sight of another important fact: the law firm, its founders, and employees actually did knowingly violate myriad laws worldwide, repeatedly.

Publicly they plead ignorance, but the documents show detailed knowledge and deliberate wrongdoing. At the very least we already know that Mossack personally perjured himself before a federal court in Nevada, and we also know that his information technology staff attempted to cover up the underlying lies. They should all be prosecuted accordingly with no special treatment. In the end, thousands of prosecutions could stem from the Panama Papers, if only law enforcement could access and evaluate the actual documents. ICIJ and its partner publications have rightly stated that they will not provide them to law enforcement agencies. I, however, would be willing to cooperate with law enforcement to the extent that I am able.

That being said, I have watched as one after another, whistleblowers and activists in the United States and Europe have had their lives destroyed by the circumstances they find themselves in after shining a light on obvious wrongdoing. Edward Snowden is stranded in Moscow, exiled due to the Obama administration’s decision to prosecute him under the Espionage Act. For his revelations about the NSA, he deserves a hero’s welcome and a substantial prize, not banishment. Bradley Birkenfeld was awarded millions for his information concerning Swiss bank UBS—and was still given a prison sentence by the Justice Department. Antoine Deltour is presently on trial for providing journalists with information about how Luxembourg granted secret “sweetheart” tax deals to multi-national corporations, effectively stealing billions in tax revenues from its neighbour countries.

And there are plenty more examples. Legitimate whistleblowers who expose unquestionable wrongdoing, whether insiders or outsiders, deserve immunity from government retribution, full stop. Until governments codify legal protections for whistleblowers into law, enforcement agencies will simply have to depend on their own resources or on-going global media coverage for documents.

Oh well, it’s far away. Who cares?

• Sea-Level Rise Claims Five Islands In Solomons (AFP)

Five islands have disappeared in the Pacific’s Solomon Islands due to rising sea levels and coastal erosion, according to an Australian study that could provide valuable insights for future research. A further six reef islands have been severely eroded in the remote area of the Solomons, the study said, with one experiencing some 10 houses being swept into the sea between 2011 and 2014. “At least 11 islands across the northern Solomon Islands have either totally disappeared over recent decades or are currently experiencing severe erosion,” the study published in Environmental Research Letters said. “Shoreline recession at two sites has destroyed villages that have existed since at least 1935, leading to community relocations.”

The scientists said the five that had vanished were all vegetated reef islands up to five hectares (12 acres) that were occasionally used by fishermen but not populated. “They were not just little sand islands,” leader author Simon Albert told AFP. It is feared that the rise in sea levels will cause widespread erosion and inundation of low-lying atolls in the Pacific. Albert, a senior research fellow at the University of Queensland, said the Solomons was considered a sea-level hotspot because rises there are almost three times higher than the global average. The researchers looked at 33 islands using aerial and satellite imagery from 1947 to 2014, combined with historical insight from local knowledge.

They found that rates of shoreline recession were substantially higher in areas exposed to high wave energy, indicating a “synergistic interaction” between sea-level rise and waves, which Albert said could prove useful for future study. Those islands which were exposed to higher wave energy – in addition to sea-level rise – were found to have a greatly accelerated loss compared with the more sheltered islands. “This provides a bit of an insight into the future,” he said. “There’s these global trends that are happening but the local responses can be very, very localised.”

I’m not at all sure the EU and IMF are not merely playing theater here.

• IMF Tells Eurozone To Start Greek Debt Relief Talks (FT)

The IMF has told eurozone finance ministers they must immediately begin negotiations to grant debt relief for Greece despite German opposition, upending carefully orchestrated negotiations ahead of an emergency meeting on Monday. In a letter to all 19 ministers sent on Thursday night and obtained by the Financial Times, Christine Lagarde, the IMF chief, said stalemated talks with Athens to find €3bn in “contingency” budget cuts, which have gone on for a month, had become fruitless and that debt relief must be put on the table immediately, or risk losing IMF participation in the programme. “We believe that specific [economic reform] measures, debt restructuring, and financing must now be discussed contemporaneously,” Ms Lagarde wrote.

“For us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them.” The IMF has come under intense criticism in Greece, where senior officials in Alexis Tsipras’s government have blamed Poul Thomsen, the IMF’s European chief, for making excessive austerity demands and holding up an agreement on the €86bn bailout’s first review. But Ms Lagarde’s letter makes clear the IMF wants less austerity, arguing that the budget surplus target agreed last year between the EU and Athens — a primary surplus of 3.5% of GDP target by 2018 — is unrealistic and should be drastically reduced. A primary surplus is a country’s budget surplus when debt payments are not included.

“A clarification is needed to clear unfounded allegations that the IMF is being inflexible, calling for unnecessary new fiscal measures and — as a result — causing a delay in negotiations and the disbursement of urgently needed funds,” Ms Lagarde wrote. [..] In her letter, Ms Lagarde wrote that all sides have nearly agreed on a core set of economic reforms that would cut the Greek budget by 2.5% of GDP by 2018. Some officials believe that list could be finalised at Monday’s eurogroup meeting. But Ms Lagarde stuck by the IMF’s assessment that such reforms would only produce a primary surplus of 1.5% in 2018 — not the 3.5% the EU has mandated. Instead, Ms Lagarde urged the EU to change its target to 1.5%, a sign that she believes Brussels is demanding too much austerity of Athens.

Food for thought: Erdogan, too, who’s slowly moving Turkey from secularism to ‘islamism’, will be happy with Sadiq Khan’s election as muslim mayor of London. Therefore Khan will need to distance himself from Turkey. And since Turkey is the EU’s new best friend, that would mean distancing himself from the EU. Something he’s not prepared to do. And his party is not prepared to do.

• Turkish Journalists Jailed For 5 Years, Hours After Courthouse Attack (R.)

Two prominent Turkish journalists were sentenced to at least five years in jail for revealing state secrets on Friday, just hours after a gunman tried to shoot one of them outside the courthouse in Istanbul. Can Dundar, editor-in-chief of the opposition Cumhuriyet newspaper, who was unscathed in the shooting, was given five years and 10 months. Erdem Gul, the newspaper’s Ankara bureau chief, was sentenced to five years. They were acquitted of some other charges, including trying to topple the government. The case, in which President Tayyip Erdogan was named as a complainant, has brought widespread condemnation from global rights groups and increased fears about freedom of the press in Turkey, a NATO member and EU candidate country.

Hours before the verdict was handed down, an assailant attempted to shoot Dundar. In full public view, before a courthouse, the attack marked an alarming development in a country already grappling with bombings by Kurdish insurgents and spillover of violence from neighboring Syria. The man shouted “traitor” before firing at least two shots in quick succession. A reporter covering the trial appeared to have been wounded. A Reuters witness said the assailant was detained by police. Before the shooting, he had approached reporters, saying he had been waiting since early morning and hoped Dundar would be found guilty. His motives and background were not immediately clear.

“We experienced two assassination attempts in two hours: one by firearms, the other by law,” Dundar told reporters following the trial. “There will always be concerns that the orders of the highest office played a role in this ruling.” The two journalists are free pending appeal. The court also decided to postpone a hearing on separate charges of links to a terrorist group until the outcome of a related case. [..] Dundar and Gul had faced up to life in jail on espionage and other charges for publishing footage purporting to show the state intelligence agency taking weapons into Syria in 2014.

Erdogan has acknowledged that the trucks, which were stopped by gendarmerie and police officers en route to the Syrian border in January 2014, belonged to the National Intelligence Organisation and said they were carrying aid to Turkmen battling both Syrian President Bashar al-Assad and Islamic State. He has accused the journalists of undermining Turkey’s international reputation and vowed Dundar would “pay a heavy price”, raising opposition concerns about the fairness of any trial. “We say the incident we covered was a crime, not our coverage,” Dundar said. “And for that we were confronted by the president. He acted like the prosecutor of this case. He threatened us and made us targets.”

A deal with a country that jails its journalists is labeled a ‘success’. 2016 European values. In June the British can vote to be part of this. Or not.

• EU’s Juncker Sees Refugee Crisis At ‘Turning Point’ (R.)

Europe’s migrant crisis is at a “turning point” thanks to a deal with Turkey to stem the number of new arrivals which is showing its first successes, European Commission President Jean-Claude Juncker said in comments published on Saturday. Under an accord struck with the EU, Turkey has agreed to help stop illegal migrants reaching the continent in return for accelerated EU accession talks, visa liberalization, and financial aid. Juncker told the Funke Media Group that the deal, which came into force last month, was already enabling Europe to better manage the flow of migrants. “We at a turning point,” he said. “The deal with Turkey is having an effect and the number of migrants is sinking significantly.”

He added there still needed to be a sustainable drop in the numbers before the “all-clear” could be sounded, but said the deal had given the 28-member bloc room for maneuver to create a fair and efficient asylum system in the medium term. Europe is grappling with its largest migration wave since World War Two, as a traditional flow of migrants from Africa is compounded by refugees fleeing wars and poverty in the Middle East and South Asia. The deal sealed off the main route by which a million migrants crossed the Aegean into Greece last year, but some believe new routes will develop through Bulgaria or Albania as Mediterranean crossings to Italy from Libya resume. Juncker criticized the decision to build a fence between Greece and Macedonia. “I don’t share the view of some that this fence – or building fences in Europe in general – can contribute anything to the long-term solution of the refugee crisis,” he said.

Debt Rattle August 27 2015

Aug 272015

August 27, 2015 Posted by Raúl Ilargi Meijer at 11:44 am Finance Tagged with: China, crisis, Greece, Lehman, meltdown, Minsky, oil, refugees, selloff, stocks 3 Responses »

Arthur Siegel Zoot suit, business district, Detroit, Michigan Feb 1942

• US Stocks Surge, Snapping 6-Day Losing Streak (AP)

• Worst Decline In World Trade In 6 Years (RT)

• China Meltdown So Large That Losses Eclipsed BRICS Peers, Twice (Bloomberg)

• The Stock Market Hasn’t Had a Selloff Like This One in Over 75 Years (BBG)

• China’s Workers Abandon The City As Beijing Faces An Economic Storm (Guardian)

• China’s Central Bank Won’t Do Beijing’s Dirty Work (Pesek)

• China Is In A Serious Bind But This Is Not Yet A ‘Lehman’ Moment (AEP)

• Capitalism Is Always And Fundamentally Unstable (Steve Keen)

• The US Is Short on Options to Confront Next Crisis (Benchmark)

• Stock Market Tumult Exposes Flaws in Modern Markets (WSJ)

• China Remains a Key Commodities Player, Despite Waning Appetites (WSJ)

• Oil Industry Needs to Find Half a Trillion Dollars to Survive (Bloomberg)

• For Oil Producers Cash Is King; That’s Why They Just Can’t Stop Drilling (BBG)

• Alberta’s Economy Heading Toward Contraction (Globe and Mail)

• Yanis Varoufakis Pushes For Pan-European Network To Fight Austerity (ABC.au)

• Tsipras Rules Out Coalition Partners, Says Varoufakis ‘Lost His Credibility’ (AP)

• Greek Minister Says €5 Billion ATE Bank Scandal Is Biggest Of Its Type (Kath.)

• Hedge Funds Set To Bank Millions Short Selling In London Share Slump (Guardian)

• Mass Migration: What Is Driving the Balkan Exodus? (Spiegel)

• Hungary Scrambles To Confront Migrant Influx, Merkel Heckled (Reuters)

Debt rattle.

• US Stocks Surge, Snapping 6-Day Losing Streak (AP)

The Dow Jones industrial average rocketed more than 600 points Wednesday, its biggest gain in seven years, snapping a six-day losing streak that had Americans nervously checking their investment balances. While the surge came as a relief to many, Wall Street professionals warned that more rough days lie ahead, in part because of weakness in China, where signs of an economic slowdown triggered the sell-off that has shaken global markets over the past week. Heading into Wednesday, the three major U.S. stock indexes had dropped six days in a row, the longest slide in more than three years. The Dow lost about 1,900 points over that period, and more than $2 trillion in corporate value was wiped out. On Tuesday, a daylong rally collapsed in the final minutes of trading.

On Wednesday, the market opened strong again, and the question all day was whether the rally would hold. It did, and picked up speed just before the closing bell. The Dow vaulted 619.07 points, or 4%, to 16,285.51. It was the Dow’s third-biggest point gain of all time and its largest since Oct. 28, 2008, when it soared 889 points. The Standard & Poor’s 500 index, a much broader measure of the stock market, gained 72.90 points, or 3.9%, to 1,940.51. In %age terms, it was the best day for the S&P 500 in nearly four years. The Nasdaq composite rose 191.05 points, or 4.2%, to 4,697.54. Analysts said investors apparently saw the big sell-off as an opportunity to go bargain-hunting and buy low. “That always leads to a bounce or spike in the market,” said Quincy Krosby, market strategist for Prudential Financial.

“Meanwhile, the IMF predicted the world economy would grow 3.5% this year…”

• Worst Decline In World Trade In 6 Years (RT)

The first half of 2015 has seen the worst decline in world trade since the 2009 crisis, according to World Trade Monitor. The data could imply that globalization has reached its peak. In the first quarter of 2015, the volume of world trade declined by 1.5%, while the second quarter saw a 0.5% contraction (1.1% growth in annual terms), which makes the first six months of the year the worst since the 2009 collapse. Global trade won back 2% in June, but the authors of the research, the Netherlands Bureau for Economic Policy Analysis, warned that the monthly numbers were volatile and suggested looking at the long-term figures.

“We have had a miserable first six months of 2015,” chief economist of the WTO Robert Koopman told the FT. The organization had predicted trade would grow 3.3% this year, but is likely to downgrade the estimate in the coming weeks. According to Koopman, the downturn in world trade reflects the delay in the recovery of the European economy and the economic slowdown in China. “There’s an adjustment going on in the global economy and trade is a place where that adjustment becomes pretty visible,” added the economist. However, despite the fact that globalization has indeed reached its peak, there are no signs that it will decline, said Koopman. Meanwhile, the IMF predicted the world economy would grow 3.5% this year.

$5 trillion.

• China Meltdown So Large That Losses Eclipsed BRICS Peers, Twice (Bloomberg)

Take the combined size of all stocks traded in Brazil, Russia, India and South Africa, multiply by two, and you’ll get a sense of how much China’s market value has slumped since the meltdown started. Shanghai-listed equities erased $5 trillion since reaching a seven-year high in June, half their value, as margin traders closed out bullish bets and concern deepened that valuations were unjustified by the weak economic outlook. The four other countries in the BRICS universe have a combined market capitalization of $2.8 trillion, according to data compiled by Bloomberg. China has accounted for 41% of equity declines worldwide since mid-June, with the scale of the drop also exceeding the entire size of the Japanese stock market.

Losses accelerated following the shock yuan devaluation on Aug. 11 as investors took the step as a sign the government is more worried about the pace of the economic slowdown than previously thought. That, in turn, sent convulsions through global markets, particularly hurting countries that rely heavily on China as a destination for their exports of vegetables, minerals and fuel, including Brazil, Russia and South Africa. The Shanghai Composite Index remains 33% higher in the past 12 months. “China has been the single most important source of growth in the world for several years, hence such a sharp slowdown has a profound impact on trade,” Nathan Griffiths at NN Investment Partners in The Hague said by e-mail. Stock-market volatility on the “downside is much more important than the move on the upside for broader markets,” he said.

By one metric…

• The Stock Market Hasn’t Had a Selloff Like This One in Over 75 Years (BBG)

By one metric, investors would have to go back 75 years to find the last time the S&P 500’s losses were this abrupt. Bespoke Investment Group observed that the S&P 500 has closed more than four standard deviations below its 50-day moving average for the third consecutive session. That’s only the second time this has happened in the history of the index. May 15, 1940, marked the end of the last three-session period in which this occurred. This string of sizable deviations from the 50-day moving average is a testament to just how severe recent losses have been compared to the index’s recent range. “Not even the crash of 1987 got this oversold relative to trend,” writes Bespoke.

The money management and research firm produced a pair of analogue charts showing what’s in store if the S&P 500 mimics the price action seen in mid-1940. Overlaying the axes gives the impression that the worst of the pain is behind us, and a market bottom isn’t too far off. However, indexing the S&P 500 to five sessions prior to the tumult shows that a replication of the mid-1940 plunge could see equities run much further to the downside and into a bear market. If it tracked the 1940 trajectory, the S&P 500 would hit a low of 1,556 in relatively short order. But Bespoke doesn’t think stocks are fated to repeat that selloff.

“There is nothing, nothing, we have seen – Chinese fears, positioning, valuation, or any other factor – suggests to us that we are headed to 1556,” the analysts write. “More likely, in our view, is something along the lines of the top analogue; we doubt the bottom is in, but see it unlikely we enter a bear market and a true stock market crash.”

Back to the country.

• China’s Workers Abandon The City As Beijing Faces An Economic Storm (Guardian)

Liu Weiqin swapped rural poverty for life on the dusty fringes of China’s capital eight years ago hoping – like millions of other migrants – for a better future. On Thursday she will board a bus with her two young children and abandon her adopted home. “There’s no business,” complained the 36-year-old, who built a thriving junkyard in this dilapidated recycling village only to watch it crumble this year as plummeting scrap prices bankrupted her family. “My husband will stick around a bit longer to see if there is any more work to be found. I’m taking the kids.” Weeks of stock market turmoil have focused the world’s attention on the health of the Chinese economy and raised doubts over Beijing’s ability to avert a potentially disastrous economic crisis, both at home and aboard.

The financial upheaval has been so severe it has even put a question mark over the future of premier Li Keqiang, who took office less than three years ago. Following a stock market rout dubbed China’s “Black Monday”, government-controlled media have rejected the increasingly desolate readings of its economy this week. “The long-term prediction for China’s economy still remains rosy and Beijing has the will and means to avert a financial crisis,” Xinhua, the official news agency, claimed in an editorial. Meanwhile Li told the state TV channel CCTVthat “the overall stability of the Chinese economy has not changed”. The evidence in places such as Nanqijia – a hardscrabble migrant community of recyclers around 45 minutes’ drive from Tiananmen Square – points in the opposite direction.

“It’s the worst we’ve seen it. It’s even worse than 2008,” said Liu Weiqin, who like most of the village’s residents hails from Xinyang in south-eastern Henan province, one of China’s most deprived corners. “When things were good we could earn 10,000 yuan [£1,000] a month. But I’ve lost around 200,000 yuan since last year,” added Liu, who was preparing to leave her cramped redbrick shack for a 10-hour coach journey back to her family home with her eight-year-old son, Hao Hao, and five-year-old daughter, Han Han.

Trouble in Utopia?

• China’s Central Bank Won’t Do Beijing’s Dirty Work (Pesek)

China’s Zhou Xiaochuan is either the smartest or most reckless central banker in the world. Even after its fifth rate cut in nine months on Tuesday, the People’s Bank of China is running a monetary policy that’s too tight for an economy on the brink. The PBOC is grappling with weakening growth, excessive debt and a plunging equity market that’s wreaking havoc on household wealth, corporate profits and business confidence. So why is Zhou still only offering monetary-baby steps over the shock-and-awe recently favored by Bank of Japan Governor Haruhiko Kuroda? It’s partly because he wants to prevent China’s central bank autonomy from being reduced to a hollow cliché.

Zhou’s team – well aware that he has a control-obsessed Communist Party looking over his shoulder – wants to make sure President Xi Jinping does his part to restore China’s economy. We’ll know soon enough whether Zhou is being reckless. Many commentators have argued the PBOC should initiate quantitative easing. After all, China’s overcapacity and debt levels – the country’s local governments alone owe more than Germany’s annual gross domestic product – caution against a new round of fiscal stimulus. If the data on China’s economic fundamentals and Shanghai stocks cascade lower in the months ahead, Zhou might have some explaining to do. But, for now, his show of independence is a silver lining amid the ongoing turmoil.

Zhou is an economic modernizer without peer in today’s Beijing, a disciple of former premier Zhu Rongji, China’s most-important reformer since the pioneering Communist Party chairman Deng Xiaoping. Zhou’s top goal has been to get the yuan added to the International Monetary Fund’s special drawing rights program. But unlike other Chinese policy makers, who want to leverage that status to increase the country’s global clout, he wants to use it to spur further economic reforms. He knows that once the yuan is recognized as a reserve currency, Beijing will have no choice but to adhere to global economic norms.

Ambrose can’t seem to be able to make up his mind these days. Make it a Minsky moment then.

• China Is In A Serious Bind But This Is Not Yet A ‘Lehman’ Moment (AEP)

The European and American economies are at this point like 747 jumbo jets flying smoothly into stiff headwinds at 37,000 ft. Such craft do not normally fall out of the sky just like that. The great unknown is China. Some of us never believed in the first place that the Communist Party can perform miracles, or that China is necessarily destined for economic hegemony this century. We have long argued that the post-2009 credit blitz has been unprecedented in any major country in history. Loans have increased from $9 trillion to $27 trillion in six years. The extra debt alone is greater than the combined banking systems of the US and Japan, and its potency is dying as the output gained from each yuan of fresh credit drops from 80pc to nearer 25pc.

We argued – like premier Li Keqiang, our lonely hero in the Politburo – that the country is hurtling straight into the middle income trap unless it ditches Deng Xiaoping’s obsolete catch-up model in time, both by weaning itself off investment-led growth and by relinquinshing the Party grip on Chinese society. We expected trouble. Yet the crumbling credibility of China’s leaders this year is disturbing to watch. They have made serial errors. They sat on their hands as real one-year borrowing costs rocketed to 5pc. They botched the local government reform plan over the winter, precipitating a four-month fiscal crunch (spending fell 19.9pc in January) that would bring any country to its knees. They deliberately stoked a stock mania in Shanghai and Shenzhen, thinking it would reflate the economy by means of equity rather than debt.

They then mobilized the state’s coercive powers to stop it collapsing, only to fail. Finally, they abandoned China’s dollar peg and switched to a managed float before the economy had pulled out of recession (my term, not theirs), causing much of the world and many of its own citizens to conclude that Beijing is deliberately trying to drive down the yuan. It is this that precipitated the August storm. It is has the potential to turn dangerous. Nomura says capital flight reached almost $200bn in early July. Reports are circulating that it may be much higher. The central bank (PBOC) is burning through foreign reserves to defend the currency. This is causing a liquidity squeeze and lowering the monetary multiplier, yet the PBOC cannot easily slash rates to support the economy without inviting further outflows. Hence the timid 50 point cut in the reserve requirement ratio on Tuesday.

We are already seeing signs of disguised capital controls. Beijing has invoked anti-terror laws to investigate anybody suspected of smuggling money out of the country. Police raids are under way in Macau, the casino centre used to launder capital flight. Beijing has lifted the interest rate cap on long-term deposit accounts to try to entice savings to stay within China. These steps may at least slow the exodus of money. My own view – with low conviction, as they say in the hedge fund world – is that China will weather this immediate storm, though with difficulty.

That is Minsky.

• Capitalism Is Always And Fundamentally Unstable (Steve Keen)

Minsky’s view that capitalism is fundamentally unstable can be derived from a simple, dynamic view of capitalism: without bankruptcy or government intervention, a pure free market capitalist economy will collapse into a private debt black hole. The political implications of this are (a) that capitalism needs debt write-offs to survive, and (b) that government money creation is needed to avoid economic collapse. This is a huge political shift from today’s politics where the rights of creditors are enforced to the detriment of debtors, and where Neoliberalism has attempted to reduce the size of the public sector.

Used all the tricks in the book.

• The US Is Short on Options to Confront Next Crisis (Benchmark)

Stock market and commodity price declines are sweeping the globe, raising a question: If the U.S. economy lands in another hole, what tools does it have to dig itself out? Perhaps not many, or at least not as many as before the 2008 meltdown. U.S. debt stands at 74% of gross domestic product, compared with 35% in 2007, based on a Congressional Budget Office report released Tuesday. That burden is expected to grow further in coming years, limiting government options for additional fiscal stimulus in the form of spending or lower taxes. While the U.S. could follow in the footsteps of Japan, Ireland, Italy or Greece, which have racked up even higher debt-to-GDP levels, heftier deficits would be a hard political sell.

After all, Congress has been loathe to borrow, curbing spending through “sequester” limits and pushing the nation to the brink of default in 2011 amid disputes over a debt-limit extension. In recent years, the Federal Reserve has provided the stimulus that austerity-minded fiscal policy makers didn’t. The central bank has held interest rates near zero since 2008 and carried out three massive asset purchase programs to boost the economy. Now, cutting interest rates wouldn’t be an option in the face of a big downturn. That means the Fed would need to once again turn to unconventional steps such as further asset purchases or increased forward guidance. They’ve done it before, so it’s hard to make the case that they wouldn’t do it again, but it does mean that a crucial option — interest rates — is missing from their toolbox.

Partly for that reason, the Bank for International Settlements has warned that still-low rates around the world pose a looming economic risk. “Restoring more normal conditions will also be essential for facing the next recession, which will no doubt materialise at some point,” according to an annual report from the organization of central banks. “Of what use is a gun with no bullets left?”

“..Monday’s issues are likely to lead to changes in how markets operate at times of uncertainty..” Ha ha, want to bet?

• Stock Market Tumult Exposes Flaws in Modern Markets (WSJ)

Monday’s mayhem exposed significant flaws in the new architecture of Wall Street, where stock-linked funds—as much as shares themselves—now trade en masse on U.S. markets. Many traders reported difficulty buying and selling exchange-traded funds, a popular investment in which baskets of stocks and other assets are packaged to facilitate easy trading. Dozens of ETFs traded at sharp discounts to their net asset value—or their components’ worth—leading to outsize losses for investors who entered sell orders at the depth of the panic. Products built to provide insurance for investors came up short. As a result of trading halts in futures tied to the S&P 500 index, it was difficult for investors to get consistent prices on contracts linked to them that offer insurance against S&P 500 declines.

Elsewhere, the value of the most widely tracked Wall Street gauge of investor anxiety, the CBOE Volatility Index, or VIX, wasn’t published until almost 10 a.m. Monday, half an hour after stock trading began and after the Dow Jones Industrial Average had already posted its largest-ever intraday point decline. That made it difficult for investors to easily gauge the fear in the market. “ETFs have democratized investing,” said David Mazza, head of ETF research at State Street Global Advisors, a major ETF provider. But he and others added that ETFs don’t prevent investors from suffering losses if they buy or sell when the market is under stress. Analysts said that, while losses were inevitable for some investors amid the turmoil, and unruly trading is hardly unheard of on late-summer days, Monday’s issues are likely to lead to changes in how markets operate at times of uncertainty.

The WSJ tries for a positive spin here, but what this really means is commodities are in for foul weather.

• China Remains a Key Commodities Player, Despite Waning Appetites (WSJ)

The fear that China’s appetite for commodities, from copper to coal, is falling after a decade of breakneck growth has sent prices tumbling, but the country’s sheer scale in these markets means that China will continue to shape them in the long term, even if at a slower speed. China now buys about an eighth of the world’s oil, a quarter of its gold, almost a third of its cotton and up to half of all the major base metals. Its buying power has made the country integral to global commodities trading, influencing everything from prices to the hours traders work. While analysts predict a slowdown in the growth of Chinese commodity demand, they believe the country’s clout in the market isn’t likely to wane.

Commodities have fallen sharply in recent days, extending a summer of declines, amid concerns that a slowdown in China’s economic growth will sap the demand that drove markets through more than a decade of gains. China’s voracious consumption amid double-digit annual economic growth also encouraged a glut of new supply, from fertilizers to gold. Earlier this week, oil fell to its lowest levels in over six years. Industrial metals, such as copper and aluminum, have lost about 20% of their value this year, as has iron ore.

ha ha ha

• Oil Industry Needs to Find Half a Trillion Dollars to Survive (Bloomberg)

At a time when the oil price is languishing at its lowest level in six years, producers need to find half a trillion dollars to repay debt. Some might not make it. The number of oil and gas company bonds with yields of 10% or more, a sign of distress, tripled in the past year, leaving 168 firms in North America, Europe and Asia holding this debt, data compiled by Bloomberg show. The ratio of net debt to earnings is the highest in two decades. If oil stays at about $40 a barrel, the shakeout could be profound, according to Kimberley Wood at Norton Rose Fulbright in London. “The look and shape of the oil industry would likely change over the next five to 10 years as companies emerge from this,” Wood said.

“If oil prices stay at these levels, the number of bankruptcies and distress deals will undoubtedly increase.” Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. A total of about $550 billion in bonds and loans are due for repayment over the next five years. U.S. drillers account for 20% of the debt due in 2015, Chinese companies rank second with 12% and U.K. producers represent 9%. In the U.S., the number of bonds yielding greater than 10% has increased more than fourfold to 80 over the past year, according to data compiled by Bloomberg. 26 European oil companies have bonds in that category..

Hamster and treadmill.

• For Oil Producers Cash Is King; That’s Why They Just Can’t Stop Drilling (BBG)

Investors sent a surprising message to U.S. shale producers as crude fell almost 20% in August: keep calm and drill on. While most oil stocks have fallen sharply this month, the least affected by the slump share one thing in common: they don’t plan to slow down, even though a glut of supply is forcing prices down. Cimarex Energy jumped more than 8% in two days after executives said Aug. 5 that their rig count would more than double next year. Pioneer Natural Resources Co. rallied for three days when it disclosed a similar increase. Shareholders continue to favor growth over returns, helping explain why companies that form the engine of U.S. oil – the frackers behind the boom – aren’t slowing down enough to rebalance the market.

U.S. production has remained high, frustrating OPEC’s strategy of maintaining market share and enlarging a glut that has pushed oil below $40 a barrel. “These companies have always been rewarded for growth,” according to Manuj Nikhanj, head of energy research for ITG Investment Research in Calgary. Now though, “the balance sheets of this sector are so challenged that investors are going to have to look at other factors,” he said. Output from 58 shale producers rose 19% in the past year, according to data compiled by Bloomberg. Despite cutting spending by $21.7 billion, the group pumped 4% more in the second quarter than in the last three months of 2014.

That’s buoyed overall U.S. output, which has only drifted lower after peaking at a four-decade high in June. The government estimates production will slide 8% from the second quarter of this year to the third quarter of 2016. OPEC has been pumping above its target for more than a year. The oversupply may worsen if Iran is allowed to boost exports should it strike a deal with the U.S. and five other world powers to curb the Islamic Republic’s nuclear program.

“The province’s Wildrose opposition has noted that a barrel of Alberta’s oil is now cheaper than a case of beer.”

• Alberta’s Economy Heading Toward Contraction (Globe and Mail)

Faced with a collapse in energy prices, widespread drought, forest fires and the uncertainty of an untested government, the engine that drove much of Canada’s growth over the past decade has seized. Alberta’s economy is expected to contract this year. “I think it’s inevitable that Alberta will be in a contraction this year,” said Todd Hirsch, the chief economist for ATB Financial. “In 2016, I’m still optimistic we can squeeze out a very modest recovery. But this province won’t feel like it normally does until 2017 at the earliest.” Apart from a devastated energy sector, the provincial government has declared a provincewide agricultural disaster. After weeks of near-record drought, fields of parched grain can be found across much of Alberta.

The Agriculture Financial Services Corp. now expects to pay out as much as $1-billion to struggling farmers. Although most of Alberta’s farmers have crop insurance, the provincial agency will use the money to ensure the speedy compensation of farmers for lost crops and revenue. At the same time, dry weather gave rise to an early fire season in Alberta that has burnt 493,000 hectares across central and northern areas of the province – a burn area nearly twice the five-year average. A final price tag for the 1,646 fires seen across Alberta so far has yet to be determined. The struggling economy will have a huge effect on the government’s finances.

The provincial budget deficit could be the largest in nearly two decades, topping $8-billion if oil prices remain low, according to John Rose, the City of Edmonton’s chief economist. That would complicate Premier Rachel Notley’s campaign promise to increase spending on health and education while balancing the books by 2018. “It’s turning out worse than I expected,” said Mr. Rose, who warned of a significant slowdown in the provincial economy last December. “My forecast for 2015 was predicated on oil holding around $60 a barrel through the year. Things have gone awry.”

Can’t reform EU, Yanis.

• Yanis Varoufakis Pushes For Pan-European Network To Fight Austerity (ABC.au)

As far as Yanis Varoufakis is concerned, the Greek election campaign will be ‘sad and fruitless’. He tells Late Night Live why he won’t be running and why he is instead putting his energy into political action on a European level. When Greek prime minister Alexis Tsipras suddenly resigned last week, calling for fresh elections, his former finance minister Yanis Varoufakis was about to set off for France. His destination was the Fête de la Rose—a political event organised by the French Socialist Party, held annually in the tiny town of Frangy-en-Bresse, not far from the Swiss border. As rain poured down on the gathering, Varoufakis opened his speech with words familiar to any student of Marxist politics: ‘A spectre is haunting Europe.’

In Varoufakis’s adaptation, the spectre is that of democracy, and the powers of old Europe are as opposed to democracy in 2015 as they were to communism in 1848. For Varoufakis, the events of this year are an ‘Athens spring’ that was crushed by the banks after the Greek public’s vote against austerity in July. But as he explained to Late Night Live, he won’t be running for Greek parliament in the September elections, as he no longer believes in what Syriza and its leader, Tsipras, are doing. ‘The party that I served and the leader that I served has decided to change course completely and to espouse an economic policy that makes absolutely no sense, which was imposed upon us,’ he says.

‘I don’t believe that we should have signed up to it, simply because within a few months the ship is going to hit the rocks again. And we don’t have the right to stand in front of our courageous people who voted no against this program, and propose to them that we implement it, given that we know that it cannot be implemented.’ He has sympathy for a grouping of rebel MPs known as Popular Unity, but fundamentally disagrees with their ‘isolationist’ stance of desiring a return to the drachma. Instead, he says, his focus has turned to politics at the European level. ‘I don’t believe this parliament that will emerge from the coming election can ever hope to establish a majority in favour of a rational economic program and a progressive one,’ he says.

‘Instead of becoming engaged in an election campaign which in my mind is quite sad and fruitless, I’m going to be remain politically active—maybe more active than I have been so far—at the European level, trying to establish a European network. ‘National parties forming flimsy alliances within a Europe that operates like a bloc, like a macroeconomy, in its own interests—that model doesn’t work anymore. I think we should try to aim for a European network that at some point evolves into a pan-European party.’

“(Varoufakis) was talking and they paid no attention to him. They had switched off..”

• Tsipras Rules Out Coalition Partners, Says Varoufakis ‘Lost His Credibility’ (AP)

Greece’s prime minister on Wednesday raised the political stakes ahead of next month’s early national election, saying he will not enter a coalition with the main center-right and centrist opposition parties even if he needs their backing to govern. Alexis Tsipras resigned last week, barely seven months into his four-year mandate, when his bailout-dependent country received a new rescue loan that saved it from a looming bankruptcy and exit from the euro currency. He is seeking a stronger mandate, after his radical left-led coalition effectively lost its parliamentary majority when dozens of his own hardline left lawmakers refused to back new austerity measures demanded for the loan — which parliament approved with the backing of pro-European opposition parties.

Tsipras is widely expected to win the snap election, which will most likely be held Sept. 20, but it is unclear whether he will secure enough seats in parliament to govern alone. In an interview with private Alpha TV Wednesday, Tsipras ruled out a coalition with the center-right main opposition New Democracy party, or the smaller centrist Potami and PASOK parties. “I will not become prime minister in a coalition government with (New Democracy, PASOK or Potami),” he said. “I think that all three parties essentially express the old political system.” Before the election date is set, main opposition parties must complete the formal process of trying to form a national unity government. That procedure — doomed due to the parties’ disagreements — is expected to end Thursday.

Tsipras’ disaffected former comrades are angry at his policy U-turn to secure the international loans, as he was elected Jan. 25 on pledges to scrap creditor-demanded income cuts and tax hikes. They have formed the rebel group Popular Unity, now Greece’s third-largest party. Deepening the rift in Syriza, 53 members of the 201-strong central committee — the main party organ — announced their resignations from the party Wednesday, as they are switching to Popular Unity. Tsipras has argued that he was forced to accept creditors’ terms to keep Greece in the euro, and said that if he secures a slender majority in the election he will seek a coalition with his current partner, the small right wing populist Independent Greeks.

[..] In his interview, Tsipras said he accepted the bailout deal to avoid having to deal with a Greek bank collapse “and, possibly, civil strife” if the country was forced out of the euro. Tsipras also explained why, shortly before the agreement, he sacked his flamboyant finance minister, Yanis Varoufakis, who alienated Greece’s creditors with his aggressive talk and delaying tactics. Tsipras said that in a top-level June 25 meeting he and Varoufakis attended with the IMF, ECB and EC heads, “(Varoufakis) was talking and they paid no attention to him. They had switched off,” Tsipras said. “He had lost his credibility with his interlocutors.”

Until the next one.

• Greek Minister Says €5 Billion ATE Bank Scandal Is Biggest Of Its Type (Kath.)

Minister of State for Combating Corruption Panayiotis Nikoloudis on Wednesday described the illegal loans provided by the now-defunct Agricultural Bank of Greece (or ATEbank) between 2000 and 2012, which he is responsible for investigating, as the “biggest scandal since the modern Greek state was founded.” “We are talking about €5 billion at least… which dwarfs the infamous [Giorgos] Koskotas scandal involving the Bank of Crete [in the late 1980s], which ran to the equivalent of €60 million.”

The results of a preliminary investigation, which were made public in July, indicated that ATEbank was used to siphon some €5 billion to supporters of previous governments as part of a patron-client relationship. Prosecutors are investigating more than 1,300 loans that were issued without the necessary guarantees being demanded by the bank. ATEbank was absorbed by Piraeus Bank in 2013. Nikoloudis said that the loans were not given randomly, but to specific people, including “media owners, select businessmen and agricultural cooperatives.”

Shorting Sainsbury.

• Hedge Funds Set To Bank Millions Short Selling In London Share Slump (Guardian)

Hedge funds are set to bank tens of millions of pounds from the slump in share prices in London, having bet almost £18bn that the FTSE 100 would fall. The funds making the bets include Lansdowne Partners, which is run by George Osborne’s best man, Peter Davies, and Odey Asset Management, which is led by Crispin Odey – who made millions by predicting the credit crisis and earlier this year said the world was heading for a downturn “likely to be remembered in 100 years”. Short selling, effectively betting that share prices will fall, involves borrowing shares in a company and selling them with a view to buying them back at a lower price. The hedge fund makes a profit by banking the difference , as long as the shares do in fact fall.

As concerns over the slowing Chinese economy have grown, traders have increasingly bet that the fallout would be felt in blue-chip shares in London. The average%age of FTSE 100 company shares out on loan to short sellers has risen from 1.2% a year ago to 1.75%. The value of the short positions hedge funds have taken in FTSE 100 companies is £17.8bn, according to research by Markit. By the close of trading on Monday the FTSE 100 had fallen for 10 days in a row, sending it 17% down from its record high in April, before bouncing back by 3% on Tuesday. The biggest short positions are in Wm Morrison and J Sainsbury, with 16.4% of Morrisons shares out on loan, and 16.2% of Sainsbury’s shares. Traders have bet on the two supermarkets struggling further in the face of fierce competition from the discounters Aldi and Lidl.

Hopelessness is.

• Mass Migration: What Is Driving the Balkan Exodus? (Spiegel)

When Visar Krasniqi reached Berlin and saw the famous image on Bernauer Strasse – the one of the soldier jumping over barbed wire into the West — he knew he had arrived. He had entered a different world, one that he wanted to become a part of. What he didn’t yet know was that his dream would come to an end 11 months later, on Oct. 5, 2015. By then, he has to leave, as stipulated in the temporary residence permit he received. Krasniqi is not a war refugee, nor was he persecuted back home. In fact, he has nothing to fear in his native Kosovo. He says that he ran away from something he considers to be even worse than rockets and Kalashnikovs: hopelessness. Before he left, he promised his sick mother in Pristina that he would become an architect, and he promised his fiancée that they would have a good life together.

“I’m a nobody where I come from, but I want to be somebody.” But it is difficult to be somebody in Kosovo, unless you have influence or are part of the mafia, which is often the same thing. Taken together, the wealth of all parliamentarians in Kosovo is such that each of them could be a millionaire. But Krasniqi works seven days a week as a bartender, and earns just €200 ($220) a month. But a lack of prospects is not a recognized reason for asylum, which is why Krasniqi’s application was initially denied. The 30,000 Kosovars who have applied for asylum in Germany since the beginning of the year are in similar positions. And the Kosovars are not the only ones. This year, the country has seen the arrival of 5,514 Macedonians, 11,642 Serbians, 29,353 Albanians and 2,425 Montenegrins. Of the 196,000 people who had filed an initial application for asylum in Germany by the end of July, 42% are from the former Yugoslavia, a region now known as the Western Balkans.

The exodus shows the wounds of the Balkan wars have not yet healed. Slovenia and Croatia are now members of the European Union, but Kosovo, which split from Serbia and became prematurely independent in 2008, carves out a pariah existence. Serbia is heavily burdened with the unresolved Kosovo question. The political system in Bosnia-Hercegovina is on the brink of collapse, 20 years after the end of the war there. And Macedonia, long the post-Yugoslavia model nation, has spent two decades in the waiting rooms of the EU and NATO, thanks to Greek pressure in response to a dispute over the country’s name. The consequences are many: a lack of investment, failing social welfare systems, corruption, organized crime, high unemployment, poverty, frustration and rage.

“..helicopters, mounted police and dogs..”

• Hungary Scrambles To Confront Migrant Influx, Merkel Heckled (Reuters)

Hungary made plans on Wednesday to reinforce its southern border with helicopters, mounted police and dogs, and was also considering using the army as record numbers of migrants, many of them Syrian refugees, passed through coils of razor-wire into Europe. In Germany, which expects to receive 800,000 of them this year, Chancellor Angela Merkel was heckled by dozens of protesters as she visited an eastern town where violent anti-refugee protests erupted at the weekend. The surge in migrants seeking refuge from conflict or poverty in the Middle East, Africa and Asia has confronted Europe with its worst refugee crisis since World War Two, stirring social tensions and testing the resources and solidarity of the 28-nation European Union.

A record 2,533 mainly Syrians, Afghans and Pakistanis crossed from Serbia into EU member Hungary on Tuesday, climbing over or squirreling under a razor-wire barrier into the hands of an over-stretched police force that struggled to fingerprint and process them. Authorities said over 140,000 had been caught entering so far this year. Unrest flared briefly at a crowded reception center in the border region of Roszke, with tear gas fired by police. Another 1,300 were detained on Wednesday morning. More will have passed unnoticed, walking through gaps in a border fence being built by Hungary in what critics say is a futile attempt to keep them out. They packed a train station in the capital, Budapest, hundreds of men, women and children sleeping or sitting on the floor in a designated “transit zone” for migrants.

Almost all hope to reach the more affluent countries of northern and western Europe such as Germany and Sweden. Visiting the eastern German town of Heidenau, where violence broke out during weekend protests by far-right militants against the arrival of around 250 refugees, Merkel said xenophobia would not be tolerated. About 50 protesters booed, whistled and waved signs that read “Volksverraeter” (traitor), a slogan adopted by the anti-Islam PEGIDA movement earlier this year. “There is no tolerance for those people who question the dignity of others, no tolerance for those who are not willing to help where legal and human help is required,” Merkel told reporters and local people. “The more people who make that clear … the stronger we will be.”

The Automatic Earth Moves To Athens

Jun 162015

June 16, 2015 Posted by Raúl Ilargi Meijer at 8:14 pm Finance Tagged with: Athens, EU, foodbank, fund, Greece, hospital, Lehman, misery 9 Responses »

Dmitri Kessel Protest against Britain’s murders of partisans, Athens 1944

Next week, on June 25, I will come to Athens (I wish Nicole could join me, but she moved to New Zealand and will be there for now). There is no large fixed agenda set, but through contacts with readers of the Automatic Earth -they’re absolutely everywhere- it’s already clear that there will be a lot to do. Obviously, I will continue to publish everyday on the Automatic Earth site as well, so we may be in for some busy days. Nothing new there.

Still need to secure a place to stay, but I’m sure something will come up. And there are of course never enough readers and friends to get in touch with, so please drop a line at “contact •at• theautomaticearth •dot• com”. I would love to meet as many of you as possible, get you in touch with each other, practice our ouzo toast, dance a zirtaki and have a ball.

Where I’m coming from is talking with people on the street is something that interests me far more than talking to politicians, though I’ll be certain to drop Varoufakis a line, and less visible members of Syriza would undoubtedly make for good conversations as well. What I want to find out, and write about, is how people have experienced the past five years, how they see the next five, and how they hold together.

That last bit is especially poignant since the structure of Greek society is very different from that of America or western Europe. In a good way, if you ask me. Not only is the economy much more ‘self-contained’ -for lack of a better word-, which by the way would make a switch to an -domestic- alternate currency much less painful then it would be in richer, export-dependent nations, but Greek families stick together way more than those elsewhere too.

Ironically, that’s why they can at times -try to- make do with a single pension to feed an entire family, something that would be unthinkable in Holland, Germany, Canada, US. And it’s those very pensions that the troika insists must be further reduced than the 40%+ they’ve already been cut. What goes for families stretches beyond them to a larger circle of friends too.

Meanwhile, my planning could be either way off or right on the nose, depending on one’s view. I see talk of a Lehman moment as early as this weekend, but it looks more likely the whole thing will go down to the wire, which is June 30.

No matter what comes down, I very much think Athens is the place to be as per next week. As you probably know, I have great sympathy and admiration for what Syriza, especially Alexis Tsipras and Yanis Varoufakis, are trying to achieve, as well as for their intelligence and even more, what they stand for.

Now, I don’t think I can go to Athens and not try to see if there’s something I can do to alleviate some of the misery in my own small way. But since that way would be extremely small given where the Automatic Earth’s financial situation and funding stand at the moment, I thought of something.

I’m hereby setting up an “Automatic Earth for Athens” fund (big word), and I’m asking you, our readership, to donate to that fund. I will make sure the revenues will go to clinics and food banks, to the worthiest causes I can find. To not mix up donations for Athens with those for the Automatic Earth, which are also badly needed, I suggest I take any donation that ends with 99 cents, as in $25.99, and single those out for Greece. Does that sound reasonable? Let me know if it doesn’t, please.

I’m not expecting a flood of cash, but I hope that you, like me, think that in a civilized country people shouldn’t have to bring their own bedsheets to a hospital, or that these hospitals should be forced to work their doctors into burnouts, or simply lack basic treatments, medicines, etc.

Or for that matter that children should go hungry.

If Brussels and Washington refuse to solve these simple problems, or even attempt to make them worse, in my view Syriza is right to stand up to them, and we, us, the Automatic Earth, have an obligation to do what we can.

But that’s just me.

Debt Rattle February 20 2015

Feb 202015

February 20, 2015 Posted by Raúl Ilargi Meijer at 12:57 pm Finance Tagged with: austerity, bailout, chocolate, cyclone, Germany, Greece, Lehman, Saudi, Varoufakis 12 Responses »

NPC “Witt-Will motor truck plant, 52 N Street N.E., Washington, DC” 1915

• Greece, Eurozone Close To A Deal Before Friday’s Eurogroup (Reuters)

• Greece-Eurozone Positions Move Much Closer after Deputies’ Meeting (MNI)

• Why Greece Won’t Ever Be Able to Pay Off Its Debts With Austerity (Bloomberg)

• Greece Drops Key Bailout Demands, But Germany Still Objects (AP)

• ECB Risks Crippling Political Damage If Greece Forced To Default (AEP)

• Varoufakis Meets Euro Partners as Greece Seeks to Avoid Default (Bloomberg)

• Has Greece’s ‘Lehman Moment’ Finally Arrived? (CNBC)

• Greece’s Request for Loan Extension Is Rejected by Germany (NY Times)

• US Urges Greece, Creditors To End Impasse (CNBC)

• Meet Europe’s Newest Austerity-Hating Politician (CNBC)

• Ukraine: UK and EU ‘Badly Misread’ Russia (BBC)

• Two New Papers Say Oversized Finance Sectors Hurt Growth and Innovation (NC)

• Saudi King Unleashes Torrent Of Money As Bonuses Flow To The Masses (NY Times)

• Supertankers Speed Up as Oil Prices Fall (Bloomberg)

• Cyclone Slams Into Northeast Australia (Reuters)

• How Rudy Giuliani Marginalized Himself (WaPo)

• US and UK Spy Agencies Stole The Secrets Keeping Your Phone Secure (Engadget)

• Millions At Risk From Rapid Sea Rise In Swampy Bay of Bengal Islands (AP)

• Wrinkle-Smoothing Chocolate To Make A Splash (RT)

And I could easily quote a dozen pieces that contradict this.

• Greece, Eurozone Close To A Deal Before Friday’s Eurogroup (Reuters)

Greece and the euro zone are close to a deal on a financing-for-reforms package, a senior Greek official said ahead of a crucial meeting of euro zone finance ministers later on Friday. The official, speaking on the condition of anonymity, said Greece had made a lot of concessions to reach an agreement and that the euro zone should show some flexibility too. “We have covered four fifths of the distance, they also need to cover one fifth,” the official said, adding Greece wanted to clinch a deal on Friday, but that it would not back down in the face of pressure from the Eurogroup.

“The deputies are “close to an agreement but (it is) subject to political discussion..”

• Greece-Eurozone Positions Move Much Closer after Deputies’ Meeting (MNI)

Eurozone deputies have drafted a statement that could well serve as a basis for a compromise between Greece and the Eurozone, to be examined by finance ministers Friday The positions of Greece and the Eurozone over future financing for Athens moved much closer at a meeting of finance ministry deputies in Brussels, three sources with knowledge of the discussions told Euro Insight Thursday. One source, a veteran Eurozone official, said, “positions seem to be reasonably close.” Speaking on condition of anonymity, he added that Eurogroup deputies had drafted a statement that would serve as a basis for a compromise between Greece and the Eurozone, to be signed off subsequently by finance ministers.

The deputies are “close to an agreement but (it is) subject to political discussion,” a second source with knowledge of the talks said. A third source confirmed that Eurogroup ministers would meet Friday in Brussels for a political discussion and to check the text. “Everyone has to check with the boss,” he said. Germany’s reaction to the compromise from deputies will come under particular scrutiny Friday given its recent cool reaction to Greece’s recent stance on its future financing. Still, the draft is “broadly” based on a Greek submission from earlier Thursday, the second source added. Earlier Thursday, the Greek finance minister Yanis Varoufakis sent a letter to the Eurogroup president Jeroen Dijsselbloem saying that Athens recognized the current agreement with its EU lenders as “binding vis-a-vis its financial and procedural content.”

However, the letter also stipulated that the extension should only go ahead by “making best use of given flexibility in the current arrangement.” The letter was an attempt by Athens to bridge differences with Germany and other Eurozone countries over the wording associated with an extension of financial support for Athens from the EU, which runs out at the end of this month. Martin Jager, a spokesman for the German finance ministry, said earlier Thursday that Greece’s submission was not deemed sufficient and did not stick closely enough to the current bailout agreement. There was no immediate reaction from the German finance ministry to the report of progress at the deputies meeting in Brussels Thursday.

“..over years and decades, this goal is almost entirely illusory.”

• Why Greece Won’t Ever Be Able to Pay Off Its Debts With Austerity (Bloomberg)

The Greek negotiators who went to Brussels in mid-February to argue for more lenient terms from their lenders were especially concerned about one thing in any new deal: the target for achieving and keeping a primary surplus. A measure of austerity, it’s what a government earns in taxes each year, minus what it spends on everything except interest payments on its own debt. It’s usually expressed as a share of gross domestic product. Under its four-year-old bailout program, Greece has dragged itself from a primary deficit of 10% to a 3% surplus, at great cost in jobs lost. The terms of the bailout demand that Greece reach a surplus of 4.5% and hold it for the length of the program. There’s little reason to believe that’s possible.

Since 1995 all the countries of the euro area reached an aggregate primary surplus of 3.6% only once, in 2000. That number is back below zero. (Even Germany, the Federal Republic of Austerity, reached its own peak of 3% only twice, in the last quarter of 2007 and the first of 2008.) In 2011 the Kiel Institute for the World Economy looked at the records of all Organisation for Economic Co-operation and Development countries from 1980 to 2010. It found that few countries could maintain a 3% surplus and almost none could keep a surplus above 5%. This suggested a limit to what countries can do, the report concluded. They could cross those thresholds briefly, but “over years and decades, this goal is almost entirely illusory.”

Last year, Barry Eichengreen of the University of California at Berkeley and Ugo Panizza of the Graduate Institute in Geneva found that from 1974 to 2013, only three countries ran primary surpluses of 5% or more for a decade: Singapore is an island city-state run by a benevolent autocracy. Norway has oil wealth. For Belgium, the 1990s were a time of growth—Eichengreen and Panizza say countries that hold a primary surplus for many years are likely to be enjoying a good economy, which Greece doesn’t have. And 4.5% is not all that Greece’s lenders are asking. In theory, the country will pay off its debt through thrift and economic growth until it can reduce its debt to the euro zone standard of 60% of GDP. To do that, says the IMF, Greece must sustain a primary surplus of 7.2% from 2020 to 2030. Only Norway has maintained a surplus that high for that long.

The problem with this is, Greece never dropped any key demands, it’s just what peple like to see.

• Greece Drops Key Bailout Demands, But Germany Still Objects (AP)

Greece heads to another round of negotiations Friday after dropping key demands for a bailout settlement, but still faced stiff opposition from lead lender Germany, which criticized Athens’ latest proposals as a “Trojan horse” designed to dodge its commitments. Eurozone finance ministers agreed to hold their third meeting on the Greek debt crisis in just over a week after Athens formally requested a six-month extension of loan agreements with rescue creditors that expire this month. Going back on recent election campaign pledges, Prime Minister Alexis Tsipras’ government said it would honor debt obligations and agree to continued supervision from bailout lenders and the ECB. Late Thursday, Tsipras held phone conversations with French President Francois Hollande and German Chancellor Angela Merkel after Germany sharply criticized the Greek offer during preparatory talks in Brussels.

Greek media, including state television, widely quoted a German representative at the talks as saying the Greek offer “rather represents a Trojan horse, intending to get bridge financing and in substance putting an end to the current program.” The comments were confirmed by a senior official in the Greek Finance Ministry who could not be identified because the talks in Brussels were not public. In Berlin, government officials did not comment publicly on the remarks, but told The Associated Press they accurately reflected the German government position. Germany argues that Greece has failed to provide detailed alternatives to cost-cutting reforms imposed by the previous government that helped the country balance its budget after decades of excessive borrowing. Greek and European markets were largely unaffected by the German response.

“If there’s no agreement in the next few days there is a risk of (a bank run) because liquidity in Greek banks is very limited and there are many who say that capital controls are very close,” said Evangelos Sioutis at Guardian Trust. Although Greece emerged from the recession with a primary budget surplus last year, it faces a spike in debt repayment in 2015 with hopes of a full return to markets hit by renewed uncertainty and a resulting surge borrowing rates. [..] in its latest proposals Thursday — carefully worded to avoid reference to the bailout agreement or “memorandum” — it scaled back those aims to seek more modest primary budget surpluses, budget-neutral growth measures, and calls for a deal later this year to improve bailout loan repayment terms. Greek officials appeared visibly irritated by the latest German objections. “All the conditions are there for a transition agreement to be achieved,” Deputy Prime Minister Giannis Dragasakis said. n”At this moment it appears that there are powers that would like Greece on its knees, exactly so they can impose their will.”

Must read by Ambrose.

• ECB Risks Crippling Political Damage If Greece Forced To Default (AEP)

The political detonating pin for Greek contagion in Europe is an obscure mechanism used by the eurozone’s nexus of central banks to settle accounts. If Greece is forced out of the euro in acrimonious circumstances – a 50/50 risk given the continued refusal of the creditor core to acknowledge their own guilt and strategic errors – the country will not only default on its EMU rescue packages, but also on its “Target2” liabilities to the European Central Bank. In normal times, Target2 adjustments are routine and self-correcting. They occur automatically as money is shifted around the currency bloc. The US Federal Reserve has a similar internal system to square books across regions. They turn nuclear if monetary union breaks up. The Target2 “debts” owed by Greece’s central bank to the ECB jumped to €49bn in December as capital flight accelerated on fears of a Syriza victory. They may have reached €65bn or €70bn by now.

A Greek default – unavoidable in a Grexit scenario – would crystallize these losses. The German people would discover instantly that a large sum of money committed without their knowledge and without a vote in the Bundestag had vanished. Events would confirm what citizens already suspect, that they have been lied to by their political class about the true implications of ECB support for southern Europe, and they would strongly suspect that Greece is not the end of it. This would happen at a time when the anti-euro party, Alternative fur Deutschland (AfD), is bursting on to the political scene, breaking into four regional assemblies, a sort of German UKIP nipping at the heels of Angela Merkel. Hans-Werner Sinn, from Munich’s IFO Institute, has become a cult figure in the German press with Gothic warnings that Target2 is a “secret bailout” for the debtor countries, leaving the Bundesbank and German taxpayers on the hook for staggering sums.

Great efforts have been made to discredit him. His vindication would be doubly powerful. An identical debate is raging in Holland and Finland. Yet the figures for Germany dwarf the rest. The Target2 claims of the Bundesbank on the ECB system have jumped from €443bn in July to €515bn as of January 31. Most of this is due to capital outflows from Greek banks into German banks, either through direct transfers or indirectly through Switzerland, Cyprus and Britain. Grexit would detonate the system. “The risks would suddenly become a reality and create a political storm in Germany,” said Eric Dor, from the IESEG business school in Lille. “That is the moment when the Bundestag would start to question the whole project of the euro. The risks are huge,” he said. Mr Dor says a Greek default would reach €287bn if all forms of debt are included: Target2, ECB’s holdings of Greek bonds, bilateral loans and loans from the bail-out fund (EFSF).

The key stumbling block remains the clearer language regarding the conclusion of the current program, as demanded by Greece’s creditors, and more details regarding the attainment of fiscal targets.”

• Varoufakis Meets Euro Partners as Greece Seeks to Avoid Default (Bloomberg)

Greek Finance Minister Yanis Varoufakis returns to Brussels for a third meeting in two weeks with his euro-area counterparts in an effort to strike a deal that will let Europe’s most-indebted country avoid default. In a formal request on Thursday to extend Greece’s euro-area backed rescue beyond its end-of-February expiry for another six months, Varoufakis said he would accept the financial and procedural conditions of the existing deal while asking for negotiations on other elements. German Finance Minister Wolfgang Schaeuble almost immediately rebuffed the latest Greek formula, saying the country needs to make a firmer commitment to austerity. A “positive” conversation between Greek Prime Minister Alexis Tsipras and Chancellor Angela Merkel later on Thursday sparked investor optimism for a deal.

“Hopes for a compromise at today’s Eurogroup have been raised,” analysts including Nikos Koskoletos at Athens-based Eurobank Equities wrote in a note to clients on Friday. “The key stumbling block remains the clearer language regarding the conclusion of the current program, as demanded by Greece’s creditors, and more details regarding the attainment of fiscal targets.” While the euro lost 0.4%, Greek bonds rose for a third day, with the yield on the three-year notes down 80 basis points at 16.26% at 11:09 a.m. in Athens. That compares with a record 128% in March 2012. The Athens Stock Exchange index also rose for a third day, advancing 0.8%.

Germany, the biggest contributor to Greece’s €240 billion rescue, is the chief advocate of economic reforms in return for aid to Greece. Since winning a national election on Jan. 25, Tsipras has abandoned demands for a writedown on Greek debt, pushed back the timetable for raising the minimum wage and decided against blackballing the international auditors keeping tabs on the government. “Admittedly, the letter sent by Greece marks significant progress,” Paris Mantzavras and George Grigoriou, analysts at Athens-based Pantelakis Securities wrote in a note to clients today. “It also contains a number of ambiguities that are hard to be accepted by the Eurogroup in their current form.” Still, the fact that the group is holding a meeting implies that the letter marks a sufficient basis for discussion, the analysts said.

Tsipras held a 50-minute telephone call on Thursday with Merkel. After the call, Tsipras said the conversation had a “positive tone” and was aimed at finding a mutually beneficial solution for Greece and the euro area. He also spoke with Francois Hollande and was assured by the French president that he would do whatever he can to help Greece and will discuss the issue Friday at a meeting with Merkel, a Greek official said. Merkel and Hollande are scheduled to meet in Paris Friday.

“I think there’s a parallel, but the tools exist if the European Union wants to keep Greece in and if Greece is willing to stay in..”

• Has Greece’s ‘Lehman Moment’ Finally Arrived? (CNBC)

A key week for Greece’s economic future drew to a close on Friday with the country facing the very real threat that it’s running out of money and key analysts warming to the idea that it could be on its way out of the euro zone. Euro zone finance ministers are set to meet Friday to discuss Greece’s latest proposals to extend its loan agreement. But with Germany already rejecting the plan, there is very little hope that an agreement will be announced. Another meeting in Brussels for next week was already being touted before Friday’s meeting even began. The main problem for the fiscally disciplined countries like Germany is that, despite the ground Greece has given up in the last week, it is still asking for the bailout loan without all of the strict austerity conditions that come with the money.

Greek economist Elena Panaritis, former member of the Greek Parliament and the World Bank, drew comparisons with the collapse of the Lehman Brothers in 2008. As with the fall of the big U.S. bank, market-watchers feel euro zone policymakers want to show the world they will only be pushed so far — with the result being Greece would be allowed to exit the euro zone. Panaritis thought there was a “political statement as well as economic statement” being made during the negotiations. Randy Kroszner, a former U.S. Federal Reserve governor and the professor of economics at the University of Chicago Booth School of Business, agreed that there were comparisons between the two events.

“I think there’s a parallel, but the tools exist if the European Union wants to keep Greece in and if Greece is willing to stay in,” he told CNBC Friday. “Even though it may be quite ugly, the likelihood of complete chaos is much lower. So that gives policymakers more willingness to say ‘Hey, we’ll take that risk’.” Greek concerns have roiled markets since the anti-austerity Syriza Party came to power in Greece in January and have been a major focus all over the globe. Data from Google reveals that searches for the term “Grexit,” a shortening of “Greek exit,” have surged and has dwarfed similar interest shown throughout the whole of the euro zone sovereign debt crisis which begun in 2011.

“The written document does not meet the criteria agreed in the Eurogroup on Monday.”

• Greece’s Request for Loan Extension Is Rejected by Germany (NY Times)

Germany on Thursday dismissed Greece’s latest effort to resolve the impasse in debt negotiations between Athens and its creditors. Greece, as expected, on Thursday requested a six-month extension of its loan agreement with the European Commission and European Central Bank. In a two-page letter to eurozone officials, the Greek finance minister, Yanis Varoufakis, said his country was prepared to “honor Greece’s financial obligations to its creditors.” But a German Finance Ministry spokesman, Martin Jäger, quickly issued a statement saying the letter from Athens was “not a substantial proposal to resolve matters.” Germany, as the eurozone’s largest economy, is probably the central player in the proceedings. The head of the Eurogroup of 19 eurozone finance ministers who are negotiating with Greece, scheduled a Friday afternoon meeting to consider the proposal, as Athens sought to break a deadlock in debt talks amid fears of Greek insolvency.

Unless Greece revises its offer before Friday’s meeting, approval might be hard to obtain. Mr. Jäger said, “The written document does not meet the criteria agreed in the Eurogroup on Monday.” He was referring to a meeting this week that ended in acrimony, with eurozone finance ministers giving Greece a deadline of Friday to come to an agreement with its European creditors or risk a cutoff of further loans. The issue is how closely Greece is prepared to abide by the tough conditions underpinning its bailout loans, which total €240 billion. Mr. Varoufakis’s letter, much of it written in legal language, indicated Greece was willing to abide by the general terms of the bailout loan agreement, but not necessarily an underlying memorandum of understanding that contained crucial conditions for the country to receive loan payments.

Many of those conditions, which include cuts in government spending, higher taxes and other economic changes agreed to by a previous government in 2012, became so politically unpopular that the leftist Syriza party was voted into power last month on an anti-austerity platform. And the memorandum would still require Greece to carry out additional austerity measures that the previous government had not yet put into effect, including changes in labor law that could make it easier for private companies to lay off workers. As a result, the government of Prime Minister Alexis Tsipras is treading a fine line, trying to come to terms with its European creditors while not seeming to give too much ground on his promises to Greek voters. The Greek proposal is for a six-month extension of the country’s loan agreement, but “under different terms,” said Gavriil Sakellaridis, a government spokesman.

Another senior government official, Labor Minister Panos Skourletis, said on Greek television on Thursday that the country’s request for an extension to its loan program “in no way translates into an extension of the existing program, nor will it be accompanied by the known disastrous measures.” Unless Greece can come to an agreement with its international lenders, its current bailout program would expire at the end of the month, and the government might soon not have enough money to meet its debt obligations. The lenders are the EC, the ECB and the IMF. At this point, the Eurogroup of finance ministers is the party negotiating on behalf of the European creditors. The group’s signoff would be required before any Greek proposal could move forward for final European approval. The meeting on Friday would be the third of its kind in two weeks.

“Greece requested to extend its “master financial assistance facility agreement.”

• US Urges Greece, Creditors To End Impasse (CNBC)

A senior U.S. Treasury official on Thursday urged Greece and its creditors to make concessions to end an impasse over Greece’s loan agreement. U.S. officials are “closely” monitoring ongoing negotiations as they have generated increased uncertainty for the global economy, the official said. Greece will take an immediate economic hit if talks among its government, the EU and IMF break down, the official said. The official noted that U.S. Treasury Secretary Jack Lew spoke to top European finance ministers on Thursday, but couldn’t speculate on the timing of a potential deal. The official added that Athens and the EU need to find a “constructive way forward” that includes an emphasis on Greek fiscal reforms.

Germany on Thursday rejected Greece’s plan to prolong its loan agreement for six months and renegotiate the terms of its bailout with creditors including the EU and IMF. Berlin’s rejection raised the chances that Greece would run out of money in the coming weeks. The German government called the Greek proposal, which included some concessions from its anti-austerity ruling party, “no substantial solution.” Earlier Thursday, Greece requested to extend its “master financial assistance facility agreement.” In the proposal, Greece pledged to cooperate with creditors in reworking the terms of its €240 billion bailout package without taking unilateral actions. The Eurogroup of finance ministers is set to discuss the Greek plan on Friday. Its existing bailout program expires on Feb. 28.

“Sometimes, banks are like small children. They ask for too many things. They want five dishes for dinner. And the state has to be like a father that says no. One dish is enough and after that you must go to bed.”

• Meet Europe’s Newest Austerity-Hating Politician (CNBC)

Pablo Iglesias is just 36 years old, and yet, he could become the next prime minister of Spain. That’s a fact that looms large among European finance ministers as they continue their bailout negotiations with Greece. According to multiple sources who spoke with CNBC, finance ministers and prime ministers on the continent express concern that if they give leniency to Greece, they will embolden other anti-austerity movements. Iglesias’ party, Podemos, is at the top of the list. Podemos (Spanish for “We Can”) cemented itself in the Spanish political scene by garnering more than a million votes in May elections for the European Parliament, where the party now holds five seats. The accomplishment is all the more extraordinary for coming from a political party little more than a year old.

Even more startling, the most recent polls for the general election coming this autumn show Podemos with a small lead over the two long-standing establishment parties, an indication of just how much resonance the party’s “anti-austerity” platform has with the Spanish population. Iglesias sounds similar to his close friend Alexis Tsipras, Greece’s new prime minister: “Austerity measures are destroying Europe,” he told CNBC. “As a pro-European, I think we are in a situation in which we must rectify.” Iglesias is diminutive in stature, but he looms large in the minds of other European leaders as he rails against the very reforms they think will make Spain and the rest of Europe more competitive. He wants to raise the Spanish minimum wage and lower the country’s retirement age, a step that he believes will reduce youth unemployment.

Restructuring the county’s debt is also on his list, although such a step would be highly likely to scare off creditors and lead to higher interest rates in Spain. In an interview with CNBC at the New York Stock Exchange, he wanted to highlight greater state intervention in banking. “There is a part of the financial system that must undertake social functions, and that implies that there must be mechanisms of public control,” he said. “There must be devices that assure that there will be credit for small- and medium-size businesses and families. From there, it is fundamental to use the public sector.” Iglesias indicated a certain degree of disdain for financial institutions: “Sometimes, banks are like small children. They ask for too many things. They want five dishes for dinner. And the state has to be like a father that says no. One dish is enough and after that you must go to bed.”

There’s a new question out there: how stupid does stupid get? Oh wait, I already used that somewhere else….

• Ukraine: UK and EU ‘Badly Misread’ Russia (BBC)

Britain and the European Union have been accused of a “catastrophic misreading” of the mood in the Kremlin in the run-up to the crisis in Ukraine. The House of Lords EU committee claimed Europe “sleepwalked” into the crisis. The EU had not realised the depth of Russian hostility to its plans for closer relations with Ukraine, it said. It comes as European Council president Donald Tusk called PM David Cameron to discuss how the EU should respond to ongoing violence in eastern Ukraine. The report also follows comments from UK Defence Secretary Michael Fallon, who has warned Russian President Vladimir Putin poses a “real and present danger” to three Baltic states. He was speaking after RAF jets were scrambled to escort two Russian military aircraft seen off the Cornwall coast on Wednesday.

The committee’s report said Britain had not been “active or visible enough” in dealing with the situation in Ukraine. It blamed Foreign Office cuts, which it said led to fewer Russian experts working there, and less emphasis on analysis. A similar decline in EU foreign ministries had left them ill-equipped to formulate an “authoritative response” to the crisis, it said. The report claimed that for too long the EU’s relationship with Moscow had been based on the “optimistic premise” that Russia was on a trajectory to becoming a democratic country. The result, it said, was a failure to appreciate the depth of Russian hostility when the EU opened talks aimed at establishing an “association agreement” with Ukraine in 2013. The Ukraine crisis began in November 2013 when pro-Moscow President Viktor Yanukovych’s government abandoned an EU deal in favour of stronger ties with Russia – prompting mass protests that led to his downfall.

Subsequent unrest in Ukraine’s peninsula of Crimea led to its annexation by Russia – which has since been accused of stoking conflict between pro-Russian separatists and Ukrainian forces in the east of the country. Committee chairman Lord Tugendhat said: “The lack of robust analytical capacity, in both the UK and the EU, effectively led to a catastrophic misreading of the mood in the run-up to the crisis.” The UK had a particular responsibility to Ukraine because it was one of four signatories to the 1994 Budapest Memorandum which pledged to respect Ukraine’s territorial integrity, the committee said. Neither Britain nor the EU had a strategic response on how to handle Russia for the long term, it added. A Foreign Office spokeswoman said no-one could have predicted the scale of the “unjustifiable and illegal” Russian intervention in eastern Ukraine.

Good stuff from Yves.

• Two New Papers Say Oversized Finance Sectors Hurt Growth and Innovation (NC)

In a bit of synchronicity, two new papers confirm the long-held suspicion that Wall Street is sucking the life out of Main Street. The BIS has released an important paper, embedded at the end of this post, which has created quite a stir, even leading the orthodoxy-touting Economist to take note. Titled, Why does financial sector growth crowd out real economic growth?, its analysis of why too much finance is a bad thing is robust and compelling.

This article is a follow up to a 2012 paper by the same authors, Stephen Cecchetti and Enisse Kharroubi, which found that when finance sectors exceeded a certain size, specifically when private sector debt topped 100% of GDP or when financial services industry professions were more than 3.9% of the work force, it became a drag on growth. Notice that this finding alone is damning as far as policy in the US is concerned, where cheaper debt, deregulation, more access to financial markets, and “financial deepening” are all seen as virtuous.

The paper is short and accessible, so I strongly encourage you to read it in full. The paper starts by looking empirically at the fact that larger financial sectors are correlated with lower growth rates:

And the big reason is one that is no surprise to anyone in the US, that finance has been sucking “talent,” as in the best and brightest from a large range of disciplines, ranging from mathematicians, physicists, the best MBAs (which remember could be running manufacturing operations or in high-growth real economy businesses) and lawyers. The banking sector’s gain is Main Street’s loss.

A losing proposition.

• Saudi King Unleashes Torrent Of Money As Bonuses Flow To The Masses (NY Times)

European leaders are still battling over austerity. The United States Congress is gearing up for another fight over the budget. But in Saudi Arabia, there are no such troubles when you are king — and you just dole out billions and billions of dollars to ordinary Saudis by royal decree. Not surprisingly, Saudis are very happy with their new monarch, King Salman. “It is party time for Saudi Arabia right now,” said John Sfakianakis, the Riyadh-based Middle East director of the Ashmore Group, an investment company, who estimates that the king’s post-coronation giveaway will ultimately cost more than $32 billion. That is a lot of cash, more, for example, than the entire annual budget for Nigeria, which has Africa’s largest economy.

Since King Salman ascended the throne of this wealthy Arab kingdom last month, he has swiftly taken charge, abolishing government bodies and firing ministers. But no measure has caused as much buzz here as the giant payouts he ordered to a large chunk of the Saudi population. These included grants to professional associations, literary and sports clubs; investments in water and electricity; and bonuses worth two months of salary to all government employees, soldiers, pensioners and students on government stipends at home and abroad. Some private companies followed suit with comparable bonuses for their Saudi employees, putting another few billion dollars into people’s pockets. Some of the government spending will come over years, but most will hit the Saudi market this month, including the bonuses.

About three million of Saudi Arabia’s 5.5 million-person work force are employed by the government, Mr. Sfakianakis said. So, for the moment at least, there is little talk about human rights abuses or political reform. Saudis are spending. Some have treated themselves to new cellphones, handbags and trips abroad. They have paid off debts, given to charity and bought gold necklaces for their mothers. Some men have set aside money to marry a first, second or third wife. One was so pleased that he showered his infant son with crisp bills. “The first thing I did was go and check my storerooms,” said Abdulrahman Alsanidi, who owns a camping supply store in Buraida, north of Riyadh. He expected a 30% jump in sales.

Saudi rulers have long used the wealth that comes from being the world’s top oil exporter to lavish benefits on their people, and many Saudis describe royal largess as part of a family-like social contract between rulers and loyal citizens. But the new spending comes amid change and uncertainty for the kingdom. King Salman ascended the throne after the death of King Abdullah and announced the bonuses as a good-will gesture to his people. But because about 90% of government income comes from oil, the drop in world prices has reduced state revenue by about 20%, said Rakan Alsheikh, a research analyst at Jadwa Investment. His company projected that the government would run a record deficit of $44.5 billion in 2015. The new spending could increase that deficit to $67.2 billion, or 9% of GDP, Mr. Alsheikh said.

Hamsters in a wheel.

• Supertankers Speed Up as Oil Prices Fall (Bloomberg)

The world’s supertankers are moving at the fastest speeds in 2 1/2 years as a collapse in oil prices spurs demand for cargoes and drives up daily returns owners can make from deliveries. Very large crude carriers, each about 1,000-feet long and able to transport 2 million barrels of oil, sailed at an average of 12.57 knots this month, according to data from RS Platou Economic Research, an Oslo-based firm. The fleet, whose steel weight is about 27 million metric tons, last moved that fast in August 2012. Tanker rates have surged amid signals that China accelerated purchases of crude to fill its stockpiles after Brent crude, the global benchmark, collapsed last year. Prices plunged in part because OPEC pledged to keep pumping oil amid a global oversupply.

The ships earned an average of more than $71,000 a day since the start of January, the best start to a year in Baltic Exchange data that begin in mid-2008. “Freight rates are high because there’s a lot of oil trade at the moment,” Frode Moerkedal, an Oslo-based analyst at Platou Markets, an investment adviser linked to the research company, said by phone on Thursday. “OPEC has refused to cut production so there’s more oil being shipped.” VLCC speeds from 14-to-16 Feb. were 6.7% higher than 14-to-16 Nov., according to Platou. The speed for the ships when voyaging without cargoes rose 10% over the same period to 13.31 knots.

The daily average rate to hire a VLCC on the benchmark Middle East-to-East Asia route was $71,772 so far in the first quarter, compared with an average of $47,614 in the fourth quarter, according to Baltic Exchange data. VesselsValue, a London-based firm that provides shipping data, also estimates VLCCs are sailing at the fastest since 2012. The acceleration is in part because falling oil prices have cut fuel costs and made it more profitable for owners to transport cargoes, said Kaizad Doctor, analytics director. Ship fuel is known as bunker. “This can be attributed to the simultaneous decrease in the oil prices and the consequent reduction in bunker prices but also due to the increase in rates caused by the Chinese re-stocking cut-price crude,” Doctor said.

Luckliy it hits a low population density area. Someone told me winds could reach 300 km/h, that’s insane.

• Cyclone Slams Into Northeast Australia (Reuters)

Tens of thousands of Australians hunkered down on Friday as a powerful cyclone crossed the northeast, damaging houses, bringing down trees, cutting power lines and causing flash flooding, while a second storm made landfall to the west. The major storm caught Queensland state almost unawares after it intensified in just a few hours before slamming into the coast midmorning as a category 5 system – the highest rating. Emergency services scrambled to evacuate thousands of homes in the direct path of Cyclone Marcia before pulling out and warning anyone who had not left to barricade themselves inside to avoid wind gusts peaking at 285 kph (177 mph). Rail lines to coastal ports, an essential part of Queensland’s A$280 billion ($218 billion) commodities export-driven economy, were brought to a standstill.

“Stay indoors, don’t go outside,” Queensland Premier Annastacia Palaszczuk told a news conference as the storm passed over the coastal town of Yeppoon, home to 16,000 people about 550 km (340 miles) north of the state capital, Brisbane. She warned the 75,000 residents of Rockhampton, just south of Yeppoon, that Marcia still posed great danger even though it had weakened to a category 3 system: “The eye of the storm is heading directly towards you.” Meteorologists said the worst of the winds should ease by Friday afternoon local time but warned heavy rains and flooding were likely to continue for several days and extend inland. More than 10% of Australia’s sugar crop is at risk from Marcia, an industry body warned. The world’s No. 3 exporter of raw sugar is set to produce 4.6 million tonnes of the commodity in 2015.

BHP Billiton suspended rail lines hauling coal from its inland collieries to the massive Hay Point shipping terminal on Friday until further notice. Marcia’s forecast trajectory indicated the impact on coal mining was expected to be less severe than in 2011, when Queensland missed its annual coal export target by 40 million tonnes after storms dumped unprecedented amounts of rain into coal pits.

There’s a new question out there: how stupid does stupid get?

• How Rudy Giuliani Marginalized Himself (WaPo)

Here’s Rudy Giuliani Wednesday night on President Obama, according to a report in Politico: “I do not believe — and I know this is a horrible thing to say — but I do not believe that the president loves America. He doesn’t love you. And he doesn’t love me. He wasn’t brought up the way you were brought up and I was brought up through love of this country.” First off, a piece of advice. If you have to preface what you are planning to say with “this is a horrible thing to say,” you probably shouldn’t say it. Second, Giuliani’s comments seems to reflect a final stage of his transformation from serious politician to guy-who-says-inflamatory-things-just-to-say-inflammatory-things. (Remember his comments about the deaths of young black men last fall?)

Let’s be clear: NO politician with any sort of national ambition – or any sort of ambition at all, really – would say what Giuliani reportedly said about Obama. Not one. Questioning patriotism is a line that simply is not crossed at that level of politics. And there’s a reason for that: Once you question whether someone “loves” this country, the possibility – remote as it may have been before that comment – of a civilized debate between two sides goes out the window. But there’s something even more noxious, politically speaking, going on with Giuliani’s comments. It’s not just the questioning of Obama’s patriotism but also the suggested “otherness” of Obama that is at work here. “He wasn’t brought up the way you were brought up and I was brought up,” said Giuliani. Context matters here – and makes matters worse for the former New York mayor.

The setting was a private dinner – featuring Wisconsin Gov. Scott Walker – at a New York restaurant to a group described by Politico as “60 right-leaning business executives and conservative media types.” Making the “Obama isn’t really like you and me” argument in that setting plays into a corrosive racial narrative that Republicans have worked very hard to steer away from – and smartly so – during the Obama presidency. So, why the hell did Giuliani say it? Most likely because he believes it. Remember that Giuliani’s most formative experience as a national politician was the terrorist attacks of Sept. 11, 2001, when he was serving as New York’s mayor. In the aftermath of those attacks and during the entirety of his 2008 bid for president, he was the most aggressive voice in the party for an active policy to root out the growing threat of non-state terrorists.

Well, that’s a surprise…

• US and UK Spy Agencies Stole The Secrets Keeping Your Phone Secure (Engadget)

You might not have heard the name “Gemalto” before, but you almost certainly have one of their products in your pocket. As the world’s largest maker of SIM cards, it’s a company that’s directly responsible for making sure your cell phone connects to the right wireless network. According to documents released by Edward Snowden and obtained by The Intercept, though, it was also the target of a covert, coordinated hack committed by NSA agents and allies at Britain’s Government Communications Headquarters. Their goal? To quietly get their hands on the encryption keys that keep our phone calls and text messages private so they could tap people’s communications without raising suspicions. Gemalto never saw it coming.

The operation sounds more than a little like a pulp cyberpunk novel, starting with the creation of the Mobile Handset Exploitation Team in mid-2010. It was ajoint team of operatives from both agencies, and they promptly got to work. It wasn’t long before they breached Gemalto’s networks and used malware to open a backdoor (later hacks targeted some of the company’s biggest rivals). Then they used the NSA’s XKeyscore tool to dig into the email and social accounts of employees in search of data that would lead them in the right direction. Eventually, through prolonged surveillance, the team succeeded in harvesting millions of so-called “kis” – the encrypted identifier shared by your SIM card and the wireless carrier it’s attached to.

By striking before the keys could be transferred to Gemalto’s carrier partners, the MHET could scoop them up hand over fist, and (surprise, surprise) there’s no firm word on how many of more those keys have slurped up by Western intelligence agencies. So what’s an intensely curious government body supposed to do with all these things? Use them to speed up the surveillance process, naturally. With a treasure trove of keys at their disposal, groups like the NSA can take the easy way out and use data collection tools (like “spy nest” antennas sitting atop embassies) to slurp up encrypted communications on the fly. Since they’ve already got the keys handy, they can just decrypt voice calls and text messages at their own leisure. The whole thing is equal parts brilliant and horrifying.

Worst part is, we’re probably all susceptible to surveillance. The combination of Gemalto’s worldwide prominence and the NSA and GCHQ’s craftiness made sure of that. We’re not totally screwed, though – using secure services like TextSecure and SilentCircle for calls and texts add an extra layer of protection the NSA can’t easily break into. These days, basically nothing is 100% secure, but that doesn’t mean we have to make it easy for any potentially prying eyes.

“Most struggle on far less than $1 a day.”

• Millions At Risk From Rapid Sea Rise In Swampy Bay of Bengal Islands (AP)

The tiny hut sculpted out of mud at the edge of the sea is barely large enough for Bokul Mondol and his family to lie down. The water has taken everything else from them, and one day it almost certainly will take this, too. Saltwater long ago engulfed the 5 acres where Mondol once grew rice and tended fish ponds, as his ancestors had on Bali Island for some 200 years. His thatch-covered hut, built on public land, is the fifth he has had to build in the last five years as the sea creeps in. “Every year we have to move a little further inland,” he said. Seas are rising more than twice as fast as the global average here in the Sundarbans, a low-lying delta region of about 200 islands in the Bay of Bengal where some 13 million impoverished Indians and Bangladeshis live.

Tens of thousands like Mondol have already been left homeless, and scientists predict much of the Sundarbans could be underwater in 15 to 25 years. That could force a singularly massive exodus of millions of “climate refugees,” creating enormous challenges for India and Bangladesh that neither country has prepared for. “This big-time climate migration is looming on the horizon,” said Tapas Paul, a New Delhi-based environmental specialist with the World Bank, which is spending hundreds of millions of dollars assessing and preparing a plan for the Sundarbans region. “If all the people of the Sundarbans have to migrate, this would be the largest-ever migration in the history of mankind,” Paul said.

The largest to date occurred during the India-Pakistan partition in 1947, when 10 million people or more migrated from one country to the other. Mondol has no idea where he would go. His family of six is now entirely dependent on neighbors who have not lost their land. Some days they simply don’t eat. “For 10 years I was fighting with the sea, until finally everything was gone,” he says, staring blankly at the water lapping at the muddy coast. “We live in constant fear of flooding. If the island is lost, we will all die.” On their own, the Sundarbans’ impoverished residents have little chance of moving before catastrophe hits.

Facing constant threats from roving tigers and crocodiles, deadly swarms of giant honeybees and poisonous snakes, they struggle to eke out a living by farming, shrimping, fishing and collecting honey from the forests. Each year, with crude tools and bare hands, they build mud embankments to keep saltwater and wild animals from invading their crops. And each year swollen rivers, monsoon rains and floods wash many of those banks and mud-packed homes back into the sea. Most struggle on far less than $1 a day. With 5 million people on the Indian side and 8 million in Bangladesh, the Sundarbans population is far greater than any of the small island nations that also face dire threats from rising sea levels.

“Cambridge Beauty Chocolate, contains as much as a 300 g fillet of Alaskan salmon..”

• Wrinkle-Smoothing Chocolate To Make A Splash (RT)

The first wrinkle-removing chocolate is set to hit stores and spa salons in the UK as soon as March. The anti-aging chocolate is not only capable of improving skin conditions, but is low calorie and safe for diabetics. The tantalizing new product, called Esthechoc, has been developed by the Cambridge-based company Lycotec. The founder of the company, Dr Ivan Petyaev, is a former researcher at Cambridge University. The researchers say their anti-aging chocolate is based on 70% cocoa dark chocolate and contains a wealth of the antioxidants astaxanthin and cocoa polyphenol. The developers claim just a small bar of 7.5g of the Esthechoc, which is also called Cambridge Beauty Chocolate, contains as much as a 300 g fillet of Alaskan salmon. Dr Petyaev says the researchers used the same antioxidants that keep goldfish gold and flamingos pink.

These substances improve the blood supply to the skin, thereby reducing wrinkles and making the skin look younger. We used people in their 50s and 60s and in terms of skin biomarkers we found it had brought skin back to the levels of a 20 or 30 year old, Petyaev said as cited by the Telegraph. So we ve improved the skin s physiology. According to the Lycotec scientists, the volunteers who ate the chocolate every day for four weeks of trials had visibly improved the condition of their skin. But while the benefits may come in a flash, working out the bite-sized fountain of youth was a far more laborious process. Esthechoc is the result of 10 years of extensive independent research on cocoa polyphenols and free radicals, as well as clinical exploration and numerous trials, a spokesman for the firm said.

Over 3,000 patients have participated in medical research and clinical tests. The creators of the anti-aging chocolate say it also improves blood circulation, and since it only contains 38kcal, it will be safe even for people suffering from diabetes. The researchers say they hope to attract customers at spas, salons and similar outlets. Nevertheless, critics of the anti-aging chocolate say the antioxidants work better if applied to skin directly rather than being taken orally. They have demanded more clinical trials to prove the effectiveness of the product. Dr George Grimble, nutritionist of University College London, told the Telegraph that while it had a good track record science-wise, it is too early to say what the long term benefits might be.