DPC The Manhattan landmark Flatiron Building under construction 1902
Grown men in shorts.
Crude oil settled up 8%, or $3.71, at $48.24 on Friday, its best day since June 2012, after data showed U.S. drillers were slamming the brakes on the shale drilling boom. The commodity still ended the month lower, for a seven-month decline. Oil spiked $3 heading into the close on Friday as products were set to expire on the last day of the month and after oil companies made further cuts to capital expenditures and took more rigs offline. Traders told CNBC they were acting on buy signals that technicals were showing heading into the weekend. The number of U.S. rigs in operation fell by another 94 in the past week through Friday, while Canadian producers took 11 rigs offline, oilfield services firm Baker Hughes reported on Friday. Rig counts have been steadily falling as the price of crude collapses. The rig count drop was the most since 1987. With drillers having idled about 24% of their oil drilling rigs since the summer, some traders may be betting that an anticipated slowdown in U.S. oil production is nearer than expected.
Two weeks of relatively stable oil prices have helped shift sentiment after months of decline, setting the stage for the violent rebound on Friday afternoon. Short traders raced to cover their positions on fears that the rout was nearing its end. “The rig count number sparked the rally late,” said Phil Flynn, analyst at Price Futures Group in Chicago. Some traders were not convinced that the selloff in oil, which has taken Brent down from a June high above $115 a barrel, was over. “There was a lot of short-covering before the month end from people wanting to take profit from the $40-odd lows, so it’s not surprising that we rallied, said Tariq Zahir at Tyche Capital Advisors. ”But this doesn’t change the fundamental outlook in oil. We are still about 2 million barrels oversupplied.”
“Supply from OPEC has averaged 30.37 million barrels per day (bpd) in January, up from a revised 30.24 million bpd in December,”
OPEC’s oil supply has risen this month due to more Angolan exports and steady to higher output in Saudi Arabia and other Gulf producers, a Reuters survey showed, a sign key members are standing firm in refusing to prop up prices. OPEC at a November meeting decided to focus on market share rather than cutting output, despite concerns from members such as Iran and Venezuela about falling oil revenue. Supply from OPEC has averaged 30.37 million barrels per day (bpd) in January, up from a revised 30.24 million bpd in December, according to the survey based on shipping data and information from sources at oil companies, OPEC and consultants. At the Nov. 27 meeting, OPEC retained its output target of 30 million bpd, sending oil prices to a four-year low close to $71 a barrel. Crude since fell to a near six-year low of $45.19 on Jan. 13 and was trading above $49 on Friday.
OPEC Secretary General Abdulla al-Badri, speaking in London on Monday, defended the no-cut strategy and said prices may have reached a floor, despite oversupply. Other OPEC delegates have since echoed this message. “Prices are stabilising,” said a delegate from a Gulf producer. “But the world economy is not very strong and stocks are too high.” The largest boost this month has come from Angola, which pumped 1.80 million bpd and exported about 57 cargoes, up 160,000 bpd from December. Output would have been higher without some cargo delays, including of new crude Sangos. OPEC’s other West African producer, Nigeria, also managed to boost exports, the survey showed, although the increase was restrained by outages of the Forcados and Nembe Creek pipelines. Smaller increases have come from Kuwait, Qatar, and the United Arab Emirates.
“So if the epic slump in crude isn’t enough to stop American oil companies, what might?”
After an epic collapse in crude prices, U.S. oil companies still aren’t blinking. Investment in drilling rigs and wells actually improved in the closing months of 2014. Outlays for rigs and wells climbed at an 8.9% pace in the fourth quarter after an 8.3% increase from July through September, today’s Commerce Department report on gross domestic product showed. Those figures are a slight slowdown from numbers in the first half of 2014, but are definitely no halt. That increase is even more impressive when you look at what happened to equipment spending across all businesses in the world’s largest economy.
That fell by the most since the recession, taking some of the luster off the consumer-driven economy. Spending on oilfield machinery is more difficult to decipher. That’s because the figures are included in the “other equipment” category in the government’s breakdown of non-residential investment. The Commerce Department lumps together equipment such as drill pipes and bits with agriculture, construction and service-industry machinery. Purchases of “other equipment” fell at a 0.1% rate in fourth quarter after a decline of 4.1% in the previous three months – not exactly a big hit to GDP. So if the epic slump in crude isn’t enough to stop American oil companies, what might?
Prices could slide even further, or fail to rebound the way the industry’s executives are surely hoping. Crude has already dropped another 14% since the end of last year. “Business investment is the trickiest” component of GDP to predict right now, said Aneta Markowska, Societe Generale’s chief economist. “Obviously the low oil prices are likely to depress investment among energy producers,” she said. “This is at least partly offset by a better outlook for investment from those non-energy producing companies,” she said. In the end, “I wouldn’t completely throw in the towel on business investment on the back of this energy story – it’s very mixed.”
5% was just a blip.
In their first estimate of the US GDP for the fourth quarter of 2014, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +2.64% annualized rate, down -2.32% from the much celebrated +4.96% growth rate reported for the prior quarter. The growth was nearly halved by substantial changes in a number of its components: imports took -1.55% from the quarter’s growth rate, exports pulled another -0.24% from the number, contracting governmental spending took another -1.20% off the top, and plunging fixed investment removed yet another -0.84% from the headline. Inventories and consumer spending were the only bright spots. Inventory growth added +0.85% to the headline. Increased spending on goods added +0.14% to the headline number, while spending on household services added 0.52% to the headline. The increased consumer spending came from both improved disposable income and reduced savings.
Households had an additional $279 in real annualized per capita disposable income (now reported to be $37,775 per annum). This is still down $94 per year from the 4th quarter of 2012. The household savings rate dropped another -0.1% for the quarter to 4.6%. As mentioned last quarter, plunging energy prices are likely playing havoc with many of the numbers in this report. US “at the pump” gasoline prices fell 33% quarter-to-quarter – pushing all consumer oriented inflation indexes firmly into negative territory. During the fourth quarter (i.e., from October through December) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics was solidly dis-inflationary at a -2.47% (annualized) rate, and the price index reported by the Billion Prices Project (BPP – which arguably more fully reflected the “at the pump” impact on American households) was significantly more dis-inflationary, dropping a full -2.14% quarter-to-quarter (an astounding -8.30% annualized rate during the quarter).
Yet for this report the BEA still assumed a very mildly dis-inflationary annualized deflator of only -0.09%. The disparity between the BEA’s and the BLS’s “deflators” raises some serious consistency issues. Over reported inflation (or under reported dis-inflation) will result in a more pessimistic growth data, and if the BEA’s “nominal” numbers were corrected for inflation using the line-item appropriate BLS CPI-U and PPI indexes, the economy would be reported to be growing at an implausibly high 7.17% annualized rate. Clearly the BEA’s deflator is troubling, but using the more reasonable deflators from the BLS generates nonsensical growth rates when applied to the BEA’s nominal data – suggesting that the BEA’s initial nominal data may be more overstated (or guesstimated) than reasonable deflators can handle.
“I don’t think there’s anything on the scale of the housing bubble or the Internet bubble right now. The only candidate is bonds, government debt and other kinds of debt,” he said. “I’m not counting that, I guess, because that’s us..”
U.S. central bankers risk inflating another asset-price bubble if they keep interest rates too low as unemployment falls, said St. Louis Fed President James Bullard. Bullard said the “die is already cast” for the jobless rate to drop below the Federal Open Market Committee’s estimate for full employment of 5.2% to 5.5% regardless whether the Fed raises rates. “You are already talking about a policy that is going to be slow moving over the next couple of years, against an economy that is going to run hot,” Bullard said in an interview Friday in New York. William Dudley, president of the New York Fed, last year said the economy may need to run “a little hot” to lift inflation back toward the Fed’s 2% goal. Bullard, despite his wariness, said didn’t see any evidence of an obvious bubble at the moment.
“I don’t think there’s anything on the scale of the housing bubble or the Internet bubble right now. The only candidate is bonds, government debt and other kinds of debt,” he said. “I’m not counting that, I guess, because that’s us,” he said, referring to the Fed’s own-bond buying campaign that more than quadrupled its balance sheet to $4.5 trillion. The Fed ended purchases in October. The last two times unemployment dove below economists’ estimates of full employment was in the late 1990s and in the mid-2000s. The first occasion became associated with very high valuations in technology stocks, and the second coincided with strongly rising home prices.
Both episodes ended with the bubbles bursting and the U.S. economy in recession, Bullard noted, with the real-estate bust spiraling into a global financial crisis. “The wisdom of going forward here and really pushing hard on this, given the recent history is, I think, one of the elephants in the room about American monetary policy,” he said. The unemployment rate fell to 3.8% in April 2000 and to 4.4% in May 2007. It was 5.6% in December of last year, and economists forecast a report next week will show it slid to 5.5% in January. Bullard argued for the central bank to raise interest rates from near zero as lower oil prices provide a strong boost to the economy this year.
“Markets should take it at face value”
Federal Reserve Bank of St. Louis President James Bullard said investors are wrong to expect the Fed to postpone an interest-rate increase beyond midyear, with the U.S. economy leading global growth and unemployment dropping. “The market has a more dovish view of what the Fed is going to do than the Fed itself,” Bullard said in an interview Friday in New York. “Markets should take it at face value” from the Fed’s rate projections, and it’s “reasonable” to expect an increase in June or July. Unemployment could fall below 5% by the third quarter, he said, adding that both policy makers and private economists have been overly pessimistic in their forecasts for joblessness. The jobless rate was last below 5% in February 2008, when it fell to 4.9%.
The Federal Open Market Committee said two days ago it would be “patient” in its plans to raise rates, which Chair Janet Yellen said in December meant no tightening “for at least the next couple of meetings.” The central bank described the expansion as “solid,” while cautioning that inflation could decline further “in the near term.” The “patient” language could be removed at one of the next two meetings, setting up a discussion on rate increases by midyear, said Bullard, who isn’t a voting member of the FOMC this year. “Zero is not the right number for this economy,” Bullard said in a reference to the benchmark federal funds rate, which has been kept near that level since December 2008. “It is hard to rationalize a zero policy rate” because the economy has “a lot of momentum.”
Investors see only a 15% chance that the Fed will raise its benchmark federal funds rate in June, down from 30% a month ago, according to fed funds futures. The odds that the Fed will have raised rates by December are 55%, down from 58% a month ago. Fed officials expect the benchmark funds rate rise to 1.125% by the end of 2015, according to the median estimate of their quarterly forecasts in December. These will be updated at the FOMC meeting on March 17-18. Bullard said low oil prices and low interest rates are “two important tailwinds” for the U.S. economy. He said the European Central Bank’s decision on Jan. 22 to embark on a €1.1 trillion bond purchase program is also a plus, because it helps to keep borrowing costs low in the U.S. “It’s lower rates that are just coming over to us for free,” he said of the impact of ECB policies on the U.S.
“The purpose of studying economics is to learn how not to be deceived by economists.”
Since Syriza’s victory in the Greek elections on Sunday, it is the new Essex-educated finance minister Yanis Varoufakis who has been grabbing most of the headlines. Much of his appeal lies in his iconoclasm: in his 1998 book Foundations of Economics, a kind of bible for the growing alternative economics movement, he cites the British Keynesian Joan Robinson: “The purpose of studying economics is to learn how not to be deceived by economists.” But what can we expect from this reluctant economist and reluctant politician intellectually? Announcing his decision to run for a parliamentary seat on Syriza’s ticket on his personal blog, Varoufakis stressed that he never wanted to run for office, preferring to channel his policy ideas across the political spectrum. But he grew tired of seeing his policies ignored. Above all he wants to draw attention to an idea that was first conceived by one of his major intellectual influences: John Maynard Keynes.
It’s an idea that even ardent Keynsians often neglect; an idea that Keynes dramatically announced to a group of sceptical listeners at the 1944 Bretton Woods conference; an idea that runs diametrically counter to the current policies of Germany’s government. That idea is a global surplus recycling mechanism. In his recent book The Global Minotaur, Varoufakis claims that the notion of a surplus recycling mechanism is simple in theory and revolutionary in its implications. It was first devised by Keynes while working as an unpaid policy adviser to the British Treasury during the early 1940s. The proposal was an outgrowth of Keynes’s frustration with the limits of the gold standard during the 1920s. At that time there was an outflow of gold from Britain to the US to pay for Britain’s trade deficit. Logically the inflow of gold should have expanded the money supply in the US, increasing the competitiveness of UK exports. But the US adopted policies to offset inflationary pressures.
As the economist Marie Christine Duggan has suggested, the harsh lesson for Keynes was that the gold standard was ineffective at forcing creditor nations to increase domestic prices or reinvest their surpluses. Creditor nations were free to hoard as they liked, placing the burden of action on debtor nations who had very little choice but to act in ways that tended to depress their domestic economies. Keynes’s proposal for curbing the problem was to create global rules that would place equal pressure on both creditor and debtor nations to adjust their respective trade imbalances, helping to ease the burden shouldered by debtor nations. He suggested that any nation that failed to ensure its trade surplus did not exceed a particular%age of its trade volume would be charged interest, compelling its currency to appreciate. These interest payments would help to finance the second arm of Keynes’s proposal: the creation of an International Clearing Union. The ICU would act as a sort of automatic “global surplus recycling mechanism,” to use Varoufakis’s term.
“..a committee built on rotten foundations..”
Greece belongs in the eurozone and the single currency depends on there being no “Grexit”, the EU economic and financial affairs commissioner says. Pierre Moscovici told the BBC’s Hardtalk “we will do everything” to prevent Greece leaving the eurozone. But he said the Greek government had to respect previous commitments. The new finance minister has meanwhile said he will not negotiate bailout terms with the “troika” – the global institutions overseeing Greek debt. The left-wing Syriza party won last weekend’s election on an anti-austerity platform, promising to have half of Greece’s debt written off, and to roll back on deep cuts to jobs, pay and pensions. “We believe that the place of Greece is in the eurozone, the euro needs Greece and that Greece needs and wants to be in the eurozone,” Mr Moscovici, a former French finance minster, said.
He added: “We feel that it’s very important for the stability of the eurozone and for the credibility of the euro that there is no ‘Grexit’. This is why we will do everything that is needed to avoid it.” But the commissioner said that while Europe had to respect the will of the Greek people, following last Sunday’s election that swept Syriza to power, the commitments made by the previous Greek government also had to be taken into account. “We must address these issues in a quiet, peaceful and serene way. This [new] government has to say exactly what it intends to do,” Mr Moscovici said. After meeting with the head of eurozone group of finance ministers, the new Greek finance minister said he would not work with the troika – the European Commission, European Central Bank and International Monetary Fund – calling them “a committee built on rotten foundations”.
Yeah, why not bring in the bookies?
The formation of a new left wing Greek government has elevated the risks of a eurozone breakup to levels “significantly higher than at any point in 2012”, according to Barclays. 2012 is widely viewed as the height of the eurozone crisis. A cocktail of political populism across the continent and the prospect of a deflationary spiral has now elevated the risks of a breakup even higher in 2015. “The risks have also risen as the periphery, especially Spain, is aligning itself with the views of several countries in the core of granting few concessions to Greece on a new programme,” Francois Cabau of Barclays said. Syriza leaders view the burden of debt imposed on Greek shoulders as far too heavy to pay, and have sought some form of relief. They will clash with the so-called “troika” – the EU, IMF, and ECB – on the matter. Jan von Gerich, a strategist at Nordea, has described the coming confrontation as an “unstoppable force meeting an immovable object”.
The new government has implemented new policies in a matter of days that run contrary to the structural reforms they have been required to implement. Measures have included an increase of the minimum wage and the cancellation of privatisation plans for a power company and ports. “Greece has very tough negotiations ahead,” Mr Von Gerich said. “If Syriza is seen to be able to change the terms of Greece’s adjustment programmes, the spill-over effects could be sizeable in many other countries, which would add to euro area political risks.” If neither party is willing to blink, then a ‘Grexit’ may result, which economists fear could add momentum to populist parties in other eurozone states. Bookmaker Paddy Power offers 6/4 odds on a Greek exit by the end of 2016.
“The fear is that [left wing] Podemos, polling first in Spain, would get a boost if Syriza is able to negotiate easier policy conditionality for Greece,” Mr Cabau continued. He said that a hypothetical exit is “likely to imply increased volatility in peripheral risk assets”. Greek stocks have suffered a torrid week in the aftermath of Syriza’s stunning victory on Sunday. Banking sector shares were some of the most exposed, as political uncertainty knocked €8bn (£6bn) off their value in three days. There was some respite for the sector on Thursday, as bank stocks rebounded by 12.9pc after comments from Daniele Nouy, a European Central Bank official. She attempted to downplay concerns that banks would be unable to survive the current turbulence in financial markets. “They will go through this crisis like they went through the previous ones,” she said.
“..the logic of austerity had been repudiated by voters when the far-left Syriza party stormed to victory..”
The battle lines between Greece and its creditors were drawn in Athens as the Greek finance minister announced that the new government would refuse to engage with representatives of the country’s hated troika of lenders. Standing his ground after talks in the capital with Jeroen Dijsselbloem, head of the eurogroup of EU finance ministers, Yanis Varoufakis said Greece would not pursue further negotiations with the body of technocrats that has regularly descended on the country to monitor its economy. Nor would it be rowing back on election-winning pledges by asking for an extension to its €240bn (£180bn) bailout programme. “This platform enabled us to win the confidence of the Greek people,” Varoufakis said, insisting that the logic of austerity had been repudiated by voters when the far-left Syriza party stormed to victory in Sunday’s election. Greece has lost more than a quarter of its GDP, the worst slump in modern times, as a result of consecutive waves of budget cuts and tax rises enforced at the behest of creditors.
Varoufakis and the new Greek prime minister, Alexis Tsipras, who also met Dijsselbloem on Friday, are adamant that the government will deal only with individual institutions and on a minister-to-minister basis within the EU. They have vowed to shun auditors appointed by the troika of the EU, the European Central Bank and the International Monetary Fund. “Our first action as a government will not be to reject the rationale of questioning this programme through a request to extend it,” quipped Varoufakis. “We respect institutions but we don’t plan to cooperate with that committee,” he said, referring to auditors who run the rule over Greece’s books on behalf of the three lenders. An internationally renowned economist, Varoufakis has been an outspoken critic of the austerity measures demanded in exchange for the aid that has bolstered Greece since its economic meltdown.
But on Friday the eurogroup president also held his ground. Visibly tense, Dijsselbloem – the Dutch finance minister – said it was imperative that Athens did not lose the headway that had been achieved. He reiterated that the creditor group expected Greece to honour the terms of its existing bailout accords. “I realise the Greek people have gone through a lot. However, a lot of progress has been made and it is important not to lose that progress,” he said. [..] “It is of utmost importance that Greece remains on the path of economic recovery. Taking unilateral steps or ignoring previous agreements is not the way forward.” Dijsselbloem ruled out an international conference being held to discuss ways of reducting Greece’s €320bn euro debt pile, saying the Eurogroup of euro area finance ministers “is that conference”.
“Varoufakis plans to visit London, Paris and Rome next week for talks, according to a ministry statement that didn’t list Berlin on his itinerary.”
Greece’s government risks isolation in the European Union by threatening to break ranks on sanctions against Russia and ditch its bailout deal, German Chancellor Angela Merkel’s minister for European affairs said. “Greece is firmly anchored in the mainstream of the European Union,” Michael Roth, who’s also deputy foreign minister, said in an interview. “I can only hope that this is where it wants to stay.” Prime Minister Alexis Tsipras’s government, sworn in Tuesday, is putting Greece’s financial lifeline at risk, the German Finance Ministry said. Greece’s bailout terms mean his government needs to undertake further reforms by the end of February. Extending the deadline would only make sense if Tsipras showed willingness to implement agreed reforms, and “the announcements from Athens go in the opposite direction,” ministry spokesman Martin Jaeger said Friday.
The warnings reflect Merkel’s tactic of waiting Tsipras out as he mounts a full-court challenge to German-led austerity in his first week in office. It also shows her refusal to engage in a public shouting match over his demands as he portrays her as the main source of Greece’s woes. Insisting that Tsipras has to deliver on reforms unites Merkel’s Christian Democrats and Roth’s Social Democrats, her junior coalition partner. Merkel told a closed meeting of her bloc’s lawmakers in Berlin on Tuesday that it’s up to Tsipras to make the first move, according to a party official. She said his government has to make clear it’s committed to the terms of the aid program, the official said. Merkel has no immediate plans to meet Tsipras one-on-one, German government spokeswoman Christiane Wirtz said Friday.
“We have to wait and see which offers of dialogue we get from the Greek government, what their ideas are,” she told reporters in Berlin. “You have to ask Mr. Tsipras why he isn’t approaching us for an invitation to Berlin.” Greece isn’t negotiating with Germany but with the EU as a whole, and the German Finance Ministry’s views “are known,” government spokesman Gabriel Sakellaridis said in Athens. Greeks voted on Sunday “to exit the dead end of toxic austerity,” he said. “The Greek government will continue negotiations to find a common, beneficial solution.” Greek Finance Minister Yanis Varoufakis plans to visit London, Paris and Rome next week for talks, according to a ministry statement that didn’t list Berlin on his itinerary.
They fired external financial advisors to hire back their cleaners. Kudos.
On a sunny Wednesday morning in Athens, two days after Alexis Tsipras became Greek prime minister, workmen dismantled the barricades that had protected the Parliament and its ceremonial guards for three years from angry protesters. The riot bus stationed by the side of the building in Syntagma Square was gone. Cleaners camped outside the Finance Ministry to protest the loss of their jobs embraced and cried after hearing they had been reinstated. “Not even 30-year-olds can get jobs nowadays, much less a 58-year-old grandmother like me,” said Evangelia Alexaki, who picketed the ministry for months to get back her job cleaning tax offices on the island of Corfu.
As financial markets took the opposite view of a government promising to end austerity and restore the country’s dignity, Greeks at least were certain of one thing: They had a 40-year-old leader who had won a decisive mandate to pursue something different, from tossing out the old political order to taking on the euro region and its bailout agreements. By midday on Wednesday, as Finance Minister Gikas Hardouvelis handed over the reins to his successor, Yanis Varoufakis, dark clouds hovered over the Parliament. Some said it was a bad omen for Tsipras who had promised in his victory speech to raise the sun above Greece again. Others disagreed. “When you’ve been through snow and heat, a little rain isn’t going to hurt you,” Alexaki said.
In the five years since the government of George Papandreou revealed deficit figures four times those allowed for countries using the euro, Greece’s economy has shrunk by a quarter, more than a million people joined the search for employment, and pensions, wages and jobs were cut so the country could receive a €240 billion bailout. That all paved the way for Syriza, Tsipras’s party, to come to power on Jan. 25 on a promise to seek get rid of more of Greece’s debt, currently about €320 billion. The day after the election, Tsipras confounded skeptics by forming a government by midday, teaming with what appeared to be his party’s alter-ego, the conservative Independent Greeks. Then his newly minted ministers made statements. The Athens General Index sank to its lowest level since 2012, the year that Greece’s status as a euro member was last in question, before recouping some of the loss later this week. The yield on three-year bonds surged to more than 17% and was at 16.82% on Friday.
“The cash flow of Greek pension funds fell from €2.155 billion in November 2013 to just €435 million in November 2014..”
The first financial tests of Syriza’s audacious new policies for Greece loom – as it is still unclear who will concede ground on its debt pile first. Alexis Tsipras, the new Greek Prime Minister, may end up banging his head off a wall of opposition from Germany, the biggest single contributor to Greece’s bailout, who is staunchly against any debt relief for the struggling country. On Friday, Reuters cited a source saying that Greece planned to refuse to allow a planned visit from its bailout supervisors in the European Union and the International Monetary Fund. The country’s finance minister announced during the day that Greece would not be seeking to extend its bailout program. The biggest bones of contention will be whether Greece can secure a nominal debt haircut, or even some further aid, and the halting of its privatization program, imposed by the troika of international bodies which oversee its bailout, agreed upon a few years ago.
The halting of the privatization program was seen as an early signal of intent by Tsipras, and caused shares of Greek banks to plummet this week. On Friday, the country’s new energy minister, Panagiotis Lafazanis, told Reuters that the government would cancel plans to sell a state-owned natural gas utility. This came after the sale of the lucrative Port of Piraeus, as well as shares in Greece’s biggest refinery, Hellenic Petroleum, were scrapped. “These announcements (on privatization) will satisfy the unions but scare away new investors,” Miranda Xafa, CIGI senior scholar and chief executive of E.F. Consulting, warned CNBC. If a deal is not reached soon, the consequences for ordinary Greeks could be severe. Giorgos Romanias, an economist from Syriza’s right-wing coalition partner Independent Greeks, who is Greece’s new secretary for social security, said on television Thursday that pension payments could be “a little tight” in March.
Demographics are not in Greece’s favor. As a result of the country’s poor economic situation, pensioners have often supported unemployed children and grandchildren, as well as themselves – so any threats to their payments will have a wide-ranging impact. More Greeks were either unemployed or drawing a pension than in employment in 2012 and 2013, according to government statistics. And as the crisis has deepened, the birth rate has fallen, meaning that there will be even fewer young tax-paying workers to support an aging population over the next few decades. The cash flow of Greek pension funds fell from €2.155 billion in November 2013 to just €435 million in November 2014, according to figures from the Greek government, flagged by ekathimerini.com.
“The only position they have – to renegotiate.”
Greece will inevitably get a debt haircut as it’s not able to cope with the €240 billion bailout loan given by the EU, said Hugh Bronson from the Alternative for Germany party. No national structure is able to cope with that amount of debt, he added. Greece refused to back the EU’s statement on Ukraine on Tuesday. Following the move, Athens was accused by the EU of diverting from the block’s official stance on that issue. European Parliament President Martin Schulz said that he “was appalled to see Greece abandon the joint position of the EU.” On Thursday, EU foreign ministers voted to extend the anti-Russian sanctions over the situation in Ukraine till September.
RT: Greece wants a chunk of its debt cancelled, but would that be fair given that billions of taxpayers’ money has been sent there, particularly from your country?
Hugh Bronson: I believe [German Finance Minister] Wolfgang Schauble and the Troika, and everyone else involved have no chance but to negotiate a new deal with Mr. [Alexis] Tsipras. There will be a haircut, there is no question about it, and the only question is when. If you look at Greece and just the figures, you have a country of 11.5 million people, who managed a GDP of €208 billion in 2013. They are burdened with a national debt of 175%. That country was given a bailout loan totaling €240 billion. No national structure is able to cope with that amount of debt. This money is a write-off. Pigs might fly; we can say good-bye to this loan, there’s no question about this.
RT: Greece with a new government doesn’t want to follow EU policy on sanctions anymore. Where do you stand with that fact?
HB: I believe Greece right now has much more serious problems than joining in on sanctions, which are very questionable. They are looking at rebuilding their economy. They want to regain their competitive advantage in the global market. That is the number one priority. Also the main party [which is] in power right now, Syriza, certainly will look twice before it agrees on sanctions against Russia. First of all, they have to deal with their own national problems before they join in any big mashes on an international level.
RT: You are talking about a haircut and the fact that they can’t pay off this money because they simply don’t have it. However, EC President Jean-Claude Juncker has ruled out forgiving Greece’s debt. What do you make of that?
HB: Of course he is going to say that. What else is he going to say? But on the other hand, there are other serious people, serious experts. Take Philippe Legrain, the former economic adviser to the president of the European Commission who quite clearly said [that] Greece needs a haircut. Greece’s debts are unsustainably large. What is the Troika, what is the eurozone is going to do? If Mr. Tsipras and the government simply refuse to continue with the austerity measures, if they, what they’ve started already, if they are rehiring fired public sector workers, and simply ignore the demands from the eurozone.The only position they have – to renegotiate.
But they already have?!
Dear Yanis, As an ardent admirer, with the utmost respect for what you have put forward and accomplished to date, I humbly offer my thoughts for your consideration. In my measured estimation, requesting substantive forbearance from the TROIKA on a purely rational and fair minded basis, as you have suggested, in the anticipation of a desirable outcome, is likely a proposition which will disappoint. There obviously exist significant and powerful vested financial interests adamantly opposed to you on the other side of the table, not to mention the even more considerable, and now intensifying, European periphery precedent concerns which are clearly raising the ante.
Your adversaries obtuse position continues to remain implacable for the most determined of self-seeking reasons, and the collateral damage that is Greece, obviously matters far less to them then the well defined and established course they have set for themselves. Remember, they have not done the right thing previously, they don t do the right thing presently, and thus, will likely not do the right thing in the future given the opportunity. Don’t kid yourself, these adversaries are just that, lethal opponents. Considering they were able to stomach the desolation Greece has so desperately endured throughout this period, there should be little to no expectation that they will now suddenly magnanimously change their stripes, simply because it’s been determined by newly elected, more reasoned and humane men, that it’s the right and sound thing to do.
To give you an idea of how fractured and confused politics is in Greece right now, let me recount a conversation I had with a Greek journalist before the election who was explaining to me why he wasn’t planning to vote Syriza. The reforms imposed upon Greece by the IMF and the EU – while painful – were a necessary step, he said, to shake the country out of a state of moribund corruption. “You probably think I’m really right wing,” he added, apologetically. “I’m not, honestly, I’m very centrist. I love Marx.” In that context, can it be surprising that Syriza has chosen as its coalition partner not the communists – who you’d think might be their natural bedfellows – but a group called Independent Greeks? They’re a centre-right anti-immigration party whose only common ground with Syriza is their shared opposition to the policies of austerity.
On pretty much everything else they disagree. But Syriza needs to move fast, and a fractious coalition is going to be the least of their worries. Greece is about to start negotiations with its creditors. Neither side knows what the rules are anymore. But in essence, here’s the deal – a coalition of radical left groups that believes capitalism is a bad thing now runs a country that owes around €280 billion to institutions that are wedded to the economics of the free market and whose credo is austerity. For each side to come out of this confrontation intact, both will have to compromise. Failing that, one of the two will break. And the EU could be the one to crack. In other European capitals, that thought fills many with dread. But not all.
Athens has become a beacon for thousands of leftists, who are flocking to Greece to be part of what they hope is the beginning of a revolution. On the square – as Polly, Yanis and their fellow Greek voters waited for the new prime minister – a group of 200 Italians unfurled a bright red banner. “L’altra Europa con Tsipras,” it read – “An alternative Europe with Tsipras.” Mingling among them were dozens of young men and women in purple T-shirts emblazoned with the Podemos logo. Podemos is Spain’s answer to Syriza, and they believe their country could be next when they hold general elections later this year. British Marxists, French socialists, they all joined in the celebrations, as Patti Smith’s anthem People Have the Power blared over the loudspeakers.
“The election of the president of the Republic, just like that of the pope, is totally unpredictable, but unlike a conclave, it’s not even assisted by the Holy Spirit..”
As Italian lawmakers huddle to elect the country’s next president, observers can’t help but wonder why the process needs to be so complicated. In an exercise that could drag on for days, more than 1,000 lawmakers and regional delegates have gathered in Rome for a special session of parliament reminiscent of a papal conclave, the method by which the Roman Catholic pope is chosen. The voting is by secret ballot and will involve multiple rounds to pick a successor to 89-year-old Giorgio Napolitano. The first three votes need a two-thirds majority, while from the fourth an absolute majority of 505 electors will suffice. The second round of voting is under way in Rome.
“The election of the president of the Republic, just like that of the pope, is totally unpredictable, but unlike a conclave, it’s not even assisted by the Holy Spirit,” Luigi La Spina, editorialist for daily La Stampa, wrote in a tongue-in-cheek commentary earlier this month. Reflecting the contorted nature of some of the steps in the process, Italian Prime Minister Matteo Renzi said his party will put in blank ballots for the first three rounds and will only vote for its chosen candidate, Constitutional Court Judge Sergio Mattarella, from round four on Saturday morning. The first of the votes started Thursday. Renzi’s move is dictated by both practical and strategic reasons. He doesn’t have the votes to get his choice through in the first three rounds. He also wants to give the opposition time to decide whether or not to back him. While some presidents, like Francesco Cossiga in 1985, were chosen in a day, the election of Giovanni Leone in 1971 took 23 rounds of voting.
The longest election in post-war history was Giuseppe Saragat’s in 1964, which went on for a record 12 days, took 21 rounds, and included a vote on Christmas day. The voting process itself is elaborate. There are generally only two votes held each day. Each of the 1,009 electors walks down to the floor of the parliament and disappears into one of several wooden voting booths with red curtains set up for the occasion, and mockingly called “catafalques,” in a reference to the supports used to hold coffins up in state funerals. After emerging from the booths, electors put their ballot inside a large wicker urn lined with light green satin known as “the salad bowl. Once the voting is over, the president of the Chamber of Deputies reads out the names on the ballots one by one. At the end, the numbers are tallied and results announced. The secrecy is often an opportunity for parties to test the strength of alliances, and for party leaders like Renzi to see how many loyal supporters he really has among his own.
Back when the BRICs were the source of marginal global growth, the punditry couldn’t stop praising them. However, in the past year, now that China’s housing bubble has burst and its shadow banking system has imploded, those who remember what BRIC actually stood for are about as rare as those who recall what it means for the Fed to hike rates. Which is precisely why nobody in the mainstream financial media has commented on the absolutely abysmal economic update reported earlier today out Brazil. We are happy to do so because today’s data follows up quite well to our article from a month ago “Brazil’s Economy Just Imploded” and as the earlier article on the crashing Brazilian Real hinted, things for the Brazilian economy how gone from imploding to, well, worse because not only did the twin fiscal and current account deficits rise even more, hitting a whopping 11% of GDP – the worst since August 1999, but its government debt soared to 63.4% in 2014, up from 56.7% a year ago, and the highest since at least 2006.
In short – the entire economy is now on the verge of total collapse. This is what happened in a few bullet points:
• The fiscal picture has deteriorated very sharply since 2011 at both the flow (fiscal deficit) and stock (gross public debt) levels. The primary and overall nominal fiscal surpluses at year-end 2014 were at levels last seen in the late 1990s.
• The steady decline of the public sector savings rate is leading to a wider current account deficit despite weaker growth and low investment. In fact, the twin fiscal and current account deficits are now tracking at a combined, very troublesome 10.9% of GDP, the worst picture in 15 years (since August 1999). Repairing the severely unbalanced macro picture would require a deep, structural and permanent fiscal and quasi-fiscal adjustment and a significantly weaker BRL.
• The new economic team faces, among other things, the very significant challenge of repairing the severely deteriorated fiscal picture.
• The steady erosion of the fiscal stance pushed net and gross public debt up. Furthermore, fiscal and quasi-fiscal activism undermined the effectiveness of monetary policy, contributed to keep inflation very high and drove the current account deficit to a very high level despite weak growth.
“..his statement is a legal fact, which thwarts numerous accusations made by NATO and Western states..”
The Ukraine army’s chief of staff has admitted that Kiev troops are not engaged in combat with Russian units, thereby thwarting all Western allegations of Moscow’s “military invasion,” said Russian Defense Ministry spokesman Igor Konashenkov. “Yesterday afternoon the Chief of the General Staff – Chief of the Armed Forces of Ukraine – Viktor Muzhenko officially acknowledged during a briefing for foreign military attachées that Russian troops are not involved in the fighting in the country’s southeast,” Konashenkov said on Friday. Given the fact that Muzhenko directly supervises military operations in the southeast, “his statement is a legal fact, which thwarts numerous accusations made by NATO and Western states” concerning Russia’s alleged “military invasion” in Ukraine, the spokesman added.
The Russian Defense Ministry, however, was puzzled by a statement from Muzhenko’s subordinate, Sergey Galushko, made several hours later. According to Galushko – an employee of the Department of Information Technology – Russian troops are located in the so-called “second echelon.” On Thursday, Muzhenko said “the Ukrainian army is not engaged in combat operations against Russian units.” He added, however, that he had information about Russian individuals fighting in the country’s east. He also said the Ukrainian army has everything it needs to drive off armed units in Donbass. His speech was aired by Ukraine’s Channel 5 television, owned by President Petro Poroshenko. Commenting on Muzhenko’s statement, Galushko said that reporters were only allowed at the open part of the meeting. He said that later, during the closed part, the chief of general staff said that Russian units are “in the second tier.”
The devil has competition.
DuPont’s Pioneer seed unit took it on the chin from Monsanto this year, and now salaried employees are taking a hit in the wallet. DuPont is cutting 2014 bonuses and delaying 2015 salary increases until July 1, according to an internal memo distributed Tuesday, a copy of which was obtained by Bloomberg News. The company saved $175 million from reduced bonuses, with half the reduction coming at the expense of agriculture unit employees, DuPont said in a presentation this week. “We set our targets and objectives, and our compensation is tied to the achievement of those targets,” Chairman and Chief Executive Officer Ellen Kullman said in the memo. “It is important to recognize that in 2014, we did not meet all of our targets.”
Operating profit in agriculture, DuPont’s biggest business, fell 5.3% last year as the Pioneer unit lost market share to Monsanto, which increased operating income 14%. Agriculture along with the nutrition unit would be the focus of a smaller DuPont under a plan by activist investor Trian Fund Management to split the company in two. Most of DuPont’s recent success in agriculture has come from selling pesticides, rather than genetically modified seeds, Jeffrey Zekauskas at JPMorgan said in a Jan. 28 note. DuPont trails in developing second- and third-generation seeds engineered to fight insects and tolerate weed killers, helping Monsanto gain share in North America corn and soybeans and Brazil corn, he said.
We can’t have a precautionary principle, can we?
China’s government has too many rules restricting the adoption of genetically modified food, and that’s ultimately hurting its long-term competitiveness in the sector, according to a leading Chinese researcher on the topic. While Beijing keeps most foreign GMOs out, it is keen to develop its own genetically modified products. However, Huang Dafang, the former director of the country’s Biotechnology Research Institute – and a strong GMO advocate — says that the government is going about it the wrong way. “The approval process for GMOs is too lengthy, there are too many steps,” Mr. Huang, also a professor at the state-backed Chinese Academy of Agricultural Sciences, said Wednesday at an industry conference.
Beijing does not allow the commercial production of GMO food, apart from papayas. While the government permits a handful of GMO crops to be imported for animal consumption and, in the case of soybeans, to be processed into edible oil, even that extent of permission has stirred public controversy. So far, agriculture officials have not given any indication on when they might give the green light on GMOs for human consumption in China. Some analysts have suggested that the government is keen to make sure that the China is prepared to master the technology to such an extent that the market won’t be swamped by foreign competition from biotechnology giants like Monsanto and DuPont once Beijing permits domestic commercial production of GMO food.
They say the situation is similar to Beijing’s filtering of the Internet, with the government wanting to ensure its companies can develop in the absence of other competition. The agriculture ministry requires three years of further tests from the time a food item receives biosafety certification. But Mr. Huang pointed out that the government has exceeded even its own time frame on this front. The ministry gave out its first biosafety certifications for a handful of GMO rice and corn strains in 2009, but only renewed the certification late last year after they briefly lapsed.
At the very least, GMO food hasn’t been around long enough to conclude it’s safe. That ends the discussion. Calling it safe is turning all of mankind into guinea pigs.
A Pew Research Center study on science literacy, undertaken in cooperation with the American Association for the Advancement of Science (AAAS), and released on January 29, contains a blockbuster: In sharp contrast to public skepticism about GMOs, 89% of scientists believe genetically modified foods are safe. That overwhelming consensus exceeds the%age of scientists, 88%, who believe global warming is the result of human activity. However, the public appears far more suspicious of scientific claims about GMO safety than they do about the consensus on climate change.
Some 57% of Americans say GM foods are unsafe and a startling 67% do not trust scientists, believing they don’t understand the science behind GMOs. Scientists blame poor reporting by mainstream scientists for the trust and literacy gaps. The survey also contrasts sharply with a statement published earlier this week in a marginal pay-for-play European journal by a group of anti-GMO scientists and activists, including Michael Hansen of the Center for Food Safety, and philosopher Vandana Shiva, claiming, “no scientific consensus on GMO safety.”