NPC Shad fishing on the Potomac 1920
There’s a limit to what QE can buy.
Tumbling oil prices and a stronger dollar are pushing down U.S. corporate profits for the first time in more than five years, hurting companies from Exxon Mobil to Wal-Mart. First-quarter earnings per share for companies in the S&P 500 may have fallen about 5.8%, according to estimates compiled by Bloomberg, in the first year-over-year decline since 2009’s third quarter. As earnings season gets its unofficial start this week with Alcoa, the biggest drag will come from a 63% profit decline at energy companies. Oil prices have fallen by about half from a year ago as companies pumped their way into a global glut, and the dollar’s climb of about 25% against a basket of currencies since last summer has chipped away at revenue for companies such as United Technologies.
“There are all these cross currents going on right now heading into earnings season,” said Todd Lowenstein at HighMark Capital. “You’re going to have at least on paper a technical earnings recession, meaning two consecutive quarters of negative growth, in the first and second quarters.” The effects ripple across industries. US Steel last month announced plans to shut an Illinois mill partly on falling demand from the energy companies. The dollar’s surge helped make steel imports cheaper, hurting producers such as Nucor. At Dow Chemical profit is poised to drop as plastics prices decline with oil and farmers buy fewer chemicals because their crops are selling for less. United Technologies has said it expects foreign exchange to cut $100 million from first-quarter profit on sales of its jet engines, elevators and air conditioners. “That still remains the biggest watch item for me,” CFO Akhil Johri told investors on March 12.
The slowdown is showing in some U.S. economic reports. The Labor Department reported Friday that employers added 126,000 jobs in March, the fewest since December 2013. The S&P 500 fell 0.3% at 9:38 a.m. Monday in New York, the first trading day after the report. Once energy companies are pulled out of the picture, S&P earnings look a bit better, with a projected rise of 1.9%. Alcoa is poised to report a higher profit in part because of rising aluminum demand from automakers and airlines – – two industries that are both benefiting from lower oil prices. Profits at auto manufacturers and their suppliers may jump 42%, the estimates show. “People know that energy prices are down, they know the dollar’s up,” said Jim Paulsen at Wells Capital. “What is less known here is what does the earnings performance look like outside the energy industry.”
“Can we justify sending troops into other countries to spread a political system we cannot maintain at home?”
According to a new study from Princeton University, American democracy no longer exists. Using data from over 1,800 policy initiatives from 1981 to 2002, researchers Martin Gilens and Benjamin Page concluded that rich, well-connected individuals on the political scene now steer the direction of the country, regardless of – or even against – the will of the majority of voters. America’s political system has transformed from a democracy into an oligarchy, where power is wielded by wealthy elites. “Making the world safe for democracy” was President Woodrow Wilson’s rationale for World War I, and it has been used to justify American military intervention ever since. Can we justify sending troops into other countries to spread a political system we cannot maintain at home?
The Magna Carta, considered the first Bill of Rights in the Western world, established the rights of nobles as against the king. But the doctrine that “all men are created equal” – that all people have “certain inalienable rights,” including “life, liberty and the pursuit of happiness” – is an American original. And those rights, supposedly insured by the Bill of Rights, have the right to vote at their core. We have the right to vote but the voters’ collective will no longer prevails. In Greece, the left-wing populist Syriza Party came out of nowhere to take the presidential election by storm; and in Spain, the populist Podemos Party appears poised to do the same. But for over a century, no third-party candidate has had any chance of winning a US presidential election. We have a two-party winner-take-all system, in which our choice is between two candidates, both of whom necessarily cater to big money. It takes big money just to put on the mass media campaigns required to win an election involving 240 million people of voting age.
In state and local elections, third party candidates have sometimes won. In a modest-sized city, candidates can actually influence the vote by going door to door, passing out flyers and bumper stickers, giving local presentations, and getting on local radio and TV. But in a national election, those efforts are easily trumped by the mass media. And local governments too are beholden to big money. When governments of any size need to borrow money, the megabanks in a position to supply it can generally dictate the terms. Even in Greece, where the populist Syriza Party managed to prevail in January, the anti-austerity platform of the new government is being throttled by the moneylenders who have the government in a chokehold. How did we lose our democracy? Were the Founding Fathers remiss in leaving something out of the Constitution? Or have we simply gotten too big to be governed by majority vote?
Join the club.
Canada’s central bank will eventually join global peers by cutting interest rates to zero to revive flagging output, said Fidelity Investments’ David Wolf. The world’s 11th-largest economy is hobbled by weak oil prices, indebted consumers and a currency that remains too strong to draw new business investment, Wolf, a former Bank of Canada adviser under Mark Carney, said Monday from Toronto. Stephen Poloz, Carney’s successor, already cut rates once in January to 0.75% as “insurance” against plummeting crude prices. Swaps trading shows investors are betting on just one more rate cut this year. That probably won’t be enough for Canada to avoid becoming mired in weak global demand like other major economies have, Wolf said.
“There’s a reason why rates are zero just about everywhere else in the developed world,” Wolf, who co-manages the C$7.4 billion Canadian Asset Allocation Fund, said. In Canada, zero rates are “what eventually will happen” as well, he said. The Bank of Canada makes its next interest-rate decision on April 15. Carney cut the benchmark overnight lending rate to 0.25% in April 2009, saying it was effectively zero, and laid out principles for potential quantitative easing. Canada never joined the U.S., Europe and Japan in using that unconventional policy of asset purchases.
Given the unprecedented experience global central banks have had with QE since the financial crisis, and with pushing policy rates to zero or even lower, Canada would need to revisit its 2009 guidelines if policy makers decided to pursue extraordinary stimulus, Wolf said. “No doubt the bank would take a fresh look at what options would be appropriate,” he said. Canada’s dollar is at “roughly fair value” today, Wolf said, and needs to weaken further before companies are encouraged to make new investments to expand locally. The currency traded at C$1.2463 against its U.S. counterpart at 2:02 p.m. in Toronto, and is down about 6.8% this year. “Just going from overvalued to fair valued historically hasn’t been enough to prompt those changes and I don’t think will be in this case either,” he said.
First time I see a Greece bad bank being discussed.
Greek Finance Minister Yanis Varoufakis has unveiled his plan on reviving the Greek economy by both meeting the IMF requirements and circuiting the austerity measures. A preliminary agreement over proposal is expected on April 24. “Negotiations [with international lenders – Ed.] will be completed when we come to a decent agreement that will give a real prospect of stabilization and further substantial growth to the Greek economy,”Varoufakis said in an interview to Naftemporiki newspaper published Monday. The minister also noted that his Cabinet won’t agree to carry out measures leading to a recession. Greece requires a new agreement with Europe to make its €324-billion debt sustainable, as now it accounts for 178% of GDP, said Varoufakis pointing out five terms on which the plan is expected to work out.
First, it is a reasonable level of primary budget surplus about 1.5% of GDP instead of 4.5% agreed by the previous government which has led to a severe recession. Secondly, it is a reasonable debt restructuring that will link payments with the growth rate of nominal GDP. In addition, Greece needs an investment package from the European Investment Bank and the European Investment Fund, which should be placed mainly in the private sector in accordance with the new, non-bureaucratic procedures. Fourth, Greece should pass on effective restructuring of troubled loans by allocating them to a ‘Bad Bank’ unlike other resources of the Fund for financial stability. The fifth thing is significant reforms that will give support to creative people and businesses that produce tradable goods, with export prospects, he added.
Greece expects to reach a preliminary agreement with creditor countries on financing the economy and the external debt at a meeting of eurozone finance ministers on April 24, Varoufakis said. “Preliminary results will be achieved at the meeting of the Eurogroup on April 24,” he said adding that Greece expects to negotiate the unblocking of the last tranche of €7.2 billion from the EU loan program, and to negotiate restructuring of external debt by June.
And 25 cents.
Greece’s deputy finance minister has said that Germany owes it nearly €279bn (£205bn) in reparations for the Nazi occupation of the country. Greek governments and private citizens have pushed for war damages from Germany for decades but the Greek government has never officially quantified its reparation claims. A parliamentary panel set up by Alexis Tsipras’s government started work last week, seeking to claim German debts, including war reparations, the repayment of a so-called occupation loan that Nazi Germany forced the Bank of Greece to make and the return of stolen archaeological treasures.
Speaking at a parliamentary committee on Monday, the deputy finance minister, Dimitris Mardas, said Berlin owed Athens €278.7bn, according to calculations by the country’s general accounting office. The occupation loan amounts to €10.3bn. The campaign for compensation has gained momentum in the past few years as the Greeks have suffered hardship under austerity measures imposed by the EU and IMF in exchange for bailouts totalling €240bn to save Greece from bankruptcy. Tsipras has frequently blamed Germany for the hardship stemming from the imposition of austerity. The Greek prime minister has angered Berlin by threatening to push for reparations in the middle of talks to unlock aid for Greece. Germany has repeatedly rejected the country’s claims and says it has honoured its obligations, including a 115m deutschmark payment to Greece in 1960.
Consider me amused. Looks more like Shakespeare than Greek drama, though.
Varoufakis’ surprise trip to Washington was reportedly instigated by Lagarde after ministers began suggesting the government would prefer to pay pensions and salaries than the IMF loan – in keeping with its philosophy to support those hardest hit by the crisis. Failure to meet bondholder obligations could spark a dangerous chain reaction for a country saddled with €320bn in debt – the highest debt-to-GDP ratio in Europe. As such, Lagarde was quick to say she welcomed the news that Athens would honour the loan repayment. Reports indicated the IMF chief had also pressed Varoufakis to agree to pension cuts and raise VAT. Both are anathema to a government that has refused outright to adopt any more “recessionary” measures.
Varoufakis, who has repeatedly said a euro exit would be catastrophic for Greece, promised to break the deadlock by improving the efficacy of negotiations with creditors. “There will be topics established in order to reach deals faster and to reach better quality deals,” he told reporters. “Our government is a reformist government, we are intent upon reforming Greece deeply. This is our promise to the Greek people so having an opportunity to discuss the reform programme here at the IMF with the managing director is an excellent step towards that direction.” Yet such reforms – including the sale of state assets – will not be easy. Internal dissent within Syriza, the governing party, has peaked in recent days with far-left militants, led by the energy minister Panagiotis Lafazanis, robustly rejecting any suggestion of rolling back on pre-election pledges.
Lafazanis, a Marxist who openly supports improving ties with Moscow, controls around a third of Syriza’s MPs and could easily bring down the government by voting against reforms when they are brought before the 300-member house. With the young premier clearly at odds over how to deal with the hardliners, there is growing speculation, not least among eurozone officials, that a new bailout accord to keep the country afloat can only be achieved if Tsipras agrees to dismember his own party and join up with centrist forces to form a new coalition. That would require him also cutting links with his rapidly anti-austerity rightwing junior partner Anel.
“Either Tsipras makes the policy U-turns being demanded of him, or Greece crashes,” said Dimitris Keridis, political science professor at Panteion University. “In that sense this government cannot survive in its current form.” Piling on the pressure, the Greek parliament late on Monday began debating the need to form a committee to investigate how Greece ended up being “stripped of its sovereignty” under its bailout agreement and placed under the surveillance of the EU and IMF. Analysts believe the move will almost certainly inflame relations with Athens’ creditors further.
Brussels is always willing to help out a democracy.
Eurozone authorities frustration with Greece has grown so intense that a change in the current Athens government s make-up, however far-fetched, has become a frequent topic of conversation on the sidelines of bailout talks. Many officials up to and including some eurozone finance ministers have suggested privately that only a decision by Alexis Tsipras, Greek prime minister, to jettison the far left of his governing Syriza party can make a bailout agreement possible. More The idea would be for Mr Tsipras to forge a new coalition with Greece s traditional centre-left party, the beleaguered Pasok, and To Potami (The River), a new centre-left party that fought its first general election in January. Tsipras has to decide whether he wants to be prime minister or the leader of Syriza, said one European official.
A senior official in a eurozone finance ministry added: ‘This government cannot survive’. Members of Syriza’s moderate wing admit there is a problem with the Left Platform, the official internal opposition that represents about a third of the party and controls enough MPs to bring down the government if it were to rebel in a parliamentary vote. We used to be more debating society than political party … so it is hard to get a system of party discipline up and running, said one Syriza official. But you have to remember we’ve been in power less than 100 days. Under the leadership of Panayotis Lafazanis, almost as popular a figure in the party as the prime minister, Left Platform members say they will veto structural reforms that are being pushed hard by Greece’s creditors in the current round of bailout talks.
Yet even though Mr Tsipras had adopted a more moderate stance in his dealings with Brussels and Berlin, it is too soon to expect him to risk an open clash with his left wing, according to observers in Athens. To win the support of Pasok and To Potami, Mr Tsipras would also have to dump his right-of-centre coalition partner, the nationalist Independent Greeks. It would be desirable to move to a more coherent pro-European centre-left coalition compared with this unseemly union of the radical left with the populist right, said George Pagoulatos, a professor of political economy at Athens business university. But it is premature for the moment. Eurozone officials insist they are not trying to force a change in the government sensitive to accusations the EU was complicit in ending the tenure of George Papandreou, Greece’s prime minister at the start of the eurozone crisis, and Silvio Berlusconi, the Italian premier until late 2011.
Some pretty vicious anti-Putin stuff af FT today. Münchau wrote one I won’t even bother to post here. I’m surprised Tsipras didn’t go see Putin way before.
When Alexis Tsipras visits Vladimir Putin’s Kremlin on Wednesday there is a chance the Greek premier’s eastern manoeuvre will immediately bear fruit: kiwis, peaches and strawberries to be precise. Athens is hopeful that Moscow will lift a retaliatory ban on Greek soft fruits to demonstrate the abiding strength of Russo-Greek relations, just as both leaders feel a diplomatic chill with Europe over the Ukraine crisis and Athens’ bailout saga respectively. But what worries European diplomats is that the Putin-Tsipras gladhanding amounts to something more significant than fruit trade. The big fear, in the words of one suspicious senior official, is a “Trojan horse” plot, where Russia extends billions in rescue loans in exchange for a Greek veto on sanctions — a move that would kill western unity over Ukraine.
No such shock is expected this week. But as Athens nears the brink of insolvency there is growing alarm that Mr Tsipras’s radical left government might turn to Moscow in desperation. It would set off the biggest panic over Greece’s strategic alignment since the 1947 US Marshall Plan, initiated to save the country from communist fighters that Mr Tsipras’ Syriza party lionise to this day. Others argue that Mr Tsipras’ Russia card is but a ploy in bailout talks with Germany and the eurozone. In spite of historic cultural ties and Syriza’s Soviet romanticism, analysts think Greece is too tied to the west – through EU and Nato membership – and too deep in debt for sanctions-damaged Russia to buy it off as a reliable ally.
“The Greeks are using Russia as a way to piss off Berlin, to frighten them. Tsipras wants to show he has other options,” said Theocharis Grigoriadis, a Greece-Russia relations expert at the Free University of Berlin. “But he has no intention of making Greece a Russian satellite. The Russians know that. The Germans know that. It is pure theatre, a Greek game, and I’m afraid it looks like a poodle trying to scare a lion.” From his first day in office Mr Tsipras’ administration has stoked Russian paranoia in western capitals. During his debut at an EU foreign ministers meeting, Greece’s Nikos Kotzias angrily waved a rolled-up Russian sanctions proposal in his hand as he condemned the measures. “We argue and squabble but it is like a family, we’re supposed to share the same world view,” said one official present. “That meeting was something else — it felt like the UN Security Council.”
Central Bank Omnipotence, Hugh?
Back in the day, Chinese stocks had no greater nemesis than Hugh Hendry, whose “China Short” fund soared by 52% in 2011. The (anti) investment thesis was simple: the Chinese economy is bogged down by unprecedented overcapacity. Well, it still is, but Hugh Hendry sensed which way the wind was blowing for the last central bank left to unleash QE, and some time ago, ahead of a gargantuan, liquidity and margin-debt driven Shanghai Composite rally, the Scotsman warned, so far presciently that “To Bet Against China Is To Bet Against Central Bank Omnipotence.”
Considering that Chinese equities are the best performing market in USD terms (second only, oddly enough, to Russia) in 2015, one can see why after a disappointing 2012 and 2013, and modest 2014, Hendry has hit 2015 out of the park with a bang, generating a 10.6% return in the first two months of the year. So is Hendry still bullish on China’s stock market prospects? Why yes, and then some. But is he is contrarian just for the sake of being contrarian? Does he see something in China that nobody else does? Or is he simply right… or wrong, as the case may be? We will let readers decide. Here is his full “managers’ commentary” from his most recent letter to investors dedicated entirely to China.
So much is written about China, and of late very little has been bullish. The notion of impending renminbi devaluation has taken root as traders worry that the dollar rally has pulled its reluctant Chinese counterpart higher, especially against the euro and the yen. Indeed, it seems that shorting the renminbi has become the new equivalent to the JGB short in macro circles. But having shared these doomsday prophecies back in 2010, when the consensus was less negative, I have recently become less concerned about China. Here’s why. First China has recalibrated its growth model. Between 2001 and 2011, China had a very comparable decade to the US economy during the 1920s. Both boomed on surging productivity, high returns on capital, massive gross fixed capital formation and a fervent desire by the rest of the world to participate.
We know that both economies should have boomed; indeed they did. However I would contend that they should have boomed even more. That they didn’t was because of hawkish macro policy. In the 1920s, the Fed refused to allow the high powered money entering its economy via the gold standard to boost credit further. The Chinese discriminated against their household sector: the currency was never allowed to appreciate as much as the boom justified; wages never fully captured the dramatic gains in productivity; and real interest rates were consistently negative. Together, these measures robbed the household of anything between 5% and 7% of GDP per annum, statistically depressing income’s share of GDP and hence boosting involuntary saving. No one really complained, everyone felt better off, but they could have done even better.
For many Americans, the rise in food and housing prices is a tough squeeze. That’s because—even in an era with low overall inflation—low-income Americans spend a disproportionate share of their money on food and housing. New data from the Labor Department show the extent of the discrepancy. The bottom 10% of Americans, by income, devote 42% of their spending to housing and an additional 17% to food–nearly 60% of their total spending, according to the Consumer Expenditures Survey. By contrast, the wealthiest 10% of Americans dedicate only 31% of their spending to housing and 11% to food–closer to 40% of total spending. This underscores one reason that inflation feels different household to household: People spend their money in such different ways. A parent with children in college or daycare might scoff at the notion that inflation has been low for the last five years.
Conversely, someone with no car payment and no mortgage but who does a lot of driving may be feeling flush from the plunge in gas prices. This year, the expenditure survey added new data breaking down Americans into tenths. Approximately 12.5 million consumer units are in each tenth. In the bottom three brackets are individuals earning around $20,000 a year or less, and spending more than they bring in. The survey breaks out their sources of income. The poorest 10% receive more public assistance than any other group. The second 10% receive more than half their income from Social Security and retirement programs. The third and fourth 10% also receive large shares of their income from retirement programs, suggesting that retirees make up a large share of the lower-middle part of the income distribution.
The top half of Americans receive at least three-quarters of their income from wages and salaries. (The complete definition of the income sources is available here. The chart above combines “regular contributions for support” with “public assistance, supplemental security income and food stamps.”) The sixth through ninth decile in this survey earn between $51,000 and $112,000 a year. The top 10% earn an average of $220,000. Even among this group, the vast majority of annual income comes from wages, although they also receive 10% of their income from other sources, primarily self-employment. As consumers become wealthier, their spending patterns change, sometimes dramatically.
“Investors are going to freak out if earnings turn negative..”
In the wake of March’s tepid jobs creation, it may be time to take a harder look at this soft patch. Even ahead of Friday’s employment report, concerns were mounting about a growing pile of weak data. JPMorgan’s economic research team cut their first quarter GDP growth forecast to a mere 0.6% on Thursday, citing poor consumer spending data. Recent manufacturing data have also looked especially bad, with the ISM manufacturing index’s March reading showing the slowest growth since May 2013. Separately, housing market indicators have been mixed, perhaps due to the harsh winter weather. Amid all of the concerns, many economists have held out hope because of the string of strong employment reports, which have indicated that growth remains strong where it matters most.
Now, that story changed after the Bureau of Labor Statistics reported that a mere 126,000 jobs were created in March, compared to broad expectations of another 200,00-plus report. “While the jobs report was disappointing, in some ways it confirms what we already know,” commented Marc Chandler, global head of currency strategy with Brown Brothers Harriman. “The U.S. economy slowed markedly in Q1 2015.” In the 45 minutes of futures trading that followed the report (which was released on a day when the stock market was closed for the Good Friday holiday) S&P 500 futures fell by 1%, while bond futures marched higher. In the currency market, the U.S. dollar fell sharply across the board.
While the jobs number may have somewhat shifted expectations about when the Federal Reserve will raise short-term interest rates, these moves are all consonant with shifting perceptions of the American economy—and not with shifting expectations about the Fed. After all, with all else being equal, a more dovish Fed would be good rather than bad for stocks. For Brian Stutland of Equity Armor Investments, the jobs disappointment couldn’t come at a worse time. Earnings season is around the corner, and analysts are already predicting an earnings decline. “You have to worry about whether valuations are correct if earnings are flat to down,” Stutland said. “Investors are going to freak out if earnings turn negative, and you could see a snowball effect.”
And Warren Buffett.
The North America Free Trade Agreement, signed in 1993, triggered an immediate surge of direct investment from the US into Mexico’s food processing industry. Between 1999 and 2004, three-quarters of the country’s foreign investment went into the production of processed foods. At the same time, sales of processed foods went up by 5-10% per year. Mexico is now one of the ten biggest producers of processed food in the world, with total sales reaching $124bn in 2012. The corporations running this business – such as PepsiCo, Nestlé, Unilever and Danone – made $28bn in profits from these sales, $9bn more than they made in Brazil, Latin America’s largest economy. Mexico is now one of the ten biggest producers of processed food in the world, with total sales reaching $124bn in 2012.
The corporations running this business – such as PepsiCo, Nestlé, Unilever and Danone – made $28bn in profits from these sales, $9bn more than they made in Brazil, Latin America’s largest economy. Mexico offers the global food industry not only low operation costs, but a network of trade agreements that provide access to big markets such as the European Union and the US. At the same time, these corporations are investing heavily in taking over local distribution. The number of supermarkets, discount chains and convenience stores exploded: in 1997, their numbers went from 700 to 3,850; there were 5,730 such stores in 2004. Today, Oxxo, a convenience store chain owned by a unit of Coca-Cola Mexico, is opening an average of three stores a day, and aims to inaugurate its 14,000th store in Mexico this year.
One of the main effects of all this has been a radical change in people’s diets and a disproportionate increase in malnutrition, obesity and diabetes. Mexico’s National Institute for Public Health reports that, between 1988 and 2012, the proportion of overweight women between the ages of 20 and 49 increased from 25% to 35.5%; the number of obese women in that age group increased from 9.5% to 37.5%. A staggering 29% of Mexican children between the ages of five and 11 were found to be overweight, as were 35% of the youngsters between 11 and 19, while one in 10 school age children suffers from anaemia.
The level of diabetes is equally troubling. The Mexican Diabetes Federation says there are up to 10 million people who suffer from diabetes in Mexico; around two million of them are unaware that they have the disease. This means that more than 7% of the Mexican population has diabetes. The incidence rises to 21% for people between the ages of 65 and 74. In 2012, Mexico ranked sixth in the world for diabetes deaths and specialists predict that there will be 11.9 million Mexicans with diabetes by 2025. Obesity and diabetes function together, interacting so strongly that a new term has emerged: “diabesity”. Who can we thank for this? The transnational food industry supported by governments that share their interests.
Larry Summers redux.
One might say the main effect of the 50-year-long Friedman globalism orgy was the schooling of other nations in American-style financial fraud. Surely China has now surpassed the USA, considering the structural perversities of their banking and government relations. They really don’t have to account to anybody, including themselves, and the numbers they publish must be even more fantastical than the junk statistics produced by the US BLS. Europe has been a star pupil and only a few months ago announced a Quantitative Easing (fake capital creation) program as ambitious as America’s have been. Japan, of course, is just marking time until it quietly slips away and goes medieval.
Global disintegration has advanced furthest, not surprisingly, in the fragile band of regions most strung out on the primary commodity: oil. The Middle East/North Africa/Central Asia war zone is steadily combusting, and there is no sign of resolution across the whole of it, only the promise that conflict will get worse. Saudi Arabia was the cornerstone of that district, and the senile Saudi leadership finds itself in peril as its military pretends to support splintering Yemen. The other Arabian princes of other non-Saud clans must be watching the spectacle with wonder and nausea. When Arabia blows up, that will truly be the beginning of the end. The foregoing leads to that other original question: what is that “capital” we’re counting on? I’d propose that it doesn’t exist. It is a figment engraved on the hard drives of the world, a ghost that haunts the people still in charge of that disintegrating global economy. There is still wealth in the world, but a lot less than people such as Larry Summers say there is.
Ukraine needs regime change. Who has experience with that?
Russia said only direct talks with Ukrainian authorities may change its refusal to join debt restructuring negotiations. No official contacts have taken place with Ukraine’s Finance Ministry about renegotiating $3 billion of Eurobond debt, Russian Deputy Finance Minister Sergey Storchak said in an April 3 interview in Moscow. Russia expects to be paid on time and in full when the debt matures in December, he said. “We are not going to join any offer that they are getting ready,” Storchak said. “Only one thing can influence our position — some direct contact with the debtor.” Ukraine wants to restructure all external sovereign debt incurred before March 2014 in negotiations to save $15.3 billion in public sector financing under its bailout agreement with the IMF, the Finance Ministry in Kiev said on Saturday.
Russia, the second-largest bondholder after Franklin Templeton, refuses to join restructuring talks, saying the debt it holds was official aid to Ukraine’s struggling economy under former President Viktor Yanukovych. Russia purchased $3 billion of bonds in December 2013 after Yanukovych rejected an association agreement with the European Union in favor of closer ties with the government in Moscow. He was ousted in February last year and fled Ukraine after violent clashes between police and protesters who supported the trade pact with the EU. Ukraine’s Finance Ministry “publicly invited all bondholders” through the clearing system to take part in debt negotiations, including those holding bonds issued in December 2013, the ministry said in e-mailed comments on April 6. “To date, the Ministry has not received any response through the designated website to its invitation from the holders of such bonds.”
Finance Minister Natalie Jaresko said in March that all loans and bonds should be treated the same. The debt Russia holds should be considered “official” state aid, Russian Finance Minister Anton Siluanov said on March 27. The only concession it was willing to make was not to enforce a clause providing for early repayment once Ukraine’s public debt surpassed 60% of gross domestic product, he said. Holders of Ukraine’s bonds have suffered losses of more than 40% since the beginning of 2014, the worst performance among countries in the Bloomberg USD Emerging Market Sovereign Bond Index. The bonds handed investors a 25.7% loss this year, while the index gave a return of 2.64%.
A Ukrainian-born pianist was barred from playing at Canada’s Toronto Symphony Orchestra (TSO) for expressing views on the situation in Ukraine via Twitter, according to the soloist herself. The move led to a social media storm tagged #LetValentinaPlay. The orchestra has officially announced its decision to drop pianist Valentina Lisitsa from its Rachmaninoff Concerto #2 program earlier this week. TSO President and CEO Jeff Melanson cited “ongoing accusations of deeply offensive language by Ukrainian media outlets,” adding that Lisitsa’s “provocative comments” had allegedly “overshadowed past performances.” In the statement, Melanson seems to be referring to Lisitsa’s Twitter posts, in which she expresses her views on the situation in Ukraine.
Lisitsa turned to Facebook on Monday with a plea, asking her fans for support to “tell Toronto Symphony that music can’t be silenced.” “Someone in the orchestra top management, likely after the pressure from a small but aggressive lobby claiming to represent Ukrainian community, has made a decision that I should not be allowed to play,” she wrote, referring to her TSO performances on Wednesday and Thursday. “I don’t even know who my accusers are, I am kept in the dark about it.” After expressing her views, Lisitsa claimed to have received numerous death threats. The last straw was the decision to drop her performance: “My haters didn’t stop there. Trying, in their own words, to teach me a lesson, they have now attempted to silence me as a musician.”
Lisitsa revealed that TSO offered to cover her entire fee for the canceled program, if she chose to stay silent about the reason behind the decision. “They even threatened me against saying anything about the cause of the cancellation … If they do it once, they will do it again and again, until the musicians, artists are intimidated into voluntary censorship,” she wrote. The reaction on Twitter was massive, with the hashtag #LetValentinaPlay surging in popularity and thousands of supporters speaking out. International concert violinist and recording artist Hannah Woolmer tweeted: “To me, this IS a VITAL campaign pls can all my followers retweet if they agree that @TorontoSymphony should #letvalentinaplay.”
Who’s next to try this??
A stone’s throw from a former palace and vestiges of a medieval wall, this four-bedroom house in rural Valencia boasts a prime location, 20 miles from the beach and 50 miles from the nearest ski hill. And it is a steal – given that its newest owner paid just €10 (£7.35) for it in a raffle. When the previous owners, the Bolumar family, first wanted to sell the house they had inherited two years ago in Segorbe, a town of 9,300, they tried to do it the traditional way, listing it for €90,000. But the struggling Spanish housing market yielded few potential buyers. “It was really complicated,” said Pepe Bolumar, 35. The family began considering other ways to sell.
Most ideas were dismissed quickly, save one. “Raffling it off seemed interesting – people would have the chance to acquire a home for a low cost and we would still end up covering the cost,” Bolumar said. From there began a year-long project, with the family wrestling their way through seemingly endless amounts of red tape to obtain authorisation from the country’s tax authorities to be the first in Spain to raffle off a house. The €10 tickets, sold from a kiosk in Valencia as well as online, offered the chance to win the 141 sq metre home, no strings attached. As news of the raffle spread through Facebook and Twitter, 32,000 tickets were sold, the majority of them in Spain but also as far away as Australia and Canada. Those in Florida, he said, seemed to be particularly taken with the idea.
“Lots of people from Florida called us, also from England,” said Bolumar. Some of the calls that came in were heartbreaking, he said, from families who had been evicted from their homes or who had fallen on tough times and were desperately hoping to win the house. As the family prepared to gather together with a notary to watch the numbered balls drop from a borrowed lottery machine, Bolumar was confident that the family had recouped the original sale price of the house, estimating it would walk away with further €10,000. “It’s less than what it appears. We didn’t receive €320,000, because we have to cover our costs of the past year,” he said, pointing to publicity as well as the cost of servers and maintenance for the website.
The family will also cover any taxes incurred by the winner from the transfer of the house. “The winner doesn’t have to pay a thing more.” Throughout the process, Bolumar said the family regularly received phone calls from others interesting in raffling off their own houses. It now plans on keeping its website open to offer guidance to others looking to do the same. “It was a huge amount of effort. It took up a whole year and became a second job for me,” said Bolumar, who manages a small business in Valencia. But it proved to be an effective way to beat the tumbling Spanish property market, he said. “If you’re trying to sell your home and its not working, this might be the solution for you.”
“So when might Chinese demand return to normal?” You’re looking at it.
Fonterra’s half-year result – which revealed a 16% profit drop and a cut to the forecast dividend – was a disappointment for farmers and investors in the co-operative’s listed shareholders’ fund. But an aspect of the interim financials that didn’t get much attention last week was the precipitous decline in Chinese revenue the company experienced in the six months to January 31. Sales in Fonterra’s largest market slumped to $1.2 billion from $3.1 billion in the same period a year earlier. That’s a whopping 61% decline, well ahead of the next biggest geographical revenue fall of 29% in Europe. It underlines the extreme volatility Fonterra has been dealing with in China and the ongoing challenges it faces there.
Aggressive Chinese buying during the latter part of 2013, into early 2014, helped to inflate global dairy prices and resulted in a massive build-up of inventory in China. To put it in perspective, the $3.1 billion Chinese revenue Fonterra posted for the six months to the end of January 2014 was a 138% increase on the $1.3 billion it reported for the half-year up to January 2013. But the spike in demand wasn’t to last. High inventory levels had put the brakes on Chinese buying by the middle of last year. That drop in demand has been a factor in the dairy price downturn New Zealand farmers are now facing.
Speaking to the Business Herald last week, Fonterra chief financial officer Lukas Paravicini attributed the half-year slump in Chinese revenue to a combination of lower dairy prices, which were a negative for the co-op’s ingredients business, and weak demand. It appears the latter factor was the biggest contributor to the decline. Fonterra’s half-year revenue across the rest of Asia fell only 5%, to $2.6 billion, despite falling dairy prices. So when might Chinese demand return to normal? Paravicini expressed some optimism, saying Fonterra’s core ingredients business in China had experienced “a bit” of a recovery. “We’re still in a supply-rich and demand-weak environment and that includes China,” he said.
Europe’s shame continues. Anybody seen a task force announced? Neither have I.
Some 1,500 migrants have been rescued from boats trying to cross to Italy in the space of 24 hours, the Italian coastguard has said. The navy and coastguard despatched vessels to rescue the migrants from five different boats. The UNHCR says almost 3,500 people died and more than 200,000 were rescued trying to cross the Mediterranean Sea to reach Europe last year. The chaotic political situation in Libya has added to the crisis. The coastguard despatched four vessels and the navy another after receiving satellite telephone distress calls from three migrant boats. Two more boats were found to be in trouble when the rescuers arrived. The migrants were transferred to Lampedusa island and the ports of Augusta and Porto Empedocle in Sicily. Last year, Italy dealt with 170,000 migrants who entered the EU by sea. Officials say the numbers for the first two months of this year are up 43% on January and February in 2014.
“..more than half of the U.S. is affected by water shortages..”
As government websites go, the U.S. Drought Portal sounds full of promise. Fun even. But alas, recent news from the site’s weekly reports on things like U.S. drought conditions and wildfire risks, has been anything but fun.
As this Reuters graphic shows, more than half of the U.S. is affected by water shortages, and the problem is growing worse. The number of people affected by extreme or exceptional drought conditions is approaching 40 million, many of those in California, where Gov. Jerry Brown last week ordered a 25% cut in domestic water use for the first time in state history.
According to the U.S. Geological Survey, California’s 2014 Water Year was the third driest in 119 years and the warmest on record, so perpetual wildfire season looks like the new normal. And there’s little relief on the horizon: The National Weather Service’s seasonal drought outlook predicts developing, persisting or intensifying drought conditions for most of the American West through at least the end of June.