LoC Old Patent Office model room, Washington DC 1865
If you still need this spelled out, this is quite good. Lots of graphs too.
The market is materially mispricing the strength of the US consumer whose weakness will lead the US economy into a recession in Q117. The divergence is a result of the top 40% of earners who have accrued 84% of all new income and only 34% of new debt since 2013. This strength has driven headline sales figures and accounted for nearly all deleveraging since the financial crisis. That said, the market has extrapolated the health of top 40% to all consumers, as it corresponds to the current narrative of low unemployment and rising average hourly earnings leading to higher rates of consumption and balance sheet strength. Due to this misconception, we believe the market has overlooked the deterioration of lower and middle income households who have historically preceded the fall of the top. We see this disparity being corrected over the next 6-9 months, as a series of disappointing retail sales and consumption figures lead market participants to the realization that their thesis is imperfect.
Markets won’t get quiet again at least before November 8, and more likely 2017.
Asian stocks fell to fresh six-week lows on Wednesday and the greenback stood strong against a broad swathe of currencies including the Japanese yen as concerns grew about the fading impact of the world’s major central banks to stimulate growth. Losses in stock markets across Asia deepened as rising bond yields and soaring volatility forced investors to unwind positions. The MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.2%, extending its decline since late last week to 4.2%. Within the region, Japan’s Nikkei led losers with a 0.3% decline as uncertainty grew ahead of a central bank policy meeting next week. The BOJ plans to make its controversial negative interest rate policy the centerpiece of future monetary easing, promising to weigh further rate cuts as expansions to asset buying near their limits, the Nikkei newspaper reported on Wednesday.
“The moves in developed market fixed-income, which are largely behind the volatility, have stemmed from Japan and the potential changes in monetary policy,” said Chris Weston at IG Markets. “Secondly, some of the biggest systematic funds have had to alter their portfolios. The rest of the market participants have had to simply react.” Stock markets have come under pressure as investors cut positions after large inflows in recent weeks betting on a long period of low volatility and suppressed bond yields. Inflows into emerging market equity funds amounted to $24 billion dollars over the past 10 weeks, the highest on record according to Bank of America Merrill Lynch flow data. An index of market volatility soared to its highest level in three months.
The refusal to restructure will come back to bite the US.
Beneath the surge in corporate defaults lies a surge in distressed exchanges. Such exchanges – defined by Moody’s as when a troubled company offers its lenders new or restructured debt, securities, cash, or other assets, that amount to a smaller commitment than the original IOU – could have big implications for debt markets as they stretch out the current credit cycle and result in even greater losses for investors. The trend is most apparent in the energy sector where oil and gas companies have been deploying a raft of creative measures to stay afloat amid lower crude prices that have crimped profits and threatened their survival. Such measures have included swapping unsecured debt for secured, offering discounted buybacks of existing debt, or junior-lien debt that gets paid after other creditors.
“While these [distressed exchanges] do result in some level of loss to bondholders, unlike missed payments and bankruptcy filings the bonds typically remain eligible for inclusion in the high-yield index,” Kai Gilkes and Anneli Lefranc, analysts at CreditSights, wrote in new research. They note that the 12-month default rate rose to 7.2% for U.S. junk-rated bonds in August. That’s an increase of 30 basis points compared to July’s default rate of 6.9%, spurred on by six corporate defaults last months – including a trio of U.S. energy companies. “Distressed exchanges have contributed greatly to the rise in default rates,” they add, with 38 of the 75 U.S. high-yield defaults over the last 12 months coming from such deals. The degree to which distressed exchanges are propelling defaults higher is apparent in the below CreditSights chart, which shows the U.S. and European default rate excluding the swaps.
The question now will be whether such exchanges actually help companies improve their balance sheets and reduce their debt long enough to enjoy a recovery in oil prices or the market’s appetite for energy-related assets. If they don’t, then truly troubled companies will only have succeeded in putting off the inevitable and their lenders risk suffering greater losses further down the line.
You think? Again, there’s one solution only: take away central banks’ powers.
The negative interest rate strategy that Japan and Europe’s central banks have embraced may do more harm than good, according to John Taylor, the creator of an eponymous rule for guiding monetary policy. “What we are learning is that, in my view, negative rates may not have helped and may have hurt,” Taylor, a professor at Stanford University in California, said in a telephone interview this week. “It could be counterproductive, no question.” A potential problem is that the strategy of charging banks for a portion of their reserves squeezes the availability of credit. Bank of Japan Governor Haruhiko Kuroda last week rejected the idea that the negative-rate policy adopted in January had hurt banks’ “intermediary functions” – their ability to channel savings to lending.
Even so, he acknowledged that the move had spurred a powerful drop in long-term yields. That, in turn, hurt earnings on savings including pensions, generating some risk for the “sustainability of the financial function in a broad sense.” “The macro models we have don’t really incorporate that financial-sector behavior, so it’s hard to give a magnitude to it,” Taylor said. While some companies may boost investment, others could pare it back, and saving rates could be affected, said Taylor, who served as the U.S. Treasury’s top international official from 2001 to 2005.
Joe Bageant meets Brexit. Excellent from the Atlantic. Nothing learned from Project Fear that helped shape Brexit.
Lee Supply is a third-generation family-owned business, operating since 1954. “My dad started it servicing the coal industry,” Lee said. Nestled in a glen between the rolling hills of the Alleghenies and the Monongahela River, the company bustles with workers moving about the plant. Today, it sells pipe and pumping systems used in everything from traditional applications, such as water distribution and sewage treatment, to highly specialized applications such as horizontal directional drilling, slip lining, leachate and methane collection, gas extraction, and water transport. One man wearing a florescent-yellow Lee Supply safety shirt, with grease smudged on his arms and face, registered to vote for the first time in his 61 years.
His eyes watered as he put down the pen. “This is about me,” he said, declining to give his name. “I am doing this for me, my hometown.” “Sheik” Shannon, 55, a 17-year employee at the company, believes the political class fundamentally misunderstands what this election cycle is all about. “They think it is the celebrity of Trump. It’s not. They think we’ve all gone mad. We’ve not,” he said, emphasizing each sentence with passion. “Communities like where I live do not need to shutter and die. We lead solid, honest lives, we work hard, we play hard, we pray hard … we love where we are from, and we feel a duty to make sure that it is here for generations.” Paul Sracic, a Youngstown State University political scientist, believes there are two categories of voters rallying to support Trump.
“First, there are people who don’t normally vote,” he said. “Nearly half the voting-age population was either not registered to vote, or was registered and decided not to vote in 2012. And if even 10% of that group was to show up and vote this year, it could easily change the outcome in the important swing states.” Sracic—who frankly admits he obsesses over opinion polls—wonders whether these voters are even represented in the endless presidential surveys: “If people aren’t registered voters, they won’t be picked up by most polls. If they are registered voters but don’t normally vote, they may be eliminated by ‘likely voter’ screens pollsters use.” Romney lost Pennsylvania in 2012 by about 300,000 votes out of about 5.5 million cast; in Ohio, he lost by less than 200,000. “So bringing new people in can make a difference,” Sracic said.
Potentially more significant, however, are those voters who “flip”—Sracic’s second category. “Remember,” he said, “taking a Democratic voter and having them vote Republican is both a +1 and a -1. In other words, if Romney lost Pennsylvania by 300,000 voters, all you have to do [this time] is flip slightly more than 150,000 votes.” Between Ohio and Pennsylvania, if approximately 225,000 voters (out of the 11 million who are expected on Election Day) switch parties, they could tip the entire election.
For names, amounts and photos click the link.
After addressing a cybersecuirty conference in London, notorious hacker ‘Guccifer’ shared over 500Mb of documents detailing 100,000 DNC donors contact info and donations. A large number of the largest donors received senior diplomatic or political positions following thge donations, ranging from UK Ambassador to Assistant Attorney General. The DNC released a statement pre-emptively claiming that this was the work of Russia (and reigniting Trump’s links to Putin). Probably just coincidence… The dcoments contained detailed lists of 100,000 alledged donors, addresses, and phone numbers, and well as amounts donated…
[..] The DNC responded to the latest hack claim Tuesday through its Interim Chair Donna Brazile, who stated that the “DNC is the victim of a crime,” which she blamed on “Russian state-sponsored agents,” while also cautioning that the hacked documents were still being authenticated by the DNC legal team, as “it is common for Russian hackers to forge documents.” DNC pre-emptively published a statement in an attempt to change the narrative… [..] Once again blaming Russia (and Trump)… As RT reports, it’s not the first time that the name of Vladimir Putin has been brought up in the US presidential campaign, but this time the US president used this “argument” while openly campaigning for Clinton against Trump. The situation has become “really ludicrous and it borders on the ridiculous,” believes Gregory R. Copley, editor of Defense & Foreign Affairs.
“In my 50 odd years covering the US government, I have never seen this level of partisanship within the administration where a sitting president actually regards the opposition party as the enemy of the state,” Copley told RT. [..] The US establishment is “sacrificing key bilateral relationships in order to win [a] domestic election,” believes Copley. He added that neither Obama nor Clinton are interested in unifying the country, but they are rather “interested in winning and engaging in what modern democracy seems to have become – the tyranny of the marginal majority over the marginal minority.”
“When you think about the number of times that the Clinton campaign has brought up President Putin and the alleged Russian hacking of Hillary Clinton’s service, it makes you wonder just how desperate they are,” Copley noted. “President Obama has lost literally all prestige in an international community…with the loss of prestige he has become desperate.”
Is there anything more boring in the world than billionaires?
Warren Buffett had $1.4 billion wiped from his fortune Tuesday after Wells Fargo fell 3.3% as the fallout continued from revelations that bank employees had opened more than 2 million accounts without clients’ approval. Berkshire Hathaway, the lender’s biggest shareholder, fell 2%, causing the 86-year-old’s fortune to drop more than anyone else’s on the Bloomberg Billionaires Index. The U.S. investor is the world’s fourth-richest person with a net worth of $65.8 billion. Tuesday’s decline came amid a global equity sell off that has wiped out $93 billion from the world’s 400 biggest fortunes since Friday. The billionaires shed $37.3 billion Tuesday as stocks and bonds both slumped, and oil sank after the IEA’s prediction that a glut will extend into next year.
The world’s second-richest person, Inditex founder Amancio Ortega, leads the 400 richest people with a decline of $3.3 billion since the sell off began, according to the index. Microsoft co-founder Bill Gates, the world’s richest person with $87.3 billion, has lost $2.4 billion. Amazon founder Jeff Bezos, the world’s third-richest person with $66.2 billion, has shed $1.9 billion. Buffett, whose fortune is mostly in Berkshire shares, has lost $1.6 billion in the sell off. Wells Fargo was overtaken by JPMorgan as the world’s most valuable bank on Tuesday. It has fallen 5.9% since Thursday, when the Consumer Financial Protection Bureau announced fines stemming from the fake accounts. The drop since Thursday compares with a 2.5% fall for the Standard & Poor’s 500 Index.
Good example of why systems need redundancy, but don’t have it.
The Hanjin Shipping Co. terminal at South Korea’s largest port used to be one of the world’s busiest. Dozens of container carriers would line up to ferry boxes to and from the giant cranes that loaded and unloaded the world’s biggest ships.
Last week the terminal, as big as 100 football fields, came to a virtual standstill. In front of hundreds of containers stacked four-high, Seo Seong Deok, a 35-year-old driver of the port tractors, wondered if he would ever get to move them again. “We have no work now,” said Seo, one of about 1,000 tractor drivers without work. “This Hanjin terminal used to be always bustling with trucks and ships. Now, I heard some fresh food such as mango or banana is rotting in Hanjin container ships drifting somewhere in the ocean.”
Since the world’s seventh-largest container line filed for protection from creditors on Aug. 31, the port has been paralyzed as unshipped boxes piled up. The collapse has come at the worst time: September is peak season for the industry as manufacturers look to stock store shelves for holidays like Thanksgiving and Christmas. Port officials say cargo owners have been scrambling to find alternative ways to send goods. The port in Busan, on the tip of the Korean peninsula about 200 miles southeast of Seoul, handles more than 70% of the containers that enter or leave South Korea, according to local government data. Until last week, Hanjin alone accounted for about 10% of goods that flow through its wharves. “The biggest concern is Busan losing its longtime reputation as a maritime hub in Asia,” said Kim Kyu-Ok, the city’s vice mayor for economic affairs. Hanjin’s collapse “could make ship owners shun Busan.”
A good take from Tyler: turn Christine on her head.
Two months after consultancy giant McKinsey dramatically flip-flopped on its long held position of praising globalization, cautioning that – as Britain’s vote to exit the European Union exemplified what happens when people feel like the system is letting them down – the system is on the verge of “explosion”, comparing the buildup of resentment over globalization to a dangerous natural gas leak in a row of houses, today it was the IMF’s turn. In a speech titled “Making Globalisation Work For All”, IMF managing director Chrstine Lagarde became the latest in a growing chorus of senior policymakers urging governments to take heed of rising discontent and economic insecurity in the advanced world.
Lagarde said that governments in the developed world should focus their attention on boosting support for low income workers and reducing inequality, amid a “groundswell of discontent” against globalisation. Effectively reiterating the McKinsey report, Lagarde said that there is “a growing sense among some citizens that they “lack control,” that the system is somehow against them”, a system which she now slams, even though the IMF been instrumental in helping create and grow precisely this system ever since its inception, saying that “growing inequality in wealth, income, and opportunity in many countries has added to a groundswell of discontent, especially in the industrialized world.” She then slammed both banks, tax regimes and pervasive corruption, saying that “financial institutions are being seen as unaccountable to society. Tax systems allow multinational companies and wealthy individuals not to pay what many would consider a fair share. Corruption remains endemic.”
Last but not least she warned about the “challenge” from migration flows: And there is the challenge from uncontrolled migration flows, contributing to economic and cultural anxieties.” To be sure, Lagarde did have some kinds words for globalisation, highlighting the opening up of world trade and the entry of the likes of China and India into the global economy, which has had “far reaching effects” for low-income workers in the likes of Europe and the US, however even here she highlighted the negatives saying that “the size of the global workforce effectively doubled, putting downward pressure on wages, especially for lower-skilled workers in advanced economies…. Some local labour markets that have faced deep, long-lasting effects from overseas competition.” We are confident this is a bullet point that Trump will be delighted to use during the upcoming debates.
This is very dangerous. We should not allow it.
Chemicals and healthcare group Bayer is poised to announce the acquisition of U.S. seeds company Monsanto on Wednesday for more than $66 billion, clinching the biggest deal of the year, people familiar with the matter said. By accepting Bayer’s offer, the largest cash acquisition proposal on record, Monsanto is set to give the German company a shot at grabbing the top spot in the fast-consolidating farm supplies industry, combining its crop science business with Monsanto’s strength in seeds. It will also set the stage for the deal to be closely scrutinized by antitrust regulators. The breakthrough in negotiations, which follows more than four months of talks, came after Bayer further improved on the sweetened offer of $127.50 per share in cash it disclosed last week, the people said.
However, the deal will still value Monsanto at less than $130 per share, which the company was previously hoping to fetch, the people added. Once Monsanto’s board of directors approves the deal on Tuesday, Bayer’s supervisory board will meet on Wednesday to also authorize the transaction, with an announcement expected before the stock market opens in New York on Wednesday. It is still possible the board of either company could decide to walk away from the deal at the last minute, the people cautioned. Bayer’s bid to combine its crop chemicals business, the world’s second-largest after Syngenta, with Monsanto’s industry leading seeds business, is the latest in a series of major consolidation moves in the agrochemical sector. U.S. chemicals giants Dow Chemical and DuPont have agreed to merge and spin off their respective seeds and crop chemicals operations into a major agribusiness.
I don’t want to get into this too much, but the good doctor makes a convincing case.
A few weeks back, Dr. Ted Noel, an anesthesiologist with 36 years of experience, gained notoriety by sharing his opinion on his website, Vidzette, that Hillary likely had Parkinson’s disease. Now, Dr. Noel has posted a new video in which he explains how Hillary’s behavior on 9/11 and the subsequent decisions made by her campaign staff and secret service detail are more consistent with Parkinson’s disease than pneumonia. Among other things, Noel points out that if Hillary actually was suffering from such a severe case of pneumonia that it forced her to literally collapse on a sidewalk, it’s extremely unlikely that she could make a seemingly full recovery after only 90 minutes at Chelsea’s apartment and feel well enough to great onlookers and snap a selfie with a child.
Per Noel, Hillary’s recovery timing is more consistent with how long it would take her to ingest a dosage of Levodopa and wait for her Parkinson’s symptoms to subside. Noel also points out that sunglasses with dark blue lenses, like the ones Hillary wore this weekend despite the cloud cover, have been noted by doctors to help treat patients with major motion disorders such as Parkinson’s disease. With that preview, here is the full analysis
I’m looking at doing another article on the political restraints on an EU ‘redesign’. Wrote on that years ago, don’t know if I can find any of it back. Nothing much has changed, other than tensions have increased.
Yanis looks at the economic/financial side. I think I’m more convinced that a ‘divorce’ is inevitable than he is, ugly as it may be.
Stefano Fassina points out that in my article ‘Europe’s Left After Brexit’ I did not discuss his preferred option for Eurozone member-states: Stay in the EU but leave the euro. Of course the reason my article did not discuss that position is that it was focusing on Brexit and addressing Lexiteers like Tariq Ali and Stathis Kouvelakis who are arguing, from a left-wing position, for leaving the EU altogether – i.e. Brexit-like moves. But I am more than happy to comment on Stefano’s preferred option (In the EU, Out of the Euro) here. Stefano invokes Joe Stiglitz who, in his recent book on the euro, recommends an ‘amicable divorce’ that would lead to the creation of at least two new currencies (one for the deficit and one for the surplus countries).
Since I have recently discussed this with Joe Stiglitz it is perhaps useful to share the gist of our discussion with Stefano and our readers. In my email to Joe, I expressed scepticism that an ‘amicable divorce’ is at all possible. The moment it becomes public that a ‘divorce’ is under discussion, a wall of money will leave the banks of the countries destined for devaluation, heading for Frankfurt. At that point, the banks of the deficit member-states will collapse (as they run out of ECB-acceptable collateral) and the member-states will impose stringent currency and capital controls – complete with officials at airports checking suitcases and/or harsh limits in cash withdrawals. This would spell the end not only of monetary union but also of (the already injured) Schengen Treaty.
Meanwhile, as bank deposits are being redenominated, huge assets belonging to the Bundesbank and the central banks of other surplus countries (e.g. the Netherlands), which are the liabilities of the deficit countries, will disappear, causing an uproar of indignation in Germany and the Netherlands. Under such circumstances, and given the already advanced stage of the EU’s disintegration, it is almost certain that the dissolution of the Eurozone will be anything but amicable. Joe Stiglitz responded to me thus: “You are absolutely right that the moment any country contemplated leaving, capital controls would have to be imposed… The rush out will occur presumably before–when a party advocating a referendum looks like it might win.
So the hard decisions about imposing capital controls are likely to be faced ironically by a pro-Euro government. If it delays, by the time the election occurs, the country may be in shambles. The picture ahead for Europe is not a pretty one.” In conclusion, it is a fantasy to think that the EU can oversee an amicable disintegration of the Eurozone. Indeed, it is hard to imagine the EU surviving a Eurozone breakdown.
Yeah, about that EU divorce…
Luxembourg’s foreign minister has called for Hungary to be thrown out of the EU over its increasingly hostile approach to refugees, as campaigners accuse Viktor Orbán’s hardline government of whipping up xenophobia to block a European plan to relocate asylum seekers. Jean Asselborn said Hungary should be temporarily or even permanently expelled from the EU for treating asylum seekers “worse than wild animals”. In an interview with German daily Die Welt, he said: “Anyone who, like Hungary, builds fences against refugees from war or who violates press freedom and judicial independence should be excluded temporarily, or if necessary for ever, from the EU.”
Asselborn called for EU rules to be changed to make it easier to expel Hungary as this was “the only way of preserving the cohesion and values of the EU”. Hungary’s foreign affairs and trade minister Péter Szijjártó dismissed Asselborn as “an intellectual lightweight” and his comments as “sermonising, pompous and frustrated”. He said only Hungarians have the right to decide who they wish to live with, adding that no Brussels bureaucrat can deprive them of this right. In a statement issued by the Hungarian government, Szijjártó added: “It is somewhat curious that Jean Asselborn and Jean-Claude Juncker – who both come from the country of tax optimisation – speak about jointly sharing burdens. But we understand what this really means: Hungary should take on the burden created by the mistakes of others.”
This is what I have observed in Greecem, and why I support Konstantinos so strongly. His is the much better model for aid, not the massive overhead NGO one. But they get the millions, and he gets nothing, except from the Automatic Earth and a few minor other sources. NGOs have become corporations entrenched in a system that’s as expensive as it is a failure. And guess who the victims of this failure are?
The aid community has over many years developed a habit of finding reasons for why the school was not built in the Afghan village, why the women’s agricultural businesses never made any profits, why the toilets took three months to set up in the refugee camp. When it comes to our shortcomings, we have become very comfortable with, and rely upon the shopping list of excuses that we find ourselves using in Haiti, Afghanistan, Iraq, the Democratic Republic of Congo and the other contexts we’re flown into. The humanitarian excuses list includes, but is not limited to: a fragile context, ongoing war and conflict, poor infrastructure, a corrupt government, dictatorship (current or past), insufficient funding, and values that are not akin to our own.
Or if all else fails, that other favourite go-to, the overwhelming scale and number of people, such as the 1,033,513 registered Syrian refugees in Lebanon, 655,990 Syrian refugees in Jordan or 3.9 million internally displaced people in Iraq. But in Greece we are without the humanitarian excuse list to fall back on. The aid community has already received €83m to improve conditions for refugees in Greece with €214m to come from the European Commission alone in the next few months. This makes it hard to suggest we are underfunded, especially when you look at the scale of the crisis. At the time of writing, the number of refugees in Greece is approximately 60,000. The problem is not overwhelming. This time we are in an EU country.
I feel safe wherever I am – this means I can conduct a visit to monitor the impact of a programme or ensure I am consulting refugees about what they want. But I don’t, because it is something we have talked about but not done for many years, and there is little pressure to change. The disconnect between the sector’s standards and the reality on the ground is more stark here than in any other mission I’ve been involved in. We have historically been unaccountable, failing to sufficiently consult and engage affected communities. In Greece we are continuing to operate in the same ways as before, but without the traditional excuses to rely on.
Across Greece there are volunteers working both independently and as organised groups, meeting needs and filling gaps. They take over abandoned buildings to ensure refugees have somewhere to sleep, provide additional nutrition to pregnant and breastfeeding women, organise and manage informal education programmes, including setting up schools inside camps. All of this while INGO staff sip their cappuccinos in countless coordination meetings – for cash distribution, protection, water, sanitation and hygiene, food distribution and child-protection.