Raúl Ilargi Meijer

Jul 252016
 
 July 25, 2016  Posted by at 2:08 pm Finance Tagged with: , , , , , , , , ,  3 Responses »
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Warren K. Leffler Ku Klux Klan members supporting Barry Goldwater, San Francisco 1964

John McDonnell, UK Shadow Chancellor of the Treasury (at least it sounds important) appealed to his -Labour- party on Sunday morning TV to “stop trying to destroy the party”, and of course I’m thinking NO, please don’t stop, keep at it, it’s so much fun. When you watch a building collapse, you want it to go all the way, not stop somewhere in the middle and get patched up with band-aids.

It’s alright, let it crumble, it’s had its day. And if it’s any consolation, you’re not alone. Nor is that some freak coincidence. ‘Labour’-like parties (the ‘formerly left’) all over the world are disintegrating. Which is no surprise; they haven’t represented laborers for decades. They’ve become the left wing -and even that mostly in name only- of a monotone bland centrist political blob.

The other ‘half’ of that blob, the ‘conservative’ side, is disintegrating just as rapidly, as evidenced by the rise of Trump and a motley crew of Boris Johnson ilk.

The spontaneous self-immolation of the US Democratic Party mirrors that of the British Labour Party, but admittedly, it has even more entertainment value. America does entertainment like nobody else can.

In both cases, we see entire parties turn on their own candidates, it truly is a sight to behold. Especially since people like Bernie Sanders and Jeremy Corbyn are the only ones who do have a tangible connection to the people left that they represent.

One might even say Donald Trump falls in that category too, though in a slightly different way. The others, whether they are from the supposed left or right -and it really makes no difference anymore- rely on pure hubris. The WikiLeaks files on the DNC make that so clear it hurts.

And if one thing exemplifies what’s going wrong, it’s that the DNC in all its superciliousness seeks to blame the fact that there were leaks for the mess, not the content of what was leaked. And replaces one chair with another who was just as guilty as the first one of trying to bring down one of their own candidates. As the leaks show.

The reason all this high value entertainment is presented to us is that the political system is toppling over in line with the economic one. As I’ve argued before, this is inevitable, because they are one and the same system. If one part falls, so must the other. I wrote 7 weeks ago:

The Only Thing That Grows Is Debt

What we have is a politico-economic system, with the former media establishment clinging to (or inside?!) its body like some sort of embedded parasite. A diseased triumvirate.

With the economy in irreversible collapse, the politico part of the Siamese twin/triplet can no longer hold. That is what is happening. That is why all traditional political parties are either already out or soon will be. Because they, more than anything else, stand for the economic system that people see crumbling before their eyes. They represent that system, they are it, they can’t survive without it.

Of course the triumvirate tries as hard as it can to keep the illusion alive that sometime soon growth will return, but in reality this is not just another recession in some cycle of recessions. Or, at the very minimum this is a very long term cycle, Kondratieff style. And even that sounds optimistic. The system is broken, irreparably. A new system will have to appear, eventually. But…

‘Associations’ like the EU, and perhaps even the US, with all the supranational and global entities they have given birth to, NATO, IMF, World Bank, you name them, depend for their existence on an economy that grows. The entire drive towards globalization does, as do any and all drives toward centralization. But the economy has collapsed. So all this will of necessity go into reverse, even if there are very powerful forces that will resist such a development.

And here’s the graph that I said depicts very well what is the problem with the economic system, in an ‘all you need to know’ kind of way:

 

 

We’d already be well aware of what’s wrong with our economies if our governments and media hadn’t consistently lied to us about it for all these years. These lies make sense from their point of view; they’d be out of a job and out of power once they would stop lying.

Outside of the media, in people’s own experience, there is no recovery, it’s a fairy tale. And there is no growth the way stock exchanges portray, or employment numbers. You can’t lie to all of the people all of the time. Again, though, the attempts are often good for many hours of solid amusement.

Take the way a word like populist is (ab-)used. Grab a handful of names of people who’ve been labeled populist recently, like Putin, Trump, Tsipras, Varoufakis, Sanders, Corbyn, Chávez, Maduro, Morales, Le Pen, Beppe Grillo, Wilders, etc etc, and you notice they are very different people in more ways than one.

But they have one thing in common: they reject the western establishment, at least to a degree (many merely want to ‘tweak’ it). Which makes it tempting for establishment media to slap the populist label on them, because it has such a bad connotation. Courtesy of the same media, of course.

Still, that’s only mildly funny, more in a subtle kind of way. There are better ones. Where do you think these buttons, for example, find their origin?:

 

 

 

Even better, Zero Hedge and Bryan MacDonald have a nice set of ‘plagiarized’ headlines. Altogether now on the all time favorite whipping boy, Vlad V. Putin. The DNC was at him again today as well, even though by the looks of it they don’t seem to need any help at self-destructing. That’s the one thing left they’re really good at.

 


 

 

And this one here is excellent as well, taking on America’s other favorite enemy no. 1. Again, altogether:

 

 

 

Everybody thought of the word ‘dark’ at the same time! A country full of kindred spirits. Telepathy. Yeah. In China original content is now banned in the media. But China has nothing on the west. Where the system clings together to paint a picture they all want you to believe in. A kind of propaganda Putin wouldn’t dream of. And Goebbels only considered in his wildest nightmares.

These are the death throes of a system. All parts, as separate as they may seem, or want to seem, fall apart together. Maybe not at the same time, but certainly in rapid succession. Still, it’s a bit surprising to see how fast alleged journalists -and the media they work for- have turned from reporting to endless repetition of opinions, most often not even their own.

The media feel they are under threat, and for good reason. Namely, the same reason politicians are. They’ve all been painting fake pictures, and people start to see through that for the simple reason that these pictures look nothing like what goes on in their own lives.

There’s no amount of Kardashians or other Walking Dead that can change that, and unless you let people watch this stuff 24/7, they are bound to notice sooner or later.

I see people saying the system is unstable. Fine, as long as they realize it has no chance of regaining stability, not with its present components. There will have to be a big clean-up. But it will be messy. A very limited number of people, with all of their minions, control the entire now unstable edifice, and they’ll fight tooth and nail to keep their power.

Nevertheless, they’ll lose. It’s just that they’ll drag a lot of other people down with them. They’re fully prepared to go to war just to keep the illusion of power alive. The ultimate hubris.

 

 

Jul 252016
 
 July 25, 2016  Posted by at 8:54 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Theodor Horydczak Sheaffer fountain pen factory, Fort Madison, Iowa 1935


Japan’s Exports Decline for 9th Straight Month, Imports Plunge 18.8% (BBG)
Beware, Oil Bulls: Demand Is About To Fall Off A Cliff (BBG)
Peak Oil ‘Demand’ & The Duelling Narratives Of Energy Inventories (ZH)
What Happens When The Bond Bubble Finally Pops (IceCap)
With Kuroda Under Pressure To Increase Stimulus Again, Dissenters Appear (ZH)
Italy Insists There’s ‘No Banking Problem’ As Stress Tests Loom Large (CNBC)
Brexit Will Cost UK Up To $340 Billion In Lost M&A: Study (CNBC)
“Putin’s Useful Idiot”: Anyone Who Disagrees With The Establishment (ZH)
Leaked DNC Emails Reveal Inner Workings Of Party’s Finance Operation (WaPo)
Facebook Admits To Blocking Wikileaks Links In DNC Email Hack (NYP)
How Can You Join the DNC Class Action Lawsuit? (Heavy)
China Slaps Ban on Internet News Reporting as Crackdown Tightens (BBG)
Turkey Issues Arrest Warrants For 42 Journalists After Coup (AFP)
Refugee Camp Company In Australia ‘Liable For Crimes Against Humanity’ (G.)

 

 

Japan shows the exact same trend as China, huge drops in exports AND imports: world trade is collapsing. Still, Reuters’ comment today: “exports fall less than expected, offer some hope of recovery”

Japan’s Exports Decline for 9th Straight Month, Imports Plunge 18.8% (BBG)

Japan’s exports dropped again in June, with shipments down for a ninth consecutive month, underscoring the continuing challenge of reviving the nation’s economy. Overseas shipments declined 7.4% in June from a year earlier, the Ministry of Finance said on Monday. Imports slid 18.8%, leaving a trade surplus of 692.8 billion yen ($6.5 billion). Japan had a trade surplus of 1.81 trillion yen in the January-June period, the first surplus since the second half-year of 2010.

The weak exports data show that the nation’s economic recovery remains tepid and come before the Bank of Japan meets later this week to consider whether to further expand monetary stimulus. Japan’s growth is at risk as a slowdown in overseas demand and the yen’s surge this year make the nation’s products less attractive overseas and hurt the earnings of exporters. [..] Exports to the U.S. fell 6.5% in June from a year earlier, while shipments to the EU declined 0.4% and sales to China, Japan’s largest trading partner, dropped 10%.

Read more …

And this is mostly just the US.

Beware, Oil Bulls: Demand Is About To Fall Off A Cliff (BBG)

Beware, oil bulls: Just as U.S. oil production sinks low enough to drain supplies, demand is about to fall off a cliff. American gasoline consumption typically ebbs in August and September as vacationers return home, and refiners use that dip to shut for seasonal maintenance. Over the past five years, refiners’ thirst for oil has dropped an average of 1.2 million barrels a day from July to October. “People are looking ahead to the fall and are worried,” said Michael Lynch, president of Strategic Energy & Economic Research. “There’s more and more talk of prices going south of $40 and as a result people are going short.” Money managers added the most bets in a year on falling WTI crude prices during the week ended July 19, according to Commodity Futures Trading Commission data.

That pulled their net-long position to the lowest since March. WTI dropped 4.6% to $44.65 a barrel in the report week and traded at $44.14 at 11:53 a.m. Singapore time on Monday. With weekly Energy Information Administration data showing U.S. gasoline stockpiles at the highest seasonal level since at least 1990, refiners may shut sooner and for longer ahead of the Labor Day holiday in early September, the end of the driving season. “With gasoline supplies the highest since April, refiners may pull some projects forward,” said Tim Evans at Citi Futures Perspective. “This will take more support away the market and add to the broader problem of excess supply.”

Read more …

“..oil bulls counting on further declines are fighting history..”

Peak Oil ‘Demand’ & The Duelling Narratives Of Energy Inventories (ZH)

Crude oil inventories in the U.S. have fallen 23.9 million barrels since the end of April, but, as Bloomberg notes, oil bulls counting on further declines are fighting history. Over the past five years refiners’ crude demand has fallen an average of 1.2 million barrels a day from the peak in July to the low in October. “The rough part will be once refineries start going into maintenance,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management. “We aren’t drawing down inventories very fast and the pressure on prices will increase.”

But, as Alhambra Investment Partner’s jeffrey Snider notes, the significance of crude and gasoline inventory (and price) changes is the difference in narratives and what is supporting them. While there is a direct relationship between the steepness of contango in the oil futures curve and the amount of crude siphoned from the market to storage, it is not an immediate one. When crude prices originally collapsed starting in late 2014, twisting the WTI curve from backwardation to so far permanent contango (of varying degrees), it wasn’t until January 2015 that domestic inventories began their surge. And while oil prices rose through spring, flattening out again the futures curve and drastically reducing that contango, the spike in oil stocks didn’t actually end until almost the end of last April.

Given the “dollar’s” explicit seasonality, combined with the usual intra-year swings of crude itself, it isn’t surprising to find the process repeated almost exactly a year later. This time it happened in two separate events, the latter of which was a near replica of the start to 2015. The futures curve was pressed into deep contango after October 2015, and sure enough oil inventories spiked again in early January 2016. And like last year, though the futures curve would begin to flatten out again starting February 12, oil storage levels continued to build until the end of April.

Read more …

“Most investors today have no idea what is happening in the bond market and have exposed themselves to incredible amounts of risk.”

What Happens When The Bond Bubble Finally Pops (IceCap)

The 2008-09 crisis was caused by the private sector. Regardless of the reason or the assigned blame, far too many people and companies borrowed way too much money and when the bubble eventually popped (they always do), millions of people and companies lost an awful lot of money. The one important thing to know from those dark days is that governments were told (by the banks) that in order to save the world they had to save the banks. But what few people realise is that when they saved the banks, two things happened:

1. Tax payers and the most conservative investors from all over the world saved the banks – in other words, many who didn’t take the risk had to bailout those who took excessive risks. 2. The bailout and stimulus programs simply shifted the enormous debt crisis away from the private sector and straight onto the laps of the public sector. In other words, the bubble has shifted away from the PRIVATE sector to the GOVERNMENT sector. And when the government sector has a crisis, it is reflected in the GOVERNMENT BOND MARKET. To put this government bond market crisis into perspective, we offer our Chart 4 which shows a relative comparison to recent crises from the private sector.

To really understand how serious of a problem this is, just know that a mere 1% rise in long-term interest rates, will create losses of approximately $2 Trillion for bond investors. The fun really starts when long-term yields increase by 3%, and then 6% and then 10%. This is the point when certain government bonds simply stop trading altogether, and losses pile up at 50%-75%. When long-term rates decline, it is usually in a gradual trending manner – such as what we are experiencing today. For those of you shaking your heads in disagreement, we kindly suggest you research your history of long-term interest rates.

However, when long-term rates go higher – it is an explosive move. Long-term rates ratchet up VERY quickly making the sudden loss instant, while exponentially increasing the funding cost of the borrower. Most investors today have no idea what is happening in the bond market today and have exposed themselves to incredible amounts of risk. And more importantly, because a global crisis in the government bond market has never occurred in our lifetime – advisors, financial planners and big banks continue the tradition of telling their clients that bonds are safer than stocks. As a result, the most conservative investors in the word remain heavily invested in the bond market and are therefore smack dab in the middle of the riskiest investment they’ll ever see. Chaotic indeed.

Read more …

“Not unlike the Fed, it is clear that the BOJ is trapped in its own end game.”

With Kuroda Under Pressure To Increase Stimulus Again, Dissenters Appear (ZH)

With what little credibility it still has, the Bank of Japan is set to meet this week and likely agree on the size of yet another stimulus package for the economy. Prime Minister Abe’s main economic advisor Etsuro Honda recently detailed in an interview that the BOJ should increase its Qualitative and Quantitative Monetary Easing (QQE) program from ¥80 trillion to ¥90 trillion. In addition, there has been growing speculation regarding coordinated fiscal and monetary stimulus. The fiscal stimulus efforts are not expected to be unveiled until August, according to the WSJ. Expectations point to a “multiyear program valued at ¥20 trillion ($188 billion), including direct spending, government loans and public-private financing.”

Perhaps more interesting, this time, Kuroda may have a difficult time convincing the 8 remaining members of the monetary board. As the Journal notes, “other BOJ officials are signaling a reluctance to act, underscoring questions about whether the central bank has reached the limits of its powers to revive Japan’s economy. They note that monetary policy is already extremely accommodative, with bond yields and interest rates at or near record lows, and express doubts that additional easing would make fiscal stimulus much more effective, according to people familiar with the central bank’s thinking.” As core metrics and corporate expectations of inflation plummet, Kuroda’s promise to do “whatever it takes” to reach 2% inflation seems to be under significant threat.

Doing nothing now would “amount to an admission that the BOJ’s monetary policy has reached its limits—it wants to move, but it can’t,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance. Not unlike the Fed, it is clear that the BOJ is trapped in its own end game. As Kyle Bass recently told CNBC, “The textbooks aren’t working for the academics … I fear they’re going to have to go into some sort of jubilee where the central bank just forgives the debt that they own…I don’t know what happens to the yield curve then. The unconventional policies aren’t working, so they’re going to have to go to unconventional, unconventional policies next. I don’t know where that takes them.”

Read more …

“There is no banking problem in Italy..” There’s only €360 billion in bad loans…

Italy Insists There’s ‘No Banking Problem’ As Stress Tests Loom Large (CNBC)

Top finance officials in Italy have moved to play down the issues the country’s banking industry is facing, just days ahead of crucial stress tests by the ECB. Speaking on the outskirts of a G20 finance leaders meeting in Chengdu, China, Italy’s Finance Minister, Pier Carlo Padoan, told CNBC that the Italian banks “do not need [a] rescue.” “There is no banking problem in Italy, it’s one particular case which is being dealt with … I’m confident this will be successful,” he said Sunday, highlighting issues at Monte dei Paschi (BMPS). That institution is thought to be the weakest link among lenders in the euro zone’s third-largest economy. Italian policymakers and EU officials have been trying to deal with its fragile banking system, bogged down by non-performing loans (NPLs) estimated to total €360 billion.

Reports had suggested that Matteo Renzi, the Italian prime minister, is hoping to bailout the banking sector, which would contravene EU rules. Such a solution would stand in contrast to a bondholder “bail-in,” as Italian households are heavily exposure to the asset class. These reports have since been denied. These problems in Italy have roiled stock markets in the past few weeks, alongside the uncertainty following the British vote to leave the European Union. Shares of BMPS have been particularly volatile. However, Padoan told CNBC that this particular bank had put in place a “very effective restructuring plan” and said there had been a widespread misunderstanding of the whole industry. “(Italian banks are) not more vulnerable than they used to be. They have been strengthening over time due to reforms that have been introduced by the government,” he added.

Read more …

It will cost the global economy $1.6 trillion if companies don’t go deeper into debt to buy each other… Completely empty rhetoric.

Brexit Will Cost UK Up To $340 Billion In Lost M&A: Study (CNBC)

The Brexit vote will cost the U.K. up to $338 billion in lost merger-and-acquisition (M&A) activity by 2020 and the global economy up to $1.6 trillion, law firm Baker & McKenzie said on Monday. “An active M&A market is all about confidence and credibility,” Michael DeFranco, global chair of M&A at Baker & McKenzie, said in a report. “To restore that confidence the U.K. government will need to get to grips with the enormous challenge of negotiating a new trading relationship with the EU as quickly as practically possible. Otherwise we move into more dangerous territory,” he added. The forecasts above are based on an adverse scenario where Brexit incites growing populism in mainland Europe and undermines EU support among remaining members.

In Baker & McKenzie’s central forecast, Brexit still knocks $239 billion off U.K. M&A activity by 2020 and $409 billion off global volumes. In 2017 alone, U.K. M&A transactions are seen falling by 33%. “In the last few days we have seen evidence that the M&A market in the U.K. won’t come to a crashing halt even if it won’t be at its previous pace,” Tim Gee, London M&A partner at Baker & McKenzie, said. “There are still plenty of buyers and sellers for the right deal at the right price. There are already some clear upsides — global organizations looking to acquire U.K. companies will find that a weaker pound makes U.K. valuations more attractive, although the uncertainty surrounding trade negotiations could deter the more risk averse,” he added.

Read more …

Hilarious.

“Putin’s Useful Idiot”: Anyone Who Disagrees With The Establishment (ZH)

This weekend we once again got confirmation that any time the generic narrative spectacularly falls apart, and the “establishment” is caught with its pants down (or, in the case of the DNC, engaging in borderline election fraud leading to what the FT just described as “Democrats in turmoil“) what does it do? Why blame Putin of course, and more specifically his “useful idiots”, and hope the whole thing blows over quickly.

Not convinced? Here is the proof.

 

And of course:

Read more …

So sad it’s funny. Hubris rules.

Leaked DNC Emails Reveal Inner Workings Of Party’s Finance Operation (WaPo)

In the rush for big donations to pay for this week’s Democratic convention, a party staffer reached out to Tennessee donor Roy Cockrum in May with a special offer: the chance to attend a roundtable discussion with President Obama. Cockrum, already a major Democratic contributor, was in. He gave an additional $33,400. And eight days later, he was assigned a place across the table from Obama at the Jefferson Hotel in downtown Washington, according to a seating chart sent to the White House. The 28-person gathering drew rave reviews from the wealthy party financiers who attended. “Wonderful event yesterday,” New York lawyer Robert Pietrzak wrote to his Democratic National Committee contact. “A lot of foreign policy, starting with my question on China. The President was in great form.”

The details of the high-dollar event were captured in the trove of internal DNC emails released last week by the site WikiLeaks that has riled the party as delegates gather in Philadelphia to nominate Hillary Clinton. Internal discussions of the May 18 event with Obama and other aggressive efforts to woo major donors reveal how the drive for big money consumes the political parties as they scramble to keep up in the age of super PACs. The DNC emails show how the party has tried to leverage its greatest weapon — the president — as it entices wealthy backers to bankroll the convention and other needs. At times, DNC staffers used language in their pitches to donors that went beyond what lawyers said was permissible under a White House policy designed to prevent any perception that special interests have access to the president.

Read more …

Facebook plays multiple questionable roles these days. This is an ugly one.

Facebook Admits To Blocking Wikileaks Links In DNC Email Hack (NYP)

Facebook admitted Sunday that it had blocked links to the Wikileaks trove of emails hacked from the Democratic National Committee. In a Twitter post late Saturday, WikiLeaks accused the social media giant of “censorship” and gave its followers an online workaround, saying “try using https://archive.is.” The WikiLeaks allegation followed a firestorm of controversy that erupted earlier this year when former Facebook workers admitted routinely suppressing conservative news. In response to the WikiLeaks charge, another Twitter user, @SwiftOnSecurity, chimed in that “Facebook has an automated system for detecting spam/malicious links, that sometimes have false positives,” which prompted a response from the company’s chief security officer. “It’s been fixed,” Facebook CSO Alex Stamos tweeted.

Read more …

“..retribution for monetary donations to Sanders’ campaign..” That would be some $220 million?!

How Can You Join the DNC Class Action Lawsuit? (Heavy)

With news about the WikiLeaks dump showing the Democratic National Committee working to push Hillary Clinton’s nomination rather than remaining neutral, there may be more evidence than ever for a class action lawsuit that has been filed against the Democratic National Committee. But how can you join the fraud lawsuit? There’s still time and we have all the details below. Here’s what you need to know. So far, thousands of Bernie Sanders supporters and other voters have requested to join DNC class action lawsuit, which is being led by Beck & Lee Trial Lawyers, a civil litigation firm based in Miami. The lawsuit is based on DNC internal emails hacked by Guccifer 2.0 which show the DNC was working behind the scenes to boost Clinton.

These emails show that work starting as early as May 2015, a month after Sanders had entered the race. Jared Beck told US Uncut that Article 5 Section 4 of the Democratic Party charter and bylaws requires the chair of the DNC to stay neutral during the primaries: “In the conduct and management of the affairs and procedures of the Democratic National Committee, particularly as they apply to the preparation and conduct of the Presidential nomination process, the Chairperson shall exercise impartiality and evenhandedness as between the Presidential candidates and campaigns. The Chairperson shall be responsible for ensuring that the national officers and staff of the Democratic National Committee maintain impartiality and evenhandedness during the Democratic Party Presidential nominating process.”

[..] Beck said there were six claims to the case. The first is fraud against the DNC and Wasserman Schultz, stating that they broke legally binding agreements by strategizing for Clinton. The second is negligent misrepresentation. The third is deceptive conduct by claiming they were remaining neutral when they were not. The fourth is retribution for monetary donations to Sanders’ campaign. The fifth is that the DNC broke its fiduciary duties during the primaries by not holding a fair process. And the sixth is for negligence, claiming that the DNC did not protect donor information from hackers.

Read more …

“..can only carry reports provided by government-controlled print or online media..”

China Slaps Ban on Internet News Reporting as Crackdown Tightens (BBG)

China’s top internet regulator ordered major online companies including Sina and Tencent to stop original news reporting, the latest effort by the government to tighten its grip over the country’s web and information industries. The Cyberspace Administration of China imposed the ban on several major news portals, including Sohu.com and NetEase, Chinese media reported in identically worded articles citing an unidentified official from the agency’s Beijing office. The companies have “seriously violated” internet regulations by carrying plenty of news content obtained through original reporting, causing “huge negative effects,” according to a report that appeared in The Paper on Sunday.

The agency instructed the operators of mobile and online news services to dismantle “current-affairs news” operations on Friday, after earlier calling a halt to such activity at Tencent, according to people familiar with the situation. Like its peers, Asia’s largest internet company had developed a news operation and grown its team. Henceforth, they and other services can only carry reports provided by government-controlled print or online media, the people said, asking not to be identified because the issue is politically sensitive.
The sweeping ban gives authorities near-absolute control over online news and political discourse, in keeping with a broader crackdown on information increasingly distributed over the web and mobile devices. President Xi Jinping has stressed that Chinese media must serve the interests of the ruling Communist Party.

Read more …

China, Turkey, good thing there’s the internet.

Turkey Issues Arrest Warrants For 42 Journalists After Coup (AFP)

Turkish authorities have issued arrest warrants for 42 journalists as part of the investigation into the failed coup aimed at toppling President Recep Tayyip Erdogan, television news channels said Monday. Among those targeted by the warrants were prominent journalist Nazli Ilicak who was fired from the pro-government Sabah daily in 2013 for criticising ministers caught up in a corruption scandal, NTV and CNN-Turk said. There was no indication any of the journalists had been detained so far. The government blamed the 2013 corruption scandal on the US-based cleric Fethullah Gulen who it also accuses of being behind the coup.

The Hurriyet daily said that the warrants – the first to target several members of the press in the crackdown over the failed July 15 coup bid – were issued by the office of Istanbul anti-terror prosecutor Irfan Fidan. The prosecutor said an operation was already in progress to detain the journalists but Ilicak was not found at home in Istanbul and could be holidaying on the Aegean. Provincial police there have been alerted, it said. Erdogan’s government had been under fire even before the coup for restricting press freedoms in Turkey, accusations the authorities strongly deny.

Read more …

It’s the government, parliament, all the individuals that make up these institutions, that should be held accountable.

Refugee Camp Company In Australia ‘Liable For Crimes Against Humanity’ (G.)

The company that has taken over the management of Australia’s offshore immigration detention regime has been warned by international law experts that its employees could be liable for crimes against humanity. Spanish infrastructure corporation Ferrovial, which is owned by one of the world’s richest families and the major stakeholder in Heathrow airport, has been warned by professors at Stanford Law School that its directors and employees risk prosecution under international law for supplying services to Australia’s camps on Nauru and Manus Island in Papua New Guinea.

“Based on our examination of the facts, it is possible that individual officers at Ferrovial might be exposed to criminal liability for crimes against humanity under the Rome Statute,” said Diala Shamas, a clinical supervising attorney at the International Human Rights and Conflict Resolution Clinic at Stanford Law School. “We have raised our concerns with Ferrovial in a private communication to their officers and directors detailing our findings. We have yet to hear back.” Shamas said her colleagues’ findings should be a warning to any company or country seeking to replicate Australia’s refugee policies elsewhere. “One of the things that we and our partners are concerned about is the timing of all of this,” said Shamas, who also worked in conjunction with the Global Legal Action Network.

[..] The NBIA executive director, Shen Narayanasamy, told the Guardian that Ferrovial’s complicity in the abuses on Nauru and Manus was “incredibly cut-and-dried under international law”. “There is no shadow of a doubt that gross human rights violations are occurring, no shadow of a doubt that Ferrovial is complicit,” she said. “The risk to Ferrovial is essentially the annihilation of its reputation. As a company that relies upon contracting with governments for service provision, they put at risk all of their contracts, and all of the future contracts they hope to win. They put at risk all of their ratings, all of their client relationships – people will assess that they are too controversial, too unethical to have a relationship with, and they could see large institutional investors divesting.”

NBIA links the Pacific Ocean camps to the 22 mainly European banks that fund Ferrovial’s activities, and six European and American investment funds that own shares in the company. Twenty-two mainly European banks – many of them household names – have jointly provided Ferrovial with a €1.25bn (£1bn) loan for general corporate purposes. The banks include Barclays, RBS, Santander, HSBC, Goldman Sachs, BNP Paribas, Citigroup, JP Morgan Chase – as well as Instituto de Crédito Oficial, a bank owned by the Spanish state. The other banks are Banca IMI (Intesa Sanpaolo), Banco Sabadell, Banco Popular Español, Bank of America, Bankinter, BBVA, Crédit Agricole, Deutsche, Mediobanca, Mizuho, Morgan Stanley, Société Générale, and the Royal Bank of Canada.

Read more …

Jul 242016
 
 July 24, 2016  Posted by at 9:25 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Milton Greene “Actress Marilyn Monroe in bed” 1955


China’s Growth Sucks In More Debt Bucks For Less Bang (R.)
G20 Will Use ‘All Policy Tools’ To Protect Growth As Brexit Looms (R.)
OECD’s Gurria Says No Other EU Country Will Consider Exit After Brexit (CNBC)
EU Considers Migration ‘Emergency Brake’ For UK For Up To 7 Years (O.)
Mortgages Issued By Greek Banks Declined 99% In Past Decade (Kath.)
5 Reasons Why Trump Will Win (Michael Moore)
Trump Policy Will Unravel Traditional Neocons – Michael Hudson (RNN)
WikiLeaks Trove Plunges Democrats Into Crisis On Eve Of Convention (SMH)
DNC Chair Won’t Speak At Dem Convention Following WikiLeaks Fallout (CNN)
Imagine How The Land Feels (G.)

 

 

Reuters says: “..this year it has taken six yuan for every yuan of growth,[..] twice even the level in the United States during the debt-fueled housing bubble..”

That’s questionable. ZH in 2013: “..over the past five years in the developed world, it took $18 dollars of debt (of which 28% was provided by central banks) to generate $1 of growth..”

China’s Growth Sucks In More Debt Bucks For Less Bang (R.)

As China’s economy notches up another quarter of steady growth, the pace of credit creation grows ever more frantic for every extra unit of production, as inefficient state firms swallow an increasing share of lending. The world’s second-largest economy grew 6.7% in the first half of the year, unchanged from the first quarter, testament to policymakers’ determination to regulate the pace of slowdown after 25 years of breakneck expansion. Analysts say that determination has come at the cost of a damngerous rise in debt, which is six times less effective at generating growth than a few years ago. “The amount of debt that China has taken in the last 5-7 years is unprecedented,” said Morgan Stanley’s head of emerging markets, Ruchir Sharma, at a book launch in Singapore.

“No developing country in history has taken on as much debt as China has taken on on a marginal basis.” While Beijing can take comfort that loose money and more deficit spending are averting a more painful slowdown, the rapidly diminishing returns from such stimulus policies, coupled with rising defaults and non-performing loans, are creating what Sharma calls “fertile (ground) for some accident to happen”. From 2003 to 2008, when annual growth averaged more than 11%, it took just one yuan of extra credit to generate one yuan of GDP growth, according to Morgan Stanley calculations. It took two for one from 2009-2010, when Beijing embarked on a massive stimulus program to ward off the effects of the global financial crisis.

The ratio had doubled again to four for one in 2015, and this year it has taken six yuan for every yuan of growth, Morgan Stanley said, twice even the level in the United States during the debt-fueled housing bubble that triggered the global crisis. Total bond debt in China is up over 50% in the past 18 months to 57 trillion yuan ($8.5 trillion), equal to around 80% of GDP, and new total social financing, the widest measure of credit provided by China’s central bank, rose 10.9% in the first half of 2016 to 9.75 trillion yuan. China’s money supply has increased in tandem with new lending, and at 149 trillion yuan is now 73% higher than in the US, an economy about 60% larger. “China is the largest money printer in the world – they have been for some time. The balance is really extreme,” says Kevin Smith, CEO of U.S.-based Crescat Capital.

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Ionesco and Samuel Beckett were ahead of their time, but we’re catching up with them. Words lose ever more meaning. Example are this article, but also this WSJ headline: “Hillary Clinton Introduces Tim Kaine as ‘a Progressive Who Likes to Get Things Done'”. That may have sounded lofty even just 20 years ago, but today it’s just meaningless, if not outright repulsive.

G20 Will Use ‘All Policy Tools’ To Protect Growth As Brexit Looms (R.)

Leaders from the world’s biggest economies are poised on Sunday to renew their commitments to support global growth and better coordinate actions in the face of uncertainty over Britain’s decision to leave the EU and growing protectionism. The meeting of finance ministers and central bankers from the Group of 20 major economies in China’s southwestern city of Chengdu is the first of its kind since last month’s Brexit vote and a debut for Britain’s new finance minister. Philip Hammond faced questions about how quickly the UK planned to move ahead with formal negotiations to leave the EU. “We are taking actions to foster confidence and support growth,” a draft statement by the policymakers seen by Reuters said.

“In light of recent developments, we reiterate our determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable and balanced growth,” it said. The IMF this week cut its global growth forecasts because of the Brexit vote. Data on Friday seemed to bear out fears, with a British business activity index posting its biggest drop in its 20-year history. The draft communique, expected to be issued at the end of the meeting on Sunday afternoon, said Brexit added to uncertainty in the global economy but G20 members were “well positioned to proactively address the potential economic and financial consequences”.

U.S. Treasury Secretary Jack Lew said on Saturday it was important for G20 countries to boost shared growth using all policy tools, including monetary and fiscal policies as well as structural reforms, to boost efficiency. “This is a time when it is important for all of us to redouble our efforts to use all of the policy tools that we have to boost shared growth,” Lew told reporters.

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He’ll find out yet.

OECD’s Gurria Says No Other EU Country Will Consider Exit After Brexit (CNBC)

Countries in the European Union are unlikely to consider an exit from the bloc once they realize how complicated, costly and disruptive the process will be for the United Kingdom, the secretary general of the Organization for Economic Cooperation and Development (OECD) told CNBC on Saturday. “Nobody in their right mind will even attempt or even think of leaving the European Union because they will understand that it is not in their best interest,” Angel Gurria told CNBC before the start of the G-20 finance ministers and central bank governors meeting in Chengdu, China.

Gurria had recommended against the Brexit vote, but says the next step should be helping the U.K. and its partners through the proceedings in the least costly and least disruptive way. On the Italian banking crisis and whether the EU should rescue the country’s third largest bank, Monte dei Paschi di Siena, Gurria said that “national, regional and EU intervention is necessary”. However, the challenge is to define who is going to be doing what, he added. Rome is bracing for the results of critical bank stress tests that are due on July 29 and is hoping to find a solution for the battered bank ahead of that.

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Mere days after everyone said there could be no pre-Brexit discussions with the UK, of course there’s things like this anyway.

EU Considers Migration ‘Emergency Brake’ For UK For Up To 7 Years (O.)

Plans to allow the United Kingdom an exemption from EU rules on freedom of movement for up to seven years while retaining access to the single market are being considered in European capitals as part of a potential deal on Brexit. Senior British and EU sources have confirmed that despite strong initial resistance from French president François Hollande in talks with prime minister Theresa May last week, the idea of an emergency brake on the free movement of people that would go far further than the one David Cameron negotiated before the Brexit referendum is being examined.

If such an agreement were struck, and a strict time limit imposed, diplomats believe it could go a long way towards addressing concerns of the British people over immigration from EU states, while allowing the UK full trade access to the European market. While the plan will prove highly controversial in many member states, including France, Poland and other central and eastern European nations, the attraction is that it would limit the economic shock to the EU economy from Brexit by keeping the UK in the single market, and lessen the political damage to the European project that would result from complete divorce.

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Sales only to those with deep pockets. The rest of the world buys up Greece.

Mortgages Issued By Greek Banks Declined 99% In Past Decade (Kath.)

Cash was the preferred from of payment for the few people who decided to purchase real estate in the first half of the year in Greece, bank officials have suggested. Converging estimates by bank officials contacted by Kathimerini show that eight out of 10 property buyers opted for the transfer of cash between deposit accounts instead of a loan, a trend that started with the imposition of capital controls by the government just over a year ago and continues to date. The same trend is also dominant in consumer credit.

According to data compiled by Kathimerini, the new loans issued in H1 came to €75 million in mortgage credit across the banking system and to €150 million in consumer credit. This sum constitutes a historic low for the last few decades at least. Comparisons with a decade ago are staggering: The number of mortgages issued in January-June 2016 – also affected by the lawyers’ strike – came to just 800, against about 80,000 in the same period in 2006. A Bank of Greece analysis recently said that the course of loans to households is mainly determined by demand, and in the last couple of years the drop in house prices has played a decisive role in the reduction of loan issues.

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Well argued. But as Moore himself also argues, that’s a problem, not a winner.

5 Reasons Why Trump Will Win (Michael Moore)

Friends: I am sorry to be the bearer of bad news, but I gave it to you straight last summer when I told you that Donald Trump would be the Republican nominee for president. And now I have even more awful, depressing news for you: Donald J. Trump is going to win in November. This wretched, ignorant, dangerous part-time clown and full time sociopath is going to be our next president. President Trump. Go ahead and say the words, ‘cause you’ll be saying them for the next four years: “PRESIDENT TRUMP.” Never in my life have I wanted to be proven wrong more than I do right now. I can see what you’re doing right now. You’re shaking your head wildly – “No, Mike, this won’t happen!”

Unfortunately, you are living in a bubble that comes with an adjoining echo chamber where you and your friends are convinced the American people are not going to elect an idiot for president. You alternate between being appalled at him and laughing at him because of his latest crazy comment or his embarrassingly narcissistic stance on everything because everything is about him. And then you listen to Hillary and you behold our very first female president, someone the world respects, someone who is whip-smart and cares about kids, who will continue the Obama legacy because that is what the American people clearly want! Yes! Four more years of this! You need to exit that bubble right now. You need to stop living in denial and face the truth which you know deep down is very, very real.

Trying to soothe yourself with the facts – “77% of the electorate are women, people of color, young adults under 35 and Trump cant win a majority of any of them!” – or logic – “people aren’t going to vote for a buffoon or against their own best interests!” – is your brain’s way of trying to protect you from trauma. Like when you hear a loud noise on the street and you think, “oh, a tire just blew out,” or, “wow, who’s playing with firecrackers?” because you don’t want to think you just heard someone being shot with a gun. It’s the same reason why all the initial news and eyewitness reports on 9/11 said “a small plane accidentally flew into the World Trade Center.” We want to – we need to – hope for the best because, frankly, life is already a shit show and it’s hard enough struggling to get by from paycheck to paycheck. We can’t handle much more bad news. So our mental state goes to default when something scary is actually, truly happening.

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The attempts to link Trump to Russia have become a sort of hilarious boomerang.

Trump Policy Will Unravel Traditional Neocons – Michael Hudson (RNN)

On Friday, just after the RNC wrapped up with its presidential candidate, Donald Trump, Paul Krugman of the New York Times penned an article titled “Donald Trump: The Siberian Candidate.” He said in it, if elected, would Donald Trump be Vladimir Putin’s man in the White House? Krugman himself is worried as ludicrous and outrageous as the question sounds, the Trump campaign’s recent behavior has quite a few foreign policy experts wondering, he says, just what kind of hold Mr. Putin has over the Republican nominee, and whether that influence will continue if he wins. Well, let’s unravel that statement with Michael Hudson. [..] So let’s take a look at this article by Paul Krugman. Where is he going with this analysis about the Siberian candidate?

HUDSON: Well, Krugman has joined the ranks of the neocons, as well as the neoliberals, and they’re terrified that they’re losing control of the Republican Party. For the last half-century the Republican Party has been pro-Cold War, corporatist. And Trump has actually, is reversing that. Reversing the whole traditional platform. And that really worries the neocons. Until his speech, the whole Republican Convention, every speaker had avoided dealing with economic policy issues. No one referred to the party platform, which isn’t very good. And it was mostly an attack on Hillary. Chants of “lock her up.” And Trump children, aimed to try to humanize him and make him look like a loving man.

But finally came Trump’s speech, and this was for the first time, policy was there. And he’s making a left run around Hillary. He appealed twice to Bernie Sanders supporters, and the two major policies that he outlined in the speech broke radically from the Republican traditional right-wing stance. And that is called destroying the party by the right wing, and Trump said he’s not destroying the party, he’s building it up and appealing to labor, and appealing to the rational interest that otherwise had been backing Bernie Sanders.

So in terms of national security, he wanted to roll back NATO spending. And he made it clear, roll back military spending. We can spend it on infrastructure, we can spend it on employing American labor. And in the speech, he said, look, we don’t need foreign military bases and foreign spending to defend our allies. We can defend them from the United States, because in today’s world, the only kind of war we’re going to have is atomic war. Nobody’s going to invade another country. We’re not going to send American troops to invade Russia, if it were to attack. So nobody’s even talking about that. So let’s be realistic.

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Well, I said a long time ago that Clinton would not be electable. There’ll be much more of this released while the convention takes place.

WikiLeaks Trove Plunges Democrats Into Crisis On Eve Of Convention (SMH)

On the eve of the convention at which Hillary Clinton is to be confirmed as presidential candidate, the Democratic Party has been plunged into crisis – the US media is brimful of ugly and embarrassing stories from within the party’s head office, all based on 20,000 emails dropped on Friday evening by the anti-secrecy group WikiLeaks. The correspondence seems to confirm allegations by the campaign of defeated Senator Bernie Sanders that the Democratic National Committee was actively rooting for Mrs Clinton to win, a revelation that will most likely serve as a wedge between the two camps and make it even more difficult for her to persuade Sanders voters to support her.

The emails also reveal plotting within the DNC to embarrass Republican candidate Donald Trump, including drafting a fake ad to recruit “hot women” to work for him. Bad as this trove of emails is, it could presage something much worse. A brief introduction to the emails, that were released on Twitter with a link to a webpage, described them as “part one of our new Hillary Leaks series”. Naming key DNC officials, the introduction says how many of the emails came from each, including communications director Luis Miranda (10,770 emails), national finance director Jordon Kaplan (3797 emails), and finance chief of staff Scott Comer. The emails are dated through the five months to May 25, 2016.

Several of the emails address efforts to embarrass or to wrong-foot the Sanders campaign, which began almost as a non-event but surged with young voter support in particular to become a serious and determined challenger to Mrs Clinton. One email suggests that Senator Sanders be questioned on his faith, in the hope of revealing him as an atheist. It reads: “Does he believe in a God. He had skated on saying he has a Jewish heritage. I think I read he is an atheist. This could make several points difference with my peeps. My Southern Baptist peeps would draw a big difference between a Jew and an atheist.”

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“She’s been quarantined..” She should be under investigation.

DNC Chair Won’t Speak At Dem Convention Following WikiLeaks Fallout (CNN)

The head of the Democratic National Committee will not speak at the party’s convention next week, a decision reached by party officials Saturday after emails surfaced that raised questions about the committee’s impartiality during the Democratic primary. Debbie Wasserman Schultz, whose stewardship of the DNC has been under fire through most of the presidential primary process, will not have a major speaking role in an effort “to keep the peace” in the party, a Democrat familiar with the decision said. The revelation comes following the release of nearly 20,000 emails.

One email appears to show DNC staffers asking how they can reference Bernie Sanders’ faith to weaken him in the eyes of Southern voters. Another seems to depict an attorney advising the committee on how to defend Hillary Clinton against an accusation by the Sanders campaign of not living up to a joint fundraising agreement. Wasserman Schultz is expected to gavel the convention in and out, but not speak in the wake of the controversy surrounding the leaked emails, a top Democrat said. “She’s been quarantined,” another top Democrat said, following a meeting Saturday night.

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Love it. Not so much the part of how to get nature into a novel, but the idea itself. The world is alive. These fierce looking hunters singing to the land, the forest. And the land singing back:

“The place itself, in which their people had lived for millennia, was not an inanimate “environment”, a mere backdrop for human activity. It was part of that activity. It was a great being, and to live as part of it was to be in a constant exchange with it. And so they sang to it; sometimes, it sang back.”

Imagine How The Land Feels (G.)

We had climbed, slowly, to a high mountain ridge. We were two young Englishmen who were not supposed to be here – journalism was forbidden – and four local guides, members of the Lani tribe. Our guides were moving us around the highlands of West Papua, taking us to meet people who could tell us about their suffering at the hands of the occupying Indonesian army. The mountain ridge was covered in deep, old rainforest, as was the rest of the area we had walked through. This forest, to the Lani, was home. In the forest they hunted, gathered food, built their homes, lived. It was not a recreation or a resource: there was nothing romantic about it, nothing to debate. It was just life.

Now, as we reached the top of the ridge, a break in the trees opened up and we saw miles of unbroken green mountains rolling away before us to the horizon. It was a breathtaking sight. As I watched, our four guides lined up along the ridge and, facing the mountains, they sang. They sang a song to the forest whose words I didn’t understand, but whose meaning was clear enough. It was a song of thanks; of belonging. To the Lani, I learned later, the forest lived. This was no metaphor. The place itself, in which their people had lived for millennia, was not an inanimate “environment”, a mere backdrop for human activity. It was part of that activity. It was a great being, and to live as part of it was to be in a constant exchange with it. And so they sang to it; sometimes, it sang back.

When European minds experience this kind of thing, they are never quite sure what to do with it. It’s been so long since we had a sense that we dwelled in a living landscape that we don’t have the words to frame what we see. Too often, we go in one of two directions, either sentimentalising the experience or dismissing it as superstition. To us, the wild places around us (if there are any left) are “resources” to be utilised. We argue constantly about how best to use them – should we log this forest, or turn it into a national park? – but only the bravest or the most foolish would suggest that this might not be our decision to make.

To modern people, the world we walk through is not an animal, a being, a living presence; it is a machine, and our task is to learn how it works, the better to use it for our own ends. The notion that the non-human world is largely inanimate is often represented as scientific or rational, but it is really more like a modern superstition. “It is just like Man’s vanity and impertinence,” wrote Mark Twain, “to call an animal dumb because it is dumb to his dull perceptions.” We might say the same about a forest; and science, interestingly, might turn out to be on our side.

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Jul 232016
 
 July 23, 2016  Posted by at 9:30 am Finance Tagged with: , , , , , ,  7 Responses »
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Jack Delano Conductor picks up message from operator on the Atchison, Topeka & Santa Fe 1943


Britain’s Economy Shrinking At Fastest Rate Since 2009 (G.)
Chinese Companies are Turning Japanese (BBG)
Lagarde Seen Likely to Avoid Jail Time, Keep IMF Job Amid Trial (BBG)
The Great Period of Instability (G&M)
Inequality: The Nexus of Wealth and Debt (Coppola)
The Rise and Fall of the Petrodollar System (Grass)
Trumped! A Nation On The Brink Of Ruin (David Stockman)
Nearly 3,000 Dead In Mediterranean Already This Year (R.)

 

 

The fear campaign still works like a charm.

Britain’s Economy Shrinking At Fastest Rate Since 2009 (G.)

The Bank of England and the Treasury are under increasing pressure to prevent Britain from sliding into recession after a wide-ranging health check of the economy completed since the referendum showed the sharpest downturn in activity since the peak of the financial crisis seven years ago, Service industries ranging from banks to restaurants, hedge funds, bars, gyms and hairdressers were all affected by what was described as as a “dramatic deterioration” in business confidence that suggests the economy is on course to shrink by 0.4% in the third quarter unless conditions improve. The City now expects the Bank to deliver a package of immediate support – including a cut in interest rates and a resumption of its quantitative easing programme – when its monetary policy committee meets early next month.

Philip Hammond, the new chancellor, admitted that confidence had been dented by the surprise of Brexit vote and dropped a broad hint that he was contemplating spending increases and tax cuts for his autumn statement. In the first major survey of business activity and confidence since the referendum on 23 June, the services sector was particularly hard hit, showing its biggest drop on record. Manufacturing dropped to its lowest level since February 2013, according to Markit, which compiles the data in its purchasing managers’ index (PMI). The composite index, which measures both services and manufacturing, fell from 52.4 in June to 47.7 – an 87-month low. Anything below 50 signals a contraction in activity.

The services index dropped from 52.3 in June to 47.4, an 88-month low, while manufacturing fell from 52.1 in June to 49.1. Chris Williamson, the chief economist at Markit, said: “July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early 2009.

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Private investment in fixed assets has collapsed. From 20% to 2%. Imagine what the government must do to fill the gap.

Chinese Companies are Turning Japanese (BBG)

Chinese companies are swimming in cheap cash. Problem is, they’re not spending it. A reluctance to invest is frustrating policy makers after they unleashed a wave of cheap credit in an effort to stoke growth. Rather than build new plants or hire additional staff, corporates are opting to park money at the bank – or send it overseas through buying foreign assets. Known as the so called “liquidity trap,” it’s a problem not unlike the experience in Japan where weak business confidence and a reluctance to invest is also holding back the economy. “Cash-rich Chinese companies are searching for offshore investment, just as the Japanese did in the late 1980s due partly to the strength of the yen in the aftermath of the ‘Plaza Accord’,” ANZ bank economists led by Raymond Yeung wrote in a note.

China’s two main money supply gauges continued to diverge in June. M1, which includes currency in circulation and bank deposits, surged 24.6 percent in June from a year earlier, the biggest increase in six years. The broader M2, which also includes savings deposits, increased 11.8 percent. That was flat from May and below the government’s 13 percent annual target. The divergence has raised eyebrows given the main driver behind M1 since mid-2015 has been a demand for deposits by corporates. While healthier balance sheets offer a buffer to debt-burdened companies, the bigger worry is that these companies are reluctant to spend on expanding new capacity.

In a note titled “The Caution of Chinese Corporations,” Thomas Gatley of consulting firm Gavekal Dragonomics highlighted that companies are raising new cash to either hoard it or make financial investments because they expect “a further slowdown in demand for their products, so there is little need to expand production capacity or other fixed assets.” Weak private investment data underscores the observation. Private investment slumped to 2.8 percent in the six months ended in June from a rate of more than 20 percent two years ago.

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She handed $300 million in taxpayers’ funds to a buddy. That’s all. Slap that wrist!

Lagarde Seen Likely to Avoid Jail Time, Keep IMF Job Amid Trial (BBG)

Christine Lagarde is likely to avoid jail time and keep her job as head of the IMF after she was ordered to stand trial in France on charges that carry a potential prison term. Lagarde, 60, on Friday lost a bid to challenge a December decision to be tried for alleged negligence during her time as French finance minister that paved the way for a massive government payout to tycoon Bernard Tapie. The specialized panel that will hear Lagarde’s case has previously found ministers guilty without having them actually serve time in prison. The panel’s record and Lagarde’s strong support from IMF member nations amid the long-running case mean there’s little chance that it will amount to more than a distraction from her role leading the world’s lender of last resort.

No date has been set yet for the trial, which is expected to last about a week. “I don’t think anybody really feels that this is a matter that undermines her effectiveness,” and if Lagarde received a suspended jail sentence, “she would just carry on,” said Edwin Truman, a former U.S. Treasury official who’s now a senior fellow at the Peterson Institute for International Economics in Washington. Lagarde is accused of failing to block an arbitration process in 2008 that brought to an end the longstanding dispute between former state-owned bank Credit Lyonnais and Tapie, a businessman and supporter of then-French President Nicolas Sarkozy. Tapie walked away with an initial award of about €285 million before it was cut to zero by an appeals court.

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It’s simply the end of our economic system.

The Great Period of Instability (G&M)

It was just before dawn on the morning of July 15, and I was trying to explain to my six-year-old daughter why – instead of a planned day at the park – I was suddenly heading to the airport to catch a flight to a city called Nice. “A bad man hurt a lot of people in France,” was the best explanation I could come up with. As I watched her turn the news over in her head, disappointment spreading on her face, I realized it was a sentence I’d uttered three times in 18 months. Barely 36 hours later, I called her from a sun-baked plaza in the historic old city of Nice. That day in the park would have to be postponed again. Some men with guns had tried to take over the government in Turkey. Instead of coming home, Daddy was flying somewhere else. More bad men, more people hurt.

After we hung up, I contemplated how little sense any of this must make to her. She’s not alone. All of us – including and especially the political and economic elites who have long stood atop this suddenly wobbly pyramid – have been left reeling by events. A “period of instability” is upon us, historian Margaret MacMillan told me this week, one that has parallels to the pre-war periods of the 20th century that she’s written acclaimed books about. Future historians are likely to judge today’s leaders on whether they seek to calm – or simply take advantage of – the choppy waters that we’re in. Rarely, it seems, has the world spun so rapidly, have events felt so out of control.

The headlines blur into one another, feeding the sense of a world in chaos. The war in Syria bleeds into the refugee crisis. The refugees’ march into Europe boosts politicians on the nationalist right. The truck attack in France is followed by the shooting of police in Louisiana. Then it’s a man with an axe on a train in Germany. On Friday, it was a shooting at a mall in Munich. “Brexit” in the United Kingdom is knocked from the top of the news by a putsch attempt in Turkey. They seem like disconnected events. But what links the British who voted to quit the EU with the Turks who gathered in a public square on Wednesday to cheer the imposition of a state of emergency is their anger at how the system has worked until now.

Brexit was won in the small cities and towns of England, places where globalization has meant de-industrialization, the closing of factories and the transfer of work to cheaper locales overseas. The phenomenon was exacerbated by an influx of job-seekers from Eastern Europe who made competition for remaining jobs even stiffer. Leave voters didn’t change their minds when the elites told them Brexit would batter housing prices, or the stock market. To many, the idea that the elites, people who owned property and shares, would take a turn suffering sounded just about right.

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Wealth is debt.

Inequality: The Nexus of Wealth and Debt (Coppola)

Debt. We love debt. Money is created by issuing debt. Our monetary system is debt-based. And because we measure economic growth in monetary terms, growth comes from debt. There is a direct relationship between rising debt, rising money supply and rising GDP. To reduce the burden of debt, and stop it building up again, would mean curing ourselves of our love of debt. And that has enormous social and political implications. It is by no means cost-free. Globally, debt has increased since the 2008 financial crisis. Much of this is in developing countries – in corporations and governments. China’s debt burden, both public and private, is already huge and still growing. Will its bubble burst? What would be the consequences? We don’t know.

But other developing countries also have large debt burdens, especially in corporations. The extent of developing-country debt, both government and corporate, is becoming a matter of considerable concern to economists and policymakers. In developed countries, household debt remains a huge problem. In some countries, households are still deleveraging, preferring to pay off debt rather than spend. This puts a dampener on economic growth. In other countries, households have repaired their balance sheets, but are now reluctant to borrow. Though the lack of lending is not entirely due to households: in some countries, lending standards are now so tight that many households and smaller businesses can’t borrow at all.

But there are some countries where households are borrowing wildly. In Sweden, debt secured on property is rising rapidly, fuelled by very low interest rates. Economic projections from the OBR forecast similar borrowing increases for UK households, though as yet there is little sign that UK households are willing or able to comply. But if they do not, the UK’s economic performance will disappoint. High and rising household debt backed by property creates financial instability. So does high and rising corporate and government debt, especially in foreign currencies. By encouraging borrowing against property and across borders, we may gain a little more economic growth – but at what price?

Increasing the global debt burden in pursuit of economic growth will inevitably lead to another financial crisis somewhere in the world. It is not sustainable. But despite the risk that rising debt poses, those who wield power in our current political and social systems have no real interest in reducing the global debt burden. This is because the other side of debt is wealth. And we love wealth.

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I’m not a great fan of the ‘imminent collapse of the dollar’ meme. That will take a while longer.

The Rise and Fall of the Petrodollar System (Grass)

The intricate relationship between energy markets and our global financial system, can be traced back to the emergence of the petrodollar system in the 1970s, which was mainly driven by the rise of the United States as an economic and political superpower. For almost twenty years, the U.S. was the world’s only exporter of petroleum. Its relative energy independence helped support its economy and its currency. Until around 1970, the U.S. enjoyed a positive trade balance. Oil expert and author of the book “The Trace of Oil”, Bertram Brökelmann, explains a dramatic change took place in the U.S. economy, as it experienced several transitions: First, it transitioned from being an oil exporter to an oil importer, then a goods importer and finally a money importer. This disastrous downward spiral began gradually, but it ultimately affected the global economy.

A petrodollar is defined as a US dollar that is received by an oil producing country in exchange for selling oil. As is shown in the chart below, the gap between US oil consumption and production began to expand in the late 1960s, making the U.S. dependent on oil imports. And while it led to the U.S. Dollar being established as the world’s premier reserve currency, it also contributed to the country’s increase in debt. The oil embargo of 1973-74 was a major hit that exposed the vulnerability of the U.S. economy. Nevertheless, under the banner of “national security” the future policy course was firmly set: in a 1973 National Security Council (NSC) paper, it was stated that “U.S. leverage in energy matters resulted from its economic and political influence with Saudi Arabia and Iran, the two leading oil exporters”.

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From an upcoming book by Stockman.

Trumped! A Nation On The Brink Of Ruin (David Stockman)

America’s faltering economy has been made in Washington DC, not at the illegal crossing routes on the Arizona border or the containership berths at Long Beach. For more than three decades the nation’s central banks have flooded the US and world economies with too much free money and Washington politicians have accommodated the beltway lobbyists and racketeers and the country’s huge entitlement constituencies with too much free boot. So the real disease is bad money and towering debts. The actual culprits are the Wall Street/Washington policy elites who have embraced statist solutions which aggrandize their own power and wealth.

That much, at least, Donald Trump has right. Throwing-out the careerists, pettifoggers, hypocrites, ideologues, racketeers, power-seekers and snobs who have brought about the current ruin is at least a start in the right direction. What made American great once upon a time, of course, was free markets, fiscal rectitude, sound money, constitutional liberty, non-intervention abroad, minimalist government at home and decentralized political rule. Whether Donald Trump gets that part of the equation remains to be seen.

Then again, the GOP establishment has failed, the Democrats are clueless and the mainstream media and punditry is overtly hostile. So if the ideals of world peace, capitalist prosperity and constitutional liberty are to survive at all, it’s up to the Donald. That might seem like cold comfort. But a nation that has been Trumped is a people coming back to life. Americans don’t want to take it anymore. They want their existing rulers to take a permanent hike. And that’s a start.

Read more …

All entirely preventable. But that would require an actual cvilization.

Nearly 3,000 Dead In Mediterranean Already This Year (R.)

Nearly 3,000 migrants and refugees have perished in the Mediterranean Sea already this year while almost 250,000 have reached Europe, the International Organization for Migration said on Friday. The estimated death toll could put 2016 on track to be the deadliest year of the migration crisis. Last year the same landmark was only reached in October, by which time nearly one million people had crossed into Europe. “This is the earliest that we have seen the 3,000 (deaths) mark, this occurred in September of 2014 and October of 2015,” IOM spokesman Joel Millman told a briefing. “So for this to be happening even before the end of July is quite alarming.”

Three out of four victims this year died while trying to reach Italy from North Africa, mostly Libya, a longer and more dangerous route. The others drowned between Turkey and Greece before that flow dried up with the March deal on migrants between Turkey and the European Union. Nearly 2,500 fatalities have occurred since late March, with about 20 migrants dying each day along the route from Libya to Italy, Millman said. Most are from West Africa and the Horn of Africa, although they may include people from Pakistan, Bangladesh and Morocco. “The (Libyan) coast guard has had some luck turning back voyages from Libya. We’ve heard in the last six weeks a number of cases where they have been able to turn boats back. “They (have also been) recovering bodies at an alarming rate,” Millman said.

Some 84,052 migrants and refugees have arrived in Italy so far this year, almost exactly the same number as in the same period a year before, he said. That indicated departures from Libya were at “maximum capacity” due to a limited number of boats deemed seaworthy. But there is “a very robust market of used fishing vessels and things coming from Tunisia and Egypt that are finding their way to brokers in Tripoli,” Millman said. “And you can actually go to shipyards where people are trying to repair boats as fast as they can to get more migrants on the sea.”

Read more …

Jul 222016
 
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Dorothea Lange ‘OK Family bound for Kingfisher and Lubbock. We’ll be in California yet’ 1938

Basic income is a topic I’ve been thinking about for a while, and while I won’t get anywhere near a comprehensive overview -there are too many uncertainties and untested ideas-, I’m going to try to paint a first chapter in a work of progress. Or, a thought experiment, for me and others.

Of course I’ve read a lot of and about other people’s ideas on the topic, and I’m sure there are many more out there that I haven’t seen yet, but I’m afraid to say that about all of those I did read tend to fall into the same ‘trap’. That is, they project their ideas, which are widely varying, onto -or close to- the economy (economies) and society (societies) as they are today.

Their basic income examples and ideas and theories (as well as criticisms of them) are all built around a perception of the economy as it is, or better still as it once was. And that is probably a bad idea. Because the economy of the future will not be like it is today, or was yesterday, and neither will societies.

And that is not because of the role automation and/or robots will play, a topic that features prominently in many basic income writings; those things are but a minor distraction. What will change our world much more profoundly will be the inevitable demise of the economic system as we know it.

And it’s against that backdrop that the issue of basic income must be viewed. If only because it then becomes something entirely different.

 

 

I started thinking a while back that it would not be robots or inequality that would be the foundation of and driving force behind basic income, but the ruin of our pension systems. Of course one has to be careful with general statements on this, because there are so many different systems and approaches when it comes to pensions and other old-age ‘provisions’ and/or ‘benefits’.

What all have in common today, though, is that they’re woefully underfunded and sliding down further fast due to ultralow interest rates and other ‘policies’, as well as to ageing societies. It seems almost incredulous that until a few years ago most pensions funds were required by law to invest only in AAA-rated assets.

While they may not all suffer from the same afflictions, all these systems, from Social Security to private pension funds, do suffer from the same symptoms. Painting the picture with a broad stroke, it’s safe to say they’re all in essence Ponzi schemes.

While many of the ‘Social Security variety’ depend on the trust in a government to pay out something for which nothing -or very little- has been set aside, those of the variety in which money IS actually paid in are inflicted by the twin impairments of too little return on what is paid in to maintain the fund, and too few newcomers to pay for what ‘oldtimers’ never paid but do want to take out.

A third ‘impairment’ will occur when younger workers figure out they’re paying into something they will never see any benefits of, and refuse to fork over any longer.

Low interest rates and ageing populations are wreaking havoc on -especially- European and Japanese pensions even as we speak, and a brief look at future trendlines makes abundantly clear where things are going.

Pondering all that, it seems obvious that at some point a government with at least a bit of vision would come to the conclusion that a basic income to replace all the faltering old-age provisions schemes -and many others- might make a lot of sense. If only because, once you think about it, ‘free’ money only for older people does not make sense, neither politically nor economically.

 

 

But let’s take a step back; that last bit still doesn’t take sufficiently into account that our economies are about to undergo radical changes because they are collapsing. What I find interesting is that this collapse actually seems to play into the hands of a basic income. For several reasons, as a matter of fact.

I am convinced that a basic income in an economy that’s part of a centralized, even globalized, system, makes no sense. You can’t really have a basic income in a society that imports most of what it uses, but that still is the model of most of our societies. We import much of what’s essential, and export non-essential things.

That is a problem that will more or less solve itself, though we better pay attention and be prepared, or else. We may not know exactly when or how the economic collapse will occur, but that’s not the most important thing. What is, is that centralization can only happen in a growing economy. As soon as growth halts -or even reverses-, economies will of necessity decentralize. Unless perhaps they’re under a dictatorship, but even then.

Setting up a basic income system in a society that, for example, imports its clothes and furniture -and sometimes even food- from China, is a doomed proposition. The number one requirement for a successful basic income is that the money issued stays inside the society it’s being issued in. If not, it would merely speed up bankruptcy.

The money must be spent locally, on local products, as much as possible, because then it will be worth much more to the local economy. This will also go far towards fighting deflation, because the velocity of money will increase. To ensure that as much as possible is spent inside a community/society, the manufacturing base will need to be (re-)built.

Which must happen anyway as the global economy sinks, and the sooner, the better. The worldwide transport lines we know today will not exist for much longer, and it will take time to adapt one’s economy to that.

On the bright side, this decentralization, or relocalization, or ‘protectionism’ if you will, will (re-)create a lot of jobs. Not ones that will pay as much as what we see now, but that’s not necessarily such a bad thing. And besides, it’s not as if we have some kind of free choice. Reality will dictate the terms. We must produce our own essentials once again: food, clothing, housing, furniture etc.

Still on the bright side, the new jobs will make basic income much less costly for a society. Because you can top off what people make on top on whatever the basic income is, and you can do so at a level that everyone can agree to.

 

 

That’s my first take of basic income in a crisis, a crisis I see as set in stone. Which changes the whole issue of a basic income. Plenty people will see this as socialism or something in that vein, I see it as perhaps the only way to make sure you have a functioning society on the way down. With none of the alternatives looking particularly appealing.

When discussing the details of such a program, what would probably be good, if only for the sake of justice, is to combine it with Steve Keen’s notion of a Modern Debt Jubilee, in which debt gets cancelled but those with most debt are obliged to pay -part of it- down, while those who are debt-free get ‘rewarded’ for that status.

What I have always found difficult to envision is how a jubilee would work in modern days. The ones ‘of old’ would typically involve a local ruler and/or landlord to whom subjects owed debts of some sort, which the ruler could declare null and void while still being the ruler- and the richest man around.

Today debts are global, with much of them having been securitized and sold on to large -financial- institutions who may even be anonymous and have shareholders in dozens of different countries. How do you get them to agree to large-scale debt cancellation or reform? I’m not saying it can’t be done, but it’s not the same thing.

The hardest part of what I laid out above may well be to get people who feel they are owed benefits, pensions or otherwise, to accept that these will be incorporated into a new basic income system. Not many understand to what extent pensions systems are Ponzi’s, and even those who do to an extent may still refuse to give up their slice of the pie.

It should be fairly easy, though, to explain what their slice will look like once the systems collapse, or even simply once nobody pays in anymore. And because younger people have no reason to pay for something they know they will never see the benefits of, and moreover all this can be phased in/out over a certain period of time, it may well unfold faster and easier than one might think at first sight.

 

 

Lastly, some numbers. Greg Ip wrote for the Wall Street Journal last week: Revival of Universal Basic Income Proposal Ignores Needs of Labor Force. Obviously, in my example, i.e. in an economy that’s going down the drain, the term ‘needs of the labor force’ takes on a whole different role and meaning. In his piece, Ip says:

To send every American adult $10,000 a year would cost $2.4 trillion, or 13% of GDP.

And I think that is a misleading way of phrasing things. Because the money doesn’t disappear, so it doesn’t ‘cost’ that; and that’s not only true in my theoretical example. Most of the ‘basic income money’ would circulate inside the economy, and much comes back to the issuing state through various taxes. Crux is don’t let it leave the economy it’s issued in.

Mind you, I don’t see a basic income trial happen in the US, because it’s far too big a country. The EU is too large too. You’d need smaller units. And as I said, a shrinking economy would of necessity make units smaller. In Europe, these units already exist. In countries the size of Finland, Switzerland, Scotland, Wales, perhaps Greece, a basic income trial may well be viable.

That is, provided they shrug off the strangleholds that bind them to centralized systems. But that they will wind up doing regardless. What’s more important is that such a trial is meticulously planned, and not with some pie in the sky idea of where the world economy is headed.

Greg Ip suggests that a $10,000 basic income for all US adults is not realistic, because it would ‘cost’ 13% of GDP. But this graph from the World Economic Forum World Economic Forum on social expenditures as calculated by the OECD, puts things in a different light:

 

In 2014, US social expenditures were at about 20% of GDP, which is 50% more than Ip’s example. And that is the main point behind the basic income question, even if you don’t subscribe to the collapsing economy ‘thesis’: what would happen if you replace all -or almost all- social benefit schemes in a particular society with a basic income? How much money would you save, or how much extra would it cost?

Ip seems to contend that a basic income would be prohibitively expensive. But, even if the OECD numbers fail to include certain items, there’s a lot of leeway between the 13% of GDP a US basic income would cost, and the 20% of GDP America now pays in benefits. About $1.2 trillion in leeway. So the cost picture at the very least is not all that obvious.

By the way, it’s kind of funny that I’ve seen nobody address the perhaps most ironic thing: even if the state would save a lot of money moving to the much simpler basic income from a myriad of other programs, that would make a whole lot of civil servants unemployed all at once. Can’t help wondering why no-one brings that up.

But the US is not the best example, for various reasons. It’s countries that have the right size to hold a trial in, or at least what we can perceive as the right size. Finland, Belgium, Denmark all spend close to 30% of GDP on social expenditures. Portugal, Greece, Slovenia, Luxembourg are at 25%. If a basic income can be had for 13% of GDP, these countries stand to save a fortune…

Unfortunately, you can’t be in the EU and start a basic income trial. And that’s a shame. Because it’s going to be very hard to get this right, and it’ll take some serious time and effort. So much so that not starting today is a risk in itself.

But as long as people keep having faith in the economists, politicians, bankers and reporters who drill the ‘recovery is right around the corner’ meme into them 24/7, and any alternative to that meme just scares the heebees out of them, I’m afraid there’ll be no basic income trial. Yes, there are a few ideas, but they’re all based on the wrong -growth- assumptions, so they’re sure to fail.

Caveat: No, I haven’t gone through all different social benefits plans of all countries I’ve mentioned, so I don’t know what part of GDP each spends at present, or how much they could save or lose. Someone will have to write ‘the book’ on this.

For my thought experiment here I found it sufficient to go with the basic principles, and throw in a few numbers. And the most elementary difference between me and other voices is not there anyway: that is in my putting the basic income issue against the backdrop of economic collapse, and nobody else really doing that whom I’ve read.

Yes, the title is Marquez, of course, THE time of cholera

 

 

Jul 222016
 
 July 22, 2016  Posted by at 8:26 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Lewis Wickes Hine Night scene in Cumberland Glass Works, Bridgeton, NJ 1909


(There’s No) Money In The Mattress (Roberts)
Sub-Zero Government Bonds Turn the Hunt For Yield Upside Down (BBG)
US Sides With HSBC To Block Release Of Money Laundering Report (R.)
Are Wall Street Banks in Trouble? You’d Never Know from the Headlines (WSoP)
Denmark Faces ‘Out of Control’ Housing Market in Negative Spiral (BBG)
Fracklog in Biggest US Oil Field May All But Disappear (BBG)
China Continues To Produce More Steel Than The Rest Of The World Combined (BI)
China’s Vice FinMin: We’ve Got No Reason To Devalue The Yuan (CNBC)
Apple’s Q2 China Revenues Could Fall 20%: Baidu (CNBC)
Pension Funds Are Underwater – And Taking Us With Them (VW)
Once-Expanding EU Prepares To Contract For The First Time In Its History (G.)
Earth On Track For Hottest Year Ever As Warming Speeds Up (R.)
Fighting the Most Dangerous Animal in the World (Spiegel)

 

 

“Every time someone says, ‘There is a lot of cash on the sidelines,’ a tiny part of my soul dies.”

Scary graph.

(There’s No) Money In The Mattress (Roberts)

Here is a myth that just won’t seem to die: “Cash On The Sidelines.” This is the age old excuse why the current “bull market” rally is set to continue into the indefinite future. The ongoing belief is that at any moment investors are suddenly going to empty bank accounts and pour it into the markets. However, the reality is if they haven’t done it by now after 3-consecutive rounds of Q.E. in the U.S., a 200% advance in the markets, and now global Q.E., exactly what will that catalyst be? However, Clifford Asness summed up the problem with this myth the best and is worth repeating:

“Every time someone says, ‘There is a lot of cash on the sidelines,’ a tiny part of my soul dies. There are no sidelines. Those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines. If you want to save those who say this, I can think of two ways. First, they really just mean that sentiment is negative but people are waiting to buy. If sentiment turns, it won’t move any cash off the sidelines because, again, that just can’t happen, but it can mean prices will rise because more people will be trying to get off the nonexistent sidelines than on.

Second, over the long term, there really are sidelines in the sense that new shares can be created or destroyed (net issuance), and that may well be a function of investor sentiment. But even though I’ve thrown people who use this phrase a lifeline, I believe that they really do think there are sidelines. There aren’t. Like any equilibrium concept (a powerful way of thinking that is amazingly underused), there can be a sideline for any subset of investors, but someone else has to be doing the opposite. Add us all up and there are no sidelines.”

Margin debt levels, negative cash balances, also suggest the same. Cash on the sidelines? Not really.

Read more …

And there are plenty plans to ‘do more’.

Sub-Zero Government Bonds Turn the Hunt For Yield Upside Down (BBG)

The erosion of yields on government debt is generally thought to push investors into riskier assets as they seek out higher returns. That’s true, argue Credit Suisse analysts in a new note, but only in the ‘first phase’ of a negative yield world. That is, when yields on government bonds with shorter-durations dip below zero, total returns on riskier assets such as junk-rated corporate debt do trump returns on German bunds. That tendency disappeared, however, as yields on longer-dated government debt also fell into negative territory — at least in Europe.

“The defining characteristic of Phase One is a strong outperformance of high-yielding credit assets versus low-yielding credit assets and government bonds, i.e. a strong hunt for yield trend. Nothing unusual so far,” write Credit Suisse’s William Porter and Chiraag Somaia. “However, more interestingly, Phase Two, still characterized by negative yields, actually sees an outperformance of government bonds versus both low- and high-yielding credit assets, i.e. any hunt for yield over the past 2.5 years as a whole has been an unsuccessful strategy.” The trend is shown in the below chart, where total returns on German government bonds have bested high-yield and investment-grade corporate debt.

“For now, we think ever-falling yields represent an overall risk aversion and/or verdict on economic policies that is not overly friendly to yieldier assets despite the obvious incentives they carry in this environment,” conclude the analysts. “So yield-hunting behavior is not always and everywhere wrong – this summer may treat it favorably – but any outperformance has subsequently been counter-trend in the past 2.5 years.”

Read more …

Quick! Find me a carpet to sweep this under!

US Sides With HSBC To Block Release Of Money Laundering Report (R.)

The U.S. government asked a federal appeals court on Thursday to block the release of a report detailing how HSBC is working to improve its money laundering controls after the British bank was fined $1.92 billion. In a brief filed with the 2nd U.S. Circuit Court of Appeals, the U.S. Department of Justice sought to overturn an order issued earlier this year by U.S. District Judge John Gleeson to make public a report by the bank’s outside monitor. “Public disclosure of the monitor’s report, even in redacted form, would hinder the monitor’s ability to supervise HSBC,” the government’s court filing said, adding that bank employees would be less likely to cooperate with the monitor if they knew their interactions could be released.

HSBC concurred with the court’s finding. “HSBC also argues that the Monitor’s report should remain confidential, as have the Monitor, the UK Financial Conduct Authority, the US Federal Reserve and other HSBC regulators,” HSBC said in a statement. “The effectiveness of the monitorship is dependent on confidentiality.” The filing comes a week after U.S. congressional investigators criticized senior officials at the Department of Justice for overruling internal recommendations to criminally prosecute HSBC for money-laundering violations. Instead, the government in 2012 fined HSBC and entered into a five-year deferred prosecution agreement that stipulated all charges would be dropped if the bank agreed to install an independent monitor to help improve compliance. In the 2012 settlement, HSBC admitted to violating U.S. sanctions laws and failing to stop Mexican and Colombian cartels from laundering hundreds of millions of dollars in drug proceeds through the bank.

Read more …

Martens & Martens. Strong.

Are Wall Street Banks in Trouble? You’d Never Know from the Headlines (WSoP)

On July 14, when America’s biggest bank by assets reported its second quarter earnings, this headline ran at the New York Times: “JPMorgan Chase Has Strong Quarter as Earnings Top Estimates.” CNBC, a unit of NBCUniversal, used the same criteria in its headlines to report the earnings of Citigroup, Bank of America and Morgan Stanley — putting a positive spin in the headline because the earnings had topped what analysts were expecting – rather than the far more meaningful, and traditional, measure of whether earnings had beaten the same quarter a year earlier. CNBC’s headlines read: Citigroup earnings handily top Wall Street expectations: CNBC-July 15, 2016 Bank of America earnings top expectations: CNBC-July 18, 2016 Morgan Stanley solidly beats earnings expectations: CNBC-July 20, 2016.

This is hubris of the highest order. Publicly traded companies simply guide research analysts toward lowered expectations on their upcoming quarterly earnings so that the companies can surprise on the upside and get these kinds of misleading headlines in the all-to-willing New York media – which has a vested interest in making everything appear rosy in the Big Apple. (New York media is dependent on fat Wall Street profits to boost the price of their own publicly traded shares since ad revenue in New York is linked to the health of Wall Street.) One would never know by these headlines that big bank earnings were actually down year over year – and in some cases, down dramatically. JPMorgan Chase earned $6.2 billion in the second quarter of 2016 versus $6.29 billion in the second quarter of 2015.

The news was far worse at Citigroup, despite the rosy headline at CNBC. Citigroup’s second quarter profit fell 17.5% year over year, to $4 billion from $4.85 billion in the second quarter of 2015. Its revenues were the lowest in 14 years according to S&P Capital IQ. At Bank of America, profit fell to $4.23 billion from $5.3 billion in the second quarter of 2015, a sharp decline of 20%. Morgan Stanley reported a year over year decline of 8%, with profits in the second quarter of 2016 falling to $1.67 billion from $1.82 billion in the second quarter of 2015. Now news of jobs cuts is spilling out with the Wall Street Journal reporting that Bank of America will make “$5 billion in annual cost cuts by 2018 as part of its strategy to deal with persistently low interest rates that are eating away at lenders’ profitability.”

The New York Post is calling job cuts at Goldman Sachs the worst since the financial crisis in 2008. Fortune’s Stephen Gandel reported two days ago that Goldman had slashed a whopping “1,700 positions in the past three months.” Something else one won’t find in those smiley-face headlines is the fact that Wall Street is not only bleeding profits and jobs but it’s also bleeding equity capital – the only thing that separates the word “bank” from the word “bankruptcy.” While the Dow Jones Industrial Average and Standard and Poor’s 500 Indices may be setting new highs, the big Wall Street banks are decidedly not.

Over the past 52 weeks, Goldman is down from a share price of $214.61 to an open this morning of $162.55 – a decline of 24%. Bank of America is off 22% from its 52-week high, based on today’s open. Morgan Stanley and Citigroup are in decidedly worse shape with declines of 28% and 27%, respectively, from their 52 week highs versus their share price at the open of the New York Stock Exchange this morning. Add this all up and you’re talking about tens of billions of dollars in equity capital vaporizing.

Read more …

Denmark is in the same position as dozens of other countries: “..there’s a real risk that housing prices can see a dramatic fall, even though we’re not seeing a bubble in the classical definition of the term..”

Denmark Faces ‘Out of Control’ Housing Market in Negative Spiral (BBG)

Denmark’s biggest mortgage bank is warning there’s a risk the housing market may get “out of control,” especially around cities, as long-term negative interest rates make borrowers complacent. “To be concrete, there is a danger that Danes go blind to the risk of rates ever rising again,” Tore Stramer, chief analyst at Nykredit in Copenhagen, said in an e-mail. “That raises the risk of a major housing price decline, when rates at some point or other start to rise again.” Denmark’s central bank has had negative interest rates for the better part of four years. Thomas F. Borgen, CEO of Danske Bank, says his managers are operating under the assumption that rates won’t go positive until “at least” 2018, with Britain’s departure from the EU adding to the risk of an even longer period below zero.

With no other country on the planet having experienced negative rates longer than Denmark, the distortions the policy is wreaking may provide a preview of what other economies face should they go down a similar path. Danes can get short-term mortgages at negative interest rates, and pay less to borrow for 30 years than the U.S. government. Apartment prices in Denmark are now about 5% above their 2006 peak. Back then, the country’s bubble burst and apartment prices slumped about 30% through 2009. “It’s worth remembering that there’s a real risk that housing prices can see a dramatic fall, even though we’re not seeing a bubble in the classical definition of the term,” Stramer said. Denmark’s negative rates are a product of the central bank’s policy of defending the krone’s peg to the euro. Its main rate was minus 0.75% for most of last year, though the bank raised it by 10 basis points in January in an effort to normalize policy.

Read more …

Reality kicks in. What’s going to happen to the lenders who made it all possible?

Fracklog in Biggest US Oil Field May All But Disappear (BBG)

The number of dormant crude and natural gas wells in the U.S. stopped growing in the first quarter – and may all but disappear in the nation’s biggest oil field should prices hold steady. As of April 1, there were 4,230 wells left idle after being drilled, a figure little changed from January, according to an analysis by Bloomberg Intelligence. While some explorers have continued to grow their fracklog of drilled but not yet hydraulically fractured wells, others began tapping them in February as oil prices rose, the report showed.

Crude in the $40- to $50-a-barrel range may wipe out most of the fracklog in Texas’s Permian Basin and as much as 70% of the inventory in its Eagle Ford play by the end of 2017, according to Bloomberg Intelligence analyst Andrew Cosgrove. While bringing them online is the cheapest way of taking advantage of higher prices, the wave of new supply also threatens to kill the fragile recovery that oil and gas markets have seen so far this year. “We think that by the end of the third quarter, beginning of the fourth quarter, the bullish catalyst of falling U.S. production will be all but gone,” Cosgrove said in an interview Thursday. “You’ll start to see U.S. production flat lining.”

Read more …

It’s the same as oil producers. In China’s steel industry, a return to reality would mean too many jobs lost to bear.

China Continues To Produce More Steel Than The Rest Of The World Combined (BI)

For the fourth month in a row, China produced more steel than all other nations combined in June. According to data released by the WorldSteel Association on Wednesday, a group that accounts for approximately 85% of the world’s steel production, China produced 69.5 million of crude steel in June, dwarfing production in all other nations which came in at 66.5 million tonnes. At 136 million tonnes, total global output in June was unchanged from the levels of a year earlier.

While down 1.4% on the 70.5 million tonnes produced in May, Chinese crude steel production is now 1.7% higher than the levels of June 2015, fitting with the splurge in state-backed infrastructure investment seen in recent months. Despite the recent uplift in steel production, shown in the chart below supplied by WorldSteel, global steel production came in at 794.8 million tonnes in the first half of the year, down 1.9% on the same corresponding period in 2015.

Read more …

They fix it daily, but that’s not manipulation nor devaluation…. That’s just fixing.

China’s Vice FinMin: We’ve Got No Reason To Devalue The Yuan (CNBC)

China has no reason to devalue the yuan, as economic fundamentals remained strong, with growth at 6.7% in the first half, the country’s Vice Finance Minister Zhu Guangyao told CNBC. Zhu’s comments came shortly before Republican presidential candidate Donald Trump lambasted China again, this time for what he said was “devastating currency manipulation. [..] “The yuan has been trading around five-year lows recently, as concerns over the state of the economy fueled capital outflows. Investors have also expressed concerns over the level of debt built up in the economy. China suffered almost $700 billion worth of capital flight in 2015. The surge in outflows late in 2015 sparked market concerns that China’s foreign reserves weren’t sufficient to stabilize the currency by buying yuan over the long term.

Meanwhile, the greenback has strengthened against most major currencies as investors reacted to negative interest rates in Japan and Europe, as well as the possibility the Federal Reserve would continue on its rate-hiking path. On Friday the dollar/yuan traded at 6.6683 on-shore and 6.6754 off-shore. China fixes its currency against the dollar every day. In August, China shifted the market mechanism for setting the daily fix, saying it would set the spot rate based on the previous day’s close, theoretically allowing market forces to play a greater role in its direction. That resulted in an effective 2% devaluation in the currency, a move that sparked fears of a “currency war” to make Chinese exports more competitive.

Read more …

What’s that going to do to the share price?

Apple’s Q2 China Revenues Could Fall 20%: Baidu (CNBC)

Apple’s revenues in China could be down 20% in China in its quarterly earnings report, according to research by Baidu, the so-called “Chinese Google.” As part of its online suite of products Baidu offers mapping software and a search platform. It has about a 70 to 80% market share in search in China and logs billions of location requests on Baidu Maps. Using this so called “big data” from the use of its map and search products, which is all anonymized, Baidu said it could predict employment and consumer trends and their impact on a company’s revenues. It used these tools on Apple’s retail sales in China, selecting a list of flagship Apple stores in mainland China and the counting the volume of map queries of all the stores.

Baidu found that in the last quarter of 2015, map query volumes were up 15.4% year-on-year, which corresponded with a 14% rise in Apple’s China revenue in that same period. But in the first quarter of 2016, map queries declined 24.5% year-on-year, which was parallel with a 26% decline in Apple’s China revenue. “The impressively strong correlation indicates that map query data provides possibilities for us to ‘nowcast’ the company’s revenues and reveal the future trends. Based on our analysis of latest data, we project that the Apple’s revenue in China of second quarter of 2016 may be down around 20% on a year-over-year basis,” Baidu concluded. The “second-quarter” that Baidu references is Apple’s fiscal third-quarter and will be announced on July 26.

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Pensions. A word your children will know only from history books.

Pension Funds Are Underwater – And Taking Us With Them (VW)

The California Public Employees’ Retirement System (CalPERS) has announced its worst performance in seven years. Its meager rate of return for the fiscal year ending June 30 just managed to squeak by .6%, not even beating our current meager rate of inflation. After two successive years of tepid returns, long-term fund averages have sunk far below the critical 7.5% benchmark. It’s bad news for California taxpayers, because if returns don’t soon show a long-term average of 7.5%, they’ll be the ones who will have to make up the difference. Ted Eliopoulos, the fund’s chief investment officer, admits the massive pension fund’s long-term returns are well below anticipated levels, telling the Los Angeles Times, “We’re moving into a much more challenging, low-return environment.”

Yeah. Average returns are now barely over seven% for a twenty-year period, and returns over ten and fifteen years now average less than 6%. These changes are not just a blip on the investment horizon, as we assume bond yields and stock dividends will improve. According to the Milliman pension consulting firm, many public pension funds have had to adjust their expectations to accommodate lower returns overall. CalPERS needs to adjust its own expectations accordingly, even though doing so would drive up costs for state and local government agencies covered by the big pension firm. “We quite clearly have a lower return expectation than we had just two years ago,” Eliopoulos said. “That will be reflected in our next cycle. We are cognizant that this is a challenging environment for institutional investors.”

Thus, while the Times reports this dismal turn of events as a new development, it’s apparent Eliopoulos and CalPERS have been struggling for a while. What’s more, financial observers have been voicing concerns about pension fund depletion for at least as long as bond yields and stock dividends have been anemic. [..] The bad news is: If you’re a California public employee, you’re going to take a hit. But even if you’re not a public employee, but merely a California taxpayer, you’ll also take a hit. In addition, while private employee pension funds don’t pose the same financial risk to non-participants, their members run a similar risk; after all, they’re toiling in the same universe of stocks and bonds.

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The Guardian gets the headline right, but shows no understanding of what it means.

Once-Expanding EU Prepares To Contract For The First Time In Its History (G.)

Johannes Hahn’s job title sounds a little incongruous these days: he’s the EU commissioner for European neighbourhood policy and enlargement negotiations. The job title was created in the late 1990s during a period of optimism and expansion. But now, thanks to the will of 52% of British voters, the EU looks set to contract rather than enlarge for the first time in its history. There are still six candidate countries for EU membership, in the process of making formal applications to join the bloc, as well as a number of other countries with various levels of association. But with many in the EU wary and sceptical of further expansion, the only enlargement negotiations going on at the moment are about managing the expectations of countries that want to join.

Hahn was in Kiev last week, meeting Ukrainian government officials and chairing ministerial meetings of the EU’s Eastern Partnership, a programme linking the EU with six former Soviet countries, which was launched as a response to the Russian war with Georgia in 2008 and was implicitly meant as the first step towards EU membership for the nations. “Don’t believe that the unfortunate decision of Brexit will have any influence on our relationship – quite the opposite,” he told a meeting of the group’s foreign ministers.

But in reality, the initial Eastern Partnership plans are in tatters, as both enlargement fatigue inside the EU and a stick-carrot combination from Russia has pushed a number of the countries away from wanting further integration with the EU. Two of them, Belarus and Armenia, have joined Russia’s Eurasian Economic Union, an explicit challenge to the EU, while nobody seriously speaks about Ukraine or Georgia as members any more.

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Surprise? What surprise?

Earth On Track For Hottest Year Ever As Warming Speeds Up (R.)

The earth is on track for its hottest year on record and warming at a faster rate than expected, the World Meteorological Organization (WMO) said on Thursday. Temperatures recorded mainly in the northern hemisphere in the first six months of the year, coupled with an early and fast Arctic sea ice melt and “new highs” in heat-trapping carbon dioxide levels, point to quickening climate change, it said. June marked the 14th straight month of record heat, the United Nations agency said. It called for speedy implementation of a global pact reached in Paris last December to limit climate change by shifting from fossil fuels to green energy by 2100.

“What we’ve seen so far for the first six months of 2016 is really quite alarming,” David Carlson, director of the WMO’s Climate Research Program, told a news briefing. “This year suggests that the planet can warm up faster than we expected in a much shorter time… We don’t have as much time as we thought.” The average temperature in the first six months of 2016 was 1.3° Celsius (2.4° Fahrenheit) warmer than the pre-industrial era of the late 19th Century, according to space agency NASA. [..] “There’s almost no plausible scenario at this point that is going to get us anything other than an extraordinary year in terms of ice (melt), CO2, temperature – all the things that we track,” Carlson said. “If we got this much surprise this year, how many more surprises are ahead of us?”

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Hard to gauge what’s going to happen with this.

Fighting the Most Dangerous Animal in the World (Spiegel)

[..] Aedes aegypti presents a threat to some 4 billion people across the globe. The world long approached the Aedes agypti plague as though it were a storm that would soon blow over, but it has now become a fixture in large cities in the tropics. If nothing is done, experts say, more and more people will die as a result. And it has also become clear that some of the tropical diseases carried by this insect are coming to Europe. Partly, that is the result of rising temperatures on the European continent. In the southwestern German city of Freiburg, for example, scientists have determined that a population of Aedes mosquitoes survived the German winter for the first time. It used to be that only those who traveled to the tropics were at risk of becoming infected with tropical illnesses.

But now, many in Europe must face the prospect of the tropics coming to them. It was images from Brazil that sent a jolt of fear around the world at the beginning of this year. Across the country, babies were suddenly being born with heads that were misshapen and too small. When indications mounted that this curious increase in cases of so-called microcephaly was connected to the Zika epidemic that had stormed across Brazil in the previous months, the WHO declared an international emergency. Brazil mobilized 220,000 soldiers for the battle, sending them through bathrooms, yards and garages to eliminate standing water where female Aedes mosquitoes lay their eggs. But the campaign did little to reduce the threat. In the first four months of this year, officials registered 100,000 additional cases thought to be Zika.

In addition, almost a million people were infected with dengue fever, more than ever before in such a short span of time. There is no vaccine against the Zika virus and there is no medicine that can prevent people from becoming infected. In March, medical researchers said that Zika can also be transmitted via sexual intercourse and, as if that weren’t enough, 151 health experts wrote an open letter in May demanding that the Olympic Games – set to kick off in Rio in two weeks – be postponed or moved. Taking the risk of holding the games as planned, they said, would be irresponsible. The city is expecting a half-million visitors. If only a tiny fraction of them become infected by the virus, these games – intended to crown Brazil’s climb to economic power status – could mark the beginnings of a catastrophe.

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Jul 212016
 
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DPC City Hall and Market Street and west from 11th, Philadelphia 1912


S&P Issues ‘Crexit’ Warning as Corporate Debt to Swell to $75 Trillion (CNBC)
The Entire Market is Driven by a “Once in History” Bubble About to Burst (P.)
Bank Of England Report Finds Economy Has Not Slowed Since Brexit Vote (G.)
US Links Malaysia PM, Wolf of Wall Street to Millions Stolen From 1MBD (WSJ)
Singapore Finds UBS, DBS, StanChart ‘Failings’ in 1MDB Probe (BBG)
Erdogan Declares State Of Emergency, Warns S&P ‘Don’t Mess With Turkey’ (ZH)
Wikileaks, About To Expose Turkish ‘Coup’, Under ‘Sustained Attack’ (TAM)
Reports Of Turkish Commandos In Greek Aegean Put Athens On Alert (Kath.)
A Turkey of a Coup (Dmitry Orlov)
More Pain Seen For US Crude As Product Glut Adds To Gloom (R.)
New Zealand House Bubble Warning Will ‘Shake Government’ (NZH)
Greek Brain Drain Amounted To 223,000 People In 2008-2013 (Kath.)
Warmer Water, Not Air, Drives Antarctic Peninsula Glacier Melt (CB)

 

 

Too late to take away the punch bowl. It’s set to end up on the floor in a thousand pieces when someone knocks it over.

S&P Issues ‘Crexit’ Warning as Corporate Debt to Swell to $75 Trillion (CNBC)

Corporate debt is projected to swell over the next several years, thanks to cheap money from global central banks, according to a report Wednesday that warns of a potential crisis from all that new, borrowed cash floating around. By 2020, business debt likely will climb to $75 trillion from its current $51 trillion level, according to S&P Global Ratings. Under normal conditions, that wouldn’t be a major problem so long as credit quality stays high, interest rates and inflation remain low, and there are economic growth persists. However, the alternative is less pleasant should those conditions not persist. Should interest rates rise and economic conditions worsen, corporate America could be facing a major problem as it seeks to manage that debt.

Rolling over bonds would become more difficult should inflation gain and rates raise, while a slowing economy would worsen business conditions and make paying off the debt more difficult. In that case, a “Crexit,” or withdrawal by lenders from the credit markets, could occur and lead to a sudden tightening of conditions that could trigger another financial scare. “A worst-case scenario would be a series of major negative surprises sparking a crisis of confidence around the globe,” S&P said in the report. “These unforeseen events could quickly destabilize the market, pushing investors and lenders to exit riskier positions (‘Crexit’ scenario). If mishandled, this could result in credit growth collapsing as it did during the global financial crisis.” In fact, S&P considers a correction in the credit markets to be “inevitable.” The only question is degree.

[..] “Central banks remain in thrall to the idea that credit-fueled growth is healthy for the global economy,” S&P said. “In fact, our research highlights that monetary policy easing has thus far contributed to increased financial risk, with the growth of corporate borrowing far outpacing that of the global economy.” Between now and 2020, debt “flow” is expected to grow by $62 trillion – $38 trillion in refinancing and $24 trillion in new debt, including bonds, loans and other forms. That projection is up from the $57 trillion in new flow S&P had expected for the same period a year ago. [..] China is expected to account for the bulk of the credit flow growth, with the nation projected to add $28 trillion or 45% of the $62 trillion expected global demand increase. The U.S. is estimated to add $14 trillion or 22%, with Europe adding $9 trillion, or 15%.

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“Buying stocks for their yield because bonds are at their lowest yields in 5000 years is like switching to cigarettes from crack for health purposes.”

The Entire Market is Driven by a “Once in History” Bubble About to Burst (P.)

Since QE 3 ended in October 2014, stocks have traded in a large range between roughly 2,130 and 1800 on the S&P 500.

During this time, whenever stocks began to breakdown in a serious way, a clear intervention was staged in which someone manipulated the markets higher. Regardless of whether you are a bull or a bear, none of those rallies felt normal or sane in any way. No one panic buys every single day at the exact same time for days on end. Which brings us to today. Stocks have broken out of the trading range to the upside hitting new all-time highs.

They are doing this despite the US entering a recession, China continuing to devalue the Yuan, Italy facing a banking crisis, etc. The explanation the bulls are giving for the breakout is that stocks supposedly hitting all time highs because with $13 trillion in bonds posting negative yields, stocks’ 2.4% or so in dividends are extremely attractive from a yield perspective. Yes, we’ve reached the point at which investors are buying stocks for yield and bonds for capital gains. This is extremely problematic in that it implies that all equity purchases are being driven by a “once in history” bond bubble.• German bond yields are negative out to nearly 10 years. • Japanese bond yields are negative out to 10 years. • Swiss bond yields are negative out to 50 years.

These are completely unsustainable developments. Buying stocks for their yield because bonds are at their lowest yields in 5000 years is like switching to cigarettes from crack for health purposes. At some point something will break in the bond markets. Central Banks are attempting to corner the asset class that is the benchmark for the risk-free rate globally. Put another way, investors are willing to PAY for the right to lend to these Governments for up to and even over a decade. At some point something is going to break here. When it does, stocks will implode below the 2008 lows. It’s only a matter of time.

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It’s not fair! They promised us the sky would fall…

Bank Of England Report Finds Economy Has Not Slowed Since Brexit Vote (G.)

Theresa May’s new administration has received a significant boost from a Bank of England report showing that the economy has been resilient in the first few weeks since the Brexit vote and displays no general signs of slowing down. The monthly survey by the Bank’s regional agents – considered to be the “eyes and ears” of policymakers in Threadneedle Street – found that a majority of firms questioned were not planning to mothball investment or change hiring plans. Even so, City analysts said the Bank was still likely to announce fresh stimulus measures for the economy next month in anticipation that the better-than-expected economic news since the referendum would not last.

Howard Archer, chief UK economist at IHS Global Insight, said: “While there may be some relief that the economy may have dodged an immediate sharp slowdown from the Brexit vote, the danger is still very much there given the major uncertainty that is apparent – and there seems a compelling case for the Bank of England to deliver a substantial package of measures at its August meeting to try and bolster business and consumer confidence” The agents’ report was released at the same time as the Office for National Statistics reported that the labour market remained solid in the period from March to May, the first three months of the referendum campaign, with the jobless rate falling to its lowest level in more than a decade.

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Question: why did this talke so long?

US Links Malaysia PM, Wolf of Wall Street to Millions Stolen From 1MBD (WSJ)

U.S. prosecutors have linked the prime minister of Malaysia, a key American ally in Asia, to hundreds of millions of dollars allegedly siphoned from one of the country’s economic development funds, according to a civil lawsuit seeking the seizure of more than $1 billion of assets from other people connected to him. The Justice Department filed lawsuits Wednesday to seize assets that it said were the result of $3.5 billion that was misappropriated from 1Malaysia Development Bhd., or 1MDB, a fund set up by Prime Minister Najib Razak in 2009 to boost the Malaysian economy. The move sets up a rare confrontation between U.S. prosecutors and an important partner in the fight against terrorism.

The moderate Muslim nation is also a counterpoint to China’s rising ambitions in Asia. Among the Justice Department’s assertions: That some $1 billion originating with 1MDB was plowed into hotels; luxury real estate in Manhattan, Beverly Hills and London; fine art; a private jet and the 2013 film “The Wolf of Wall Street.” Among those behind the spending, the lawsuit alleges, was Riza Aziz, stepson of Mr. Najib. No criminal charges were filed. The Malaysian people were defrauded on an enormous scale, said Deputy FBI Director Andrew McCabe at a news conference announcing the complaints. The asset seizure would be the largest ever by the Justice Department’s anticorruption unit.

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Excuse me, but how did Goldman Sachs end up not being mentioned?

Singapore Finds UBS, DBS, StanChart ‘Failings’ in 1MDB Probe (BBG)

Singapore vowed to take action against four banks for failures in anti-money laundering controls and said it seized S$240 million ($177 million) in assets linked to alleged fraud at the Malaysian state investment company known as 1MDB. Preliminary findings uncovered “instances of control failings” in UBS’s Singapore branch, Standard Chartered’s local unit and DBS, as well as “substantial breaches” of anti-money laundering regulations at Falcon Private Bank in the city-state, the Monetary Authority of Singapore said in a statement Thursday. The regulator’s probe, which started in March 2015, is part of global investigations into 1Malaysia Development Bhd. that stretch across Abu Dhabi, Switzerland, the Caribbean, Hong Kong and the U.S.

More than $3.5 billion was misappropriated from the Malaysian firm, and about $1 billion laundered through the U.S. banking system, the U.S. Justice Department said Wednesday as it launched what could potentially be its biggest ever seizure for such ill-gotten gains. “Supervisory examinations of financial institutions with 1MDB-related fund flows have revealed a complex international web of transactions involving multiple entities and individuals operating in several jurisdictions,” the Singapore central bank said. “Certain financial institutions in Singapore were among those used as conduits for these transactions” and MAS will be taking actions against them, it said.

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It’s really years too late to blame ratings agencies for one’s troubles.

Erdogan Declares State Of Emergency, Warns S&P ‘Don’t Mess With Turkey’ (ZH)

Having warned earlier of the possibility, Turkish President Tayyip Erdogan on Wednesday announced a three-month state of emergency, saying this would enable the authorities to take swift and effective action against those responsible for last weekend’s failed military coup. He explicitly focused on the effort across his nation to “effectively tackle the Gulen movement,” as Erdogan stated that there might be more plans to continue coup attempts. The state of emergency, which comes into force after it is published in Turkey’s official gazette, will allow the president and cabinet to bypass parliament in passing new laws and to limit or suspend rights and freedoms as they deem necessary. The decision has immediately raised fears of more arbitrary arrests, killings and disappearances.

“The aim of the declaration of the state of emergency is to be able to take fast and effective steps against this threat against democracy, the rule of law and rights and freedoms of our citizens,” the president said. Erdogan, who has launched mass purges of state institutions since the July 15 coup attempt by a faction within the military, said the move was in line with Turkey’s constitution and did not violate the rule of law or basic freedoms of Turkish citizens. The president added that “citizens should have no concerns for democracy,” and warned ratings egency S&P “not to mess with Turkey” and comforted his citizens that a “state of emergency does not mean military rule” and that the decision was not against the constitution.

Erdogan said regional governors would receive increased powers under the state of emergency, adding that the armed forces would work in line with government orders. But most amusingly, Erdogan promptly warned S&P, which earlier today downgraded Turkey to BB, “not to mess with Turkey” and that the decision to downgrade the country was political. Finally, he lashed out at Europe, “which he said does not have the right to criticize this decision,” anticipating expressions of “concern” from the European Union, which has become increasingly critical of Turkey’s rights record and has urged restraint as Ankara purges its state institutions since the abortive coup.

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Ther are people who think they can shut down WikiLeaks? What do they think the US has been trying to do for years?

Wikileaks, About To Expose Turkish ‘Coup’, Under ‘Sustained Attack’ (TAM)

Wikileaks claimed Monday it was under attack after it announced it would release hundreds of thousands of documents related to Turkey and the failed military coup attempted Friday, CNET reported. The organization, which has released information on everything from war crimes to Hillary Clinton’s email scandal, announced Sunday it would be releasing 100,000 documents related to Turkey’s “political power structure,” some of which detail the “leadup” to the coup.

ANNOUNCE: Get ready for a fight as we release 100k+ docs on #Turkey’s political power structure. #TurkeyCoup #Soon
— WikiLeaks (@wikileaks) July 18, 2016

Wikileaks anticipated the release would be censored in Turkey, cautioning in a three-part tweet posted Monday: “Turks will likely be censored to prevent them reading our pending release of 100k+ docs on politics leading up to the coup. We ask that Turks are ready with censorship bypassing systems such as TorBrowser and uTorrent and that everyone else is ready to help them bypass censorship and push our links through the censorship to come.” The Turkish government, headed by President Recep Tayyip Erdogan, has increasingly ramped up censorship efforts against journalists, lending credibility to Wikileaks suspicions their release may not fully reach Turkish citizens—especially considering the latest leak concerns his ruling party, AKP.

As CNET noted: “Facebook, Twitter and YouTube were reportedly blocked in Turkey during the attempted coup Friday, but many residents appear to have gotten around the blocks, posting messages and videos, likely using VPNs or other anonymizing services.”
Throughout Monday, Wikileaks continued to promote the release. (“Turks ask whether WikiLeaks is pro or anti-AKP. Neither. Our only position is that truth is the way forward. 100k+ docs serves all sides. – WikiLeaks (@wikileaks) July 18, 2016”). They then tweeted that instead of 100,000 documents, they would actually be releasing far more. “Our pending release of 100k docs on Turkish political power? Just kidding. The first batch is 300k emails, 500k docs,” they announced.

But just hours later, they alerted followers their website was being attacked. “Our infrastructure is under sustained attack,” they tweeted, alongside the hashtag, #TurkeyPurge. “We are unsure of the true origin of the attack. The timing suggests a Turkish state power faction or its allies. We will prevail & publish,” Wikileaks tweeted shortly after.

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Greece will be nervous.

Reports Of Turkish Commandos In Greek Aegean Put Athens On Alert (Kath.)

Reports that a group of Turkish military commandos tried to cross from Turkey to the island of Symi, in the southeastern Aegean, put the Greek armed forces on alert on Wednesday amid fears that ties between Greece and Turkey could be tested in the wake of a failed coup in the neighboring country. The Greek Coast Guard was on alert from around 11 a.m. when a group of inflatable dinghies and other vessels were seen departing from Datca, on the Turkish coast, in the direction of Symi. Confused intelligence referred to the presence of around 20 Turkish commandos on those vessels. Athens had been anticipating a possible attempt by participants in the failed coup to come to Greece and so took the reports seriously.

Later in the day, citing Turkish military officials, Reuters reported that Turkish F-16 fighter jets were scrambled to check reports that missing Turkish coast guard vessels had appeared in Greek waters in the Aegean. Some Turkish military hardware was stolen and used in the failed coup but Turkish government officials have insisted that no military equipment remains unaccounted for. Later on Wednesday, the Turkish interior ministry denied claims that rebel soldiers might have “hijacked” a vessel to flee to Greece, Reuters reported. Sources of the Hellenic Air Force confirmed that two Turkish F-16s had conducted patrols but they said they remained in Turkish air space. The Greek Coast Guard monitored the movements of the Turkish vessels, which remained in Turkish waters. Also, a contingent of the Greek Police was dispatched to Symi to conduct checks there.

The developments came after a statement by Foreign Minister Nikos Kotzias on the anniversary of the Turkish occupation of Cyprus prompted a terse reaction by Ankara. “Greece does not and will never accept the consequences of the Turkish invasion,” Kotzias said. “It has made it clear to all sides that the elimination of the anachronistic system of guarantees and the withdrawal of all Turkish occupation forces – which, as the recent events in Turkey confirmed, undermine rather than ensure constitutional order and democratic normalcy – are an integral part of the solution of the Cyprus problem.” The Turkish Foreign Ministry responded that linking the Cyprus situation to recent events in Turkey was “ill-intentioned” and “unfortunate,” and called on Athens to avoid trying to benefit from the events and to display good neighborly behavior.

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Orlov contends that Erdogan is simply not that smart.

A Turkey of a Coup (Dmitry Orlov)

A lot of words have already been said in the past few days about the Turkish coup that couldn’t fly, but strangely enough some rather obvious things went unmentioned, so I’ll try to fill in a few gaps. Specifically, a lot of the things that have been said range from feeble-minded to utterly preposterous. If this is propaganda, then it sounds like very bad, weak propaganda. Still, there is no shortage of people endlessly repeating these talking points, whether because they get paid to or because they don’t know better. They are the ones I want to address.

Idiotic Theory #1: Erdogan staged his own coup in order to consolidate his power. Prior to the putsch, Erdogan went on vacation, which is traditionally the best time to overthrow a leader. For example, Gorbachev’s tenure as “president” of USSR was ended by a putsch in August 1991 while he was on vacation. People who are busy staging a putsch to consolidate their power don’t go on vacations; they are too busy plotting and orchestrating. Erdogan attempted to fly back to Turkey, only to find that he couldn t land at Istanbul Ataturk, then found himself chased by hostile F-16s. He then flew toward Europe and requested political asylum in Germany, which was refused (bye-bye, Germany!). At some point it dawned on him that most of the army and virtually all of the people in Turkey were on his side, and so he called upon them to take to the streets in defense of the legitimate government.

He did this using an improvised public communications technique that was almost a mockery of itself: his face on a cell phone held in front of a television camera. What followed wasn’t some peaceful, timid demonstration in support of the status quo but gonzo political action, complete with civilians laying down in front of tanks and getting crushed, followed by other civilians jumping on top of tanks and slitting the drivers’ throats. The putsch crumbled. The optics of all of this are hard to misread. He went on vacation; he tried to flee; he begged his people for help over a cell phone. He ended up looking like a very weak and confused leader in a region where leaders either look strong or they don’t stay leaders for long. Do you still think that he planned all this? I don’t.

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Demand.

More Pain Seen For US Crude As Product Glut Adds To Gloom (R.)

A glut of refined products has worsened the already-grim outlook for U.S. crude oil for the rest of the year and the first half of 2017, traders warned this week, as the spread between near-term and future delivery prices reached its widest in five months. A stubborn, massive supply overhang punished crude over the winter as U.S. oil futures hit 12-year lows in February. As supply outages and production cuts increased, crude rallied and spreads tightened significantly in May. But the unusually large amount of gasoline and oil in storage, combined with expectations of a ramp-up in crude production, has made traders more bearish on the price outlook for late 2016 and early 2017.

West Texas Intermediate (WTI) futures for delivery in September traded at a discount of as much as $2.23 to those for delivery in December on Wednesday, the biggest this year. Turnover in that spread soared, touching a record high of more than 19,000 contracts, or about 19 million barrels of oil. December spreads, which are the most actively traded, have also blown out in the past month. The discount of the WTI December 2016 contract to December 2017 widened to $4.11 last week. On Wednesday it traded as wide as $3.92 with over 15,000 lots traded. In May that spread had narrowed to just 50 cents, the tightest since November 2014.

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The craziest thing of all is foreign buyers often get credit from foreign banks, so New Zealand can only do so much; other than ban foreign buyers outright.

New Zealand House Bubble Warning Will ‘Shake Government’ (NZH)

A top banker’s dire warning about New Zealand’s overheated house prices shows the market is in crisis and an immigration rethink is needed, Labour says. In a strongly worded opinion piece, ANZ chief executive David Hisco has warned Auckland property prices are over-cooked and the end would likely be messy. He has joined several leading establishment figures in calling for stronger action on housing, and warns yesterday’s Reserve Bank lending restrictions did not go far enough. Hisco’s comments come after Finance Minister Bill English and Housing Minister Nick Smith signalled they expected property values to slow or drop.

Both told first home buyers to ride the bubble out before buying. Labour finance spokesman Grant Robertson said Hisco’s message reflected the fact the housing market was in crisis. “This is the kind of warning from inside the system that should, if nothing else, shake the Government.” Labour policy is to ban foreign buyers, extend the “bright line” test to five years so investment properties on-sold within five years have to pay a tax on the capital gains achieved, fast-track the building of affordable homes and begin consultation on ending negative gearing.

[..] NZ First leader Winston Peters said Hisco’s warning of a “messy end” was totally predictable and avoidable but had been ignored by the Government and others for too long. “There will be a correction. It is going to be enormously painful for hundreds of thousands of New Zealanders and that’s the sad part about it. Many people will lose their equity. But any conception such a build up in the house price bubble could go on shows what enormous denial the political system is in.” Peters said English and Smith were trying to stave off the inevitable. He did not believe the Reserve Banks’ moves this week to increase loan to value radios for investors from 30 to 40 per cent deposits would have much impact. “It’s crude, it’s blunt and not helpful.”

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Note: this is well before the ‘Greece crisis’, and well before Syriza was elected.

Greek Brain Drain Amounted To 223,000 People In 2008-2013 (Kath.)

A special study by the Bank of Greece on Wednesday showed that 223,000 young people left the country from 2008 to 2013 in search of a better future abroad, constituting the so-called “brain drain.” The results of recent research point to the vast majority of people aged between 25 and 39 years who left the country in the first five years of the Greek recession being single and with a university degree. The young Greeks left not only due to unemployment and adverse economic conditions but also because of state’s failure to provide and generate opportunities for professional evolution.

The Bank of Greece study revealed that the momentum and magnitude of the phenomenon makes it essential to record its characteristics and to investigate the factors that are in play before analyzing the negative consequences for the local economy. The main characteristic identified is that it mainly concerns the section of the workforce that is healthy, educated and specialized, and has high mobility and employability rate. The central bank also attributed the growth of the brain drain to the failure of the local education system to produce high-quality human capital and to the inability of the domestic economy to hold on to and attract talented workers.

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It’s not the air.

Warmer Water, Not Air, Drives Antarctic Peninsula Glacier Melt (CB)

The Antarctic Peninsula is a long, relatively narrow limb extending 800 miles out from West Antarctica, and is home to hundreds of glaciers. These rivers of ice ooze their way down through the Peninsula’s rocky mountain range and into the ocean, powered by gravity and their own weight. But of the 674 glaciers on the Peninsula’s western side, almost 90% are retreating. This happens when their ice melts faster than new snowfall can replenish it. The prevailing theory has been that warming air are melting the glaciers. But a new study, just published in Science, finds that the main cause is actually rising ocean temperatures. As the Peninsula’s glaciers are among the main contributors to sea level rise, knowing how and why they’re changing will help make predictions more accurate, the lead author tells Carbon Brief.

The Antarctic Peninsula is one of the fastest warming regions on Earth. Temperatures have risen by more than 3C over the past 50 years. The warming atmosphere has caused some remarkable changes to the eastern side of the Peninsula. The Larsen ice shelf, a floating sheet of ice formed from glaciers spilling out onto the cold ocean, has lost two of its four sections in recent decades. Larsen-A collapsed in 1995, followed by its neighbour, Larsen-B, in 2002. Rising air temperatures are also contributing to the thinning of Larsen-C, which is now at risk of collapse. Over on the western side of the Peninsula, around 600 small glaciers of various shapes and sizes have also been melting.

Scientists had thought that warming air temperatures were the likely cause of these retreating glaciers, says lead author Dr Alison Cook, a research fellow at the Durham University. She explains to Carbon Brief: “Few of these glaciers had been studied in detail and it was thought that their retreat was in response to the atmospheric warming, which has been the predominant driver on the eastern side.” However, recent research suggests the glaciers are retreating even more quickly than can be explained by just the warming atmosphere. Cook’s study finds that the main cause of glacier melt actually lies deep in the ocean – several hundred metres beneath the surface.


Average ocean temperatures (at a depth of 150m) and change in glacier size (in % per year) for 1945-2009 on the Antarctic Peninsula. The size and colour of the dots indicates glacier change – the larger, red dots showing the largest decrease, and the blue dots show stable glaciers that aren’t retreating. Ocean circulation and types of water mass are labelled as follows: Circumpolar Deep Water (CDW), Shelf Water (SW), Bransfield Strait Water (BSW), and Antarctic Circumpolar Current (ACC). Source: Cook et al. (2016)

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Jul 202016
 
 July 20, 2016  Posted by at 9:09 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Harris&Ewing Newsie, Washington DC 1920


To the Mattresses: Cash Levels Highest In Nearly 15 Years (CNBC)
The Financial System Is Breaking Down At An Unimaginable Pace (Black)
This ‘Market’ Discounts Nothing Except Monetary Cocaine (Stockman)
These Sicilian Mortgages Show How Hard It Is to Rescue Italian Banks (BBG)
Deal With Canada On The Brink as German Party Sues EU Over CETA (Exp.)
The Long, Sad, Corrupted Devolution Of The GOP (Intercept)
The World Is Taking Revenge Against Elites. When Will America’s Wake Up? (G.)
The Secret History of Glass-Steagall (WSJ)
We Need More Borders And More States (Mises Inst.)
June 2016 Was 14th Consecutive Month Of Record-Breaking Heat (G.)
This Year’s Record Arctic Melt Is a Problem For Everybody (Stone)

 

 

Breaking point.

To the Mattresses: Cash Levels Highest In Nearly 15 Years (CNBC)

Despite the post-Brexit market rally, fund managers have gotten even more wary of taking risks. The S&P 500 has jumped about 8.5% since the lows hit in the days after Britain’s move to leave the EU, but that hasn’t assuaged professional investors. Cash levels are now at 5.8% of portfolios, up a notch from June and at the highest levels since November 2001, according to the latest BofA Merrill Lynch Fund Manager Survey. In addition to putting money under the mattress, investors also are looking for protection, with equity hedging at its highest level in the survey’s history. Indeed, fear is running high as investors believe that global financial conditions are tightening, despite nearly $12 trillion of negative-yielding debt around the world and the U.S. central bank on hold perhaps until 2017.

In fact, fear is running so high that BofAML experts think that it’s helping fuel the recent market rally. “Record numbers of investors saying fiscal policy is too restrictive and the first underweighting of equities in four years suggest that fiscal easing could be a tactical catalyst for risk assets going forward,” Michael Hartnett, chief investment strategist, said in a statement. Positioning changed, with a rotation from euro zone, banks and insurance companies shifting to the U.S., industrials, energy, technology and materials stocks. Fund managers believe that so-called helicopter money will become a reality, with 39% now anticipating the move compared to 27% in June.

Read more …

“..the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.”

The Financial System Is Breaking Down At An Unimaginable Pace (Black)

Now it’s $13 trillion. That’s the total amount of government bonds in the world that have negative yields, according to calculations published last week by Bank of America Merrill Lynch. Given that there were almost zero negative-yielding bonds just two years ago, the rise to $13 trillion is incredible. In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion. A year later in February 2016 it had nearly doubled to $7 trillion. Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago. Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.

Just like subprime mortgage bonds from ten years ago, these bonds are also toxic securities, since many of are issued by bankrupt governments (like Japan). Instead of paying subprime home buyers to borrow money, investors are now paying subprime governments. And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm. We’ll probably see $15 trillion, then $20 trillion, worth of negative-yielding subprime government debt within the next few months. So this trend will continue to grow for now, until, just like in 2008, the bubble bursts in cataclysmic fashion. It took several years for the first subprime bubble to pop. This one may take even longer. But even still, we can already see the consequences today.

A few months ago I told you about the remarkable $3.4 trillion funding gap in the US pension system. Remember, we’re not talking about Social Security– that has its own $40+ trillion shortfall. I’m talking about private companies’ retirement pensions, or public service worker pensions at the city and state level. (By the way, this is NOT strictly a US phenomenon. Europe suffers its own $2 trillion pension shortfall.) There’s zero mathematical probability that these pensions will be able to meet their obligations. They’re already underfunded. And the problem is getting worse, thanks in part to this plague of low and negative interest rates.

Read more …

“Regardless of whether the November winner is Hillary or the Donald, there is one thing certain. There will be no functioning government come 2017.”

This ‘Market’ Discounts Nothing Except Monetary Cocaine (Stockman)

[..]..whether the central banks buy public debt from the inventories of the 23 prime dealers and other market speculators or directly from the US treasury makes no technical difference whatsoever. The end state of “something for nothing” finance is the same in both cases. In fact, “helicopter money” is just a desperate scam emanating from the world’s tiny fraternity of central bankers who have walked the financial system to the brink, and are now trying to con the casino into believing they have one more magic rabbit to pull out of the hat. They don’t. That’s because it takes two branches of the state to tango in the game of helicopter money.

The unelected monetary central planners can run the digital printing presses at whim, and continuously “surprise” and gratify the casino gamblers with another unexpected batch of the monetary drugs. That has been exactly the pattern of multiple rounds of QE and the unending invention of excuses to prolong ZIRP into its 90th month. The resulting rises in the stock averages, of course, were the result of fresh liquidity injections and the associated monetary high, not the discounting of new information about economics and profits. By contrast, helicopter money requires the peoples’ elected representatives to play.

That is, the Congress and White House must generate large incremental expansions of the fiscal deficit—so that the central bankers can buy it directly from the US treasury’s shelf, and then credit the government’s Fed accounts with credits conjured from thin air. To be sure, the cynics would say – no problem! When have politicians ever turned down an opportunity to borrow and spend themselves silly, and to than be applauded, not chastised, for the effort? But that assumes we still have a functioning government and that today’s politicians have been 100% cured of their atavistic fears of the public debt. Alas, what is going to cause helicopter money to be a giant dud – at least in the US – is that neither of these conditions are extant.

Regardless of whether the November winner is Hillary or the Donald, there is one thing certain. There will be no functioning government come 2017.

Read more …

Rewriting the law to save your banks?

These Sicilian Mortgages Show How Hard It Is to Rescue Italian Banks (BBG)

Down the cobbled streets of Palermo, past baroque churches and gothic palaces, a lesson is lurking for Italy’s government as it hatches a plan to save the country’s banks. Sicily’s biggest city is the focal point of a 2007 securitization of non-performing loans, or NPLs, that shows just how long it can take to resolve soured loans in the country. The deal, known as Island Refinancing, should also act as a warning for investors of the dangers of buying similar securities as Italian banks gear up to sell more of them. The Island bonds are backed by two portfolios of NPLs originated by a Sicilian bank that’s now a subsidiary of UniCredit SpA. Just under half of the loans originated in the 1990s and they include residential mortgages as well as loans financing hotels and industrial buildings.

Unlike other asset-backed securities where interest and principal are paid through cash flows from mortgage or auto credit borrowers, investors in NPL securitizations depend on getting money back from soured loans – typically through the courts. And that’s where the problem lies. A court may auction the loan collateral and use the proceeds to pay the bonds, but that is a slow process. Italy is almost as well known these days for its sluggish and cumbersome insolvency procedures as it is for the Leaning Tower of Pisa or the AC Milan soccer club. Italian bankruptcy proceedings last an average of 7.8 years, compared to an average of just over two years for the rest of Europe.

Efforts are currently being made to speed up the process, with Prime Minister Matteo Renzi saying recent reforms to insolvency laws will shorten recovery times on NPL collateral to as little as six months. Still, the thus-far glacial pace of cash collections from NPLs has resulted in multiple credit ratings downgrades for the Island Refinancing deal, which will expire in 2025.

Read more …

The time for trade deals is over.

Deal With Canada On The Brink as German Party Sues EU Over CETA (Exp.)

Centre-left Die Linke has launched legal action to block the controversial Comprehensive Economic and Trade Agreement (CETA) pact, saying it is unconstitutional under German law. The party’s attempt to torpedo the hated deal is just the latest in a series of devastating trade blows for the EU, which is unravelling following the Brexit vote. And it reveals once more the cavernous differences opening up between different member states which have effectively rendered the European project unworkable. Earlier this month Canada’s despairing Trade Minister Chrystia Freeland asked: “If the EU cannot do a deal with Canada, I think it is legitimate to say who the heck can it do a deal with?”

But now there is a very real prospect that CETA will be torpedoed before it has even left port in a development which will throw the future of a much bigger deal with America into serious doubt. Negotiations over the Transatlantic Trade and Investment Partnership (TTIP) have ground to a halt, with impatient American officials warning Brussels to stop dragging their heels. The US chief negotiator said the proposed deal was nowhere near as enticing to Washington now that Britain has left the bloc, comparing a Europe without the UK to an America without California. Britain will not be affected by either calamity after voting to leave the EU, and is now free to begin informal talks on sealing its own trade deals with Canada, the US and the rest of the world.

Read more …

Lincoln, too, was a Republican.

The Long, Sad, Corrupted Devolution Of The GOP (Intercept)

In August 1956, the Republican Party gathered in San Francisco to re-nominate President Dwight D. Eisenhower as its candidate in the upcoming presidential election. The party that year adopted a platform that emphasized that the GOP was “proud of and shall continue our far-reaching and sound advances in matters of basic human needs.” This included boasting that Eisenhower had overseen a hike in the federal minimum wage that raised incomes for 2 million Americans while expanding Social Security to 10 million more people and increasing benefits for 6.5 million others.

Today’s Republican Party has made weakening labor unions a priority, but the 1956 platform noted that under Eisenhower, “workers have gained and unions have grown in strength and responsibility, and have increased their membership by 2 millions.” It also touted an increase in federal funding for hospital construction and expanded federal aid for health care for the poor and public housing. The platform also pointed out that Eisenhower had asked for “the largest increase in research funds ever sought in one year” to tackle ailments like cancer and heart disease. Rather than opposing self-governance for Washington, D.C., 1956’s Republicans encouraged it, saying they “favor self-government national suffrage and representation in the Congress of the United States” for those living there.

The platform also asked Congress to submit a constitutional amendment establishing “equal rights for men and women.” The platform boasted proudly of the African-Americans who had been appointed to positions in Eisenhower’s administration, and of ending racial discrimination in federal employment. At no point did the document call for any restrictions on immigration; rather, by contrast, it asked Congress to consider an extension of the 1953 Refugee Act, which brought tens of thousands of war-weary European refugees to American shores. Dwight D. Eisenhower was the face of the Republican Party in the 1950s. He had served as the supreme commander of the Allied forces as they retook Europe from fascist militaries in the decade before.

Experiencing two global wars shaped Eisenhower’s worldview, turning him into an advocate of peace. Eisenhower cut the military budget by 27% following the Korean War, and used his bully pulpit to highlight the trade-offs of military spending. “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed,” he said in a 1953 speech. In his farewell address on January 17, 1961, he highlighted the rise of what he called a “military-industrial complex” — a war industry that he cautioned could exert “undue influence” on the government.

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When indeed?

The World Is Taking Revenge Against Elites. When Will America’s Wake Up? (G.)

A snapshot of America in the middle of June 2016. It is several days before the first great shock of the summer, the Brexit vote, and here in America, all is serene. The threat posed by Senator Bernie Sanders has been suppressed. The Republicans have chosen a preposterous windbag to lead them; the consensus is that he will be a pushover. For all the doubts and dissent of the last year, the leadership faction of the country’s professional class seem to have once again come out on top, and they are ready to accept the gratitude of the nation. And so President Barack Obama did an interview with Business Week in which he was congratulated for his stewardship of the economy and asked “what industries” he might choose to join upon his retirement from the White House.

The president replied as follows: “… what I will say is that – just to bring things full circle about innovation – the conversations I have with Silicon Valley and with venture capital pull together my interests in science and organization in a way I find really satisfying.” In relating this anecdote, I am not aiming to infuriate because the man we elected in 2008 to get tough with high finance and shut the revolving door was now talking about taking his own walk through that door and getting a job in finance. No. My object here is to describe the confident, complacent mood of the country’s ruling class in the middle of last month. So let us continue. On the morning after British voters chose to leave the EU, Obama was in California addressing an audience at Stanford University, a school often celebrated these days as the pre-eminent educational institution of Silicon Valley.

The occasion of the president’s remarks was the annual Global Entrepreneurship Summit, and the substance of his speech was the purest globaloney, flavored with a whiff of vintage dotcom ebullience. Obama marveled at the smart young creative people who start tech businesses. He deplored bigotry as an impediment that sometimes keeps these smart creative people from succeeding. He demanded that more power be given to the smart young creatives who are transforming the world. Keywords included “innovation”, “interconnection”, and of course “Zuckerberg”, the Facebook CEO, who has appeared with Obama on so many occasions and whose company is often used as shorthand by Democrats to signify everything that is wonderful about our era.

Read more …

“The law was seen as protecting the specialized securities firms from having to compete with large national banks..”

The Secret History of Glass-Steagall (WSJ)

The Republican party platform calls for a revival of the Glass-Steagall Act, a depression-era banking law repealed in 1999. Glass-Steagall was the brainchild of Sen. Carter Glass (D-VA), best known as the principal architect of the Federal Reserve system. It erected a firewall between deposit-taking/loan-making banks and securities activities such as underwriting and trading. Its original goal was to prevent three things: purchasing of risky securities with government-insured deposits, extending bad loans to shaky companies owned by a bank, and pushing underwritten securities onto naïve bank customers. The provision became law when the Banking Act of 1933 was passed within days of President Franklin Roosevelt taking office in March 1933 in an effort to restore public confidence in the banking system.

The same act created the Federal Deposit Insurance Corp., which insures bank deposits, as well as the Federal Open Market Committee, the monetary policy making board of the Federal Reserve. The act also banned banks from paying interest on checking accounts and granted the Fed authority to put ceilings on interest rates offered for other deposits. Far from resisting Glass-Steagall, Wall Street securities firms embraced and became its most vocal supporters. The law was seen as protecting the specialized securities firms from having to compete with large national banks funded by cheap retail and commercial deposits.

The law was strengthened by a 1956 law that put bank holding companies under the purview of the Federal Reserve and made it clear they could not control both a commercial bank and an investment bank. As the years passed, however, the wall separating securities firms and banks developed cracks—primarily because of pressure from banks wanting to expand into securities dealing. Banks won regulatory approval for their affiliates to underwrite government securities, mortgage-backed securities and commercial paper. They were allowed to provide brokerage services to customers and market insurance. Banks began providing advice and assistance on mergers, acquisitions and financial planning. All this occurred without the law being changed.

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The perks of decentralization.

We Need More Borders And More States (Mises Inst.)

In the context of trade and immigration, borders are often discussed as a means of excluding foreign workers and foreign goods. In one way of thinking, borders provide an opportunity for states to exclude private actors such as workers, merchants, and entrepreneurs. On the other hand, borders can also serve a far more endearing function, and this is found in the fact that borders represent the limits of a state’s power. That is, while borders may exclude goods and people, a state’s borders also often exclude other states. For example, East Germany’s border with West Germany represented the limits of the East German police state, beyond which the power of the Stasi to kidnap, torture, and imprison peaceful people was far more limited than it was within its native jurisdiction.

The West German border acted to contain the East German state. Similarly, the borders of Saudi Arabia delineate a limit to the Saudi regime’s ability to behead people for sorcery or for making critical remarks about the blood-soaked dictators known as the House of Saud. Even within a single nation-state, borders can illustrate the benefits of decentralization, as in the case of the Colorado-Nebraska border. On one side of the border (i.e., Nebraska) state police will arrest you and imprison you for possessing marijuana. They may kill you if you resist. On the other side of the border, the state’s constitution prohibits police from prosecuting marijuana users. The Colorado border contains Nebraska’s war on drugs.

Certainly, there are ways for regimes to extend their power even beyond their borders. This can be done by cozying up with the regimes of neighboring countries (or intimidating them), or through the organs of international quasi-state organizations. Or, as in the case of the US and EU, imposing broader policies upon a number of supposedly sovereign states. Nevertheless, thanks to the competitive nature of states, many states will often find it difficult to project their power into neighboring states, and thus borders represent a very-real impediment to a state’s power. This can then open the door to greater freedom, and even save lives as certain states impoverish or make war on their own citizens.

Read more …

When this streak is over everyone will think we’re safe.

June 2016 Was 14th Consecutive Month Of Record-Breaking Heat (G.)

As the string of record-breaking global temperatures continues unabated, June 2016 marks the 14th consecutive month of record-breaking heat. According to two US agencies – Nasa and Noaa – June 2016 was 0.9C hotter than the average for the 20th century, and the hottest June in the record which goes back to 1880. It broke the previous record, set in 2015, by 0.02C. The 14-month streak of record-breaking temperatures was the longest in the 137-year record. And it has been 40 years since the world saw a June that was below the 20th century average.

The string of record-breaking monthly temperatures began in April 2015, and was pushed along by a powerful El Niño, where a splurge of warm water spreads across the Pacific Ocean. But the effects of El Niño have receded, and the effects of global warming are clear, said Nasa’s Gavin Schmidt. “While the El Niño event in the tropical Pacific this winter gave a boost to global temperatures from October onwards, it is the underlying trend which is producing these record numbers,” he said.

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“..a Texas-sized chunk of sea ice has disappeared from our planet’s north pole between the early 1980s and today.”

This Year’s Record Arctic Melt Is a Problem For Everybody (Stone)

If your life has felt like a hot mess this year, you’re not alone. Same goes for the Arctic, which month after month has seen its ice cover contract to new lows. By late September, Arctic sea ice may reach its lowest extent since satellite record-keeping began. And that’s got scientists in a tizzy, because if there’s one thing geologic history has taught us, it’s that sudden drops in Arctic ice cover are often the tip of the proverbial iceberg for a whole slew of planetary feedbacks. It’s difficult to keep up with all the climate-related records our world has been smashing, so here’s a quick recap of what’s been happening up north.

At the close of 2015 (currently the hottest year in recorded history, but not for long), the Arctic was already sweating iceberg-shaped bullets, thanks to freakishly warm weather brought on by a combination of a monster El Niño and the underlying global warming trend. Then 2016 burst on the scene, with temperatures at the North Pole rising some fifty degrees Fahrenheit above normal. The Arctic stayed exceptionally hot through January and February. By the time March rolled around, the atmosphere was loaded with heat, and Arctic sea ice was already starting to look thin. NASA confirmed that it was indeed the smallest wintertime Arctic sea ice extent on the record books, peaking at some 5.6 million square miles (14.5 million square km).

Then, the Arctic started to melt. And it kept going, and going, and going, smashing record after record, month after month. As of this writing, we’ve just come off the fifth record-low sea ice month this year. Every month except March has marked an all-time monthly low, with June sea ice maxing out a full 100,000 square miles (260,000 square kilometers) below the previous record low, set in 2010. June sea ice was also 525,000 square miles (1.36 million square km) below the 1981-2010 average. Put another way, a Texas-sized chunk of sea ice has disappeared from our planet’s north pole between the early 1980s and today.

Read more …

Jul 192016
 
 July 19, 2016  Posted by at 3:13 pm Finance Tagged with: , , , , , , ,  14 Responses »
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M. King Hubbert

It’s been a while since we posted an article by our friend Euan Mearns, who was active at The Oil Drum at the same time Nicole and I were. Is it really 11 years ago that started, and almost 9 since we left? You know the drill: we ‘departed’ because they didn’t want us to cover finance, which we said was the more immediate crisis, yada yada. Euan stayed on for longer, and the once unequalled Oil Drum is no more.

On one of our long tours, which were based around Nicole’s brilliant public speaking engagements, we went to see Euan in Scotland, he teaches at Aberdeen University. I think it was 2011?! An honor. Anyway, always a friend.

And there’s ono-one I can think of who’d be better at explaining the Peak Oil Paradox in today’s context. So here’s a good friend of the Automatic Earth, Euan Mearns:

 

 

Euan Mearns: Back in the mid-noughties the peak oil meme gained significant traction in part due to The Oil Drum blog where I played a prominent role. Sharply rising oil price, OPEC spare capacity falling below 2 Mbpd and the decline of the North Sea were definite signs of scarcity and many believed that peak oil was at hand and the world as we knew it was about to end. Forecasts of oil production crashing in the coming months were ten a penny. And yet between 2008, when the oil price peaked, and 2015, global crude+condensate+NGL (C+C+NGL) production has risen by 8.85 Mbpd to 91.67 Mbpd. That is by over 10%. Peak oilers need to admit they were wrong then. Or were they?

 

 

Introduction

 

It is useful to begin with a look at what peak oil was all about. This definition from Wikipedia is as good as any:

Peak oil, an event based on M. King Hubbert’s theory, is the point in time when the maximum rate of extraction of petroleum is reached, after which it is expected to enter terminal decline. Peak oil theory is based on the observed rise, peak, fall, and depletion of aggregate production rate in oil fields over time.

Those who engaged in the debate can be divided into two broad classes of individual: 1) those who wanted to try and understand oil resources, reserves, production and depletion rates based on a myriad of data sets and analysis techniques with a view to predicting when peak oil may occur and 2) those who speculated about the consequences of peak oil upon society. Such speculation normally warned of dire consequences of a world running short of transport fuel and affordable energy leading to resource wars and general mayhem. And none of this ever came to pass unless we want to link mayhem in Iraq*, Syria, Yemen, Sudan and Nigeria to high food prices and hence peak oil. In which case we may also want to link the European migrant crisis and Brexit to the same.

[* One needs to recall that GWI was precipitated over Kuwait stealing oil from Iraq, from a shared field on the Kuwait-Iraq border, leading to the Iraqi invasion of 1991.]

The peak oil debate on The Oil Drum was a lightning conductor for doomers of every flavour – peak oil doom (broadened to resource depletion doom), economic doom and environmental doom being the three main courses on the menu. The discussion was eventually hijacked by Greens and Green thinkers, who, not content with waiting for doomsday to happen, set about manufacturing arguments and data to hasten the day. For example, fossil fuel scarcity has morphed into stranded fossil fuel reserves that cannot be burned because of the CO2 produced, accompanied by recommendations to divest fossil fuel companies from public portfolios. Somewhat surprisingly, these ideas have gained traction in The United Nations, The European Union and Academia.

It is not my intention to dig too deeply into the past. Firmly belonging to the group of data analysts, in this post I want to take a look at two different data sets to explore where peak oil stands today. Is it dead and buried forever, or is it lurking in the shadows, waiting to derail the global economy again?

 

 

The USA and Hubbert’s Peak

 

The USA once was the poster child of peak oil. The Peak Oil theory was first formulated there by M. King Hubbert who in 1956 famously forecast that US production would peak around 1970 and thereafter enter an era of never-ending decline (Figure 1). Hubbert’s original paper is well worth a read.

Figure 1 From Hubbert’s 1956 paper shows the peak and fall in US production for ultimate recovery of 150 and 200 billion barrels. The 200 billion barrel model shows a peak of 8.2 Mbpd around 1970 that proved to be uncannily accurate.

Looking to Figure 2 we see that Hubbert’s prediction almost came true. US production did indeed peak in 1970 at 9.64 Mbpd while Hubbert’s forecast was a little lower at 8.2 Mbpd. The post-peak decline was interrupted by the discovery of oil on the N slope of Alaska and opening of the Aleyska pipeline in 1977 that was not considered in Hubbert’s work. Herein lies one of the key weaknesses of using Hubbert’s methodology. One needs to take into account known unknowns. We know for sure that unexpected discoveries and unexpected technology developments will occur, it’s just we don’t know, what, when and how big.

Figure 2 In red, US crude oil production from the EIA shows progressive growth from 1900 to 1970. The oil industry believed this growth would continue forever and was somewhat aghast when M. King Hubbert warned the party may end in 1970 which it duly did. The discovery of oil in Alaska created a shoulder on the decline curve. But apart from that, Hubbert’s forecast remained good until 2008 when the shale drillers and frackers went to work. Hubbert’s 1970 peak was matched by crude oil in 2015 and exceeded by C+C+NGL that same year.

Following the secondary Alaska peak of 8.97 Mbpd (crude oil) in 1985, production continued to decline and reached a low of 5 Mbpd (crude oil) in 2008. But since then, the rest is history. The shale drillers and frackers went to work producing an astonishing turnaround that most peak oil commentators, including me, would never have dreamt was possible.

Before going on to contemplate the consequences of the shale revolution, I want to dwell for a moment on the production and drilling activity in the period 1955 to 1990. 1955 to 1970 we see that total rigs* declined from 2683 to 1027. At the same time crude oil production grew from 6.8 to 9.6 Mbpd. It was in 1956 that Hubbert made his forecast and in the years that followed, US production grew by 41% while drilling rigs declined by 62%. No wonder the industry scoffed at Hubbert.

[* Note that Baker Hughes’ archive pre-1987 does not break out oil and gas rigs from the total.]

But then post 1970, as production went into reverse, the drilling industry went into top gear, with operational rigs rising sharply to a peak of 3974 in 1981. But to no avail, production in the contiguous 48 states (excluding Alaska) continued to plunge no matter how hard the oil and its drilling industry tried to avert it. Hubbert must surely have been proven right, and his methodology must surely be applicable not only to the US but to the World stage?

The oil price crash of 1981 put paid to the drilling frenzy with rig count returning to the sub-1000 unit baseline where it would remain until the turn of the century. The bear market in oil ended in 1998 and by the year 2000, the US drilling industry went back to work, drilling conventional vertical wells at first but with horizontal drilling of shale kicking in around 2004/05. Production would turn around in 2009.

Those who would speak out against peak oil in the mid-noughties, like Daniel Yergin and Mike Lynch, would argue that high price would result in greater drilling activity and technical innovation that would drive production to whatever level society demanded. They would also point out that new oil provinces would be found, allowing the resource base to grow. And they too must surely have been proved to be correct.

But there is a sting in the tail of this success story since drilling and producing from shale is expensive, it is dependent upon high price to succeed. But over-production of LTO has led to the price collapse, starving the shale drilling industry of cash flow and ability to borrow, leading to widespread bankruptcy. In fact informed commentators like Art Berman and Rune Likvern have long maintained that the shale industry has never turned a profit and has survived via a rising mountain of never ending debt. Economists will argue, however, that improved technology and efficiency will reduce costs and make shale competitive with other sources of oil and energy. We shall see.

Herein lies a serious conundrum for the oil industry and OECD economies. They may be able to run on shale oil (and gas) for a while at least, but the industry cannot function properly within current market conditions. Either prices need to be set at a level where a profit can be made, or production capped to protect price and market share. This of course would stifle innovation and is not likely to happen until there are queues at gas stations.

 

 

2008-2015 Winners and Losers

 

BP report oil production data for 54 countries / areas including 5 “other” categories that make up the balance of small producers in any region. I have deducted 2008 production (barrels per day) from 2015 production and sorted the data on the size of this difference. The data are plotted in Figure 3.

Figure 3 The oil production winners to the left and losers to the right, 2008 to 2015. The USA is the clear winner while Libya is the clear loser. About half of the countries show very little change. Click chart for a large readable version.

What we see is that production increased in 27 countries and decreased in the other 27 countries. One thing we can say is that despite prolonged record-high oil price, production still fell in half of the world’s producing countries. We can also see that in about half of these countries any rise or fall was barely significant and it is only in a handful of countries at either end of the spectrum where significant gains and losses were registered. Let’s take a closer look at these.

Figure 4 The top ten winners, 2008 to 2015.

The first thing to observe from Figure 4 is that the USA and Canada combined contributed 7.096 Mbpd of the 8.852 Mbpd gain 2008-2015. That is to say that unconventional light tight oil (LTO) production from the USA and LTO plus tar sands production from Canada make up 80% of the global gain in oil production (C+C+NGL). Iraq returning to market in the aftermath of the 2003 war makes up 18%. In other words expensive unconventional oil + Iraq makes up virtually all of the gains although concise allocation of gains and losses is rather more complex than that. Saudi Arabia, Russia, The UAE, Brazil, China, Qatar and Colombia have all registered real gains (5.258 Mbpd) that have been partly cancelled by production losses elsewhere.

Figure 5 The top ten losers, 2008 to 2015.

Looking to the losers (Figure 5) we see that Libya, Iran, Syria, Sudan and Yemen contribute 2.828 Mbpd of lost production that may be attributed to war, civil unrest or sanctions. I am not going to include Venezuela and Algeria with this group and will instead attribute declines in these countries (0.979 Mbpd) to natural reservoir depletion, although a slow down in OECD technical assistance in these countries may have exacerbated this situation. That leaves the UK, Mexico and Norway as the three large OECD producers that register a significant decline (1.687 Mbpd) attributed to natural declines in mature offshore provinces. Let me try to summarise these trends in a balance sheet:

Figure 6 The winner and loser balance sheet.

We see that these 20 countries account for 8.463 Mbpd net gain compared with the global figure of 8.85 Mbpd. We are capturing the bulk of the data and the main trends. In summary:

  • Unconventional LTO and tar sands + 7.096 Mbpd
  • Net conventional gains + 2.592 Mbpd
  • Net conflict losses -1.225 Mbpd

The sobering point here for the oil industry and society to grasp is that during 8 years when the oil price was mainly over $100/bbl, only 2.592 Mbpd of conventional production was added. That is about 3.1%. Global conventional oil production was all but static. And the question to ask now is what will happen in the aftermath of the oil price crash?

One lesson from recent history is that the oil industry and oil production had substantial momentum. It is nearly two years since the price crash, and while global production is now falling slowly it remains in surplus compared with demand. This has given the industry plenty time to cut staff, drilling activity and to delay or cancel projects that depend upon high price. In a post-mature province like the North Sea, the current crisis will also hasten decommissioning. It seems highly likely that momentum on the down leg will be replaced by inertia on the up leg with a diminished industry unwilling to jump back on the band wagon when price finally climbs back towards $100 / bbl, which it surely will do one day in the not too distant future.

For many years I pinned my colours to peak oil occurring in the window 2012±3 years. Noting that the near-term peak was 97.08 Mbpd on July 15 2015 it is time to dust off that opinion (Figure 7). The decline since the July 2015 peak is of the order 2% per annum (excluding the Fort McMurray impact). It seems reasonable to presume that this decline may continue for another two years, or even longer. That would leave global production at around 92 Mbpd mid 2018. It is nigh impossible to predict what will happen, especially in a world over run by political and economic uncertainty. Another major spike in oil price seems plausible and this could perhaps destabilise certain economies, banks and currencies. Should this occur, another price collapse will follow, and it’s not clear that production will ever recover to the July 2015 peak. Much will depend upon the future of the US shale industry and whether or not drilling for shale oil and gas gains traction in other countries.

Figure 7 The chart shows in blue global total liquids production (C+C+NGL+refinery gains+biofuels) according to the Energy Information Agency (EIA). The near term peak was 97.08 Mbpd in July 2015. The decline since then, excluding the Fort McMurray wild fire impact, is of the order 2% per annum. In the current low price environment, it is difficult to see anything arresting this decline before the end of next year. In fact, decline may accelerate and go on beyond the end of 2017. The dashed line shows the demand trajectory and scheduled balancing of supply and demand by the end of this year. By the end of next year the supply deficit could be of the order 3 Mbpd which on an annualised basis would result in a stock draw of 1.1 billion barrels. But remember, forecasts are ten a penny 🙂

 

 

Concluding Thoughts

 

  1. M. King Hubbert’s forecast for US oil production and the methodology it was based on has been proven to be sound when applied to conventional oil pools in the USA. When decline takes hold in any basin or province, it is extremely difficult to reverse even with a period of sustained high price and the best seismic imaging and drilling technology in the world.
  2. On this basis we can surmise that global conventional oil production will peak one day with unpredictable consequences for the global economy and humanity. It is just possible that the near term peak in production of 97.08 Mbpd in July 2015 may turn out to be the all-time high.
  3. Economists who argued that scarcity would lead to higher price that in turn would lead to higher drilling activity and innovation have also been proven to be correct. Much will depend upon Man’s ability to continue to innovate and to reduce the cost of drilling for LTO in order to turn a profit at today’s price levels. If the shale industry is unable to turn a profit then it will surely perish without State intervention in the market.
  4. But from 2008 to 2015, oil production actually fell in 27 of 54 countries despite record high price. Thus, while peak oil critics have been proven right in North America they have been proven wrong in half of the World’s producing countries.
  5. Should the shale industry perish, then it becomes highly likely that Mankind will face severe liquid fuel shortages in the years ahead. The future will then depend upon substitution and our ability to innovate within other areas of the energy sector.

 

 

Related reading:

 

From Rune Likvern:

The Bakken LTO extraction in Retrospect and a Forecast of Near Future Developments

Bakken(ND) Light Tight Oil Update with Sep 15 NDIC Data

Are the Light Tight Oil (LTO) Companies trying to outsmart Mother Nature with their Financial Balance Sheets?

From Enno Peters:

Visualizing US shale oil production

Jul 192016
 
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Russell Lee Tracy, California. Gasoline filling station 1942


Republican Platform Calls For Return Of Glass-Steagall (MW)
Calpers Targets 7.5% Investment Return, Earns Just 0.6% In Latest FY (BBG)
Oil Prices Fall On Oversupply Concerns Despite Output Cuts (R.)
Alberta Is In The Midst Of Its Worst Recession On Record (BBG)
China’s Local Debt Problem Goes Global (BBG)
Middle-Income Families In UK Resemble The Poor Of Years Past (G.)
Brexit Could Cut London House Prices By 30-50%: SocGen (G.)
New Zealand to Rein in Housing Boom (BBG)
‘NZ First-Home Buyers Should Benefit From Central Bank Proposal’ (Stuff)
Greek Pensioners Protest Cuts At Top Constitutional Court (Kath.)
There Will Be No Second American Revolution (Whitehead)
Britain’s Part In Torture And Rendition Is Still Kept Hidden (Conv.)
Hans-Hermann Hoppe: “Put Your Hope In Radical Decentralization” (Mises Inst.)

 

 

“Opponents of the return of Glass-Steagall were swift to react. “Glass-Steagall is dumb politics and dumb economics…”

Republican Platform Calls For Return Of Glass-Steagall (MW)

Republicans and Democrats are both bending over backwards to show that they are not beholden to Wall Street. The Republican Party platform, released late Monday, calls for the return of Glass-Steagall restrictions on banks. Paul Manafort, campaign manager for presumptive GOP nominee Donald Trump, told reporters earlier Monday the language would be included. “We believe that the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is one of the reasons why you see all the Wall Street money going to [Hillary Clinton],” Manafort said.

Glass-Steagall was a Depression-era measure restricting commercial banks from the investment-banking business. The measure was repealed in 1999. Some critics contend that loosening of the banking rules played a role in the subsequent financial crisis. Manafort’s comments suggest Republicans hope to use the issue against Clinton, the presumptive Democratic nominee. The measure was a major point of contention between Bernie Sanders and Clinton in the Democratic primary. The Democratic platform also includes language calling for a modern version of Glass-Steagall. Party platforms have no teeth. But having Glass-Steagall in both platforms suggests Congress will likely consider the issue next year.

Opponents of the return of Glass-Steagall were swift to react. “Glass-Steagall is dumb politics and dumb economics … returning to Glass-Steagall would be destructive and unworkable,” said Tony Fratto, managing partner in Washington at Hamilton Place Strategies, a lobbying firm that represents large banks. Brian Gardner, an analyst at Keefe, Bruyette & Woods, said the market may be underestimating the likelihood of a forced breakup of big banks. “There is an unappreciated risk that Glass-Steagall might be reimposed in 2017 or 2018, especially if Congress seriously looks at changes to the Dodd-Frank Act. We think this is the case regardless of who wins the presidential election,” he said in a note to clients.

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And Calpers is not some outlier.

Calpers Targets 7.5% Investment Return, Earns Just 0.6% In Latest FY (BBG)

The California Public Employees’ Retirement System, the largest U.S. public pension fund, earned a return of 0.6% on its investments last fiscal year, trailing its long-term target as holdings in stocks and forestland lost money. The pension’s public equity portfolio lost 3.4% in the year through June 30 and forestland assets declined 9.6%, Chief Investment Officer Ted Eliopoulos said Monday. Fixed-income holdings rose 9.3% and infrastructure investments gained 9%. “The longer-term returns of the fund – the three-, five-, 10-, 15- and 20-year total returns of the fund – are now below the assumed rate of 7.5% for the fund,” Eliopoulos said. “That’s a significant policy issue for us.”

The system must average at least 7.5% a year to match its assumed rate of return or turn to taxpayers to make up the difference. Calpers’s annualized returns were 6.9% for the last three years, 5.1% for the last 10 years and 7% over 20 years, according to a presentation to the board. It is among U.S. pensions under pressure to boost investment returns as funding shortfalls increase amid an aging population and low interest rates. In fiscal 2015, Calpers earned 2.4%. The pension lost a quarter of its value in 2009. Two years later, it earned a record 20.7% only to see the gain drop to 1% one year later. Since the recession, the fund has sought to better gauge its risks from market volatility.

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One day even Reuters will have to admit that demand is way down…

Oil Prices Fall On Oversupply Concerns Despite Output Cuts (R.)

Oil prices eased on Tuesday as concerns over a crude and refined fuel glut outweighed an expected cut in U.S. shale production and a probable further draw in U.S. crude inventories. Crude prices fell more than 1% in the previous session after worries about potential supply disruptions stemming from an attempted coup in Turkey proved unfounded. “Prices are a bit softer in the Asian trading period – traders and investors are torn which way prices are going to break. It’s a knife edge between optimism and pessimism,” said Ben Le Brun, market analyst at Sydney’s OptionsExpress. The market is waiting for U.S. crude stocks data on Tuesday and Wednesday to help give direction to prices, he said.

Brent crude slipped 11 cents to $46.85 a barrel as of 0657 GMT after finishing the previous session down 65 cents, or 1.4%. U.S. crude, known as West Texas Intermediate (WTI), fell 11 cents to $45.13 a barrel after settling 71 cents, or about 1.6%, lower in the previous session. Fuel inventories in the United States, Europe and Asia are brimming despite this being the peak summer driving season, leading traders to store diesel on tankers at sea amid wilting demand growth. With landed oil product storage nearly full as well, there is little support for any sustained recovery in crude prices even as output tapers. U.S. shale oil production is expected to fall in August for a tenth straight month, by 99,000 barrels per day (bpd) to 4.55 million bpd, according to a U.S. drilling productivity report on Monday.

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And here’s the result of the demand collapse:

Alberta Is In The Midst Of Its Worst Recession On Record (BBG)

Alberta, the home of Canada’s oil sands, is going through its worst downturn in activity on record as a prolonged period of low oil prices and the wildfires earlier this year buffet the provincial economy. According to Toronto-Dominion Bank’s economics team, the cumulative annual%age contraction in real output projected for 2015 to 2016 exceeds even the financial crisis, as well as the last supply-side driven crash in oil prices in the mid-1980s, in magnitude. While the recent episode seems poised to be the worst single recession on record, the two recessions in the 1980s mean that stretch is still likely to be regarded as the most challeng≠ing period in the post-war period in Alberta, says a TD team led by Deputy Chief Economist Derek Burelton.

However, TD s team notes that labor market indicators point to a more mild downturn. Periods of boom followed by bust are no strangers to an econ≠omy that is tied to the vagaries of the global oil market, write the economists. The current recession is expected to yield a cumulative annual decline in real GDP of around 6.5%, which is more than twice that of the average of past downturns. While economic activity appeared to be picking up earlier this year, the wildfires that wreaked havoc in the region and disrupted oil operations threw a wrench in the province s nascent comeback story. The economists note that the softness in the Canadian dollar and low interest rates helped Alberta s economy escape an even worse fate.

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Buying into the last stages of a bubble.

China’s Local Debt Problem Goes Global (BBG)

A very local problem in China is being exported at an alarming rate.Debt from special-purpose vehicles linked to municipal and provincial governments — leverage that central authorities are trying (unsuccessfully) to extinguish — is becoming more common in overseas markets. What’s worse, lately it’s been the weakest cities and provinces panhandling to international investors.Since June, as many as six local government financing vehicles have sold dollar bonds, bringing the total issued by such entities to at least $4 billion this year, just shy of the record $4.1 billion logged in all of 2015. Three offerings were scored below investment grade by Fitch, whereas prior to 2016, only one junk security of its kind had surfaced internationally.

Investors should ask why these localities are going abroad when all their revenue is onshore. Could it be that they’re having a harder time raising funds domestically?That wasn’t always the case.After a 1994 law banned regional authorities from issuing bonds directly, LGFVs were set up in their thousands in China to fund infrastructure projects like roads and bridges. Beijing lost track of how big the liabilities were and deployed about 50,000 auditors across the country in 2014. That crackdown culminated in authorities’ decision last year to open the municipal debt spigots and use funds raised that way to repay local governments’ off-balance-sheet debt. As a result, provincial and municipal governments issued an unprecedented 3.8 trillion yuan ($567 billion) directly last year, and may sell as much as 5 trillion yuan this year.

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In case people still don’t get where Brexit came from.

Middle-Income Families In UK Resemble The Poor Of Years Past (G.)

Plunging levels of homeownership and an increased reliance on state benefits to top up salaries have meant that Britain’s middle-income families increasingly look like the poor households of the past, according to one of the UK’s leading thinktanks. A report from the Institute for Fiscal Studies showed that the old link between worklessness and child poverty had been broken, with record levels of employment leading to a drop in the number of poor children living in homes where no adult works. However, the study found that by 2014-15, two-thirds of children classified as living below the poverty line had at least one parent who was working. If Theresa May wanted to take forward David Cameron’s “life chances” strategy, the IFS said, the prime minister needed to focus on lifting the incomes of working households.

“In key respects, middle-income families with children now more closely resemble poor families than in the past,” the IFS said. “Half are now renters rather than owner-occupiers and, while poorer families have become less reliant on benefits as employment has risen, middle-income households with children now get 30% of their income from benefits and tax credits, up from 22% 20 years ago.” The report divided the population into five groups according to income and found that for the middle 20% of children, half were living in an owner-occupied house, down from 69% two decades ago. It also found that mothers’ earnings were increasingly important for households with children. More than 25% of the incomes of middle-income households came from mothers in 2014-15, up from less than 20% in 1996, while this figure doubled from 7% to 15% for the poorest group over the 20-year period.

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“We see a classic housing bubble in London and Brexit as the trigger for the correction..”

Brexit Could Cut London House Prices By 30-50%: SocGen (G.)

London property prices could fall by more than 30% in the wake of Britain’s vote to leave the EU and may halve in the most expensive parts of the city, according to analysts at the French bank Société Générale. Brexit may be the trigger to end London’s seven-year house-price boom as companies move employees out of the UK, forcing sales of high-end properties, the company’s real estate analyst Marc Mozzi said in a note to clients. Commercial property has been at the centre of post-Brexit fears as investors have tried to get their money out of property funds, but residential real estate could be hit harder, Société Générale said. “While in recent stress tests the major UK banks were assessed with declines of about 30% in commercial real estate prices, we fear that London residential could experience an even more severe downturn,” it said.

Prices are already falling on properties previously valued at £1m or more, and may have further to go, particularly in the priciest parts of town. London’s highly paid investment bankers and hedge fund managers congregate in boroughs such as Hammersmith and Fulham as well as Kensington and Westminster. Société Générale added: “We see a classic housing bubble in London and Brexit as the trigger for the correction … Given the current ratio of prices to incomes in London, a price correction of even 40-50% in the most expensive London boroughs does not seem impossible.” London property prices have more than doubled since they began to recover from the financial crisis in 2009. Last month, the average London house price was £472,000 – 12 times average London earnings compared with a long-term average of six times, Société Générale said.

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Too late. Way.

New Zealand to Rein in Housing Boom (BBG)

New Zealand’s central bank is moving to quell the country’s housing boom by restricting the amount of money property investors can borrow, paving the way for another cut in interest rates. The Reserve Bank will require investors across New Zealand to have a deposit of at least 40%, it said in a statement Tuesday in Wellington. The new rule, which tightens an existing requirement that investors in Auckland have at least a 30% deposit, will be introduced Sept. 1, the RBNZ said. New Zealand’s dollar fell as markets bet Governor Graeme Wheeler will now be free to respond to persistently weak inflation by cutting the official cash rate to a record-low 2% on Aug. 11.

He has been reticent to lower borrowing costs for fear of stoking housing demand. The proposed new lending rules remove the distinction between Auckland and the rest of the country, Wheeler said in the statement. Since November, the RBNZ has required most investors buying Auckland properties to have a 30% deposit, but that has prompted many to look at opportunities in other centers. In the North Island city of Hamilton, house prices rocketed 29% in the year through June. [..] “A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country,” Wheeler said. “A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy.”

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New Zealand politics as a whole built this bubble. And now comes the time to blame each other for it. It will take a long time for the country to live this down.

‘NZ First-Home Buyers Should Benefit From Central Bank Proposal’ (Stuff)

The Reserve Bank made the “right decision” to impose new lending rules on property investors, says Prime Minister John Key. Proposed restrictions announced on Tuesday would require banks to lend only a small fraction of their loans to investors with less than a 40% deposit. Key said “in theory” the restrictions would help first-home buyers get into the market by making it more difficult and “less economic” for investors to buy a property. “What the Reserve Bank’s trying to do here is not be forced to increase interest rates, while at the same time trying to take a little bit of steam out of the housing market,” he said. “It’s got a fine line to walk here and I think it’s walking it about right.”

The Labour Party accused National of being “stuck in denial mode” over the housing crisis, but Key said it was up to everyone – central government, the Reserve Bank and councils – to stem the rate of increase in house prices. Key said the new rules would not lead to a drop in house values. “I don’t think anyone’s really arguing that house prices should dramatically fall, other than probably (economist) Arthur Grimes and Don Brash, and that’s not a view supported by the Government.” Labour and the Greens both supported the bank’s proposal. Labour’s finance spokesperson Grant Robertson said it was “the right thing to do” as nearly half of property purchases in Auckland were made by speculators and there were signs of house price increases spreading to other regions.

However, Robertson said the bank was openly calling on the Government to “step up and fix the crisis”. “Labour’s plan to fix the housing crisis includes banning offshore speculators from buying residential properties, an extension of the bright line test to five years and consulting on ending the practice of negative gearing,” he said. “It is clear that the only way to bring stability to the housing market and give first home buyers a fair go is to change the government.” [..] NZ First leader Winston Peters did not think the lending rules would have much of an effect on the housing market. “Given the way house financing is constructed from offshore, foreign investors will carry on as usual whilst New Zealand investors will simply have to stump up a greater deposit. “Accordingly, for a short time longer the house price bubble will just get greater before the inevitable crash.”

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Futile. The EU has willed it. But devastating too.

Greek Pensioners Protest Cuts At Top Constitutional Court (Kath.)

The new law on social security brings fresh cuts to new pensions that could reach up to €722 per month, generating more concern among citizens who are close to retirement. The law introduced by Labor Minister Giorgos Katrougalos provides for adjustments to pensions that have not yet been issued of between €11.38 and €722.09, prompting a group known as the Single Network of Pensions to oppose it at the Council of State, the country’s top constitutional court. The pensioners argue that the law introduces cuts that violate the constitution.

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Redefining ‘police state’.

There Will Be No Second American Revolution (Whitehead)

America is a ticking time bomb. All that remains to be seen is who – or what – will set fire to the fuse. We are poised at what seems to be the pinnacle of a manufactured breakdown, with police shooting unarmed citizens, snipers shooting police, global and domestic violence rising, and a political showdown between two presidential candidates equally matched in unpopularity. The preparations for the Republican and Democratic national conventions taking place in Cleveland and Philadelphia—augmented by a $50 million federal security grant for each city—provide a foretaste of how the government plans to deal with any individual or group that steps out of line: they will be censored, silenced, spied on, caged, intimidated, interrogated, investigated, recorded, tracked, labeled, held at gunpoint, detained, restrained, arrested, tried and found guilty.

For instance, anticipating civil unrest and mass demonstrations in connection with the Republican Party convention, Cleveland officials set up makeshift prisons, extra courtrooms to handle protesters, and shut down a local university in order to house 1,700 riot police and their weapons. The city’s courts are preparing to process up to 1,000 people a day. Additionally, the FBI has also been conducting “interviews” with activists in advance of the conventions to discourage them from engaging in protests. Make no mistake, the government is ready for a civil uprising. Indeed, the government has been preparing for this moment for years. A 2008 Army War College report revealed that “widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security.”

The 44-page report goes on to warn that potential causes for such civil unrest could include another terrorist attack, “unforeseen economic collapse, loss of functioning political and legal order, purposeful domestic resistance or insurgency, pervasive public health emergencies, and catastrophic natural and human disasters.” Subsequent reports by the Department of Homeland Security to identify, monitor and label right-wing and left-wing activists and military veterans as extremists (a.k.a. terrorists) have manifested into full-fledged pre-crime surveillance programs. Almost a decade later, after locking down the nation and spending billions to fight terrorism, the DHS has concluded that the greater threat is not ISIS but domestic right-wing extremism.

Meanwhile, the government has been amassing an arsenal of military weapons for use domestically and equipping and training their “troops” for war. Even government agencies with largely administrative functions such as the Food and Drug Administration, Department of Veterans Affairs, and the Smithsonian have been acquiring body armor, riot helmets and shields, cannon launchers and police firearms and ammunition.

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Are there perhaps more important discussions to be had than who’s to blame for Brexit?

Britain’s Part In Torture And Rendition Is Still Kept Hidden (Conv.)

Even as the Chilcot Report lays bare the sad story of the UK’s decision to join in the 2003 invasion of Iraq, a veil is still drawn over another dark aspect of Britain’s partnership with George W Bush’s administration. For years now, the British state has barely acknowledged its alleged deep involvement in the abuse of terror suspects, and there has been very little in the way of justice for the victims of torture and “rendition” – the practice of abducting suspects without due legal process and transferring them to other countries or territories for interrogation. Nonetheless, my colleague Ruth Blakeley and I have found that this involvement was direct, deep and longstanding. Moreover, most official channels have been closed to keep the extent of the UK’s co-operation from coming to light.

An aborted judge-led inquiry into British involvement in prisoner mistreatment uncovered more than 200 separate allegations of abuse, at least 40 of which were significant enough to warrant detailed investigation. Some of these cases have led to civil action against the British government in the UK courts, others have led to police investigations and criminal inquiry. In response, however, the government has maintained its innocence in every individual case while simultaneously working to block the release of relevant information. There have been attempts to withhold publication of key documents in open court, such as those which demonstrate that British intelligence knew about the torture of prisoners by the CIA before participating directly in their interrogation.

Where British courts have refused to accept government attempts to hold hearings in camera, the government has offered substantial payouts without any admission of liability. Indeed, the 2013 Justice and Security Act, which introduced so-called “closed material procedures” into the main civil courts, gave the state the legal ability to keep details of British involvement in torture out of the public record.

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One of my ‘pet’ themes. Not sure Hoppe understands this is an economic phenomenon, in that centralization depends one-on-one on a growing economy. He seems to think it’s political.

Hans-Hermann Hoppe: “Put Your Hope In Radical Decentralization” (Mises Inst.)

Can one say, then, that the politicians running the EU are even worse than the politicians running national affairs? No, and yes. On the one hand, all democratic politicians, with almost no exception, are morally uninhibited demagogues. One of my German books is titled The Competition of Crooks, which captures what democracy and democratic party politics are really all about. There is in this regard little if any difference between the political elites of Berlin, Paris, Rome, etc., and those running the show in Brussels. In fact, the EU elites are typically political has-beens, with the same mentality as their domestic counterparts, on the lookout for the super-lavish salaries, benefits, and pensions doled out by the EU. On the other hand, the EU elites are worse than their political cronies at home, of course, in that their decisions and rulings always affect a far larger number of people.

What do you predict, then, will be the future of the EU? The EU and the ECB are a moral and economic monstrosity, in violation of natural law and the laws of economics. You cannot continuously punish productivity and success and reward idleness and failure without bringing about the disaster. The EU will slide from one economic crisis to the next and ultimately break apart. The Brexit, that we have just experienced, is only the first step in this inevitable process of devolution and political decentralization.

Is there anything that an ordinary citizen can do in this situation? For one, instead of swallowing the high-sounding blabber of politicians about “freedom,” “prosperity,” “social justice,” etc., people must learn to recognize the EU for what it really is: a gang of power-lusty crooks empowering and enriching themselves at other, productive people’s expense. And secondly, people must develop a clear vision of the alternative to the present morass: not a European Super-State or even a federation of nation States, but the vision of a Europe made up of thousands of Liechtensteins and Swiss cantons, united through free trade, and in competition with one another in the attempt of offering the most attractive conditions for productive people to stay or move.

Can you give a comparative assessment of the USA and the situation in Europe? The difference between the situation in the US and Western Europe is much smaller than is generally surmised on either side of the Atlantic. For one, the developments in Europe since the end of World War II have been closely watched, steered and manipulated, whether through threats or bribes, by the political elites in Washington DC. In fact, Europe has essentially become a dependency, a satellite or vassal of the US. This is indicated on the one hand by the fact that US troops are stationed all across Europe, by now all the way right up to the Russian border. And on the other hand, this is indicated by the steady pilgrimage, performed more regularly and dutifully than any Muslim’s pilgrimage to Mecca, of the European political elites and their intellectual bodyguards to Washington DC, in order to receive their masters’ blessings.

Especially the German political elite, whose guilt complex has meanwhile assumed the status of some sort of mental illness, stands out in this regard by its cowardice, submissiveness, and servility. As for US domestic affairs, both Europeans and Americans have it typically wrong. Europeans still frequently view the US as the “land of the free,” of rugged individualism, and of unhampered capitalism. Whereas Americans, insofar as they know or claim to know anything about the world outside the US at all, frequently view Europe as a place of unhinged socialism and collectivism, entirely alien to their own “American way.” In fact, there exists no principal difference between the so-called “democratic capitalism” of the US and Europe’s “democratic socialism.”

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