May 112017
 
 May 11, 2017  Posted by at 8:49 am Finance Tagged with: , , , , , , , , , , , ,  2 Responses »
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Paul Almasy Les Halles, Paris 1950

 

Trump and Lavrov Meeting Round-Up (TASS)
$9 Trillion Question: What Happens When Central Banks Stop Buying Bonds? (WSJ)
Draghi Stays Calm on Stimulus as Dutch MPs Warn of Risks With Tulip (BBG)
It’s Not Just The VIX – Low Volatility Is Everywhere (R.)
Six Canadian Banks Cut by Moody’s on Consumers’ Debt Burden (BBG)
China Holds Giant Meeting On Spending Billions To Reshape The World (CNBC)
‘Stagnant’ Buyer Demand Puts The Brakes On UK Housing Market (G.)
UK Labour Party’s Plan To Nationalise Rail, Mail And Energy Firms (G.)
Panic! Like It’s 1837 (DB)
Italy Financial Regulator Threatens EU with Return to “National Currency” (DQ)
Greek Capital Controls To Stay Till At Least End Of 2018 (K.)
Greek PM Tsipras Heralds ‘Landmark’ Plan For Healthcare (K.)
Turkish Coast Guard Publishes Maps Claiming Half Of The Aegean Sea (KTG)
Libya Intercepts Almost 500 Migrants After Sea Duel (AFP)
Where Have All The Insects Gone? (Sciencemag )

 

 

The presence of a TASS reporter when Lavrov visited the White House was critized in the US media. Here’s what he wrote.

Trump and Lavrov Meeting Round-Up (TASS)

Before meeting with Donald Trump, Sergey Lavrov held talks with the US top diplomat Rex Tillerson. Lavrov’s talks with the US president lasted for about 40 minutes behind closed doors. Moscow and Washington can and should solve global issues together, Lavrov said following his meetings with US Secretary of State Rex Tillerson and US President Donald Trump. “I had a bilateral meeting with Rex Tillerson, then the two of us were received by President Trump,” the Russian top diplomat said. “We discussed, first and foremost, our cooperation on the international stage.” “At present, our dialogue is not as politicized as it used to be during Obama’s presidency. The Trump administration, including the president himself and the secretary of state, are people of action who are willing to negotiate,” the Russian top diplomat pointed out.

Lavrov said agreement reached with Tillerson to continue using diplomatic channel to discuss Russian-US relations. According to Lavrov, the current state of bilateral relations is no cause for joy. “The reason why our relations deteriorated to this state is no secret,” the Russian top diplomat added. “Unfortunately, the previous (US) administration did everything possible to undermine the basis of our relations so now we have to start from a very low level.” “President Trump has clarified his interest in building mutually beneficial and practical relations, as well as in solving issues,” Lavrov pointed out. “This is very important,” he said. Lavrov believes Syria has areas where US might contribute to operation of de-escalation zones. “We are ready for this cooperation and today have discussed in detail the steps and mechanisms which we can manage together,” Lavrov said.

“We have confirmed our interest in the US’ most active role in those issues,” Lavrov said. “I imagine the Americans are interested in this too.” “We proceed from the fact they will take up the initiative,” he added. “We have thoroughly discussed the Syrian issue, particularly the ideas related to setting up de-escalation zones,” the Russian top diplomat said. “We share an understanding that this should become a common step aimed at putting an end to violence across Syria,” he added.

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One word: mayhem.

$9 Trillion Question: What Happens When Central Banks Stop Buying Bonds? (WSJ)

Central banks have been the world’s biggest buyers of government bonds, but may soon stop—a tidal shift for global markets. Yet investors can’t agree on what that shift will mean. Part of the problem is that there is little agreement about how the massive stimulus policies, known as quantitative easing or QE, affected bonds in the first place. That makes it especially hard to assess what happens when the tide changes. Many expect bond yields could rise and shares fall, some see little effect at all, while others suggest it is riskier investments, such as corporate bonds or Italian government debt, that will bear the brunt. But recently, yields on European high-yield corporate bonds hit their lowest since before the financial crisis, in one potential sign that the threat of tapering has yet to affect markets.

When the unwinding begins money managers may not be positioned for it, and markets could move swiftly. In the summer of 2013, investors suddenly got spooked about the Federal Reserve withdrawing stimulus, leading to a swift bond sell off that sent yields on the 10-year Treasury up by more than 1%age point. By buying bonds after the 2008 financial crisis, central banks across the developed world sought to push yields lower and drive money into riskier assets, reducing borrowing costs for businesses. “If it’s unclear what benefits we’ve had in the buying, it’s unclear what will happen in the selling,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors.

Recent data showed that the ECBholds total assets of $4.5 trillion, more than any other central bank ever. The Fed and the Bank of Japan each have $4.4 trillion, although the BOJ isn’t expected to wind down QE soon. With the world economy finally recovering, investors believe that holdings at the Fed and ECB have peaked. U.S. officials are discussing how to wind down their portfolio, which they have kept constant since 2014. The ECB’s purchases of government and corporate debt are now more likely to be tapered later in the year, analysts say, after pro-business candidate Emmanuel Macron’s victory in the French presidential election Sunday.

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Dutch politicians either don’t care about their European Union peer Greece, or they don’t know about it. Neither is a good option. They are doing so well over the backs of the Greeks they want Draghi to enact policies that will make them even richer, and the Greeks even more miserable. Oh, and of course “The euro is irrevocable” only until it isn’t.

Draghi Stays Calm on Stimulus as Dutch MPs Warn of Risks With Tulip (BBG)

Mario Draghi kept his cool in the Netherlands – at least on monetary policy. Repeatedly pressed by Dutch lawmakers to say when he’ll start winding down euro-area monetary stimulus, the Ecb president replied that it’s still too soon to consider, despite a “firming, broad-based upswing” in the economy. “Is it time to exit? Or is it time to start thinking about exit or not? The assessment of the Governing council is that this time hasn’t come yet.” His reward was a gift of a plastic tulip in a reminder of a past European financial crisis. Draghi’s voluntary appearance at the hearing on Wednesday put him front and center in one of the nations most critical of the ECB’s ultra-loose policies, which are seen by opponents as overstepping the institution’s mandate, burdening savers and pension providers, and stoking asset bubbles.

Legislators did appear occasionally to get under his skin. The tension rose when he was quizzed multiple times him on the possibility that a government will one day have to restructure its debt, while on the topic of a nation leaving the currency bloc – as Greece came close to doing in 2015 – Draghi’s response was blunt. “The euro is irrevocable. This is the Treaty. I will not speculate on something that has no basis.” The intense questioning underscored the gap between relatively rosy economic data and the discontent among individuals who can’t see the fruits of the ECB’s €2.3 trillion bond-buying program and minus 0.4% deposit rate. It’s a challenge for Draghi, who reiterated his concern that underlying inflation remains feeble and falling unemployment has yet to boost wage growth. The region is far from healing the scars of a double-dip recession that wiped out 9 million jobs and helped the rise of anti-euro populists such as Marine Le Pen, who lost this month’s French presidential election but still managed to pick up more than a third of the vote.

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The silence before.

It’s Not Just The VIX – Low Volatility Is Everywhere (R.)

The current slump in expectations of market volatility is not just a stock market phenomenon – it is the lowest it’s been for years across fixed income, currency and commodity markets around the world. It shows little sign of reversing, which means market players are essentially not expecting much in the way of shocks or sharp movements any time soon. It’s an environment in which asset prices can continue rising and bond spreads narrow further. The improving global economy, robust corporate profitability, ample central bank stimulus even as U.S. interest rates are rising, and some fading political risk from elections have all contributed to create a backdrop of relative calm.

There is little evidence of investors hedging – or seeking to protect themselves – from adverse conditions. It is most notably seen in the VIX index of implied volatility on the U.S. S&P 500 stock index, the so-called “fear index”. But implied volatility across the G10 major currencies is its lowest in three years, and U.S. Treasury market volatility its lowest in 18 months and close to record lows. The VIX, meanwhile, has dipped to lows not seen since December 2006, is posting its lowest closing levels since 1993, and is on a record run of closes below 11. By comparison, it was at almost 90 at the height of the financial crisis. Not much current “fear”, then.

Implied volatility is an options market measure of investors’ expectation of how much a certain asset or market will rise or fall over a given period of time in the future. It and actual volatility can quickly become entwined in a spiral lower because investors are less inclined to pay up for “put” options – effectively a bet on prices falling – when the market is rising. If a shock does come the cost of these “puts” would shoot higher as investors scramble to buy them. Surging volatility is invariably associated with steep market drawdowns. According to Deutsche Bank’s Torsten Slok, an investor betting a year ago that the VIX would fall – shorting the index – would have gained around 160% today. Conversely, an investor buying the VIX a year ago assuming it would rise would have lost 75%.

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What’s that rumbling sound in the distance?

Six Canadian Banks Cut by Moody’s on Consumers’ Debt Burden (BBG)

Six of Canada’s largest banks had credit ratings downgraded by Moody’s Investors Service on concern that over-indebted consumers and high housing prices have left lenders vulnerable to potential losses on assets. Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Royal Bank of Canada had their long-term debt and deposit ratings lowered one level, Moody’s said Wednesday in a statement. It also cut its counterparty risk assessment for the firms, excluding Toronto-Dominion. “Expanding levels of private-sector debt could weaken asset quality in the future,” David Beattie, a Moody’s senior vice president, said in the statement.

“Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.” A run on deposits at alternative mortgage lender Home Capital has sparked concern over a broader slowdown in the nation’s real estate market, at a time when Canadians are taking on higher levels of household debt. The firm’s struggles have taken a toll on Canada’s biggest financial institutions, which have seen stocks slide on concern about contagion. In its statement, Moody’s pointed to ballooning private-sector debt that amounted to 185% of Canada’s GDP at the end of last year. House prices have climbed despite efforts by policy makers, it said. And business credit has grown as well.

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Straight from the Monopoly printing press.

China Holds Giant Meeting On Spending Billions To Reshape The World (CNBC)

[..] the most populous nation on the planet wants to increase its influence by digging further into its pockets — flush with cash after decades of rapid growth — to splash out with its “One Belt, One Road” policy. President Xi Jinping first announced the policy in 2013; it was later named one of China’s three major national strategies, and morphed into an entire chapter in the current five-year plan, to run through 2020. [..] The plan aims to connect Asia, Europe, the Middle East and Africa with a vast logistics and transport network, using roads, ports, railway tracks, pipelines, airports, transnational electric grids and even fiber optic lines. The scheme involves 65 countries, which together account for one-third of global GDP and 60% of the world’s population, or 4.5 billion people, according to Oxford Economics.

This is part of China’s push to increase global clout — building modern infrastructure can attract more investment and trade along the “One Belt, One Road” route. It could be beneficial for western China, which is less developed, as it links up with neighboring countries. And in the long run, it will help China shore up access to energy resources. The policy could boost the domestic economy with demand abroad, and might also soak up some of the overcapacity in China’s heavy industry, but analysts say these are fringe benefits. Experts say China has an opportunity to step into a global leadership role, one that the U.S. previously filled and may now be abandoning, especially after President Donald Trump pulled out of a major trade deal, the Trans-Pacific Partnership.

It’s clear China wants to wield greater influence — Xi’s speech in January at the World Economic Forum in Davos touted the benefits of globalization, and called for international cooperation. And an article by Premier Li Keqiang published shortly after also called for economic openness. But despite all the talk of global connectivity, skeptics highlight that China still restricts foreign investment, censorship continues to be an issue and concerns remain over human rights. [..] In 2015, the China Development Bank said it had reserved $890 billion for more than 900 projects. The Export-Import Bank of China announced early last year that it had started financing over 1,000 projects. The China-led Asian Infrastructure Investment Bank is also providing financing.

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The British should be happy for housing prices returning to more normal levels.

‘Stagnant’ Buyer Demand Puts The Brakes On UK Housing Market (G.)

The UK housing market is continuing to slow down, with falling property sales, “stagnant” buyer demand and general election uncertainty all adding up to one of the most downbeat reports issued by surveyors since the financial crash. In its latest monthly snapshot of the market, the Royal Institution of Chartered Surveyors (Rics) said momentum was “continuing to ebb,” with no sign of change in the near future. Its report is the latest in a series of recent surveys suggesting that the slowdown is getting worse as household budgets continue to be squeezed and affordability pressures bite. It comes days after the Halifax said house prices fell by 0.1% in April, which meant they were nearly £3,000 below their December 2016 peak. Nationwide reported a bigger decline in April – it said prices fell by 0.4%, following a 0.3% drop in March.

Some parts of London appear to have been hit particularly hard, with estate agents and developers resorting to offering free cars and other incentives to try to tempt buyers. Rics said its members had reported that sales were slipping slightly following months of flat transactions. A lack of choice for would-be buyers across the UK appears to be one of the major factors putting a dampener on sales: the latest report said there was “an acute shortage of stock,” with the typical number of properties on estate agents’ books hovering close to record lows. New instructions continue to drop, which could make the situation worse: the flow of fresh listings to agents remained negative for the 14th month in a row at a national level, said Rics, though it added that the situation had apparently improved slightly in London.

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How dead is the left? Nice contest.

UK Labour Party’s Plan To Nationalise Rail, Mail And Energy Firms (G.)

Jeremy Corbyn will lay out plans to take parts of Britain’s energy industry back into public ownership alongside the railways and the Royal Mail in a radical manifesto that promises an annual injection of £6bn for the NHS and £1.6bn for social care. A draft version of the document, drawn up by the leadership team and seen by the Guardian, pledges the phased abolition of tuition fees, a dramatic boost in finance for childcare, a review of sweeping cuts to universal credit and a promise to scrap the bedroom tax. Party sources said Corbyn wants to promise a “transformational programme” with a package covering the NHS, education, housing and jobs as well as industrial intervention and sweeping nationalisation. But critics said the policies represented a shift back to the 1970s with the Conservatives describing it as a “total shambles” and a plan to “unleash chaos on Britain”.

Corbyn’s leaked blueprint, which is likely to trigger a fierce debate of Labour’s national executive committee and shadow cabinet at the so-called Clause V meeting at noon on Thursday, also includes:
• Ordering councils to build 100,000 new council homes a year under a new Department for Housing.
• An immediate “emergency price cap” on energy bills to ensure that the average duel fuel household energy bill remains below £1,000 a year.
• Stopping planned increases to the pension age beyond 66.
• “Fair rules and reasonable management” on immigration with 1,000 extra border guards, alongside a promise not to “fan the flames of fear” but to recognise the benefits that migrants bring.

On the question of foreign policy, an area on which Corbyn has campaigned for decades, the draft document said it will be “guided by the values of peace, universal rights and international law”. However, Labour, which is facing Tory pressure over the question of national security, does include a commitment to spend 2% of GDP on defence. The draft manifesto, which will only be finalised after it is agreed on Thursday, also makes clear that the party supports the renewal of Trident, despite Corbyn’s longstanding opposition to nuclear weapons.

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Cycles.

Panic! Like It’s 1837 (DB)

180 years ago today, everyone panicked. On May 10, 1837, New York banks finally realized that the easy money they were lending was unsustainable, and demanded payment in “specie,” or hard money like gold and silver coin. They had previously been accepting paper currency that for every $5 was backed by only $1 in silver or gold. Things culminated to that point after years of borrowing the paper currency to expand west, buy land, and build infrastructure. As silver came in from Mexico, banks lent out five times the amount of their deposits–fractional reserve banking. At the same time, the value of silver was falling because its supply was increasing in America. Great Britain, which had been lending much of the money, was less interested in silver because they could pay for trade with China in opium.

So even though Britain had a year earlier begun demanding payment in specie, the abundant silver in America did not hold the same weight, so to speak, it had previously. Now, reflect on this for a second. The USA was depending on loans from a country that they had successfully revolted and seceded from fewer than 50 years earlier. Britain had also provoked The War of 1812 just 25 years earlier when they wouldn’t stop attacking American ships. But somehow it still seemed like a good idea to depend on British banks to form the foundation of American development. So at the same time when American banks had to backstep their risky practices, Britain also just so happened to need 25% less cotton, which was the foundation of the American economy. This only exacerbated the trade deficit.

But still, despite whether or not Britain’s actions were nefarious, the whole situation would have been remarkably cushioned if fractional reserve banking had not been used. Because of this “easy money,” land was bought at enormous rates on credit, but credit that was not backed by actual value–only 1/5 of the actual value existed of what was being lent! President Andrew Jackson was not entirely without blame either. When he deconstructed the federal bank, he deposited the money into state banks, and encouraged them to go ahead and lend, lend, lend! Of course, when the time came for the banks to return the deposits, the money was gone. So when this massive real estate bubble burst in 1837, it caused a panic and ensuing recession that lasted until 1844. Does any of this sound familiar to you?

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The moment the ECB is allowed to buy Greek bonds again is also the moment it decides to quit its bond-buying program.

Italy Financial Regulator Threatens EU with Return to “National Currency” (DQ)

Despite trillions of euros worth of QE, Italy has continued to suffer a 30% loss in competitiveness compared to Germany during the last two decades. And now Italy must begin to prepare itself for the biggest nightmare of all: the gradual tightening of the ECB’s monetary policy. “Inflation is gradually returning to the area of the 2% target, while in the United States a monetary tightening is taking place,” Vegas said. The German government is exerting mounting pressure on the ECB to begin tapering QE before elections in September. So, too, is the Netherlands whose parliament today treated ECB President Mario Draghi to a rare grilling. The MPs ended the session by presenting Draghi with a departing gift of a solar-powered tulip, to remind him of the country’s infamous mid-17th century asset price bubble and financial crisis.

For the moment Draghi and his ECB cohorts refuse to yield, but with the ECB’s balance sheet just hitting 38.7% of Eurozone GDP, 15 %age points higher than the Fed’s, they may ultimately have little choice in the matter. As Vegas points out, for Italy (and countries like it), that will mean having to face a whole new situation, “in which it will no longer be possible to count on the external support of monetary leverage.” This is likely to be a major problem for a country that has grown so dependent on that external support. According to the Bank for International Settlements, in 2016, international banks in particular those in Germany reduced their exposure to Italy by 15%, or over $100 billion, half of it in the last quarter of the year. ECB intervention helped plug the shortfall, at least for a while.

But the ECB has already reduced its monthly purchases of European sovereign debt instruments, from €80 billion to just over €60 billion. As the appetite for Italian government debt falls, the yields on Italian bonds will rise. The only market participants seemingly still willing and able (for now) to increase their purchase of Italian debt are Italian banks. In his address, Vegas proposed introducing a safeguard threshold of €100,000 for the banks’ bondholders, many of whom are ordinary Italian citizens, with combined holdings worth some €200 billion, who were told by the banks that their bonds were a secure investment. Not any more. “The management of crises may require timely intervention that is not compatible with the mechanisms in Frankfurt and Brussels,” Vegas added.

To get his point across, he issued a barely veiled threat in Frankfurt and Brussels’ direction — that of Italy’s exit from the Eurozone, a prospect that should not be altogether discounted given the recent growth of anti-euro sentiment and rising political instability in Italy. So he threatened: “Merely the announcement of a return to a national currency would provoke an immediate outflow of capital that would seriously jeopardize Italy’s ability to refinance the world’s third biggest public debt.”

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In other words: any positive numbers you may read about Greek GDP are false.

Greek Capital Controls To Stay Till At Least End Of 2018 (K.)

Greece will spend at least three-and-a-half years under the restrictions of capital controls as their abolition is not expected to come any earlier than the end of 2018, according to a competent credit sector source. The next step in terms of their easing will come after the completion of the bailout review and the disbursement of the funding tranche, provided banks see some recovery in deposits. Sources say that the planning provides primarily for helping enterprises by increasing the limit on international transactions concerning product imports or the acquisition of raw materials. Almost two years after the capital controls were imposed, by next Tuesday, according to the agreement with the creditors, the Bank of Greece and the Finance Ministry have to present a road map for the easing of restrictions.

The road map is already being prepared and according to sources it will not contain any dates for the easing of controls but rather will record the conditions necessary for each step to come. Kathimerini understands that the conditions will be the following: the return of deposits, the reduction of nonperforming loans, the state’s access to money markets, the country’s inclusion in the ECB’s QE program, and the settlement of the national debt. “Ideally, by end-2018 we will be able to speak of an end to the controls. In any case, the restrictions on deposits will be the last to be lifted,” notes a senior banking source, referring to the cash withdrawal limit that currently stands at €840 per 14 days. The Hellenic Bank Association’s Executive Committee will meet on Wednesday to discuss proposals for the gradual easing of restrictions.

The bankers’ proposals will constitute an updated version of those tabled in November 2016; they will likely include the introduction of a monthly limit of 2,000 euros for cash withdrawals and an increase in the withdrawal limit for funds originating from abroad from 30% to 60%. The drop in deposits over the first quarter of the year will make it harder for such proposals to be implemented for the time being.

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Saving the healthcare system from Troika-induced collapse is a good idea. Not sure this is the way.

Greek PM Tsipras Heralds ‘Landmark’ Plan For Healthcare (K.)

Speaking of an “institutional intervention of landmark significance,” Prime Minister Alexis Tsipras heralded on Wednesday the creation of a new primary healthcare system to be based on local health centers staffed with general practitioners. The aim is to set up 239 such centers by the end of the year, employing 3,000 family doctors and nursing staff, Tsipras said in a speech at a health center in Thessaloniki. The first 60 of those centers are to start operating by the summer, the premier said, noting that poorer areas will be prioritized. “If you were to ask me what I want to be left behind after the years of governance by SYRIZA and ANEL,” he said, referring to junior coalition partner Independent Greeks, “I would say a very essential landmark health sector reform with the creation of primary healthcare.”

Tsipras also took the opportunity to lash out at the political opposition, accusing previous governments of having a plan for “the passive privatization of the health sector.” As for the national federation of Greek hospital workers (POEDIN), which has railed against the current government for cutbacks in the health sector, Tsipras hit back, calling it “a trade union that has secured privileges.” The prime minister added that his government remained determined to fight corruption in the health sector, referring to alleged scandals embroiling the Hellenic Center for Disease Control and Prevention (KEELPNO) and the Swiss pharmaceuticals firm Novartis. “Everything will come to light,” he said.

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Erdogan’s at the White House today, or is that tomorrow?!

Turkish Coast Guard Publishes Maps Claiming Half Of The Aegean Sea (KTG)

The Turkish Coast Guard published alleged official maps and documents claiming half of the Aegean Sea belong to Turkey. In this sense, Ankara claims to won dozens of Greek islands, the entire eastern Aegean from the island of Samothraki in the North to Kastelorizo in the South. The maps and claims have been uploaded on the website of the Turkish Coast Guard in the context of a 60-page report about the activities of the TCG in 2016. On page 7 and 13 of the report, the maps allegedly show Turkey’s Search And Rescue responsibility area. The maps show half of the Aegean Sea and also a very good part of the Black Sea, where Turkey’s SAR area coincides with the Turkish Exclusive Economic Zone (EEZ). Turkey did not signed the convention in order to not be obliged to recognize the Greek EEZ.

The United Nations Convention on the Law of the Sea (UNCLOS), also called the Law of the Sea Convention or the Law of the Sea treaty, is the international agreement that resulted from the third United Nations Conference on the Law of the Sea (UNCLOS III), which took place between 1973 and 1982. The Law of the Sea Convention defines the rights and responsibilities of nations with respect to their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. The most significant issues covered were setting limits, navigation, archipelagic status and transit regimes, exclusive economic zones (EEZs), continental shelf jurisdiction, deep seabed mining, the exploitation regime, protection of the marine environment, scientific research, and settlement of disputes. Turkey started to claim areas in the Aegean Sea after 1997 when a Turkish ship sank near the Greek islet of Imia and Ankara sent SAR vessels.

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Sea Watch seems to go a bit far.

Libya Intercepts Almost 500 Migrants After Sea Duel (AFP)

Libya’s coastguard on Wednesday intercepted a wooden boat packed with almost 500 migrants after duelling with a German rescue ship and coming under fire from traffickers, the navy said. The migrants, who were bound for Italy, were picked up off the western city of Sabratha, said navy spokesman Ayoub Qassem. The German non-governmental organisation “Sea-Watch tried to disrupt the coastguard operation… inside Libyan waters and wanted to take the migrants, on the pretext that Libya wasn’t safe,” Qassem told AFP. Sea-Watch posted a video on Twitter of what it said was a Libyan coastguard vessel narrowly cutting across the bow of its ship.

“This EU-funded Libyan patrol vessel almost crashed (into) our civil rescue ship,” read the caption. Qassem also said the coastguard had come under fire from people traffickers, without reporting any casualties. The 493 migrants included 277 from Morocco and many from Bangladesh, said Qassem, and 20 women and a child were aboard the boat. All were taken to a naval base in Tripoli. There were also migrants from Syria, Tunisia, Egypt, Sudan, Pakistan, Chad, Mali and Nigeria, he added. According to international organisations, between 800,000 and one million people, mostly from sub-Saharan Africa, are currently in Libya hoping to make the perilous Mediterranean crossing to Europe.

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No insects, no bats, no birds, etc etc.

Where Have All The Insects Gone? (Sciencemag )

Entomologists call it the windshield phenomenon. “If you talk to people, they have a gut feeling. They remember how insects used to smash on your windscreen,” says Wolfgang Wägele, director of the Leibniz Institute for Animal Biodiversity in Bonn, Germany. Today, drivers spend less time scraping and scrubbing. “I’m a very data-driven person,” says Scott Black, executive director of the Xerces Society for Invertebrate Conservation in Portland, Oregon. “But it is a visceral reaction when you realize you don’t see that mess anymore.” Some people argue that cars today are more aerodynamic and therefore less deadly to insects. But Black says his pride and joy as a teenager in Nebraska was his 1969 Ford Mustang Mach 1—with some pretty sleek lines. “I used to have to wash my car all the time. It was always covered with insects.”

Lately, Martin Sorg, an entomologist here, has seen the opposite: “I drive a Land Rover, with the aerodynamics of a refrigerator, and these days it stays clean.” Though observations about splattered bugs aren’t scientific, few reliable data exist on the fate of important insect species. Scientists have tracked alarming declines in domesticated honey bees, monarch butterflies, and lightning bugs. But few have paid attention to the moths, hover flies, beetles, and countless other insects that buzz and flitter through the warm months. “We have a pretty good track record of ignoring most noncharismatic species,” which most insects are, says Joe Nocera, an ecologist at the University of New Brunswick in Canada. Of the scant records that do exist, many come from amateur naturalists, whether butterfly collectors or bird watchers.

Now, a new set of long-term data is coming to light, this time from a dedicated group of mostly amateur entomologists who have tracked insect abundance at more than 100 nature reserves in western Europe since the 1980s. Over that time the group, the Krefeld Entomological Society, has seen the yearly insect catches fluctuate, as expected. But in 2013 they spotted something alarming. When they returned to one of their earliest trapping sites from 1989, the total mass of their catch had fallen by nearly 80%. Perhaps it was a particularly bad year, they thought, so they set up the traps again in 2014. The numbers were just as low. Through more direct comparisons, the group—which had preserved thousands of samples over 3 decades—found dramatic declines across more than a dozen other sites.

Such losses reverberate up the food chain. “If you’re an insect-eating bird living in that area, four-fifths of your food is gone in the last quarter-century, which is staggering,” says Dave Goulson, an ecologist at the University of Sussex in the United Kingdom, who is working with the Krefeld group to analyze and publish some of the data. “One almost hopes that it’s not representative—that it’s some strange artifact.”

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May 092017
 
 May 9, 2017  Posted by at 8:13 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Pablo Picasso Self portrait 1938

 

Macron Is Not The Solution To Europe’s Top Existential Threat (CNBC)
“Europe’s Not Out Of The Woods With Macron Win” (ZH)
Commodities Send Ominous Signal On Global Economy (BBG)
Traders Are Fleeing the Options Market (WSJ)
The Debt-Bubble Landmine Obama Left For Trump (NYP)
Canadians Buy Record Number of New Cars With Record Amount of Financing (BD)
Majority of Consumers Now See Canadian Home Prices Rising (BBG)
Over 50% of Canadians $200 or Less Away From Not Being Able To Pay Bills (Gl.)
Quebec’s Finance Minister: Don’t Dawdle on NAFTA Overhaul (BBG)
Chinese Stocks Head For Longest Losing Streak In 3 Years (BBG)
How China Keeps Its Financial System From Collapsing (ZH)
Parts of Asia Will Grow Old Before Getting Rich, IMF Warns (BBG)
Italy Adds Bum Note To Macron’s Ode To Euro Zone Joy (R.)
The Rock-Star Appeal of Modern Monetary Theory (Nation)
To Bury Nuclear Waste, Dig Deeper Than Yucca Mountain (BBG)
Dangerous Times in the Aegean and Cyprus (K.)
New Refugee Center Planned On Chios As Tensions Simmer (K.)
Nearly 200 Missing, 11 Dead As Migrant Boats Sink Off Libya (AFP)
Hundreds Of Migrants Feared Dead In Mediterranean Over Weekend (R.)

 

 

Macron wants Eurobonds, anathema to Germany et al because they would allegedly “sharply reduce each euro zone government’s motivation to pursue sensible fiscal policies..”.

Many in Brussels want a banking union, anathema to quite a few countries. There is no democratic way that leads to such a union. It’s like handing the EU the keys to your country.

Macron Is Not The Solution To Europe’s Top Existential Threat (CNBC)

The future of the euro zone is dependent on a common commitment to solid government finances, says Commerzbank’s chief economist, and France’s new president-elect does not bring the bloc any closer to achieving this reality. The pro-EU and centrist candidate, Emmanuel Macron, stormed to victory against his far-right political rival, Marine Le Pen, on Sunday and is now poised to become France’s youngest ever premier. However, the former economy minister is in favor of joint bond issuance which, according to Jörg Krämer, would sharply reduce each euro zone government’s motivation to pursue sensible fiscal policies. “The EU can’t keep feeling its way from one election to the next. At some point an election might go the wrong way – and if that happens in a large country, the survival of the monetary union would be in jeopardy,” Krämer said in a note.

Commerzbank’s chief economist also warned the repeated near misses of anti-EU political leaders in several European elections in recent years would not last forever and suggested the monetary union’s survival now rests on the bloc’s ability to create a genuine banking union. “To lay these existential risks to rest, the euro zone at long last needs a common commitment to solid government finances. The monetary union’s long-term survival depends on it. But new French President Macron won’t bring this any closer to reality,” he added. Meanwhile, just one day after the pro-business and market-friendly candidate Macron secured his country’s presidential election, EC President Juncker publically lambasted high state spending in the euro zone’s second largest economy. “With France, we have a particular problem … The French spend too much money and they spend too much in the wrong places. This will not work over time,” Reuters reported him as saying in Berlin on Monday.

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Le Pen would have lost against anyone. But tons of Europeans still don’t like what the EU has become. All it takes is a candidate somewhere who’s not Le Pen or Wilders.

“Europe’s Not Out Of The Woods With Macron Win” (ZH)

It appears the chairmen of UBS have plenty to say on Europe.Following former UBS chairman Peter Kurer’s comments that “to the elites, the EU is a means to get rich quickly and export their problems,” UBS current chairman Axel Weber has warned bankers that Europe is not “out of the woods” from its political risks even after Emmanuel Macron’s reassuring victory in the French presidential election. Peter Kurer recently remarked on the end of the Euro…

“Following an unfortunate combination of wrong decisions at the top and the uncontrolled flourishing of a self-serving bureaucracy, the union has moved in a direction where it has become a prisoner of its own constructed reality. The EU was a great idea but it has been ridden to death. Back in 1992, almost half of Swiss voted to join the European Economic Area, including the traveller. If there was a vote today on joining the union, the latest polls say just 15% would vote yes. The EU had its chances. It squandered them, and maybe it will come to an end in the foreseeable future under the weight of its burdens: La messa e finita, andate in pace.”

And over the weekend speaking in Tokyo, as the FT reports, UBS Chairman Axel Weber said that political risk in Europe remained “actually quite high” even though “we’ve seen the centre hold in France” with Macron’s victory over far-right candidate Marine Le Pen, and even though all the signs were that the centre will also hold in the upcoming German location elections.

“That doesn’t mean Europe is out of the woods,” he told the International Institute of Finance’s spring meeting. “There is still Italy where it is very unclear that the centre will hold. And there is still Greece.” He continued: “Where you find some bright side….there are (also) some downside risks that are not really priced into the market but could derail (Europe).” “Brexit is a time bomb… and the countdown is on. It will be two years from now,” Mr Weber said. He added that “if the British really do leave the customs union and single market there could be a lot of volatility which could impact on the global economy”.

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How long can bubbles hold?

Commodities Send Ominous Signal On Global Economy (BBG)

By almost any measure last week was a bad one for commodities, as practically every part of the market lost value. West Texas Intermediate crude oil fell under $44 per barrel, Brent crude broke below $50 per barrel and copper tested $5,500 per metric ton. In China, coal and iron ore tumbled. Gold, the supposed ultimate haven, dropped to almost $1,225 per ounce. Last week’s purge capped a steady decline in prices since mid-April and, more broadly, since February based on the Bloomberg Commodities Index. Although much of the blame is being tied to rather high and growing inventory levels, a lack of real demand shouldn’t be discounted. The market is experiencing something greater than a technical correction or speculative positioning. It is signaling something ominous about the state of the global economy.

So while Friday saw a small recovery, it appears to be merely a “dead cat bounce” rather than a sign of any market bottom. Traders have reason to question global economic strength. They are concerned about fresh signs of an over-extended Chinese economy and an ongoing slowdown in developed markets faced with aging demographics. In the U.S., they question President Donald Trump’s infrastructure promises along with his administration’s relaxed standards in the mining and drilling sectors, whose commodities we already have too much of. OPEC’s output cuts have failed to do enough to stymie the global oil glut as U.S. drillers add to their rig counts. Such negative sentiment has carried through in the equity markets, particularly among commodity-producing nations such as Australia, Canada and Brazil.

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A liquidity problem. And a confidence one.

Traders Are Fleeing the Options Market (WSJ)

Falling volumes and spiraling costs are pushing trading firms out of U.S. options, raising concerns about fragility in a market that investors rely on to protect portfolios. Trading has dwindled in most areas of the market, and investors and traders are grappling with increasing fragmentation. Liquidity, the crucial ability to do trades without significantly moving prices, has deteriorated, according to interviews with market participants and data reviewed by The Wall Street Journal. Options on key indexes, exchange-traded funds and high-volume stocks dominate trading. Meanwhile, there is less activity in the rest of the listed U.S. options world. The stresses prompted at least six prominent options market makers to exit from the business since 2012. Market makers are firms willing to both buy and sell using automated programs.

Thomas Peterffy, a pioneer of electronic options trading, said in March that his firm, Interactive Brokers, would pull the plug on options market making. KCG Holdings announced its exit from retail options market making last year, while UBS and Credit Suisse have also left automated options market making. JP Morgan and Bank of America made similar decisions in 2014, according to people familiar with the matter. “Most market makers congregate in the highly traded products,” Mr. Peterffy said in an interview. “It’s difficult for a market maker to maintain hundreds of thousands of bids and offers all the time.” It is hard to pinpoint what triggered the trader exodus, but industry experts say as firms leave, liquidity gets further drained, which spurs more market makers to retrench.

The dangerous feedback loop could sap appetite for options, key derivative securities that investors use to manage risk in their portfolios. “We could ill afford to lose any more market makers at this junction,” said Alan Grigoletto, who previously worked at the Boston Options Exchange, and now runs Grigoletto Consulting while trading options in his retirement account. Data show the liquidity bifurcation. Index and ETF options volume rose in April by 28% and 4%, respectively, data from the Options Clearing Corporation show. Meanwhile, total equity options volume shrank by 10% from the prior year.

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The car loans issue keeps growing.

The Debt-Bubble Landmine Obama Left For Trump (NYP)

President Trump came in for much jeering when he told reporters he had “inherited a mess” from President Barack Obama. On the economy, though, Obama did indeed leave behind a hidden mess: a seemingly healthy jobs market dependent on cheap debt. When this debt bubble bursts, just as the last one did, the manufacturing jobs Trump wants to save will be in even greater peril. [..] who is borrowing for used cars – and at much higher interest rates – is a huge concern. People with not-great credit scores have always made up about a fifth of the auto-loan market. But the percentage of people borrowing even though they have really bad credit scores has surged, reports Bloomberg. It’s now a third of the subprime auto-bond market, up from just 5% seven years ago. A Standard & Poor’s analysis of just one big subprime auto bond tells the story.

Last week, a company called DriveTime, which sells used cars in 26 states to people with bad credit, was in the market to issue $442 million worth of bonds backed by auto loans. The average credit score of borrowers was 538 — indicating a history of serious default. And, as S&P notes, “today’s subprime customer appears to be . . . weaker . . . than that of several years ago,” because people who defaulted right after the housing crash at least had the excuse that they were caught up in a global bubble. These loans are for people who have no choice but to borrow to buy a car, and no bargaining power on the interest rate they pay: close to 20%. Even though the borrowers pay through the nose, they depend on cheap global credit. With interest rates still near record lows, lenders have to take ever more risk in a low-interest-rate environment to make a little money.

As for that risk: Delinquency rates are rising, with 4.32% of subprime borrowers in general at least 60 days late last year, up from 3.52 two years earlier, says S&P. The bigger risk here isn’t the risk to investors, though. The auto-loan market is still much smaller than the housing market, and the investment world hasn’t created trillions of dollars of derivative securities based on this market (at least not that we know of). And unlike with houses, no one ever expects the value of a car to increase with use. No, this bubble presents a much more direct risk to the economy — and manufacturing jobs. If people with terrible credit can’t borrow an average of nearly $18,000 to buy a used car (what the DriveTime customer pays), the market for used cars collapses. That, in turn, affects the market for new cars. Indeed, the US auto industry has seen sales decline this year, after clocking half a decade of record highs.

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Canadians do the subprime car thing too.

Canadians Buy Record Number of New Cars With Record Amount of Financing (BD)

Canadians aren’t just buying real estate, they’re also treating themselves to new cars. According to a new release from Statistics Canada, sales of new cars reached a record high for February. Great for automobile manufacturers, but not so great for the economy. Debt-fuelled financing makes this more of a warning sign than a boom-time trend. Sales of new motor vehicles across Canada rose to an all-time record for February. The month saw 125,284 sales – a 2.74% increase from the same time last year. The largest segment of sales were seen in Ontario, where 41% of them occurred. This is up slightly from 2016, where Ontario accounted for 39% of sales. Booming real estate prices, and massive numbers for car sales… Ontario better be facing the greatest economy its ever experienced, or it’s in trouble.

Consumers are purchasing more expensive vehicles too. Over $5 billion was spent on new vehicles for the month, bringing the average to $40,100 – up 3.4% from the same time last year. Ontario was below the average for the country, where the average price was $39,400. While prices are lower in Ontario, they’re not exactly budget vehicles either. The uptick in average sale price is due to longer financing terms for buyers. According to the Financial Consumer Agency of Canada (FCAC), Canadians are “increasingly purchasing more car than they can afford,” due to longer financing becoming fashionable. The agency notes that average leases have crept up 2 months, every year since 2010. According to the Bank of Canada (BoC), the average loan was 74 months as of 2015.

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The Canadian debt issue is turning into a total craze.

Majority of Consumers Now See Canadian Home Prices Rising (BBG)

Expectations for Canada’s housing market are heating up, with more than half of respondents in a weekly telephone survey predicting home prices will rise, the first time the measure has topped 50% in records dating back to 2008. The bullishness comes even as a run on deposits at Toronto-based mortgage lender Home Capital leads to heightened scrutiny of a market which policy makers have said is divorced from economic fundamentals. The broad Bloomberg Nanos Canadian Confidence Index fell to 59 in the week ended March 5. Some 50.1% of respondents said they expect local home prices to rise. The figure has climbed for six straight weeks and is higher than the average for the series of 37.1%. Thepercentage of people surveyed in the week ending May 5 who said local home prices will decline in the next six months slid to 10% from 10.7%.

“Consumer sentiment on real estate has gone from hot to hotter,” said Nanos Research Group Chairman Nik Nanos. Housing has led the world’s 10th largest economy over most of this decade as exporters have struggled. The latest burst of housing momentum has led policy makers to question whether it’s being led by supply and demand or by speculation. The Ontario Securities Commission opened hearings into whether Home Capital failed to properly disclose an internal probe into fraudulent mortgage applications, a shakeup in a nation lauded for having the world’s safest banks. The latest Toronto figures also showed prices up 25% in April from a year earlier, still close to the 30% March pace that Ontario Finance Minister Charles Sousa called unsustainable on April 20 when he imposed a foreign buyers tax. Those events haven’t led to more bets on a price decline either, and housing optimists now outnumber pessimists by a factor of five to one.

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So much in debt they can’t pay their bills. Maybe someone should take a look at Canadian inequality, too.

Over 50% of Canadians $200 or Less Away From Not Being Able To Pay Bills (Gl.)

More than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations, according to a recent Ipsos survey conducted on behalf of accounting firm MNP. “With such a small amount of wiggle room, any kind of unanticipated hardship, such as a job loss or even a car repair, could send an already struggling family into financial despair,” said Grant Bazian, president of MNP’s personal insolvency practice, which is one of the largest in Canada. For 10% of Canadians, the margin of error when it comes to household finances is even thinner, at $100 or less. But those with anything at all left at the end of the month were in better shape than many: A whopping 31% of respondents said they already don’t make enough to meet all their financial obligations.

Debt is causing Canadians a fair bit of stress, the polling suggests, but few appear to be on track to buff up their monthly financial cushion. Two-thirds of survey takers said they are “less than very confident” about their ability to create an emergency fund. Another hair-raising finding from the survey: Roughly 60% said they don’t have a firm grasp of how interest rates affect debt repayments. The statistic helps explain why many indebted Canadians end up taking on more debt and high-cost loans, said Bazian. “That’s how so many end up in an endless cycle of debt,” he noted. But the data also raises the question of whether Canadians understand the implications of an interest rate hike by the Bank of Canada (BoC). A decision by the BoC to start lifting its key policy rate from historic lows would raise the cost of carrying debt across the country.

The Bank uses interest rates, among other tools, to influence inflation and economic activity. Many economists believe it could start to raise rates in the first half of 2018, as economic growth picks up pace. Although the BoC will probably lift rates gradually and over time, the impact on Canadian wallets will be substantial. For example, as Global News has reported before, a onepercentage point rise in the BoC’s key interest rate would likely push up variable mortgage rates by a similar amount. A variable mortgage rate that’s currently set at 3%, for example, would go up to 4%, which represents a 33% increase in interest payments for the mortgage holder. That’s an extra $83 a month for every $100,000 in outstanding mortgage debt.

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Quebec has strong US trade ties.

Quebec’s Finance Minister: Don’t Dawdle on NAFTA Overhaul (BBG)

Quebec Finance Minister Carlos Leitao has a message for government officials considering a renegotiation of NAFTA: Time is of the essence. “If we are going to renegotiate Nafta, then let’s do it,” Leitao said in an interview Friday at Bloomberg headquarters in New York. “The worst case scenario would be if we spend years talking about renegotiating, but don’t actually do it and it just keeps hanging around and doesn’t get addressed. The longer it drags on, the bigger the real impact on investment.” Canadian Prime Minister Justin Trudeau is facing a lengthy trade battle with the U.S., which also includes calls for a new softwood lumber pact and Donald Trump’s complaints about Canada’s system of protectionist dairy quotas.

It’s all set to drag on as the president has yet to trigger a 90-day notice period to Congress to renegotiate Nafta. The last softwood lumber dispute lasted five years. “The problem with the uncertainty is we don’t know what kind of process we will have,” Leitao said. “Is this going to be along the same lines as the last Nafta negotiations? That was very systematic. There were panels on various issues. It’s that kind of certainty that we would like. The actual nuts and bolts will take time.” Leitao has good reason to be wary of protracted trade battles, with his most recent budget already predicting Quebec’s economic growth will lag behind the Canadian average. Output in Quebec will grow 1.7% this year before slowing to 1.6% in 2018, budget forecasts show. That’s less than the 2.2% and 2.3% forecast for all of Canada over the same period.

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Deleveraging.

Chinese Stocks Head For Longest Losing Streak In 3 Years (BBG)

Chinese stocks pared declines, with technical indicators signaling that a five-day slide may have been overdone. The Shanghai Composite Index was little changed at 3,077.78 as of 1:07 p.m. local time, after declining as much as 0.7% earlier in the day. Consumer shares were the worst performers on the CSI 300 gauge, while telecom companies led gains. The Hang Seng Index climbed 0.4%. An intensifying campaign to reduce leverage in the financial system pushed the Shanghai benchmark to a 2.4% loss in the five days through Monday. This drove the gauge’s relative strength index to below 30, a level that suggests to some traders that an asset is oversold.

The nation’s banking regulator said Monday that lenders should carry out collateral pressure tests at least once a year, while the Securities Times reported that some rural banks had suspended interbank businesses temporarily while officials conduct spot checks. “Some stocks appeared to be very cheap at current levels, and this triggered some bargain hunting,” said Banny Lam, head of research at CEB in Hong Kong. State-owned enterprises that dominate old growth industries, such as banks and commodity producers, have been among the hardest-hit by the deleveraging drive, while new-economy shares remain in favor among overseas investors. That’s led to a wide gap between the nation’s two main offshore gauges: the Hang Seng China Enterprises Index and the MSCI China Index.

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Much collateral doesn’t actually exist. Wealth management products, shadow banks, it’s all not much more than a mirage. It takes faith.

How China Keeps Its Financial System From Collapsing (ZH)

With “risk” in most of the developed world seemingly a long forgotten four-letter word, as seen by today’s plunge in the VIX to a level not seen in 34 years, traders hoping for some “risk event” have been confined to the recent turmoil in China, where overnight not only did trade data disappoint, with both imports and exports missing, but bond yields jumped to the highest level since 2015, dragging stocks lower even as the local commodity crash slammed iron ore and copper to new YTD lows.

While largely a “controlled” tightening, meant to contain China’s out-of-control shadow banking system, the recent gyrations in Chinese capital markets are starting to have a profound impact on local funding, resulting in a collapse in new bond issuance, and according to FT calculations, in April the number of aborted issues rose to 154, up from 94 in March, 32 in February and 31 in January.

As DB added, “local bond markets are practically shut for corporates. In fact, YTD issuance is down 40%+ yoy and net issuance has been negative in three out of the first four months this year. A number of issuers are being forced to cancel bond issuances (over RMB100 billion YTD) and there were reports (Bloomberg) of even CDB halting issuance (though subsequently denied). Some AA corporates are now issuing at north of 7%.” These signs of mounting stress in China’s $9.3 trillion bond market come less than a month after the country’s banking regulator, Guo Shuqing, was quoted as supporting a campaign to sort out chaotic practices, and threatening to resign if the banking system became “a complete mess”.

[..] whether or not China keels over and has a hard (or worse) landing, will depend on the PBOC; when (not if) the central bank gets involved, will depend on how soon China’s banks and various CD-funded financial institutions run out of collateral (whether it exists or not) to sell, such as iron ore, copper, precious metals, bonds and even stocks. This will hardly come as a surprise. As we showed last month, the only reason the Chinese banking system hasn’t imploded, is due to nearly CNY 10 trillion in central bank liquidity support for the local banks, just under 100% of China’s GDP.

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Europe too.

Parts of Asia Will Grow Old Before Getting Rich, IMF Warns (BBG)

Asia’s rapidly aging population means the region is shifting from being the biggest contributor to the global workforce to subtracting hundreds of millions of people from it, according to the International Monetary Fund. The reversal of the so-called “demographic dividend” will drag on global growth and also that in Asia, the world’s fastest growing region, the IMF warned in its annual outlook for the area. The population growth rate will fall to zero for Asia by 2050 – it’s already negative in Japan – and the share of the population who are working-age has already hit its peak, the IMF estimates. That means the ratio of the population aged 65 and older will be almost two and a half times the current level by 2050, and even higher in East Asia.

“The speed of aging is especially remarkable compared to the historical experience in Europe and the United States,” the IMF said. Per capita income in Asia relative to the U.S. remains at much lower levels than those achieved by mature advanced economies in the past. “Countries in Asia will have less time to adapt policies to a more aged society than many advanced economies had,” the fund wrote. “As such, parts of Asia risk becoming old before becoming rich.” For economic growth, the aging process could erode up to one percentage point from annual output over the next three decades in Japan, and between 0.5-0.75 percentage point in China, Hong Kong, South Korea and Thailand.

While some bright spots remain, such as India and Indonesia, demographics could subtract 0.1 of a percentage point from annual global growth over the next three decades, the IMF estimates. It also means Asia is at risk of falling into secular stagnation if an older population leads to excessive savings and low investment renders monetary policy ineffective. The demographic shift will also likely keep downward pressure on real interest rates and asset returns for most major countries in Asia, the IMF said. “Adapting to aging could be especially challenging for Asia, as populations living at relatively low per capita income levels in many parts of the region are rapidly becoming old,” the IMF said.

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It’s time to come clean on how bad Italy is really doing.

Italy Adds Bum Note To Macron’s Ode To Euro Zone Joy (R.)

Italy is adding a bum note to Emmanuel Macron’s ode to joy. While it’s encouraging that a Europhile will take the French presidency after Sunday’s vote, attention can now turn to Europe’s other crisis-in-waiting. Elections are coming in Italy, and there are more of the ingredients for a populist shock than in France. The economy has fared much worse since the creation of the euro zone, with growth averaging zero since 2001, according to the IMF. GDP per capita has fallen in that time. The IMF expects the unemployment rate to reach 11.7% this year, 2 percentage points higher than in France. Anti-EU forces are also spread widely across Italy’s messy political landscape. Stagnation has fuelled support for the 5-Star Movement, which could lead Italy out of the euro zone and currently polls just below 30%.

Mainstream parties are shaky. The left fragmented after former prime minister Matteo Renzi lost his referendum on constitutional reform in December. The right is an awkward alliance between ageing former premier Silvio Berlusconi and more radical anti-EU parties, like the Lega Nord. The risk is that 5-Star forms a coalition with the Lega after elections that must take place by May next year. The economy is picking up, but tighter monetary policy, as the European Central Bank reins in bond buying, could strangle the recovery, as could an overly stern fiscal policy. Italy needs to cut spending or increase taxes by 2percentage points to meet European targets through 2019. Job losses from the restructuring of banks and bankrupt national airline Alitalia could become a lightning rod for anti-EU sentiment.

Europe can help. Italy is likely to miss its fiscal targets anyway, but loosening bloc-wide budget rules to encourage investment and spread out cuts over a long period would cement the recovery. A strong France, aided by Macron’s victory, might persuade Germany to spend more, and give other countries freer rein. However, even if a political shock is avoided, the next election may produce a weak government with no mandate for taking tough decisions to boost growth. Italy could be bringing discord to the region for years.

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MMT must go mainstream.

The Rock-Star Appeal of Modern Monetary Theory (Nation)

To a layperson, MMT can seem dizzyingly complex, but at its core is the belief that most of us have the economy backward. Conventional wisdom holds that the government taxes individuals and companies in order to fund its own spending. But the government—which is ultimately the source of all dollars, taxed or untaxed—pays or spends first and taxes later. When it funds programs, it literally spends money into existence, injecting cash into the economy. Taxes exist in order to control inflation by reducing the money supply, and to ensure that dollars, as the only currency accepted for tax payments, remain in demand.

It follows that currency-issuing governments could (and, depending on how you lean politically, should) spend as much as they need to in order to guarantee full employment and other social goods. MMT’s adherents like to point out that the federal government never “runs out” of money to fund the military, but routinely invokes budget constraints to justify defunding social programs. Money, in other words, isn’t a scarce commodity like silver or gold. “To people who’ve worked in financial markets, who work at the Fed, this isn’t controversial at all,” says Galbraith, who, while not an adherent, can certainly be described as “MMT-friendly.”

The decisions about how to issue, lend, and spend money come down to politics, values, and convention, whether the goal is reducing inequality or boosting entrepreneurship. Inflation, MMT’s proponents contend, can be controlled through taxation, and only becomes a problem at full employment—and we’re a long way off from that, particularly if we include people who have given up looking for jobs or aren’t working as much as they’d like to among the officially “unemployed.” The point is that, once you shake off notions of artificial scarcity, MMT’s possibilities are endless. The state can guarantee a job to anyone who wants one, lowering unemployment and competing with the private sector for workers, raising standards and wages across the board.

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No matter how deep you dig, you can’t guarantee safety for a million years. That’s what’s halted Yucca Mountain. The Bloomberg editors don’t understand the issue either.

To Bury Nuclear Waste, Dig Deeper Than Yucca Mountain (BBG)

Energy Secretary Rick Perry is right to say the U.S. needs a long-term solution to its massive nuclear waste problem. It also makes sense for Perry and some members of Congress to see Yucca Mountain as part of that solution – though many Nevadans promise to make sure it won’t be. But even if Yucca can survive the political fight, it can’t be the only option for disposing of America’s spent nuclear fuel. More than 75,000 metric tons of the stuff are cooling in pools and casks at dozens of power-plant sites around the country. That’s already too much to fit in Yucca Mountain, and the total grows by more than 2,000 tons a year. Other strategies are needed, ideally ones that are less politically radioactive. Consider, for instance, the idea of sinking the waste into boreholes that reach three miles below ground – 15 times as deep as the proposed chambers inside Yucca. Such shafts could be drilled in states that, unlike Nevada, benefit from the use of clean, reliable nuclear power.

Boring into the Earth’s deep rock layers could provide the kind of bury-it-and-forget-it underground disposal necessary for material that will remain dangerous for hundreds of millennia. Local opposition can still be expected; in North and South Dakota, residents have shouted down some plans to dig test holes. That’s why a so-called consent-based strategy, identifying locations with both the appropriate geology and an agreeable population, is necessary. If hosting a waste site means more funding for local public works and services, more communities might be willing to accept one. (This proved to be the case in Carlsbad, New Mexico, home to a storage place for low-level waste from nuclear weapons.) A familiarity with nuclear power may also encourage acceptance, perhaps because there is a nuclear plant in the area employing people and providing power.

The same approach could also be used to locate six or seven centers where waste from several nuclear plants could be stored while it awaits burial. Such containment facilities could also include research centers – mini national laboratories where scientists could work out new ways of reprocessing fuel and perhaps conduct demonstration projects for reactors designed to use safer fuels. The one thing the U.S. should not do is continue to neglect the growing quantities of nuclear waste. Over the past few decades, electricity ratepayers have contributed more than $34 billion to a national fund to pay for a geologic disposal site. And because none yet exists, taxpayers are forking over billions more to enable nuclear-plant operators to manage interim storage. The political barriers to solving this problem may be high, but further delay – and an undue fixation on Yucca Mountain – won’t make them any easier to overcome.

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Turkey will provoke Greece at some point, and US and Europe had better prevent that from happening.

Dangerous Times in the Aegean and Cyprus (K.)

The concept of gray zones (the claim that the sovereignty of a number of islands and islets in the Aegean is undetermined) was a novel idea that Turkey came up with 20 years ago. At some point, Ankara reached the point of including the Greek island of Gavdos in its gray zones list. Whenever Athens made an official request regarding the islands or rocky outcrops that Turkey had on its list, the answer was always very vague: “Anything that is not clearly included the bilateral agreements that set out Greece’s borders with other countries.” At first, many people thought this was a bargaining chip that Ankara would trade as part of a grand bargain. They were wrong. The failure to settle differences between Greece and Turkey gave Ankara the opportunity to add more issues to the agenda.

Over time, these have become permanent and ever-expanding. Currently, Turkey considers significant parts of the Aegean to be gray zones. This includes islands that have been inhabited for decades. It is questioning Greek sovereignty through its actions, not just its words, by the frequent presence of naval vessels in Greek waters and overflights by fighter jets. Over the last few months, it has being doing this more systematically and openly. Greece’s approach has also changed. The doctrine that existed in the wake of the Imia crisis in 1996, when the two countries almost went to war, was based around not building up tension following various incidents and maintaining a low profile.

[..] A dangerous situation is also playing out in Cyprus. The Turks are trying to impose the concept of gray zones there as well. July (when a new round of drilling for hydrocarbons is due to begin off Cyprus) promises to be a difficult month. Ankara will attempt before then to intimidate the companies that plan to start drilling or try to obstruct them if they are not scared off by threats.

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Prison camps are no solution.

New Refugee Center Planned On Chios As Tensions Simmer (K.)

The exact site for the creation of a new so-called pre-departure camp for migrants and refugees on the island of Chios will be determined by May 20, authorities said on Monday. The new camp will come as tensions at overcrowded reception centers on the eastern Aegean island continue to simmer, with almost daily clashes between stranded migrants of different ethnicities. “The experience of Lesvos and Kos where such centers have been created is positive,” said Lieutenant General Zacharoula Tsirigoti of the Greek Police in a press briefing Monday on Chios. Pre-departure centers are deemed essential as they house refugees and migrants returning to Turkey. Tsirigoti added that building a new center on the island is a “one-way street” as locals – many of whom have campaigned for the immediate removal of all migrants and refugees from Chios – say the situation has reached breaking point and that the large police force on the island has been unable to cope.

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The season is just starting: “..the trend points to around 250,000 people arriving over the course of 2017”. There is no place for these people in Italy and Greece.

Nearly 200 Missing, 11 Dead As Migrant Boats Sink Off Libya (AFP)

Eleven migrants have died and nearly 200 are missing after two boats sank off the coast of Libya, UN agencies said Monday citing survivors, in the latest such tragedy. The first involved an inflatable craft which left Libya early Friday with 132 people on board, only to start deflating a few hours later, before overturning. Some 50 survivors were picked up by a Danish container ship, the Alexander Maersk, which was alerted to divert by Italian coastguards and dropped them off on Sunday in Pozzallo, southern Sicily. Representatives of the UN High Commissioner for Refugees (UNHCR) and the International Organization for Migration (IOM) were able to meet them on Monday to hear their accounts. Survivors told them that women and children were among those missing.

At the same time, the bodies of 10 women and one child were found Monday on a beach in Zawiya, 50 kilometres (31 miles) west of Tripoli, according to an official for the Libyan Red Crescent. Then on Sunday seven migrants – a woman and six men – were rescued by Libyan fishermen and coastguards off the coast of the Libyan capital. An IOM spokesman who met them said they had set out on a boat with at least 120 people on board, including about 30 women and nine children. In all more than 6,000 migrants were rescued Friday and Saturday in international waters off the coast of Libya and brought to Italy, while several hundred were rescued in Libyan waters and taken back to Libya.

The number of people leaving Libya in the hope of starting a new life in Europe is up nearly 50% this year compared with the opening months of 2016. With most departures coming in the warm summer months, the trend points to around 250,000 people arriving over the course of 2017. Some 500,000 migrants were registered in Italy in the three years spanning 2014-16.

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Europe’s reputation is tarnished for decades. But everyone thinks they can deflect responsibility. Time for skin in the game.

Hundreds Of Migrants Feared Dead In Mediterranean Over Weekend (R.)

More than 200 migrants are feared to have died in the Mediterranean over the weekend, according to testimony from survivors, and several bodies, including that of an infant, have washed up on a Libyan beach. About 7,500 people have been rescued off the coast of Libya since Thursday, the Italian and Libyan coastguards said. Two groups of survivors told the organizations that hundreds drowned when their rubber boats began to deflate before rescuers arrived. More than 60 are feared dead and three bodies were recovered on Saturday, survivors brought to Sicily on Sunday told Italian coastguards. The boat left Libya carrying about 120, they said. There was some discrepancy in the numbers. Based on its interviews with some of the survivors in Pozzallo, Italy, the U.N. refugee agency estimated the number of dead at more than 80.

Separately, Libya’s coastguard picked up seven survivors over the weekend who said they had been on a boat packed with 170 migrants. Aid agency International Medical Corps, which gave medical care to the survivors, also confirmed their account. “We rescued on Sunday seven illegal migrants – six men and a woman,” said Omar Koko, a coastguard commander in the western city of Zawiya. “According to these survivors, there were 170 on board the boat, which sank because of overloading.” Among those missing were more than 30 women and nine children, Koko said. Eleven bodies washed up on the shore west of Zawiya, said Mohanad Krima, a spokesman for the Red Crescent in Zawiya. “All the bodies are of female victims and there is a girl of less than one year old,” he said.

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Mar 182017
 
 March 18, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , , ,  11 Responses »
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Andreas Feininger Production B-17 heavy bomber at Boeing plant, Seattle 1942

 

How Bankers Became The Top Exploiters Of The Economy (Michael Hudson)
World Out Of Whack: What’s Next For Global Real Estate? (CE)
Make Big Banks Put 20% Down—Just Like Home Buyers Do (Kashkari)
Deepening EU Banking Crisis Meets Euro-TARP on Angel Dust (DQ)
The Paranoid Attempts To Tie Trump To Russia (Qz)
Clinton Ally Says Smoke, But No Fire: No Russia-Trump Collusion (NBC)
Justice Dept. Delivers Documents On Wiretap Claim To Congress (R.)
Secret Service Says Laptop Stolen From Agent’s Car In New York (R.)
A Bad Week and Getting Badder Bigly Fast (Jim Kunstler)
Athens Sees Turk Effort To Dispute Greek Sovereignty In Aegean (K.)
Turkey Threatens To Send Europe ‘15,000 Refugees A Month’ (AFP)
Over 10,000 Refugees Relocated, IOM Says (K.)

 

 

Absolutely brilliant interview with Michael Hudson. Read the whole thing. It’ll give you so much insight.

How Bankers Became The Top Exploiters Of The Economy (Michael Hudson)

There are two ways of thinking about the economy. The school textbooks only talk about was producing goods and services for wages and profits. They don’t talk about rent or unearned income. That’s what I mean by “unreal” – not grounded in production. And they don’t talk about interest either, or the framework of debt and property rights. There’s a lot of talk about what seems to be the circular flow between producers and consumers. That circular flow is called Say’s law. For example, Henry Ford said he paid his workers $5 a day so that they could afford to buy the cars that they produced. Workers are depicted as paying their wages to buy what they make. All that seemed to make sense, but the economy of production is different from financial and property wealth. Who owns the assets, and who owes debts to whom?

If you look at the economic framework in terms of assets and debt, you find that the 1% makes its money by holding the 99% in debt. Or at least, you could say that the 5% make its money by holding the 95% in debt. The trick is to get other people in debt. How do you do that? You make them think that they can gain. They’re willing to borrow to buy a home, because they think that since 1945, the way that most American families have gotten rich – indeed, the way the middle class was created throughout most western countries – was by the increasing price of real estate they bought on credit. What they didn’t realize was that the price of real estate was being bid up in two ways. Number 1: By more bank lending, on easier terms. Number 2: By public infrastructure spending. Cities, states and federal governments built parks, museums, roads, railroads, water and sewer systems, and electric utilities. But this began to come to an end with Reagan and Thatcher in 1980.

You have had a privatization of public infrastructure – goods that the public sector provided for free, saving people from having to pay monopoly prices. Instead of financing public investment by progressive taxation, it was financed by borrowing. Banks got more and more aggressive and reckless in creating new credit, because they felt they were guaranteed against loss. That was the essence of financialization. Financial engineering replaced industrial engineering. What people thought was wealth turned out to be a rentier overhead. This confusion between real tangible wealth and financial overhead claims on the economy was recognized already over 100 years ago by somebody who won a Nobel Prize: Frederick Soddy. But he won the Nobel Prize in chemistry. He wrote many books saying what people think of wealth— stocks and bonds, bank loans and property rights —are virtual wealth. They are financial claims on real wealth.

A stock or bond is a claim on the income that real wealth can make. So it’s on the opposite side of the balance sheet from assets. It’s on the liabilities side. Economists used to talk about land as a factor of production. But land rights are really a property claim, like a monopoly claim. It’s as if you’d say Walt Disney’s patents on Mickey Mouse or movies that Walt Disney makes are a factor of production. They’re really a property right to charge a monopoly price. The right to charge a monopoly price for a cable service isn’t really a factor of production. It’s extractive. It’s what economists call a zero-sum activity. So classical economics has a different idea of what national income is from today’s idea. A monopoly right is not an addition to national wealth or income just because monopolists make more. It’s a subtraction from the economy’s circular flow.

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Painful.

World Out Of Whack: What’s Next For Global Real Estate? (CE)

Ever since anyone can remember, global real estate prices have been going up. Pretty much doesn’t matter which country you’re from (unless, of course, it’s Syria, or Iraq… or Fuhggedistan): if you bought something in the last 2 to 3 decades, it’s like the ceilings were insulated with helium. Even when the 2008 crisis hit and we had Captain Clever ensuring the world that things were just peachy: “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.” – Ben Bernanke, March 28, 2007 Even with that setback real estate has marched upward. The US, of course, took a decent breather and is only today back to where it was pre the GFC. But the US isn’t the world, so let’s look at what everyone else has been up to. Take a look at this:

In truth, it hasn’t just been Mr. and Mrs. Smith in their tweed coats buying up UK properties, just as it hasn’t been Sheila and Bruce in Sydney, or even Maple and Hudson in Canada. A significant amount of buying power in these markets has come from offshore buyers, largely frightened Chinese money being parked. It’s pretty extraordinary, really.Prices alone don’t provide us with the entire picture or provide us with context. I mean, real estate prices in Harare went through the roof, too, in the 2008-09 period (in ZWD) but the currency went through the floor and real purchasing power collapsed. Context, therefore, is important.Also, clearly a swanky penthouse in Manhattan overlooking the Hudson river shouldn’t be priced the same as a swanky penthouse in Vientiane overlooking the Mekong. The main difference? Incomes. So let’s take a look at prices relative to incomes for a better understanding.

Buying a house in the US actually makes a lot more sense. Certainly relative to its international peers the US is cheap. In fact, if you factor in the ability to fix debt for a ridiculously long time in a currency that’s ultimately going to get hammered, and if you need to find somewhere to live then you’ve found a way to essentially be synthetically short the bond market (provided you fix your rates). I’m not advocating this as a strategy but merely pointing out the mechanics of the trade. As investors we’re interested in viewing real estate as we would any investment or asset, and as such understanding the cashflows is important. Naturally, incomes relative to asset prices tell us what the owner’s cashflows are relative to the asset they’ve buying… and the same analysis can be conducted against student loans, car loans – any credit instrument, really. Here’s rents (cashflows) relative to asset prices:

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Kashkari makes sense. Lots of it. But will he push it through? Put his career on the line for it?

Make Big Banks Put 20% Down—Just Like Home Buyers Do (Kashkari)

There’s a straightforward way to help prevent the next financial crisis, fix the too-big-to-fail problem, and still relax regulations on community lenders: increase capital requirements for the largest banks. In November, the Federal Reserve Bank of Minneapolis, which I lead, announced a draft proposal to do precisely that. Our plan would increase capital requirements on the biggest banks—those with assets over $250 billion—to at least 23.5%. It would reduce the risk of a taxpayer bailout to less than 10% over the next century. Alarmingly, there has been recent public discussion of moving in the opposite direction. Several large-bank CEOs have suggested that their capital requirements are already too high and are holding back lending.

[..] Bank of America CEO Brian Moynihan recently asked, “Do we have [to hold] an extra $20 billion in capital? Which doesn’t sound like a lot, but that’s $200 billion in loans we could make.” It is true that some regulations implemented after the 2008 financial crisis are imposing undue burdens, especially on small banks, without actually making the financial system safer. But the assertion that capital requirements are holding back lending is demonstrably false. How can I prove it? Simple: Borrowing costs for homeowners and businesses are near record lows. If loans were scarce, borrowers would be competing for them, driving up costs. That isn’t happening. Nor do other indicators suggest a lack of loans. Bank credit has grown 23% over the past three years, about twice as much as nominal GDP.

Only 4% of small businesses surveyed by the National Federation of Independent Business report not having their credit needs met. If capital standards are relaxed, banks will almost certainly use the newly freed money to buy back their stock and increase dividends. The goal for large banks won’t be to increase lending, but to boost their stock prices. Let’s not forget: That’s the job of a bank CEO. It isn’t to protect taxpayers. [..] There is a simple and fair solution to the too-big-to-fail problem. Banks ask us to put 20% down when buying our homes to protect them in case we run into trouble. Similarly, taxpayers should make large banks put 20% down in the form of equity to prevent bailouts in case the financial system runs into trouble. Higher capital for large banks and streamlined regulation for small banks would minimize frustration for borrowers. If 20% down is reasonable to ask of us, it is reasonable to ask of the banks.

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This is why we get the calls for Eurobonds again, and the world’s biggest bad bank.

Deepening EU Banking Crisis Meets Euro-TARP on Angel Dust (DQ)

The total stock of non-performing loans (NPL) in the EU is estimated at over €1 trillion, or 5.4% of total loans, a ratio three times higher than in other major regions of the world. On a country-by-country basis, things take look even scarier. Currently 10 (out of 28) EU countries have an NPL ratio above 10% (orders of magnitude higher than what is generally considered safe). And among Eurozone countries, where the ECB’s monetary policies have direct impact, there are these NPL stalwarts: Ireland: 15.8%; Italy: 16.6%; Portugal: 19.2%; Slovenia: 19.7%; Greece: 46.6%; Cyprus: 49%. That bears repeating: in Greece and Cyprus, two of the Eurozone’s most bailed out economies, virtually half of all the bank loans are toxic. Then there’s Italy, whose €350 billion of NPLs account for roughly a third of Europe’s entire bad debt stock.

Italy’s government and financial sector have spent the last year and a half failing spectacularly to come up with a solution to the problem. The two “bad bank” funds they created to help clean up the banks’ toxic balance sheets, Atlante I and Atlante II, are the financial equivalent of bringing a butter knife to a machete fight. So underfunded are they, they even strugggled to hold aloft smaller, regional Italian banks like Veneto Banca and Popolare di Vicenza, which are now pleading for a bailout from Rome, which in turn is pleading for clemency from Brussels. What little funds Atlante I and Atlante II have left are hemorrhaging value as the “assets” they’ve been used to buy up, invariably at prices that were way too high (often at over 40 cents on the euro), continue to deteriorate. The recent decision of Italy’s two biggest banks, Unicredit and Intesa Sao Paolo, to significantly write down their investment in Atlante is almost certain to discourage the private sector from pumping fresh funds into bailing out weaker banks.

Which means someone else must step in, and soon. And that someone is almost certain to be the European taxpayer. In February ECB Vice President Vitor Constancio called for the creation of a whole new class of government-backed “bad banks” to help buy some of the €1 trillion of bad loans putrefying on bank balance sheets. Constancio’s idea bore a striking resemblance to a formal proposal put forward by the European Banking Authority (EBA) for the creation of a massive EU-wide bad bank that, in the words of EBA president Andrea Enria, would “make it much easier to achieve critical mass and to create a well functioning market for (impaired) assets.” Here’s how it would work, according to Enria’s words:

“The banks would sell their non-performing loans to the asset management company at a price reflecting the real economic value of the loans, which is likely to be below the book value, but above the market price currently prevailing in illiquid markets. So the banks will likely have to take additional losses. The asset manager would then have three years to sell those assets to private investors. There would be a guarantee from the member state of each bank transferring assets to the asset management company, underpinned by warrants on each bank’s equity. This would protect the asset management company from future losses if the final sale price is below the initial transfer price.”

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The Democrats are self-imploding over this. They need leadership, fast. And untainted.

The Paranoid Attempts To Tie Trump To Russia (Qz)

In the months following Donald Trump’s surprise victory in the US presidential election, it has become increasingly clear that the Democratic party is unwilling—and perhaps unable—to come to terms with the country’s post-election reality. The party’s inability to accept defeat has since manifested itself through an increasingly hysterical campaign to blame Hillary Clinton’s defeat on alleged Russian interference. The charge that Russia, in the words of respected Russia expert and longtime Clinton associate Strobe Talbott, breached “the firewall of American democracy” has been repeated so often and by so many that it has taken on the patina of fact. It has become an article of faith, among disappointed Clinton partisans, mainstream political commentators, Democrats on Capitol Hill and Republicans like senator Lindsey Graham, that the election was tainted and that Trump’s legitimacy as president is questionable, at best.

The tendency to blame domestic disappointments on foreign bogeymen is not new and is perhaps better understood as a wave that periodically surfaces, then temporarily subsumes American politics. Indeed, this current reliance on conspiracy theories and accusations of unpatriotic disloyalty has been a feature, not a bug, of discourse regarding Russia since the onset of the crisis in Ukraine in early 2014. Yet this paranoia is, so far, little more than a distraction. By blaming Clinton’s loss on Russia, the political establishment is able to largely ignore the way economic, trade, and foreign policies failed large numbers of Americans. And, by elevating Vladimir Putin to supervillain status, this neo-McCarthyism is hindering debate and undermining legitimate attempts to deescalate tensions with our Russian colleagues.

MSNBC’s house intellectual Rachel Maddow has been among the most vociferous and, at times, most incisive critics of president Trump. Yet she also recently questioned whether Trump is actually under the control of the Kremlin. During her broadcast on March 9, Maddow told viewers that what she finds “particularly unsettling” is that “we are also starting to see what may be signs of continuing [Russian] influence in our country. Not just during the campaign but during the administration. Basically, signs of what could be a continuing operation.” That Maddow, a popular and respected liberal voice, would indulge in rhetoric of this sort is a worrying sign given the lack of hard evidence it is based on.

While many have convinced themselves that Russia tipped the scale of the election toward Trump, the more sinister allegations of Putin infiltrating the White House have not been born out. Even the former Director of National Intelligence James Clapper admitted in an interview with NBC’s Chuck Todd in early March that he has “no knowledge” and “no evidence” of “collusion” between Russia and the Trump campaign. Yet Maddow’s charge recalls some of the worst excesses of the early 1950’s, when our political life was marred by the Red Scare and a climate of paranoia prevailed. Unsubstantiated allegations, not dissimilar to the kind Maddow just levied, were characteristic of that era.

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Steele was paying his ‘sources’ through third parties.

Clinton Ally Says Smoke, But No Fire: No Russia-Trump Collusion (NBC)

Former Acting CIA Director Michael Morell, who endorsed Hillary Clinton and called Donald Trump a dupe of Russia, cast doubt Wednesday night on allegations that members of the Trump campaign colluded with Russia. Morell, who was in line to become CIA director if Clinton won, said he had seen no evidence that Trump associates cooperated with Russians. He also raised questions about the dossier written by a former British intelligence officer, which alleged a conspiracy between the Trump campaign and Russia. His comments were in sharp contrast to those of many Clinton partisans — such as former communications director Jennifer Palmieri — who have stated publicly they believe the Trump campaign cooperated with Russia’s efforts to interfere in the election against Clinton. Morell said he had learned that the former officer, Christopher Steele, paid his key Russian sources, and interviewed them through intermediaries.

“On the question of the Trump campaign conspiring with the Russians here, there is smoke, but there is no fire, at all,” Morell said at an event sponsored by the Cipher Brief, an intelligence web site. “There’s no little campfire, there’s no little candle, there’s no spark. And there’s a lot of people looking for it.” Morell pointed out that former Director of National Intelligence James Clapper said on Meet the Press on March 5 that he had seen no evidence of a conspiracy when he left office January 20. “That’s a pretty strong statement by General Clapper,” Morell said. About the dossier, Morell said, “Unless you know the sources, and unless you know how a particular source acquired a particular piece of information, you can’t judge the information — you just can’t.” The dossier “doesn’t take you anywhere, I don’t think,” he said.

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No proof on this side of the fence either. Everybody’s just making stuff up.

Justice Dept. Delivers Documents On Wiretap Claim To Congress (R.)

The U.S. Justice Department on Friday said it delivered documents to congressional committees responding to their request for information that could shed light on President Donald Trump’s claims that former President Barack Obama ordered U.S. agencies to spy on him. The information was sent to the House and Senate intelligence and judiciary committees, said Sarah Isgur Flores, a Justice Department spokeswoman. The chairman of the House Intelligence Committee, Republican Devin Nunes, said in a statement late on Friday that the Justice Department had “fully complied” with the panel’s request.

A government source, who requested anonymity when discussing sensitive information, said an initial examination of the material turned over by the Justice Department indicates that it contains no evidence to confirm Trump’s claims that the Obama administration had wiretapped him or the Trump Tower in New York. The House Intelligence Committee will hold a hearing on Monday on allegations of Russian meddling in the U.S. election. Federal Bureau of Investigation Director James Comey and National Security Agency Director Mike Rogers will testify and are expected to field questions on Trump’s wiretap claim. Leaders of both the House and Senate intelligence committees, including from Trump’s Republican Party, have said they have found no evidence to substantiate Trump’s claims that Obama ordered U.S. agencies to spy on Trump or his entourage. The White House has publicly offered no proof of the allegation.

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What an insane story this is. How did the media get all their info?

Secret Service Says Laptop Stolen From Agent’s Car In New York (R.)

The U.S. Secret Service said on Friday a laptop was stolen from an agent’s car in New York City but that such agency-issued computers contain multiple layers of security and are not permitted to contain classified information. The agency said in a statement that it was withholding additional comment while an investigation continues. ABC News, citing law enforcement sources, said the laptop contained floor plans for Trump Tower, details on the criminal investigation of Hillary Clinton’s use of a private email server and other national security information. The New York Daily News, citing police sources, said authorities had been searching for the laptop since it was stolen on Thursday morning from the agent’s vehicle in the New York City borough of Brooklyn.

Some items stolen with the laptop, including coins and a black bag with the Secret Service insignia on it, were later recovered, the newspaper reported. CBS News, also citing law enforcement sources, said that some of the documents on the computer included important files on Pope Francis. The agent also told investigators that while nothing about the White House or foreign leaders is stored on the laptop, the information there could compromise national security, the Daily News reported. “There’s data on there that’s highly sensitive,” a police source told the newspaper, adding: “They’re scrambling like mad.”

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Jim was interviewed by Tucker Carlson about this, hope the video shows below (embedding Fox doesn’t always work). Really, Jim, Fox? I know, who else is left?

A Bad Week and Getting Badder Bigly Fast (Jim Kunstler)

[..] it also looks a bit as though the Golden Golem of Re-Greatification has wandered into a political minefield so dense with booby traps that he’s already out of moves. First there’s the debt ceiling problem — which has so far received almost no attention from the Kardashianized collective news media. As David Stockman has pointed out on his blog, the US Treasury amassed a “war chest” of nearly half a trillion dollars last fall (via various book-keeping shenanigans) in expectation that President Hillary would need it to ride out some fiscal bad weather early in her reign. Then, the truly inconceivable happened and Hillary won bigly in the wrong states and not bigly enough in the right ones, and, well….

Immediately, with Trump ascendant, the Treasury and its handmaidens at the Federal Reserve engineered a rapid burn-through of the war chest at a rate of about $90-billion a month since November, so that now there remains only about a month’s worth of walking-around money to run the US Government. With the old debt ceiling truce expired, congress would have to resolve to raise it, to legally enable the Treasury to resume its massive borrowing operations, or else the government won’t be able to pay invoices or issue pension checks or meet any obligations. It could even default on its “no risk” bonds. Those dangers are theoretical for the moment, especially since there is always more accounting fraud to resort to when all else fails. But the longer a debt ceiling stalemate goes on in congress, the more trapped President Trump will be.

The cherry on top is the Federal Reserve’s move to raise interest rates the same day the debt ceiling truce expired. That will thunder through the system, making many loans more expensive to repay, dampening the real estate markets (at a time when commercial real estate is already tanking), and draining all kinds of other mojo (however falsely engineered) from the Potemkin economy. As if being trapped in a political minefield isn’t bad enough, the remaining safe patch Trump is stranded on turns out to be the LaBrea Tar Pit of health care reform. At this point, the crusade is doing worse than going nowhere — it’s getting sucked into the primordial bitumen where the mastodons and camelops sleep.

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Watch out, Merkel, Trump, NATO. You’re playing with fire.

Athens Sees Turk Effort To Dispute Greek Sovereignty In Aegean (K.)

In what is seen in Athens as an effort by Ankara to push through its message that Greece has limited sovereignty in the area of the Eastern Mediterranean surrounding the island of Kastelorizo, Turkish forces have in recent days maintained a steady presence in the region, either through military exercises or with the dispatch of research vessels. According to a navigational telex (navtex) issued by Turkey, the Piri Reis oceanographic vessel will remain in the area south of Kastelorizo until Monday. Furthermore, according to another two navigational telexes, Turkey is planning to conduct exercises with live ammunition in areas west and east of Kastelorizo (within Turkish territorial waters).

Moreover, Ankara has already announced that it will conduct hydrocarbon explorations in the Eastern Mediterranean next month. It remains to be seen exactly what part of the Eastern Mediterranean Turkey plans to explore. In Athens, Turkey’s moves are seen to be clearly linked to the decision by Cyprus to move ahead, in spite of Ankara’s objections, with the extraction of natural gas from drilling block 11 in its exclusive economic zone (EEZ). In an interview with CNN Greece, which will be broadcast Friday, Cyprus President Nicos Anastasiades again expressed his concerns over the tensions that may be further fueled in the period stretching “from now until the Turkish referendum (on April 16),” and by the ongoing effort to create “an atmosphere of fanaticism within Turkish society.”

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The Erdogan referendum is one month from now. Much more important to him till then than international relations.

Turkey Threatens To Send Europe ‘15,000 Refugees A Month’ (AFP)

Turkey’s Interior Minister Suleyman Soylu has threatened to “blow the mind” of Europe by sending 15,000 refugees a month to EU territory, in an intensifying dispute with the bloc. Ankara and Brussels almost a year ago on March 18 signed a landmark deal that has substantially lessened the flow of migrants from Turkey to Europe. But the accord is now hanging in the balance due to the diplomatic crisis over the blocking of Turkish ministers from holding rallies in Europe. “If you want, we could open the way for 15,000 refugees that we don’t send each month and blow the mind” of Europe, Soylu said in a speech late Thursday, quoted by the Anadolu news agency. Foreign Minister Mevlut Cavusoglu has already indicated that Turkey could rip up the deal and said Turkey was no longer readmitting migrants who crossed into Greece.

The crisis was sparked when the Netherlands and Germany refused to allow Turkish ministers to campaign in a April 16 referendum on expanding President Recep Tayyip Erdogan’s powers, prompting the Turkish strongman to compare them with Nazi Germany. Soylu, a hardliner considered close to Erdogan, accused The Hague and Berlin of involvement in June 2013 anti-Erdogan protests, October 2014 pro-Kurdish riots and the July 15, 2016 failed coup attempt. “They are trying to complete the work that they did not finish. Who is doing this work? It’s the Netherlands and Germany,” Soylu said. He accused Europe of failing to help Turkey enter the bloc and of not helping with its fight against terror. “Europe, do you have that kind of courage…? Let us remind you that you cannot play games in this region and ignore Turkey,” he added.

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There were supposed to be 160,000. And this is less than one month of what Turkey threatens to send over.

Over 10,000 Refugees Relocated, IOM Says (K.)

More than 10,000 asylum seekers from Syria, Iraq and Eritrea have been relocated from Greece to other European Union states since the launch of the bloc’s relocation program in 2015, according to the International Organization for Migration, which is implementing the scheme. Since the beginning of March, 367 people have left Greece for Belgium, Estonia, Germany, Malta, Portugal, Slovenia and Spain, bringing the total number of people relocated from Greece to 10,004, IOM said on Friday. Over the same period, another 475 people were relocated from Italy. The total number of people relocated from Greece and Italy since the program was launched in October 2015 now stands at 14,439, the organization said.

“We have seen a steady increase of pledges and acceptance from participating EU countries in the past few months. At this rate, there will be a further 15,000 to 18,000 relocations from Greece by the end of the program,” said Eugenio Ambrosi, director of IOM’s Regional Office for the EU, Norway and Switzerland. The numbers are short of the original target as 66,400 places had been allocated for relocation from Greece and 39,600 from Italy. “We cannot rest at ease because the overall numbers are too low given the needs in Greece and the commitments that were made. We continue to encourage EU member-states to follow through fully on their commitments,” Ambrosi said.

Read more …

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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Nov 012015
 
 November 1, 2015  Posted by at 10:52 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle November 1 2015
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Unknown Drowned baby boy, Lesbos Oct 25 2015

New Tragedy In The Aegean, Sinking 11 Dead, 4 Babies (In.gr)
‘So Many Of Them Were Babies. We Saw At Least 30 Bodies In The Water’ (HRW)
Crunch Talks For Merkel On Refugee Crisis As Thousands More Arrive (Reuters)
Greek Banks Need Extra €14 Billion To Survive Dire Economic Downturn (Guardian)
Greek Bad Debt Rises Above 50% For The First Time, ECB Admits (Zero Hedge)
Cash Crisis ‘Could Close 50% Of UK Care Homes’ (Observer)
Crisis In UK Care Homes Set To ‘Dwarf The Steel Industry’s Problems’ (Observer)
China Bad Loans Estimated At 20% Or Higher vs Official 1.5% (Bloomberg)
China’s Official Factory Gauge Signals Contraction Continues (Bloomberg)
‘Lipstick’-ing The GDP Pig Amid An Epochal Global Deflationary Swoon (Stockman)
Fed Admits: ‘Something’s Going On Here That We Maybe Don’t Understand’ (ZH)
Fed Looks At Way To Shift Big-Bank Losses To Investors (AP)
Australia Should ‘Tell The Story Of The Pacific To The World’ (Guardian)

At dawn Sunday: “five are women, two are children and four infants..” Four more deaths reported since… (Google translation)

New Tragedy In The Aegean, Sinking 11 Dead (In.gr)

Without end continues the refugee drama in the Aegean Sea. This time 11 refugees died when the six meter plastic boat, which was carrying them sank while approaching rocky area in Samos Blue, in the six meters from the shore, just before they occupants disembark. From the dead five are women, two are children and four infants. Most of the dead were trapped in the cabin of plastic boat. The new wreck occurred at dawn Sunday. From the new wreck rescued 15 people. The point is boat of the Coast, volunteer groups and divers.

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Deaths of single often go unreported: “The ultimate death toll is no doubt even higher, since only families with surviving members were able to report their missing to the coast guard..”

‘So Many Of Them Were Babies. We Saw At Least 30 Bodies In The Water’ (HRW)

On Wednesday off the Greek island of Lesbos, a large Turkish fishing boat carrying some 300 people trying to reach Europe sank, causing at least seven to drown, including four children, with at least 34 still missing. The needless loss of life should be enough to outrage us all. But just as outrageous is the reality that months into Europe’s refugee crisis, Europe’s leaders still have not taken the steps necessary to help prevent such unnecessary tragedies, let alone adopt policies that could provide people fleeing war and repression with legal and safe alternatives to seek asylum in Western Europe. Turkish smugglers taking advantage of those desperately fleeing the horrors of war in Syria, Afghanistan, and Iraq promised the victims that the trip aboard a “yacht” would be safer than the more common trips in overloaded rubber dinghies.

They then packed the 300 people like sardines on both decks of the aging fishing vessel. Disaster unfolded as the boat hit rough seas and high winds at about 4 in the afternoon. Suddenly, the sheer weight of those packed on the upper deck caused it to collapse, crashing everyone down onto the lower deck. Spanish volunteer life guards, working on the beaches of Lesbos to bring in the boats safely, watched the tragedy unfold through their binoculars from a beachhead on the Greek island. A Syrian man who survived told one of the doctors who treated the survivors that the collapse of the upper deck injured many people and created a large hole in the bottom of the boat, which began filling with water. The Turkish smuggler driving the boat called his fellow smugglers, and a speedboat came to evacuate him, its occupants firing several times in the air to warn off the panicking people on the boat.

As it evacuated the skipper, the speedboat hit the fishing boat, causing it to sink almost immediately. “Suddenly, we just saw hundreds of lifejackets in the sea,” Gerard, one of the Spanish volunteer lifeguards, told me over the phone. “We rushed down to get our jet skis, and we were in the water in minutes.” For more than four hours, until long after nightfall, three Spanish lifeguards tried to rescue as many of the people in the water as they could, using only their jetskis in the rough water many kilometers offshore. They performed CPR on some right on their jetskis. Several local fishing boats also came to join the rescue efforts, pulling survivors out of the water until their decks were packed with shivering, traumatized survivors.

Both the Greek coast guard and boats under the coordination of FRONTEX, the EU’s external borders agency, joined the effort as well, but their large boats sitting high out of the water made it difficult to hoist survivors unto their decks in the rough seas. The Spanish lifeguards had to risk their lives to scramble onto the Greek coast guard ship to perform CPR on those who had lost consciousness, including a tiny baby. Their jetskis were damaged in the process. Long after nightfall, the Spanish volunteers returned to shore, themselves so chilled to the bone that they were risking hypothermia. “We passed so many lifeless bodies floating in the sea as we left the rescue area,” Gerard said, his voice still shaking a day later.

“So many of them were babies. We saw at least 30 bodies at the scene in the water.” By Thursday, 242 people had been rescued, and the Greek coast guard confirmed that at least 34 people remained missing, in addition to the seven bodies recovered from the water the evening before. The ultimate death toll is no doubt even higher, since only families with surviving members were able to report their missing to the coast guard.

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WIll Merkel pull to the right with her country?

Crunch Talks For Merkel On Refugee Crisis As Thousands More Arrive (Reuters)

Nearly 10,000 refugees continued to arrive in Germany daily, police said on Saturday, highlighting the scale of the challenge facing the country’s stretched border staff ahead of a crunch meeting between Angela Merkel and a Bavarian ally on the crisis. Chancellor Merkel will discuss refugee policy on Saturday evening with Bavarian premier Horst Seehofer, head of the Christian Social Union (CSU) and who has criticized her asylum policy and handling of the crisis. The CSU, sister party to Merkel’s Christian Democratic Union (CDU), has been outspoken about her “open doors” policy towards refugees, in part because its home state of Bavaria is the entry point for virtually all of the migrants arriving in Germany.

Berlin expects between 800,000 and a million refugees and migrants to arrive in Germany this year, twice as many as in any prior year. The huge numbers have fueled anti-immigration sentiment, with support for Merkel’s conservatives dropping to its lowest level in more than three years. There have also been a spate of right-wing attacks on shelters: police in Dresden reported two more arson attacks on Friday night on a hotel and a container, both of which were planned to house refugees and asylum seekers. On Sunday, Merkel and Seehofer will hold talks with Sigmar Gabriel, who leads the other party in her “grand coalition”, the Social Democrats (SPD).

Conservative officials believe it is likely Seehofer will come away from this weekend’s meetings with Merkel with a deal to introduce so-called ‘transit zones’ at border crossings to process refugees’ asylum requests. SPD politicians have rejected that idea, instead calling for faster registration and processing of asylum applications. The crisis has also prompted squabbling among EU states over how best to deal with the influx. European leaders last weekend agreed to cooperate to manage migrants crossing the Balkans but offered no quick fix. German Defence Minister Ursula von der Leyen said Europe needed to work together to come up with a solution to the crisis but that Germany would continue to welcome refugees. “We will not slam the door in the face of the refugees,” she said at a security conference in Bahrain.

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A lot less than was prviously announced.

Greek Banks Need Extra €14 Billion To Survive Dire Economic Downturn (Guardian)

Greece’s four main banks need to find another €14bn of reserves to ensure they could withstand an economic downturn, the ECB said on Saturday. The four banks – Alpha Bank, Eurobank, NBG and Piraeus Bank – have until 6 November to say how they intend to make up that shortfall, the ECB said. The money could come from private investors or from EU bailout funds. An ECB stress test known as a “comprehensive assessment” identified a capital shortfall of €4.4bn under a best-case scenario and €14.4bn in a worst-case situation. The shortfall is smaller than originally feared, with the most recent bailout deal setting aside up to €25bn to prop up Greece’s banks.

The ECB audit examined the quality of the banks’ assets and considered the “specific recapitalisation needs” of each institution under Greece’s EU bailout. “Overall, the stress test identified a capital shortfall across the four participating banks of €4.4bn under the baseline scenario and €14.4bn under the adverse scenario,” the ECB said. “The four banks will have to submit capital plans explaining how they intend to cover their shortfalls by 6 November. This will start a recapitalisation process under the economic adjustment programme that must conclude before the end of the year.” Increasing the banks’ capital reserves would “improve the resilience of their balance sheets and their capacity to withstand potential adverse macroeconomic shock”, the central bank added.

In August, eurozone finance ministers released €26bn of the €86bn in bailout funds that went to recapitalising Greece’s stricken banking sector and make a debt payment to the ECB. Greek banks have already been bailed out under earlier deals for the country. They suffered further losses as Greece headed towards a third bailout earlier this year. Depositors pulled billions out of the country fearing that Greece would be forced to leave the euro. Limits on withdrawals and transfers imposed in June to prevent Greek banks from collapsing remain in place, although they have been loosened.

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Now that’s a real ugly number. And austerity assures the number will get worse. What does that spell for Greek banks?

Greek Bad Debt Rises Above 50% For The First Time, ECB Admits (Zero Hedge)

According to the FT, “the bill states that bank rescue fund HFSF will have full voting rights on any shares it acquires from banks in exchange for providing state aid. Under the bill the bank rescue fund will have a more active role, assessing bank managements.

The exact mix of shares and contingent convertible bonds the HFSF will buy from banks in exchange for any fresh funds it will provide will be decided by the cabinet. The capital hole has emerged chiefly due to the rising number of Greeks unable or unwilling to repay their debt.

And therein lies the rub, because in the span of three months, Greek NPLs have risen from 47.6% of total to 51%: an increase of just over 1% in bad debt every month. Which means that whether or not the latest attempt to boost confidence by the ECB, ESM, and the Greek parliament succeeds is moot. Yes, a few hedge funds may invest funds alongside the ESM, but in the end, as the NPLs keep rising and as long as Greek debtors refuse – or simply are unable – to pay their debt or interest, the next Greek crisis is inevitable. The biggest wildcard is whether or not the Greek population will accept this latest promise of stability in its banking sector at face value: a banking sector which since July is operating under draconian capital controls.

Granted, we should point out that in the past two months the deposit outflow from banks has stopped, and even reversed modestly adding about €900 million in deposits in the past two months, although that is mostly due to the inability of households and corporations to withdraw any sizable amount of funds. The real answer whether Greek banks have been “saved” will wait until the shape of the final bank recapitalization takes place, even as NPLs continue to mount. Remember: Greek lenders are currently kept afloat only by the ECB’s ELA but there is a rush to get the recapitalization finished. If it is not done by the end of the year, new EU rules mean large depositors such as companies may have to take a hit in their accounts.

If the proposed recap is insufficient – and it will be since under the surface the Greek economy continues to collapse and NPLs continue to mount – and a bank bail-in of depositors takes place (a bail-in which took place immediately in the case of Cyprus back in 2013 when Russian oligarch savings were “sacrificed” to bail out the local insolvent banking system), the next leg in the Greek bank crisis will promptly unveil itself, only this time Greece will have some 200% in debt/GDP to show for its most recent, third, bailout. Finally, the real question is: having read all of the above, dear Greek readers, will you hand over what little cash you have stuffed in your mattress to your friendly, neighborhood, soon to be recapitalized bank?

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The entire western world get bogged down under this pressure.

Cash Crisis ‘Could Close 50% Of UK Care Homes’ (Observer)

Ministers are under mounting pressure to pump more money into care for the elderly as investigations by the Observer reveal how some of the largest providers may have to pull out of supplying services because of an escalating financial crisis. Before chancellor George Osborne’s autumn statement on 25 November, Sarah Wollaston, the Conservative chair of the all-party Commons select committee on health, is calling for the government to act, saying that social care providers are reeling from rising costs and declining fees from cash-strapped local authorities. Meanwhile, the head of Care England, which represents independent care providers, claims that the care home sector is heading for a bigger crisis than the steel industry, while Chai Patel, the boss of one of Britain’s largest care home operators, HC-One, says half of Britain’s care homes could go bust.

The warnings come as residents in the 470 homes and specialist centres run by leading provider Four Seasons face uncertainty about the future of the company. Four Seasons has to make a £26m interest payment in December, but is losing money under the weight of £500m of debt. Four Seasons has insisted that it can make the payment, but bosses at rival companies warned that the industry was under unsustainable pressure. In the home care sector, where specialists look after the elderly in their own properties, the United Kingdom Homecare Association cautioned that leading providers could pull out of 55,125 care hours and 33 contracts because of the shortfall between the cost of care and the amount local authorities were paying for the service. Wollaston, a former GP, said she supported the new national living wage and moves to pay transport costs to carers, but added that the government had to recognise that both measures would increase the costs of care.

“There has been a longstanding gap in funding for social care and this will become much more severe if there is not adequate recognition of the rising costs the sector will face as a result of the living wage. Otherwise, we will see more care providers pulling out of the sector,” she said. Many problems result from the fact that local authorities, which have suffered funding cuts of more than 40% since 2010, cannot offer enough to make contracts attractive or, in many cases, viable. Many providers are turning to the private market as an alternative, where they can. Martin Green, the head of Care England, said the crisis would lead to more people ending up in hospitals and Patel, whose company runs 250 care homes, said he had given research to the government that showed that half of care homes could disappear.

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So who’s going to pay, now and in 5 years, 10 years?

Crisis In UK Care Homes Set To ‘Dwarf The Steel Industry’s Problems’ (Observer)

The ghost of Southern Cross hangs over Britain’s care home industry. Four years ago the country’s largest care home group collapsed, sparking months of uncertainty and worry for its 31,000 residents and their families, until Southern Cross’s rivals stepped forward to agree rescue deals for its 750 homes. Now, however, the industry could be rewarded by facing an even bigger crisis. While it was a set of circumstances unique to Southern Cross that laid it low in 2011 – particularly high rents for its properties and the costs of a debt mountain left by its private equity owners – today care homes across the country are feeling the squeeze. Four Seasons, which has more than 22,000 beds spread among 470 homes nationwide, is at forefront of the new crisis.

The company is owned by private equity group Terra Firma, the organisation led by financier Guy Hands that has, at various times, controlled companies as diverse as Méridien hotels, Odeon cinemas and record label EMI. It is losing millions of pound a year and struggling under £500m of debt. Four Seasons needs to make a £26m interest payment in December to satisfy creditors who could put it into administration. Terra Firma insists it will be able to make the payment, but the private equity group, trade unions, and local authorities all agree this is only the start of the problems for the care home industry. Justin Bowden, national officer at the GMB union, which represents thousands of care home employees, said: “You are looking potentially at several Southern Crosses in the next 12 months if something drastic is not done.”

Martin Green, chief executive of Care England, the body that represents independent care providers, warned that the crisis in the sector would dwarf the problems in the steel industry. “We are looking at Redcar happening twice a month if care homes go down,” he said. “These people can only be looked after in care homes and hospitals. If Jeremy Hunt thinks he has a problem with bed blocking now, it is nothing on what it is going to be like if these care homes start to close. Hospitals won’t be able to do elective care because they will be full of old people.” The problems for care homes are rooted in the gap between the costs of care and the amounts local authorities are paying for residents. There are staggering variations in fees across the country, ranging from £350 a week to as high as £750, according to consumer watchdog Which?

The Local Government Association itself estimates that there will be a £2.9bn annual funding gap in social care by the end of the decade. This gap will widen with the introduction of the national living wage next April, which will add another £1bn to the costs of care homes between now and 2020.

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“China is confronting a massive debt problem, the scale of which the world has never seen.”

China Bad Loans Estimated At 20% Or Higher vs Official 1.5% (Bloomberg)

Corporate investigator Violet Ho never put a lot of faith in the bad loan numbers reported by China’s banks. Crisscrossing provinces from Shandong to Xinjiang, she’s seen too much — from the shell game of moving assets between affiliated companies to disguise the true state of their finances to cover-ups by bankers loath to admit that loans they made won’t be recovered. “If I have one piece of advice for people worrying about the financial status of Chinese companies, it’s this: it’s right to be worried,” said Ho, senior managing director in Hong Kong for Kroll Inc., a U.S. risk consultancy. “Often a credit report for a Chinese company is not worth the paper it’s written on.”

As China’s banking industry persists with publishing delinquent-debt numbers that few have faith in – a survey in 2014 indicated that even lenders didn’t believe them – some financial analysts, too, have turned detectives to try to work out what the real numbers may be. The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. Bank of China Ltd. reported on Thursday its biggest quarterly bad-loan provisions since going public in 2006. While the analysts interviewed for this story differ in their approaches to calculating likely levels of soured credit, their conclusion is the same: The official 1.5% bad-loan estimate is way too low.

Charlene Chu, who made her name at Fitch Ratings making bearish assessments of the risks from China’s credit explosion since 2008, is among those crunching the numbers. While corporate investigator Ho relies on her observations from hitting the road, Chu and her colleagues at Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions. While traditional bank loans are not Chu’s prime focus – she looks at the wider picture, including shadow banking – she says her work suggests that nonperforming loans may be at 20% to 21%, or even higher.

The Bank for International Settlements cautioned in September that China’s credit to gross domestic product ratio indicates an increasing risk of a banking crisis in coming years. “A financial crisis is by no means preordained, but if losses don’t manifest in financial sector losses, they will do so via slowing growth and deflation, as they did in Japan,” said Chu. “China is confronting a massive debt problem, the scale of which the world has never seen.”

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But there’s still plenty voices willing to paint rosy picstures.

China’s Official Factory Gauge Signals Contraction Continues (Bloomberg)

China’s first key indicator this quarter, an official factory gauge, missed analysts’ estimates, signaling that the manufacturing sector has yet to bottom out as global demand falters and deflationary pressures deepen. The official purchasing managers index was unchanged at 49.8 in October, the National Bureau of Statistics said Sunday, compared with the median estimate of 50 in a Bloomberg survey. It was the third straight reading below 50, the line between expansion and contraction. The official non-manufacturing PMI, a barometer of services and construction, fell to 53.1 from 53.4 in September, the weakest since December 2008. “The manufacturing sector is still contracting, though stabilizing,” and the report indicates economic momentum remains sluggish, said Liu Ligang at Australia & New Zealand Banking Group.

“We still believe the Chinese economy will experience modest rebound supported by faster infrastructure investment in November and December.” The newest data highlight the challenges confronting China’s old growth drivers. The nation’s leaders have reiterated priorities of both reforming the economy and maintaining medium- to high-speed growth in the next five years, according to a communique released by Xinhua News Agency on Thursday. The readings suggest continued monetary easing by the central bank hasn’t yet boosted smaller businesses as much as their larger, state-owned counterparts, which are able to borrow at reduced rates. “Big companies are stabilizing, while smaller ones continue to perform below the contraction-expansion line,” Zhao Qinghe, a senior statistician at NBS, wrote in a statement interpreting the data on Sunday.

“The percentage of small companies facing a financial strain is considerably higher than that of bigger companies.” The unchanged manufacturing PMI suggests “managed stabilization” as policy makers strive to balance growth, reform, and market stability, according to Zhou Hao at Commerzbank in Singapore. The manufacturing sector stabilized “somewhat” due to monetary policy easing, Zhou said, while slowing power generation, steel production and housing sales are “suggesting that the overall economy is still under downward pressure.” The employment gauges of both manufacturing and non-manufacturing sectors remained mired in contraction zone, Sunday’s report showed. China’s survey-based unemployment rate picked up slightly to around 5.2% in September, while a ratio of job supply and demand rose in the third quarter.

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Stop confusing inflation with rising prices, and things get a lot clearer.

‘Lipstick’-ing The GDP Pig Amid An Epochal Global Deflationary Swoon (Stockman)

The talking heads were busy yesterday morning powdering the GDP pig. By averaging up the “disappointing” 1.5% gain for Q3 with the previous quarter they were able to pronounce that the economy is moving forward at an “encouraging” 2% clip. And once we get through this quarter’s big negative inventory adjustment, they insisted, we will be off to the ‘escape velocity’ races. Again. No we won’t! The global economy is in an epochal deflationary swoon and the US economy has already hit stall speed. It is only a matter of months before this long-in-the-tooth 75-month old business expansion will rollover into outright liquidation of excess inventories and hoarded labor. That is otherwise known as a recession.

Its arrival will be a thundering repudiation of the lunatic monetary policies of the last seven years; and it will send into panicked shock all those buy-the-dip speculators and robo-traders who still presume the central bank is omnipotent. So forget all the averaging and seasonally maladjusted noise in yesterday’s report and peak inside at the warning signs. To begin, the year/year gain of just 2.0% was the weakest result since the first quarter of 2014. And that’s only if you believe that inflation during the last 12 months was just 0.9%, as per the GDP deflator used by the Commerce Department statistical mills. Needless to say, there are about 90 million households in America below the top 20%, which more or less live paycheck to paycheck, that would argue quite vehemently that their cost of living including medical care, housing, education, groceries, utilities and much else – has gone up a lot more than 0.9%.

So put a reasonable “deflator” on the reported “real” GDP number, and you are getting pretty close to stall speed – even before you look inside at the internals. Indeed, even before you get to the components of the “deflated” GDP figure, you need to examine an even more important number contained in yesterday’s report that was not mentioned by a single talking head. To wit, the year/year gain in nominal GDP was only 2.9%, and it represented a continuing deceleration from 3.7% in the year ending in Q2 2015 and 3.9% in the years ending in Q1 2015 and Q4 2014, respectively. In short, the US economy is sitting there with $59 trillion of credit market debt outstanding, but owing to the tides of worldwide deflation now washing up on these shores, nominal GDP growth is sinking toward the flat line.

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QE accelerates deflation.

Fed Admits: ‘Something’s Going On Here That We Maybe Don’t Understand’ (ZH)

In a somewhat shocking admission of its own un-omnipotence, or perhaps more of a C.Y.A. moment for the inevitable mean-reversion to reality, Reuters reports that San Francisco Fed President John Williams said Friday that low neutral interest rates are a warning sign of possible changes in the U.S. economy that the central bank does not fully understand. With Japan having been there for decades, and the rest of the developed world there for 6 years… Suddenly, just weeks away from what The Fed would like the market to believe is the first rate hike in almost a decade, Williams decides now it is the time to admit the central planners might be missing a factor (and carefully demands better fiscal policy)… (as Reuters reports)

“I see this as more of a warning, a red flag that there’s something going on here that isn’t in the models, that we maybe don’t understand as well as we think, and we should dig down deep deeper and try to figure this out better,” said San Francisco Federal Reserve President John Williams on Friday pointing out that low neutral interest rates are a warning sign of possible changes in the U.S. economy that the central bank does not fully understand.

Williams, who is a voting member of the Fed’s policy-setting panel through the end of the year, has said the central bank should begin to raise interest rates soon but thereafter go at a gradual pace; ironically adding that the low neutral interest rate had “pretty significant” implications for monetary policy, and put more focus on fiscal policy as a response.

“If we could come up with better fiscal policy, find a way to have the economy grow faster or have a stronger natural rate of interest, then that takes the pressure off of us to try to come up with other ways to do it, like through a large balance sheet or having a higher inflation target,” Williams said. “It also means we don’t have to turn to quantitative easing and other policies as much.”

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As long as the investors are not the big banks?!

Fed Looks At Way To Shift Big-Bank Losses To Investors (AP)

In their latest bid to reduce the chances of future taxpayer bailouts, federal regulators are proposing that the eight biggest U.S. banks build new cushions against losses that would shift the burden to investors. The Federal Reserve’s proposal put forward Friday means the mega-banks would have to bulk up their capacity to absorb financial shocks by issuing equity or long-term debt equal to prescribed portions of total bank assets. The idea is that the cost of a huge bank’s failure would fall on investors in the bank’s equity or debt, not on taxpayers. The Fed governors led by Chair Janet Yellen voted 5-0 at a public meeting to propose the so-called “loss-absorbing capacity” requirements for the banks, which include JPMorgan Chase, Citigroup and Bank of America.

The eight banks would have to issue a total of about $120 billion in new long-term debt to meet the requirements of the proposal, the Fed staff estimates. If formally adopted, most of the requirements wouldn’t take effect until 2019, and the remainder not until 2022. The new cushions would come atop rules adopted by the Fed in July for the eight banks to shore up their financial bases with about $200 billion in additional capital — over and above capital requirements for the industry. And they would be in addition to 2014 rules directing all large U.S. banks to keep enough high-quality assets on hand to survive during a severe downturn. Combined with the regulators’ previous actions, the new proposal “would substantially reduce the risk to taxpayers and the threat to financial stability stemming from the failure of these (banks),” Yellen said at the start of the meeting.

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Problem is: Australia would need to address its own role.

Australia Should ‘Tell The Story Of The Pacific To The World’ (Guardian)

Australia should “tell the story of the Pacific to the world” when global leaders sit down to climate change talks in Paris at the end of this month, Labor has said. The impact of climate change on the nations of the Pacific is a focus for both the government and opposition ahead of COP21, where governments of more than 190 nations will gather to discuss a possible new global climate accord. The opposition leader, Bill Shorten, accompanied by foreign affairs spokeswoman Tanya Plibersek and immigration spokesman Richard Marles, will visit Papua New Guinea, the Marshall Islands, and Kiribati over four days this week, while the government’s minister for international development and the Pacific, Steve Ciobo, will travel to New Caledonia, Fiji and Niue. The Labor leaders said climate change was an existential threat to some countries in the region.

“The dangerous consequences of climate change is no more evident than in the Pacific region. Pacific leaders have consistently identified climate change as the greatest threat to their livelihoods, food production, housing, security and wellbeing. “This is a serious problem that demands serious attention.” Marles, the former parliamentary secretary for Pacific island affairs, told Guardian Australia that it was important for Australia to have strong and constructive relations with its Pacific neighbours. He praised Pacific leaders, in particular Kiribati’s president, Anote Tong, for highlighting the issues being faced by Pacific nations on the international stage. “It is crucial that, in the lead-up to Paris, the world understands the problems being faced by the Pacific. And it’s important that Australia plays a role in telling that story of the Pacific to the world.”

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