Jul 092017
 
 July 9, 2017  Posted by at 8:57 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle July 9 2017
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Hieronymus Bosch St. John on Patmos 1489

 

The Trump Effect Turns Every Paper Into A Tabloid (G.)
G20 Launches Plan To Fight Poverty In Africa (AFP)
The Russian Economy If You Aren’t Wearing NATO Night-Fighting Goggles (Helmer)
Britain Isn’t Greece, Prime Minister (BBG Ed.)
Baby Boomers Not Financially Prepared For Retirement (MW)
UK Homebuyers Desperate To Know Who Really Owns Their Freehold (G.)
Wall Street Cash Pumps Up Shale Oil Production Even as Prices Sag (WSJ)
Polluted Indian River Reported Dead Despite ‘Living Entity’ Status (G.)

 

 

An inevitable story. And a too-easy trap: the Guardian presumes that it itself escapes this. It doesn’t. Blaming Trump for that is false: he doesn’t write the stories. Every news outlet is responsible for its own journalistic standards. “Trump made me do it” lacks all credibility. And besides, the Guardian, like so many US media, has been trying to put Trump down for a long time. Just like it hammered Jeremy Corbyn as ‘unfit’ and much worse until it did an embarrassing 180. Is Trump right in reacting as agressively as he has and does? Perhaps not, probably not. But is he justified? Perhaps he is. In the end for the media this is about the beam in thine own eye.

The Trump Effect Turns Every Paper Into A Tabloid (G.)

You can find exactly the same fractured dialogue in Britain, too. What did the surprise of the Brexit vote show? Here’s another tidal wave of articles talking about the non-metropolitan forgotten masses. That, briefly, seemed a national call for understanding and change, one inchoately confirmed in the June election. But see how deafness and disdain soon set in. Let’s blame something – Boris, Rupert Murdoch, Paul Dacre, the BBC – for Brexit. Let’s contemplate the rise of Jeremy Corbyn and press a panic button. The Mail talks about “fake news, the fascist left and the REAL purveyors of hate”. Guardian columnists denounce the “open sewer” of Dacre coverage. Terms like “Tory scum” float from protesters’ posters into the new mass media. Jon Snow, amongst others, gets pasted for his supposed views about modern Conservatism. Irate Leave MPs stomp on the BBC welcome mat.

And every new day seems to bring fresh ingredients. Kensington council seeks to shut journalists out of its crucial meeting. Andrea Leadsom extols a “patriotic” press. There’s a raw edge to the debate now, sharpened after Grenfell Tower by outbreaks of pure and, sometimes, simulated rage. But: “Sit up, though, and look around. You may notice that, amid almost no public outrage whatsoever, we are quite a lot closer than once we were” to losing press freedom, says Hugo Rifkind in the Times. This is politics, and journalism, from the trenches as trust in the media plummets both here and in the US: American trust in the media down to just 38% in the latest Reuters Institute findings, the UK seven points down to 43%. Blame “deep-rooted political polarisation and perceived mainstream media bias”, says Reuters. In short, blame the frenzied state we’re in.

[..] observe how the new nihilism of scum and sewers brings its own narrow benefits. Richard Cohen in the Washington Post arrives clear-eyed. “Circulation is up. Eyeballs are popping. Trump is political pornography – gripping, exciting, lewd, fascinating. He devours adjectives so that, soon, we run out of them. The bizarre becomes ordinary. But he has done his damage. He has normalised contempt for the news media, framing it as a daily tussle between him, the tribune of the people, and us, vile overeducated snobs.”

And Jeet Heer of the New Republic pushes the argument on a notch as he charts the advantage of Trump’s alignment with the likes of the National Enquirer: “The tabloids offer a sordid vision of society, where the mainstream image of celebrities elides their secretly miserable lives (whether because of addiction, ageing, infidelity, or bankruptcy). In this nihilistic world, everyone is corrupt and every public statement is a lie. And if everyone is equally bad and untrustworthy, there’s no reason to hold Trump to any higher standard. This, ultimately, is why Trump and the tabloids were made for each other: They’re both committed to defining deviancy down.”

Read more …

And while we’re at it, Guardian, let’s denounce this kind of thing for what it is. The G20 countries are responsible for poverty in Africa, and they’re not now going to solve it too. Just like the Paris agreement is complete nonsense: schemes to get rich.

G20 Launches Plan To Fight Poverty In Africa (AFP)

G20 nations launched an unprecedented initiative Saturday at the group’s summit in Germany to fight poverty in Africa, but critics called the plan half-hearted. Under German Chancellor Angela Merkel’s “Investment Compacts”, an initial seven African countries would pledge reforms and receive technical support in order to attract new private investment. More than half of Africans are under 25 years old and the population is set to double by mid-century, making economic growth and jobs essential for the young to stop them from leaving, Merkel has said. Germany’s partner nations are Ghana, Ivory Coast and Tunisia, while Ethiopia, Morocco, Rwanda and Senegal are also taking part. Far poorer nations such as Niger or Somalia are so far not on the list.

“We are ready to help interested African countries and call on other partners to join the initiative,” said the G20 in their final communique. The plan, as well as multinational initiatives on helping girls, rural youths and promoting renewable energy, would help “to address poverty and inequality as root causes of migration”. Some 100,000 people, most of them sub-Saharan Africans, have made the dangerous journey to Europe across the Mediterranean in rickety boats this year as the migration crisis shows no sign of abating. Anti-poverty group ONE said that the investment compacts “promised much, but too many G20 partners missed the memo and failed to contribute. “The flimsy foundations must now be firmed up, follow through and improved, especially for Africa’s more fragile states.”

Read more …

“..it is the most self-sufficient and diversified economy in the world.” Which is funny when you hear Putin argue against protectionism.

The Russian Economy If You Aren’t Wearing NATO Night-Fighting Goggles (Helmer)

If your enemy is waging economic war on you, it’s prudent to camouflage how well your farms and factories are doing. Better the attacker thinks you’re on your last legs, and are too exhausted to fight back. A new report on the Russian economy, published by Jon Hellevig, reveals the folly in the enemy’s calculation. Who is the audience for this message? US and NATO warfighters against Russia can summon up more will if they think Russia is in retreat than if they must calculate the cost in their own blood and treasure if the Russians strike back. That’s Russian policy on the Syrian front, where professional soldiers are in charge. On the home front, where the civilians call the shots, Hellevig’s message looks like an encouragement for fight-back – the economic policymaker’s equivalent of a no-fly zone for the US and European Union. It’s also a challenge to the Kremlin policy of appeasement.

Hellevig, a Finnish lawyer and investment analyst, has been directing businesses in Russia since 1992. His Moscow-based consultancy Awara has published its assessment of Russian economic performance since 2014 with the title, “What Does Not Kill You Makes You Stronger.” The maxim was first coined by the `19th century German philosopher Friedrich Nietzsche. He said it in a pep talk for himself. Subsequent readers think of the maxim as an irony. Knowing now what Nietzsche knew about his own prognosis but kept secret at the time, he did too. The headline findings aren’t news to the Kremlin. It has been regularly making the claims at President Vladimir Putin’s semi-annual national talk shows; at businessmen’s conventions like the St. Petersburg International Economic Forum (SPIEF); and in Kremlin-funded propaganda – lowbrow outlets like Russia Today and Sputnik News, and the highbrow Valdai Club.

A charter for a brand-new outlet for the claims, the Russian National Convention Bureau, was agreed at the St. Petersburg forum last month. Government promotion of reciprocal trade and inward investment isn’t exceptional for Russia; it is normal practice throughout the world. The argument of the Hellevig report is that the US and NATO campaign against Russia has failed to do the damage it was aimed to do, and that their propaganda outlets, media and think-tanks are lying to conceal the failure. Small percentage numbers for the decline in Russian GDP and related measures are summed up by Hellevig as “belt-tightening, not much more”. Logically and arithmetically, similarly small numbers in the measurement of the Russian recovery this year ought to mean “belt expanding, not much more.” But like Nietzsche, Hellevig is more optimistic.

Here’s what he concludes:
• “Industrial Production was down merely 0.6%. A handsome recovery is already on its way with an expected growth of 3 to 4% in 2017. In May the industrial production already soared by a promising 5.3%.”
• “Unemployment remained stable all through 2014 – 2016, the hoped-for effect of sanctions causing mass unemployment and social chaos failed to materialize.”
• “GDP was down 2.3% in 2014-2016, expected to more than make up for that in 2017 with 2-3% predicted growth.”
• “The really devastating news for ‘our Western partners’ (as Putin likes to refer to them) must be – which we are the first to report – the extraordinary decrease in the share of oil & gas revenue in Russia’s GDP.”
• “In the years of sanctions, Russia has grown to become an agricultural superpower with the world’s largest wheat exports. Already in the time of the Czars Russia was a big grain exporter, but that was often accompanied with domestic famine. Stalin financed Russia’s industrialization to a large extent by grain exports, but hereby also creating domestic shortages and famine. It is then the first time in Russia’s history when it is under Putin a major grain exporter while ensuring domestic abundance. Russia has made an overall remarkable turnaround in food production and is now virtually self-sufficient.”
• “Russia has the lowest level of imports (as a share of the GDP) of all major countries… Russia’s very low levels of imports in the global comparison obviously signifies that Russia produces domestically a much higher share of all that it consumes (and invests), this in turn means that the economy is superbly diversified contrary to the claims of the failed experts and policymakers. In fact, it is the most self-sufficient and diversified economy in the world.

Read more …

Bloomberg argues that austerity is bad for Britain but good for Greece. Blind bats.

Britain Isn’t Greece, Prime Minister (BBG Ed.)

Britain’s government isn’t due to announce a new budget until the autumn, but debate is already raging over public-sector pay. With Brexit bearing down, the embattled prime minister, Theresa May, will have to choose between making another embarrassing U-turn and defending a policy that is both unpopular and unnecessary. Sadly for May, the U-turn makes better sense. For years it was an article of faith among Britain’s Conservatives that the budget deficit had to be eliminated — by 2020, if not yesterday. Some Tories are now ready to abandon that line of thinking; others still hold the principle, if not the timetable, sacrosanct. Speaking in Parliament on Wednesday, May came down firmly on the side of austerity: Greece shows you where fiscal indiscipline leads, she argued.

Labour leader Jeremy Corbyn was unmoved. He decried the “low-wage epidemic” and argued that the 1 percent cap on increases in public-sector wages should be removed. Corbyn has a point. Britain’s workers are getting squeezed, especially in the public sector, thanks to rising inflation caused in part by the Brexit-induced fall in sterling. But he’s wrong to look at wages in isolation. Public-sector pay is only one of many claims on the government’s budget. The National Health Service, for instance, is in a state of permanent crisis; spending on care for the elderly and other needs is woefully inadequate. The list of other worthy expenditures is endless. Trying to meet all such claims would indeed be a formula for fiscal collapse. The government has to prioritize.

Where higher wages are needed to recruit and retain workers for essential services, raise them. Where additional public spending is needed to provide vital infrastructure, spur productivity, and support growth, make the investment. In such cases, higher taxes and/or higher public borrowing can be justified. If caps and ceilings are used in a way that makes this necessary flexibility impossible – not as emergency measures, moreover, but as a system of long-term control – they’ll do more harm than good. May’s embrace of blanket austerity, by the way, is bad politics as well as bad economics. Most British voters have forgotten, or never experienced, the ruinous consequences of profligate public spending.

That’s why Corbyn’s expansive promises are more popular than you might expect – and why there’ll be greater support for fiscal control if it’s seen to be smart and discriminating, rather than an act of blind ideological faith. To be sure, the timing for a change of fiscal strategy is hardly propitious. Brexit has alarmed investors, giving the government less room for maneuver. Even so, the government shouldn’t be paralyzed – and shouldn’t argue that cautious flexibility would make the country another Greece. That line won’t fly. Targeted spending to improve vital services and drive future growth is good policy, and Britain’s best buffer against the perils ahead.

Read more …

What a surprise. Maybe it’s time to inject some reality.

Baby Boomers Not Financially Prepared For Retirement (MW)

Retirement is right around the corner for baby boomers – if they haven’t already entered it – yet so many are financially unprepared. Baby boomers, or those born between 1946 and 1964, expect they’ll need $658,000 in their defined contribution plans by the time they retire, but the average in those employer-sponsored plans is $263,000, according to a survey of 900 investors by financial services firm Legg Mason. Older boomers, who are 65 to 74, have an average of $300,000. Their asset allocation for all of their investments are also conservative, according to QS Investors, an investment management firm Legg Mason acquired in 2014, with 30% in cash, 24% in equities, 22% in fixed income, 4% in non-traditional assets, 8% in investment real estate, 2% in gold and other precious metals and 8% in other investments.

“They have less than half the assets they hope to have in retirement,” said James Norman, president of QS Investors. “That’s a pretty big miss.” Americans across the country, and all age groups, are drastically under-saved for retirement. Only a third of Americans who have access to a 401(k) plan contribute to it, and previous research suggests the typical middle-aged American couple only has $5,000 saved for the future. Meanwhile, millennials may not be able to picture themselves in retirement at all, though are urged by financial professionals to make a habit of saving, if even only as little as $5. There are a multitude of reasons people may not have enough for retirement, such as having to leave the workforce in between their prime years to care for loved ones, not working long enough to qualify for certain government benefits. or choosing to pay for their childrens’ college tuition instead of saving for their own retirement.

Still, not saving enough was the biggest regret among older Americans, according to a survey of 1,000 participants by personal finance site Bankrate.com. Generation X, or those born between 1965 and 1981, aren’t doing all that much better, though they have the benefit of more time to reach their financial goals. More of them have a defined contribution plan, according to the Legg Mason survey, with an average of $199,000 stashed away for a goal of $541,000 by retirement. They are also investing conservatively, with 25% in cash, 21% in equities, 17% in fixed income, 11% in non-traditional assets, 16% in investment real estate, 7% in gold and other precious metals and 4% in other investments. Conversely, QS Investors suggest their Gen-X aged clients have 80% in equities, which faces more risks from the stock market but could also realize higher returns.

Retirement isn’t the picture-perfect image of lounging on a beach with the idea of a 9-to-5 job long gone. Benefits aren’t the same, either – for example, in 1985, retirees could expect Social Security to cover most of their income and employers typically covered most health-care costs. Retirees 30 years ago also probably didn’t expect to live for decades after resigning at 65, whereas now people are being told to plan to live well into their 80s.

Read more …

A medieval society.

UK Homebuyers Desperate To Know Who Really Owns Their Freehold (G.)

Buyers who purchased new properties direct from some of the UK’s biggest builders have been left in the dark as investment companies play pass-the-parcel with the land their homes stand on. Take Joanne Darbyshire, 46, and her husband Mark, 47. They bought a five-bedroom house in Bolton from Taylor Wimpey in 2010, and are among thousands of unfortunate leaseholders put on “doubling” ground rent contracts that in extreme cases have left their properties almost worthless, with mortgage lenders refusing loans to future buyers. The only way to escape the escalating payments is to buy the freehold. But in Darbyshire’s case, Taylor Wimpey sold it to Adriatic Land 2 (GR2) in 2012. In January 2017 that company transferred it to Adriatic Land 1 (GR3), while some of Darbyshire’s neighbours have seen their freeholds transferred from Adriatic Land 2 (GR2) to Abacus Land Ltd.

“You have no idea who owns the land under your feet,” says Darbyshire. “Your dream house is traded from one offshore company to another for tax reasons, or who knows what else?” Paul Griffin (not his real name) bought a property from Morris Homes in Winsford, Cheshire, in November 2014. By last year, when he decided to add a conservatory, his freehold was in the hands of Adriatic Land 3 and managed by its fee-collecting agents HomeGround. Young was horrified to discover he had to pay £108 just to look at his file. Although the conservatory didn’t need local authority planning permission and was not subject to building regulations, HomeGround then demanded £1,200 for a “licence” for the work to go ahead. This was broken down into solicitors fees (£480), surveyors (£360), and its own fee of £360.

On top of this it demanded numerous official documents at Young’s expense totalling about £400. Helen Burke (not her real name) in Ellesmere Port, meanwhile, was shocked to discover that after Bellway sold her freehold to Adriatic, the cost of seeking consent for a small single-storey extension rocketed. Initially, she had applied to Bellway – the freeholder at the time – and it wanted £300. But after putting off the work for a few months she discovered that Bellway had sold the freehold to Adriatic Land 4 (GR1) Ltd. HomeGround then demanded £2,440 for consent. That is not planning permission, which householders must obtain separately from the local authority. It is simply a fee charged without any material services provided.

“It’s daylight robbery,” says Burke. “The most disgusting thing is the developers like Bellway think they are doing nothing wrong selling the freeholds on and state that our T&Cs don’t change. Yes, the lease terms don’t change, but for a permission fee to increase from £300 to £2,440 in a matter of months is disgraceful and it should absolutely be pointed out to new homeowners, up front, that this might happen if they don’t buy the freeholds.” Burke said she was quoted £3,750 to buy the freehold off Bellway, but once it was sold to Adriatic the price quadrupled to £13,000. After a long legal battle she has acquired it for £7,680.

Read more …

“..$57 billion Wall Street has injected into the sector over the last 18 months.”

Wall Street Cash Pumps Up Shale Oil Production Even as Prices Sag (WSJ)

Easy Wall Street cash is leading U.S. shale companies to expand drilling, even as most lose money on every barrel of oil they bring to the surface. Despite a 17% plunge in prices since April, drillers are on pace to break the all-time U.S. oil production record, topping 10 million barrels a day by early next year if not sooner, according to government officials and analysts. U.S. crude fell again on Friday, dropping 2.8% to $44.23 a barrel on the New York Mercantile Exchange. Yet the U.S. oil rig count rose Friday to the highest level in more than two years. Operators have now put more than 100 rigs back to work from Oklahoma to North Dakota in the past three months. Companies have more capital to keep drilling thanks to $57 billion Wall Street has injected into the sector over the last 18 months.

Money has come from investors in new stock sales and high-yield debt, as well as from private equity funds, which have helped provide lifelines to stronger operators. Flush with cash, virtually all of them launched campaigns to boost drilling at the start of 2017 in the hope that oil prices would rebound. The new wave of crude has again glutted the market. The shale companies are edged even further from profitability, and a few voices have begun to question the wisdom of Wall Street financing the industry’s addiction to growth. “The biggest problem our industry faces today is you guys,” Al Walker, chief executive of Anadarko, told investors at a conference last month.

Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means, Mr. Walker said, adding: “It’s kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline.” Even if companies cut back on drilling now, it wouldn’t be enough to stop a new wave of oil from hitting the market in the second half of the year: U.S. shale output typically lags behind new drilling by four to six months, analysts say. “There’s been insufficient discrimination on the part of sources of capital,” said Bill Herbert, an energy analyst with Piper Jaffray’s Simmons. Big shale companies “are able to get what they want and invest what they want.”

Read more …

Well, that status was declared dead too. So there. People are next.

Polluted Indian River Reported Dead Despite ‘Living Entity’ Status (G.)

One morning in late March, Brij Khandelwal called the Agra police to report an attempted murder. Days before, the high court in India’s Uttarakhand state had issued a landmark judgment declaring the Yamuna river – and another of India’s holiest waterways, the Ganges – “living entities”. Khandelwal, an activist, followed the logic. “Scientifically speaking, the Yamuna is ecologically dead,” he says. His police report named a series of government officials he wanted charged with attempted poisoning. “If the river is dead, someone has to be responsible for killing it.” In the 16th century, Babur, the first Mughal emperor, described the waters of the Yamuna as “better than nectar”. One of his successors built India’s most famous monument, the Taj Mahal, on its banks.

For the first 250 miles (400km) of its life, starting in the lower Himalayas, the river glistens blue and teems with life. And then it reaches Delhi. In India’s crowded capital, the entire Yamuna is siphoned off for human and industrial use, and replenished with toxic chemicals and sewage from more than 20 drains. Those who enter the water emerge caked in dark, glutinous sludge. For vast stretches only the most resilient bacteria survive. The waterway that has sustained civilisation in Delhi for at least 3,000 years – and the sole source of water for more than 60 million Indians today – has in the past decades become one of the dirtiest rivers on the planet.

“We have water records which show that, until the 1960s, the river was much better quality,” says Himanshu Thakkar, an engineer who coordinates the South Asia Network on Dams, Rivers and People, a network of rights groups. “There was much greater biodiversity. Fish were still being caught.” What happened next mirrors a larger Indian story, particularly since the country’s markets were unshackled in the early 1990s: one of runaway economic growth fuelled by vast, unchecked migration into cities; and the metastasising of polluting industries that have soiled many of India’s waterways and made its air the most toxic in the world.

Read more …

Jan 142016
 
 January 14, 2016  Posted by at 9:34 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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DPC Oyster luggers along Mississippi, New Orleans 1906

Asia Stocks Extend Losses, Japan’s Nikkei Falls 3.67% (CNBC)
Oil and US Stocks Tumble Over Fears For Global Economy (Guardian)
China Bear Market Looms as PBOC Fails to Stop Flight to Safety (BBG)
Q4 Will Be Worst US Earnings Season Since Third Quarter Of 2009 (ZH)
The Real Price of Oil Is Far Lower Than You Realize (BBG)
Crude At $10 Is Already A Reality For Canadian Oil-Sands Miners (BBG)
Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes (ZH)
Currency Swings Sap US Corporate Profits by Most in Four Years (BBG)
African Exports To China Fell By 40% In 2015 (BBC)
Money Leaving Emerging Markets Faster Than Ever Amid China Slump (BBG)
China Bond Yield Sinks To Record Low As Central Bank Injects $24 Billion (BBG)
China’s Better-Than-Expected Trade Numbers Raise Questions (WSJ)
Surging China-Hong Kong Trade Raises Doubts Over Recovery (BBG)
The Quiet Side of China’s Market Intervention (WSJ)
As China Dumps Treasuries, Other Buyers Expected To Step In (BBG)
Reporting Rule Adds $3 Trillion Of Leases To Balance Sheets Globally (FT)
EU Scientists In Bitter Row Over Safety Of Monsanto’s Round-Up (Guardian)
Thousands Of Farmer Suicides Prompt India Crop Insurance Scheme (Guardian)
Greece Said To Propose Return Trips For Illegal Migrants (AP)
Tighter Border Checks Leave Migrants Trapped In Greece (AP)
Refugee Influx To Greece Continues Unabated Through Winter (Reuters)
Europe Sees No Let Up in Refugee Crisis as January Arrivals Soar (BBG)

“In Japan, core machinery orders in November fell 14.4%..”

Asia Stocks Extend Losses, Japan’s Nikkei Falls 3.67% (CNBC)

[..] major Asian stock markets continued their downward slide, following a massive sell-off on Wall Street overnight, pressured by concerns over a global economic slowdown and low oil prices. After a late sell-off Wednesday afternoon, the Chinese markets opened in negative territory before trimming losses, with the Shanghai composite down some 1.05%, while the Shenzhen composite was flat. At market open, Shanghai was down 2.73% and Shenzhen saw losses of 3.37%. Hong Kong’s Hang Seng index was down 1.51%. Offering some sign of stability in a generally volatile market, the People’s Bank of China (PBOC) set Thursday’s yuan mid-point rate at 6.5616, compared with Wednesday’s fix of 6.5630. The dollar-yuan pair was nearly flat at 6.5777.

Japan’s Nikkei 225 erased all of Wednesday’s 2.88% gain and plunged 3.95%, weighed by commodities and machinery sectors, which were all down between 3 and 4%. Earlier, it fell as low as 4% before paring back some of the losses. South Korea’s Kospi traded down 1.45%. Down Under, the ASX 200 dropped 1.61%, with energy and financials sectors sharply down. All sectors were in the red except for gold, which saw an uptick of 3.71%. In Japan, core machinery orders in November fell 14.4% from the previous month, according to official data, down for the first time in three months. The data is regarded as an indicator of capital spending and fell more than market expectations for a 7.9% decline.

Read more …

Or is it just price discovery?

Oil and US Stocks Tumble Over Fears For Global Economy (Guardian)

US stocks fell heavily on Wednesday, with the Standard & Poor’s 500 falling 2.5% to take the index below 1,900 points for the first time since September, due to growing concerns about the falling oil price, which dipped below $30 a barrel for the first time in nearly 12 years. The S&P 500, which closed at 1,890 points, suffered its worst day since September and has fallen by 10% since its November peak taking it into “correction” territory, something that has not happened since August 2014. The Dow Jones industrial average dropped by 364 points, or 2.2%, to 16,151, and the Nasdaq composite dropped 159 points, or 3.4%, to 4,526. This deepened the New York stock exchange’s already worst start to a year on record.

Wednesday’s stock market declines were triggered by new figures showing US gasoline stockpiles had increased to record high, which caused Brent crude prices to fall as low as $29.96, their lowest level since April 2004, before settling at $30.31, a 1.8% fall. The oil price has fallen by 73% since a peak of $115 reached in the summer of 2014. Industry data showed that US gasoline inventories soared by 8.4m barrels and stocks of diesel and heating oil increased by more than 6m barrels – confirming the forecasts of many analysts that a huge oversupply of oil could keep prices low during most of 2016. Analysts said that growing fears of a weakening outlook for the global economy, made worse by falling oil prices, was behind the steep falls. Some oil analysts this week predicted that the price could fall as low as $10.

In recent days several analysts have warned that the global economy could suffer a repeat of the 2008 crash if the knock-on effects of a contraction in Chinese output pushes down commodity prices further and sparks panic selling on stock and bond markets. [..] Earlier in the day China’s stock market fell more than 2% after officials played down the significance of better-than-expected trade figures for December, saying exports could sink further before they find a floor.

Read more …

Looms?!

China Bear Market Looms as PBOC Fails to Stop Flight to Safety (BBG)

Chinese stocks headed for a bear market while government bond yields fell to a record as central bank cash injections and a stable yuan fixing failed to shore up confidence in the world’s second-largest economy. The Shanghai Composite Index sank as much as 2.8%, falling more than 20% from its December high and sinking below its closing low during the depths of a $5 trillion rout in August. Investors poured money into government bonds after the People’s Bank of China added the most cash through open-market operations since February 2015, sending the yield on 10-year notes down to 2.7%. While the central bank kept its yuan reference rate little changed for a fifth day, the currency dropped 0.5% in offshore trading and Hong Kong’s dollar declined to the weakest since March 2015.

The selloff is a setback for Chinese authorities, who have been intervening to support both stocks and the yuan after the worst start to a year for mainland markets in at least two decades. As policy makers in Beijing fight to prevent a vicious cycle of capital outflows and a weakening currency, the resulting financial-market volatility has undermined confidence in their ability to manage the deepest economic slowdown since 1990 “You can’t really find buyers in this environment,” said Ken Peng, a strategist at Citigroup Inc. in Hong Kong. “It’s a very, very fragile status quo China is trying to maintain.” The government faces a dilemma with the yuan, according to Samuel Chan at GF International.

On one hand, a weakening exchange rate would help boost exports and is arguably justified given declines in other emerging-market currencies against the dollar in recent months. The downside is that a depreciating yuan encourages capital outflows and makes it harder to keep domestic interest rates low. The monetary authority “doesn’t want the yuan to depreciate fast because it will push funds to leave China very quickly,” Chan said. The country saw capital outflows for 10 straight months through November, totaling $843 billion, according to an estimate from Bloomberg Intelligence. Foreign-exchange reserves, meanwhile, sank by a record $513 billion last year to $3.33 trillion, according to the central bank.

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Still sinking after all these years.

Q4 Will Be Worst US Earnings Season Since Third Quarter Of 2009 (ZH)

Couple of things: first of all, any discussion whether the US market is in a profit (or revenue) recession must stop: the US entered a profit recession in Q3 when it posted two consecutive quarters of earnings declines. This was one quarter after the top-line of the S&P dropped for two consecutive quarters, and as of this moment the US is poised to have 4 consecutive quarters with declining revenues as of the end of 2015. Furthermore, as we showed on September 21, when Q4 was still expected to be a far stronger quarter than it ended up being, in the very best case, the US would go for 7 whole quarters without absolute earnings growth (and even longer without top-line growth).

Then, as always happens, optimism about the current quarter was crushed as we entered the current quarter, and whereas on September 30, 2015, Q4 earnings growth was supposed to be just a fraction negative, or -0.6%, as we have crossed the quarter, the full abyss has revealed itself and according to the latest Factset consensus data as of January 8, the current Q4 EPS drop is now expected to be a whopping -5%. And just to shut up the “it’s all energy” crowd, of the 10 industries in the S&P, only 4 are now expected to post earnings growth and even their growth is rapidly sliding and could well go negative over the next few weeks. It gets even worse. According to Bloomberg, on a share-weighted basis, S&P 500 profits are expected to have dropped by 7.2% in 4Q, while revenues are expected to fall by 3.1%.

This would represent the worst U.S. earnings season since 3Q 2009, and a third straight quarter of negative profit growth. It’s no longer simply a recession: as noted above, the Q4 EPS drop follows declines of 3.1% in Q3 and 1.7% in Q2. it is… whatever comes next. As Bloomberg adds, the main driving forces behind drop in U.S. earnings are the rise in the dollar index (thanks Fed) and the drop in average WTI oil prices. However, since more than half of all industries are about to see an EPS decline, one can’t blame either one or the other. So while we know what to expect from Q4, a better question may be what is coming next, and according to the penguin brigade, this time will be different, and the hockey stick which was expected originally to take place in Q4 2015 and then Q1 2016 has been pushed back to Q4 2016, when by some miracle, EPS is now expected to grow by just about 15%.

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WTI/Brent prices are just a story.

The Real Price of Oil Is Far Lower Than You Realize (BBG)

While oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is even deeper. West Texas Intermediate futures, the U.S. benchmark, sank below $30 a barrel on Tuesday for the first time since 2003. Actual barrels of Saudi Arabian crude shipped to Asia are even cheaper, at $26 – the lowest since early 2002 once inflation is factored in and near levels seen before the turn of the millennium. Slumping oil prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.

Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said. The nation’s economic expansion faltered last year to the slowest pace in a quarter of a century. “You see a big destruction in the income of the oil and commodity producers,” Turner said. “That is having a major effect on their expenditure across the world.” The benefit for consumers from historically low oil prices is being blunted by changes in fuel taxation and a reduction in subsidies, according to Paul Horsnell at Standard Chartered in London. “But it certainly shows that current prices are very low by any description,” he said.

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“..$8.35 on Tuesday, down from as much as $80 less than two years ago.”

Crude At $10 Is Already A Reality For Canadian Oil-Sands Miners (BBG)

Think oil in the $20s is bad? In Canada they’d be happy to sell it for $10. Canadian oil sands producers are feeling pain as bitumen – the thick, sticky substance at the center of the heated debate over TransCanada’s Keystone XL pipeline – hit a low of $8.35 on Tuesday, down from as much as $80 less than two years ago. Producers are all losing money at current prices, First Energy Capital’s Martin King said Tuesday at a conference in Calgary. Which doesn’t mean they’ll stop. Since most of the spending for bitumen extraction comes upfront, and thus is a sunk cost, production will continue and grow. Canada will need more pipeline capacity to transport bitumen out of Alberta by 2019, King said.

Bitumen is another victim of a global glut of petroleum, which has sunk U.S. benchmark prices into the $20s from more than $100 only 18 months ago. It’s cheaper than most other types of crude, because it has to be diluted with more-expensive lighter petroleum, and then transported thousands of miles from Alberta to refineries in the U.S. For much of the past decade, oil companies fought environmentalists to get the pipeline approved so they could blend more of the tar-like petroleum and feed it to an oil-starved world. TransCanada is mounting a $15 billion appeal against President Barack Obama’s rejection of Keystone XL crossing into the U.S. – while simultaneously planning natural gas pipelines from Alberta to Canada’s east coast to carry diluted bitumen. Environmentalists are hoping oil economics finish off what their pipeline protests started.

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Inventories are overflowing. How predictable.

Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes (ZH)

If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up ‘cheap’ oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China’s record crude imports have ceased). In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago…

China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. China’s crude imports last month was equivalent to 7.85 million barrels a day, 6% higher than the previous record of 7.4 million in April, Bloomberg calculations show.

China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher. But given the crash in tanker rates – and implicitly demand – that “boom” appears to be over.

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What neighbors can the US beggar?

Currency Swings Sap US Corporate Profits by Most in Four Years (BBG)

Volatility in the $5.3-trillion-a-day foreign exchange market is dragging down U.S. corporate earnings by the most since 2011, according to a report from FiREapps. Currency fluctuations eroded earnings for the average North American company by 12 cents per share in the third quarter, according to the Scottsdale, Arizona-based firm, which advises businesses and makes software to help reduce the effect of foreign-exchange swings. That’s the most in data going back at least four years, and is up from an average 3 cents per share in the second quarter. “This is the worst I’ve seen it,” FiREapps chief executive officer Wolfgang Koestersaid in a telephone interview. “Investors and analysts are taking a very close look at corporate results impacted by foreign exchange and recognize how material they are.”

A JPMorgan measure of currency volatility averaged 10.1 % during the third quarter, up from 6.3 % 12 months earlier. Last year, some of the biggest price swings came from unscheduled events, such as China’s August devaluation of the yuan, Switzerland’s decision to scrap its currency cap and plummeting commodity prices. Companies in North America lost at least $19.3 billion to foreign-exchange headwinds in the third quarter of 2015, FiREapps data showed. The losses grew by about 14 % from the second quarter. Of the 850 North American corporations that Fireapps analyzed, 353 cited the negative impact of currencies in their earnings, more than double the previous quarter. “That is the largest number of companies talking about currency impact that we’ve ever seen,” Koester said.

China’s yuan is garnering more attention from corporations amid concern that growth in the world’s second-largest economy is slowing, according to FiREapps. Yet North American firms remain most concerned about the effects of the euro, Brazilian real and Canadian dollar on their results. The currencies have fallen 8.3 %, 34 % and 16 % against the greenback over the past 12 months. The stronger U.S. dollar means higher, less-competitive prices for U.S. businesses seeking to sell their products overseas. Companies also take a hit when they account for revenue denominated in weaker overseas currencies, unless they hedged their exposure.

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That is a very big number.

African Exports To China Fell By 40% In 2015 (BBC)

African exports to China fell by almost 40% in 2015, China’s customs office says. China is Africa’s biggest single trading partner and its demand for African commodities has fuelled the continent’s recent economic growth. The decline in exports reflects the recent slowdown in China’s economy. This has, in turn, put African economies under pressure and in part accounts for the falling value of many African currencies. Presenting China’s trade figures for last year, customs spokesman Huang Songping told journalists that African exports to China totalled $67bn (£46.3bn), which was 38% down on the figure for 2014.

BBC Africa Business Report editor Matthew Davies says that as China’s economy heads for what many analysts say will be a hard landing, its need for African oil, metals and minerals has fallen rapidly, taking commodity prices lower. There is also less money coming from China to Africa, with direct investment from China into the continent falling by 40% in the first six months of 2015, he says. Meanwhile, Africa’s demand for Chinese goods is rising. In 2015 China sent $102bn worth of goods to the continent, an increase of 3.6%. Last year, South Africa hosted a China-Africa summit during which President Xi Jinping announced $60bn of aid and loans, symbolising the country’s growing role on the continent.

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And for now that’s still largely due to China.

Money Leaving Emerging Markets Faster Than Ever Amid China Slump (BBG)

Investors pulled more money from emerging markets in the three months through December than ever before as investors dumped riskier assets in China amid concern the country’s currency will weaken further, according to Capital Economics. Capital outflows from developing nations reached $270 billion last quarter, exceeding withdrawals during the financial crisis of 2008, led by an exodus from China as investors pulled a record $159 billion from the country just in December, Capital Economics’ economist William Jackson said in a report. Excluding outflows from the world’s second-largest economy, emerging markets would have seen inflows in the quarter, he said.

“This appears to reflect a growing skepticism in the markets that the People’s Bank can keep the renminbi steady,” Jackson said in the note, which was published Wednesday. “Given the fresh sell-off in EM financial markets and growing concerns about the level of the renminbi, it seems highly likely that total capital outflows will have increased” in January, he said. Investor skepticism increased last year as a surprise devaluation of China’s yuan roiled global markets and triggered a $5 trillion rout in the nation’s equity markets, casting doubt on the government’s ability to contain the selloff and support growth.

Chinese leaders have since then stepped up efforts to restrict capital outflows and prop up share prices despite pledges to give markets greater sway and allow money to flow freely across the nation’s borders within five years. The yuan traded in the mainland market declined 4.4% in 2015, the most since 1994. Outflows from emerging markets rose to a record $113 billion in December, Capital Economics said. Over 2015, investors pulled $770 billion from developing nations, compared with $230 billion a year earlier.

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“For local investors, there’s nothing to buy..”

China Bond Yield Sinks To Record Low As Central Bank Injects $24 Billion (BBG)

China’s government bonds advanced, pushing the 10-year yield to a record low, as the central bank stepped up cash injections and volatile stock and currency markets drove demand for safety. The offshore yuan traded in Hong Kong declined for the first time in six days on speculation a narrowing gap with the Shanghai rate will dissuade the People’s Bank of China from stepping into the market, while Chinese equities slid below the lowest levels of last year’s market selloff. “For local investors, there’s nothing to buy,” said Li Liuyang at Bank of Tokyo-Mitsubishi. “Equities are not performing well, so bonds become the natural investment target. The PBOC increased reverse repo offerings partly because it may be taking some preemptive measures before next month’s Lunar New Year holidays.”

The yield on debt due October 2025 fell as much as three basis points to 2.70%, the least for a benchmark 10-year note in ChinaBond data going back to September 2007. The previous low was 2.72% in January 2009, during the global financial crisis. The PBOC conducted 160 billion yuan ($24 billion) of seven-day reverse-repo agreements in its open-market operations on Thursday, up from 70 billion yuan a week ago. That’s the biggest one-day reverse repo offerings since February 2015, data compiled by Bloomberg show. The PBOC injected a net 40 billion yuan this week, taking its total additions to 230 billion yuan so far this month. “The PBOC wants to keep liquidity abundant onshore to bolster the economy,” said Nathan Chow at DBS Group. “It’s also trying to calm the currency market as the yuan declined significantly last week and caused high volatility. But in the long run, the yuan will depreciate as the fundamentals are still weak.”

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Fake invoices. It’s as simple as that.

China’s Better-Than-Expected Trade Numbers Raise Questions (WSJ)

China’s better-than-expected trade figures in December have sparked questions over whether trade flows have been inflated by investors evading capital controls and the extent of incentives being offered by government agencies to prop up exports. China reported Wednesday that exports in December declined 1.4% year on year. This was much better than the 8% drop expected by economists in a WSJ survey and compared with a 6.8% decline in November, allowing Beijing to end the trading year on a stronger note. Imports fell by 7.6% last month, better than the expected 11% decline, compared with an 8.7% drop in November. The December trade figures also were helped by favorable comparisons with year-earlier figures, economists said.

Of particular note was a 64.5% jump in China’s imports from Hong Kong, the strongest pace in three years, analysts said. This compared with a 6.2% decline for the January-November period. ”It really looks like capital flight,” said Oliver Barron with investment bank North Square Blue Oak. “This has artificially inflated the total import data.” China in recent months has struggled to adjust to massive capital outflows as Chinese investors seek better returns overseas. China saw its foreign exchange hoard drop 13.3% in 2015, or by $500 billion, to $3.3 trillion by the end of December. Under Beijing’s strict capital controls, consumers are only allowed to purchase $50,000 worth of U.S. dollars each calendar year. But manipulated foreign trade deals offer a way around tightening restrictions, say economists.

In an effort to stem the outflow, Beijing’s foreign exchange regulator announced stricter supervision starting January 1 to screen suspicious individual accounts and crack down on organized capital flight, according to an online statement. Bank customers also have reported more difficulty recently exchanging yuan into dollars, with some forced to wait four days to complete a transaction that normally takes one. And China has cracked down on illegal foreign-exchange networks, including a bust announced in November in Jinhua, a city of five million people in eastern Zhejiang province, allegedly involving eight gangs operating from over two dozen “criminal dens” that reportedly handled up to $64 billion in unauthorized transactions, according to state media and a detailed police report.

The official People’s Daily newspaper said 69 people had been criminally charged and another 203 people had been given administrative sanctions. ”Regulators have been trying really hard to close the loopholes,” said Steve Wang with Reorient Financial, adding that the market seems skeptical of Wednesday’s trade figures. The Shanghai Composite Index fell 2.4%. “I don’t think Hong Kong has been buying or selling any more from China. The December data is a huge question mark,” he added. An example of how a Chinese company might move capital abroad using trade deals would be to import 1 million widgets at $2 apiece from a Hong Kong partner or subsidiary company, paying the $2 million, analysts said. It then exports the same widgets at $1 apiece, receiving $1 million from the Hong Kong entity. The goods are back where they started, but $1 million has now moved offshore.

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“..the surprise gains may harken back to past instances of phony invoicing and other rules skirted to escape currency restrictions.”

Surging China-Hong Kong Trade Raises Doubts Over Recovery (BBG)

China exports to Hong Kong rose 10.8% from a year earlier for the biggest gain in more than a year, making the city the biggest destination for shipments last month and spurring renewed skepticism over data reliability and the broader recovery in the nation’s outbound trade. Exports to Hong Kong rose to $46 billion last month, according to General Administration of Customs data released Wednesday. That was the highest value in almost three years and the biggest amount for any December period in the last 10 years, customs data show. Imports from Hong Kong surged 65%, the most in three years, to $2.16 billion. Economists said the surprise gains may harken back to past instances of phony invoicing and other rules skirted to escape currency restrictions.

China’s government said in 2013 some data on trade with Hong Kong were inflated by arbitrage transactions intended to avoid rules, an acknowledgment that export and import figures were overstated. The increase in exports to Hong Kong and China’s imports from the city probably indicate “fake invoicing,” said Iris Pang at Natixis in Hong Kong. Invoicing of China trade should be larger in December because of the wider gap between the onshore yuan and the offshore yuan traded in Hong Kong, she said. China’s exports to the Special Administrative Region of more than 7 million people eclipsed the $35 billion tallies last month for both the U.S. and the EU, the data show. Exports to Brazil, Canada, Malaysia, Russia all dropped more than 10%.

The imports gain “points to potential renewed fake trade activities,” said Larry Hu at Macquarie. When the yuan rose in 2013, exports to Hong Kong were inflated artificially, he said, and “now it’s just the opposite.” China’s total exports rose 2.3% in yuan terms from a year earlier, the customs said, after a 3.7% drop in November. Imports extended declines to 14 months. The recovery in exports in December may prove to be a temporary one due to a seasonal increase at the end of the year, and it doesn’t represent a trend, a spokesman for customs said after the Wednesday briefing. A weak yuan will help exports, but that effect will gradually fade, the spokesman told reporters in Beijing. Morgan Stanley economists led by Zhang Yin in Hong Kong also said in a note Wednesday that the higher-than-expected trade growth may have been affected by currency arbitrage. Overall external demand remained weak, as shown by anemic export data reported by South Korea and Taiwan, he said.

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State firms buying/holding lousy paper.

The Quiet Side of China’s Market Intervention (WSJ)

As Chinese markets tanked last week, China Inc. appeared to be rallying to their support. At least 75 Chinese companies issued statements during the past week and a half, saying their biggest shareholders would be holding on to their stakes in order to protect investor interests. Officially, the companies were acting spontaneously. But privately, people close to Chinese regulators as well as some of the companies themselves said they were prompted to release the statements by exchange officials, who had called and asked them to issue expressions of support. In many cases, the statements contained similar or nearly identical language. The behind-the-scenes activity reflects the secretive, unofficial side to Chinese regulators’ attempts to bolster the country’s sagging stock markets.

The regulators’ varied arsenal includes tactics such as phone calls from exchange officials to big holders of shares, urging them not to sell, as well as pumping hundreds of billions of yuan into the markets through government-affiliated funds. The hand of the regulators was most apparent over the summer, when a 43% plunge in the Shanghai Composite Index over slightly more than two months was accompanied by dozens of declarations by brokerages and fund managers abjuring stock sales, as well as huge purchases of shares in bellwether Chinese stocks by a shadowy group of firms known as the “national team.” Brokers, company executives and people close to Chinese regulators say tactics have become more subtle during the current market downturn: The national team hasn’t been making the high-profile buys of half a year ago, and regulators have been less overt in their requests for cooperation.

An executive at one environmental technology firm listed on the Shenzhen exchange said that in July, the bourse sent a letter demanding the company release a statement saying its controlling shareholders wouldn’t unload stock. Last week, the exchange was more low key, he said, phoning up and urging the company to release another statement to set an example for other firms. But the flurry of companies declaring their support for the market in recent days shows that Chinese regulators still haven’t given up on behind-the-scenes efforts to guide the direction of stocks. “We issued the statement because the [Shenzhen] exchange encouraged listed firms to maintain shareholdings,” said an executive at LED device-maker Shenzhen Jufei who requested anonymity. “You can think of this as a concerted effort by listed firms to voluntarily stabilize the market.”

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The popularity of T-Bills is guaranteed.

As China Dumps Treasuries, Other Buyers Expected To Step In (BBG)

It might be easy to conclude China’s unprecedented retreat from Treasuries is bad news for America. After all, as the biggest overseas creditor to the U.S., China has bankrolled hundreds of billions of dollars in deficit spending, particularly since the financial crisis. And that voracious appetite for Treasuries in recent years has been key in keeping America’s funding costs in check, even as the market for U.S. government debt ballooned to a record $13.2 trillion. Yet for many debt investors, there’s little reason for alarm. While there’s no denying that China’s selling may dent demand for Treasuries in the near term, the fact the nation is raising hundreds of billions of dollars to support its flagging economy and stem capital flight is raising deeper questions about whether global growth itself is at risk.

That’s likely to bolster the haven appeal of U.S. debt over the long haul, State Street Corp. and BlackRock Inc. say. Any let up in Chinese demand is being met with record buying by domestic mutual funds, which has helped to contain U.S. borrowing costs. “You have China running down reserves and Treasuries are a big portion of reserves, but even with that we still think the weight of support” will boost demand for U.S. debt, said Lee Ferridge, the head of macro strategy for North America at State Street, which oversees $2.4 trillion. The question is “if China slows, where does growth come from. That’s what’s been worrying a lot of people coming into 2016.”

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And then the TBTFs will need rescue again?!

Reporting Rule Adds $3 Trillion Of Leases To Balance Sheets Globally (FT)

Companies around the world will be forced to add close to $3tn of leasing commitments to their balance sheets under new rules from US and international regulators — significantly increasing the debt that must be reported by airlines and retailers. A new financial reporting standard — the culmination of decades of debate over “off-balance sheet” financing — will affect more than one in two public companies globally. Worst hit will be retail, hotel and airline companies that lease property and planes over long periods but, under current accounting standards, do not have to include them in yearly reports of assets and liabilities. In these sectors, future payments of off-balance sheet leases equate to almost 30% of total assets on average, according to the International Accounting Standards Board, which collaborated with the US Financial Accounting Standards Board on the new rule.

Hans Hoogervorst, IASB chairman, said: “The new Standard will provide much-needed transparency on companies’ lease assets and liabilities, meaning that off-balance-sheet lease financing is no longer lurking in the shadows”. As a result of the accounting change, net debt reported by UK supermarket chain Tesco would increase from £8.6bn at the end of August to £17.6bn, estimated Richard Clarke, an analyst from Bernstein. However, while the new standard would make Tesco look more indebted, Mr Clarke added that the assets associated with the leases would also come on to the company’s balance sheet, so “the net effect would be neutral.” Investors warned that the new standards could affect some groups’ banking covenants and debt-based agreements with lenders, but said they would make it easier to compare companies that uses leases with those that prefer to borrow and buy.

Vincent Papa, director financial reporting policy at the Chartered Financial Analysts Institute, which has been pushing for these changes since the 1970s, said: “Putting obligations on balance sheets enables better risk assessment. It is a big improvement to financial reporting.” For some airlines, the value of off-balance- sheet leases can be more than the value of assets on the balance sheets, the IASB noted. It also pointed out that a number of retailers that had gone into liquidation had lease commitments that were many times their reported balance sheet debt. [..] In 2005, the SEC calculated that US companies had about $1.25 trillion of leasing commitments that were not included in assets or liabilities on balance sheets. Six years later, the Equipment Leasing and Finance Foundation in the US said that “Capitalising operating leases will add an estimated $2 trillion and 11% more reported debt to the balance sheets of US-based corporations…and could result in a permanent reduction of $96bn in equity of US companies. ”

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“..used so widely that its residues are commonly found in British bread.”

EU Scientists In Bitter Row Over Safety Of Monsanto’s Round-Up (Guardian)

A bitter row has broken out over the allegedly carcinogenic qualities of a widely-used weedkiller, ahead of an EU decision on whether to continue to allow its use. At issue is a call by the European Food and Safety Authority (Efsa) to disregard an opinion by the WHO’s International Agency for Research on Cancer (IARC) on the health effects of Glyphosate. Glyphosate was developed by Monsanto for use with its GM crops. The herbicide makes the company $5bn (£3.5bn) a year, and is used so widely that its residues are commonly found in British bread. But while an analysis by the IARC last year found it is probably carcinogenic to humans, Efsa decided last month that it probably was not. That paves the way for the herbicide to be relicensed by an EU working group later this year, potentially in the next few weeks.

Within days of Efsa’s announcement, 96 prominent scientists – including most of the IARC team – had fired off a letter to the EU health commissioner, Vytenis Andriukaitis, warning that the basis of Efsa’s research was “not credible because it is not supported by the evidence”. “Accordingly, we urge you and the European commission to disregard the flawed Efsa finding,” the scientists said. In a reply last month, which the Guardian has seen, Andriukaitis told the scientists that he found their diverging opinions on glyphosate “disconcerting”. But the European Parliament and EU ministers had agreed to give Efsa a pivotal role in assessing pesticide substances, he noted. “These are legal obligations,” the commissioner said. “I am not able to accommodate your request to simply disregard the Efsa conclusion.”

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What’s Monsanto’s role in this?

Thousands Of Farmer Suicides Prompt India Crop Insurance Scheme (Guardian)

India’s government has approved a $1.3bn insurance scheme for farmers to protect against crop failures, saying it was intended to put a halt to a spate of suicides. Two successive years of drought have battered the country’s already struggling rural heartland, with farmer suicides in rural areas regularly hitting the headlines. More than 300,000 farmers have killed themselves in India since 1995. Under the new scheme, farmers will pay premiums of as little as 1.5% of the value of their crops, allowing them to reclaim their full value in case of natural damage, the government said. “The scheme will be a protection shield against instances of farmer suicides because of crop failures or damage because of nature,” home minister Rajnath Singh said on Wednesday after the cabinet approved the scheme.

The Prime Minister Crop Insurance Scheme is also an attempt by Narendra Modi’s government to woo the country’s powerful farming community after being beaten in two recent state elections. “This scheme not just retains the best features of past policies but also rectifies all previous shortcomings… This is a historic day,” Modi said in a tweet. Previous crop insurance schemes have been criticised by the agricultural community as being too complex or for having caps that prevented them from recouping the full commercial value in the case of damage. Take-up of existing schemes by farmers is as low as 23%, the agriculture minister Radha Mohan Singh said, adding that he hoped to increase coverage to 50%. The heavily subsidised scheme will come into effect in April, a major crop-sowing season.

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Priorities.

Greece Said To Propose Return Trips For Illegal Migrants (AP)

A senior Greek official has said the government will ask Europe’s border protection agency Frontex to help set up a sea deportation route to send migrants who reach the country illegally back to Turkey. The official told AP the plan would involve chartering boats on Lesvos and other Greek islands to send back migrants who were not considered eligible for asylum in the EU. The official spoke on condition of anonymity because Athens hasn’t yet formally raised the issue with other European governments. More than 850,000 migrants and refugees reached Greece in 2015 on their route through the Balkans to central Europe. But the EU is seeking to toughen and better organize procedures for asylum placements, while Balkan countries outside the EU have also imposed stricter transit policies.

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NIMBY.

Tighter Border Checks Leave Migrants Trapped In Greece (AP)

As twilight falls outside the Hellenikon shelter – a former Olympic field hockey venue currently housing about 280 people – Iranian men play volleyball, a red line on the ground serving as a notional net. Inside, migrants are coming to terms with their bleak future. “I can’t go back to Somalia,” said English teacher Ali Heydar Aki, who hoped to settle in Europe and then bring his family. “I have sold half my house” to fund the trip. While it’s unclear exactly how many are stuck in Greece, a comparison of arrivals there and in FYROM since late November leaves about 38,000 people unaccounted for. Greek immigration minister Ioannis Mouzalas’ best guess is “a few thousand.” “But (that’s) a calculation based on experience, not something else,” he said.

Syed Mohammad Jamil, head of the Pakistani-Hellenic Cultural Society, says about 4,000 Pakistanis could be stuck in Greece, mostly still on the islands, and about as many Bangladeshis. “Every day we get … phone calls from people in tears asking for help,” he said. “We can’t help – send them where? Germany, Spain, Italy, England? We can’t.” All now face two legal options: To seek asylum in Greece – which has 25% unemployment and a crumbling welfare system – or volunteer for repatriation. Greek authorities have recorded an increase in both since FYROM tightened controls. Karim Benazza, a Moroccan hotel worker in his 20s, has signed up to go home on Jan. 18.

“This is all I do now, smoke and smoke, but no money, no food,” he said, lighting a cigarette outside the International Organization for Migration building. “There is nothing for us in Greece, and the Macedonian border is closed.” Daniel Esdras, IOM office head in Greece, sees a steep increase in voluntary repatriations, which the IOM organizes. About 800 people registered in December and 260 have been sent home. “It’s one thing to return in handcuffs … and quite another to go as a normal passenger with some money in your pocket, because we give them each €400,” Esdras said.

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5,700 children in 12 days.

Refugee Influx To Greece Continues Unabated Through Winter (Reuters)

More than 1,000 migrants and refugees arrived at Greece’s biggest port of Piraeus near Athens on Wednesday as the influx of people fleeing conflict zones for Europe continued unabated into the winter months. More than 1 million refugees and migrants braved the seas in 2015 seeking sanctuary in Europe, nearly five times more than in the previous year, according to the United Nations’ refugee agency. Most entered through Greece’s outlying islands. So far this year, 31% of arrivals to Europe have been children, said medical aid group Medecins Sans Frontieres, which has been treating arrivals to the Greek islands. About 5,700 children crossed the narrow but dangerous sea passage between Greece and Turkey in just 12 days aboard rickety, overcrowded boats, it said.

“I leave my home, my country [because] there was violence, it was not safe,” said 18-year-old Idris, who left his home and family behind in Afghanistan three months ago, traveling alone through Turkey and hoping to reach Germany to study. As others disembarked from the ferry on Wednesday, volunteers passed out hot tea and fruit to help them get through the next leg of their journey, an eight-hour bus ride from Athens to Greece’s northern border with Former Yugoslav Republic of Macedonia [FYROM]. The ferry picked up a total of 1,238 migrants and refugees from the Eastern Aegean islands of Lesvos and Chios. Among those was 25-year-old Salam, from the Syrian city of Homs, who said he had lived in a number of different cities before the fighting led him and his friends to flee. “[They killed] women and children and men,” said Salam, who also hopes to reach Germany. [It was] very very very bad in Syria.”

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How blind is this? “Work must also step up on “returning those who have no right to international protection.” There are people who have no right to protection? Who gets to decide?

Europe Sees No Let Up in Refugee Crisis as January Arrivals Soar (BBG)

The number of refugees entering Europe in the first 10 days of 2016 is already three times the level in all of January 2015, signaling no let up in the pressure facing the region’s leaders amid the biggest wave of migration since World War II. The number of migrants crossing the Mediterranean Sea to the European Union from Turkey, the Middle East and North Africa reached 18,384 through Jan. 10, according to the United Nations Refugee Agency. That compares with 5,550 in January last year. “This year, these weeks, the coming months must be dedicated to delivering clear results in terms of regaining controls of flows and of our borders,” EC Vice President Frans Timmermans told reporters in Brussels on Wednesday after discussing the latest situation with EU commissioners.

Turmoil in Syria and across the Arab world triggered an influx of more than 1 million people arriving in the EU last year. Faced with migration in such unprecedented numbers, governments have reintroduced internal border checks, tried – and failed – to share refugees between one another and have been forced to defend their policies amid anger at violence allegedly perpetrated by the recent arrivals.

The number of refugees entering the EU increased month-on-month from January 2015 until hitting a peak of 221,374 in October, according to the agency. The level fell back to 118,445 last month as bad weather deterred people from making the journey. Almost a third of those arriving are children. So far this year 49 people have either died or are missing having attempted to cross into Europe. EU countries need to work together to tackle the “root causes” of the refugee influx, Timmermans said. Work must also step up on “returning those who have no right to international protection.”

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Oct 262015
 
 October 26, 2015  Posted by at 10:02 am Finance Tagged with: , , , , , , , , , ,  7 Responses »
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Wyland Stanley Chalmers touring car 1922

US Economic Data Has Never Been This Weak For This Long (Zero Hedge)
US Companies Warn of Pending Recession (WSJ)
EU Agrees To Tighten Border Controls And Slow Migrant Arrival (AP)
Tensions Rise Between European Nations Over Refugee Crisis (Bloomberg)
Greece Says Refugees Are Not Enemies, Refuses to Protect Borders From Them (WSJ)
European Trust: The Perfect Storm (Mungiu-Pippidi)
China Containerized Freight Index Collapses to Worst Level Ever (WolfStreet)
A China Twist: Why Are Malls Closing If Consumption Is Rising? (Reuters)
China’s Leaders Shift From Short-Term Stimulus to Five-Year Plan (Bloomberg)
China Banks Turn To Investors For More Capital As Bad Loans Pile Up (Reuters)
‘Deflationary Boom’ In Prospect As China Slows (FT)
Why China’s Interest Rate Cut May Be Bad News For The World Economy (Guardian)
Emerging Currencies’ Fate Looms Large In Rich World Rates Policy (Reuters)
Africa Is In Grave Danger From The Global Economic Slowdown (Telegraph)
Japan’s Struggling Economy Finds ‘Abenomics’ Is Not an Easy Fix (NY Times)
Reality Keeps Catching Up With BOJ’s Inflation Forecasts (Bloomberg)
When Greeks Fled To Syria (Kath.)

“..this period of economic weakness and disappointment is not just the longest on record, but it is entirely unprecedented…”

US Economic Data Has Never Been This Weak For This Long (Zero Hedge)

Despite the ongoing propaganda reinforcing America’s “cleanest sheets in a brothel” economic growth, the fact is, there is a reason why The Fed folded, why Draghi doubled-down, why China cut, and why Kuroda will likely unleash moar QQE this week. It appears the ‘trap’ that central planners have set for themselves – by enabling massive financial asset inflation in the face of what is now the longest streak of economic weakness and data disappointment on record – now looks set to prove their impotence and/or Enisteinian insanity. As Ice Farm Capital notes: “.. a year ago were looking at 5yr inflation breakevens around 1.5%. They have since deteriorated to 1.15% (by way of 1%) and this week we are expecting a Q3 GDP print more like 1.5% – a deceleration of a full 240bps.”

“Corporate profit margins have taken a sharp hit and corporate profits for the S&P are now down 3% yoy despite continued share buybacks. Through this entire period, markets have continually expected happy days to be just around the corner.”

As a result, we have seen economic surprises for the US negative for the longest stretch in the history of the data series:

To make it a little clearer, this period of economic weakness and disappointment is not just the longest on record, but it is entirely unprecedented…

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“The industrial environment’s in a recession. I don’t care what anybody says..”

US Companies Warn of Pending Recession (WSJ)

Quarterly profits and revenue at big American companies are poised to decline for the first time since the recession, as some industrial firms warn of a pullback in spending. From railroads to manufacturers to energy producers, businesses say they are facing a protracted slowdown in production, sales and employment that will spill into next year. Some of them say they are already experiencing a downturn. “The industrial environment’s in a recession. I don’t care what anybody says,” Daniel Florness, chief financial officer of Fastenal Co., told investors and analysts earlier this month. A third of the top 100 customers for Fastenal’s nuts, bolts and other factory and construction supplies have cut their spending by more than 10% and nearly a fifth by more than 25%, Mr. Florness said.

Caterpillar last week reduced its profit forecast, citing weak demand for its heavy equipment, and 3M, whose products range from kitchen sponges to adhesives used in automobiles, said it would lay off 1,500 employees, or 1.7% of its total, as sales growth sagged for a wide range of wares. The weakness is overshadowing pockets of growth in sectors such as aerospace and technology. Industrial companies are being buffeted on multiple fronts. The slump in energy prices has gutted demand for drilling equipment and supplies. Economic expansion is slowing in China and major emerging markets such as Brazil, which U.S. companies have relied on for sales growth. And the dollar’s strength also has eroded overseas profits.

The drag on earnings and sluggish growth projections for next year come as the Federal Reserve considers raising interest rates for the first time in nine years, and could add momentum to those in favor of postponing any rate increase until next year. Profit and revenue are falling in tandem for the first time in six years, with a third of S&P 500 companies reporting so far. Analysts expect the index’s companies to book a 2.8% decline in per-share earnings from last year’s third quarter, according to Thomson Reuters. Sales are on pace to fall 4%—the third straight quarterly decline. The last time sales and profits fell in the same quarter was in the third period of 2009.

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Priorities couldn’t be more skewed.

EU Agrees To Tighten Border Controls And Slow Migrant Arrival (AP)

European and Balkan leaders agreed on measures early Monday to slow the movement of tens of thousands whose flight from war and poverty has overwhelmed border guards and reception centers and heightened tension among nations along the route to the European Union’s heartland. In a statement to paper over deep divisions about how to handle the crisis, the leaders committed to bolster the borders of Greece as it struggles to cope with the wave of refugees from Syria and beyond that cross over through Turkey. The leaders decided that reception capacities should be boosted in Greece and along the Balkans migration route to shelter 100,000 more people as winter looms. They also agreed to expand border operations and make full use of biometric data like fingerprints as they register and screen migrants, before deciding whether to grant them asylum or send them home.

“The immediate imperative is to provide shelter,” European Commission President Jean-Claude Juncker said after chairing the mini-summit of 11 regional leaders in Brussels. “It cannot be that in the Europe of 2015 people are left to fend for themselves, sleeping in fields.” Nearly 250,000 people have passed through the Balkans since mid-September. Croatia said 11,500 people entered its territory on Saturday, the highest tally in a single day since Hungary put up a fence and refugees started moving sideways into Croatia a month ago. Many are headed northwest to Austria, Germany and Scandinavia where they hope to find a home. “This is one of the greatest litmus tests that Europe has ever faced,” German Chancellor Angela Merkel told reporters after the summit. “Europe has to demonstrate that it is a continent of values and of solidarity.”

“We will need to take further steps in order to get through this,” she said. Slovenian Prime Minister Miro Cerar said his small Alpine nation was being overwhelmed by the refugees – with 60,000 arriving in the last 10 days – and was not receiving enough help from its EU partners. He put the challenge in simple terms: if no fresh approach is forthcoming “in the next few days and weeks, I do believe that the European Union and Europe as a whole will start to fall apart.” The leaders agreed to rapidly dispatch 400 border guards to Slovenia as a short-term measure. As they arrived at the hastily organized meeting, some leaders traded blame for the influx with their neighbors, with Greece targeted for the mismanagement of its porous island border.

“We should go down south and defend the borders of Greece if they are not able to do that,” said Hungarian Prime Minister Viktor Orban, who claimed he was only attending the meeting as an “observer” because Hungary is no longer on the migrant route since it tightened borders. But the country that many say is another key source of the flow – Turkey – was not invited, and some leaders said that little could be done without its involvement. “It has to be tackled in Turkey and Greece, and this is just a nice Sunday afternoon talk,” Croatian Prime Minister Zoran Milanovic said, after complaining about having to leave an election campaign to take part in the mini-summit of nations in Europe’s eastern “migrant corridor.”

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“If we do not deliver some immediate and concrete actions on the ground in the next few days and weeks, I do believe that the European Union and Europe as a whole will start falling apart..”

Tensions Rise Between European Nations Over Refugee Crisis (Bloomberg)

European leaders clashed over how to manage the influx of hundreds of thousands of refugees forging through the region’s eastern flank as they warned that Europe is buckling under the strain of the crisis. While 11 leaders including German Chancellor Angela Merkel managed to come up with short-term fixes at a summit on Sunday, including the provision of emergency shelter for 100,000 refugees and a stepped-up system for their registration, the meeting laid bare tensions between nations that risk fraying the fragile fabric of cooperation in addressing the growing problem. “This is one of the greatest litmus tests that Europe has ever faced.” Merkel said after the gathering in Brussels. “We will need to take further steps to get through this litmus test.”

With winter approaching and more than a million migrants set to reach the European Union this year, national authorities have shut their borders and waved asylum seekers through to neighboring countries as they struggle to get a grip on Europe’s largest influx of refugees in seven decades. “We have made clear to everyone this evening that waving them through has to stop,” European Commission President Jean-Claude Juncker said. While it’s important to implement measures agreed on Sunday, “there will be no miracle cure.” The situation in the Western Balkans – the focus of the summit in Brussels – has worsened over the past few months, aggravating deep-seated distrust between nations that emerged from the violent breakup of the former Yugoslavia.

The main flow of migrants fleeing conflict-stricken nations changed from a route through southern Europe to one leading from Turkey to Greece and through countries including Croatia, Serbia and Slovenia. “If we do not deliver some immediate and concrete actions on the ground in the next few days and weeks, I do believe that the European Union and Europe as a whole will start falling apart,” Slovenian Prime Minister Miro Cerar told reporters before the meeting. Greece, which is at the front line for refugees arriving in Europe, agreed to provide temporary shelter for 30,000 refugees by the end of the year, with the UN High Commissioner for Refugees supporting a further 20,000 places in the country.

An additional 50,000 places will be established by the countries along the Western Balkan route, according to a statement issued after the gathering. Countries also agreed to work together and with Frontex, the EU border-management agency, to bolster frontier controls and cooperation, including between Turkey and Bulgaria and between Greece and Macedonia. Greece fended off “absurd proposals” at the meeting, including allowing countries to block migrants entering from neighboring countries and giving Frontex a new undertaking on the Greek frontier with Macedonia, Prime Minister Alexis Tsipras said. Tsipras signaled disappointment that Turkey wasn’t invited to the summit because it plays “the basic role, the key role” in the crisis.

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Sanity. It still does exist.

Greece Says Refugees Are Not Enemies, Refuses to Protect Borders From Them (WSJ)

Greece’s migration minister has rejected accusations by Germany and other European countries that Greece is failing to defend its borders against mass migration, insisting that the refugees and other migrants trekking to Europe constitute a humanitarian crisis, not a defense threat. “Greece can guard its borders perfectly and has been doing so for thousands of years, but against its enemies. The refugees are not our enemies,” Yiannis Mouzalas said in an interview. Greece is under pressure from other European governments to use its coast guard and navy to control the huge influx of migrants who are making their way, via the Aegean Sea and Greece’s territory, from the Middle East to Northern Europe, especially Germany.

At a European summit in Brussels on Sunday, leaders from Greece and other countries on the latest migration route through the Balkans are facing allegations from Germany, Hungary and others that they are passively allowing migrants to pass through. “In practice what lies behind the accusation is the desire to repel the migrants,” said Mr. Mouzalas. “Our job when they are in our territorial sea is to rescue them, not [let them] drown or repel them.” Countries in Southern and Central Europe have been struggling to cope with the arrival of more than half a million people this year, with the largest number reaching Europe via Turkey and Greece. Many are from war-torn Syria and are treated as refugees from mortal danger, while others come from as far as Pakistan and are seen as having weaker claims to asylum in Europe.

Last week alone, Greece received about 48,000 migrants and refugees on its shores, the highest number of weekly arrivals this year, the International Organization for Migration said Friday. European Union authorities want countries along the transit route to agree on a plan to stop allowing people through, to fingerprint everyone who enters their territory, to beef up border surveillance in Greece, and to deploy 400 border guards to Slovenia, the latest hot spot. Athens opposes an idea floated by European Commission President Jean-Claude Juncker to set up joint Turkish-Greek border patrols. Greece and Turkey have long-standing disputes over their territorial waters, which have led to military tension over the years.

“This was an unfortunate statement by Mr. Juncker,” Mr. Mouzalas said. “The joint patrols have never been on the table. They have no point anyway, as they wouldn’t help ease the situation.” He said an alternative could be to set up a European body to patrol Turkish waters, closer to where many migrants begin their trip, to stem the flow of people attempting the perilous journey to the Greek islands. Mr. Mouzalas said Turkey should have been invited to Sunday’s summit. “Turkey is the door and Greece is the corridor; Europe should not treat Greece as the door,” Mr. Mouzalas said.

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Nobody trusts anybody anymore.

European Trust: The Perfect Storm (Mungiu-Pippidi)

The EU is not a popular democracy – such was not, after all, the intention of its founding fathers. Jean Monnet recounts in his memoirs that the founding idea originated in the First World War and that the goal was to pool resources to enable the repulse of an enemy under a unified command – because coordination was failing to deliver under such conditions. It still fails. Ghita Ionescu, the founder of the London School of Economics journal Government and opposition wrote more than twenty years ago that the democratic deficit predated the EU, caused by the specialization of knowledge and increase in the power of experts on one hand, and on the other by the transnationalization of what had previously been national matters. Consequently, it became impossible for governments to act alone even after the “fullest consultation of their peoples”.

In 2004, the number of Europeans who believed that their voice counted in the EU was 39%. Ten years later, after the powers of the European Parliament have greatly increased, that figure has dropped to 29% (those who feel disempowered have increased from 52 to 66, an even greater difference). In other words, a majority always knew that the EU was not a popular democracy from the outset. Even in 2004, for every European who believed he had a voice in the EU two believed that they had none (Eurobarometer 2013a). Apart from Denmark, where an absolute majority believe that their voice counts in the EU (57% vs. 41%), in 26 countries people believe they have no influence in the EU in proportions that vary from 50% in Sweden and 51% in Belgium, up to 86% in both Cyprus and Greece – for obvious reasons.

But there is nothing new here, except, of course, the terrible constraints that the euro crisis has imposed on Greece, Cyprus and other countries, a tragedy caused by the complexity of an interdependent world which makes people less and less able to decide their own fate. In such complex situations, it is only the populists who offer simple solutions for how to empower voters. We do know what has caused the loss of trust: over two generations a significant question mark has arisen over whether the EU is the best vehicle to maximize social welfare for its various peoples. On one hand, there is the EU’s economic performance since the advent of the economic and growth crisis. On the other, there is loss of trust in European elites, perceived as demanding austerity from the people only to live a life of privilege themselves where taxes are concerned.

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“These rates are a function of oversupply of shipping capacity and of lackluster demand for shipping containers to distant corners of the world. They’ve been in trouble since February. “Trouble” is a euphemism. They relentlessly plunged.”

China Containerized Freight Index Collapses to Worst Level Ever (WolfStreet)

A week ago, we pointed out how China’s dropping exports and plunging imports – the “inevitable fallout from China’s unsustainable and poorly executed credit splurge,” according to Thomson Reuters – had collided with long-term bets by the shipping industry that has been counting on majestic endless growth. The industry has been adding capacity in quantum leaps, where “the scramble to order so-called ultra-large container vessels had turned into a stampede,” as the Journal of Commerce put it. So we said, “Pummeled by Lousy Global Demand and Rampant Overcapacity, China Containerized Freight Index Collapses to Worst Level Ever”. And now, the China Containerized Freight Index (CCFI) has dropped to an even worse level.

Unlike a lot of official data emerging from China, the index, which is operated by the Shanghai Shipping Exchange and sponsored by the Chinese Ministry of Communications, is raw, unvarnished, not seasonally adjusted, or otherwise beautified. It’s volatile and a reflection of reality, as measured by how much it costs, based on contractual and spot market rates, to ship containers from China to 14 major destinations around the world. These rates are a function of oversupply of shipping capacity and of lackluster demand for shipping containers to distant corners of the world. They’ve been in trouble since February. “Trouble” is a euphemism. They relentlessly plunged.

By early July, the index dropped below 800 for the first time in its history, which started in 1998 when the index was set at 1,000. It soon recovered to about 850. And just when bouts of hope were rising that the worst was over, it plunged again and hit even lower levels. The latest weekly reading dropped another 1.7% from the prior week to 752.21, the worst level ever. The CCFI is now 30% below where it had been in February this year and 25% below where it had been 17 years ago at its inception.

The Shanghai Containerized Freight Index (SCFI), also operated by the Shanghai Shipping Exchange, tracks spot rates (not contractual rates) of shipping containers from Shanghai to 15 major destinations around the world. It’s even more volatile than the CCFI. But being based on spot rates, it’s a good indicator where the CCFI is headed. For last week, the SCFI plunged 5.4% to a new record low of 537.73, down 46% from where it had been at its inception in 2009 when it was set at 1,000 – and down 52% from February:

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Spending is cratering in China too.

A China Twist: Why Are Malls Closing If Consumption Is Rising? (Reuters)

Major listed mall operators are also feeling the pain. Dalian Wanda, a big property developer, said in January it would close or restructure 30 of its retail venues and in August said more adjustments were underway. Malaysia-based Parkson, which operates more than 70 department stores in China, closed several of its stores in northern China last year following a 58% drop in China net profit in 2013. “As growth in retail sales slows because of the country’s lower GDP growth, and in cities where mall space is abundant, vacancy rates have risen substantially,” said Moody’s analyst Marie Lam in a research note. In its latest efforts to re-energize the economy, China’s central bank on Friday cut interest rates for the sixth time in less than a year.

Tim Condon, an economist at ING in Singapore warned that investors should not read China’s official retail figures as exclusively reflective of rising household consumption, noting that the data also capture some government purchases. [..] … the risk is that the frenetic pace of mall construction cascades into a bad-debt problem for banks if shoppers fail to match the zeal of property developers. China is currently the site of more than half the world’s shopping mall construction, according to CBRE, a real estate firm, even though it appears that many of these malls will not produce good returns for their investors.

A joint report by the China Chain Store Association and Deloitte showed that by the end of this year, the total number of China’s new malls is projected to reach 4,000, a jump of over 40% from 2011. Real estate analysts note that much of the surge in retail space construction came at the behest of local governments, who were rushing to push real estate development as part of attempts to stimulate the economy. The result has been malls built in haste and managed poorly. Not surprisingly, shoppers are voting with their feet. “If you build it and they’re not coming, that’s a non-performing loan,” said Condon of ING. “That’s the banks’ problem.”

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A process familiar to the west: “The evidence of recent years shows that China is getting less and less real GDP growth for every yuan of credit create..”

China’s Leaders Shift From Short-Term Stimulus to Five-Year Plan (Bloomberg)

China’s leaders gathering in Beijing this week to formulate the 13th five-year plan confront an era of sub-7% economic growth for the first time since Deng Xiaoping opened the nation to the outside world in the late 1970s. Old drivers such as manufacturing and residential construction are spluttering, and new areas like consumption, services and innovation aren’t picking up the slack quickly enough. While President Xi Jinping’s blueprint for 2016-2020 will seek to map out the structural change needed to propel the next leg in China’s march toward high-income status, a more immediate fix has been delivered with the sixth interest-rate cut in a year. “Defensive economic stimulus is needed to ensure that structural reforms maintain their momentum,” said Stephen Jen at hedge fund SLJ Macro Partners.

“If growth slows too much, the pace of structural reforms in China will also need to be curtailed. The government wants to conduct reforms before the macro conditions get worse.” Late Friday, China announced it would cut benchmark interest rates, stepping up the battle against deflationary pressures and easing the financing burden on indebted local governments and companies. It also lowered the amount of deposits banks must hold as reserves, adding liquidity that has been drained by intensifying capital outflows since August’s yuan devaluation. Underscoring the juggling act between reform and stimulus, Friday’s rate-cut announcement was accompanied by the scrapping of a ceiling on deposit rates.

[..] some critics argue administering more stimulus now is the wrong medicine and what’s needed are faster and deeper market-driven reforms. China’s sliding growth is mainly caused by too much easy credit channeled into over-investment, says Patrick Chovanec at Silvercrest Asset Management n New York. “The evidence of recent years shows that China is getting less and less real GDP growth for every yuan of credit created,” said Chovanec. “In other words, more easing won’t help, and could even hurt.” The cut to interest rates may only serve to give yet another lifeline to inefficient state companies, the entities most likely to borrow at the benchmark rate, said Andrew Polk at the Conference Board in Beijing. The risk is that these state companies add more industrial capacity with the funds, worsening deflation and tightening real monetary conditions for the rest of corporate China, he said.

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The relentless and unstoppable rise of bad loans.

China Banks Turn To Investors For More Capital As Bad Loans Pile Up (Reuters)

Mounting bad loans are running down Chinese banks’ capital buffers, forcing them to turn to investors for fresh funds despite raising a record amount last year. Commercial banks are issuing expensive preference shares as well as convertible and perpetual bonds to shore up their capital bases, even after 2014’s bumper issuance when lenders raced to meet new regulatory requirements. But with bad loans up 30% in the first half of 2015 according to China’s banking regulator, doubts are growing about the ability of some banks to withstand the economic slowdown. “China is facing a systemic credit crisis,” said Jim Antos, banking analyst at Mizuho Securities in Hong Kong. “Chinese banks, until mid 2014, were able to cope with deterioration of loans. It seems that has changed.”

Banks’ operating profit margins also are expected to worsen, following the central bank’s decision on Friday to cut interest rates for the sixth time in less than a year. China’s listed commercial lenders raised $57.6 billion (£37.6 billion) last year to bolster their core capital according to Thomson Reuters data. But they may need to raise an additional 553 billion yuan (£54.7 billion) if a slowdown in the economy pushes the ratio of non-performing loans (NPLs) from 1.5 to 4%, according to calculations by Barclays’ banking analyst Victor Wang. Huaxia Bank is the latest lender to get approval from the Chinese Banking Regulatory Commission (CBRC) to issue 20 billion yuan in preference shares.The economic downturn and structural adjustment have caused “overdue loans to increase quickly, increasing pressure on credit risk management of the entire system,” the official said.

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Lombard Street Research with a weird plea for a global consumer revival: “..now they can see that oil prices are staying low, consumers are starting to spend the windfall.” BS.

‘Deflationary Boom’ In Prospect As China Slows (FT)

The slowdown in Chinese growth, confirmed by last week’s third-quarter GDP report, is feeding fears that the world economy faces a prolonged period of stagnation, perhaps even a new crisis. In fact, China’s weakness is one of the reasons to be optimistic about global growth. Of course, there are many reasons to be pessimistic too. Many emerging markets are in deep trouble. Many asset prices are unsustainably high. Seven years after the financial crisis erupted, major central banks are still forced to keep monetary policy at emergency settings. And the world is short of genuine consumer demand. It is on this last score that China gives cautious grounds for confidence. Chinese growth of about 3-5% as the economy weans itself off wasteful investment is exactly what the world needs.

As the price of oil, copper and other commodities falls in response to China’s structural adjustment, demand deflates in countries that export energy and natural resources. Brazil and Russia, already deep in recession, will be among those watching anxiously for any economic policy announcements at this month’s plenary meeting of the ruling Chinese Communist party. At the same time, however, global rebalancing transfers income from commodity producers to western consumers. Households have largely chosen so far to set aside money saved on cheaper petrol and lower home heating bills. Economic growth in Europe and the US is below par. But now they can see that oil prices are staying low, consumers are starting to spend the windfall.

We capture these two divergent trends in our forecast of a “deflationary boom” in the world economy — with deflation referring to the step-down in demand in China, emerging markets and commodity-producing countries, and boom describing the step-up in household spending in the US, the eurozone and Britain. If China does manage to make the transition to consumer-driven growth, lower investment would mean less crowding-out of opportunities for profitable capital expenditure in advanced economies. Investment growth would follow the consumer revival. For this rosy scenario to materialise, however, either an unprecedented degree of international co-ordination is required or quite a few pieces of the global economic puzzle have to fall into place independently. The latter is what has been happening over the past year. Can it continue? Here are some signposts investors should keep an eye on.

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Self-defeating policies, in China as much as in the west.

Why China’s Interest Rate Cut May Be Bad News For The World Economy (Guardian)

So what’s the problem? China, Japan and the eurozone are all easing policy. The US is going to delay tightening policy. More stimulus equals stronger growth and fends off the threat of deflation. That’s got to be good, hasn’t it? Well, only up to a point. Problem number one is that by deliberately weakening their exchange rates, countries are stealing growth from each other. Central banks insist that this does not represent a return to the competitive devaluations and protectionism of the 1930s, but it is starting to look awfully like it. Problem number two is that the monetary stimulus is becoming less and less effective over time. There are two main channels through which QE operates. One is through the exchange rate, but the policy doesn’t work if all countries want a cheaper currency at once.

Then, as the weakness of global trade testifies, it is simply robbing Peter to pay Paul. The other channel is through long-term interest rates, which are linked to the price of bonds. When central banks buy bonds, they reduce the available supply and drive up the price. Interest rates (the yield) on bonds move in the opposite direction to the price, so a higher price means borrowing is cheaper for businesses, households and governments. But when bond yields are already at historic lows, it is hard to drive them much lower even with large dollops of QE. In Keynes’s immortal words, central banks are pushing on a piece of string. Nor is that the end of it. Charlie Bean, until recently deputy governor of the Bank of England, is the co-author of a new report that looks at the impact of persistently low interest rates.

It concludes there is a danger that periods when interest rates are stuck at zero are likely to become more frequent, resulting in a greater reliance on unconventional measures such as QE that are subject to diminishing returns. “Second, and possibly more importantly, a world of persistently low interest rates may be more prone to generating a leveraged ‘reach for yield’ by investors and speculative asset-price boom-busts.” The current vogue is for macro-prudential policies – attempts to prevent bubbles from developing in specific asset markets, such as housing. But the paper makes the reasonable point that the macro-prudential approach – yet to be tried in crisis conditions – might not work. There is, therefore, a risk that tighter monetary policy in the form of higher interest rates will have to deployed in order to deal with the problems that monetary policy has created in the first place.

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Pushing on an orchestra of strings.

Emerging Currencies’ Fate Looms Large In Rich World Rates Policy (Reuters)

The fate of emerging market currencies is looming ever larger in the outlook for interest rates in the advanced world, promising that their central banks will keep policies super loose for some time to come. Ever since China sprang a surprise depreciation of the yuan in August, the resulting decline of a whole host of emerging market (EM) currencies has produced a disinflationary pulse that the world is ill prepared to withstand. The danger was clearly much on the mind of ECB President Mario Draghi on Thursday when he all but guaranteed a further easing as soon as December.

“The risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties regarding developments in emerging market economies,” warned Draghi, as he sent the euro reeling to two-month lows. They were also cited as a reason the U.S. Federal Reserve skipped a chance to hike interest rates in September. In a recent much-discussed speech, Fed board member Lael Brainard put the deflationary pressures emanating from emerging markets at the center of a forceful case against a “premature” tightening in policy. Fuelling these worries has been a downdraft in emerging market currencies caused in part by worries that higher U.S. rates would suck much needed capital from countries already struggling with large foreign currency debts.

The scale of the shift can be seen in the Fed’s trade weighted U.S. dollar index for other important trading partners, which includes China, Brazil, Mexico and the like. The dollar index began to take off in mid-July and by the end of September had surged over 6% to an all-time high. The impact was clear in U.S. bond markets, where yields on 10-year Treasury notes fell from 2.43% in mid-July to just 2.06% by early October. Investors expectations for U.S. inflation in five years time, a benchmark closely watched by the Fed, sank from a peak of 2.47% in early July to hit an historic trough of 1.99% three months later. That in turn saw investors drastically scale back expectations on when and how fast the Fed might hike. In mid-July, Fed fund futures for December implied a rate of 37 basis points.

By early October it implied only 18 basis points. All of which threatens to become a self-fulfilling cycle where the fear of a Fed hike spurs a steep fall in emerging currencies which in turn stirs concerns about disinflation and prevents the Fed from moving at all. “It’s a negative feedback loop,” says Robert Rennie, global head of market strategy at Westpac in Sydney. “China first flipped the switch with its depreciation of the yuan and the risk of capital flight from EM has kept the pressure on,” he added. “It’s now certain the ECB will ease in December and the Fed will find it tough to hike in December.”

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Bootle’s a bit of an idiot, but Africa’s fall does deserve more attention.

Africa Is In Grave Danger From The Global Economic Slowdown (Telegraph)

Nowhere in the world is more at risk from the combination of Chinese economic slowdown, low commodity prices and imminent rises in US interest rates, than Africa. There is now a serious question over whether many African economies can achieve rapid growth in the years ahead or whether they are due to sink back into mediocre performance, thereby condemning their people to a continued low standard of living. The fact that this question now needs to be asked may come as a shock. Not long ago Africa was growing very strongly. Indeed, many good judges saw it as due to repeat the sort of economic take-off accomplished by several countries in east Asia a few decades previously. Yet, whereas five years ago the sub-Saharan African (SSA) growth rate was almost 7pc, last year it was down to less than 5pc.

Moreover, it looks as though this year’s performance will be even weaker, with growth dropping to 3pc. Nor is there any real prospect of a return to previous rapid growth rates. There is a suspicion in the minds of many investors that Africa’s recent growth surge was really just the outcome of the commodity boom. Accordingly, if we are in for a long period of commodity prices at about this level, then African growth prospects are pretty poor. Admittedly, there is considerable variation across countries. The worst hit are Nigeria, Zambia and Angola. The major economy that is doing best is Kenya. Meanwhile, SSA’s most developed economy, and the destination for much overseas investment, namely South Africa – where I was last week – seems to be mired in a phase of decidedly slow growth. This year it might manage 1.5pc.

But its medium-term prospects are pretty poor; its potential growth rate might only be 2pc. When you adjust for population growth, its potential growth of per capita GDP may only be 1.2pc per annum, which is pretty paltry compared to China – even after the recent slowdown. China’s importance to Africa is great – especially for South Africa, Angola, Congo and Zambia. But it can be exaggerated. Exports to China represent about 10pc of South Africa’s GDP. That is substantially lower than the UK’s exposure to the EU. In fact, China is Africa’s second largest export market. The largest is the EU, and by a considerable margin. Africa exports about 50pc more to the EU than it does to China. Accordingly, perhaps the most important factor bearing upon Africa’s economic future is what is going to happen to the euro-zone.

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Abenomics was always just a crazy desperate move with zero chance of succeeding. And it’s going to get a lot worse still.

Japan’s Struggling Economy Finds ‘Abenomics’ Is Not an Easy Fix (NY Times)

Japan’s economy has contracted so many times in the last few years that the meaning of recession has started to blur. If an economy is shrinking almost as often as it is growing, what does any single downturn say about its health? Now Japan appears to be faltering again. After a decline in the second quarter, there are signs that output may have slipped again in the third, driven down in part by a slowing Chinese economy. Economists expect any recession to be short and shallow, but the deeper lesson looks more troubling: Nearly three years after Prime Minister Shinzo Abe gained office on a pledge to end economic stagnation, a decisive break with the past still appears far off. “The potential growth rate is close to zero, so any small shock can put the economy into recession,” said Masamichi Adachi at JPMorgan Chase. “Growth expectations are anemic.”

As a result, some economists are betting that the Bank of Japan, which has been pumping vast amounts of money into the economy by buying up government debt, will pull the trigger on more stimulus at its next board meeting on Friday. The central bank’s aggressive intervention has been central to Mr. Abe’s policies, widely known as Abenomics. But events have conspired to blunt its impact. Last year, it was an ill-timed sales tax increase, which rattled Japanese consumers and dissuaded them from spending. Lately it has been the deceleration in China, whose factories have been important buyers of Japanese-made machinery. But the more fundamental problem, many specialists say, is that Japan’s economy simply doesn’t grow much in the first place.

Baseline growth is essentially zero. GDP is the same size it was in the mid-1990s, in part because the work force is shrinking. So where a faster-moving economy might simply lose momentum in response to headwinds, Japan’s goes into reverse. So far, Mr. Abe’s policies have done little to change the dynamic. “Overseas investors appear increasingly disillusioned with Abenomics,” Naohiko Baba at Goldman Sachs said last week. [..] Mr. Abe has continued to make ambitious promises. Last month, he set a goal of increasing Japan’s nominal economic output to 600 trillion yen by 2020 or soon after – an increase of about 20% from the current level. He gave little indication of how an economy that has not grown in two decades could expand by a fifth in just a few years.

Audacious pronouncements have been a hallmark of Abenomics from the start — part of what Mr. Kuroda has described as an effort to dispel Japan’s “deflationary mind-set.” But after three mostly lackluster years, its architects’ credibility is being questioned by many, including their natural supporters in the business elite. “I believe ¥600 trillion is an outrageous figure,” Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives, said after Mr. Abe announced his goal. “I see it as merely a political message.”

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Jaoan, US, Europe, all these forecasts are completely useless.

Reality Keeps Catching Up With BOJ’s Inflation Forecasts (Bloomberg)

The Bank of Japan will release updated inflation forecasts this Friday. These are an indicator of when, or if, the bank’s board members see Japan reaching the inflation target of 2%. If history is a guide, the forecasts will probably be cut again, with some people with knowledge of the board’s discussions seeing the possibility of a reduction in the estimates for this and next fiscal years. The bank has had to lower estimates for all four years from 2014, as the chart below shows. Japan’s central bank was the second worst inflation forecaster, according to a Bloomberg survey which compared it to the Bank of Canada, the Fed, the ECB, and the Bank of England. The BOJ’s GDP estimates were the least accurate. While Governor Haruhiko Kuroda says he sees the nation hitting that target sometime around the six months from April, the bank isn’t forecasting inflation that high for any full year through the fiscal year that ends in March 2018.

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Forgotten history. Europe’s full of it.

When Greeks Fled To Syria (Kath.)

Giorgos Taktikos was just 5 years old when he and his family began their long journey to the Sinai Desert by boarding a small boat in the middle of the night and leaving behind their native Chios. Today, at the age of 78, Taktikos is following history being written the other way round. As a former refugee, he is pained to observe the boatloads of people fleeing the Middle East and reaching Greek shores, while his mind races back to his own long and difficult journey into the unknown. A native of the Chiot village of Kourounia, Taktikos was one of over 30,000 Greeks who left several eastern Aegean islands during the German wartime occupation, some seeking refuge in Syria, others reaching South Africa, in an effort to escape hunger and war.

Boats crossing over, people drowning at sea, overflowing train wagons, refugee camps and deprivation – some things haven’t changed as far as the refugee journey goes. What has changed, however, is the destination: While people were striving to reach Syria back then, today it’s the other way round. “It’s hard to beat hunger and fear; refugee pain is tremendous,” said Taktikos. In the fall of 1942, hunger spread across occupied Greece: While there were severe food shortages in urban centers, the situation was even worse on the islands, given the British Royal Navy’s blockade of the Aegean and the Mediterranean region in general. Getting away was the only way out and for residents of the eastern Aegean, including Samos, Icaria, Chios, Lesvos and Limnos, this was made slightly easier given the islands’ proximity to Turkish shores.

“I was 5. There was plenty of poverty and hunger on the island. In November 1942, a time when it seemed the situation was about to get even worse, my father decided it was time for us to flee in order to survive. Along with two young men, we stole a boat which the Germans had requisitioned, and one night my my father, mother and younger sister, together with another two families, crossed over to Cesme. We were collected by Father Xenakis, an Orthodox priest who met refugees as they arrived and took them to an area where humanitarian organizations could look after them. The first thing he did when we arrived was to make sure the wooden boat was broken into little pieces, so as not to be detected by the Turkish coast guard, who would have forced us to get back on it and return to Greece.”

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 December 31, 2014  Posted by at 11:40 am Finance Tagged with: , , , , , , , ,  1 Response »
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NPC “Poli’s Theater, Washington, DC. Now playing: Edith Taliaferro in “Keep to the Right” Jul 1920

US Opening Door to More Oil Exports Seen Foiling OPEC Strategy (Bloomberg)
The Market Chart Of The Year: Nope, It’s Not Oil (CNBC)
Commodities Head for Record Losing Run on Oil to Dollar (Bloomberg)
As Oil Prices Fall, Alaska Governor Halts Project Spending (AP)
Falling Energy Costs And Economic Impacts (STA)
Chart Shows How US Drillers Respond To Oil Price Drop (MarketWatch)
Chinese Stocks, Dollar And Debt The Stars Of 2014 (Reuters)
We’re Not Communists, Greek Opposition Insists (CNBC)
‘Snap Elections Will Be Decisive For Greece’s Eurozone Future’ (Guardian)
Europe Deflation Fears Back After Weak Spain, Greece Data (CNBC)
Will the Real Angela Merkel Please Stand Up? (Bloomberg)
Obama Suggests Putin ‘Not So Smart’ (BBC)
China Factory Activity Shrinks (BBC)
Japan Is Writing History As A Prime Boom And Bust Case (Grass)
The Rigging Triangle Exposed: The JPMorgan-BP-BOE Cartel (Zero Hedge)
BP Probes In-House Foreign Exchange Traders (FT)
The Prison State of America (Chris Hedges)
Recolonizing Africa: A Modern Chinese Story? (CNBC)
Ebola Wrecks Years Of Aid Work In Worst-Hit Countries (Reuters)
Protecting Money or People? (James K. Boyce)
Goodbye To One Of The Best Years In History (Telegraph)

Hilarious. Flood the markets even more, bring down the price further, and then find you can’t make any money with your exports. And stop talking about OPEC ‘strategy’ already. Start thinking about US strategy.

US Opening Door to More Oil Exports Seen Foiling OPEC Strategy (Bloomberg)

The Obama administration’s move to allow exports of ultralight crude without government approval may encourage shale drilling and thwart Saudi Arabia’s strategy to curb U.S. output, further weakening oil markets, according to Citigroup Inc. A type of crude known as condensate can be exported if it is run through a distillation tower, which separates the hydrocarbons that make up the oil, according to U.S. government guidelines published yesterday. That may boost supplies ready to be sold overseas to as much as 1 million barrels a day by the end of 2015, Citigroup analysts led by Ed Morse in New York said in an e-mailed report. Saudi Arabia led the Organization of Petroleum Exporting Countries to maintain its production quota at a meeting last month even as a shale boom boosted U.S. output to the highest in more than three decades. That prompted speculation OPEC was willing to let prices fall to force some companies with higher drilling costs to stop pumping.

“U.S. producers are under the gun to reduce capital expenditures given lower prices,” Citigroup said in the report. “Now an export route provides a new lease on life that can further weaken crude oil markets and throw a monkey wrench into recent Saudi plans to cripple U.S. production.” Current U.S. export capacity is at about 200,000 barrels a day, which could be expanded to 500,000 a day by the middle of 2015, according to the bank. While the guidelines on the website of the Commerce Department’s Bureau of Industry and Security are the first public explanation of steps companies can take to avoid violating export laws, they don’t mean an end to the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo. “While government officials have gone out of their way to indicate there is no change in policy, in practice this long-awaited move can open up the floodgates to substantial increases in exports by end-2015,” Citigroup said.

The U.S. produces about 3.81 million barrels a day of light and ultralight crude, according to the bank. West Texas Intermediate in New York dropped as much as 1.4% today to $53.38 a barrel, down 46% this year. Brent, the global marker crude, slid 1.8% to $56.87 in London, bringing losses in 2014 to 48%. Both benchmark grades are headed for the biggest annual slump since 2008. Oil producers have been testing the prohibition on crude exports as U.S. output surged amid technological advances that have opened up shale rock formations to development in Texas, North Dakota and elsewhere. The government earlier this year signaled a new way to export oil by approving permits for Pioneer and Enterprise to sell processed condensate. The guidelines seek to clarify how the Commerce Department will implement export rules and follow a “review of technological and policy issues,” Eric Hirschhorn, the under secretary for industry and security, said in a statement.

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“This time though it’s not about a flight to safety. Investors are flocking to the dollar because they like it. The U.S. economy has outperformed and American assets are in vogue.”

The Market Chart Of The Year: Nope, It’s Not Oil (CNBC)

There are many strong contenders to be the chart of the year. Some point to oil prices, which shockingly plunged 50% in a matter of months. Others would look to the S&P 500, which exploded higher for a third year in row and has closed at a record high 53 times (so far), more than 20% of 2014’s trading days. They’re each compelling stories, but neither is as impactful nor as important as the breakout of the U.S. dollar. Presenting the chart of 2014: the broad trade-weighted dollar. The trade-weighted dollar tracks the U.S. greenback’s value against a basket of other currencies, representing both developing and emerging markets. It’s a broader measure than the regularly cited dollar index and the best indication of how a strong dollar hurts American companies that do business overseas.

The broad trade-weighted dollar is up 9% this year, now at the highest point since March 2009, when financial crisis fears had risk-averse investors pouring into the U.S. currency. It’s well above its average historical price over the last 15 years and now just 3.6% away from reaching those crisis highs. This time though it’s not about a flight to safety. Investors are flocking to the dollar because they like it. The U.S. economy has outperformed and American assets are in vogue. The move has been absolutely stunning. Break apart the trade-weighted dollar into individual pairs – the currency has strengthened nearly 12% against the euro this year, 13% against the yen and 18 to 19% against the Norwegian and Swedish currencies. The move is more dramatic when weighed against the trouble spots of 2014. The dollar has gained 44% versus the Russian ruble and 24% versus the Argentine peso. In fact, the U.S. greenback has strengthened against all developed and emerging currencies in the past 12 months.

“The rise of the U.S. dollar in 2014 is remarkable both by its intensity and weak support from expectations of Fed tightening,” according to Sebastien Galy, FX strategist at Societe Generale. “It tells us much about the intensity with which other central banks have tried to weaken their currencies,” he said. In other words, it’s not just a story of U.S. economic strength in the face of global weakness, but also the contrast to major central banks seeking to weaken their own currencies in the name of growth and export competitiveness. That trend should continue in the new year and ultimately fuel more worrisome trade tensions.

“The odds are that the U.S. dollar strength can go much further than currently expected, similarly the odds of … trade barriers are steadily rising,” Galy warned. As if that wasn’t enough, expectations that the Fed will begin to raise interest rates in the second half of 2015 have many believing the dollar has plenty of room to run. “The strength of the U.S. labor market and U.S. economy are making the Fed more confident that it can begin to raise rates next year,” wrote Lee Hardman, currency strategist at Bank of Tokyo Mitsubishi in a note after the last Fed meeting in mid-December. “The market is still not convinced that the Fed will tighten even at that more modest pace … leaving scope for U.S. short rates to continue to increase in the year ahead, supporting a stronger U.S. dollar.” Beyond the stunning breakout of the buck, the move is significant because the dollar is the backbone of the global financial system. It influences prices of all major commodities, the largest and most liquid debt and equity markets, and the world’s largest economy.

Read more …

Much more to come.

Commodities Head for Record Losing Run on Oil to Dollar (Bloomberg)

Commodities headed for the biggest annual loss since the global financial crisis in 2008, retreating for a record fourth year, as a global glut spurred a rout in oil prices and a stronger dollar cut the allure of raw materials. The Bloomberg Commodity Index dropped to the lowest level since March 2009 earlier today. It’s lost 16% this year, with crude, gasoline and heating oil the biggest decliners. A fourth year of losses would be the longest since at least 1991. Energy prices retreated in 2014 as a jump in U.S. drilling sparked a surge in output and price war with OPEC, which chose to maintain supplies to try to retain market share. The dollar climbed to the highest level in more than five years as a U.S. recovery spurred speculation that the Federal Reserve will start to raise borrowing costs next year. Commodities are set for a volatile year in 2015, with crude oil poised to extend its slump, according to Australia and New Zealand Bank.

“What we’re seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut,” Andy Lipow, president of Lipow Oil, said by phone. “And that of course has put pressure on prices over the last several months. And as a result, it’s dragging down commodities indexes as well.” Brent for February settlement traded at $57.01 a barrel on the London-based ICE Futures Europe exchange, with rice 49% lower this year. West Texas Intermediate dropped 1.1% to $53.55 a barrel on the New York Mercantile Exchange. Gasoline sank 49% this year. A slowdown in China also hurt demand for raw materials as policy makers grappled with a property slowdown, and data today showed a factory gauge at a seven-month low in December. The world’s biggest user of metals is headed for its slowest full-year economic expansion since 1990. China’s central bank cut interest rates last month for the first time since 2012.

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Bring back Sarah!

As Oil Prices Fall, Alaska Governor Halts Project Spending (AP)

With oil prices dropping, Alaska Gov. Bill Walker has halted new spending on six high-profile projects, pending further review. Walker issued an order Friday putting the new spending on hold. He cited the state’s $3.5 billion budget deficit, which has increased as oil prices have dropped sharply. With oil prices now around a five-year low, officials in Alaska and about a half-dozen other states already have begun paring back projections for a continued gusher of revenues. Spending cuts have started in some places, and more could be necessary if oil prices stay at lower levels. How well the oil-rich states survive the downturn may hinge on how much they saved during the good times, and how much they depend on oil revenues.

Some states, such as Texas, have diversified their economies since oil prices crashed in the mid-1980s. Others, such as Alaska, remain heavily dependent on oil and will have to tap into sizeable savings to get by. The projects Walker halted spending on include a small-diameter gas pipeline from the North Slope, the Alaska Dispatch News reported. The other projects are the Kodiak rocket launch complex, the Knik Arm bridge, the Susitna-Watana hydroelectric dam, Juneau access road and the Ambler road. “The state’s fiscal situation demands a critical look and people should be prepared for several of these projects to be delayed and/or stopped,” Walker’s budget director Pat Pitney said in an email.

According to Walker’s order, the hold on spending is pending further review. The administration intends to decide on project priorities near the start of Alaska’s legislative session Jan. 20, and no later than a Feb. 18 legal budgeting deadline, Pitney said. State lawmakers have final authority to decide whether the projects should continue to be funded, Pitney said. Contractually required spending and employee salaries will continue. Walker’s order asks each agency working on the projects to stop hiring new employees, signing new contracts and committing any new funding from other sources, including the federal government. The action follows a letter sent Tuesday by the state Legislature’s Republican leadership, who urged the governor to immediately cut spending levels in light of the budget crunch.

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Why is this so hard to understand?

Falling Energy Costs And Economic Impacts (STA)

“If you repeat a falsehood long enough, it will eventually be accepted as fact.” In the financial markets and economics it is a common occurrence that the media and commentators will latch on to a statement that supports a cognitive bias and then repeat that statement until it is a universally accepted truth. When such a statement becomes universally accepted and unquestioned, well, that is when I begin to question it. One of those statements has been in regards to plunging oil prices. The majority of analysts and economists have been ratcheting up expectations for the economy and the markets on the back of lower energy costs. The argument is that lower oil prices lead to lower gasoline prices that give consumers more money to spend. The argument seems to be entirely logical since we know that roughly 80% of households in America effectively live paycheck-to-paycheck meaning they will spend, rather than save, any extra disposable income. As an example, Steve LeVine recently wrote:

“US gasoline prices have dropped for more than 90 straight days. They now average $2.28 a gallon, which is remarkable considering that just a few months ago, some of us were routinely paying $4 and sometimes close to $5. Not so coincidentally, the US economy surged by 5% last quarter, and does not appear to be slowing down. “

If you read the statement, how could one possibly disagree with such a premise? If I spend less money at the gas pump, I obviously have more money to spend elsewhere. Right? The problem is that the economy is a ZERO-SUM game and gasoline prices are an excellent example of the mainstream fallacy of lower oil prices.

Example:
• Gasoline Prices Fall By $1.00 Per Gallon
• Consumer Fills Up A 16 Gallon Tank Saving $16 (+16)
• Gas Station Revenue Falls By $16 For The Transaction (-16)
• End Economic Result = $0

Now, the argument is that the $16 saved by the consumer will be spent elsewhere. This is the equivalent of “rearranging deck chairs on the Titanic.” Increased consumer spending is a function of increases in INCOME, not SAVINGS. Consumers only have a finite amount of money to spend.

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If you ask me, if there’s one thing this chart shows, it’s how much further the rig count has to fall.

Chart Shows How US Drillers Respond To Oil Price Drop (MarketWatch)

It’s no surprise that the number of U.S. oil rigs moves up and down with the price of oil, but the chart above offers an interesting glance at the relationship. Baker Hughes on Monday said the total number of U.S. rotary rigs fell by 35 to 1,840 in the week ended Dec. 26, the fifth consecutive weekly decline, bringing the total to its lowest level since April. “If OPEC’s goal is to slow U.S. oil production by dumping cheap oil into our market, they are having some success,” said Phil Flynn, senior market analyst Price Futures in Chicago. OPEC in November accelerated oil’s free fall when it refrained from cutting crude production. Saudi Arabia’s oil minister said earlier this month that a plunge to as low as $20 wouldn’t be enough to prompt a production cut.

The move has been described as a price war aimed primarily at North American shale producers, who had responded to high oil prices by ramping up production in recent years at a breakneck clip. Oil’s slide, which has seen Nymex futures, the U.S. benchmark, fall 50% from their June high above $107 to trade at five-and-a-half year lows below $54 a barrel, has been the fastest since 2008. That means rig counts will continue to decline, but the impact on supply will likely take “weeks if not months” to be reflected in hard production figures, said analysts at Commerzbank.

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“Europe’s government bond markets all closed on Tuesday after another stellar year that has seen Italian and Spanish borrowing costs hit record lows and unglamorous but ultra-safe German debt enjoy its strongest year in six.”

Chinese Stocks, Dollar And Debt The Stars Of 2014 (Reuters)

Chinese and U.S. stocks headed the list of 2014 top performers while markets elsewhere ended the year on Wednesday on a cautionary note as worries about Greece’s future served as an excuse to take profits. The U.S. dollar lost a little of the recent gains that have made it the year’s star major currency, but European bonds yields scored all-time lows following a shockingly sharp fall in Spanish inflation on Tuesday. European stocks had a steady start as they wrapped up a year that has seen a 3.5% rise for the region as a whole but also sharp divergence, with near 30% losses for debt-strained Greece and Portugal. The stand-out global equity performer has been China, where the CSI300 index looked set to end 2014 with gains of nearly 50%.

Almost all of China’s rise came in the last couple of months, as hopes for more aggressive policy stimulus to counter its economic slowdown boosted banks and brokerages. Featuring on Wednesday were hefty gains for China’s biggest train makers, China CNR and CSR Corp, after they confirmed a $26 billion merger. “China stocks have done really well this year and the dollar move has also been very interesting,” said Alvin Tan, an FX strategist at Societe Generale in London. “It barely moved against the other major currencies in the first of the year and all the big gains came in the second half.” Trade elsewhere was thinned by holidays in Japan, Thailand, South Korea and the Philippines, while many markets in Europe were either shut or finishing early.

Europe’s government bond markets all closed on Tuesday after another stellar year that has seen Italian and Spanish borrowing costs hit record lows and unglamorous but ultra-safe German debt enjoy its strongest year in six. Among the scraps of news in Europe, two polls in Greece published late on Tuesday showed the anti-bailout party Syriza’s lead over the ruling conservatives had narrowed. The dollar was on track to end 2014 with a gain of 12% against a basket of major currencies, its best performance since 2005, and anticipated U.S. interest rate hikes may strengthen its appeal in the new year. It eased against the safe haven yen to stand at 119.64 from Tuesday’s peak of 120.69, as futures prices pointed to small gains for Wall Street when trading resumes following its 13% jump to an all-time high this year. The euro was undermined by sliding European yields amid intense speculation the European Central Bank will have to start buying government bonds to avert deflation. The single currency was stuck at $1.2154 having touched a 29-month trough of $1.2123.

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But it’s how they’ll be portrayed.

We’re Not Communists, Greek Opposition Insists (CNBC)

Accusations that Greece’s far-left opposition party Syriza is “worse than communism” are propaganda, its head of economic policy insisted on Tuesday, arguing instead that the party would solve Greece’s “humanitarian crisis” if it came to power in January. Speaking to CNBC on Tuesday, John Milios said Syriza planned to stabilize Greece’s society and boost the economy. “We have to combat first the humanitarian crisis, people who don’t have the necessities — houses, food or the money for transportation,” he said. “We are confident that if we do this the economy will start to stabilize and the present turmoil will be past.” Greece’s political establishment was thrown into chaos on Monday, when its parliament’s failure to elect a president triggered an early general election – something that credit ratings agency Fitch warned on Tuesday would increase the risks to the country’s credit worthiness.

Anti-austerity Syriza appears confident that it can win the forthcoming election in January, however. Opinion polls released late on Monday showed Syriza had a 3% lead over Prime Minister Antonis Samaras’ party, although the lead has narrowed of late. But although attractive to voters, the party does not appear to be popular within the investment community. In November, an email written by Joerg Sponer, an investment analyst at Capital Group, was leaked in which he said Syriza’s policies were “worse than communism.” Sponer reportedly wrote the email after attending a conference in London in which Milios presented the party’s economic manifesto. But Milios was quick to defend his policies, saying that such comments were “government propaganda.” “This saying that we are worse than communists was not something that represented the whole climate of discussions in London. I think this… had to do with the present government and to do with propaganda,” he told CNBC Europe’s “Squawk Box” on Tuesday.

Investors are particularly concerned that a Syriza-led government could result in the undoing of the austerity policies implemented under Samaras’ present government. The party has always said it would “tear up” the tough conditions of Greece’s bailout, which were required by the troika of international creditors, the EU, IMF and ECB. The Athens stock exchange fell up to 10% on Monday, before paring some losses, and was trading 0.3% lower on Tuesday. Meanwhile, Greece’s borrowing costs remained above 9.5%. With a public debt to GDP ratio of 175.5%, the country has the highest debt in the euro zone, but Greece’s politicians are keen to calm European lenders that Greece isn’t about to default – or leave the single currency union.

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Start the horror campaign.

‘Snap Elections Will Be Decisive For Greece’s Eurozone Future’ (Guardian)

Next month’s snap elections in Greece will be decisive for the country’s future in the eurozone, the prime minister, Antonis Samaras, said on Tuesday after requesting parliament’s dissolution. “People don’t want these elections and they aren’t necessary,” the beleaguered leader told the nation’s outgoing head of state Karolos Papoulias. “They are happening because of party self-interest … and this struggle will determine whether Greece stays in Europe.” Signalling market concerns, credit rating agency Fitch said prolonged political uncertainty could “increase the risks to Greece’s creditworthiness”. The country was forced into holding early elections after parliament failed on Monday to endorse Stavros Dimas, the government’s candidate for president.

With the debt-burdened country dependent on international rescue funds, officials said the radical left main opposition Syriza party would “pay a heavy price” for triggering the elections after joining forces with the far-right Golden Dawn to block Dimas from becoming president. Late on Monday the IMF said it would suspend aid instalments until after the 25 January poll. “People will punish those who have triggered this unnecessary turmoil, because it is obvious that Syriza has no solution [to economic problems]. It neither says where it will find the money, nor will it find the money,” said government spokeswoman Sophia Voultepsi, referring to the party’s pledge of wide-ranging social benefits if it wins power.

On the back of popular discontent over gruelling austerity, the price of €240bn (£188bn) in aid, Syriza has led polls since European elections in May. But the gap has narrowed since Samaras gambled by bringing forward the presidential election. An opinion poll on Tuesday showed a 3% lead for Syriza over Samaras’ New Democracy party. This followed the Greek finance minister Gikas Hardouvelis’ warning of economic sanctions by the European Central Bank if the anti-austerity Syriza won. Analysts predicted that Samaras, who has better personal ratings than Syriza’s leader, Alexis Tsipras, could win the elections yet.

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Deflation is a fact, not a fear.

Europe Deflation Fears Back After Weak Spain, Greece Data (CNBC)

Fears of deflation in the euro zone were heightened once again on Tuesday, after both Spain and Greece reported worse-than-expected price declines. A flash reading for consumer price index (CPI) inflation in Spain showed that prices fell by 1.1% year-on-year in December. This was below forecasts of a 0.7% drop, and followed November’s decline of 0.5%. Analysts said this month’s fall was mainly driven by weakening oil prices which could mean that other large euro zone members fall victim to deflation soon. “With a Spanish reading this low, euro area inflation might well turn negative as early as December,” said Robert Kuenzel, director of euro area economic research at Daiwa Capital Markets, in a research note on Tuesday.

Meanwhile, data out from Greece showed that producer prices declined 2.3% year-on-year in November way below October’s 0.9% fall. Consumer prices in the country fell by 1.2% in the same period. Kuenzel told CNBC that the producer price drop in Greece was worse than he expected, and was “one of the largest fall we have seen for years.” “As producer prices are more energy price-sensitive, this is still not out of line with today’s downside Spanish CPI surprise, even though that was numerically smaller,” he said via email. Brent crude oil prices fell to a 5-1/2-year low under $57 per barrel on Tuesday, extending losses into a fourth trading session. Oxford Economics has warned that a multitude of European countries face deflation next year if oil prices remain below $60, including the U.K., France, Switzerland and Italy.

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Bloomberg has it all upside down.

Will the Real Angela Merkel Please Stand Up? (Bloomberg)

If anything is certain about the new year, it is that much of the world’s stability and economic health will depend on what is done, or not done, in Europe. And what happens in Europe will depend, in large part, on German Chancellor Angela Merkel. Merkel’s leadership in 2014 was a curious mixture of boldness and timidity. It fell to her, more than any other European leader, to confront Russian President Vladimir Putin. And her efforts are what secured the unanimity among the European Union’s 28 fractious nations that was needed to impose meaningful economic sanctions to deter further Russian aggression in Ukraine. Regardless of whether those sanctions ultimately succeed, they have already served an important purpose by helping to hold the EU – with its Russophile Italians and Austrians, its Russophobe Poles and Balts – together.

As helpful as Merkel has been with Russia, however, she has so far only harmed efforts to address the faltering European economy. In 2015, as new elections in Greece bring fresh turmoil, she will need to apply some of the clarity and decisiveness she has showed in dealing with Putin to the euro zone. On both fronts, next year will be harder. Europe’s Russia challenge will get tougher, because the pressure to repeal sanctions will rise. The current measures against Russia begin to expire in March, and many European leaders will be looking for reasons not to renew them as long as something resembling a cease-fire is in place; the reduction in lending, investment and sales to Russia has hurt the European economy as well as the Russian one. Yet until there is a more meaningful settlement that ensures Putin can’t continue his semi-covert war in Ukraine, sanctions need to stay.

As for the EU, new forces for disunion will emerge. U.K. Prime Minister David Cameron will be pushing for changes in the way the bloc works that help him persuade Britons to vote against leaving it. Merkel will need to simultaneously rein Cameron in and convince other EU leaders that it would be in their interests, too, to return some powers to national governments. At the same time, the euro crisis threatens to heat up again. The favorite to win early elections in Greece next month, the neo-Marxist Syriza party, says it will refuse to carry out the further austerity measures required for the country’s remaining bailout funds. Syriza also promises to roll back economic reforms that were put in place under the terms of the country’s 240 billion euro loan program, as well as to demand a restructuring of the country’s enormous public debt. Europe’s banking system may not be as vulnerable to a Greek default as it once was, but markets have been jittery at the revived possibility of a Greek exit from the euro.

So far, Merkel has resisted relenting on austerity policies for Greece. She has been unwilling to stimulate demand in the euro area, either by boosting investment in Germany’s own low-growth economy or by letting the European Central Bank engage in large-scale quantitative easing. She should not wait for the dawn of a new government in Greece to change course on all fronts. Otherwise, Merkel may end next year not as the German leader who held Europe together, but as the one who put such strain on Europe’s currency and democracies that they began to break apart.

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Sure, Barry …

Obama Suggests Putin ‘Not So Smart’ (BBC)

President Barack Obama has said Vladimir Putin made a “strategic mistake” when he annexed Crimea, in a move that was “not so smart”. Those thinking his Russian counterpart was a “genius” had been proven wrong by Russia’s economic crisis, he said. International sanctions had made Russia’s economy particularly vulnerable to changes in oil price, Mr Obama said. He also refused to rule out opening a US embassy in Iran soon. “I never say never but I think these things have to go in steps” he told NPR’s Steve Inskeep in the Oval Office. Mr Obama was giving a wide-ranging interview with NPR shortly before leaving for Hawaii for his annual holiday. He criticised his political opponents who claimed he had been outdone by Russia’s president.

“You’ll recall that three or four months ago, everybody in Washington was convinced that President Putin was a genius and he had outmanoeuvred all of us and he had bullied and strategised his way into expanding Russian power,” he said. “Today, I’d sense that at least outside of Russia, maybe some people are thinking what Putin did wasn’t so smart.” Mr Obama argued that sanctions had made the Russian economy vulnerable to “inevitable” disruptions in oil price which, when they came, led to “enormous difficulties”. “The big advantage we have with Russia is we’ve got a dynamic, vital economy, and they don’t,” he said. “They rely on oil. We rely on oil and iPads and movies and you name it.”

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“There’s still bit of way to go before we see the Chinese economy reviving ..”

China Factory Activity Shrinks (BBC)

China’s manufacturing activity shrank for the first time in seven months in December, a private survey showed on Wednesday. The final HSBC/Markit Purchasing Managers’ Index (PMI) was at 49.6, just below the 50 level that separates growth from contraction in the sector. The reading was slightly higher than an initial “flash” number of 49.5 released earlier this month. But, the result was still down from a final reading of 50 in November. The most recent data paints an even weaker picture of the slowing Chinese economy, which has been heralded as the “factory of the world”. New factory orders contracted for the first time since April. The economic data also backs the series of surprising moves by its government to boost growth in the past two months.

In November, the country’s central bank unexpectedly cut interest rates to 2.75% for first time since 2012 in an attempt to revive the economy. Whether the world’s second biggest economy will be able to reach its growth target of 7.5% after not missing the mark for 15 years has economists questioning if more needs to be done by policymakers. While the downbeat data is not a surprise considering the preliminary reading released earlier this month, Ryan Huang, market strategist at broker IG Asia said it just adds more pressure on Beijing to introduce more measures. “There’s still bit of way to go before we see the Chinese economy reviving,” he told the BBC. “They [the central bank] have been doing [banks’] reserve requirement ratio cuts, loan to deposit ratios have been lowered to help lending conditions – we’ll probably see more of this happening.”

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Boom and bust and basket.

Japan Is Writing History As A Prime Boom And Bust Case (Grass)

Recently, we wrote a paper about the dynamics behind the boom and bust cycles, based on the view of the Austrian School (the Austrian Business Cycle Theory, or ABCT). The key takeaway was that central banks don’t help in smoothing the amplitude of the cycles, but rather are the cause of cycles. Business cycles are a direct result of excessive credit flow into the market, facilitated by an intentionally low interest rate set by the government. The problem with ongoing monetary policies is that the excessive money supply sends the wrong signals to the market, which ultimately leads to misallocation of investments or ‘malinvestments’.

On the one hand, entrepreneurs invest more and increase the depth of the production process. On the other hand, consumers spend more as saving becomes unattractive. When the excess products created through the cheap money-induced investments reach the market, consumers are unable to buy them due to the lack of prior savings. At this point the bust occurs. It is key to understand that by manipulating interest rates (particularly by lowering them), central banks create bubbles that end in busts. Japan is an excellent case study depicting the scenario discussed by the Austrian Business Cycle Theory (ABCT). In this article, we will examine the course of the economic and monetary situation in Japan from the ABCT’s point of view.

The latest quarterly GDP release in Japan was a real disaster. Economists had forecast a GDP growth between 2.2% and 2.5% but the result was a contraction of 1.6% on an annualized basis (i.e., -0.5% on a quarterly basis). That comes after a quarter in which GDP had already fallen 7.3% on an annualized basis (i.e., -1.9% on a quarterly basis). The money printing frenzy has taken gigantic proportions, and the (lack of) effectiveness of the excessive money creation is visible in the charts. The first chart below shows the annual monetary base expansion (the black line) since 1990. The GDP year-on-year growth is shown in the green line. Notice how the monetary base had exploded in 2013 but the steepness of the rise was slightly reduced in 2014. Even with this slight pull back in monetary growth, the GDP growth is truly collapsing.

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The Bloomberg piece is in yesterday’s Debt Rattle. Zero Hedge has a go at digging deeper.

The Rigging Triangle Exposed: The JPMorgan-BP-BOE Cartel (Zero Hedge)

The name Dick Usher is familiar to regular readers: he was the head of spot foreign exchange for JPMorgan, and the bank’s alleged chief FX market manipulator, who was promptly fired after it was revealed that JPM was the bank coordinating the biggest FX rigging scheme in history, as initially revealed in “Another JPMorganite Busted For “Bandits’ Club” Market Manipulation.” Subsequent revelations – which would have been impossible without the tremendous reporting of Bloomberg’s Liam Vaughan – showed that JPM was not alone: as recent legal actions confirmed, virtually every single bank was also a keen FX rigging participant. However, the undisputed ringleader was always America’s largest bank, which would make sense: having a virtually unlimited balance sheet, JPM could outlast practically any margin call, and make money while its far smaller peers were closed out of trades… and existence.

But while the past year revealed that FX rigging was a just as pervasive, if not even more profitable industry for banks than the great Libor-fixing scandal, the conventional wisdom was that it involved almost exclusively bankers at the largest global banks including JPM, Goldman, Deutsche, Barclays, RBS, HSBC, and UBS. Now, courtesy of some more brilliant reporting by Vaughan, we can finally link banks with the other two facets of what has emerged to be an unprecedented FX-rigging “triangle” cartel: private sector companies that have no direct banking operations yet who have intimate prop trading exposure, as well as central banks themselves. By “banks” we, of course, refer to the ringleader itself: JP Morgan, and its former head of spot forex trading in London, Dick Usher. As for the company that benefited from its heretofore secret participation in the biggest FX rigging scandal in history, it is none other than British Petroleum.

We learn about all this thanks to a story that begins with, of all thing, a story about freshwater fishing at a lake in Essex called “Wharf Pool.” As Bloomberg reports, “an hour away by train, in London’s financial district, the lake’s owners ply their trade. Wharf Pool was purchased for about 250,000 pounds ($388,000) in 2012 by Richard Usher, the former JPMorgan Chase & Co. trader at the center of a global investigation into corruption in the foreign-exchange market, and Andrew White, a currency trader at oil company BP Plc. ” The plot thickens: was there more than a passing connection between the head FX trader at JPM and White “who’s known in the market as Tubby, is one of half a dozen spot currency traders working for British Petroleum (BP) in London. He and his colleagues, most of them ex-bankers, decide which firms will carry out their foreign-exchange transactions. That makes them prized clients for banks seeking a slice of the business and a glimpse into potentially market-moving trades. Passing on information was a way to curry favor.”

In short, a typical Over The Counter relationship between a banker and a buyside client, one which is largely unregulated and where the bank hopes to be able to frontrun the client’s orders by providing the client with confidential market moving information, thus generating more business with the client in the future. In this case, however, the buyside client was not a typical hedge fund, but the FX trading group at one of the world’s largest energy companies: a group which trades enormous amounts of FX every single day, both with intent to hedge, and to generate a profit.

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Because BP had no idea!

BP Probes In-House Foreign Exchange Traders (FT)

BP is investigating whether in-house financial traders at the oil and gas group were involved in a foreign exchange manipulation scandal that has led regulators to levy $4.3 billion in fines on six banks. The UK group launched an internal review of its currency trading operations in London last year when regulators first started probing banks over their foreign exchange activities. A person familiar with the situation said the inquiry was “ongoing”. Additional questions about the potential involvement of BP’s traders in alleged attempts to rig the world’s $5.3 trillionn-a-day forex markets have been prompted by a Bloomberg report that bank employees tipped off the oil and gas group ahead of some big currency trades.

Bloomberg cited three undated messages sent to BP’s traders by the powerful network of senior foreign-exchange traders calling themselves “The Cartel” at four banks — JPMorgan, Barclays, UBS and Citigroup. It said BP was given “valuable information” about planned currency trades “sometimes hours before they happened”. But it could not be determined whether any BP employees acted on any information received. BP is not being investigated by financial regulators, said people familiar with the situation. But the report raises uncomfortable questions for the group at a time when it is being scrutinised as part of the European Commission probe into potential price fixing in oil markets.

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Familiar topic, good story.

The Prison State of America (Chris Hedges)

Prisons employ and exploit the ideal worker. Prisoners do not receive benefits or pensions. They are not paid overtime. They are forbidden to organize and strike. They must show up on time. They are not paid for sick days or granted vacations. They cannot formally complain about working conditions or safety hazards. If they are disobedient, or attempt to protest their pitiful wages, they lose their jobs and can be sent to isolation cells. The roughly 1 million prisoners who work for corporations and government industries in the American prison system are models for what the corporate state expects us all to become. And corporations have no intention of permitting prison reforms that would reduce the size of their bonded workforce. In fact, they are seeking to replicate these conditions throughout the society.

States, in the name of austerity, have stopped providing prisoners with essential items including shoes, extra blankets and even toilet paper, while starting to charge them for electricity and room and board. Most prisoners and the families that struggle to support them are chronically short of money. Prisons are company towns. Scrip, rather than money, was once paid to coal miners, and it could be used only at the company store. Prisoners are in a similar condition. When they go broke—and being broke is a frequent occurrence in prison—prisoners must take out prison loans to pay for medications, legal and medical fees and basic commissary items such as soap and deodorant. Debt peonage inside prison is as prevalent as it is outside prison.

States impose an array of fees on prisoners. For example, there is a 10% charge imposed by New Jersey on every commissary purchase. Stamps have a 10% surcharge. Prisoners must pay the state for a 15-minute deathbed visit to an immediate family member or a 15-minute visit to a funeral home to view the deceased. New Jersey, like most other states, forces a prisoner to reimburse the system for overtime wages paid to the two guards who accompany him or her, plus mileage cost. The charge can be as high as $945.04. It can take years to pay off a visit with a dying father or mother.

Fines, often in the thousands of dollars, are assessed against many prisoners when they are sentenced. There are 22 fines that can be imposed in New Jersey, including the Violent Crime Compensation Assessment (VCCB), the Law Enforcement Officers Training & Equipment Fund (LEOT) and Extradition Costs (EXTRA). The state takes a percentage each month out of prison pay to pay down the fines, a process that can take decades. If a prisoner who is fined $10,000 at sentencing must rely solely on a prison salary he or she will owe about $4,000 after making payments for 25 years. Prisoners can leave prison in debt to the state. And if they cannot continue to make regular payments—difficult because of high unemployment—they are sent back to prison. High recidivism is part of the design.

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The gift that never stops giving.

Recolonizing Africa: A Modern Chinese Story? (CNBC)

China, one of the world’s largest ’emerging’ investors, is ramping up investment in Sub Saharan Africa as it searches for natural resources, but whether the benefits are mutually beneficial is questionable. China’s economic growth has been a key narrative in the story of economic miracle over the past two decades. (Its foreign direct investment) FDI in particular has played a prominent role in economic interactions with many developing countries. Once a major recipient of FDI, it’s now one of the largest ’emerging’ investors, especially in Sub Saharan Africa countries, it has investments being in Nigeria, Sudan, South Africa and Angola among others.

The Asian economic super power is in pursuit of oil, gas, precious metals and mining to diversify its energy resource import’s pool; it requires other resources to sustain its manufacturing capabilities. Africa can offer all of these things to the world’s second largest economy: about 40% of global reserves of natural resources, 60% of uncultivated agricultural land, a billion people with rising purchasing power and a potential army of low-wage workers. Like many emerging markets, African countries are one of the fastest growing markets and profitable outlets for exported manufactured goods. In the past, the U.K. and France were the prime trade partners for Africa, however, today, China is Africa’s top bi-lateral trading partner with trade volume exceeding $166 billion. Between years 2003 and 2011, its FDI in the continent has increased thirty fold from $491 million to $14.7 billion.

This is more than just a trend. Not a long time ago, China eyed areas in Africa where resources were abundant and easy to extract. It focused on resource-rich countries such as Algeria, Nigeria, South Africa, Sudan and Zambia. Today, Sino-African investment focus has become broader. China is branching out into non-resource-rich investments, focusing on countries such as Ethiopia and Congo. Higher margins have attracted many state-owned enterprises and private companies to compete on gaining dominion in the vast continent. Oil, gas, metals and minerals constitute three-quarters of African-exports to China. Chinese Imports to Africa are more diverse, mostly comprised of manufactured goods.

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The impact of Ebola will take us completely back to it being a basket case ..”

Ebola Wrecks Years Of Aid Work In Worst-Hit Countries (Reuters)

Ebola is wrecking years of health and education work in Sierra Leone and Liberia following their civil wars, forcing many charity groups to suspend operations or re-direct them to fighting the epidemic. More than a decade of peace and quickening economic growth had raised hopes that the nations could finally reduce their dependency on foreign aid and budgetary support; now Ebola has undermined those achievements, charity workers and officials say. “The impact of Ebola will take us completely back to it being a basket case,” said Rocco Falconer, CEO of educational charity Planting Promise in Sierra Leone. “The impact on some activities have been simply catastrophic.”

The two countries worst hit by Ebola have struggled to recover from the wars that raged through the 1990s until early in the 21st century, killing and maiming tens of thousands, and devastating already poor infrastructure. In Sierra Leone, aid made up one-fifth of economic output in 2010, according to officials, though this had been shrinking as growth accelerated thanks to a boom in the country’s commodities exports. Britain and the European Union are the main donors with funds directed to health, education and social assistance. But Planting Promise’s experience typifies the problems of non-government organisations (NGOs) since Ebola hit West Africa, infecting more than 20,000 people and killing nearly 8,000.

It had spent six years in Sierra Leone developing farms and using the profits to fund local schools. The project had just become self-financing for the first time when the outbreak was detected in March. After that, things fell apart. Planting Promise was forced to withdraw its expatriate staff in June and the following month it closed its five primary schools where nearly 1,000 pupils had studied. It has also shut down its food processing factory. Though sales have dived, it continues to pay about 120 staff, eating into its reserves. This has forced the group to return “cap in hand” to donors to ask for more money, Falconer said.

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MUST. READ.

Protecting Money or People? (James K. Boyce)

The latest round of international climate talks this month in Lima, Peru, melting glaciers in the Andes and recent droughts provided a fitting backdrop for the negotiators’ recognition that it is too late to prevent climate change, no matter how fast we ultimately act to limit it. They now confront an issue that many had hoped to avoid: adaptation. Adapting to climate change will carry a high price tag. Sea walls are needed to protect coastal areas against floods, such as those in the New York area when Superstorm Sandy struck in 2012. We need early-warning and evacuation systems to protect against human tragedies, such as those caused by Typhoon Haiyan in the Philippines in 2013 and by Hurricane Katrina in New Orleans in 2005.

Cooling centers and emergency services must be created to cope with heat waves, such as the one that killed 70,000 in Europe in 2003. Water projects are needed to protect farmers and herders from extreme droughts, such as the one that gripped the Horn of Africa in 2011. Large-scale replanting of forests with new species will be needed to keep pace as temperature gradients shift toward the poles. Because adaptation won’t come cheap, we must decide which investments are worth the cost. A thought experiment illustrates the choices we face. Imagine that without major new investments in adaptation, climate change will cause world incomes to fall in the next two decades by 25% across the board, with everyone’s income going down, from the poorest farmworker in Bangladesh to the wealthiest real estate baron in Manhattan. Adaptation can cushion some but not all of these losses.

What should be our priority: reduce losses for the farmworker or the baron? For the farmworker, and a billion others in the world who live on about $1 a day, this 25% income loss will be a disaster, perhaps the difference between life and death. Yet in dollars, the loss is just 25 cents a day. For the land baron and other “one-percenters” in the U.S. with average incomes of about $2,000 a day, the 25% income loss would be a matter of regret, not survival. He’ll find a way to get by on $1,500 a day. In human terms, the baron’s loss pales compared with that of the farmworker. But in dollar terms, it’s 2,000 times larger.

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Here’s what increasing debt can give you – until it no longer can.

Goodbye To One Of The Best Years In History (Telegraph)

Newspapers can seem like a rude intrusion into the Christmas holidays. We celebrate peace, goodwill and family – and then along come the headlines, telling us what’s going wrong in the world. Simon and Garfunkel made this point in 7 O’Clock News/Silent Night, a song juxtaposing a carol with a newsreader bringing bad tidings. But this is the nature of news. Whether it’s pub gossip or television bulletins, we’re more interested in what’s going wrong than with what’s going right. Judging the world through headlines is like judging a city by spending a night in A&E – you only see the worst problems. This may have felt like the year of Ebola and Isil but in fact, objectively, 2014 has probably been the best year in history.

Take war, for example – our lives now are more peaceful than at any time known to the human species. Archaeologists believe that 15% of early mankind met a violent death, a ratio not even matched by the last two world wars. Since they ended, wars have become rarer and less deadly. More British soldiers died on the first day of the Battle of the Somme than in every post-1945 conflict put together. The Isil barbarity in the Middle East is so shocking, perhaps, because it comes against a backdrop of unprecedented world peace. We have recently been celebrating a quarter-century since the collapse of the Berlin Wall, which kicked off a period of global calm.

The Canadian academic Steven Pinker has called this era the “New Peace”, noting that conflicts of all kinds – genocide, autocracy and even terrorism – went on to decline sharply the world over. Pinker came up with the phrase four years ago, but only now can we see the full extent of its dividends. With peace comes trade and, ergo, prosperity. Global capitalism has transferred wealth faster than foreign aid ever could. A study in the current issue of The Lancet shows what all of this means. Global life expectancy now stands at a new high of 71.5 years, up six years since 1990. In India, life expectancy is up seven years for men, and 10 for women. It’s rising faster in the impoverished east of Africa than anywhere else on the planet. In Rwanda and Ethiopia, life expectancy has risen by 15 years.

This helps explain why Bob Geldof’s latest Band Aid single now sounds so cringingly out-of-date. Africans certainly do know it’s Christmas – a Nigerian child is almost twice as likely to mark the occasion by attending church than a British one. The Ebola crisis has led to 7,000 deaths, each one a tragedy. But far more lives have been saved by the progress against malaria, HIV and diarrhoea. The World Bank’s rate of extreme poverty (those living on less than $1.25 a day) has more than halved since 1990, mainly thanks to China – where economic growth and the assault on poverty are being unwittingly supported by any parent who put a plastic toy under the tree yesterday.

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