Jul 162017
 
 July 16, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Piet Mondriaan The Grey Tree 1912

 

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)
Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)
How Brexit Is Set To Hurt Europe’s Financial Systems (R.)
Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)
Is Russiagate Really Hillarygate? (Forbes)
The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)
France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)
France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)
Is California Bailing Out Tesla through the Backdoor? (WS)
Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

 

 

No markets. No investors.

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)

Thanks, it seems, to a few short words from Janet Yellen, the world’s stock markets added over $1.5 trillion to wealthy people’s net worth this week, sending global market cap to record highs. The value of global equity markets reached a record high $76.28 trillion yesterday, up a shocking 18.6% since President Trump was elected. This is the same surge in global stocks that was seen as the market front-ran QE2 and QE3. This was the biggest spike in global equity markets since 2016.

For the first time since Dec 2007, the market value of global equity markets is greater than the world’s GDP…

Of course – the big question is – how long can ‘they’ keep this dream alive?

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“Actually, the longer it takes to hit, the better it is for us…”

Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)

The global dollar-based monetary system is in serious jeopardy, according to former Texas Congressman Ron Paul. And contrary to Fed Chairwoman Janet Yellen’s assurances that there won’t be another major crisis in our lifetime, the next economy-cratering fiat-currency crash could happen as soon as next month, Paul said during an interview with Josh Sigurdson of World Alternative media. Paul and Sigurdson also discussed false flag attacks, the dawn of a cashless society and the dangers of monetizing national debt. Paul started by saying Yellen’s attitude scares him because “central bankers are always wrong – especially before a bust.”

“There is a subjective element to when people lose confidence, and when is the day going to come when people realize we’re dealing with money that has no intrinsic value to it, we’re dealing with too much debt, too much bad investment and it will come to an end. Something that’s too good to believe usually is and it usually ends. One thing’s for sure, we’re getting closer every day and the crash might come this year, but it might come in a year or two.” “The real test is can it sustain unbelievable deficit financing and the accumulation of debt and it can’t. You can’t run a world like this, if that were the case Americans could just sit back and say “hey, everybody wants our money and will take our money.” Paul advised that, for those who are already girding for the crash by buying gold and silver and stocking their basements with provisions like canned food and bottled water, the rewards for their foresight will only grow with the passage of time.

“Actually, the longer it takes to hit, the better it is for us. The more we can get prepared personally, as well as warn other people, about what’s coming.” “It’s a sign that the authoritarians are clinging to power so they can collect the revenues collect the taxes and make sure you’re not getting around the system. That’s what the cashless society is all about. But it won’t work in fact it might be the precipitating factor that people will eventually lose confidence when the crisis hits. They say the crisis hasn’t come – welI in 2008 and 2009 we had a pretty major crisis and what we learned there is that the middle class got wiped out and the poor people got poorer and now there’s a lot of wealth going on but it’s still accumulating to the wealthy individual.” “People say it might not come for another ten years – well we don’t know whether that’s necessary but one thing that’s for sure when a government embarks on deficit financing and then monetizing the debt the value of commodities like gold and silver generally goes up.

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Anyone think the concentration of finance in the City is maybe not such a great idea? As, you know, for the people?

How Brexit Is Set To Hurt Europe’s Financial Systems (R.)

Interviews with scores of senior executives from big British and international banks, lawyers, academics, rating agencies and lobbyists outline some of the dangers for companies and consumers from potentially losing access to London’s markets. The EU needs London’s money, says Mark Carney, governor of the Bank of England. He calls Britain “Europe’s investment banker” and says half of all the debt and equity issued by the EU involves financial institutions in Britain. Rewiring businesses will be expensive, though estimates vary widely. Investment banks that set up new European outposts to retain access to the EU’s single market may see their EU costs rise by between 8 and 22%, according to one study by Boston Consulting Group.

A separate study by JP Morgan estimates that eight big U.S. and European banks face a combined bill of $7.5 billion over the next five years if they have to move capital markets operations out of London as a result of Brexit. Such costs would equate to an average 2% of the banks’ global annual expenses, JP Morgan said. Banks say most of those extra costs will end up being paid by customers. “If the cost of production goes up, ultimately a lot of our costs will get passed on to the client base,” said Richard Gnodde, chief executive of the European arm of Goldman Sachs. “As soon as you start to fragment pools of liquidity or fragment capital bases, it becomes less efficient, the costs can go up.”

UK-based financial firms are trying to shift some of their operations to Europe to ensure they can still work for EU clients, but warn such a rearrangement of the region’s financial architecture could threaten economic stability not only in Britain but also in Europe because so much European money flows through London. European countries, particularly France and Germany, don’t share these concerns, viewing Brexit as an opportunity to steal large swathes of business away from Britain and build up their own financial centres. Britain alone accounts for 5.4% of global stock markets by value, according to Reuters data. Valdis Dombrovskis, the EU financial services chief, said the EU will still account for 15% of global stock markets by value without Britain, and that measures were being taken to strengthen its capital markets. But he added: “Fragmentation is preventing our financial services sector from realising its full potential.”

Industry figures have similar concerns. Jean-Louis Laurens, a former senior Rothschild banker and now ambassador for the French asset management lobby, told Reuters: “If London is broken into pieces then it is not going to be as efficient. Both Europe and Britain are going to lose from this.” London is currently home to the world’s largest number of banks and hosts the largest commercial insurance market. About six trillion euros ($6.8 trillion), or 37%, of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris. And London dominates Europe’s 5.2 trillion euro investment banking industry.

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Familiar patteren: first blow a bubble, then warn about it.

Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)

British families are signing up for a lifetime of debt with almost one in seven borrowers now taking out mortgages of 35 years or more, official figures show. Rapid house price growth has encouraged borrowers to sign longer mortgage deals as a way of reducing monthly payments and easing affordability pressures. Bank of England data shows 15.75pc of all new mortgages taken out in the first quarter of 2017 were for terms of 35 years or more. While this is slightly down from the record high of 16.36pc at the end of 2016, it has climbed from just 2.7pc when records began in 2005. The steady rise has triggered alarm bells at the Bank, prompting regulators to warn that the trend risks storing up problem[s] for the future if lenders ignore the growing share of households prepared to borrow into retirement. Several lenders including Halifax, the UK’s biggest mortgage provider, and Nationwide have raised their borrowing age limits to 80 and 85 over the past year.

Bank figures show one in five mortgages are taken out for terms of between 30 and 35 years, from below 8pc in 2005, as the traditional 25-year mortgage becomes less popular. David Hollingworth, a director at mortgage broker London & Country, said the trend showed that an increasing share of borrowers were struggling with affordability pressures, and deciding that lengthening the term will offer leeway as house price growth continues to outpace pay rises. However, he said most borrowers were unlikely to stick with the same deal, with most having a desire to review that later and potentially peg [the extra interest costs] back . Mr Hollingworth added that longer mortgage terms were also better than interest-only deals that were prevalent before the credit crunch. The Bank noted in its latest financial stability report that there was little evidence that borrowers were signing up for longer mortgage deals to circumvent tougher borrowing tests for homeowners introduced in 2014.

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Fusion GPS.

Is Russiagate Really Hillarygate? (Forbes)

The most under covered story of Russia Gate is the interconnection between the Clinton campaign, an unregistered foreign agent of Russia headquartered in DC (Fusion GPS), and the Christopher Steele Orbis dossier. This connection has raised the question of whether Kremlin prepared the dossier as part of a disinformation campaign to sow chaos in the US political system. If ordered and paid for by Hillary Clinton associates, Russia Gate is turned on its head as collusion between Clinton operatives (not Trump’s) and Russian intelligence. Russia Gate becomes Hillary Gate. Neither the New York Times, Washington Post, nor CNN has covered this explosive story. Two op-eds have appeared in the Wall Street Journal. The possible Russian-intelligence origins of the Steele dossier have been raised only in conservative publications, such as in The Federalist and National Review.

The Fusion story has been known since Senator Chuck Grassley (R-Iowa) sent a heavily-footnoted letter to the Justice Department on March 31, 2017 demanding for his Judiciary Committee all relevant documents on Fusion GPS, the company that managed the Steele dossier against then-candidate Donald Trump. Grassley writes to justify his demand for documents that: “The issue is of particular concern to the Committee given that when Fusion GPS reportedly was acting as an unregistered agent of Russian interests, it appears to have been simultaneously overseeing the creation of the unsubstantiated dossier of allegations of a conspiracy between the Trump campaign and the Russians.”

Former FBI director, James Comey, refused to answer questions about Fusion and the Steele dossier in his May 3 testimony before the Senate Intelligence Committee. Comey responded to Lindsey Graham’s questions about Fusion GPS’s involvement “in preparing a dossier against Donald Trump that would be interfering in our election by the Russians?” with “I don’t want to say.” Perhaps he will be called on to answer in a forum where he cannot refuse to answer.

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And don’t think it’s over. The pension chips are yet to fall.

The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)

Those who wish to understand how things work in Chicago need read a single article that ties everything together:

“Teamsters Boss Indicted On Charges Of Extorting $100,000 From A Local Business. A politically connected Teamsters union boss was indicted Wednesday on federal charges alleging he extorted $100,000 in cash from a local business. John Coli Sr., considered one the union’s most powerful figures nationally, was charged with threatening work stoppages and other labor unrest unless he was given cash payoffs of $25,000 every three months by the undisclosed business. The alleged extortion occurred when Coli was president of Teamsters Joint Council 25, a labor organization that represents more than 100,000 workers in the Chicago area and northwest Indiana. Coli, 57, an early backer of Mayor Rahm Emanuel, was charged with one count of attempted extortion and five counts of demanding and accepting prohibited payment as a union official.”

[..] Former governor Rod Blagojevich is now in prison for a 14-year sentence. He was found guilty of 18 counts of corruption, including attempting to sell or trade an appointment to a vacant seat in the U.S. Senate. He faces another eight years in prison after an appeals court upheld the sentence in April of this year. No other state can match this claim: 4 OUT OF PREVIOUS 7 ILLINOIS GOVERNORS WENT TO PRISON The way Chicago “works” is the same way Illinois “works”. Corrupt politicians get in bed with corrupt union leaders and screw the taxpayers and businesses as much as they can. Sometimes they get caught. Teamster boss Coli just got caught after all these years of extortion. His deals with Mayor Emanuel screwed Chicago taxpayers. Emanuel promised reforms and transparency but reforms and transparency stop once campaign donations are sufficient enough.

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Macron plays Napoleon.

France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)

French President Emmanuel Macron said his defense chief has no choice but to agree with what he says, a weekly newspaper reported on Sunday, after his top general criticized spending cuts to this year’s budget. “If something opposes the military chief of staff and the president, the military chief of staff goes,” Macron, who as president is also the commander-in-chief of the armed forces, told Le Journal du Dimanche (JDD). Macron said on Thursday that he would not tolerate public dissent from the military after General Pierre de Villiers reportedly told a parliament committee he would not let the government “fuck with” him on spending cuts.

De Villiers still has Macron’s “full trust,” the president told JDD, provided the top general “knows the chain of command and how it works.” “No one deserves to be blindly followed,” De Villiers wrote in a message posted on his Facebook page on Friday. De Villiers’ last Facebook post is an open letter addressed to new military recruits that makes no mention of Macron. But it was perceived by French media as targeting the president’s earlier comments.

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Macron wants to be a global force too. While he has nothing to say in Europe.

France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)

France called on Saturday for a swift lifting of sanctions that target Qatari nationals in an effort to ease a month-long rift between the Gulf country and several of its neighbors. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt imposed sanctions on Qatar on June 5, accusing it of financing extremist groups and allying with the Gulf Arab states’ arch-foe Iran. Doha denies the accusations. “France calls for the lifting, as soon as possible, of the measures that affect the populations in particular, bi-national families that have been separated or students,” French Foreign Minister Jean-Yves Le Drian told reporters in Doha, after he met his counterpart Sheikh Mohammed bin Abdulrahman al-Thani. Le Drian was speaking alongside Sheikh Mohammed, hours after his arrival in Doha. He is the latest Western official to visit the area since the crisis began.

Later in the day he flew to Jeddah, where he repeated his concerns about the effects of the standoff in a televised press appearance with Saudi Foreign Minister Adel al-Jubeir. Jubeir said any resolution of the worst Gulf crisis in years should come from within the six-nation Gulf Cooperation Council. “We hope to resolve this crisis within the Gulf house, and we hope that wisdom prevails for our brothers in Qatar in order to respond to the demands of the international community – not just of the four countries,” he said. [..] Le Drian, who will visit the UAE and Gulf mediator Kuwait on Sunday, follows in the steps of other world powers in the region, including the United States, whose Secretary of State Rex Tillerson sought to find a solution to the impasse this week.

Officials from Britain and Germany also visited the region with the aim of easing the conflict, for which Kuwait has acted as mediator between the fending Gulf countries. In a joint statement issued after Tillerson and Sheikh Mohammed signed an agreement on Tuesday aimed at combating the financing of terrorism, the four Arab states leading the boycott on Qatar said the sanctions would remain in place.

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The Tesla tulip.

Is California Bailing Out Tesla through the Backdoor? (WS)

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout. Tesla will soon hit the limit of the federal tax rebates, which are good for the first 200,000 EVs sold in the US per manufacturer beginning in December 2009 (IRS explanation). In the second quarter after the manufacturer hits the limit, the subsidy gets cut in half, from $7,500 to $3,750; two quarters later, it gets cut to $1,875. Two quarters later, it goes to zero. Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins.

A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t. This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled. That’s what Tesla is facing next year in the US. In California, the largest EV market in the US, 2.7% of new vehicles sold in the first quarter were EVs, up from 0.4% in 2012, according to the California New Dealers Association. California is Tesla’s largest market.

Something big needs to be done to help the Bay Area company, which has lost money every single year of its ten years of existence. And taxpayers are going to be shanghaied into doing it. To make this more palatable, you have to dress this up as something where others benefit too, though the biggest beneficiary would be Tesla because these California subsidies would replace the federal subsidies when they’re phased out. It would be a rebate handled at the dealer, not a tax credit on the tax return. And it could reach “up to $30,000 to $40,000” per EV, state Senator Andy Vidak, a Republican from Hanford, explained in an emailed statement. This is how the taxpayer-funded rebates in the “California Electric Vehicle Initiative” (AB1184) would work, according to the Mercury News:

“The [California Air Resources Board] would determine the size of a rebate based on equalizing the cost of an EV and a comparable gas-powered car. For example, a new, $40,000 electric vehicle might have the same features as a $25,000 gas-powered car. The EV buyer would receive a $7,500 federal rebate, and the state would kick in an additional $7,500 to even out the bottom line.” And for instance, a $100,000 Tesla might be deemed to have the same features as a $65,000 gas-powered car. The rebate would cover the difference, minus the federal rebate (so $27,500). Because rebates for Teslas will soon be gone, the program would cover the entire difference – $35,000. This is where Senator Vidak got his “$30,000 to $40,000.”

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Money changes everything.

Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

The Brazilian environment ministry is proposing the release of 860,000 acres in the National Forest of Jamanxim for agricultural use, mining and logging. The government’s order was a compromise measure after protests from local residents and ecologists who claim that the bill could lead to further deforestation in the Pará area. If approved, the legislation will create a new protection area (APA) close to Novo Progresso. Around 27% of the national forest would be converted into an APA, the ministry said. Carlos Xavier, president of a lobbying group in Pará to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. According to the ministry, the bill includes stipulations to reduce conflicts over land, prevent deforestation and create jobs. The measures were criticised by environmental groups.

“The bill is seen as an amnesty for illegal occupation of the conservancy unit,” said Observatório do Clima on its website, claiming that the government “yielded to pressure” from the rural lobby. Carlos Xavier, president of a lobbying group in Para to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. In 2016, deforestation of the Amazon rose by 29% over the previous year, according to the government’s satellite monitoring, the biggest jump since 2008. Mongabay, an environmental science and conservation website, reports that experts using satellite images have identified illegal logging activities to the east of the BR-163 highway, in Pará state. The BR-163 protests involved stopping trucks from unloading grains at the riverside location of Miritituba, where barges carrying crops are transported en route to the export markets. ATP, the Brazilian private ports association, calculated that the highway protests would result in losses of $47m.

Read more …

Jun 202017
 
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Pablo Picasso Dans l’atelier 1954

 

Putin: US Routinely Meddles In Russian And Other Elections (Zuesse)
Russia To Consider US Planes In Syria As ‘Targets’ (News.AU)
Absent Without Leave (Jim Kunstler)
Barclays and Four Executives Charged With Fraud In Qatar Case (BBC)
Two-Thirds Of Europeans Believe EU Should Take Hard Line On Brexit (G.)
Britiain’s Carmakers Face Brexit Cliff Edge (BBC)
UK Property Owners’ £2.3 Trillion Windfall ‘Created Huge Inequality Gap’ (G.)
UK’s Co-op Bank In Advanced Talks To Be Rescued By Hedge Funds (G.)
China Cracks Down On Online Moneylenders Targeting Students (BBC)
China’s “Ghost Collateral” Arrives In Canada, “Heralding A Crisis” (ZH)
Household Debt Sees Australian Banks Downgraded Again (ABCAu)
296 Earthquakes Near Yellowstone Supervolcano In Last 7 Days (Snyder)
Drug Prices Far Lower In Countries With Single-Payer Health Systems (IBT)
Could There Be A Bidding War For Whole Foods? (CNN)
Amazon Will Kill Your Local Grocer (BBG)

 

 

Funny how opinions of Russia revert to communism all the time.

Putin: US Routinely Meddles In Russian And Other Elections (Zuesse)

The neoconservative American Jan Wenner’s Rolling Stone magazine headlined on June 16th about these Showtime interviews, «10 Most WTF Things We Learned From Oliver Stone’s Putin Interviews», and sub-headlined: «From denying any involvement with U.S. election hacking to Putin’s love of Judo and Stalin, our takeaways from these truly baffling conversations».

Wenner’s reporter opened: “What’s the Russian equivalent of Kool-Aid? Whatever it is, it’s definitely red – and Oliver Stone has eagerly drunk it down. The trailers for The Putin Interviews, Showtime’s four-part series documenting conversations between Russian President Vladimir Putin and Stone, would have you believe that you’re going to hear some pretty hard-hitting stuff as the autocrat and the filmmaker face off, Frost-Nixon style. What we got instead was a series of softballs lobbed lovingly in the direction of one of the most powerful and dangerous men in the world. Except for a few moments, Stone seems serenely unconcerned with anything beyond flattering his subject – and engaging in some supremely one-sided exchanges about history and policy along the way.”

The term «red» in this context refers, of course, to communism, and alleges that Russia is still a communist country. To allow that type of smear to appear in any ‘news’ vehicle, is to expose itself as being actually a propaganda-vehicle, unless the allegation is backed up by solid documentation, which Wenner’s magazine didn’t do — Wenner’s magazine presented no documentation at all, for the inflammatory allegation. The magazine’s presumption was that their readers will simply believe what Wenner’s operation delivers, to be ipso-facto ‘true’.

But any such reader would be welcoming his own deception by Wenner’s propaganda-operation. Evidently, successful magazines can insult their own subscribers’ intelligence, so long as it’s done in ‘the right way’ — the subscribers won’t despise the publisher for trying to deceive them about such important matters as what countries to invade, or whether to invade, or why to invade. The U.S. military-industrial complex (MIC) can attract cannon-fodder for its operations, by means of such ‘news’ media to produce dupes for that MIC. During the 2016 U.S. Presidential campaign, Mr. Wenner’s propaganda-machine had ardently campaigned for the neoconservative Hillary Clinton against the moderately progressive Bernie Sanders in the U.S. Democratic Party primaries.

And, then, once she (and her friend Debbie Wasserman Schultz who ran the DNC) managed to steal the nomination from her opponent, Wenner’s operation campaigned for Ms. Clinton against her Republican opponent Trump, who claimed (falsely as it turns out, in lies exceeding Clinton’s own) to be opposed to neoconservatives (whom he has actually loaded into his Administration). Trump now relies upon neocons for his support, but perhaps Wenner and Robert Kagan and other neoconservatives won’t be satisfied until the U.S. government takes control over Russia — which cannot happen except upon all of our dead bodies (WW III) — which is precisely what Hillary Clinton was aiming for (and maybe Trump is, too). That’s how insane the U.S. aristocracy (and its PR organs such as Wenner’s) now is – they’re pushing the world toward nuclear Armageddon.

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There will come a point when Russia’s had enough. But they won’t shoot down US planes.

Russia To Consider US Planes In Syria As ‘Targets’ (News.AU)

Russia says it will now consider US planes in Syria as “aerial targets” and cease communications via a military hotline in a rapid escalation of tensions between the two nations. The Russian defence ministry released a statement Monday afternoon, local time, condemning the US for shooting down a Syrian warplane that had dropped bombs near ground forces supported by the US. The ministry said it would now track all US-led coalition jets and drones found west of the Euphrates River in Syria and treat them as targets. This is a significant development because, while it is not uncommon for the two nations to criticise each other politically, Russia stays in contact with the US-led coalition via a military hotline to ensure there is no unintended military conflict between the two powers in the region.

The statement says that Russia will no longer use the communication channel, designed to avoid incidents in Syrian airspace. “The command of the coalition forces did not use the established communication channel for preventing incidents in Syrian airspace,” the defence ministry said in the statement. Russia said it would now “end co-operation with the American side”. “Any flying objects, including planes and drones of the international coalition, discovered west of the Euphrates River will be tracked as aerial targets by Russia’s air defences on and above ground,” it said. [..] The campaign has often put the US at odds with the regime of Syrian President Bashar al-Assad, which is leading its own attack against IS with air cover support from Russia. Syria is also in the grip of a civil war that has claimed more than 400,000 lives, according to the United Nations.

An American F/A-18 Super Hornet shot down a Syrian SU-22 about 7pm on Sunday. The coalition said the Syrian plane had dropped bombs near its allies, the Syrian Democratic Forces, which were fighting IS south of Tabqah. Russia said the shooting down of the plane was an act of aggression against Syria and called for a “careful investigation by the US command” into the incident. “Repeated military actions by US aircraft against the lawful armed forces of a United Nations member state, under the guise of a ‘fight against terrorism’, are a profound violation of international law and, in fact, military aggression against the Syrian Arab Republic,” the Russian Defence Ministry said. “As a result of the strike, the Syrian plane was destroyed. The Syrian pilot catapulted into an area controlled by Islamic State terrorists. His fate is unknown.”

The coalition said the Syrian warplane had been shot down “in accordance with rules of engagement and in collective self-defence of coalition partnered forces”. The deputy chairman of the Russian Senate’s defence committee, Frants Klintsevich, said there was “no defence” for the US shooting down the plane. “Blatant aggression and provocation. To provoke, above all, Russia. It seems that the US under Donald Trump is a source of a qualitatively new level of danger not only in the Middle East but also around the world,” he wrote on Facebook.

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“That well is going dry in the middle of the summer, and without any resolution to the debt ceiling debate, the country will not be able to borrow more to pretend that it’s solvent.”

Absent Without Leave (Jim Kunstler)

After nearly a year of investigating, the FBI, the CIA, the NSA, the DIA, DHS, et. al. haven’t been able to leak any substantial fact about “Russian collusion” with the Trump election campaign — and, considering the torrent of leaks about all manner of other collateral matters during this same period, it seems impossible to conclude that there is anything actually there besides utterly manufactured hysteria. Now, one might imagine that this intelligence community could have manufactured some gift-wrapped facts rather than just waves of hysteria, but that’s where the incompetence and impotence comes in. They never came up with anything besides Flynn and Sessions having conversations with the Russian ambassador — as if the ambassadors are not here to have conversations with our government officials.

You’d think that with all the computer graphics available these days they could concoct a cineplex-quality feature film-length recording of Donald Trump making a “great deal” to swap Kansas for Lithuania, or Jared Kushner giving piggyback rides to Vladimir Putin in the Kremlin. But all we’ve really ever gotten was a packet of emails from the Democratic National Committee and John Podesta of the Clinton campaign gloating about how nicely they fucked over Bernie Sanders — and that doesn’t exactly reflect so well on what has evolved to be the so-called “Resistance.” The net effect of all this sound and fury is a government so paralyzed that it can’t even pass bad legislation or execute its existing (excessive) duties. That might theoretically be a good thing, except what we’re seeing are individual departments just veering off on their own, especially the military, which now operates without any civilian control.

Apparently General Mattis, the Secretary of Defense, pretty much decided on his own to dispatch another 8,000 US troops to Afghanistan to move things along there in the war’s 16th year. Or did he get President Trump to look up from his Twitter window for three seconds to explain the situation and get a nod of approval? Perhaps you also didn’t notice the news item over the weekend that a US-led fighter plane coalition shot down a Syrian air force plane in Syrian airspace. In an earlier era that could easily be construed as an act of war. Who gave the order for that, you have to wonder. And what will the consequences be? Reasonable people might also ask: haven’t we already made enough deadly mischief in that part of the world? With the US military gone rogue in foreign lands, and the intelligence community off-the-reservation at home, and the Trump White House all gummed up in the tarbaby of RussiaGate, and the House and Senate lost in the shuffle, you also have to wonder what anybody is going to do about the imminent technical bankruptcy of the USA as the Treasury Department spends down its dwindling fund of remaining cash money to pay ongoing expenses — everything from agriculture subsidies to Medicare.

That well is going dry in the middle of the summer, and without any resolution to the debt ceiling debate, the country will not be able to borrow more to pretend that it’s solvent. I don’t see any indication that the House and Senate will be able to bluster their way through this. Instead, the situation will compel extraordinary new acts of financial fraud via the central banks and its cadre of Too-Big-To-Fail associates. In the event, the likely outcome will be a spectacular fall in the value of the US dollar, and perhaps consecutively, the collapse of the equity and real estate markets.

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Actual bankers charged? Or is this just more of the sudden anti-Qatar campaign?

Barclays and Four Executives Charged With Fraud In Qatar Case (BBC)

Barclays and four former executives have been charged with conspiracy to commit fraud and the provision of unlawful financial assistance. The Serious Fraud Office charges come at the end of a five-year investigation and relate to the bank’s fundraising at the height of 2008’s financial crisis. Former chief executive John Varley is one of the four ex-staff who will face Westminster magistrates on 3 July. Barclays says it is considering its position and awaiting further details. Mr Varley, former senior investment banker Roger Jenkins, Thomas Kalaris, a former chief executive of Barclays’ wealth division, and Richard Boath, the ex-European head of financial institutions, have all been charged with conspiracy to commit fraud in the June 2008 capital raising. In addition, Mr Varley and Mr Jenkins have also been charged with the same offence in relation to the October 2008 capital raising and with providing unlawful financial assistance.

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The Greeks are the only ones who’ve seen the real face of the EU.

Two-Thirds Of Europeans Believe EU Should Take Hard Line On Brexit (G.)

Two-thirds of Europeans believe the EU should take a hard line with the UK over Brexit, according to a survey. 65% of those questioned in Belgium, Germany, Greece, Spain, France, Italy Austria, Hungary and Poland said the EU, while trying to maintain a good relationship with Britain, should not compromise on its core principles. The Chatham House-Kantar survey showed just 18% of people in the nine countries – compared with 49% of people in Britain – believed the opposite; that the European commission should aim to keep the UK as close as possible, at the expense of its principles, during the talks, which began on Monday. f those surveyed across the nine continental countries, 57% said the EU had been weakened by Brexit, while 46% felt Britain’s departure would be bad for the bloc. By contrast, 70% of Britons felt the EU would suffer from the UK leaving.

The survey interviewed more than 1,000 people in each of the 10 countries including Britain earlier this year before elections in the Netherlands and France and an economic uptick that have significantly bolstered pro-European sentiment. The election of pro-European centrist Emmanuel Macron in France has in particular given the bloc a boost. The eurozone economy, too, is now growing faster than that of the UK or US. Britain’s confusion over what Brexit strategy to adopt have also helped swing EU opinion. A Pew survey last week found markedly higher approval for the EU since the Brexit vote: 63% of respondents in the 10 EU countries had favourable views about the bloc.

The figures mark a sharp increase from spring last year, with favourable opinions up 18 points in Germany and France, 15 in Spain, 13 in the Netherlands – and 10 in the UK. Only 18% of continental respondents wanted their country to leave the EU. Overall, the survey revealed that more than half (58%) of people in 10 countries believed another EU country might leave the bloc within the next decade. Four-fifths of Greeks, hardest hit by the 2008 financial crisis, backed this view, compared with less than half of Hungarians and Poles. Asked about what they considered the EU’s greatest achievements, the freedom to live and work across Europe and the creation of the border-free Schengen zone came top among continental respondents (both on 17%), followed by European peace and the euro (13%) and the single market (8%).

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“..almost a million people were employed across the wider automotive industry.”

Britiain’s Carmakers Face Brexit Cliff Edge (BBC)

The government must secure a transitional Brexit deal to protect the future of the UK car industry, a trade group has said. The Society of Motor Manufacturers and Traders (SMMT) said Britain was highly unlikely to reach a final agreement with the EU by the March 2019 deadline. That meant carmakers could face a “cliff edge”, whereby tariff-free trade was sharply pulled away. It warned the industry would suffer without a back-up plan in place. The EU is by far the UK’s biggest automotive export market, buying more than half of its finished vehicles – four times as many as the next biggest market. UK car plants also depend heavily on the free movement of components to and from the continent.

The SMMT said any new relationship with the EU would need to address tariff and non-tariff barriers, regulatory and labour issues, “all of which will take time to negotiate”. “We accept that we are leaving the European Union,” said chief executive Mike Hawes. “But our biggest fear is that, in two years’ time, we fall off a cliff edge – no deal, outside the single market and customs union and trading on inferior World Trade Organization terms. “This would undermine our competitiveness and our ability to attract the investment that is critical to future growth.” UK car manufacturing generated £77.5bn of turnover last year and accounted for 12% of all goods exports, according to the trade group. It added that almost a million people were employed across the wider automotive industry.

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At least divvy up the monopoly money with a little sense of justice, you’d say. The fall will be hard enough already.

UK Property Owners’ £2.3 Trillion Windfall ‘Created Huge Inequality Gap’ (G.)

A £2.3tn windfall for those lucky enough to own their own homes during the property boom of the 1990s and early 2000s has opened up a deep and widening inequality gap between the generations, a thinktank has warned. Rising house prices that have enriched older generations have priced the young out of home ownership, said the Resolution Foundation, adding that the pattern whereby each generation was wealthier than the previous one had broken down. In a new report, the thinktank noted that the baby boomers born in the 20 years after the second world war were the big beneficiaries of rapidly rising house prices, but had amassed most of the wealth through no skill of their own. Wealth disparities would have “worrying consequences” for the living standards of younger generations, it added.

Laura Gardiner, senior policy analyst at the Resolution Foundation, said: “Britain’s pre-crash property boom created a huge, unearned and largely tax-free £2.3tn housing wealth windfall for those old enough and lucky enough to be home owners at the time. But while the property bubble hugely benefited many of Britain’s baby boomers, it has also driven generational wealth progress into reverse by pricing younger people out of home ownership. “Property, pension and financial wealth can provide security and opportunities for families, as well as a decent income in retirement. The failure of younger generations to accumulate wealth in the way that earlier generations have been able to is therefore a huge living standards concern for us all.”

The report found that 82% of housing wealth increases between 1993 and 2012-14 were due to the property boom, which saw the average price of a residential property in the UK rise threefold, rather than through any active behaviour – such as buying, moving house or paying off mortgages. At the boom’s zenith in 2003, one in six of all working property-owning adults were earning more from the rising value of their homes than from their jobs.

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What a great idea! Take your money now?!

UK’s Co-op Bank In Advanced Talks To Be Rescued By Hedge Funds (G.)

The Co-operative Group’s stake in the Co-op Bank could fall dramatically under a rescue plan being drawn up by hedge funds. The UK’s largest mutual, which owns supermarkets and funeral homes, has a 20% stake in the bank, which put itself up for sale in February in a search for £750m of extra funding. But under a proposal being discussed by the bank’s controlling hedge fund shareholders, this stake could drop towards zero unless the group decides to pump millions of pounds into the loss-making bank. In April, the group wrote down the value of its stake to zero, taking a further £140m hit on its shareholding that had stood at 100% before the problems at the banking arm were uncovered in 2013.

Four years ago, hedge funds which owned bonds issued by the Co-op bank helped contribute to its rescue and they are again regarded as the most likely source for the extra capital the bank needs to appease the Bank of England. In an update on the sales process on Monday, the Co-op bank, which has 4 million customers, said it was “in advanced discussions with a group of existing investors with a view to a prospective equity capital raise and liability management exercise”. A liability management exercise would involve bondholders agreeing to convert debt into shares. In a previous update to the market, the bank had warned that it would need to undergo a liability management exercise regardless of whether it was sold, signalling that bondholders faced losses under all the options being considered. In the latest announcement, the Co-op Bank said it was still continuing with talks about a sale of the business.

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A few thoughts:

• A) China’s not all that different from the US, is it? Student debt is hot.

• B) This is largely shadow banking, and Beijing has very little grip on it

• C) Well, OK, haven’t heard this from the US yet: “.. borrowers were instructed to send naked pictures of themselves, with their identification cards, to the lender as collateral.”

China Cracks Down On Online Moneylenders Targeting Students (BBC)

China is cracking down on online moneylenders who target university students, following concerns about the largely unregulated industry. A recent government directive has ordered such lenders to suspend all activities wooing student borrowers. The move follows reports of exorbitant interest rates and unsavoury practices in the industry, including demanding “nude selfies” as collateral. Online peer-to-peer moneylending has grown popular in China in recent years. Known as “wang dai” in Chinese, it sees strangers providing small loans to others via websites and phone apps. The directive (in Chinese) was made by China’s banking, education and social security authorities, according to a copy released by the Jiangxi provincial government on its website on Friday.

It said the measures were needed to address moneylenders “making extortionate loans” and other behaviour that has “severely harmed the safety of university students”. The exact number of online moneylenders in China is not known, but one microfinancing portal called Wangdaizhijia lists at least 500 such platforms. In recent years some moneylenders and loan sharks have begun targeting university students in need of quick and easy credit, according to Chinese reports. Some students have since fallen prey to spiralling debt as a result of high interest rates. In some cases, borrowers were instructed to send naked pictures of themselves, with their identification cards, to the lender as collateral. They would threaten to release the pictures if the student defaulted on their debts. In December the naked pictures and contact details of more than 100 young female borrowers were leaked online, causing an outcry and shining a spotlight on the underground business.

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Silly to suggest this is some new development. China prints funny money, and blows bubbles with everywhere. Been going on for years.

China’s “Ghost Collateral” Arrives In Canada, “Heralding A Crisis” (ZH)

Two weeks ago, a key China-linked concern that made headlines back in 2013 and 2014 reemerged after an extensive analysis by Reuters reporter Engen Tham found that China’s “ghost collateral” problem, or collateral that was either rehypothecated between two or more loans, or simply did not exist, had not only not gone away but was still as prevalent as ever if not worse. The report, a continuation of extensive reporting conducted on this site, said that 60% of all loans issued in China’s system are backed by property, and that China’s property values are “wildly misleading, which is part of the reason that China’s credit rating was recently downgraded.” Reuters reported that Chinese lenders are prone to fraud with loan officers turning a blind eye to the quality of collateral and knowingly accepting dubious and even fraudulent documents.

Now, in a follow up by the Vancouver Sun’s Sam Cooper, the real estate reporter explains that China’s “ghost collateral” problem has jumped across the Pacific and is threatening the Canadian banking system. As Cooper notes, “as a result of the flood of money pouring from Mainland China into Vancouver real estate in recent years, some financial experts say they believe Canadian banks are directly exposed to shadow lending in China and the risks of so-called “ghost collateral”, collateral that may not exist or is used continuously to secure loans for multiple borrowers.” And the stunner: “Postmedia confirmed that Canadian banks are allowed by the federal regulator, the Office of the Superintendent of Financial Institutions, to accept collateral from China to secure real estate mortgages in B.C.” “OSFI does not dictate what type of collateral (federally regulated banks) can accept,” spokeswoman Annik Faucher said. “Whether the borrower is foreign or domestic, OSFI (allows) financial institutions to compete effectively and take reasonable risks.”

The underlying reason for Canada’s growing, if paradoxical, exposure to Chinese collateral is due to an explosion of Canada’s shadow banking system. An investigation by Cooper found “massive and risky home loans are increasing in number across Metro Vancouver, while mortgage fraud cases are also on the rise, connected to the growth of so-called “shadow banking.” This is similar, if smaller in scale, to the gargantuan $8.5 trillion shadow banking market in China, where “shadow” lenders and creditors bypass conventional banks to provide and obtain funding, often at far higher terms than prevailing rates, an increasingly dangerous proposition at a time when Chinese interest rates, especially on the short-end, are suddenly spiking. The Vancouver Sun adds that as a result of tighter federal lending rules, borrowers trying to buy million-dollar-plus properties in Vancouver’s market “are increasingly taking out dangerous loans from shadow bankers in a fast-growing and poorly regulated financial market.”

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First of many. Canada, Denmark, Netherlands et al, there’s a long list.

Household Debt Sees Australian Banks Downgraded Again (ABCAu)

Global ratings agency Moody’s has downgraded the big four banks and eight other institutions over fears about the housing market. Moody’s cut ANZ, CBA, NAB and Westpac by one notch from Aa3 to Aa2. Bendigo and Adelaide Bank and Newcastle Permanent Building Society went from A3 to A2 while Heritage Bank, Members Equity, QT Mutual, Teachers Mutual, Victoria Teachers Mutual and Credit Union went from A3 to Baa1. Moody’s action comes a month after rival agency S&P Global downgraded almost all Australian banks over fears of “a sharp correction in property prices”. Moody’s said while it did not expect a sharp downturn in housing as its key scenario, it could not ignore the risk that high levels of debt and the rapid credit expansion could pose down the track.

“Whilst mortgage affordability for most borrowers remains good at current interest rates, the reduction in the savings rate, the rise in household leverage and the rising prevalence of interest-only and investment loans are all indicators of rising risks,” the Moody’s statement said. The agency worries that while Australians have been taking on record amounts of debt, wages have not increased, while underemployment has. It also did not like “the rising prevalence of interest-only and investment loans” which it believed were indicators of rising risks. Banks are carrying an arsenal of cash, as required now by regulators, in preparedness for any downturn in the economy or problems in the housing market but Moody’s indicates it is not sure whether it will be enough. “The resilience of household balance sheets and, consequently, bank portfolios to a serious economic downturn has not been tested at these levels of private-sector indebtedness,” it said.

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Yellowstone is a huge threat, but specifics must be viewed with extreme caution.

296 Earthquakes Near Yellowstone Supervolcano In Last 7 Days (Snyder)

I spend a lot of time documenting how the crust of our planet is becoming increasingly unstable. Most of this shaking is taking place far away from the continental United States, and so most Americans are not too concerned about it. But we should be concerned about it, because a major seismic event could change all of our lives in a single instant. For instance, a full-blown eruption of the Yellowstone supervolcano would have the potential of being an E.L.E. (extinction level event). That is why it is so alarming that there have been 296 earthquakes in the vicinity of the Yellowstone supervolcano within the last 7 days. Scientists are trying to convince us that everything is going to be okay, but there are others that are not so sure.

The biggest earthquake in this swarm occurred last Thursday evening. It was initially measured to be a magnitude 4.5 earthquake, but it was later downgraded to a 4.4. It was the biggest quake in the region since a magnitude 4.8 earthquake struck close to Norris Geyser Basin in March 2014. This magnitude 4.4 earthquake was so powerful that people felt it as far away as Bozeman… “The main quake was centered about 5.8 miles underground. The quake and aftershocks occurred just over 8 miles northeast from West Yellowstone, according to the U.S. Geological Service. A witness reported that she felt the building she was in move. Dozens of people reported that they felt it in and around West Yellowstone, Gardiner, Ennis, and Bozeman”. But by itself that one quake would only be of minor concern. What is troubling many of the experts is that this earthquake has been accompanied by 295 smaller ones.

[..] I would like to try to describe for you what a full-blown eruption of the Yellowstone supervolcano would mean for this country. Hundreds of cubic miles of ash, rock and lava would be blasted into the atmosphere, and this would likely plunge much of the northern hemisphere into several days of complete darkness. Virtually everything within 100 miles of Yellowstone would be immediately killed, but a much more cruel fate would befall those that live in major cities outside of the immediate blast zone such as Salt Lake City and Denver. Hot volcanic ash, rock and dust would rain down on those cities literally for weeks. In the end, it would be extremely difficult for anyone living in those communities to survive.

In fact, it has been estimated that 90% of all people living within 600 miles of Yellowstone would be killed. Experts project that such an eruption would dump a layer of volcanic ash that is at least 10 feet deep up to 1,000 miles away, and approximately two-thirds of the United States would suddenly become uninhabitable. The volcanic ash would severely contaminate most of our water supplies, and growing food in the middle of the country would become next to impossible. In other words, it would be the end of our country as we know it today.

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Never privatize basic needs. Always a bad idea.

Drug Prices Far Lower In Countries With Single-Payer Health Systems (IBT)

As the Senate has quietly been toying with the House’s proposed replacement for the Affordable Care Act, a new study, from researchers at Harvard Medical School and the University of British Columbia, found evidence that single-payer systems may lead to lower pharmaceutical prices. Could that data impact U.S. health care reform? U.S. drug prices are so high that the researchers didn’t even factor them into the study, focusing instead on other developed countries. It’s common knowledge that drug prices have been on the steady rise, increasing faster than average wages; at issue is how to push prices back down, or at least slow their escalation.

Examining the roots of high drug expenditures in 10 wealthy countries with universal health care, the study, published last week in the Canadian Medical Association Journal, discovered lower average drug prices in the nations with single-payer systems, which appeared to be better able to negotiate drug prices with pharmaceutical manufacturers. “There is some advantage to having a not-for-profit body, whether it’s a government body, a crown body… running a system without a profit motive,” said Steven Morgan, one of the authors and a professor of economics at University of British Columbia’s School of Population and Public Health. “The blunt instrument of government regulation will not in itself lower drug prices.”

Using drug price and expenditure data for 2015, the researchers established that the 10 countries with universal health care systems examined in the study — New Zealand, the United Kingdom, Canada, France, Germany, Switzerland, the Netherlands, Norway, Sweden and Australia — exhibited relatively little variation in volume of drug price purchases, with a difference as large as 41%. But the disparities in drug prices told a different story, with the two ends of the spectrum differing by 600%. For example, the average price of drug treatment per capita, per day, in New Zealand, which has a single-payer system, stood at just $23, or a third of those of the nine others. Norway, Australia, Sweden and the U.K., the other countries categorized in the study as single-payer, exhibited average daily per-capita drug expenditures of $59, $91, $56 and $81, respectively.

Switzerland, which has a multi-payer, social insurance-based system, had an average per-diem treatment cost of $171, twice as high as the other nine nations. Its fellow multi-payer countries examined in the study — France, Germany and the Netherlands — paid, per capita, on average, $106, $97 and $49, respectively, per day on drug treatments. Canadians, whose health care system the study described as “mixed,” purchased roughly the same volume of drugs as citizens of the other nine countries, but would’ve collectively saved $1.7 billion if their drug prices were comparable to those of the nine other countries, the study noted.

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As long as there’s plenty free money…

Could There Be A Bidding War For Whole Foods? (CNN)

Whole Foods will eventually be part of Amazon CEO Jeff Bezos’s empire. Or will it? Some Wall Street analysts are starting to wonder whether another retailer will come up with a higher offer and start a bidding war. Amazon announced on Friday that it was offering to pay $13.7 billion in cash for Whole Foods – a deal that values the chain of organic grocery stores at $42 a share. But Whole Foods stock closed above $42 on Friday, and it rose again Monday to top $43. That might not sound significant. But any price for Whole Foods stock that is higher than Amazon’s offer could be a sign that Wall Street thinks another company could swoop in with an even better deal. Barclays analyst Karen Short wrote in a report that she “would not be surprised” if other companies make offers for Whole Foods.

She raised her price target on the company to $48 – nearly 15% higher than Amazon’s bid. Short said in the report that “in theory, all retailers that sell food and compete with Amazon” could come up with their own offer for Whole Foods because they may “have too much to lose not to bid.” She said the likely bidders could include Walmart and Target, both of which have big grocery businesses, and the Kroger supermarket chain. She conceded it might be tough to outbid Amazon, but it could still be worth it to drive up the price and make Amazon pay more. Oppenheimer analyst Rupesh Parikh agreed. He raised his price target on Whole Foods to $45 after the Amazon deal was announced. He wrote in a report that “another bid cannot be ruled out” because other big retailers may want to do anything they can to prevent Amazon from getting even more powerful.

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The worst thing you can do is let your food supply be controllled from some point a thousand miles away. But then, Amazon has killed so much community already, and no-one sproke up. It’s labeled ‘progress’.

Amazon Will Kill Your Local Grocer (BBG)

Amazon’s done it to books. And electronics. And clothing. Now it wants to rule the grocery aisles. But Amazon still has a ways to go — the online retailing behemoth has taken a slow, yet calculated approach to attacking the grocery store. After years of testing the AmazonFresh program in its Seattle hometown, it began expanding the grocery delivery service to other cities in 2013. Today, it delivers fresh fruit and meat in parts of New York, New Jersey, Pennsylvania, Connecticut, California, Washington and Maryland. It also delivers food through its Amazon.com website and its Prime Now program. And even though research from Cowen & Co pegs Amazon’s market share of food and beverages sold online in 2015 at about 22 percent, that overall online grocery market in the U.S. is pretty small.

Out of the $795 billion Cowen expects Americans to spend on food and drinks this year, it estimates only about $33 billion of it will be spent online. That’s because it has taken shoppers a long time to grow comfortable with buying their apples, chicken breasts and granola online when they can stop by a physical store on the way home from work and actually touch and smell the food they’re buying. Companies struggle to profit from the very expensive business of picking, packing and transporting fresh food to their customers. It’s much easier to mail a video game or book, which doesn’t have to be kept cold or free of bruises. But for Amazon, the grocery business not only brings more sales, it could also make its business more profitable.

People tend to buy groceries weekly or daily, so getting them hooked on delivery justifies sending trucks out more frequently. Then any general merchandise, like a book or toy, that Amazon sells along with the food adds to profits. And since Amazon will need more trucks for grocery delivery, it could reduce its reliance on shipping companies, which have contributed to soaring costs. For now, Amazon is likely to take added grocery costs on the chin, in hopes it will pay off down the line. Growing its AmazonFresh and Prime Now offerings suggests Amazon is gearing up for the long haul in grocery. Though traditional grocers are not likely to see sales migrate to Amazon right away, that luxury won’t last. And just like bookstores, your local grocer could be toast.

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Jun 172017
 
 June 17, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Fred Lyon Broadway and Kearny Street, North Beach, San Francisco 1952

 

All Hell Is Going To Break Loose In The Bond Market (SBA)
The Fog of Markets (720G)
10 Years After Global Financial Crisis, World Still Suffers Debt Overhang (SMH)
Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar (WS)
Special Prosecutor Mueller Is a Political Hack (Washington)
Fear of Contagion Feeds the Italian Banking Crisis (DQ)
China’s Smaller Banks Endure Record Borrowing Costs amid Squeeze (BBG)
Most Of Central London Hospital To Be Sold Off, Plans Reveal (G.)
Five Talks on Power, Populism, Politics & Europe (Varoufakis)
Spain Says Eurogroup May Block Greek Loan If Officials Not Granted Immunity (R.)
Swedish Commuters Can Use Hand Implant Chip Instead Of Train Tickets (Ind.)

 

 

“..the Federal Reserve has not allowed the market to do its one and only job, and that is to determine fair value.”

All Hell Is Going To Break Loose In The Bond Market (SBA)

This past Wednesday we heard from the Federal Reserve with regard to monetary policy, and as I predicted they did raise the federal funds rate 25 basis points however, instead of yields rising, they are dropping. More than a year and a half ago I had said publicly that the Federal Reserve’s attempt at trying to normalize bond yields would backfire-and this is exactly what is happening. It is clear to me that the Federal Reserve has absolutely lost control of what is occurring in the bond market. Remember, this is uncharted territory, we have never been here before in the history of the financial world-so the Federal Reserve actually has no idea of how the market will react in the current environment with regard to their attempt at normalizing interest rates. The yield curve as seen in the picture above continues to flatten out, and this trend will continue until the curve inverts.

The last time the yield curve inverted, the 2008 economic meltdown occurred, and the time before that we suffered the.com bubble meltdown. The fact is we are existing in a multiple bubble economy at this time, worse, and unlike anything which has ever been seen before. The reason why these bubbles exist is simple: the Federal Reserve has not allowed the market to do its one and only job, and that is to determine fair value. The Federal Reserve’s interest rate suppression cycle has not only allowed, but has been the driving force behind mass malinvestments across the entire spectrum of asset classes and as such, bubbles have been created. The Federal Reserve has created distortions across the spectrum of asset classes which is frankly beyond belief, worse than has ever been witnessed in the history of finance. What this means is when the yield curve inverts this time, we will experience a meltdown magnitudes greater then the 2008 crash.

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“..till injuries were wrought to the structure of human society which a century will not efface, and which may conceivably prove fatal to the present civilization.”

The Fog of Markets (720G)

“The year 1915 was fated to be disastrous to the cause of the Allies and to the whole world. By the mistakes of this year the opportunity was lost of confining the conflagration within limits which though enormous were not uncontrolled. Thereafter the fire roared on till it burnt itself out. Thereafter events passed very largely outside the scope of conscious choice. Governments and individuals conformed to the rhythm of the tragedy, and swayed and staggered forward in helpless violence, slaughtering and squandering on ever-increasing scales, till injuries were wrought to the structure of human society which a century will not efface, and which may conceivably prove fatal to the present civilization.” – Winston S. Churchill – The World Crisis: 1915

After reading that quote several times, it remains shocking that the politicians and individuals of that era unconsciously “conformed to the rhythm of the tragedy.” The paragraph above from Winston Churchill, describes the mass mindset of World War I when it was still in its infancy. War-time narratives, nationalism, destruction and the tremendous loss of life led most people to quickly accept and acclimate to an event that was beyond atrocious. Amazingly, less than a year before the period Churchill discusses, the same people likely would have thought that acceptance of such a calamity would be beyond comprehension. Wars and markets are obviously on two different planes, and we want to make it clear the purpose of this article is not to compare the evils of war to financial markets. That said, we must recognize that quick acceptance of abnormal circumstances, as Churchill describes, is a trait that we all possess.

The seemingly unabated march upwards in stock prices occurring over the last eight years has had a mind-numbing effect on investors. The relentless grind higher is backed by weak fundamentals providing little to no justification for elevated prices. Indeed, if there was no justification for such valuations during the economically superior timeframe of the late 1990’s, how does coherent logic rationalize current circumstances? For example, feeble economic growth, stagnating corporate earnings, unstable levels of debt, income and wage inequality and a host of other economic ills typically do not command a steep premium and so little regard for risk. This time, however, is different, and investors have turned a blind eye to such inconvenient facts and instead bank on a rosy future. Thus far, they have been rewarded. But as is so often the case with superficial gratification, the rewards are very likely to prove fleeting and what’s left behind will be deep regret.

Despite our education and experience which teach the many aspects of the discipline of prudent investing, investors are still prone to become victims of the philosophy and psychology of the world around them. These lapses, where popular opinion-based investment decisions crowd out the sound logic and rationale for prudence and discipline, eventually carry a destructively high price. Investors, actually the entire population, have become mesmerized by the system as altered and put forth by the central bankers. We have somehow become accustomed to believe that debt-enabling low interest rates make even more debt acceptable. Ever higher valuations of assets are justifiable on the false premise of a manufactured and artificial economic construct.

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Long from Australia, with lots of sources. Bit confusing even.

10 Years After Global Financial Crisis, World Still Suffers Debt Overhang (SMH)

Let’s start with the question of debt. Lord Adair Turner, who chaired the UK Financial Services Authority between 2008 and 2013 and helped redesign global banking, says the world since has not addressed this root cause of the crisis and that means it’s at risk of another one. Lord Turner, now chairman of New York-based Institute for New Economic Thinking, says the world is suffering from “irrational exuberance” and “debt overhang”. The latter term refers to countries trapped in a vicious cycle of debt, and when nations ultimately default on that debt – he predicts that the next crisis will come courtesy of China and that’s just a number of years away – it ends in their economic destruction.

The Institute of International Finance (IIF) says global levels of debt held by households, governments, and non-financial corporates jumped by over $US70 trillion in the past decade to a record high of $US215 trillion, equating to 325 per cent of global GDP. “There’s been no deleveraging,” Lord Turner says. “Once you’ve got too much debt in the economy … it’s incredibly difficult to get rid of it. “If you say, ‘I’m going to write it off’, your banks go bankrupt … if you try get rid of it by people paying down that debt … the attempt to pay it back is what drives the economy into recession.” To avoid that, interest rates then fall, and that simply encourages more borrowing, he says.

[..] Steve Keen, Professor of Economics at Kingston University in London, a long-time doomsayer on Australia’s mortgage binge, says simply: “It’s dangerous”. He says the Reserve Bank and Australian politicians ignore the dangers of private household debt today just as former US Federal Reserve chairman Ben Bernanke did before the GFC. Keen says the risk of recession is even higher now that APRA has slightly tightened lending standards. “It’s inevitable,” he says, sticking to his bold prediction that it will happen before year’s end.

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Grow your own food.

Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar (WS)

Amazon, which is getting blamed profusely for the meltdown of brick-and-mortar stores and malls across the US, and which has been dabbling with its own initiatives into brick-and-mortar operations – including bookstores, after nearly wiping bookstores off the face of the US – said it would buy brick-and-mortar Whole Foods Market for $13.7 billion. Amazon will get Whole Foods’s $15.7 billion in annual sales and more importantly, its brand, semi-loyal customers, and about 450 brick-and-mortar stores across 42 states. Whole Food shares jumped 27%. But in early trading, the shares of the largest brick-and-mortar grocery sellers in the US are getting crushed: Wal-Mart Stores -6.5%; Kroger, largest supermarket chain in the US, -14%; Costco -7%; Target -10%.

Amazon already sells groceries online via AmazonFresh, and a few months ago announced it would create a grocery store pickup service, another foray into brick-and-mortar. Selling groceries online has been tough in the US, though everyone has been trying, from innumerable startups to Safeway and Google Express (in cooperation with Costco et al.). Consumers are used to buying at the store by running through the aisles with their carts and choosing what they see or what’s on their list, or both, and they want to touch and check their produce before buying it, and they don’t want the dented apples or squished grapes or wilted lettuce. And they need it now on the way home from work so they can fix dinner.

With this acquisition, Amazon’s efforts to muscle its way into the grocery business and even more into the every-day lives of Americans have thus taken a quantum leap forward. But what industry is Amazon muscling into? Over the past six years, sales at grocery stores are up a total of 14%, not adjusted for inflation, according to the retail trade report by the Commerce Department. Over the same period, the Consumer Price Index for food rose 14%, according to the Bureau of Labor Statistics. Hence, on an inflation-adjusted basis, “real” sales have been flat for six years.

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Did anyone doubt this? Safe to predict the investigation will be dragged out forever.

Special Prosecutor Mueller Is a Political Hack (Washington)

Torture FBI special agent Colleen Rowley points out: Mueller was even okay with the CIA conducting torture programs after his own agents warned against participation. Agents were simply instructed not to document such torture, and any “war crimes files” were made to disappear. Not only did “collect it all” surveillance and torture programs continue, but Mueller’s (and then Comey’s) FBI later worked to prosecute NSA and CIA whistleblowers who revealed these illegalities.

Iraq War Rowley notes: When you had the lead-up to the Iraq War … Mueller and, of course, the CIA and all the other directors, saluted smartly and went along with what Bush wanted, which was to gin up the intelligence to make a pretext for the Iraq War. For instance, in the case of the FBI, they actually had a receipt, and other documentary proof, that one of the hijackers, Mohamed Atta, had not been in Prague, as Dick Cheney was alleging. And yet those directors more or less kept quiet. That included … CIA, FBI, Mueller, and it included also the deputy attorney general at the time, James Comey.

Post 9/11 Round-Up FBI special agent Rowley also notes: Beyond ignoring politicized intelligence, Mueller bent to other political pressures. In the aftermath of the 9/11 attacks, Mueller directed the “post 9/11 round-up” of about 1,000 immigrants who mostly happened to be in the wrong place (the New York City area) at the wrong time. FBI Headquarters encouraged more and more detentions for what seemed to be essentially P.R. purposes. Field offices were required to report daily the number of detentions in order to supply grist for FBI press releases about FBI “progress” in fighting terrorism. Consequently, some of the detainees were brutalized and jailed for up to a year despite the fact that none turned out to be terrorists.

9/11 Cover Up Rowley points out: The FBI and all the other officials claimed that there were no clues, that they had no warning [about 9/11] etc., and that was not the case. There had been all kinds of memos and intelligence coming in. I actually had a chance to meet Director Mueller personally the night before I testified to the Senate Judiciary Committee … [he was] trying to get us on his side, on the FBI side, so that we wouldn’t say anything terribly embarrassing. …

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EU’s post-Cyprus resolutions are being dumped whenever that’s easier.

Fear of Contagion Feeds the Italian Banking Crisis (DQ)

Spain’s Banco Popular had the dubious honor of being the first financial institution to be resolved under the EU’s Bank Recovery and Resolution Directive, passed in January 2016. As a result, shareholders and subordinate bondholders were “bailed in” before the bank was sold to Santander for the princely sum of one euro. At first the operation was proclaimed a roaring success. As European banking crises go, this was an orderly one, reported The Economist. Taxpayers were not left on the hook, as long as you ignore the €5 billion of deferred tax credits Santander obtained from the operation. Depositors and senior bondholders were spared any of the fallout. But it may not last for long, for the chances of a similar approach being adopted to Italy’s banking crisis appear to be razor slim.

The ECB has already awarded Italy’s Monte dei Paschi di Siena (MPS) a last-minute reprieve, on the grounds that while it did not pass certain parts of the ECB’s last stress test, the bank is perfectly solvent, albeit with serious liquidity problems. By contrast, Popular was also liquidity challenged but, unlike MPS, it passed all parts of the ECB’s 2016 stress test, which shows you how ineffectual these tests are — and how subjective the resolution process of a European bank can be. In a speech to the Italian Banking Association on Thursday, the Vice President of the ECB, Vítor Constâncio, suggested that under certain circumstances, it might be wiser to save a bank than to resolve it. What’s more, taxpayers should be called upon not only to save banks like MPS but also to make whole all holders of the bank’s subordinate debt, under the pretext that they were misled into purchasing them (as indeed some retail customers, but certainly not all, were).

A taxpayer-funded bailout of bondholders is also on the cards for the two mid-sized Veneto-based banks, Banca Popolare di Vicenza and Veneto Banca, which have already received billions of euros in taxpayer assistance. Italy’s Minister of Economy Pier Carlo Padoan continues to insist the two banks will not be wound down. This is the same man who insisted last year that a) there would be no need of any future bail outs; and b) Italy did not even have a banking problem on its hands. Padoan has no choice but to deny all rumors of a bail-in; otherwise there would be a massive rush for the exits. In the weeks and even days leading up to Popular’s collapse, Spain’s Economy Minister Luis de Guindos repeatedly reassured investors that the bank was perfectly safe and solvent.

All the while government agencies, including Spain’s social security fund, and regional government authorities were emptying the deposits they held with the bank as fast as they could. The total is unknown but it certain ran into billions of euros. To avoid a similar fate, Banca Popolare di Vicenza and Veneto Banca were instructed by the European Commission last week to find an additional €1.25 billion in private capital. That money still hasn’t arrived, and now Italy’s government is trying to persuade the European Commission and the ECB to water down the requirement to €600-800 million, while also urging Italian banks to chip in to the bank rescue fund. If they don’t and the two Veneto-based banks end up being wound down, they will have to cough up as much as €11 billion to refund the banks’ depositors.

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Deleveraging my donkey.

China’s Smaller Banks Endure Record Borrowing Costs amid Squeeze (BBG)

China’s smaller banks, caught between a seasonal cash squeeze and an official deleveraging drive, are stomaching record high borrowing costs to raise funds. Issuance of negotiable certificates of deposit jumped to 758 billion yuan ($111.5 billion) this week, the most since the securities were introduced in 2013 as a lifeline for smaller banks. The yield on one-month AAA rated NCDs has surged nearly one percentage point this month to an all-time high of 5.05%, while that on AA+ contracts reached 5.30%, according to data compiled by Bloomberg. The increase in NCD costs comes at a tough time for Chinese lenders, which face an unprecedented 4.5 trillion yuan of maturities this quarter. The pressure has been aggravated by the deleveraging drive, with the one-month Shanghai Interbank Offered Rate climbing for 22 days in a row to a two-year high.

The certificates are used mainly by smaller lenders – banks outside of China’s top 10 by market value accounted for 76% of total sales this year. “The smaller banks have no choice but to take the blow,” said Shan Kun, Shanghai-based head of China markets strategy at BNP Paribas. “They need to sell NCDs to get financing as they cut leverage gradually and as they have to cope with tighter liquidity this month. The rates will likely continue to climb, or at least stay elevated in the near term.” When cash supply tightens, small- and medium-sized lenders are usually among the hardest-hit because they lack the retail deposit arsenal of larger banks, said Yulia Wan, a Shanghai-based banking analyst at Moody’s Investors Service. They also may not have enough bonds to use as collateral to borrow money in the repo market. The banks need the money to finance longer-term and less liquid assets, such as debt and investment in loans and receivables, she added.

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Grand plans going back to Osborne and Cameron.

Most Of Central London Hospital To Be Sold Off, Plans Reveal (G.)

Almost all of a central London hospital is to be sold and its services diverted to already stretched facilities around the capital under plans for NHS modernisation seen by the Guardian. Charing Cross hospital, a flagship NHS facility in the heart of London, is to be cut to just 13% of its current size under proposals contained in sustainability and transformation plans published last year in 44 areas across England. Many of the officially published plans lacked precise detail about how local services would change, but internal supporting documents seen by the Guardian reveal the scale of the closures at the London site. The proposals claim much of the care currently offered at Charing Cross can be transferred to “community settings” such as local GP services, but health campaigners and clinicians say the transformation could endanger patients.

The documents include a map detailing how 13% of the current hospital site will remain, with the rest of its prime real estate in central London sold off. The plan is to introduce the changes after 2021. NHS chiefs have stated as recently as March that “there have never been any plans to close Charing Cross hospital”, and in March 2015 the then prime minister, David Cameron, said it was “scaremongering” to suggest that the Charing Cross A&E departmentwas earmarked for closure. The health secretary, Jeremy Hunt, echoed the claims. However, in the internal NHS documents the apparent downgrading of Charing Cross is outlined in great detail. The plan is to axe 10 major services at Charing Cross – 24/7 A&E, emergency surgery, intensive care and a range of complex emergency and non-emergency medical and surgical treatments. The remaining services would be a series of outpatient and GP clinics, X-ray and CT scans, a pharmacy and an urgent care centre for “minor injuries and illnesses”. Around 300 acute beds will be lost.

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Yanis.

Five Talks on Power, Populism, Politics & Europe (Varoufakis)

1 Yanis Varoufakis on power, populism and the future of the EU
2 Can Europe Make It? – Yanis Varoufakis speaks to openDemocracy
3 Yanis Varoufakis blows the lid on Europe’s hidden agenda
4 Yanis Varoufakis and his plan to take on Europe – again
5 Greece, Austerity, Brexit and Europe’s other darlings at GFMF2016

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In the EU, there’s immunity for officials committing crimes.

Spain Says Eurogroup May Block Greek Loan If Officials Not Granted Immunity (R.)

The Eurogroup of finance ministers may block an 8.5-billion-euro (7.44 billion pounds) loan to Greece if it does not grant immunity to privatisation agency officials from Spain, Italy and Slovakia, Spanish Economy Minister Luis de Guindos said on Friday. In 2015, a Greek prosecutor charged three officials at the country’s privatisation agency with embezzlement for withholding interest payments and breach of duty in relation to a sale and lease-back deal of 28 state-owned buildings. The case is still pending. “If there’s not a definitive solution for the situation of these three experts, the Eurogroup will block the payment,” de Guindos said in Luxemburg.

Greece would do “whatever necessary” to immediately settle the legal case, a Greek government official said. European Economic and Monetary Affairs Commissioner Pierre Moscovici said he was confident the problem would be resolved and that he would continue to discuss the issue with Spain during his visit to Madrid next week. “The problem has to be solved. We should not over dramatise it. The disbursement will happen and at the same time will find a solution to this problem,” Moscovici said on his arrival at a meeting of EU finance ministers in Luxemburg on Friday.

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Next up: a chip that makes your kids smarter. Try and resist that.

Swedish Commuters Can Use Hand Implant Chip Instead Of Train Tickets (Ind.)

Gone are the days when an e-ticket was seen as cutting edge – one Swedish rail company is offering passengers the option of using a biometric chip implanted into their hand in lieu of a paper train ticket. SJ is the first travel company in the world to let people use this innovative method that seems straight out of a sci-fi film. The tiny chip has the same technology as Oyster cards and contactless bank cards – NFC (Near Field Communication) – to enable conductors to scan passengers’ hands. Before you pack your bags for Sweden, the scheme is only applicable to those who already have the biometric implant – SJ is not offering to chip people. Around 2,000 Swedes have had the surgical implant to date, most of them employed in the tech industry.

State-owned operator SJ has said it expects about 200 people to take up the microchip method, but users must be signed up as a loyalty programme member to access the service. Customers buy tickets in the normal way by logging onto the website or mobile app, and their membership number, which is the reference code for the ticket, is linked to their chip. There are still kinks to be ironed out with the scheme, which began in earnest last week. Some passengers’ LinkedIn profiles were appearing instead of their train tickets when conductors scanned their biometric chip, while a number of train crew haven’t got the new SJ app which facilitates the scanning of biometric chips yet. “It’s just a matter of days before everyone has it,” says a spokesperson for SJ.

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May 182017
 
 May 18, 2017  Posted by at 9:10 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Paul Klee Fire at Full Moon 1933

 

‘Bobby Three Sticks’ Mueller to Probe Russia-Trump imbroglio (R.)
Trump To Announce $350bn Saudi Arabia Arms Deal – One Of Largest Ever (Ind.)
America’s Reign of Terror: A Nation Reaps What It Sows (Whitehead)
Investors Supercharge Bet Amazon Will Destroy US Retail (BBG)
Fed’s Kashkari Says Don’t Use Rate Hikes To Fight Bubbles (R.)
US Banks Tighten Auto Lending as More Borrowers Fall Into Default (BBG)
Canadian Officials Say Housing Risks Are Contained (BBG)
Prosecutor To Label Deutsche Bank An International Criminal Association (BBG)
Germany Asks US For Classified Briefing On Lockheed’s F-35 Fighter (R.)
Brazil: Explosive Recordings Implicate President Michel Temer In Bribery (G.)
Get Ready For The Franco-German Revival (Pol.)
Greek Parliament Committee Finds Salary, Pension Cuts Unconstitutional (GR)
Deal On Greece Is Touch And Go (K.)
Traffickers, Smugglers Exploit Record Rise In Unaccompanied Child Refugees (G.)

 

 

The echo chamber expands. It’s ironic to see how everyone praises Mueller’s independence, yet many are sure he will be Trump’s undoing. What flack will he get when he doesn’t do what the MSM demand?

‘Bobby Three Sticks’ Mueller to Probe Russia-Trump imbroglio (R.)

Former FBI director and prosecutor Robert Mueller, known for his independence in high-profile government investigations, is taking on a new challenge in the midst of a crisis that threatens the presidency of the United States. Mueller, 72, was named on Wednesday by the Justice Department to probe alleged Russian efforts to sway November’s presidential election in favor of Donald Trump and to investigate whether there was any collusion between Trump’s campaign team and Moscow. President Trump said in a statement there was no collusion between his campaign and “any foreign entity.” Mueller is known by some as “Bobby Three Sticks” because of his full name – Robert Mueller III – a moniker that belies the formal bearing and no-nonsense style of the former Marine Corps officer who was decorated during the Vietnam War.

Democrats and Republicans alike praised his appointment and hailed his integrity and reputation. Mueller was named to the post by Deputy Attorney General Rod Rosenstein. His investigation will run in parallel to those being carried out by the FBI and the U.S. Congress. It would be difficult to fire Mueller, and past special counsel appointments have shown that the job comes with independence and autonomy. Chicago federal prosecutor Patrick Fitzgerald was appointed during the George W. Bush administration in 2003 to a similar role to investigate the leak of the identity of Valerie Plame, an undercover CIA officer whose husband had criticized Bush administration policies. Fitzgerald indicted I. Lewis “Scooter” Libby, a top aide to Vice President Dick Cheney. Bush granted Libby clemency from a prison sentence before he left office.

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If you want to protest Trump, protest this….

Trump To Announce $350bn Saudi Arabia Arms Deal – One Of Largest Ever (Ind.)

Donald Trump will use his upcoming Saudi Arabia trip to announce one of the largest arms sales deals in US history – somewhere in the neighbourhood of $98bn to $128bn worth of arms. That could add up to $350bn over ten years. The deal will be what the Washington Post said is a “cornerstone” of the proposal encouraging the Gulf states to form its own alliance like the NATO military alliance, dubbed “Arab Nato.” Nato is comprised of 28 countries including the US. Mr Trump been an outspoken critic of the organisation but after a face-to-face meeting with Nato Secretary General Jens Stollenberg, he said the alliance was “no longer obsolete.” The White House said the president will propose it as a template for an alliance that will fight terrorism and keep Iran in check.

Saudi Crown Prince Mohammed bin Salman began negotiations on this deal shortly after the 2016 US election when he sent a delegation to Trump Tower to meet with the president’s son-in-law Jared Kushner, who is serving as a senior advisor of sorts to Mr Trump. The idea of an Arab Nato is not new. There was talk in 2015 of a “response force” in Egypt, comprised of approximately 40,000 troops from Egypt, Jordan, Morocco, Saudi Arabia, Sudan, and a few other Gulf nations. The “response force” would have had a Nato-like command structure, with soldiers paid for by their own countries and the Gulf Cooperation Council made up of wealthy oil economies finance operations and management of the force.

President Barack Obama’s administration brokered more arms sales than any US administration since World War II – estimated at $200bn. They sold Saudi Arabia alone $60bn in arms, which sparked criticism by Democrats concerned with Saudi Arabia’s alleged human rights violations. Mr Trump benefits by bringing about a more “fair” deal; he has claimed several times that Nato is unfair to the US because of the amount of contributions and support provided by the US compared to countries like Germany. If Arab Nato succeeds, the White House official said the US could shift the responsibility for security to those in the region and create jobs at home through the arms sales.

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…because that Saudi arms deal is a further expansion of this long-term insanity. Military industrial complex.

America’s Reign of Terror: A Nation Reaps What It Sows (Whitehead)

Who designed the malware worm that is now wreaking havoc on tens of thousands of computers internationally by hackers demanding a king’s ransom? The US government. Who is the biggest black market buyer and stockpiler of cyberweapons (weaponized malware that can be used to hack into computer systems, spy on citizens, and destabilize vast computer networks)? The US government. What country has one the deadliest arsenals of weapons of mass destruction? The US government. Who is the largest weapons manufacturer and exporter in the world, such that they are literally arming the world? The US government. Which is the only country to ever use a nuclear weapon in wartime? The United States. How did Saddam Hussein build Iraq’s massive arsenal of tanks, planes, missiles, and chemical weapons during the 1980s? With help from the US government.

Who gave Osama bin Laden and al-Qaida “access to a fortune in covert funding and top-level combat weaponry”? The US government. What country has a pattern and practice of entrapment that involves targeting vulnerable individuals, feeding them with the propaganda, know-how and weapons intended to turn them into terrorists, and then arresting them as part of an elaborately orchestrated counterterrorism sting? The US government. Where did ISIS get many of their deadliest weapons, including assault rifles and tanks to anti-missile defenses? From the US government. Which country has a history of secretly testing out dangerous weapons and technologies on its own citizens? The US government. Are you getting the picture yet? The US government isn’t protecting us from terrorism. The US government is creating the terror. It is, in fact, the source of the terror.

Just think about it for a minute: almost every tyranny being perpetrated against the citizenry—purportedly to keep us safe and the nation secure—has come about as a result of some threat manufactured in one way or another by our own government. Cyberwarfare. Terrorism. Bio-chemical attacks. The nuclear arms race. Surveillance. The drug wars. In almost every instance, the US government has in its typical Machiavellian fashion sown the seeds of terror domestically and internationally in order to expand its own totalitarian powers.

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Let’s celebrate progress.

Investors Supercharge Bet Amazon Will Destroy US Retail (BBG)

Investors who think Amazon.com Inc. is about to destroy the retail industry as we know it have figured out a way to supercharge that bet – by buying the online giant’s stock and pairing it with a short position in the SPDR S&P Retail ETF, symbol XRT, a foundering fund that primarily holds bricks-and-mortar stores. “If you are long Amazon, wouldn’t it make sense to be short the stocks Amazon will look to decimate?” said Ihor Dusaniwsky, head of research for S3 Partners. “It’s going long the ‘best of the breed’ and shorting the ‘worst of the breed.’” Traders are building up short positions in anticipation of XRT dropping to $40 or $41, Dusaniwsky said. The fund, which is down more than 5% this year, closed at $41.74 on Tuesday.

XRT’s top holdings include furniture stores, supermarkets and groceries, electronics chains and media streaming, all areas where Amazon is spending heavily, Dusaniwsky said. “If Amazon succeeds, it will be at the expense of companies like Wayfair, Sprouts Farmers Market, Whole Foods, Best Buy and Netflix,” Dusaniwsky said. These five companies make up around 7% of XRT, which also holds $3.37 million of Amazon stock, making it 1.2% to the portfolio. So far Amazon is holding up its end of the bet. The world’s largest online retailer beat profit and revenue estimates in the first quarter and said sales may top projections in second quarter, according to an April 27 statement. The stock’s up 28% this year, as the company continues to add subscribers to its $99-a-year Prime program, locking in loyalty and building a moat against competitors.

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Is Kashkari denying the existence of bubbles?

Fed’s Kashkari Says Don’t Use Rate Hikes To Fight Bubbles (R.)

Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday warned against using interest-rate hikes to address unwanted asset bubbles, saying that bubbles are hard to identify and such hikes would likely do more harm than good. Kashkari is a voting member this year on the U.S. central bank’s policy committee, and in March was the lone dissenter on a Fed vote to raise rates for the third time since the Great Recession. He has previously said he opposed the rate hike because he felt keeping rates low would result in more jobs for Americans who want to work. Some Fed officials have worried that keeping rates too low for too long could create asset bubbles that could set the U.S. economy up for another recession.

But the main reason Fed chair Janet Yellen and others have given for raising rates is not to tamp down bubbles, but to keep a now nearly fully employed economy from going into overdrive. Kashkari’s latest essay argues that keeping a sharp eye out for potential bubbles and using supervisory powers to protect banks from failures are better options than raising rates. “Given the challenges of identifying bubbles with any confidence and the costs of making a policy mistake, I believe the odds of circumstances ever making sense to use monetary policy to try to slow asset prices down are very low,” he wrote. “I won’t say never but a whole lot of evidence would have to line up just right for it to be the prudent course of action.”

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Horse. Barn.

US Banks Tighten Auto Lending as More Borrowers Fall Into Default (BBG)

Lenders are tightening the spigot on new auto loans, making it harder for U.S. consumers with weak credit to buy a car, data from the Federal Reserve Bank of New York show. New car loans for subprime borrowers fell in the first quarter to $25.9 billion, the lowest in two years, according to the New York Fed’s quarterly report on household debt and credit. Drivers with credit scores below 620 now comprise less than 20% of new loans, down from almost 30% a decade ago. Borrowers with the highest credit scores – 760 or more – made up nearly a third of new auto loan originations in the first quarter as lenders target the safer deals. Banks including Fifth Third Bank have been trimming their loan books and cutting back on riskier credit as delinquent auto loan balances surge.

The share of auto debt more than 90 days overdue rose to 3.82% in the first quarter, the highest in four years. While caution may be good for banks’ balance sheets, it doesn’t offer much relief for automakers, who relied on cheap credit to fuel a seven-year stretch of booming sales. Now they’re boosting discounts and cutting production to address swelling inventory on dealer lots. Ford said Wednesday it’s cutting 1,400 jobs in North America and Asia to improve profits as the U.S. auto industry recorded a fourth straight drop in monthly sales in April, after eking out a record year in 2016. Tighter credit “is a big impediment to future strength in auto sales,” said Yelena Shulyatyeva, senior U.S. economist for Bloomberg Intelligence. “A lot of this demand was driven by loose lending standards.”

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Not helping.

Canadian Officials Say Housing Risks Are Contained (BBG)

Canadian government officials delivered a vote of confidence in the country’s housing sector and banking system, telling lawmakers that Vancouver and Toronto’s real estate markets are supported by fundamentals that leave risks well-contained. Senior officials from Canada’s Finance Department testified Wednesday evening to the Senate finance committee, fielding questions about the stability of the housing market, risks posed by high household debt levels in Canada and the recent downgrade of banks by Moody’s Investors Service Inc. The hearing came amid questions about the future of Home Capital and any knock-on effect that a potential failure there could have on Canada’s housing sector, particularly in Vancouver and Toronto.

The core message from the officials was Canada’s market was stable and, despite some risks, policy makers’ measures are taking effect. “We don’t think there’s any systemic risk across the country,” said Phil King, a director at the economic and fiscal policy branch at Finance Canada. “There are specific pockets of concern, which seem to have ameliorated somewhat in the very-near term but we’re keeping a very close eye on those.” Vancouver and Toronto have “very, very strong fundamentals” supporting prices including immigration, strong job creation, strong income gains and high wealth, he said. King described a national housing market with distinct regions — surging Toronto and Vancouver, soft markets in energy-producing regions such as Calgary, and other cities like Montreal and Ottawa where policy makers have “no concerns whatsoever.”

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As Goldman Sachs should be for its activities in Greece.

Prosecutor To Label Deutsche Bank An International Criminal Association (BBG)

Deutsche Bank, on trial in Milan for allegedly helping Banca Monte dei Paschi di Siena conceal losses, must face accusations that it was running an international criminal organization at the time. Prosecutors used internal Deutsche Bank documents and emails to persuade a three-judge panel to consider whether there were additional, aggravating circumstances to the charges the German lender already faces related to derivatives transactions. The material included a London trader’s “well done!” message to a banker who is now on trial, evidence seen by Bloomberg shows. Allowing prosecutors to argue that the alleged market manipulation crimes were committed by an organization operating in several countries could lead to higher penalties if they win a conviction.

Giuseppe Iannaccone, a lawyer for Deutsche Bank and some of the defendants, sought to block the move at Tuesday’s hearing, saying there wasn’t a clear connection between the original charge of market manipulation and the alleged aggravating circumstances. “The trial for Deutsche Bank managers becomes more problematic after the judge’s decision,” said Giampiero Biancolella, an attorney specializing in financial crime who isn’t involved in the case. “If proven, the aggravating circumstance may increase the eventual jail sentence for the market manipulation to a maximum of nine years.” The German bank and Nomura went on trial in Milan in December, accused of colluding with Monte Paschi to cover up losses that almost toppled the Italian lender before its current battle for survival. Thirteen former managers of Deutsche Bank, Nomura and Monte Paschi were charged for alleged false accounting and market manipulation.

Deutsche Bank and Nomura are accused of using complex derivative trades to hide losses at the Italian lender, leading to a misrepresentation of its finances between 2008 and 2012. After the deals came to light in a 2013 Bloomberg News report, Monte Paschi restated its accounts and tapped shareholders twice to replenish capital. Deutsche Bank and six current and former managers were indicted in Milan Oct. 1 for allegedly helping falsify the Siena-based lender’s accounts through a deal known as Santorini. The prosecution’s request to label Deutsche Bank an international criminal association hinged on events that occurred in other parts of the globe, including the possible manipulation of an index, which isn’t the subject of charges in the Milan case.

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History’s biggest ever financial boondoggle. And nobody dares stop it.

Germany Asks US For Classified Briefing On Lockheed’s F-35 Fighter (R.)

The German Air Force this month sent the U.S. military a written request for classified data on the Lockheed Martin F-35 fighter jet as it gears up to replace its current fleet of fighter jets from 2025 to 2035. The letter, sent by the Air Force’s planning command and seen by Reuters, makes clear that the German government has not yet authorized a procurement program and is not committed to any particular aircraft to replace its current warplanes. It said the defense ministry would carry out “an in-depth evaluation of market available solutions, including the F-35, later this year,” with a formal “letter of request” to be issued in coming months.

Germany’s interest in the F-35 – the Pentagon’s most advanced warplane and its costliest procurement program – may surprise some given that it is part of the four-nation consortium that developed the fourth-generation Eurofighter Typhoon, which continues to compete for new orders. The Eurofighter is built by Airbus as well as Britain’s BAE Systems and Leonardo of Italy. Germany will need to replace its current fleet of fourth-generation warplanes – Tornadoes in use since 1981 and Eurofighters – between 2025 and 2035. The F-35 is considered a fifth-generation fighter given stealth capabilities that allow it to evade enemy radars.

Berlin’s letter also comes amid growing tensions between the West and Russia over Moscow’s support for separatists in eastern Ukraine, with NATO officials saying that Russian naval activity now exceeds levels seen even during the Cold War. Britain, the Netherlands, Norway, Turkey and Italy – key NATO allies of Germany – are already buying the F-35 fighter jet to replace their current aircraft, and other European countries such as Switzerland, Belgium and Finland are also looking at purchasing the fifth-generation warplane. Germany’s gesture may be aimed at strengthening its hand in negotiations with its European partners over the scale and timing of development of a next generation of European fighters. Any moves to buy a U.S. built warplane could run into political resistance in Germany, which has strong labor unions.

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Just turn parliament into a prison building. Most effective solution.

Brazil: Explosive Recordings Implicate President Michel Temer In Bribery (G.)

Angry crowds and outraged members of Brazil’s congress have demanded the impeachment of President Michel Temer following reports he was secretly recorded discussing hush money pay-offs to a jailed associate. The tapes were presented to prosecutors as part of a plea bargain by Joesley and Wesley Batista, brothers who run the country’s biggest meat-packing firm JBS, according to O Globo newspaper. They are said to contain conversations that incriminate several leading politicians, including the former presidential candidate Aecio Neves and the former finance minister Guido Mantega. Temer is alleged to have talked with Joesley about cash payments to Eduardo Cunha, the former speaker of the House who has been jailed for his role in the sprawling Petrobras corruption scandal.

Cunha is in the same ruling Brazilian Democratic Movement party as Temer and initiated the impeachment of Dilma Rousseff that allowed him to take over the presidency. He has alluded to the many secrets he knows about his former colleagues. In covert recordings made during two conversations in March, Joesley tells Temer he is paying Cunha to keep him quiet, to which the president allegedly replies: “You have to keep it going, OK?” According to Globo, police also have audio and video evidence that Temer’s aide Rocha Loures negotiated bribes worth 500,000 reais (US$160,000) a week for 20 years in return for helping JBS overcome a problem with the fair trade office.

No audio or transcripts were released. The supreme court has refused to comment on the validity of the alleged leak – but the news has enraged the public. Shouts and pot-banging (a traditional form of protest in Latin America) could be heard when the allegations were aired on TV. Crowds also gathered outside the presidential palace chanting “Fora Temer” (Temer out). Two congressmen submitted impeachment motions in the lower house.

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Macron falls in line with what Berlin wants as much as Hollande did. Where’s the difference? Merkel and Schäuble like it, because now no-one will dare speak up anymore.

Get Ready For The Franco-German Revival (Pol.)

With none of the previous three presidents Merkel has sat across from in the past 12 years did the cautious chancellor achieve the deep mutual understanding and political serendipity that powered European integration in the eras of Konrad Adenauer and Charles de Gaulle, Helmut Schmidt and Valéry Giscard d’Estaing, or Helmut Kohl and François Mitterrand. Macron promised to be a “frank, direct and constructive partner” for Berlin. If he can convince Merkel to revive the frequent, unscripted, plain-speaking meetings between French and German leaders of the past, it will be a crucial step toward setting a joint agenda for Europe. July’s joint cabinet session — where both defense and the economy will be on the agenda — will be a first test of the promised Franco-German revival.

Macron has made it clear he intends to use France’s major contribution to European defense and security as a lever to help secure progress in the eurozone. But his influence in Berlin, as he acknowledged, will depend on his ability to break the rigidities in the French labor market and put the country’s young people to work. He will need to overcome deep-seated resistance to eurozone intervention in national budget policies. The last Socialist government was as defiant as its Gaullist predecessors when the European Commission repeatedly criticized France’s excessive deficits, high tax burden on business and employment, and generous welfare and pension systems. But Macron is committed to the right track. Honoring commitments to EU-supervised economic reforms are part of his vision for a more integrated eurozone, he said in Berlin.

[..] When it comes to the eurozone, Germany will have to end its resistance to further risk-sharing to complete the EU’s banking union. And here progress is likely to be difficult. Macron will need Berlin to lift its blockade on common deposit insurance and a joint fiscal backstop for the European bank resolution fund. Finance Minister Wolfgang Schäuble — who has expressed support for some of Macron’s ideas — will hold both steps hostage at least until after the German general election in September. Schäuble is holding out for a very different form of eurozone governance, in which an inter-governmental (i.e. German-controlled) European Monetary Fund, built on the existing European Stability Mechanism, would impose automatic debt restructuring and an austerity program on any eurozone country that needed assistance.

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Can Tsipras impose cuts when they violate his constitution? Can the Troika?

Greek Parliament Committee Finds Salary, Pension Cuts Unconstitutional (GR)

The Parliamentary Scientific Committee in its new report that accompanies the new omnibus bill expressed concern over the constitutionality of the provisions of Law 4387/2016 that calls for new cuts to pensions and special salaries. According to Professor and former SYRIZA lawmaker Alexis Mitropoulos, the report was posted on the parliament site shortly after midnight on Tuesday. Mitropoulos spoke on Ant1 television on Wednesday saying that, “After the recent Court of Audit decision, and following a long meeting, the committee found that the cuts in special wages, pensions and taxation were found to be unconstitutional.”

The new bill includes deep cuts in pensions and slashes in salaries of army and police personnel, sectors where special salary regulations apply. “The proposed reductions disrupt the balance that must exist between, on the one hand, the pension as a personal asset, which is protected by Article 1 and, on the other, of the public interest,” the report says regarding the pension cuts. As for cuts in special salaries, the report argues that, the cuts “are part of a wider fiscal adjustment program containing a package of measures to revive the Greek economy and consolidate public finances” but their implementation “is a necessary but not sufficient condition for the constitutionality of these cuts.”

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A child can tell that this is nonsense:

Growth predicted at “..2.1% this year and 2.5% in 2018, and continuing at a similar pace until 2060(!)..”. While the demanded budget surplus is 3.5% for the next 5 years. Which guarantees the growth predictions won’t be achieved.

Deal On Greece Is Touch And Go (K.)

A senior eurozone official put on Wednesday the chances of a complete agreement on Greece being reached at this Monday’s Eurogroup meeting at 50%, while many issues remain open and the negotiation battle at this stage is mainly between Berlin and the IMF. The official also reiterated that there will be no tranche disbursement without the IMF agreeing to participate in the Greek program. There are three scenarios on the negotiating table, according to two eurozone officials who took part in last Monday’s Euro Working Group. All three provide for the primary budget surplus to remain at 3.5% of GDP until 2022, showing that this is not negotiable anymore.

The main obstacle to an agreement among Greece’s creditors is that they disagree on the rate of Greek growth in the coming years, a key parameter for the extent of Greek debt easing. The first scenario provides for growth to match the European Commission’s estimates for 2.1% this year and 2.5% in 2018, and continuing at a similar pace until 2060. If there is a primary surplus of 2-2.6% of GDP, then the measures agreed last May will suffice to make the Greek debt sustainable. According to the second scenario, growth will be below even the IMF forecast and will not exceed 1% per year in the long term. That should take the primary surplus down to 1.5% of GDP from 2023, and more measures will be needed to render the debt sustainable. The third scenario is similar to the second, but the growth forecast is slightly higher, at 1.25%.

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Forget about hoping Brussels is looking for a solution NOT located in southern Libya. Just imagine what you would do if this was your child.

Traffickers, Smugglers Exploit Record Rise In Unaccompanied Child Refugees (G.)

A record increase in the number of refugee and migrant children travelling alone has left many exposed to sexual abuse and exploitation at the hands of traffickers and opportunists. At least 300,000 unaccompanied and separated children were recorded in 80 countries in 2015-16, a rise of almost 500% on the 66,000 documented in 2010-2011, according to a Unicef report published on Wednesday. The central Mediterranean passage is one of several migration routes identified as particularly dangerous for children. More than 75% of the 1,600 14- to 17-year-olds who arrived in Italy reported being held against their will or forced to work.

“One child moving alone is one too many and yet, today, there are a staggering number of children doing just that – we as adults are failing to protect them,” said Unicef’s deputy executive director, Justin Forsyth. “Ruthless smugglers and traffickers are exploiting their vulnerability for personal gain, helping children to cross borders, only to sell them into slavery and forced prostitution. It is unconscionable that we are not adequately defending children from these predators.” The sheer number of migrant and refugee arrivals has left states struggling to cope, with children often falling through the cracks.

Border closures, aggressive pushback measures, overcrowded shelters, makeshift camps and heavy-handed authorities have only served to exacerbate the risk of child exploitation, encouraging unaccompanied minors to take highly dangerous routes in a desperate bid to reach their destinations. One 17-year-old girl from Nigeria told Unicef that she was trapped in Libya for three months and sexually assaulted by her smuggler-turned-trafficker as she attempted to travel alone to Italy. “Everything [he] said – that we would be treated well and that we would be safe – it was all wrong. It was a lie,” she said of the man who offered to help her. “He said to me if I didn’t sleep with him, he would not bring me to Europe. He raped me.”

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Mar 162017
 
 March 16, 2017  Posted by at 9:16 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle March 16 2017
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Arthur Rothstein “Quack doctor, Pittsburgh, Pennsylvania” 1938

 

Hawaii Judge Halts Trump’s New Travel Ban Before It Can Go Into Effect (R.)
Trump Proposes Historic Cuts Across Government to Fund Defense (BBG)
Janet Yellen Explains Why She Hiked In A 0.9% GDP Quarter (ZH)
Fed Rate Hikes + Low Growth = Recession (MW)
How The Fed Rate Hike Will Impact Millions Of Americans (MW)
How Global Central Banks Have Set Interest Rates Since 2008 (Tel.)
Beware the Debt Ceiling (BBG)
Amazon Is Going To Kill More American Jobs Than China Did (MW)
PM Mark Rutte Sees Off Challenge Of Geert Wilders In Dutch Election (G.)
Northern Ireland Vote Jolts Already Disunited Kingdom (R.)
Erdogan, Europe Head for Political Blow-Up They Can’t Afford (BBG)
Turkey Protests Dutch Government by Returning 40 Holstein Cows (BBG)
Spike In Number Of Greeks Renouncing Inheritance To Avoid Taxes (K.)
New Zealand River Granted Same Legal Rights As Human Being (G.)

 

 

Not much room left to move, it would seem. And the Supreme Court is still some distance away, if the case even gets there.

Hawaii Judge Halts Trump’s New Travel Ban Before It Can Go Into Effect (R.)

Just hours before President Donald Trump’s revised travel ban was set to go into effect, a U.S. federal judge in Hawaii on Wednesday issued an emergency halt to the order’s implementation. The action was the latest legal blow to the administration’s efforts to temporarily ban refugees as well as travelers from six predominantly Muslim countries, which the President has said is needed for national security. Trump lashed out at the judge’s ruling, saying it “makes us look weak.” Trump signed the new ban on March 6 in a bid to overcome legal problems with a January executive order that caused chaos at airports and sparked mass protests before a Washington judge stopped its enforcement in February. U.S. District Judge Derrick Watson put an emergency stop to the new order in response to a lawsuit filed by the state of Hawaii, which argued that the order discriminated against Muslims in violation of the U.S. Constitution.

Judge Watson concluded in his ruling that while the order did not mention Islam by name, “a reasonable, objective observer … would conclude that the Executive Order was issued with a purpose to disfavor a particular religion.” Watson was appointed to the bench by former Democratic President Barack Obama. Speaking at a rally in Nashville, Trump called his revised executive order a “watered-down version” of his first. “I think we ought to go back to the first one and go all the way, which is what I wanted to do in the first place,” Trump said. Trump called the judge’s block “unprecedented judicial overreach” and said he will take the case “as far as it needs to go,” including to the U.S. Supreme Court. The Department of Justice called the ruling “flawed both in reasoning and in scope,” adding that the president has broad authority in national security matters. “The Department will continue to defend this Executive Order in the courts,” it said a statement.

[..] The government, in its court filings cautioned the court against looking for secret motives in the executive order and against performing “judicial psychoanalysis of a drafter’s heart of heart.” Watson said he did not need to do that, because evidence of motive could be found in the president’s public statements. He said he did not give credence to the government’s argument that the order was not anti-Muslim because it targeted only a small percentage of Muslim-majority countries. “The notion that one can demonstrate animus toward any group of people only by targeting all of them at once is fundamentally flawed,” the judge wrote.

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The military-industrial complex.

Trump Proposes Historic Cuts Across Government to Fund Defense (BBG)

President Donald Trump is proposing historically deep budget cuts that would touch almost every federal agency and program and dramatically reorder government priorities to boost defense and security spending. The president’s fiscal 2018 budget request, which will be formally delivered Thursday to Congress, would slash or eliminate many of the Great Society programs that Republicans have for decades tried to peel back while showering the Pentagon and Department of Homeland Security with new resources. Some of the deepest cuts are reserved for the agencies and programs Trump has often derided. The State Department would be hit with a 28% reduction below fiscal 2016 levels that mainly targets international aid and development assistance; the EPA would face a 30% reduction.

Also in the crosshairs are agriculture programs, clean energy projects and federal research funding. “You see reductions in many agencies as he tries to shrink the role of government, drive efficiencies, go after waste, duplicative programs,” Office of Management and Budget Director Mick Mulvaney told reporters. “If he said it in the campaign, it’s in the budget.” Trump’s proposal for $1.15 trillion in federal discretionary funding for fiscal year 2018 is certain to face vigorous opposition from lawmakers in both parties who will resist chopping favored programs, whether foreign aid, rural water projects, or development grants for Appalachia and the Mississippi Delta. In addition to a solid wall of opposition from Democrats, senior Republicans including Senate Majority Leader Mitch McConnell have raised objections to specific agency cuts even before the budget request went to the Capitol.

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It’s all about credibility. “Fighting inflationary pressures”?!

Janet Yellen Explains Why She Hiked In A 0.9% GDP Quarter (ZH)

It appears that, the worse the economy was doing, the higher the odds of a rate hike.

Putting the Federal Reserve's third rate hike in 11 years into context, if the Atlanta Fed's forecast is accurate, 0.9% GDP would mark the weakest quarter since 1980 in which rates were raised (according to Bloomberg data).

We look forward to Ms. Yellen explaining her reasoning – Inflation no longer "transitory"? Asset prices in a bubble? Because we want to crush Trump's economic policies? Because the banks told us to?

For now it appears what matters to The Fed is not 'hard' real economic data but 'soft' survey and confidence data…

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“..raising interest rates off ultralow levels during a period of tepid economic growth coincides with recessions in the following three to nine months..”

Fed Rate Hikes + Low Growth = Recession (MW)

The Federal Reserve on Wednesday lifted benchmark interest rates for only the third time in about a decade, and that has caused trepidation among some market participants. Lance Roberts, chief investment strategist at Clarity Financial, makes the case in one chart that raising interest rates off ultralow levels during a period of tepid economic growth coincides with recessions in the following three to nine months (see chart below, which compares real, inflation-adjusted, GDP to Fed interest rate levels).

The Fed lifted key rates by a quarter-point Wednesday to a range of 0.75% to 1%. The rate increase comes as the U.S. economy has been growing at a lackluster pace. Government data show that gross domestic product—the official report card of economic performance—was growing at a seasonally adjusted pace of 1.9% in the fourth quarter compared with 1.6% in 2016 and 2.6% in 2015. “Outside of inflated asset prices, there is little evidence of real economic growth, as witnessed by an average annual GDP growth rate of just 1.3% since 2008, which by the way is the lowest in history since…well, ever,” Roberts wrote in a blog post March 9 (see chart below):

Woeful productivity, defined as the average output per hour of work, has been another bugaboo for economists and the Fed, for the past six years. Higher rates could exacerbate both problems, especially since corporations tend to benefit when borrowing costs are low. Roberts told MarketWatch in a recent interview that the “Fed lifts interest rates to slow economic growth and quell inflationary pressures.” He argues that outside of a stock market that has been mostly zooming higher, “economic growth is weak.”

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Debtors get screwed, savers get some air. Sounds cute and all, but there’s so much debt out there.

How The Fed Rate Hike Will Impact Millions Of Americans (MW)

Bad news for those with credit card debt: The Federal Reserve hiked its key rate on Wednesday by a quarter%age point and, as a result, your own interest rates could rise almost immediately. The Fed raised the rate for federal funds by a quarter%age point, to 0.75% to 1% at the end of its two-day meeting on Wednesday, and signaled two further rates rises in 2017. In other words, the Fed announced an increase in how much banks will be charged to borrow money from Federal Reserve banks. (The Fed raises and lowers interest rates in an attempt to control inflation.) That increase will most likely eventually be passed on to consumers, said Sean McQuay, a credit card expert at the personal finance website NerdWallet. Many households with credit card debt — the average household carrying credit card debt has more than $16,000 — will likely take a hit. Here’s how the latest Fed rate increase could impact your credit cards and bank accounts.

Credit cards Because a rise in the federal funds rate means banks will likely pay more to borrow from the Federal Reserve, they may pass that cost on to consumers. Credit card interest rates are variable (banks and credit card companies should state that their rates are variable in the literature customers receive to learn about their cards), and they are tied to the prime rate, an index a few%age points above the federal funds rate. It is a benchmark that banks use to set home equity lines of credit and credit card rates; as federal funds rates rise, the prime rate does, too. As a result, credit card holders are likely to see their interest rates rise, and that will happen soon, said Greg McBride, the chief financial analyst at the personal finance company Bankrate, told MarketWatch.

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Written just before Yellen’s hike.

How Global Central Banks Have Set Interest Rates Since 2008 (Tel.)

After the financial crisis in 2008 central banks across the world cut their base lending rates to varying degrees, with some introducing negative rates of interest. [..] The US economy has performed strongly in recent months, leading Fed chair Janet Yellen to say that policymakers are now ready to change their stance on interest rates. The expectation is that there will be a steady hike in rates in the coming years and that, in the longer term, interest rates should be hovering around 3pc. Market traders are predicting three interest rate rise in the US this year alone. Ms Yellen has said that waiting too long to raise interest rates risked more rapid increases later if the economy started to overheat. If the Fed does see fit to continue to increase interest rates, it could signal the start of a similar pattern in other countries that have, thus far, kept rates very low since the financial crisis.

The Bank of England’s base lending rate stood at 5.75pc in July 2007 but was slashed repeatedly in the following months and years. Since March 2009 the Bank’s lending rate has been languishing below 1pc. In contrast to the expected direction of interest rates in the US, last August BoE Governor Mark Carney cut the rate again from 0.5pc to 0.25pc. [..] The ECB’s deposit rate has been at -0.4pc since early 2016 while the Swiss National Bank’s lending rate has been even lower than this. Mark Carney has said that the next move on interest rates in the UK will be an upward one but that it will be “limited and gradual”. However with the economic uncertainty surrounding Brexit it may be some time before rate rises catch up with the US. And it is likely to be some time before the ECB feels it can gamble with a significant rate rise.

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June 1 drop-off.

Beware the Debt Ceiling (BBG)

Euphoria has been pervasive in the stock market since the election. But investors seem to be overlooking the risk of a U.S. government default resulting from a failure by Congress to raise the debt ceiling. The possibility is greater than anyone seems to realize, even with a supposedly unified government. In particular, the markets seem to be ignoring two vital numbers, which together could have profound consequences for global markets: 218 and $189 billion. In order to raise or suspend the debt ceiling (which will technically be reinstated on March 16), 218 votes are needed in the House of Representatives. The Treasury’s cash balance will need to last until this happens, or the U.S. will default. The opening cash balance this month was $189 billion, and Treasury is burning an average of $2 billion per day – with the ability to issue new debt.

Net redemptions of existing debt not held by the government are running north of $100 billion a month. Treasury Secretary Steven Mnuchin has acknowledged the coming deadline, encouraging Congress last week to raise the limit immediately. Reaching 218 votes in favor of raising or suspending the debt ceiling might be harder than in any previous fiscal showdown. President Donald Trump almost certainly wants to raise the ceiling, but he may not have the votes. While Republicans control 237 seats in the House, the Tea Party wing of the party has in the past has steadfastly refused to go along with increases. The Republican Party is already facing a revolt on its right flank over its failure to offer a clean repeal of the Affordable Care Act. Many members of this resistance constitute the ultra-right “Freedom Caucus,” which was willing to stand its ground during previous debt ceiling showdowns.

The Freedom Caucus has 29 members, which means there might be only 208 votes to raise the ceiling. (It’s interesting to recall that, in 2013, President Trump himself tweeted that he was “embarrassed” that Republicans had voted to extend the ceiling.) It may be unrealistic to expect Democrats to save the day – at least initially. House Democrats may be more than happy to sit back and watch Republicans fight among themselves. If the Democrats eventually ride to the rescue, it probably won’t be until after a period of Republican-on-Republican violence. Nobody wants the Treasury to reach the point where it has to prioritize payment of interest over other obligations – a threshold where creditworthiness and market confidence will have begun to retreat. The bond market already seems to be reacting to this possibility, sending yields higher and prices lower, even as the S&P/Dow/Nasdaq have been on a tear and are showing scant concern over the potential turmoil.

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Change with an enormous impact. Do we really want this?

Amazon Is Going To Kill More American Jobs Than China Did (MW)

Amazon.com has been crowing about its plans to create 100,000 American jobs in the next year, but as with other recent job-creation announcements, that figure is meaningless without context. What Amazon won’t tell us is that every job created at Amazon destroys one or two or three others. What Jeff Bezos doesn’t want you to know is that Amazon is going to destroy more American jobs than China ever did. Amazon has revolutionized the way Americans consume. Those who want to shop for everything from books to diapers increasingly go online instead of to the malls. And for about half of those online purchases, the transaction goes through Amazon.

For the consumer, Amazon has brought lower prices and unimaginable convenience. I can buy almost any consumer product I want just by clicking on my phone or computer — or even easier, by just saying: “Alexa: buy me one” — and it will be shipped to my door within days or even hours for free. I can buy books for my Kindle, or music for my phone instantly. I can watch movies or TV shows on demand. But for retail workers, Amazon is a grave threat. Just ask the 10,100 workers who are losing their jobs at Macy’s. Or the 4,000 at The Limited. Or the thousands of workers at Sears and Kmart, which just announced 150 stores will be closing. Or the 125,000 retail workers who’ve been laid off over the past two years.

Amazon and other online sellers have decimated some sectors of the retail industry in the past few years. For instance, employment at department stores has plunged by 250,000 (or 14%) since 2012. Employment at clothing and electronics stores is down sharply from the earlier peaks as more sales move online. “Consumers’ affinity for digital shopping felt like it hit a tipping point in Holiday 2014 and has rapidly accelerated this year,” Ken Perkins, the president of Retail Metrics, wrote in a research note in December. And when he says “digital shopping,” he really means Amazon, which has increased its share of online purchases from about 10% five years ago to nearly 40% in the 2016 holiday season.

Read more …

Rutte lost big and is the winner.

PM Mark Rutte Sees Off Challenge Of Geert Wilders In Dutch Election (G.)

The Dutch prime minister, Mark Rutte, has seen off a challenge from the anti-Islam populist Geert Wilders to claim a resounding victory in parliamentary elections widely seen as a test for resurgent nationalism before key European polls. With nearly 95% of votes counted and no further significant changes expected, Rutte’s centre-right, liberal VVD was assured of 33 MPs, by far the largest party in the 150-seat Dutch parliament, national news agency ANP said. Wilders’ Freedom party (PVV) looked certain to finish second, but a long way behind on 20 seats, just ahead of the Christian Democrat CDA and liberal-progressive D66 which both ended up in third position on 19 seats. “Our message to the Netherlands – that we will hold our course, and keep this country safe, stable and prosperous – got through,” Rutte told a cheering crowd of supporters at the VVD’s election night party.

After Britain’s shock Brexit vote and Donald Trump’s presidential victory in the US, he added, the eyes of the world had been on the vote: “This was an evening when … the Netherlands said ‘Stop’ to the wrong sort of populism.” A first-place finish for the anti-immigration, anti-EU PVV would have rocked Europe. In France, the far-right leader Marine Le Pen is expected to make the second-round runoff in the presidential election in May, while the Eurosceptic Alternative für Deutschland (AfD) is on target to win its first federal parliament seats later in the year. Relieved European politicians were quick to applaud. A spokesman for European commission president Jean-Claude Juncker hailed “a vote against extremists” while French foreign minister Jean-Marc Ayrault tweeted: “Congratulations to the Netherlands for halting the advance of the far right.”

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What’s going to be left by the time Brexit is reality?

Northern Ireland Vote Jolts Already Disunited Kingdom (R.)

A nationalist surge at elections in Northern Ireland and a Scottish demand for a second independence referendum have raised doubts over whether the United Kingdom can hold together after it leaves the European Union. Last year’s referendum on EU membership saw England and Wales vote to leave while Scotland and Northern Ireland voted to remain, straining the ties that bind the UK together. Scottish leader Nicola Sturgeon dealt a blow to British Prime Minister Theresa May on Monday by demanding a new vote on independence in late 2018 or early 2019, making her move much sooner than expected. But while the Scottish issue had been well flagged since the Brexit vote, a snap provincial assembly election in Northern Ireland produced a genuine shock: for the first time since the partition of Ireland in 1921, unionists lost their majority.

Nationalist party Sinn Fein, backed by many of Northern Ireland’s Catholics, narrowed the gap with the Democratic Unionist Party, whose support base is among pro-British Protestants, to just one seat. This has revived the slow-burning question of whether Northern Ireland will stay in the United Kingdom over the long term or become part of the Republic of Ireland. This could be achieved by a referendum, often referred to as a border poll. “A border poll might be 10 years away and it might still be lost, but clearly this election has shown a different dynamic in Northern Ireland politics,” said Peter Shirlow, Director of Irish Studies at the University of Liverpool. “This opens the door for a different scenario.”

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No visa-free travel either.

Erdogan, Europe Head for Political Blow-Up They Can’t Afford (BBG)

Politicians in Turkey and the European Union stoking tensions for short-term electoral gain may have done lasting damage to vital economic and security ties. While relations between the EU and Turkey have been rocky for years, the furor of recent days – with Turkish President Recep Tayyip Erdogan freely hurling the Nazi epithet at his western antagonists – marks a rift that could prove irreparable. Turkey has been negotiating EU membership since 2005, but progress has come close to a halt. “Even without anyone saying it, Turkey’s EU membership talks will go into an irreversible coma now,” said Marc Pierini, who served as the EU’s ambassador to Turkey from 2006-2011 and is a visiting scholar at Carnegie Europe, a Brussels-based think tank. “That will suit everybody, except Turkey’s democrats.”

[..] Pierini sees a wider clash between two populisms – one anti-Muslim in Europe, and the other fighting for the Islamization of the secular Turkish Republic – that risks an uncontrolled downward spiral. Europe’s leaders, he said, “are losing sight of the fundamentals, that you have a counter-revolution going on in Turkey,” where Erdogan is trying to reverse the westward course on which Mustafa Kemal Ataturk set the country in 1923. Hanging in the balance is a deal struck a year ago, under which Turkey agreed to cooperate in stemming the flow of refugees from Syria. In exchange, the EU provided more than $3 billion in economic aid and pledges both to “re-energize” Turkey’s stalled membership talks and deliver visa-free travel for Turks entering the 26-nation Schengen area, both of which are increasingly politically toxic for EU leaders.

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Where it hurts.

Turkey Protests Dutch Government by Returning 40 Holstein Cows (BBG)

Two months after a Turkish butcher broke the Internet, the country’s red meat producers are trying a novel way to break the Dutch government’s resolve. Members of the Ankara-based Beef and Lamb Producers Association have sent 40 Holstein cows back to the Netherlands to show their displeasure at a decision to prevent Turkish ministers from conducting political campaigning on their soil, the association’s chairman Bulent Tunc said in telephone interview. A fiery diplomatic spat has erupted between the two countries after the EU state, which is holding its own elections on Wednesday, refused access to Turkish ministers seeking to campaign on a referendum to expand President Recep Tayyip Erdogan’s powers.

While Tunc called the number of cows being shipped away “symbolic,” he spoke of widespread support for the Turkish president’s stance among association members, who number 160,000. Those involved in the cattle trade are also considering putting a stop to purchases of tractors, equipment, feed and bull semen — and extending the boycott to Austria, which Tunc accused of sharing the Dutch government’s stance. “There are many alternatives,” he said, citing Brazil and Romania as possibilities. “Turkey is a huge market for livestock imports and countries are dying to get in.”

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More Greek tragedies. Imagine having to give up age-old family homes and/or land because you can’t afford taxes.

Spike In Number Of Greeks Renouncing Inheritance To Avoid Taxes (K.)

An increasing number of people are turning their backs on properties they have inherited to avoid paying the higher taxes that accompany them, according to new data from the country’s courts which show that applications for renunciation of property rose 86.4% last year compared to 2013. According to the latest statistics, which were made public on Wednesday, a total of 54,422 such applications were lodged with the country’s local courts last year, compared to 45,628 in 2015 and 29,199 in 2013. Experts attribute the rise to the tremendous increase in property taxes that successive governments have imposed over the years as part of bailout agreements with Greece’s creditors. According to official figures, property owners paid seven times more in taxes last year compared to 2009, the year before the crisis hit.

In 2009, property taxes did not exceed €500 million, while revenue collected from property reached €3.5 billion last year. Most of those who filed documents last year to renounce their inheritance did so in the country’s major cities, with 11,655 applications recorded in Athens, 5,563 in Thessaloniki, 1,938 in Piraeus and 1,473 in Patra. People are not only giving up family houses and apartments but also plots of lands. According to Nikos Stasinopoulos, formerly the head of the association representing Greek notaries, many people in the provinces give up inherited land even when the tax they would have to pay on it is relatively small. He offered the example of one beneficiary in the region of Gortynia who gave up a plot on which he faced a €150 levy, and a second who inherited a total of 98 plots of land in the region of Larissa from his father and aunt and was “relieved” to discover that he could hand them over to the state to avoid paying tax.

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We have lost all wisdom. Only native peoples have any left.

“..all Maori tribes regard themselves as part of the universe, at one with and equal to the mountains, the rivers and the seas.”

New Zealand River Granted Same Legal Rights As Human Being (G.)

In a world-first a New Zealand river has been granted the same legal rights as a human being. The local Maori tribe of Whanganui in the north island has fought for the recognition of their river – the third-largest in New Zealand – as an ancestor for 140 years. On Wednesday, hundreds of tribal representatives wept with joy when their bid to have their kin awarded legal status as a living entity was passed into law. “The reason we have taken this approach is because we consider the river an ancestor and always have,” said Gerrard Albert, the lead negotiator for the Whanganui iwi [tribe]. “We have fought to find an approximation in law so that all others can understand that from our perspective treating the river as a living entity is the correct way to approach it, as in indivisible whole, instead of the traditional model for the last 100 years of treating it from a perspective of ownership and management.”

The new status of the river means if someone abused or harmed it the law now sees no differentiation between harming the tribe or harming the river because they are one and the same. Chris Finlayson, the minister for the treaty of Waitangi negotiations, said the decision brought the longest-running litigation in New Zealand’s history to an end. “Te Awa Tupua will have its own legal identity with all the corresponding rights, duties and liabilities of a legal person,” said Finlayson in a statement. “The approach of granting legal personality to a river is unique … it responds to the view of the iwi of the Whanganui river which has long recognised Te Awa Tupua through its traditions, customs and practise.” Two guardians will be appointed to act on behalf of the Whanganui river, one from the crown and one from the Whanganui iwi.

Albert said all Maori tribes regarded themselves as part of the universe, at one with and equal to the mountains, the rivers and the seas. [..] “We can trace our genealogy to the origins of the universe,” said Albert. “And therefore rather than us being masters of the natural world, we are part of it. We want to live like that as our starting point. And that is not an anti-development, or anti-economic use of the river but to begin with the view that it is a living being, and then consider its future from that central belief.”

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Feb 042017
 
 February 4, 2017  Posted by at 10:24 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Henri Cartier Bresson Paris 1952

Judge Blocks Trump Travel Ban Nationwide (ZH)
Airlines Told To Allow Banned Travelers Into US After Judge’s Order (G.)
Trump’s Travel Ban Has Revoked 60,000 Visas For Now (R.)
If Americans Truly Cared About Muslims, They Would Stop Killing Them (BAR)
Iran To Name US Individuals Involved In ‘Helping And Founding’ Terrorists (ZH)
EU Flirts With Hypocrisy In Criticising Trump’s Refugee Ban (EUO)
America Is Shedding Its Whole Middle Class (Jim Kunstler)
Vancouver Home Sales Plummeted 40% In 2016 On Foreign Buyer Tax (AFR)
Amazon Accounts For 43% Of US Online Retail Sales (BI)
UniCredit Writedowns Ring Alarm Bells For Italian Banks (R.)
Euro Too Weak For Germany But Too Strong For Others (R.)
Eurocrats ‘Beg States To Agree To Deeper Integration To Save The Bloc’ (Exp.)
Grexit? Greece Again On The Brink As Debt Crisis Threatens Break With EU (G.)

 

 

“It’s a case of that magnitude, it’s a case that frankly I think will ultimately end up before the U.S. Supreme Court, so that would not surprise me one way or the other.”

Judge Blocks Trump Travel Ban Nationwide (ZH)

Following a brief moment of ‘success’ for the Trump administration as a Boston judge ruled Trump’s immigration policy was not a Muslim ban, a Bush-appointed federal judge in Seattle, who said the states of Washington and Minnesota can sue claiming their residents were harmed by the ban, granted a nationwide temporary restraining order blocking Trump’s immigration ban. District Judge James Robart ruled the executive order would be stopped nationwide effective immediately: his ruling was the most comprehensive legal rebuke of Trump’s Jan. 27 executive order prohibiting immigrants from Iran, Iraq, Syria and four other nations from entering the U.S. for 90 days. Judges in Brooklyn, New York, Los Angeles and Alexandria, Virginia, had previouslyissued orders that are less sweeping.

Washington Attorney General Bob Ferguson was delighted with the decision: “The Constitution prevailed today,” Ferguson said in a statement after the ruling. “It is not the loudest voice that prevails on the Constitution,” Ferguson continued speaking outside the courthouse. “We are a nation of laws, not even the president can violate the Constitution. It’s our president’s duty to honor this ruling and I’ll make sure he does,” Ferguson added hopefully. Good luck with that. In his ruling, Robart said that “the state has met its burden in demonstrating immediate and irreparable injury” while Fergsuon added that “Judge Robart’s decision, effective immediately, effective now, puts a halt to President Trump’s unconstitutional and unlawful executive order. It puts a stop to it immediately, nationwide.” The court order, effective immediately, will remain in place until the judge considers a motion – probably within a month – to permanently invalidate the president’s order, Ferguson said.

Ferguson, a Democrat, filed the lawsuit three days after Trump signed the executive order. The suit argued that the travel ban targets Muslims and violates constitutional rights of immigrants and their families. In his request for the order, according to Bloomberg, Ferguson had said the effects on the state included economic consequences for employers based there, including Microsoft, Starbucks and Amazon.com. Expedia, based in Bellevue, Washington, had about 1,000 customers with flight reservations in or out of the U.S. from the seven countries, he said. Minnesota, like Washington, cited the effect of the ban on students at its colleges and universities, as well as health care centers including the Mayo Clinic. The state’s 5.4 million residents included 30,000 immigrants from the affected countries, it said in the lawsuit.

According to The Hill, in a phone interview with CNN Friday evening, Ferguson said he “expected win, lose or draw” that the case would move “fairly quickly through, up to the Ninth Circuit” Court of Appeals – “just because of the magnitude of the executive order.” And hinting that the Supreme Court showdown we suggested previously now appears inevitable, Ferguson added that he is “prepared for this case to go all the way to the Supreme Court whichever way the Ninth Circuit Court of appeals goes,” he said, anticipating a challenge to Robart’s ruling. “It’s a case of that magnitude, it’s a case that frankly I think will ultimately end up before the U.S. Supreme Court, so that would not surprise me one way or the other.”

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Trump’s legal team senses difficulties ahead: “..The justice department later said it would not immediately file for an emergency stay..”

Airlines Told To Allow Banned Travelers Into US After Judge’s Order (G.)

Customs officials have reportedly told US airlines that they can board passengers who had been barred from entering the country after a federal judge in Seattle ordered a temporary halt on Donald Trump’s travel ban for refugees and people from seven predominantly-Muslim nations. District judge James Robart granted a temporary restraining order on Friday after hearing arguments from Washington state and Minnesota that the president’s order had unlawfully discriminated against Muslims and caused unreasonable harm. It was not immediately clear whether authorities would comply with the broad order, especially after officials reacted in confusion a week earlier, detaining valid visa holders and arguing with lawyers.

Late on Friday, the White House released a statement saying that it would seek an emergency stay against Robart’s ruling; an earlier request for a stay by a justice department attorney had been denied by the judge. “At the earliest possible time, the Department of Justice intends to file an emergency stay of this outrageous order and defend the executive order of the President, which we believe is lawful and appropriate. The president’s order is intended to protect the homeland and he has the constitutional authority and responsibility to protect the American people,” press secretary Sean Spicer said. In a second “updated” statement, the White House removed the word “outrageous”. The justice department later said it would not immediately file for an emergency stay, at least on Friday night, and reports said Customs and Border Protection (CBP) had informed US airlines that they should board travelers who had been barred by an executive order last week.

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Looks like the worst of the chaos may be over. Trump can’t afford too many court battles, certainly if he loses them. He’s being told to confer with the lawyers first now.

Trump’s Travel Ban Has Revoked 60,000 Visas For Now (R.)

About 60,000 visas were revoked under U.S. President Donald Trump’s executive order temporarily halting immigration from seven Muslim-majority countries, the State Department said on Friday, in one of several government communications clarifying how the order is being rolled out. The revocation means the government voided travel visas for people trying to enter the United States but the visas could be restored later without a new application, said William Cocks, a spokesman for consular affairs at the State Department. “We will communicate updates to affected travelers following the 90-day review,” he said. Earlier news reports, citing a government attorney at a federal court hearing, put the figure at more than 100,000 visas.

The government issued over 11 million immigrant and non-immigrant visas in fiscal year 2015, the State Department said. The immigration executive order signed by Trump a week ago temporarily halted the U.S. refugee program and imposed a 90-day suspension on people traveling from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen. Trump said the measures would help protect Americans from terrorist attacks. Under President Barack Obama, Trump’s predecessor, the United States added those seven countries as “countries of concern” under its visa waiver program, effectively toughening U.S. visa procedures for individuals who visited those places during the past five years.

Trump’s executive order was at least in part informed by those restrictions. The new president, who took office on Jan. 20, went further by temporarily barring passport holders from those seven countries. The State Department first issued the guidance about revoking the visas on Jan. 27, the day Trump signed his executive order, according to a memo filed in a court case in Massachusetts. But confusion about the roll out of the order sparked protests at airports across the country where people had been detained and led to a wave of lawsuits filed by individuals, states and civil rights groups.

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“.. so much American hatred is directed at Muslims that Democrats and establishment Republicans must struggle to keep the Russians in the “hate zone” of the American popular psyche.”

If Americans Truly Cared About Muslims, They Would Stop Killing Them (BAR)

In the most dramatic expression of insider opposition to a sitting administration’s policies in generations, over 1,000 U.S. State Department employees signed on to a memo protesting President Donald Trump’s temporary ban on people from seven predominantly Muslim countries setting foot on U.S. soil. Another recent high point in dissent among the State Department’s 18,000 worldwide employees occurred in June of last year, when 51 diplomats called for U.S. air strikes against the Syrian government of President Bashar al Assad. Neither outburst of dissent was directed against the U.S. wars and economic sanctions that have killed and displaced millions of people in the affected countries: Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen.

Rather, the diplomatic “rebellion” of last summer sought to pressure the Obama administration to join with Hillary Clinton and her “Big Tent” full of war hawks to confront Russia in the skies over Syria, while the memo currently making the rounds of State Department employees claims to uphold “core American and constitutional values,” preserve “good will towards Americans” and prevent “potential damage to the U.S. economy from the loss of revenue from foreign travelers and students.” In neither memo is there a word of support for world peace, nor a hint of respect for the national sovereignty of other peoples – which is probably appropriate, since these are not, and never have been, “core American and constitutional values.” “The diplomatic ‘rebellion’ of last summer sought to pressure the Obama administration to join with Hillary Clinton and her ‘Big Tent’ full of war hawks to confront Russia in the skies over Syria.”

Ironically, the State Department “dissent channel” was established during one of those rare moments in U.S. history when “peace” was popular: 1971, when a defeated U.S. war machine was very reluctantly winding down support for its puppet regime in South Vietnam. Back then, lots of Americans, including denizens of the U.S. government, wanted to take credit for the “peace” that was on the verge of being won by the Vietnamese, at a cost of at least four million Southeast Asian dead. But, those days are long gone. Since 2001, war has been normalized in the U.S. – especially war against Muslims, which now ranks at the top of actual “core American values.” Indeed, so much American hatred is directed at Muslims that Democrats and establishment Republicans must struggle to keep the Russians in the “hate zone” of the American popular psyche.

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Could be interesting.

Iran To Name US Individuals Involved In ‘Helping And Founding’ Terrorists (ZH)

Following the escalation on Friday morning, in which the US Treasury Department published a list of 13 Iranian individuals and 12 Iranian entities facing new restrictions following Iran’s recent ballistic missile test, Tehran promptly denounced the latest round of sanctions imposed by the US and said it would retaliate – something it has previously said it would do – however added a new twist when Tehran announced it would impose legal restrictions on American individuals and entities helping “regional terrorist groups”, a Foreign Ministry statement read as quoted by TV. For obvious reasons, this naming and shaming of US-based terrorists promises to be far more interesting than if Iran were to actually ban, say, the US national chess team. Such an action will quickly coalesce the world’s attention on a handful of US entities, putting under a microscope all of their offshore activities.

“The new sanctions … are not compatible with America’s commitments and resolution 2231 of the U.N. Security Council that endorsed the nuclear deal reached between Iran and six powers,” the Iranian Foreign Ministry statement said late on Friday.Tehran said it will react accordingly to any U.S. measure aimed at the Iranian nation’s interests. “In retaliation for the U.S. sanctions, Iran will impose legal restrictions on some American individuals and entities that were involved in helping and founding regional terrorist groups,” the Foreign Ministry statement said. It said names of the entities and individuals would be announced later, although it was not clear when exactly that is. As reported earlier, on Friday, the US Treasury Department blacklisted 13 individuals and a dozen businesses as part of the sanctions. The majority of the individuals in question are from Iran, as well as three Chinese nationals and two Arabs.

“Iran’s continued support for terrorism and development of its ballistic missile program poses a threat to the region, to our partners worldwide, and to the United States,” John E. Smith, acting director of the Treasury Department’s Office of Foreign Assets Control, said. He added that in countering what he called “Iranian malign activity,” Washington will not hesitate to put more pressure and restrictions “to address this behavior.” Countering rising US rhetoric, Iran’s foreign minister, Javad Zarif, said in a twitter post that “Iran unmoved by threats as we derive security from our people.” “We’ll never initiate war, but we can only rely on our own means of defense,” he stressed. Iran’s Defense Minister Brigadier General Hossein Dehqan noted that Tehran “will not allow foreigners to interfere” in the country’s defense issues and insisted “the test did not violate the nuclear deal or (UN) Resolution 2231.”

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Understatement of the year.

EU Flirts With Hypocrisy In Criticising Trump’s Refugee Ban (EUO)

The EU rightly spoke out against Donald Trump’s entry ban on asylum seekers from Syria. But its own track record leaves much to be desired. EU foreign policy chief Federica Mogherini said on Monday (Jan 30) that the EU would continue to host refugees. “It’s our identity: we celebrate when walls are brought down and bridges are built,” she said in a tweet. Her comments appeared the same day a young man from Pakistan suffocated to death in a tent at the Moria camp on the Greek island of Lesbos. He was trying to keep warm. It was the third death at the camp in a week. The misery of people is well documented in so-called hotspots set up by the EU in both Italy and in Greece. The conditions are so bad that many, including Syrian refugees, have volunteered to return to Turkey from the Greek islands.

The EU blames the Greek government. The Greek government blames EU states for not relocating asylum seekers and for sealing off the Western Balkan route. When Hungary erected a wall on its border with Serbia, the European Commission said it was a national issue. When a Syrian refugee protested against the barrier, Hungarian authorities gave him a 10-year prison sentence. The EU talks endlessly about solidarity. But in reality, solidarity does not exist except among the nameless volunteers on the ground. And some of those are risking jail for their efforts. One Danish woman went on trial for people-smuggling after giving a family of refugees a ride to Copenhagen. A similar case is unfolding in Sweden. Only around 10,000 people have been relocated from Italy and Greece to other EU states.

The two-year scheme, which ends in September, had called for 160,000. Many more have been kicked out. Almost 11,000 people were sent home last year, a four-fold increase compared with 2015 when 3,565 migrants were returned in 66 operations. Both EU commission and member states now appear to oppose issuing humanitarian visas for people in need. Germany may stand out as an exception after welcoming some 1 million in 2015. But the fact that the world’s richest nations are unwilling to properly care for the thousands stranded in Greece and on its islands is a disgrace. The task has largely been delegated to volunteers, NGOs and international aid organisations. With populist parties gaining ground in the Netherlands, France and Germany, the anti-immigrant discourse has also gone mainstream.

Dutch prime minister Mark Rutte last week told Muslims to “act normal, or go away”. France’s conservative presidential contender Francois Fillon has promised to erect national borders and German interior minister Thomas de Maiziere wants zones outside Europe to screen applicants before arrival. De Maiziere’s proposal is gaining traction. The plan is to offshore the problem to war-torn Libya. The job is already under way in a handful of other African states and Afghanistan. This is the EU’s invisible wall.

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Good to see Jim is still reading the Automatic Earth.

America Is Shedding Its Whole Middle Class (Jim Kunstler)

I guess you’ve noticed by now that the center didn’t hold. Instead of a secure platform for political premises like tradition, precedent, rationality, and cultural norms, you see a fiery maw of sheer emotion between the camps of the so-called Left and the so-called Right. I say so-called because the campus Left and the Trump Right have escaped the categorical corrals they formerly occupied. And they may have left their customary official parties stranded and dying too. It may be fatuous to say whether that is a good or bad thing; it just is, for the moment. They are two halves of a polity so broken and so far apart that it is also hard to see how they might ever come back together into a consensus about how a society might operate successfully.

Not having a consensus — some substantial overlap between circles of perspective — it’s not surprising that America can’t construct a coherent view of what is happening, or make a plan for what to do about it. Mainly what’s happening is the running down of fossil fuel based techno-industrial economies, and the main symptom is falling standards of living, with fading prospects for future happiness and security. As I’ve said before, our economic picture is basically untenable due to the falling energy-return-on-investment of the crucial oil supply. At the high point of 1920s oil production the ratio was around 100-1. The shale oil “miracle” is good for about 5-1. The aggregate of all oil these days is under 30-1. Below that number, you’ve got to shed some activities in our complex economy (or they just get too expensive to support) — things like high-paying labor jobs, medical care, tourism, college, commuting, heating 2500 square foot homes…).

Oddly the way it’s actually working out is that America is simply shedding its whole middle class and all its accustomed habits and luxuries. At least that’s how it adds up in effect. Naturally, that produces a lot of bad feeling. President Trump is unlikely to be able to fix that essential problem, unless he can pilot the whole political-economy into a glide-path leading toward neo-medievalism — what I call the World Made By Hand. Trump’s call for restoring the factory economy of 1962 is a low-percentage prospect. Instead, he’ll be saddled with the collateral damage caused by the dishonest effort of his recent predecessors to borrow from the future to pay for the way we live now — that is, racking up debt.

This mighty debt-load, never before seen in history, and the accounting fraud that enables it, has helped produce all kinds of distortions, perversities, and fragilities in our money system (finance and banking) which can easily slip into collapse if a crucial prop fails here or there, and that is exactly what I think will happen under Trump. It will not be his fault, but he’ll get blamed for it. And when it happens, he won’t be able to give his attention to anything but that.

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People don’t recognize it yet, but this is how you spell success.

Vancouver Home Sales Plummeted 40% In 2016 On Foreign Buyer Tax (AFR)

Home sales in Vancouver plummeted 39.5% in January from a year ago and fell 11% from December, five months after the government slapped a tax on foreign buyers. January marked the sixth consecutive month of falling sales in Canada’s hottest real estate market, where an influx of mainly Chinese offshore buyers has helped push the price of a typical home to more than 12 times the median resident’s household income. Vancouver topped a list of cities around the world that UBS has identified as most at risk of a housing bubble. Sydney placed fourth after London and Stockholm. The Real Estate Board of Greater Vancouver said the monthly sales – 1523 homes sold in January – marked a 10.3pc drop on the 10-year average for the month.

‘It’s a lukewarm start to the year compared to 2016,” said Dan Morrison, the board’s president. “While we saw near record-breaking sales at this time last year, home buyers and sellers are more reluctant to engage so far in 2017.” The government of British Columbia – Vancouver is the province’s biggest city – acted last year to cool the market, slapping a new 15% tax on offshore buyers in August. The average benchmark price for detached properties in the Pacific port has fallen 17.8% to $C1,474,800 from a record high of $C1.83 million in January 2016. The average price has fallen 6.6% in the past six months and edged 0.6% lower from December. The composite benchmark price for all residential properties – detached, units and townhomes – has fallen 3.7% since June.

The BC Ministry of Finance earlier reported that the %age of sales in Vancouver to foreign residents had plummetted since the new foreign buyers’ tax went into effect on August 2. In September, foreign purchasers were involved in 1.3% of all transactions in the city of 1.5 million people. “From June 10 to August 1, the period before the additional tax took effect, foreign purchasers were involved in 13.2% of residential property transfers in Metro Vancouver,” a ministry statement said.

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Companies like Google, Facebook and Amazon have become far too big for anyone’s good. Time to cut them down to size.

Amazon Accounts For 43% Of US Online Retail Sales (BI)

An analysis by Slice Intelligence released this week found that 43% of all online retail sales in the US went through Amazon in 2016, as the e-commerce giant’s market share continues to grow. According to the study, which analyzed more than 4 million online purchases, Amazon accounted for the majority (53%) of the growth in US e-commerce sales for the year. Simply put, Amazon’s already dominant share of the US e-commerce market is only increasing. It reportedly captured 33% of all US online purchases in 2015, according to Internet Retailer, up from 25% in 2012. If those estimates are correct, then the company increased its share of the US e-commerce market by 10% in 2016, an incredible accomplishment given that it already controlled such a sizeable chunk of the space.

Slice said that Amazon’s growth in 2016 was driven by sales in the electronics, home, and apparel categories. Electronics contributed to an estimated 18% of the company’s sales growth in 2016, as the number of US households that own an Amazon Echo device more than doubled from 2015. The next biggest contributors were the home and kitchen category (15%), apparel and accessories (12%), food (11%), and health and beauty (10%), illustrating that Amazon is seeing significant growth in consumer packaged goods (CPGs). The company’s recent expansion of its Dash Buttons to its online site and mobile app should help fuel further growth in these categories. Amazon’s success has also been fueled by high customer loyalty and brand awareness.

The Amazon Prime subscription service continues to grow: One study released last September by Consumer Intelligence Research Partners found that 20% of all US consumers are Prime members. Meanwhile, an Internet Retailer survey of 500 US consumers last December found that more than half of them (52%) go directly to Amazon when they shop online. Although the company faces a wide range of competition in the e-commerce market from both legacy retailers and new entrants, none of them can match Amazon’s customer loyalty and brand awareness when it comes to online shopping. Other online retailers will have to build up their brand awareness to compete with Amazon, but they’ll also likely need to sell through Amazon’s marketplace to stay relevant as its market share keeps growing.

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Slo-mo suffocation. Much better to swallow the bitterness and start afresh.

UniCredit Writedowns Ring Alarm Bells For Italian Banks (R.)

UniCredit has heavily written down the value of its €700 million ($756 million) investment in Italy’s bank rescue fund and other investors are likely to follow suit, sources told Reuters, complicating efforts to stabilize the nation’s banking sector. Italy biggest bank has cut the value of its investment in the Atlante fund by significantly more than a third on its books, according to two sources familiar with the matter. The move is part of its plan to clean up its balance sheet before it taps the market for 13 billion euros in a share issue next week. By writing down the stake, UniCredit is indicating that it does not believe it will make money on the investment it made into the state-managed fund created to recapitalize a number of failing Italian banks and help the industry offload bad loans.

A source at another bank estimated UniCredit’s writedown could be closer to 70%. Intesa Sanpaolo, which together with UniCredit is Atlante’s biggest investor, on Friday said it had written down the value of its stake in the fund by 33%. A group of about half a dozen other banks that have invested in Atlante have held a series of meetings in recent days to discuss the scale of their own possible writedowns, said another source with direct knowledge of the talks. They are also likely to write down their investments by 30%, according to the source, who did not name the lenders. Atlante executives have acknowledged that the value of investments has fallen but have said the fund created last April has an investment horizon of five years and aims to create value for its backers over that period.

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And that in a nutshell is what condemns the single currency.

Euro Too Weak For Germany But Too Strong For Others (R.)

In an attack on Germany, U.S. President Donald Trump’s top trade adviser said the euro was “grossly undervalued”, a charge which may ring true for the German economy but not for the 19-member currency zone as a whole. The adviser, Peter Navarro, said Germany, the euro zone’s economic powerhouse, was exploiting the euro exchange rate for trade purposes, a charge rejected by German Chancellor Angela Merkel. There’s no clear method of establishing how much a currency is under or overvalued but many economists think that some economic measures show the German economy could easily cope with a stronger euro. It hit a 14-year low of $1.0339 last month. Even German Finance Minister Wolfgang Schaeuble said on Friday the single currency could be a bit stronger for Germany.

But he agreed with economists that this would make life hard for other euro members. For weaker economies such as Greece, economic measures show the exchange rate is too strong, and for the whole currency area it is only moderately underpriced. “The euro is below most estimates of fair value. And German exporters appear to be benefiting more than most,” said Jennifer McKeown at Capital Economics. The White House is concerned about the exchange rate because German companies sell cars, vehicle parts, pharmaceuticals, planes and helicopters around the world, competing with American, as well as other European, manufacturers. Exports account for nearly half Germany’s economic output, with 9.5% going to the United States and around 35% to euro zone countries.

In 2015, the United States became the top destination for German exports, overtaking France for the first time since 1961 due to an upturn in the U.S. economy but also due to the weaker euro. The currency has lost more than 20% of its value against the U.S. dollar since mid 2014. A handful of recent reports found that while the euro was undervalued for Germany it was too strong for other countries. The World Price Index (WPI) published by research firm World Economics each month found that the euro was undervalued on a purchasing power parity basis, a measure that takes into account what money can buy in two different currencies based on inflation and the cost of living. A “German euro” was nearly 17% undervalued against the dollar in PPP terms, while a “French euro” was overvalued by nearly 5%. A “Greek euro” was overvalued by 7%.

“German exporters remain the beneficiaries of a system that is causing stagnation and unemployment in the rest of Europe,” World Economics said in the report. The IMF also said last year that the euro was undervalued by anywhere from 0 to 10% for the region as a whole. But for Germany that undervaluation was anywhere between 10 and 20%, making it the most undervalued exchange rate for any of the 29 countries and jurisdictions around the world covered in the report.

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The last gasps: ..Mr Tusk will reportedly urge leaders to pledge allegiance to the crumbling Brussels bloc..”

Eurocrats ‘Beg States To Agree To Deeper Integration To Save The Bloc’ (Exp.)

Desperate Eurocrat Donald Tusk will urge EU nations to agree to deeper integration and recommit to the sprawling superstate, a leaked report has hinted. Mr Tusk will reportedly urge leaders to pledge allegiance to the crumbling Brussels bloc and agree to “an ambitious vision” of “political consolidation”. The European Council president will cite “unprecedented external threats” during a meeting in Malta with leaders from EU nations as a reason for recommitting to the European project. According to Politico, the document which will be proposed to officials later today, says “the EU is at a historical turning point” and is “facing important internal challenges as exemplified by Brexit”. Tusk’s lackeys, along with Italian and Maltese officials, will use Friday’s meeting to draft the proposed “Rome declaration” which will outline a future vision for the bloc.

The document urges leaders to commit to “greater unity in foreign policy and more investments in our defence” and “further deepening the Economic and Monetary Union” – two key reasons why Britain chose to divorce itself from the EU. EU leaders will also be told to sign up to an ever-increasing swathe of legislative measure in June following the “Rome declaration” a few months earlier. The report moans that Trump, Brexit, terrorism, increased military expansion by Russia and the migrant crisis pose serious threats to the stability of the EU. It also details the financial instability in Greece as another hinderance to the volatile political union. It adds that the upcoming meeting in Rome in March should “offer an ambitious vision on how to preserve unity and achieve political consolidation”. The EU is set to celebrate the 60th anniversary of the Treaty of Rome – which laid the basis for “ever closer union” between nation states and which critics argue has forced countries towards a federal Europe.

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“We have become a society that has no hope, not even a slice or piece of hope for the future,” he sighed. “The only reason people want to stay in the euro is because they fear the consequences if we were to leave, but if things don’t get better that will change too.”

Grexit? Greece Again On The Brink As Debt Crisis Threatens Break With EU (G.)

Syriza, like every governing party before it, has been hollowed out by the eviscerating effects of having to apply policies that it came to power vowing to oppose. On Tuesday its parliamentary spokesman took Greeks by storm proposing that Grexit be discussed “without taboo” in the 300-member house. The once unassailable popularity of Tsipras, meanwhile, has been pummelled by the implementation of some of the harshest measures to date and few believe he has the political capital to enforce another round of austerity. “It is not a can but a bomb being kicked down the road,” said one western diplomat. “In a world where liberal values are under threat we could be looking at a very dangerous scenario where the cradle of democracy also collapses.”

Bereft of growth and battered by cuts and tax increases, Greeks have become poorer and ever more cognizant of their own insolvency in a state where sovereignty exists in little more than name. One in three now live below the poverty line and unemployment hovers around 23%. The latest impasse has not only seen emigration levels rise and non-repayment of household and business loans soar but also nostalgia for the drachma grow. That is what worries Panagopoulos, the pollster, most. What was once a minority view is changing fast, with the majority of Greeks in a recent Alco survey saying it was wrong to have joined the euro. “We have become a society that has no hope, not even a slice or piece of hope for the future,” he sighed. “The only reason people want to stay in the euro is because they fear the consequences if we were to leave, but if things don’t get better that will change too.”

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Jan 202017
 
 January 20, 2017  Posted by at 10:02 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Unknown Masterpiece 2016-7

Trump’s Tweets Are Little Different From FDR’s Fireside Chats (MW)
Fortress Washington Braces For Anti-Trump Protests, New Yorkers March (R.)
Executive Actions Ready To Go As Trump Prepares To Take Office (R.)
Mnuchin Says Long-Term Strength of US Dollar Is Important (BBG)
German Opposition Leader Calls For Security Union With Russia, End Of NATO (DW)
The ‘Ever Closer European Union’ Principle Is “Buried And Gone” (MT)
Chinese Growth Slips To 6.7% In 2016, The Slowest For 26 Years (AFP)
China GDP Beats Expectations But Debt Risks Loom (R.)
There’s an Unexplained $9 Billion Gap in India’s Cash Supply (BBG)
Amazon Is Going To Kill More American Jobs Than China Did (MW)
Stiglitz Tells Davos Elite US Should “Get Rid Of Currency” (Black)
US Government Caught Massively Fabricating Student Loan Default Data (ZH)
EU Migration Commissioner Urges NGOs To Manage Funds With Transparency (KTG)

 

 

Nice angle. Circumventing the press is nothing new.

Trump’s Tweets Are Little Different From FDR’s Fireside Chats (MW)

Donald Trump, arguably, has already changed the office of the presidency forever, with his prolific tweets, some of which, at least in the lead-up to his Friday inauguration, have endorsed specific companies, lashed out at impersonations and in some case even laid the groundwork for complex policies. Cabinet appointees have found themselves walking back his remarks with some regularity this week. Some observers embrace the transparency of the unfiltered Trump experienced on Twitter. The public wasn’t ruffled one bit when a newly elected Trump’s staff blew off the protocol for press pool reports and end-of-day signoffs. Trump’s delivery mechanism may be relatively new, but the motivation isn’t.

Circumventing the press, and even the carefully crafted press release, is a presidential tack that can be traced as far back as Franklin Delano Roosevelt’s “fireside chats,” which leveraged the radio medium to deliver Roosevelt directly into American living rooms, said Andrew Card, in an MSNBC interview. Card, White House chief of staff to the second President Bush, also served in the administrations of Ronald Reagan and George H.W. Bush. FDR delivered his first radio address on March 12, 1933, in the middle of the crisis of confidence over the U.S. banking system. The intent? Reassure the public as if the president had stopped by personally. It was only after the broadcast’s relative success that they eventually earned the “fireside chat” familiarity. Trump’s tweets are the president-elect’s way to get closer to Americans, too, said Card. And that’s not without risk. Trump’s words represent “empathy” but don’t always reflect “judgment,” said Card.

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Are they all protesting the same thing? Where were they 8 years ago?

Fortress Washington Braces For Anti-Trump Protests (R.)

Washington turned into a virtual fortress on Thursday ahead of Donald Trump’s presidential inauguration, while thousands of people took to the streets of New York and Washington to express their displeasure with his coming administration. Some 900,000 people, both Trump backers and opponents, are expected to flood Washington for Friday’s inauguration ceremony, according to organizers’ estimates. Events include the swearing-in ceremony on the steps of the U.S. Capitol and a parade to the White House along streets thronged with spectators. The number of planned protests and rallies this year is far above what has been typical at recent presidential inaugurations, with some 30 permits granted in Washington for anti-Trump rallies and sympathy protests planned in cities from Boston to Los Angeles, and outside the U.S. in cities including London and Sydney.

The night before the inauguration, thousands of people turned out in New York for a rally at the Trump International Hotel and Tower, and then marched a few blocks from the Trump Tower where the businessman lives. The rally featured a lineup of politicians, activists and celebrities including Mayor Bill de Blasio and actor Alec Baldwin, who trotted out the Trump parody he performs on “Saturday Night Live.” “Donald Trump may control Washington, but we control our destiny as Americans,” de Blasio said. “We don’t fear the future. We think the future is bright, if the people’s voices are heard.” In Washington, a group made up of hundreds of protesters clashed with police clad in riot gear who used pepper spray against some of the crowd on Thursday night, according to footage on social media. The confrontation occurred outside the National Press Club building, where inside a so-called “DeploraBall” event was being held in support of Trump, the footage showed.


JFK inaugural parade 1961

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Nice detail: “Trump plans on Saturday to visit the headquarters of the CIA in Langley, Virginia…”

Executive Actions Ready To Go As Trump Prepares To Take Office (R.)

Donald Trump is preparing to sign executive actions on his first day in the White House on Friday to take the opening steps to crack down on immigration, build a wall on the U.S.-Mexican border and roll back outgoing President Barack Obama’s policies. Trump, a Republican elected on Nov. 8 to succeed Democrat Obama, arrived in Washington on a military plane with his family a day before he will be sworn in during a ceremony at the U.S. Capitol. Aides said Trump would not wait to wield one of the most powerful tools of his office, the presidential pen, to sign several executive actions that can be implemented without the input of Congress.

“He is committed to not just Day 1, but Day 2, Day 3 of enacting an agenda of real change, and I think that you’re going to see that in the days and weeks to come,” Trump spokesman Sean Spicer said on Thursday, telling reporters to expect activity on Friday, during the weekend and early next week. Trump plans on Saturday to visit the headquarters of the CIA in Langley, Virginia. He has harshly criticized the agency and its outgoing chief, first questioning the CIA’s conclusion that Russia was involved in cyber hacking during the U.S. election campaign, before later accepting the verdict.

Trump also likened U.S. intelligence agencies to Nazi Germany. Trump’s advisers vetted more than 200 potential executive orders for him to consider signing on healthcare, climate policy, immigration, energy and numerous other issues, but it was not clear how many orders he would initially approve, according to a member of the Trump transition team who was not authorized to talk to the press. Signing off on orders puts Trump, who has presided over a sprawling business empire but has never before held public office, in a familiar place similar to the CEO role that made him famous, and will give him some early victories before he has to turn to the lumbering process of getting Congress to pass bills.

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The contradictions people seek don’t appear to exist.

Mnuchin Says Long-Term Strength of US Dollar Is Important (BBG)

Treasury Secretary nominee Steven Mnuchin told lawmakers the long-term strength of the U.S. dollar is important and said President-elect Donald Trump’s comments that the currency was too high weren’t meant as a longer-run policy. The dollar’s “long-term strength – over long periods of time – is important,” Mnuchin said in response to questions at his confirmation hearing Thursday before the Senate Finance Committee in Washington. “The U.S. currency has been the most attractive currency to be in for very, very long periods of time. I think that it’s important and I think you see that now more than ever.” At the same time, he said the greenback is currently “very, very strong, and what you see is people from all over the world wanting to invest in the U.S. currency.”

The Bloomberg Dollar Spot Index extended its gains on Thursday. The currency has appreciated more than 5% since Trump won the Nov. 8 election on expectations he will boost economic growth through tax cuts and spending increases. Trump expressed concern about the dollar’s recent appreciation in an interview with the Wall Street Journal this month, saying the currency was “too strong.” That prompted speculation that his administration might reverse longstanding tradition in the U.S. to support a strong-dollar policy. “When the president-elect made a comment on the U.S. currency, it wasn’t meant to be a long-term comment,” Mnuchin said. “It was meant to be that perhaps in the short term the strength in the currency, as a result of free markets and people wanting to invest here, may have had some negative impacts on our ability in trade.”

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You can’t keep Germany vested against Russia for too long for opaque reasons. History says so.

German Opposition Leader Calls For Security Union With Russia, End Of NATO (DW)

The parliamentary leader of Germany’s largest opposition party has urged the dissolution of the NATO alliance. Her remarks come after US president-elect Donald Trump described it as “obsolete.” German opposition leader Sahra Wagenknecht on Tuesday added her voice to calls to dissolve NATO in the wake of US President-elect Donald Trump’s controversial remarks concerning the military alliance “NATO must be dissolved and replaced by a collective security system including Russia,” Wagenknecht told Germany’s “Funke” media group. Wagenknecht, who leads the opposition Left Party in parliament, added that comments made by the future US president “mercilessly reveal the mistakes and failures of the [German] federal government.”

In an interview published by German tabloid “Bild,” Trump described NATO as an “obsolete” organization. “I said a long time ago that NATO had problems. Number one it was obsolete, because it was designed many, many years ago,” he said. “We’re supposed to protect countries. But a lot of these countries aren’t paying what they’re supposed to be paying, which I think is very unfair to the United States,” Trump added. Germany’s Left Party has previously called for warmer ties with Russia and scrapping the security alliance, measures which appear to be policy concerns for the incoming US administration. The Left Party is Germany’s largest opposition group in parliament, and holds seats in several state legislatures.

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Rutte is smart enough to feel the ghost of the times contradicting everything he ran on in the past, but he wants to use it to remain in power. Pragmatism?! It all plays into the hands of Wilders. 2 months to Dutch elections.

The ‘Ever Closer European Union’ Principle Is “Buried And Gone” (MT)

Dutch Prime Minister Mark Rutte and former European Parliament President Martin Schulz clashed over the strategy to relaunch the Union, illustrating the deep division at Europe’s helm in front of the global audience of the World Economic Forum 19 January. Hundreds of business leaders and political figures attending the Davos forum witnessed how fundamentally disunited Europeans are when they are confronted with challenges and the solutions needed to overcome them. Schulz, who stepped down as president of the European Parliament this week, praised the achievements of the past and the need to push forward EU integration. But Rutte told the Socialists and Democrats (S&D group) MEP to “leave out those romantic ideas”, adding that “that is the fastest way to dismantle Europe”.

Europe needs a “pragmatic approach and to stop lofty speeches”, Rutte said. He called for tangible results on migration, security or the internal market in the effort to create jobs. He even went as far to say that the ‘ever closer union’ principle is “buried and gone”. The ‘ever closer union’ goal is seen as the driving force behind the EU project. It was enshrined in the founding Treaty of Rome that celebrates its 60th anniversary this year. While the Dutchman said that the experiences of Helmut Kohl and François Mitterrand could not be “a model for the future”, Schulz punched back responding he was not a “romantic” but a “German”. He got an applause when he recalled how the emotional ties after World War II brought peace and prosperity to the continent.

The fight between the two started right from the get-go as Rutte insisted more efforts from France and Italy to reform their economies are needed to save Europe. He warned that if countries failed to meet their promises, it would be harder for Northern leaders like him to convince their citizens about the need to tighten their belts. “At the end, this will have a devastating impact on EU integration”, he warned. But Schulz told the Dutch leader to be “very prudent” about dictating to other countries what they should do, as this could further divide the European bloc. He said that it is the European Commission and Council, and not “several member states”, who are responsible for fiscal and macroeconomic recommendations made to national governments.

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Fake news.

Chinese Growth Slips To 6.7% In 2016, The Slowest For 26 Years (AFP)

China’s economy has grown at its slowest rate in more than a quarter-century as Beijing braces itself for an uncertain outlook that could see a trade stand-off with Donald Trump. After a tumultuous start to 2016, the country’s leaders used huge monetary stimulus to steer the world’s number two economy to hit their annual target and also record the first quarterly pick-up in two years. The Asian superpower is a crucial driver of global growth but Beijing is trying to reduce its heavy reliance on exports and state-backed investment and instead focus on domestic consumer spending to drive expansion. However, the transition has proved bumpy, with the crucial manufacturing sector struggling in the face of sagging global demand for its products and excess industrial capacity left over from an infrastructure boom.

This led to the economy growing 6.7% last year, in line with forecasts but down from 6.9% in 2015, and the worst reading since 1990. The government targeted 6.5-7.0%. The October-December increase of 6.8% also marked the first quarterly improvement since the final three months of 2014. The national statistics bureau called the figure a “good start” for the government’s goal of achieving 6.5% annual growth through to 2020. “China’s economy was within a proper range with improved quality and efficiency. However, we should also be aware that the domestic and external conditions are still complicated and severe,” the bureau said in a statement. It added that the coal and steel industries had cut overcapacity, but structural reform should be the “mainline” this year, urging policymakers to focus on “fending off risks” to stability.

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Beats expectations with a 26-year low. Wow.

China GDP Beats Expectations But Debt Risks Loom (R.)

China’s economy grew a faster-than-expected 6.8% in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year. But Beijing’s decision to prioritize its official growth target could exact a high price, as policymakers grapple with financial risks created by an explosive growth in debt. China’s debt to GDP ratio rose to 277% at the end of 2016 from 254% the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a note. The fourth quarter was the first time in two years that the world’s second-largest economy has shown an uptick in economic growth, but this year it faces further pressure to cool its housing market, the impact of government efforts at structural reforms, and a potentially testy relationship with a new U.S. administration.

“We do not expect this (Q4 GDP) rebound to extend far into 2017, when a slowdown in the property market and steps to address supply shortages in the commodity sector ought to drag again on demand and output,” said Tom Rafferty, regional China manager for the Economist Intelligence Unit. The economy expanded 6.7% in 2016, the National Bureau of Statistics said on Friday, near the middle of the government’s 6.5-7% growth target but still the slowest pace in 26 years. Economists polled by Reuters had expected 6.7% growth for both the fourth quarter and the full year. Housing helped prop up growth again in the fourth quarter, with property investment rising a surprisingly strong 11.1% in December from 5.7% in November, even as house prices showed signs of cooling in some major cities.

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The mayhem is far from over.

There’s an Unexplained $9 Billion Gap in India’s Cash Supply (BBG)

India’s unprecedented ban on high-denomination currency bills has led to a mismatch in cash supply that has flummoxed some economists and data crunchers. Indians withdrew about 600 billion rupees ($9 billion) more than the 9.1 trillion rupees of currency in circulation as of Jan. 13, according to a report submitted by the Reserve Bank of India to a parliamentary panel on Wednesday. A copy of the document was seen by Bloomberg News. “This is usually not the case,” said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai, who was a director at the RBI from 1993-2006. He added that cash with public should be lower than currency in circulation “but then you don’t have demonetization usually.”

Clarity will emerge only once the central bank reconciles and publishes final figures, he said. The central bank has refused to share the amount of invalidated bills that have been deposited and said on Jan. 5 that it is still counting the notes to eliminate errors. In a shock move late on Nov. 8, Prime Minister Narendra Modi canceled 15.4 trillion rupees of the 17.7 trillion rupees in circulation and pledged to swap the worthless notes with fresh bills. Between Nov. 9 to Jan. 13, the RBI printed about 5.53 trillion rupees of new notes and put in circulation 25,197 million bank notes aggregating 6.78 trillion rupees, taking total currency in circulation to about 9.1 trillion rupees, according to the RBI’s document on Wednesday. As on Jan. 13 the public had withdrawn close to 9.7 trillion rupees from bank counters and cash-dispensing machines, the document said.

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Apples and oranges, but still. Amazon sucks money out of communities. Support your local dealer!

Amazon Is Going To Kill More American Jobs Than China Did (MW)

Amazon.com has been crowing about its plans to create 100,000 American jobs in the next year, but as with other recent job-creation announcements, that figure is meaningless without context. What Amazon won’t tell us is that every job created at Amazon destroys one or two or three others. What Jeff Bezos doesn’t want you to know is that Amazon is going to destroy more American jobs than China ever did. Amazon has revolutionized the way Americans consume. Those who want to shop for everything from books to diapers increasingly go online instead of to the malls. And for about half of those online purchases, the transaction goes through Amazon.

For the consumer, Amazon has brought lower prices and unimaginable convenience. I can buy almost any consumer product I want just by clicking on my phone or computer — or even easier, by just saying: “Alexa: buy me one” — and it will be shipped to my door within days or even hours for free. I can buy books for my Kindle, or music for my phone instantly. I can watch movies or TV shows on demand. But for retail workers, Amazon is a grave threat. Just ask the 10,100 workers who are losing their jobs at Macy’s. Or the 4,000 at The Limited. Or the thousands of workers at Sears and Kmart, which just announced 150 stores will be closing. Or the 125,000 retail workers who’ve been laid off over the past two years.

Amazon and other online sellers have decimated some sectors of the retail industry in the past few years. For instance, employment at department stores has plunged by 250,000 (or 14%) since 2012. Employment at clothing and electronics stores is down sharply from the earlier peaks as more sales move online. “Consumers’ affinity for digital shopping felt like it hit a tipping point in Holiday 2014 and has rapidly accelerated this year,” Ken Perkins, the president of Retail Metrics, wrote in a research note in December. And when he says “digital shopping,” he really means Amazon, which has increased its share of online purchases from about 10% five years ago to nearly 40% in the 2016 holiday season. It’s only going to go higher, as Amazon aggressively targets other sectors such as groceries and even restaurants with delivery services for restaurant-prepared meals.

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Important points by Simon Black.

Stiglitz Tells Davos Elite US Should “Get Rid Of Currency” (Black)

half a world away at the World Economic Forum in Davos, Switzerland, Nobel Laureate economist Joseph Stiglitz made remarks earlier this week that the US should “get rid of currency.” He means paper currency, as in the US should not only get rid of $100 bills… but ALL paper currency– 50s, 20s, 10s, 5s, and even 1s. You guessed it. Stiglitz suggests that regular people don’t need paper money, and that it’s only useful for drug dealers, terrorists, tax evaders, and money launders. This thinking is so 20th century, and it’s simply wrong. ISIS is a great example. The US military has literally blown up more than a billion dollars worth of ISIS’s stockpiles of physical cash during airstrikes. But this hasn’t affected their terrorist activities one bit. That’s because the most notorious terrorist group on the planet famously uses both the world’s oldest currency (gold) and the world’s newest currency (Bitcoin).

Professor Stiglitz has likely never been anywhere near a terrorist, so he likely doesn’t have a clue how they conduct financial transactions. Stiglitz also relies on the old claim that cash facilitates illicit activity. Again, this thinking only highlights a Dark Ages mentality. In the today’s world, drug dealers and prostitutes accept credit cards. No matter what you’re selling on a street corner, whether it’s hot dogs or marijuana, there are plenty of solutions (like Stripe, Square, or PayPal) to easily allow anyone to accept credit card payments. But these intellectuals seem stuck in a Pablo Escobar fantasy that drug dealers have entire rooms filled with cash. What Stiglitz, and perhaps many law enforcement agencies, fail to realize is that one of the biggest tools in masking illegal activity is actually Amazon.com. Specifically, Amazon gift cards.

[..] These guys just don’t get it. Cash isn’t about tax evasion or illegal activity. It’s about having a choice. Any rational person who actually looks at the numbers in the banking system has to be concerned. In many parts of the world, banks are pitifully capitalized and EXTREMELY illiquid. This is especially the case in Europe right now where entire nations’ banking systems are teetering on insolvency. In the United States, liquidity is also quite low, and banks play all sorts of accounting games to hide their true financial condition. Plus, never forget that the moment you deposit funds at a bank, it’s no longer YOUR money. It’s the bank’s money. As a depositor, you’re nothing more than an unsecured creditor of the bank, and they have the power to freeze you out of your life’s savings without even giving you a courtesy call. Physical cash provides consumers another option. If you don’t want to keep 100% of your savings tied up in a system that’s rigged against you and has a long history of screwing its customers, you can instead choose to hold physical cash.

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Wonder what the new administration will make of this.

US Government Caught Massively Fabricating Student Loan Default Data (ZH)

Ever since 2012 we have warned that one of the biggest threats arising from the US student loan bubble – which is no longer disputed by anyone except perhaps members of the outgoing administration – is not that it is soaring at an unprecedented pace, that’s obvious for anyone with the latest loan total number over $1.4 trillion, rising at a pace of nearly $100 billion per year, but that the government – either on purpose or due to honest miscalculation – was not correctly accounting for the true extent of delinquencies and defaults. Today, we finally got confirmation that, as speculated, the US government was indeed fabricating student loan default data, making it appear far lower than it was in reality. An the WSJ reported overnight “many more students have defaulted on or failed to pay back their college loans than the U.S. government previously believed.”

The admission came last Friday, when the Education Department released a memo saying that it had overstated student loan repayment rates at most colleges and trade schools and provided updated numbers. This also means that the number of loan defaults in various cohorts is far greater than previously revealed. A spokeswoman for the Education Department said that the problem resulted from a “technical programming error.” And so, the infamous “glitch” strikes again. How bad was the data fabrication? When The Wall Street Journal analyzed the new numbers, the data revealed that the Department previously had inflated the repayment rates for 99.8% of all colleges and trade schools in the country. In other words, virtually every single number was made to appear better than it actually was. And people mock China for its own “fake data.”

According to an analysis of the revised data, at more than 1,000 colleges and trade schools, or about a quarter of the total, at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years. This is a stunning number and suggests that the student loan crisis is far greater than anyone had anticipated previously. It also means that the US taxpayer will be on the hook for hundreds of billions in government-funded loans once attention finally turns to who is expected to foot the bill for years of flawed lending practices.

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Translation: the EU has no idea, none at all, where its hundreds of millions in taxpayer funds have gone. It’s how the aid industry is set up. And the refugees still suffer for no reason other than profit, politics and greed.

EU Migration Commissioner Urges NGOs To Manage Funds With Transparency (KTG)

EU Migration Commissioner Dimitris Avramopoulos urged non-governmental organizations involved in the care of refugees and migrants to manage funds with more transparency. “NGOs must manage available funds with transparency,” Avramopoulos said on Wednesday and called on international organizations operating in the country “to step up their efforts to provide immediate assistance to those in need in the islands.” Avramopoulos was visiting the hot spot of Moria and the refugee camp of Kara on Lesvos together with Migration Minister Yannis Mouzalas and EU’s official responsible for NGOs funding, Philippe de Broers.

On his part, Mouzalas said “We covered 70% of the needs in the camps with less money than the money received by NGOs and institutional organizations.” Mouzalas added that the European Commission needed to take tight control of the funds given to NGOs for refugees and migrants. “We have asked the European Commission and the DG Echo (i.e. DG EU Humanitarian Aid and Civil Protection)” for tighter control “and we have stated that we can not we control to this money” he said. Criticism against the NGOs and international organizations comes after a bad weather front left thousands of refugees and migrants exposed to extreme weather conditions with heavy snow fall and polar cold.

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Jan 292016
 
 January 29, 2016  Posted by at 9:01 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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DPC Grand Central Station and Hotel Manhattan, NY 1903

Nikkei Ends Up After Roller-Coaster Ride On BOJ’s Rate Cut (CNBC)
US Durable Goods Orders Tumbled 5.1% in December (WSJ)
Amazon Shares Plunge 13% As Profit Misses Estimates (Reuters)
The Shipping News Says the World Economy Is Toast (BBG)
Red Ponzi Ticking (David Stockman)
China’s Debt-To-GDP Rises To A Gargantuan 346% (ZH)
The $29 Trillion Corporate Debt Hangover That Could Spark a Recession (BBG)
Capital Flight Is The Evil Twin Brother Of Currency War (MW)
Hundreds of Billions of Dollars Have Fled China. Now What? (WSJ)
China’s January Outflows Soar To Second Highest Ever (ZH)
Cracks In America’s Economy Are Growing (CNN)
How Italy’s Bad Loans Built Up (FT)
Brexit Vote To Turn UK Into ‘Safe Haven’ Triggering EU Disintegration (Tel.)
Germany Tightens Refugee Policy, Finland Joins Sweden In Deportations (Guar.)
Mass Expulsions Ahead For Europe As Refugee Crisis Grows (AP)
Why Europe’s Refugee Crisis May Be Getting Worse (BBG)
Twelve Refugees Drown As Boat Sinks Off Greek Island (Reuters)
24 Iraqi Kurdish Refugees Drown Off Greek Island (NY Times)
Italy Navy Recovers Six Bodies, Rescues 209 From Migrant Boats (Reuters)

Right. Stability is the goal.

Nikkei Ends Up After Roller-Coaster Ride On BOJ’s Rate Cut (CNBC)

Asian markets climbed, with most indexes trading up, after Japan shares took a roller-coaster ride in the immediate aftermath of the Bank of Japan’s decision to adopt a negative interest rate policy. The Nikkei 225, which traded down 0.6% before the announcement, surged as much as 3.51% soon after, before tumbling as much as 1%. It then surged to close up 2.80%, or 476.85 points, at 17,518.30. After the BOJ move, the yield on the benchmark 10-year Japan government bond (JGB) fell to a record low of 0.11% from around 0.22% before the decision. There was no quick agreement on why the market outlook on the move shifted so quickly.

Gavin Parry at Parry International Trading, suggesting that a move to negative deposit rates just after a supplementary increase in Japan’s qualitative and quantitative easing (QQE) program could have been read to mean the BOJ was running out of bullets. In its statement on Friday, the central bank said it would continue with the QQE and negative interest rate policies for “as long as it is necessary for maintaining that target in a stable manner.” Marcel Thieliant at Capital Economics thought the overall complexity of the BOJ’s move may have spurred the midday selloff. “What they did announce today will be effective. It will lead to lower rates in the money market. But some people had second thoughts once they read the statement,” he said.

He noted that the BOJ had imposed a “three-tier” system on negative rates. With the huge amount of bank reserves currently sitting with the central bank, “if they impose a negative rate on all these balances, it would have a big impact on banks’ profitability,” he said, noting that existing reserves were going to be exempted, but there was likely confusion about how the amounts subject to negative rates would be increased. The dollar-yen pair gained as much as 1.52% in the aftermath of the BOJ announcement, trading as high as 121.35, from around 118.50 before the news. The pair trimmed gains to trade around 120.82 after the Japan stock market closed.

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Recovery.

US Durable Goods Orders Tumbled 5.1% in December (WSJ)

A key measure of U.S. manufacturers’ health suffered its largest annual decline since the recession ended more than six years ago, showing how global headwinds are eroding a onetime pillar of the economy. Demand for long-lasting manufactured products made in the U.S. fell 5.1% in December from a month earlier, and declined 3.5% for all of 2015, the Commerce Department said Thursday. The annual decline in durable-goods orders is the largest outside a recession on records back to 1992. The figures add to mounting evidence the manufacturing sector is contracting. And with the dollar strengthening further this month and financial-market tumult likely threatening business confidence, a factory slowdown could last well into this year. “The entire year of 2015 was pretty much a bust for durable-goods makers,” said Michael Montgomery at IHS Global Insight.

“Industries faced stiff competition from foreign rivals for U.S. market share, and exporters faced intense pressures abroad.” Thursday’s release is in line with data from Institute for Supply Management, a group of purchasing managers, showing a nearly three-year-long expansion in manufacturing came to an end in November. And the Federal Reserve’s reading on industrial production has declined in 10 of the past 12 months, putting it off nearly 2% from its peak in December 2014. A number of forces hampered U.S. factories last year. An economic slowdown in China, Brazil and other markets for U.S. goods limited foreign demand. Meanwhile, a stronger dollar made U.S. goods more expensive overseas and foreign products relatively more affordable for American consumers. And a pullback in U.S. oil production last year reversed a recent source of strength for many metal and equipment makers.

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Plenty bubbles created by cheap money are still around.

Amazon Shares Plunge 13% As Profit Misses Estimates (Reuters)

Amazon.com posted its most profitable quarter ever on Thursday but the world’s No. 1 online retailer still managed to disappoint Wall Street by badly missing estimates, sending its shares down more than 13% in after-hours trading. The results, as well as the company’s determination to invest more in new areas and its extremely low profit margins, brought back perennial questions for investors about the company’s ability to consistently earn money. “By comparative retail standards, Amazon’s level of profitability is still painfully weak,” said Neil Saunders, head of retail analyst firm Conlumino, who is still positive on Amazon’s prospects. “For every dollar the company takes, it makes just 0.75 of a cent in profit.”

Amazon’s net profit for the fourth quarter, which includes the holiday shopping season, rose to $482 million, or $1.00 per share, in the quarter ended Dec. 31, up from $214 million, or 45 cents per share, a year earlier. That figure was held back by rising operating costs. It was well below analysts’ average forecast of $1.56 per share, according to Thomson Reuters. The company’s shares plunged 13% to $551.50 after hours on Thursday, following a 9% increase in regular trading. They are still up 80% over the past 12 months. Amazon notched its third consecutive profitable quarter for the first time since 2012, but it still left Wall Street wanting more. “The growth story that investors were looking for… clearly Amazon has not been able to live up to the hype,” said Adam Sarhan, chief executive of Sarhan Capital.

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But China grows 7%?

The Shipping News Says the World Economy Is Toast (BBG)

In October 2008, as the repercussions of the financial crisis were starting to ripple through the global economy, I noticed a press release from Swedish truckmaker Volvo saying that its European order book had fallen by more than 99% between the third quarters of 2007 and 2008 – to just 155 from 41,970. That prompted me to study various other real-world activity measures ranging from shipping to air freight, and to conclude that “the news is all bad and getting worse, fast.” The same exercise today, I’m afraid to say, leads me to a similar conclusion about the growth outlook. Here’s a chart showing what’s happening to the volume of goods being shipped in containers from China’s ports, one for the country and one for Shanghai. Both indexes are compiled by the Shanghai Shipping Exchange, and cover shipments to the rest of the world including Europe, the U.S. and Africa; activity is down more than 40% from its peak in mid-2012:

The traditional global shipping measure is called the Baltic Dry Index. Shipping purists (who rival gold bugs in their dedication to minutiae) will tell you it mostly reflects how many vessels are afloat on the world’s oceans; a glut of shipbuilding means more boats available, which drives down the cost of shipping bulk raw materials such as iron ore, steel and coal. But given the fragile state of the global economy, it’s hard to shake the feeling that the index has been trying to tell us something important about global demand in recent years:

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Dave in fine form:..China is the rotten epicenter of the world’s two decade long plunge into an immense central bank fostered monetary fraud..”

Red Ponzi Ticking (David Stockman)

There is something rotten in the state of Denmark. And we are not talking just about the hapless socialist utopia on the Jutland Peninsula – even if it does strip assets from homeless refugees, charge savers 75 basis points for the deposit privilege and allocate nearly 60% of its GDP to the Welfare State and its untoward ministrations. In fact, the rot is planetary. There is unaccountable, implausible, whacko-world stuff going on everywhere, but the frightful part is that most of it goes unremarked or is viewed as par for the course by the mainstream narrative. The topic at hand is the looming implosion of China’s Red Ponzi; and, more specifically, the preposterous Wall Street/Washington presumption that it’s just another really big economy that overdid the “growth” thing and is now looking to Beijing’s firm hand to effect a smooth transition.

That is, an orderly migration from a manufacturing, export and fixed investment boom-land to a pleasant new regime of shopping, motoring, and mass consumption. Would that it could. But China is not a $10 trillion growth miracle with transition challenges; it is a quasi-totalitarian nation gone mad digging, building, borrowing, spending and speculating in a magnitude that has no historical parallel. So doing, It has fashioned itself into an incendiary volcano of unpayable debt and wasteful, crazy-ass overinvestment in everything. It cannot be slowed, stabilized or transitioned by edicts and new plans from the comrades in Beijing. It is the greatest economic trainwreck in human history barreling toward a bridgeless chasm.

And that proposition makes all the difference in the world. If China goes down hard the global economy cannot avoid a thundering financial and macroeconomic dislocation. And not just because China accounts for 17% of the world’s $80 trillion of GDP or that it has been the planet’s growth engine most of this century. In fact, China is the rotten epicenter of the world’s two decade long plunge into an immense central bank fostered monetary fraud and credit explosion that has deformed and destabilized the very warp and woof of the global economy. But in China the financial madness has gone to a unfathomable extreme because in the early 1990s a desperate oligarchy of despots who ruled with machine guns discovered a better means to stay in power. That is, the printing press in the basement of the PBOC – and just in the nick of time (for them).

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What did I say about that devaluation bomb?

China’s Debt-To-GDP Rises To A Gargantuan 346% (ZH)

In early 2015, after years of China’s massive debt pile being roundly ignored by most so-called experts (despite being profiled here many years prior), McKinsey released a report showing that not only has the world not delevered since the financial crisis, adding well over $60 trillion in debt (through 2016), but also revealing in a format so simple even an economist could grasp it, just how massive China’s all-in leverage has become. Many were shocked when they read that China’s total debt/GDP had risen by 125% in under 7 years, hitting 282% as of Q2 2014. Those same people may be just as shocked to learn that according to the head of financial markets research Asia Pacific at Rabobank, Michael Every, not only has China not begun to delever at all, but since McKinsey’s update, its debt has risen by another 70% of GDP!

According to Every, China’s 2015 debt-to-GDP might be as high as 346%, and while that is in line with wealthier developed economies but is “vastly higher” than any EM peer. Cited by Bloomberg, Every adds that the time-frame for debt accumulation pre-crisis varies, but what always follows is a major currency drop afterwards, as has happened even with reserve currencies such as dollar, yen, euro and pound. He also adds that nominal GDP needs to rise faster than debt for a sustained period if deleveraging is to truly be under way, aka Dalio’s beautiful deleveraging thesis. The problem, however, is that with even Goldman admitting that China’s real GDP growth rate is about 4.5%, China’s debt load is rising orders of magnitude faster than its underlying economy and is on the daily verge of entering the final phase of the Minsky Moment breakdown.

While no surprise to people with common sense, Every concludes that debt must be repaid with interest, which acts as a drag on economic activity, and is the reason why such monstrous debt loads always lead to an economic collapse; making matters worse is that in China cheap credit is channeled to state-owned firms with low or no profitability. So what happens next? Every believes that China has no choice but to proceed with a massive devaluation, far bigger than the prevailing consensus, and expects the Yuan to plunge to 7.60 against the dollar over the next year.

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But wait: if we make interest rates negative, we can make money on being in debt, right?

The $29 Trillion Corporate Debt Hangover That Could Spark a Recession (BBG)

There’s been endless speculation in recent weeks about whether the U.S., and the whole world for that matter, are about to sink into recession. Underpinning much of the angst is an unprecedented $29 trillion corporate bond binge that has left many companies more indebted than ever. Whether this debt overhang proves to be a catalyst for recession or not, one thing is clear in talking to credit-market observers: It’s a problem that won’t go away any time soon. Strains are emerging in just about every corner of the global credit market. Credit-rating downgrades account for the biggest chunk of ratings actions since 2009; corporate leverage is at a 12-year high; and perhaps most worrisome, growing numbers of companies – one third globally – are failing to generate high enough returns on investments to cover their cost of funding.

Pooled together into a single snapshot, the data points show how the seven-year-old global growth model based on cheap credit from central banks is running out of steam. “We’ve never been in a cycle quite like this,” said Bonnie Baha, a money manager at DoubleLine Capital in Los Angeles, which oversees more than $80 billion. “It’s setting up for an unhappy turn.” While not as pronounced as the rout in global equity markets, losses are beginning to pile up in the bond market too. The average spread over benchmark government yields for highly rated debt has widened to 1.84 percentage points, the most in three years, from 1.18 percentage points in March, according to Bank of America Merrill Lynch indexes.

Investors lost 0.2% on global corporate bonds in 2015, snapping a string of annual gains that averaged 7.9% over the previous six years, the data show. Debt at global companies rated by Standard & Poor’s reached three times earnings before interest, tax, depreciation and amortization in 2015, the highest in data going back to 2003 and up from 2.8 times last year, according to the ratings company. Total debt at listed companies in China, the world’s second-largest economy, has climbed to the highest level in three years, according to data compiled by Bloomberg. Worsening debt profiles contributed to S&P downgrading 863 corporate issuers last year, the most since 2009. More than a third of commodity and energy companies have ratings with negative outlooks or are on credit watch with negative implications, S&P said.

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“The problem, however, is that China’s competitors are employing the same tactics and their currencies have more or less shadowed the yuan’s movements against the dollar..”

Capital Flight Is The Evil Twin Brother Of Currency War (MW)

A currency war is not all it’s cracked up to be. That is the verdict from Citi’s currency expert Steven Englander, who argues that efforts by central banks to devalue their currencies to maintain an edge over competing economies are not as effective as many are led to believe. “Policy makers and investors talk about currency depreciation as if it is the ultimate weapon of economic policy, but that overstates its importance in driving activity,” said Englander in a report. “The economic bang for the depreciating buck, or yen or euro is relatively small.” The currency strategist stressed that engaging in a currency war is mostly an exercise in futility, in part because it is not all that effective as a monetary tool. “You have to go much further than you think for much longer than you think,” he said.

And if a country has to rely on manipulating the exchange rate to prop up the economy, then it may be in worse trouble than those in charge want to admit, according to Englander. While the criticism was not specifically directed at China, the observation coincides with a continuing debate over how far Beijing will go to weaken its currency in a bid to prop up its flagging economy. Economists generally expect the Chinese government to depreciate the renminbi to bolster export competitiveness to combat a sharp economic slowdown. The People’s Bank of China officially projected GDP to grow 6.8% in 2016 versus 6.9% last year with some economists projecting GDP growth to decelerate to around 6.5%. The problem, however, is that China’s competitors are employing the same tactics and their currencies have more or less shadowed the yuan’s movements against the dollar, according to Englander.

“If the trading partners keep matching CNY depreciation at this pace, CNY will have to go a long way before any material competitive advantage emerges,” he said. That has not deterred the Chinese authorities from pushing the currency lower after its dramatic devaluation in August and analysts project the yuan-dollar pair to soften to 7 by the end of the year from 6.57 currently. Ironically, in a bid to buttress the economy via the cheap yuan, China faces the risk of accelerating capital outflows. “Capital flight is the evil twin brother of currency war,” Englander said. “If currency war is typically capital outflows encouraged by government policy, capital flight is currency war driven by the private sector with policy makers typically on the other side.”

The Institute of International Finance last week estimated that $676 billion exited China in 2015 and outflows are likely to continue this year, further exposing the yuan to speculative attacks.

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“..the $700 billion decline in China’s foreign-currency reserves is bigger than the total foreign-currency reserves of all but three other central banks in the world—Japan, Switzerland and Saudi Arabia..”

Hundreds of Billions of Dollars Have Fled China. Now What? (WSJ)

For lovers of dramatic numbers, China has long been a gift. The flood of cash leaving the country has produced another impressive statistic: We are witnessing the greatest episode of capital flight in history. China’s foreign-exchange reserves fell by $700 billion last year. The flood of cash across its borders is complicating the country’s economic transformation and is raising the risks of problems in other emerging markets, where cash already is flowing outward. “What happened in 2015 coming out of China was unprecedented in magnitude,” said Charles Collyns, chief economist for the Institute of International Finance, a global trade group for the financial industry. The size of China’s $10 trillion economy and its still-huge foreign reserves means the outflow won’t cause an immediate crisis in the country, though there are risks.

According to World Bank data, the $700 billion decline in China’s foreign-currency reserves is bigger than the total foreign-currency reserves of all but three other central banks in the world—Japan, Switzerland and Saudi Arabia. China’s outflows are the biggest in absolute terms, although other countries have had larger outflows relative to the size of their economies. The big worry is that China devalues its currency, which would come at a time that money already is flowing out of emerging markets as investors grow more risk averse and the U.S. Federal Reserve slowly begins to raise interest rates. If the yuan does fall further, it makes the economies of its Asian neighbors less competitive. That could lead to more capital flight from emerging markets, which could drain foreign-currency reserves in countries trying to keep their currencies from falling.

Places that do see their currencies tumble also could face inflation, slowing investment and tapering growth. Most historical cases of capital flight have one main cause—economic turmoil, political instability or an outside crisis that leads investors to pull their cash home. In China, however, there are several interconnected reasons that both locals and foreigners are pulling out their money, and the combination appears to be making the situation worse.

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“..nearly $1.6 trillion in Quantiative Tightening is taking place just due to China’s attempts to stem capital flight..”

China’s January Outflows Soar To Second Highest Ever (ZH)

While China’s currency devaluation has, alongside the price of commodities, become one of the two key drivers of market volatility and tubulence around the globe, when it comes to risk, one far more important Chinese metric is the actual amount of capital that leaves the nation. The reason for this is that as explained over the weekend, in a world where Quantitative Tightening by EMs and SWFs has emerged as a powerful counterforce to Quantitative Easing – or liquidity injections – by developed central banks, what matters for global risk levels is the net effect of these two opposing money flows. Of all the global “quantitative tighteners”, the biggest culprit is China, which has seen over $1 trillion in reserve selling since the summer of 2014, the direct result of a virtually identical amount in capital outflows.

Furthermore in for a “closed’ Capital Account system like is China, the selling of FX reserves is a direct function of capital outflows, so the only real data needed to extrapolate not only the matched reserve selling and thus Quantitative Tightening, but also the direct impact onglobal risk assets, is how much capital outflow has taken place. This takes place in one of two ways: by relying on official Chinese historical data, or by estimating how much outflows take place on a concurrent basis, thus allowing one to estimate how much capital is flowing out in real time. Indicatively, China’s SAFE released onshore FX settlement data for the whole banking system (PBoC+banks), suggesting some $97bn of FX outflows in Dec, which is broadly in line with the fall in official reserves.

But much more important is the question what is taking place right now, the answer to which can either wait until SAFE releases January data in several weeks… or rely on day to day estimates of outflows in the form of central bank FX intervention. Luckily, we have just that. According to a Goldman report, so far in January “there has been around $USD 185bn of intervention (with the recent intervention predominantly taking place in the onshore market)” split roughly $143 billion on the domestic side and $42 billion on the offshore Yuan side. This would make January the month with the second largest amount of intervention since August 2015, and thus the second highest month of capital outflows, and would explain the ongoing deterioration across global asset classes as China’s various FX reserve managers have been forced to sell not just government bonds but equities as well.

Goldman also calculates that “total intervention over the last 6 months, using our estimates, sums to USD 775bn.” Run-rating this amount would suggest that nearly $1.6 trillion in Quantiative Tightening is taking place just due to China’s attempts to stem capital flight. This number excludes the hundreds of billions in reserves that all other petrodollar and EM nations have to liquidate as well to prevent the rapid devaluation of their own currencies as the world remains caught in the global dollar margin call we first explained in early 2015.

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Even CNN gets alarmed. Graph is not from article, but seems a good fit.

Cracks In America’s Economy Are Growing (CNN)

America’s economy hit the brakes during the holidays. Some recent economic data even raises fears that we might be heading towards a possible U.S. recession in 2016. Big banks like Morgan Stanley estimate there’s a 20% chance of recession this year. On Friday, the government will release data that show how the U.S. economy fared in the last three months of the year. Many experts forecast that the U.S. economy barely grew – about 1% or less – between October and December of 2015 compared to a year ago. Even the Federal Reserve admitted Wednesday that the economy “slowed” at the end of last year. On Thursday, the bad news continued. A key sign of confidence is orders for new products and equipment – known as “durable goods” – placed by companies to power their business.

Orders for durable goods fell 5% between November and December, according to the Commerce Department. That was a lot below expectations that orders would be flat. It shows that some companies are delaying or deciding not to purchase any new piece of equipment they need. The news on durable goods caused Barclays (BCS) to lower its GDP forecast to 0.4% on Thursday. Capital Economics, a research firm, admitted the new data posed risks “firmly to the downside” for its estimate of 1%. Here are 3 more warning signs that the U.S. economy is heading in the wrong direction:

1. American are not spending much U.S. economic growth depends on shoppers. Consumer spending makes up two-thirds of the nation’s economic engine. Yet they’re sending mixed signals: U.S. retail sales declined a bit in December and they were negative or flat seven times last year. Consumer confidence has wavered too. It peaked at 98% in January 2015 but has since drifted down in general. Consumer confidence is currently 93%. While it’s a lot better than what it was just a few years ago, any downward movement is still a cause for concern.

2. U.S. manufacturing already in recession American factories are suffering from the global economic slowdown. Manufacturing makes up 10% of the U.S. economy, according to Morgan Stanley. The key ISM manufacturing index has declined for six straight months, and its been negative – below 50% – for the last two months. The strong dollar is making products manufactured in the U.S. more expensive overseas, lowering demand for American made goods. The slowdown in emerging market economies isn’t helping trade either.

3. Corporate America is hurting Earnings season isn’t over yet but one thing is clear: American companies are making less money than a year ago. Put together, when America’s biggest companies – and employers – suffer, the economy follows suit. The S&P 500 is down 7% so far in January. Apple, the nation’s biggest company by market size, just announced record profits with a gloomy outlook ahead. It believes iPhone sales will decline in the first quarter of this year for the first time in 13 years. Apple CEO Tim Cook expressed serious caution about the global economy. When a major American CEO raises the warning flag that’s not good for the U.S. economy. “We’re seeing extreme conditions unlike anything we have experienced before just about everywhere we look,” Cook said Tuesday.

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Waiting for the final whistle..

How Italy’s Bad Loans Built Up (FT)

The EU agreed a deal with Italy on Wednesday to help Italian banks sell off their large portfolios of non-performing loans to private investors, in the hope it will restore confidence in the country’s troubled banking system. The move came as concerns over the loans — worth 21% of GDP— sent Italian banks’ share prices into freefall, heaping pressure on the sector. A logjam of bad loans has built up over the past decade as economic stagnation, multiple recessions and a weak recovery have weighed on companies, particularly smaller businesses that account for the majority of Italy’s business make-up. According to the Italian Association of Banks, the ratio of bad loans is higher for loans to small companies than the large ones. These charts show how Italy grew as a lender of bad loans, and the banks that have been most affected.

Since the onset of the financial crisis, Italian banks have accrued a much larger exposure to non-performing loans than other large European countries. The EU average for non-performing loans as a percentage of total loans is 6%; in Italy the proportion has reached 17%. Slow growth has been a big setback. In the fourth quarter last year, Italian GDP was at the same level as at the beginning of 2000, while that of Germany and France grew 20%. Italy returned to growth at the start of 2015, but the recovery has been anaemic with quarterly growth rates below 0.5%. Until economic growth picks up strongly, any decline in the relative proportion of non-performing loans held by Italy’s banks is likely be marginal, as it was in 2015.

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I’m all for it.

Brexit Vote To Turn UK Into ‘Safe Haven’ Triggering EU Disintegration (Tel.)

A British exit from the European Union could see the UK becoming a “safe haven” amid a disintegrating Europe, Barclays has said. Analysis from the bank said a ‘leave’ vote would open a “Pandora’s Box” in the crisis-hit continent, and could dissuade Scotland from breaking away from the relative safety of the UK. Barclays said financial markets had failed to grasp the sheer “breadth” of the British vote, calling it one of “the most significant global risks of the year”, and one which could lead to the collapse of the European project. Investors have been selling off the pound in anticipation of an EU referendum, which could take place as early as the summer. Sterling has depreciated by 9pc against the single currency since November.

But if Britain voted for an EU exit, the political and institutional reverberations on the continent would be far greater than any economic fall-out, said the bank, who compared the implications to that of a “Grexit”. A number of European countries would be caught in the grip of extremist left-wing and right-wing populist parties, pushing them towards leaving the EU, they said. “If politics in the EU turned for the worse, the UK may be seen as a safe haven from those risks, reversing the euro’s exchange rate appreciation”, said the report’s authors. “In that environment, Scottish voters could be even less inclined to leave the relative safety of the UK for an increasingly uncertain EU”. The warning echoes fears that Europe, rather than the UK, would suffer the worst consequences of a Brexit.

Deutsche Bank’s chief economist said earlier this week that Brexit would be “devastating” for the continent, consigning Europe to the status of a “second rank” power. “The referendum is generally seen as a ‘UK’ issue, when it is better seen as a European issue” said Philippe Gudin of Barclays. Analysts highlighted the “emotionally charged” immigration debate as a “wildcard” which could see the UK leave the EU. Survey data shows concerns about immigration have surged to become the most important issue facing the EU, according to voters – elicpsing fears over economy, terrorism, and unemployment since the start of 2015. Should Brexit occur, this would embolden other member states who are struggling to control immigration and unleash a fresh wave of turmoil in the EU, said Barclays.

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Give them something to go back to.

Germany Tightens Refugee Policy, Finland Joins Sweden In Deportations (Guar.)

Germany has moved to toughen its asylum policies as Finland and Sweden announced plans to deport tens of thousands of people in a bid to contain the migrant crisis. Sigmar Gabriel, the vice chancellor, announced that Germany would place Algeria, Morocco and Tunisia on a list of “safe countries of origin” – meaning that migrants from those countries would have little chance of winning asylum. Some migrants would also be blocked from bringing their families to join them in Germany for two years, Gabriel said. The tougher rules come after Germany, the European Union’s powerhouse economy, took in some 1.1 million migrants in 2015 – many of them refugees fleeing conflict in Syria.

German chancellor Angela Merkel has come under fierce pressure in recent months to reverse her open-arms policy to those fleeing war and persecution, including opposition from within her own conservative camp. Finland meanwhile joined Sweden on Thursday in announcing plans to deport tens of thousands of refused asylum seekers. The two Nordic countries are both struggling to cope with an influx of refugees and migrants fleeing misery in the Middle East and elsewhere – receiving amongst the highest numbers of arrivals per capita in the EU. The Finnish government expects to deport around two thirds of the 32,000 asylum seekers that arrived in 2015, Paivi Nerg, administrative director of the interior ministry, told AFP.

“In principle we speak of about two-thirds, meaning approximately 65% of the 32,000 will get a negative decision (on their asylum applications),” she told AFP. In neighbouring Sweden, interior minister Anders Ygeman said on Wednesday that the government was planning over several years to deport up to 80,000 people whose asylum applications are set to be rejected. “We are talking about 60,000 people but the number could climb to 80,000,” he told Swedish media, adding that, as in Finland, the operation would require the use of specially chartered aircraft. He estimated that Sweden would reject around half of the 163,000 asylum requests received in 2015.

Swedish migration minister Morgan Johansson said authorities faced a difficult task in deporting such large numbers, but insisted failed asylum seekers had to return home. “Otherwise we would basically have free immigration and we can’t manage that,” he told news agency TT. The clampdown came as at least 31 more people died trying to reach the EU. Greek rescuers found 25 bodies, including those of 10 children, off the Aegean island of Samos, in the latest tragedy to strike migrants risking the dangerous Mediterranean crossing hoping to start new lives in Europe. The Italian navy meanwhile said it had recovered six bodies from a sinking dinghy off Libya – and in Bulgaria, the frozen bodies of two men, believed to be migrants, were found near the border with Serbia.

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This will fail.

Mass Expulsions Ahead For Europe As Refugee Crisis Grows (AP)

Dazzled by an unprecedented wave of migration, Sweden on Thursday put into words an uncomfortable reality for Europe: If the continent isn’t going to welcome more than 1 million people a year, it will have to deport large numbers of them to countries plagued by social unrest and abject poverty. Interior Minister Anders Ygeman said Sweden could send back 60,000-80,000 asylum seekers in the coming years. Even in a country with a long history of immigration, that would be a scale of expulsions unseen before. “The first step is to ensure voluntary returns,” Ygeman told Swedish newspaper Dagens Industri. “But if we don’t succeed, we need to have returns by coercion.” The coercive part is where it gets uncomfortable.

Packing unwilling migrants, even entire families, onto chartered airplanes bound for the Balkans, the Middle East or Africa evokes images that clash with Europe’s humanitarian ideals. But the sharp rise of people seeking asylum in Europe last year almost certainly will also lead to much higher numbers of rejections and deportations. EU officials have urged member countries to quickly send back those who don’t qualify for asylum so that Europe’s welcome can be focused on those who do, such as people fleeing the war in Syria. “People who do not have a right to stay in the EU need to be returned home,” said Natasha Bertaud, a spokeswoman for the EU’s executive Commission.

“This is a matter of credibility that we do return these people, because you don’t want to give the impression of course that Europe is an open door,” she said. EU statistics show most of those rejected come from the Balkans including Albania and Kosovo, some of Europe’s poorest countries. Many applicants running away from poverty in West Africa, Pakistan and Bangladesh also are turned away. Even people from unstable countries like Iraq, Afghanistan and Somalia can’t count on getting asylum unless they can prove they, personally, face grave risks at home.

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Just numbers. That’s all you need to know.

Why Europe’s Refugee Crisis May Be Getting Worse (BBG)

More than 50,000 refugees fleeing violence and unrest in the Middle East and Africa have arrived on Europe’s shores already this month — almost 10 times as many as in January 2015. This unrelenting influx will add to the pressure on leaders who are already reeling from the impact of the crisis. With European Union countries reintroducing border controls, chaos at Europe’s external frontiers and the threat of terrorism associated with the civil war in Syria looming over the continent’s largest cities, the dilemma has fractured European politics and frayed the social fabric. The following charts show why the worst may yet be to come.

The number of refugees fleeing to Greece by sea this month is almost 10 times what it was this time last year, according to UNHCR data through Jan. 27. Normally the winter months are quieter as migrants wait for better weather but with this January’s total almost as high as that of last June, the figures suggest that Europe will continue to face a huge inflow. As the crisis in Syria has intensified, the makeup of the refugees has changed. Whereas in 2015 more than half of the migrants arriving in Greece were men, that’s now slipped to 44% as whole families follow them to seek asylum in Europe.

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And we keep on going.

Twelve Refugees Drown As Boat Sinks Off Greek Island (Reuters)

Twelve migrants drowned when their boat sank off a Greek island close to Turkey, the Greek coastguard said on Thursday, as people continue to make crossings to Europe despite the harsh winter conditions. “A man who managed to swim to the shore told Greek authorities the boat carried 40 to 45 people,” a coastguard official said. The sinking occurred late on Wednesday north of the island of Samos in the eastern Aegean Sea, close to the Turkish coast. Nine people have been rescued so far, and Frontex and coastguard vessels are looking for other survivors. “We are not sure if the nine rescued were among the 45 or if they were on a different boat,” the official said.

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On average, 8 people have reportedly drowned every single day this year.

24 Iraqi Kurdish Refugees Drown Off Greek Island (NY Times)

At least 24 people drowned and 11 others were missing after a boat carrying Iraqi Kurds sank off the Greek island of Samos in the Aegean Sea, close to Turkish coast, the authorities said on Thursday. More than 3,700 migrants died while trying to enter Europe via the Mediterranean last year, and the latest sinking was a reminder that the flow has not stopped in the dead of winter. Kelly Namia, an Athens-based representative of the International Organization for Migration, confirmed the death toll. According to accounts provided to the organization at a hospital, the wooden vessel was carrying 65 people, when it sank on Wednesday night, even though it had a maximum capacity of 30 people. The passengers were all Iraqi Kurds, aside from the smugglers, who were believed to be Afghans. At least one smuggler is believed to have drowned, but his body has not been located, Ms. Namia said. The Greek Coast Guard continued to search for survivors Thursday afternoon, using vessels and a helicopter.

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Number of refugees fleeing to Italy rises sharply again.

Italy Navy Recovers Six Bodies, Rescues 209 From Migrant Boats (Reuters)

Italy’s navy rescued 290 migrants and recovered six bodies from the water near a half-sunken rubber boat on Thursday, the first sea deaths recorded on the North Africa to Italy route this year, a spokesman said. The navy rescued 109 migrants from a large rubber boat in the morning, and then 107 from a second boat a few hours later. When the navy arrived at a third rubber craft, it was sinking. They managed to pull 74 to safety, but six bodies were recovered from the water. A navy helicopter is continuing to search for survivors, the spokesman said.

Italy and Greece are on the frontline of Europe’s biggest immigration crisis since World War Two, with overcrowded boats packed with migrants reaching their shores from North Africa and Turkey by the hundreds. The sea route to Italy from Africa is the most dangerous border for migrants in the world. Of the more than 3,700 migrant deaths in the Mediterranean in 2015, about 2,000 perished on the way to Italy from North Africa. After a lull in arrivals during the first three weeks of this year, Libya-based people smugglers have taken advantage of recent mild weather to send out boats. Italy’s coastguard said 1,271 migrants were rescued on Tuesday.

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Jan 022016
 
 January 2, 2016  Posted by at 10:09 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Earl Theisen Walt Disney oiling scale model locomotive at home in LA 1951

After a Tumultuous 2015, Investors Have Low Expectations for Markets (WSJ)
Will Corporate Investment and Profits Rebound This Year? (WSJ)
A Year of Sovereign Defaults? (Carmen Reinhart)
The Next Big Short: Amazon (Stockman)
The Real Financial Risks of 2016 (Taleb)
High-Yield Bonds: Worthy of the Name Again (WSJ)
Slowdown In Chinese Manufacturing Deepens Fears For Economy (Guardian)
Opinion Divided On State Of Chinese Economy, But Not Its Importance (Guardian)
‘Indigestion’ Hits Diamond Companies: Too Much Supply, Too Little Demand (FT)
Iraq Says It Exported More Than 1 Billion Barrels of Oil in 2015 (BBG)
The Federal Reserve’s Brave New Interest Rate World (Coppola)
Economic Sweet Spot Of 2016 Before The Reflation Storm (AEP)
New Year Brings Minimum Wage Hikes For Americans In 14 States (Reuters)
Swiss Bank Admits Cash and Gold Withdrawals Cheated IRS (BBG)
Edward Hugh, Economist Who Foresaw Eurozone’s Struggles, Dies At 67 (NY Times)
As 2016 Dawns, Europe Braces For More Waves Of Refugees (AP)

Watch out below.

After a Tumultuous 2015, Investors Have Low Expectations for Markets (WSJ)

After a year of disappointment in everything from U.S. stocks to emerging markets and junk bonds, investors are approaching 2016 with low expectations. Some see the past year as a bad omen. Two major stock indexes posted their first annual decline since the financial crisis, while energy prices fell even further. Emerging markets and junk bonds also struggled. Others view the pullback as a sensible breather for some markets after years of strong gains. While large gains were common as markets recovered in the years after the 2008 financial crisis, many investors say such returns are growing harder to come by, and expect slim gains at best this year.

“You have to be very muted in your expectations,” said Margie Patel, senior portfolio manager at Wells Fargo Funds who said she expects mid-single percentage-point gains in major U.S. stock indexes this year. “It’s pretty hard to point to a sector or an industry where you could say, well, that’s going to grow very, very rapidly,” she said, adding that there are “not a lot of things to get enthusiastic about, and a long list of things to be worried about.” As the year neared an end, a fierce selloff hit junk bonds in December, while U.S. government bond yields rose only modestly despite the Federal Reserve’s decision to raise its benchmark interest rate in December, showing investors weren’t ready to retreat from relatively safe government bonds.

For the U.S., 2015’s rough results stood in contrast to three stellar years. After rising 46% from 2012 through 2014, the Dow Jones Industrial Average fell 2.2% last year. The S&P 500 fell 0.7%. While most Wall Street equity strategists still expect gains for U.S. stocks this year, they also once again expect higher levels of volatility than in years past. Of 16 investment banks that issued forecasts for this year, two-thirds expect the S&P 500 to finish 2016 at a level less than 10% above last year’s close, according to stock-market research firm Birinyi Associates. Some investors say a pause for stocks is normal for a bull market of this length, which has been the longest since the 1990s. Including dividends, the S&P 500 has returned 249% since its crisis-era low of 2009.

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How could they? On what? “This recovery still stinks.”

Will Corporate Investment and Profits Rebound This Year? (WSJ)

In 2015, the American corporate landscape was dominated by activist investors, buybacks, currencies and deals. This year, the question is whether U.S. businesses will shake off the weight of a strong dollar and lower commodity prices to expand profit growth, end their dependence on boosting returns with buybacks, and turn to investing in their operations. The Federal Reserve had enough confidence in the economic recovery to raise interest rates in December, but it remains unclear whether global growth will be buoyant enough reverse weak business investment. Many big companies are reining in spending. 3M, with thousands of products from Scotch tape to smartphone materials, forecasts capital spending roughly unchanged from 2015.

Telecom companies AT&T and Verizon both plan to hold capital spending generally level in the coming year. Meanwhile, industrial giants like General Electric and United Technologies are aggressively cutting costs and seeking to squeeze more savings from suppliers. Capital expenditures by members of the S&P 500 index fell in the second and third quarters of 2015 from a year earlier, the first time since 2010 that the measure has fallen for two consecutive quarters, according to data from S&P Dow Jones Indices. Another measure of business spending on new equipment—orders for nondefense capital goods, excluding aircraft—was down 3.6% from a year earlier in the first 11 months of 2015, according to data from the U.S. Department of Commerce.

More broadly, only 25% of small companies plan capital outlays in the next three to six months, according to a November survey of about 600 firms by the National Federation of Independent Business. That compares with an average of 29% and a high of 41% since the surveys began in 1974. “Our guys are in maintenance mode,” said William Dunkelberg, chief economist for the trade group. “This recovery still stinks.” Profit growth for the constituents of the S&P 500 index stalled in 2015 thanks to a combination of a strong dollar and falling prices for steel, crude oil and other commodities. Deutsche Bank estimates total net income for companies in the index fell 3% in 2015, while sales declined 4%. For 2016, Deutsche Bank forecasts net income growth of 4.3% and a 4% increase in revenue.

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Given the reliance on dollar-denominated low interest loans, it seems all but certain.

A Year of Sovereign Defaults? (Carmen Reinhart)

When it comes to sovereign debt, the term “default” is often misunderstood. It almost never entails the complete and permanent repudiation of the entire stock of debt; indeed, even some Czarist-era Russian bonds were eventually (if only partly) repaid after the 1917 revolution. Rather, non-payment – a “default,” according to credit-rating agencies, when it involves private creditors – typically spurs a conversation about debt restructuring, which can involve maturity extensions, coupon-payment cuts, grace periods, or face-value reductions (so-called “haircuts”). If history is a guide, such conversations may be happening a lot in 2016. Like so many other features of the global economy, debt accumulation and default tends to occur in cycles.

Since 1800, the global economy has endured several such cycles, with the share of independent countries undergoing restructuring during any given year oscillating between zero and 50% (see figure). Whereas one- and two-decade lulls in defaults are not uncommon, each quiet spell has invariably been followed by a new wave of defaults. The most recent default cycle includes the emerging-market debt crises of the 1980s and 1990s. Most countries resolved their external-debt problems by the mid-1990s, but a substantial share of countries in the lowest-income group remain in chronic arrears with their official creditors. Like outright default or the restructuring of debts to official creditors, such arrears are often swept under the rug, possibly because they tend to involve low-income debtors and relatively small dollar amounts.

But that does not negate their eventual capacity to help spur a new round of crises, when sovereigns who never quite got a handle on their debts are, say, met with unfavorable global conditions. And, indeed, global economic conditions – such as commodity-price fluctuations and changes in interest rates by major economic powers such as the United States or China – play a major role in precipitating sovereign-debt crises. As my recent work with Vincent Reinhart and Christoph Trebesch reveals, peaks and troughs in the international capital-flow cycle are especially dangerous, with defaults proliferating at the end of a capital-inflow bonanza.

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Big call from Dave.

The Next Big Short: Amazon (Stockman)

If you have forgotten your Gulliver’s Travels, recall that Jonathan Swift described the people of Brobdingnag as being as tall as church steeples and having a ten foot stride. Everything else was in proportion – with rats the size of mastiffs and the latter the size of four elephants, while flies were “as big as a Dunstable lark” and wasps were the size of partridges. Hence the word for this fictional land has come to mean colossal, enormous, gigantic, huge, immense or, as the urban dictionary puts it, “really f*cking big”. That would also describe the $325 billion bubble which comprises Amazon’s market cap. It is at once brobdangnagian and preposterous – a trick on the casino signifying that the crowd has once again gone stark raving mad.

When you have arrived at a condition of extreme “irrational exuberance” there is probably no insult to ordinary valuation metrics that can shock. But for want of doubt consider that AMZN earned the grand sum of $79 million last quarter and $328 million for the LTM period ending in September. That’s right. Its conventional PE multiple is 985X! And, no, its not a biotech start-up in phase 3 FDA trials with a sure fire cancer cure set to be approved any day; its actually been around more than a quarter century, putting it in the oldest quartile of businesses in the US. But according to the loony posse of sell-side apologists who cover the company – there are 15 buy recommendations – Amazon is still furiously investing in “growth” after all of these years.

So never mind the PE multiple; earnings are being temporarily sacrificed for growth. Well, yes. On its approximate $100 billion in LTM sales Amazon did generate $32.6 billion of gross profit. But the great builder behind the curtain in Seattle choose to “reinvest” $5 billion in sales and marketing, $14 billion in general and administrative expense and $11.6 billion in R&D. So there wasn’t much left for the bottom line, and not surprisingly. Amazon’s huge R&D expense alone was actually nearly three times higher than that of pharmaceutical giant Bristol-Myers Squibb. But apparently that’s why Bezos boldly bags the big valuation multiples.

Not so fast, we think. Is there any evidence that all this madcap “investment” in the upper lines of the P&L for all these years is showing signs of momentum in cash generation? After all, sooner or later valuation has to be about free cash flow, even if you set aside GAAP accounting income. In fact, AMZN generated $9.8 billion in operating cash flow during its most recent LTM period and spent $7.0 billion on CapEx and other investments. So its modest $2.8 billion of free cash flow implies a multiple of 117X.

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“Zero interest rates turn monetary policy into a massive weapon that has no ammunition.”

The Real Financial Risks of 2016 (Taleb)

How should we think about financial risks in 2016? First, worry less about the banking system. Financial institutions today are less fragile than they were a few years ago. This isn’t because they got better at understanding risk (they didn’t) but because, since 2009, banks have been shedding their exposures to extreme events. Hedge funds, which are much more adept at risk-taking, now function as reinsurers of sorts. Because hedge-fund owners have skin in the game, they are less prone to hiding risks than are bankers. This isn’t to say that the financial system has healed: Monetary policy made itself ineffective with low interest rates, which were seen as a cure rather than a transitory painkiller. Zero interest rates turn monetary policy into a massive weapon that has no ammunition.

There’s no evidence that “zero” interest rates are better than, say, 2% or 3%, as the Federal Reserve may be realizing. I worry about asset values that have swelled in response to easy money. Low interest rates invite speculation in assets such as junk bonds, real estate and emerging market securities. The effect of tightening in 1994 was disproportionately felt with Italian, Mexican and Thai securities. The rule is: Investments with micro-Ponzi attributes (i.e., a need to borrow to repay) will be hit. Though “another Lehman Brothers” isn’t likely to happen with banks, it is very likely to happen with commodity firms and countries that depend directly or indirectly on commodity prices.

Dubai is more threatened by oil prices than Islamic State. Commodity people have been shouting, “We’ve hit bottom,” which leads me to believe that they still have inventory to liquidate. Long-term agricultural commodity prices might be threatened by improvement in the storage of solar energy, which could prompt some governments to cancel ethanol programs as a mandatory use of land for “clean” energy.

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Yield rises with risk. Risk leads to losses.

High-Yield Bonds: Worthy of the Name Again (WSJ)

By mid-2014, some were starting to wonder whether the high-yield bond market needed to find a new name for itself. U.S. yields fell below 5%, while European yields dipped beneath 4%, according to Barclays indexes. But at the end of 2015, the market once again has an appropriate moniker. U.S. yields are ending the year at 8.8%, the Barclays index shows, returning to levels last seen in 2011. They have risen by about 2.3 percentage points this year. European yields stand at 5% — not huge in absolute terms, but high relative to ultralow European government bond yields. Of course, for existing investors that has been bad news. The ride—including the high-profile meltdown of Third Avenue Management’s Focused Credit Fund, which shook the market in December—has been rough.

It has taken its toll on borrowers too. The U.S. high-yield bond market has recorded the slowest pace of fourth-quarter issuance since 2008, when the collapse of Lehman Brothers essentially shut the market down, according to data firm Dealogic. Global issuance has fallen 23% this year to $366.5 billion, the lowest level since 2011. The market is likely to face further tests in 2016. Defaults are set to rise, and companies may find it tougher to get financing. But at least investors will now get chunkier rewards for taking risk. Arguably, high-yield investors should always be focused on absolute rather than relative yields, given the need to compensate for defaults. From that point of view, 2015 was the year high-yield bonds got their mojo back.

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China will find it much harder to keep up appearances in 2016.

Slowdown In Chinese Manufacturing Deepens Fears For Economy (Guardian)

A further slowdown in China’s vast manufacturing sector has intensified worries about the year ahead for the world’s second largest economy. The latest in a string of downbeat reports from showed that activity at China’s factories cooled in December for the fifth month running, as overseas demand for Chinese goods continued to fall. Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century. After growing 7.3% in 2014, the economy is thought to have expanded by 6.9% in 2015 and the central bank has forecast that it may slow further in 2016 to 6.8%.

A series of interventions by policymakers, including interest rate cuts, have done little to revive growth and in some cases served only to heighten concern about China’s challenges. Friday’s figures showed that the manufacturing sector limped to the end of 2015. The official purchasing managers’ index (PMI) of manufacturing activity edged up to 49.7 in December from 49.6 in November. The December reading matched the forecast in a Reuters poll of economists and marked the fifth consecutive month that the index was below 50, the point that separates expansion from contraction. “Although the PMI slightly rebounded this month, it still lies below the critical point and is lower than historic levels over the same period,” Zhao Qinghe, a senior statistician at the national bureau of statistics, said.

Analysts said the latest manufacturing PMI pointed to falling activity, but that some hope could be taken from the improvement on November’s three-year low. The small rise “suggests that growth momentum is stabilising somewhat … however, the sector is still facing strong headwinds,” said Zhou Hao at Commerzbank. “In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive.”

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Can China let go of the peg and let the yaun plunge, while it’s in the IMF basket?

Opinion Divided On State Of Chinese Economy, But Not Its Importance (Guardian)

It was perhaps fitting that China’s latest lacklustre industrial survey was the first fragment of financial data to greet the new year. Economists are divided about the risks facing the vast Chinese economy, but agree that how they play out will have profound consequences for the rest of the world in 2016. The optimists point to China’s large and growing middle class, the vast foreign currency reserves that give Beijing ample ammunition to respond to any crisis that emerges, and the authoritarian regime that allows its policymakers to force through economic change. And official figures do suggest that economic growth may have stabilised at about 6.5% – considerably weaker than the double-digit pace that was the norm before the financial crisis, but not the feared “hard landing”.

Yet pessimists argue that the official figures radically overestimate the true pace of growth: using alternative indicators such as freight volumes and electricity usage, City analysts Fathom calculate that growth could be below 3%. And last summer’s share price crash, and the chaos that surrounded Beijing’s decision to devalue the yuan, suggested there is no reason to think Chinese policymakers are any more in control of the forces of capitalism than their western counterparts were in the run-up to the financial crisis. China’s latest five-year plan involves a conscious attempt to switch growth away from the export-led model that has driven its rise to the economic premier league, and towards more sustainable, domestic consumption-led growth.

But with many of the country’s powerful state-owned enterprises loaded up with debt, property bubbles deflating and the knock-on effects of the share price crash still being felt, domestic demand has so far failed to pick up the slack. The challenge of maintaining politically acceptable rates of economic growth may become tougher in 2016, particularly if the US Federal Reserve presses ahead with its bid to return interest rates to somewhere near normal. The value of the Chinese yuan is not allowed to move too far out of line with the dollar, under a “crawling peg” – effectively a semi-fixed exchange rate.

But as the greenback moves upwards to reflect the strengthening US economy and rising rates, it is taking the yuan with it, and making it harder for Chinese exporters to compete. As the dollar continues to appreciate, it may become increasingly tempting for policymakers to abandon the peg and let the currency plunge, returning to the familiar export-led pattern of growth. And if Beijing does devalue sharply, it would damage China’s exporting rivals, and send deflation rippling out through the global economy, increasing the risk of a lengthy period of economic weakness. China’s true fragility is impossible to gauge; but it matters.

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Not a good sign for gold.

‘Indigestion’ Hits Diamond Companies: Too Much Supply, Too Little Demand (FT)

De Beers was hoping its “Live your love today” campaign would entice Chinese consumers to buy diamond jewellery this holiday season. It is unlikely to be enough to turn round the miner’s fortunes. While auction prices set records for some big gems in 2015 — Lucara Diamond found one of the largest stones to date — the sector has had its toughest year since the global financial crisis as it struggles with too much supply and too little demand. Miners including De Beers, which is owned by Anglo American, and Canada’s Dominion Diamond have acknowledged falling revenues and lower prices for rough diamonds. In China, the big jewellers are suffering. Chow Tai Fook, the largest by market value, reported a 42% fall in net profits in interim results.

But the pain has been most acute for the trade’s “midstream”, the hundreds of cutters and polishers, mostly in India, which buy rough stones from miners and supply retailers. “The raw [rough] diamond price is still high but the polishers [like us] have to sell cheaper because of the drop in demand,” said Chirag Kakadia of Sheetal, an Indian diamond polisher, speaking at a Hong Kong trade show. “We are forced to purchase higher but sell lower. Our production has dropped 40% from 2014 but our sales are 50% less.” Companies such as Sheetal have been hit by a bout of what Johan Dippenaar, chief executive of Petra Diamonds, has described as industry “indigestion”, stemming from an over-optimistic assessment of demand from China.

Retailers that had geared up for years of growth were caught out by a slowing economy and an anti-corruption drive, with officials banned from receiving gifts. A person in the industry who asked not to be named said demand in Hong Kong and Macau had been “absolutely mullered” by the corruption crackdown. The lack of interest from consumers has left cutters and polishers holding too much stock. In turn, their need to buy from miners has declined, forcing down rough prices. Analysts said that, even if midstream groups wanted to restock, many would find it hard to do so. Much of the credit in the sector has been withdrawn as banks have grown wary of lending to businesses that are family-owned and tend to be opaque. The question is whether the market will bounce back or be altered for good.

De Beers, which has lost much of its power as a supplier but remains a dominant participant, says the industry does not face a long-term bust and once the temporary oversupply is dealt with equilibrium will be restored. Philippe Mellier, chief executive, told industry analysts in December: “This is a stock crisis, not a demand crisis.” De Beers has allowed midstream companies to put regular purchases on hold. “We just want our customers to buy what they need and not increase the stock problem,” said Mr Mellier. The miner has also cut production and closed two diamond mines. Consultants at Bain say the diamond pipeline should return to normal functioning once midmarket businesses and retailers clear excess inventories, provided that miners and polishers manage supplies adroitly.

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And now Iran will follow.

Iraq Says It Exported More Than 1 Billion Barrels of Oil in 2015 (BBG)

Iraq said it exported 1.097 billion barrels of oil in 2015, generating $49.079 billion from sales, according to the oil ministry. It sold 99.7 million barrels of oil in December, generating $2.973 billion, after selling a record 100.9 million barrels in November, said oil ministry spokesman Asim Jihad. The country sold at an average price of $44.74 a barrel in 2015, Jihad said. Iraq, with the world’s fifth-biggest oil reserves, needs to keep increasing crude output because lower oil prices have curbed government revenue. Oil prices have slumped in the past year as OPEC defended market share against production in the U.S. OPEC’s second-largest crude producer is facing a slowdown in investment due to lower oil prices while fighting a costly war on Islamist militants who seized a swath of the country’s northwest. The nation’s output will start to decline in 2018, Morgan Stanley said in a Sept. 2 report, reversing its forecast for higher production every year to 2020.

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The real rate rise is still substantially lower than 0.25%, though.

The Federal Reserve’s Brave New Interest Rate World (Coppola)

On December 17th, 2015, the FOMC raised interest rates for the first time since the 2008 financial crisis. To be sure, it had little choice. The Fed had been signalling an interest rate rise persistently for months, and had already disappointed markets twice by delaying rate rises in September and October. It had painted itself into the same corner as the ECB did over QE earlier in the year. The ECB signalled for months that it was going to start QE, and backed off several times, to the disappointment of market participants. Eventually, ECB was forced to start QE for the simple reason that NOT doing so threatened financial stability, because markets had already priced it in. So with the FOMC. Encouraged by broadly good economic data, and by the Fed’s approving noises, markets priced in a 25bps interest rate rise.

The FOMC was all but obliged to act, simply to avoid sparking a market rout. It was yet another fine example of markets being willing to let the Fed guide them along the road that they were already travelling. Since that small but oh-so-significant rate rise, the Fed Funds rate has obediently remained firmly within its new 25 to 50 bps corridor. Indeed, it has hovered persistently around the midpoint of the range. Given that the system is still awash with excess reserves and the Fed Funds rate therefore has little effect on bank lending, it is remarkable that the rate has stayed both elevated and stable. How has this been achieved? Yesterday, the FT reported that the Fed absorbed $475bn of excess reserves through overnight reverse repo operations in its last monetary operation of 2015, a record amount.

Overnight reverse repos allow certain non-bank financial institutions to place funds at the Fed overnight in return for USTs (yes, the ones bought in the Fed’s QE programs) and 25bps interest. The interest rate is no accident: it is the floor of the target Fed Funds rate range. These reverse repos provide competition for banks in the funding markets, forcing banks to offer higher interest rates on funds they lend to non-banks. The Fed said in December that it would make $2tn worth of USTs available as collateral for reverse repo transactions: it is actually needing to use considerably less to maintain the Fed Funds rate well above its floor. But reverse repos are only half the story. The Fed also set the interest rate it pays on excess reserves (IOER) to the top of the Fed Funds target range. This pulls the funding rate upwards, since banks will not lend reserves to each other at less than the IOER rate.

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Ambroze has been smoking. A lot. The sudden surge in China M1 in the graph looks like panic to me, and moreover, it hasn’t done any good either.

Economic Sweet Spot Of 2016 Before The Reflation Storm (AEP)

Sunlit uplands beckon. Almost $2 trillion of annual stimulus from cheap oil has been accumulating for months, pent up and waiting to be spent. It will soon come flooding through in a burst, catching the world by surprise. But beware: the more beguiling it is over coming months, the more traumatic it will be later as the reflation scare comes alive. Since the rite of New Year predictions is to stick one’s neck out, let me hazard hopefully that this treacherous moment can be deferred until 2017. The positive oil shock will hit just as austerity ends in the US, and big-spending states and cities ice the cake with a fiscal boost worth 0.5pc of GDP. Americans broke records with the purchase 1.7m new cars and trucks in December, a foretaste of blistering sales to come. There is a ‘deficit’ of 20m cars left from the Long Slump yet to be plugged.

The eurozone is nearing the sweet spot, a fleeting nirvana of 2pc growth, conjured by the trifecta of a cheap euro, budgetary break-out, and the end of bank deleveraging. Mario Draghi’s printing presses are firing on all cylinders. The ‘broad’ M3 money supply is growing at turbo-charged rates of 5pc in real terms. This is a 12-month leading indicator for the economy, so enjoy the ride, at least until the demonic Fiscal Compact returns at the dead of night to smother Europe once again. In China, the dogs bark, the caravan moves on. There will be no devaluation of the yuan this year, because there is no urgent need for it. Premier Li Keqiang has vowed to keep the new exchange basket stable. Armed with a current account surplus of $600bn, $3.5 trillion of reserves, and capitol controls, that is exactly what he will do.

The lingering hangover from the Great Chinese Recession of early 2015 has faded. The PMI services gauge has just jumped to a 15-month high of 54.4, and this is now the relevant index since the Communist Party is systematically winding down chunks of the steel, shipbuilding, and chemical industries. China’s money supply is also catching fire. Growth of ‘real true M1’ has spiked to 10pc, a giddy shot of caffeine not seen since the post-Lehman spree. Combined credit and local government bond issuance is surging at a rate of 14pc. The Communist Party cranked up fiscal spending by 18.9pc in November. Whether or not you think this recidivist stimulus is wise – given that the law of diminishing returns set in long ago for debt-driven growth – it will paper over a lot of cracks for the time being.

One thing that will not happen is a housing revival in the mid-sized T3 and T4 cities of the hinterland. It will be a long time before the latest reform of the medieval Hukou system unleashes enough rural migrants to fill the ghost towns. The stock of 4.5m unsold homes on the books of developers is frightening to behold. The epic dollar rally has come and gone. The world’s currency will drift down over coming months, and that will be a reprieve for the likes of Brazil, Turkey, South Africa, Indonesia, and Colombia. Those at the wrong end of $9 trillion of off-shore debt in US dollars may breath easier: they will not escape. The MSCI index of emerging market stocks will return from the dead, clawing back most of the 28pc in losses since last April, but only to lurch into a greater storm.

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Barely a start. But a strong sign of how much less ‘new’ jobs pay.

New Year Brings Minimum Wage Hikes For Americans In 14 States (Reuters)

As the United States marks more than six years without an increase in the federal minimum wage of $7.25 an hour, 14 states and several cities are moving forward with their own increases, with most set to start taking effect on Friday. California and Massachusetts are highest among the states, both increasing from $9 to $10 an hour, according to an analysis by the National Conference of State Legislatures. At the low end is Arkansas, where the minimum wage is increasing from $7.50 to $8. The smallest increase, a nickel, comes in South Dakota, where the hourly minimum is now $8.55.

The increases come in the wake of a series of “living wage” protests across the country, including a November campaign in which thousands of protesters in 270 cities marched in support of a $15-an-hour minimum wage and union rights for fast food workers. Food service workers make up the largest group of minimum-wage earners, according to the Bureau of Labor Statistics. With Friday’s increases, the new average minimum wage across the 14 affected states rises from $8.50 an hour to just over $9. Several cities are going even higher. Seattle is setting a sliding hourly minimum between $10.50 and $13 on Jan. 1, and Los Angeles and San Francisco are enacting similar increases in July, en route to $15 an hour phased in over six years.

Backers say a higher minimum wage helps combat poverty, but opponents worry about the potential impact on employment and company profits. In 2014, a Democratic-backed congressional proposal to increase the federal minimum wage for the first time since 2009 to $10.10 stalled, as have subsequent efforts by President Barack Obama. More recent proposals by some lawmakers call for a federal minimum wage of up to $15 an hour. Alan Krueger, an economics professor at Princeton University and former chairman of Obama’s Council of Economic Advisers, said a federal minimum wage of up to $12 an hour, phased in over five years or so, “would not have a noticeable effect on employment.”

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Many such banks did the same.

Swiss Bank Admits Cash and Gold Withdrawals Cheated IRS (BBG)

Large cash and gold withdrawals were one way Bank Lombard Odier & Co allowed U.S. clients to sever a paper trail on their assets and cheat the Internal Revenue Service, the Swiss lender admitted, agreeing to pay $99.8 million to avoid prosecution. That penalty is the second-largest paid under a program to help the U.S. clamp down on tax evasion through Swiss banks. Total penalties have reached more than $1.1 billion as banks have revealed how they helped clients hide money and where the assets went. DZ Privatbank (Schweiz) AG will also pay almost $7.5 million under accords released Thursday. The U.S. has struck 75 such non-prosecution agreements this year, with the tempo and dollar amount increasing in recent weeks as it rushes to finish. Geneva-based Lombard Odier, founded in 1796, had 1,121 U.S. accounts with $4.45 billion in assets from 2008 through 2014, according to the agreement, announced Thursday.

The bank adopted a policy in 2008 to force U.S. clients to disclose undeclared assets to the IRS or face account closures. However, the policy authorized large cash or gold withdrawals, donations to U.S. relatives or charitable institutions, resulting in further wrongdoing, according to the statement. In 2009 alone, the bank processed 14 cash withdrawals of more than $1 million each for clients closing 11 accounts, according to the non-prosecution agreement. One client closed an account by withdrawing more than $3 million in gold, the bank admitted. “These withdrawals of cash and precious metals enabled U.S. persons to sever the paper trail for their assets and further conceal their income and assets from U.S. authorities,” according to the agreement. The bank also closed at least 12 U.S. accounts worth $15.7 million with “fictitious donations” to other accounts at the bank, Lombard Odier admitted.

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“..Mr. Hugh insisted time and again that economists and policy makers were glossing over the extent to which swift austerity measures in countries like Greece, Ireland, Spain and Portugal would result in devastating recessions..”

Edward Hugh, Economist Who Foresaw Eurozone’s Struggles, Dies At 67 (NY Times)

Edward Hugh, a freethinking and wide-ranging British economist who gave early warnings about the European debt crisis from his adopted home in Barcelona, died on Tuesday, his birthday, in Girona, Spain. He was 67. The cause was cancer of the gallbladder and liver, his son, Morgan Jones, said. Mr. Hugh drew attention in 2009 and 2010 for his blog posts pointing out flaws at the root of Europe’s ambition to bind together disparate cultures and economies with a single currency, the euro. In clear, concise essays, adorned with philosophical musings and colorful graphics, Mr. Hugh insisted time and again that economists and policy makers were glossing over the extent to which swift austerity measures in countries like Greece, Ireland, Spain and Portugal would result in devastating recessions.

Mr. Hugh’s insights soon attracted a wide and influential following, including hedge funds, economists, finance ministers and analysts at the IMF. “For those of us pessimists who believed that the eurozone structure was leading to an unsustainable bubble in the periphery countries, Edward Hugh was a must-read,” said Albert Edwards, a strategist based in London for the French bank Société Générale. “His prescience in explaining the mechanics of the crisis went almost unnoticed until it actually hit.” As the eurozone’s economic problems grew, so did Mr. Hugh’s popularity, and by 2011 he had moved the base of his operations to Facebook. There he attracted many thousands of additional followers from all over the world.

If Santa Claus and John Maynard Keynes could combine as one, he might well be Edward Hugh. He was roly-poly and merry, and he always had a twinkle in his eye, not least when he came across a data point or the hint of an economic or social trend that would support one of his many theories. His intellect was too restless to be pigeonholed, but when pressed he would say that he saw himself as a Keynesian in spirit, but not letter. And in tune with his view that economists in general had become too wedded to static economic models and failed their obligation to predict and explain, he frequently cited this quotation from Keynes: “Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past, the ocean is flat again.”

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3 million forecast for 2016.

As 2016 Dawns, Europe Braces For More Waves Of Refugees (AP)

Bitter cold, biting winds and rough winter seas have done little to stem the seemingly endless flow of desperate people fleeing war or poverty for what they hope will be a brighter, safer future in Europe. As 2016 dawns, boatloads continue to reach Greek shores and thousands trudge across Balkan fields and country roads heading north. More than a million people reached Europe in 2015 in the continent’s largest refugee influx since the end of World War II – a crisis that has tested European unity and threatened the vision of a borderless continent. Nearly 3,800 people are estimated to have drowned in the Mediterranean last year, making the journey to Greece or Italy in unseaworthy vessels packed far beyond capacity.

The EU has pledged to bolster patrols on its external borders and quickly deport economic migrants, while Turkey has agreed to crack down on smugglers operating from its coastline. But those on the front lines of the crisis say the coming year promises to be difficult unless there is a dramatic change. Greece has borne the brunt of the exodus, with more than 850,000 people reaching the country’s shores, nearly all arriving on Greek islands from the nearby Turkish coast. “The (migrant) flows continue unabated. And on good days, on days when the weather isn’t bad, they are increased,” Ioannis Mouzalas, Greeces minister responsible for migration issues, told AP. “This is a problem and shows that Turkey wasn’t able – I’m not saying that they didn’t want – to respond to the duty and obligation it had undertaken to control the flows and the smugglers from its shores.”

Europe’s response to the crisis has been fractured, with individual countries, concerned about the sheer scale of the influx, introducing new border controls aimed at limiting the flow. The problem is compounded by the reluctance of many migrants’ countries of origin, such as Pakistan, to accept forcible returns. “If measures are not taken to stop the flows from Turkey and if Europe doesn’t solve the problems of the returns as a whole, it will be a very difficult year,” Mouzalas warned. “It’s a bad sign, this unabated flow that continues,” Mouzalas said. “It creates difficulties for us, as the borders have closed for particular categories of people and there is a danger they will be trapped here.”

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Jul 262015
 
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Jack Delano Jewish stores in Colchester, Connecticut 1940

The Last Bubble Standing – Amazon’s Same Day Trip Through The Casino (Stockman)
Europe Braces Itself For Revolutionary Leftist Backlash After Greece (Telegraph)
Varoufakis – A New Kind Of Politics? (Paul Tyson)
Varoufakis Claims He Had Approval To Plan Parallel Banking System (Kathimerini)
Greece, The Sacrificial Lamb (Joe Stiglitz)
Depression’s Advocates (J. Bradford DeLong)
The Latest Rising Greek Political Star Who Says No To Austerity (HuffPo)
How the Euro Turned Into a Trap (NY Times Ed.)
Greek Bailout Talks Pushed Back By A Few Days On Logistics (Reuters)
Renewed Bailout Talks Between Greece And Creditors Hit Snags (FT)
Greek Gov’t Braces For Talks With Creditors Amid Upheaval In SYRIZA (Kath.)
Greek Bank Boldholders Fear Portuguese-Style “Bad Bank” Split (Reuters)
Chancellor George Osborne Takes EU Reform Campaign To Paris (Reuters)
Puerto Rico: Austerity For Residents, But Tax Breaks For Hedge Funds (Guardian)
What A Federal Financial Control Board Means To Puerto Rico (The Hill)
Judge Finds Chicago’s Changes To Pension Funds Unconstitutional (Tribune)
Foreign Criminals Use London Real Estate To Launder Billions Of Pounds (Guardian)
The – Goldman-Related – Scandal That Ate Malaysia (Bloomberg)
Olive Oil Prices Surge Due To Drought And Disease In Spain And Italy (Guardian)
The Future of Food Finance (Barron’s)
Archaeologists Find Possible Evidence Of Earliest Human Agriculture (Guardian)

“..the Wall Street brokers’ explanation for AMZN’s $250 billion of bottled air is actually proof positive that the casino has become unhinged.”

The Last Bubble Standing – Amazon’s Same Day Trip Through The Casino (Stockman)

Right. Amazon is the greatest thing since sliced bread. Like millions of others, I use it practically every day. And it was nice to see that it made a profit -thin as it was at 0.4% of sales- in the second quarter. But the instantaneous re-rating of its market cap by $40 billion in the seconds after its earnings release had nothing to do with Amazon or the considerable entrepreneurial prowess of Jeff Bezos and his army of disrupters. It was more in the nature of financial rigor mortis – the final spasm of the robo-traders and the fast money crowd chasing one of the greatest bubbles still standing in the casino. And, yes, Amazon’s $250 billion market cap is an out and out bubble. Notwithstanding all the “good things it brings to life” daily, it is not the present day incarnation of General Electric of the 1950s, and for one blindingly obvious reason.

It has never made a profit beyond occasional quarterly chump change. And, what’s more, Bezos -arguably the most maniacal empire builder since Genghis Khan- apparently has no plan to ever make one. To be sure, in these waning days of the third great central bank enabled bubble of this century, GAAP net income is a decidedly quaint concept. In the casino it’s all about beanstalks which grow to the sky and sell-side gobbledygook. Here’s how one of Silicon Valley’s most unabashed circus barkers, Piper Jaffray’s Gene Munster, explains it: “Next Steps For AWS… SaaS Applications? We believe AWS has an opportunity to move up the cloud stack to applications and leverage its existing base of AWS IaaS/PaaS 1M + users. AWS dipped its toes into the SaaS pool earlier this year when it expanded its offerings to include an email management program and we believe it will continue to extend its expertise to other offerings. We do not believe that this optionality is baked into investors’ outlook for AWS.”

Got that? Instead, better try this. AMZN’s operating free cash flow in Q2 was $621 million -representing an annualized run rate right in line with its LTM figure of $2.35 billion. So that means there was no cash flow acceleration this quarter, and that AMZN is being valued at, well, 109X free cash flow! Moreover, neither its Q2 or LTM figure is some kind of downside aberration. The fact is, Amazon is one of the greatest cash burn machines ever invented. It’s not a start-up; it’s 25 years old. And it has never, ever generated any material free cash flow – notwithstanding its $96 billion of LTM sales. During CY 2014, for example, free cash flow was just $1.8 billion and it clocked in at an equally thin $1.2 billion the year before that.

In fact, beginning with net revenues of just $8.5 billion in 2005 it has since ramped its sales by 12X, meaning that during the last ten and one-half years it has booked $431 billion in sales. But its cumulative operating free cash flow over that same period was just $6 billion or 1.4% of its turnover. So, no, Amazon is not a profit-making enterprise in any meaningful sense of the word and its stock price measures nothing more than the raging speculative juices in the casino. In an honest free market, real investors would never give a quarter trillion dollar valuation to a business that refuses to make a profit, never pays a dividend and is a one-percenter at best in the free cash flow department -that is, in the very thing that capitalist enterprises are born to produce. Indeed, the Wall Street brokers’ explanation for AMZN’s $250 billion of bottled air is actually proof positive that the casino has become unhinged.

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We may hope so.

Europe Braces Itself For Revolutionary Leftist Backlash After Greece (Telegraph)

A pre-revolutionary fervour is sweeping Europe. “The atmosphere is a little similar to the time after 1968 in Europe. I can feel, maybe not a revolutionary mood, but something like widespread impatience”. These were the words of European council president Donald Tusk, 48 hours after Greece’s paymasters imposed the most punishing bail-out measures ever forced on a debtor nation in the eurozone’s 15-year history. A former Polish prime minister and a politician not prone to hyperbole, Tusk’s comments revealed Brussels’ fears of a bubbling rebellion across the continent. “When impatience becomes not an individual but a social experience of feeling, this is the introduction for revolutions” said Tusk. “I am really afraid of this ideological or political contagion”.

His unease reflects a widespread conviction that Europe’s elites had no choice but to make an example out of Greece. Alexis Tsipras was forced to submit to a deal that punished his government’s insolence, so the argument goes, and destroy the fantasy that a “new eurozone” could be forged for the economies of the southern Mediterranean. Having emerged from the talks, Tusk declared victory, dismissing the “radical leftist illusion that you can build some alternative to this traditional European vision of the economy.” Syriza’s unprecedented rise to power in January marked a watershed in post-crisis Europe, hitherto dominated by conservative-leaning governments from Portugal to Finland.

The first radical-Left regime in Europe’s post-war history, Syriza vowed to tear up the Troika’s austerity contract, forge a Mediterranean alliance against the dominant creditor-bloc, and transform the terms of Greece’s euro membership. Seven months later, these dreams are in tatters. A tortuous 30-hour weekend in Brussels led to Tsipras capitulating to austerity terms more egregious than any negotiated by Greece’s previous centre-right and Socialist governments. Greek assets will now be sequestered into a private fund to pay off debts, external monitors will return to the country, and everything from the price of milk and bakery bread will be subject to Brussels’ scrutiny. “Syriza was the big Leftist experiment and it has gone disastrously wrong in a short period of time,” says Luke March, author of Radical Left Parties in Europe and lecturer at Edinburgh University.

“The Left elsewhere are now being forced to take stock and say “we are not Greece””. But the shadow of 1968 – a year when Europe was gripped by mass discontent, student rebellions, and labour strikes – looms over Europe’s institutions. Over the course of the next 10 months, the entire complexion of the European south could be transformed. General elections in Portugal, Spain and Ireland are poised to bring anti-austerity, Left leaning parties to power. It is the wildfire of political contagion that spooks Europe’s federalists. Greece’s humiliation, rather than cowing the revolutionary Left, is set to embolden the southern calls for mass debt relief and cease the enforcement of the euro’s contractionary dogma.

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“..it seems all too likely that the ‘logic’ of Eurozone finance is a function of Thucydides’ description of primal human barbarity. Here the strong do as they will and the weak suffer as they must.”

Varoufakis – A New Kind Of Politics? (Paul Tyson)

Strangely, one of the most disturbing aspects of Varoufakis’ stint as a Finance Minister concerns the fact that he is an economist. One thing we now readily assume is that economics is the language of power. This gives academic economists a status somewhat like a theologian in relation to the practical priestcraft of public office. However, there are very few professors of economics that actually get into office as politicians, just as you seldom get institutionally savvy bishops or mega-church leaders who are serious theologians. When an economist becomes a politician, this is going to be interesting.

In a few short months, Varoufakis completely exploded the idea that economics is the language of power. What we saw when an actual economist landed in the middle of the Eurozone crisis is that the most basic truths about economic reality have nothing to do with power. The idea that asphyxiating Greek banks and killing the Greek state is good for its economy makes no economic sense at all. The idea that continuing to pursue a savagely contractionary austerity agenda will make it possible to generate sustained state surpluses large enough to repay impossible debt burdens, defies any sort of economic rationality. The conviction that it is somehow both moral and necessary to fiscally execute the Greek polity or eject Greece in order to preserve the financial integrity of the Eurozone, is not a stance grounded in economic science.

Yet these agenda commitments are, obviously, immovable Eurogroup dogmas. When Varoufakis patiently, logically and persuasively sought to point out the economic problems with the sacred Eurozone dogmas, this got him into trouble for “lecturing” his peers. Somehow, the economic irrationality of what the Eurogroup must do was obvious to the Eurogroup, and they could not for the life of them see why Varoufakis didn’t understand this. So Varoufakis became branded as “combative” and “recalcitrant” due to his refusal to be on the same page as all the other European finance ministers, when all along it was the Eurogroup who would not talk about obvious economic realities with Varoufakis. Varoufakis’ failed attempt to negotiate even a modicum of constructive economic and political sanity with Brussels strongly suggests that the governing principles of financial power in Europe are not grounded in economic science or democratic politics.

Indeed, it seems all too likely that the ‘logic’ of Eurozone finance is a function of Thucydides’ description of primal human barbarity. Here the strong do as they will and the weak suffer as they must. The complete lack of impact which Varoufakis’ economic arguments achieved leads one to fear that when it comes to economics and politics, we are being conned: the main purpose of economic speak in politics is obfuscation. If that is indeed the case, then having someone point out the obvious elephant in the room – the economic impossibility of the prevailing dogmas governing high finance and domestic politics – is just too much. It looks like our ruling elites do not want a real economist meddling with power.

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A story that seems to surprise many people. But V already told it ages ago. Only thing new is that it started in December.

Varoufakis Claims He Had Approval To Plan Parallel Banking System (Kathimerini)

Former Finance Minister Yanis Varoufakis has claimed that he was authorized by Alexis Tsipras last December to look into a parallel payment system that would operate using wiretapped tax registration numbers (AFMs) and could eventually work as a parallel banking system, Kathimerini has learned. In a teleconference call with members of international hedge funds that was allegedly coordinated by former British Chancellor of the Exchequer Norman Lamont, Varoufakis claimed to have been given the okay by Tsipras last December – a month before general elections that brought SYRIZA to power – to plan a payment system that could operate in euros but which could be changed into drachmas “overnight” if necessary, Kathimerini understands.

Varoufakis worked with a small team to prepare the plan, which would have required a staff of 1,000 to implement but did not get the final go-ahead from Tsipras to proceed, he said. The call took place on July 16, more than a week after Varoufakis left his post as finance minister. The plan would involve hijacking the AFMs of taxpayers and corporations by hacking into the General Secretariat of Public Revenues website, Varoufakis told his interlocutors. This would allow the creation of a parallel system that could operate if banks were forced to close and which would allow payments to be made between third parties and the state and could eventually lead to the creation of a parallel banking system, he said.

As the general secretariat is a system that is monitored by Greece’s creditors and is therefore difficult to access, Varoufakis said he assigned a childhood friend of his, an information technology expert who became a professor at Columbia University, to hack into the system. A week after Varouakis took over the ministry, he said the friend telephoned him and said he had “control” of the hardware but not the software “which belongs to the troika.” [..] The work was more or less complete: We did have a Plan B but the difficulty was to go from the five people who were planning it to the 1,000 people that would have to implement it. For that I would have to receive another authorisation which never came.”

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“..The Germans say there is to be no debt write-off and that the IMF must be part of the program. But the IMF cannot participate in a program in which debt levels are unsustainable”

Greece, The Sacrificial Lamb (Joe Stiglitz)

As the Greek crisis proceeds to its next stage, Germany, Greece and the triumvirate of the International Monetary Fund, the European Central Bank and the European Commission (now better known as the troika) have all faced serious criticism. While there is plenty of blame to share, we shouldn’t lose sight of what is really going on. I’ve been watching this Greek tragedy closely for five years, engaged with those on all sides. Having spent the last week in Athens talking to ordinary citizens, young and old, as well as current and past officials, I’ve come to the view that this is about far more than just Greece and the euro. Some of the basic laws demanded by the troika deal with taxes and expenditures and the balance between the two, and some deal with the rules and regulations affecting specific markets.

What is striking about the new program (called “the third memorandum”) is that on both scores it makes no sense either for Greece or for its creditors. As I read the details, I had a sense of déjà vu. As chief economist of the World Bank in the late 1990s, I saw firsthand in East Asia the devastating effects of the programs imposed on the countries that had turned to the IMF for help. This resulted not just from austerity but also from so-called structural reforms, where too often the IMF was duped into imposing demands that favored one special interest relative to others. There were hundreds of conditions, some little, some big, many irrelevant, some good, some outright wrong, and most missing the big changes that were really required. Back in 1998 in Indonesia, I saw how the IMF. ruined that country’s banking system.

I recall the picture of Michel Camdessus, the managing director of the IMF at the time, standing over President Suharto as Indonesia surrendered its economic sovereignty. At a meeting in Kuala Lumpur in December 1997, I warned that there would be bloodshed in the streets within six months; the riots broke out five months later in Jakarta and elsewhere in Indonesia. Both before and after the crisis in East Asia, and those in Africa and in Latin America (most recently, in Argentina), these programs failed, turning downturns into recessions, recessions into depressions. I had thought that the lesson from these failures had been well learned, so it came as a surprise that Europe, beginning a half-decade ago, would impose this same stiff and ineffective program on one of its own.

Whether or not the program is well implemented, it will lead to unsustainable levels of debt, just as a similar approach did in Argentina: The macro-policies demanded by the troika will lead to a deeper Greek depression. That’s why the IMF’s current managing director, Christine Lagarde, said that there needs to be what is euphemistically called “debt restructuring” – that is, in one way or another, a write-off of a significant portion of the debt. The troika program is thus incoherent: The Germans say there is to be no debt write-off and that the IMF must be part of the program. But the IMF cannot participate in a program in which debt levels are unsustainable, and Greece’s debts are unsustainable.

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Geez, I’m even quoting Brad DeLong now?

Depression’s Advocates (J. Bradford DeLong)

Back in the early days of the ongoing economic crisis, I had a line in my talks that sometimes got applause, usually got a laugh, and always gave people a reason for optimism. Given the experience of Europe and the United States in the 1930s, I would say, policymakers would not make the same mistakes as their predecessors did during the Great Depression. This time, we would make new, different, and, one hoped, lesser mistakes. Unfortunately, that prediction turned out to be wrong. Not only have policymakers in the eurozone insisted on repeating the blunders of the 1930s; they are poised to repeat them in a more brutal, more exaggerated, and more extended fashion. I did not see that coming.

When the Greek debt crisis erupted in 2010, it seemed to me that the lessons of history were so obvious that the path to a resolution would be straightforward. The logic was clear. Had Greece not been a member of the eurozone, its best option would have been to default, restructure its debt, and depreciate its currency. But, because the European Union did not want Greece to exit the eurozone (which would have been a major setback for Europe as a political project), Greece would be offered enough aid, support, debt forgiveness, and assistance with payments to offset any advantages it might gain by exiting the monetary union. Instead, Greece’s creditors chose to tighten the screws.

As a result, Greece is likely much worse off today than it would have been had it abandoned the euro in 2010. Iceland, which was hit by a financial crisis in 2008, provides the counterfactual. Whereas Greece remains mired in depression, Iceland – which is not in the eurozone – has essentially recovered. To be sure, as the American economist Barry Eichengreen argued in 2007, technical considerations make exiting the eurozone difficult, expensive, and dangerous. But that is just one side of the ledger. Using Iceland as our measuring stick, the cost to Greece of not exiting the eurozone is equivalent to 75% of a year’s GDP – and counting.

It is hard for me to believe that if Greece had abandoned the euro in 2010, the economic fallout would have amounted to even a quarter of that. Furthermore, it seems equally improbable that the immediate impact of exiting the eurozone today would be larger than the long-run costs of remaining, given the insistence of Greece’s creditors on austerity. That insistence reflects the attachment of policymakers in the EU – especially in Germany – to a conceptual framework that has led them consistently to underestimate the gravity of the situation and recommend policies that make matters worse.

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Tsipras can’t afford to lose her.

The Latest Rising Greek Political Star Who Says No To Austerity (HuffPo)

Greece’s charismatic head of parliament, Zoe Konstantopoulou, is one of the most dynamic and outspoken members of the country’s ruling Syriza party. This week, she sent shockwaves through the party by refusing to approve a financial reform bill proposed by her supposed Syriza ally, Prime Minister Alexis Tsipras – for the second time. Konstantopoulou considers measures proposed by Tsipras as part of an agreement with Greece’s European lenders to unlock fresh loans for the country a “violent attack on democracy,” she wrote in a letter to Tsipras and Greek President Prokopis Pavlopoulos. Konstantopoulou’s adamant opposition to the newest austerity reforms is resonating with Greeks who feel the Europe-imposed reforms are excruciatingly harsh.

Konstantopoulou, 38, is the daughter of renowned lawyer Nikos Konstantopoulos, who led of one of Syriza’s largest factions, and well-known journalist Lina Alexiou. She studied law at the University of Athens, La Sorbonne in Paris and Columbia University in New York before becoming a lawyer in Greece in 2003, focusing on international criminal law and human rights. Konstantopoulou first ran for Syriza in 2009 and was elected to the Greek parliament in 2012. She was elected head of the parliament in 2015, the youngest person to hold the position. As parliament chief, her forthright remarks and dedication to formal legal procedure have gained her passionate praise as well as fierce opposition. Her forceful interventions have annoyed some politicians, especially those in opposition parties.

Stavros Theodorakis, leader of To Potami (The River), for example, has called her arrogant and has demanded her resignation. Others have praised her fiery energy, saying her forceful defense of her convictions is invigorating. Despite Konstantopoulou’s rising favor, she remains far less popular than other Syriza politicians, especially Tsipras. Her blunt rejection of the prime minister’s reforms has raised speculation she may leave the party and go her own way, according to Greek daily newspaper Kathimerini. Konstantopoulou denies that scenario. After a one-hour meeting with Tsipras on Thursday, she told reporters that both share “an understanding built on camaraderie and honesty, along with the common wish to protect the rights of the people as well as the unity of Syriza, which some would want to see shattered.”

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NY Times ed staff changing its tack.

How the Euro Turned Into a Trap (NY Times Ed.)

When they introduced the euro in 1999, European leaders said the common currency would be irreversible and would lead to greater economic and political integration among their countries. That pledge of permanence, long doubted by euro-skeptics, seems ever less credible. While the eurozone may have temporarily avoided a Greek exit, it is hard to see how a deal that requires more spending cuts, higher taxes and only vague promises of debt relief can restore the crippled economy enough to keep Greece in the currency union. On Thursday, the Greek Parliament passed a second set of reforms required by the country’s creditors. Other changes, like higher taxes on farmers, are expected later in the year.

The combative finance minister of Germany, Wolfgang Schäuble, has further undermined confidence in the euro’s cohesion by saying that Greece would be better off leaving the common currency for a five-year “timeout.” As a practical matter, an exit from the currency union would almost certainly be permanent, since readmission involves a grueling process. The eurozone requires new members to keep inflation below 2% and to have a maximum fiscal deficit of 3% of GDP and a public debt that is no more than 60% of GDP. The plight of the Greeks has made countries that do not use the euro, like Poland and Hungary, far less eager to join the currency union, which has come to mean a loss of sovereignty and a commitment to austerity, regardless of economic reality.

Of course, the euro was never entirely about economics. European leaders believed the single currency was a big step toward creating an irrevocable alliance among countries on the continent. But many experts warned that it could make its members less stable unless it was followed by a tighter political and budgetary union. Since that did not happen, the currency union was left fully vulnerable to economic crises and to the will of Europe’s more powerful economies. All those fears have played out in Greece, even as the threat of exits from the euro hangs over other weakened countries, like Italy, Portugal and Spain. Senior leaders in Germany, Finland and Slovakia who have publicly suggested a Greek exit seem to think it would scare weaker economies into accepting more austerity.

That may not be necessary; some radical parties in those countries are already openly talking about leaving the euro. The question now is what is the cost of leaving? Can a modern economy withstand the immediate damage of an abrupt currency change if the benefits of devaluation and regaining full control over fiscal and monetary policies could be limited and could take years to realize?

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Not enough 5-star hotel rooms?

Greek Bailout Talks Pushed Back By A Few Days On Logistics (Reuters)

Talks between Greece and its international creditors over a new bailout package will be delayed by a couple of days because of organisational issues, a finance ministry official said on Saturday. The meetings with officials from the EC, ECB and IMF were supposed to start on Monday after being delayed for issues including the location of talks and security last week. A finance ministry official, who declined to be named, said talks between the technical teams of the lenders will start on Tuesday, while the mission chiefs will arrive in Athens with a delay of a couple of days for technical reasons. “The reasons for the delay are neither political, nor diplomatic ones,” the official added.

Greeks have viewed inspections visits by the lenders in Athens as a violation of the country’s sovereignty and six months of acrimonious negotiations with EU partners took place in Brussels at the government’s request. Another finance ministry official denied earlier on Saturday that the government was trying to keep the lenders’ team away from government departments and had no problem with them visiting the General Accounting Office.. Asked if the government would now allow EU, IMF and ECB mission chiefs to visit Athens for talks on a new loan, State Minister Alekos Flabouraris said: “If the agreement says that they should visit a ministry, we have to accept that.”

The confusion around the expected start to the talks on Friday underlined the challenges ahead if negotiations are to be wrapped up in time for a bailout worth up to €86 billion to be approved in parliament by Aug. 20, as Greece intends. Already, Prime Minister Alexis Tsipras is struggling to contain a rebellion in his left-wing Syriza party that made his government dependent on votes from pro-European opposition parties to get the tough bailout terms approved in parliament. One of Tsipras’ closest aides said that the understanding with the opposition parties could not last long and a clear solution was needed, underlining widespread expectations that new elections may come as soon as September or October. “The country cannot go on with a minority government for long. We need clear, strong solutions,” State Minister Nikos Pappas told the weekly Ependysi in an interview published on Saturday.

Apart from the terms of a new loan, Greece and its lenders are also expected to discuss the sustainability of its debt, which is around 170% of GDP. Greece has repeatedly asked for a debt relief and the IMF has said this is needed for the Greek accord to be viable. [..] Tsipras, who is by far the most popular politician in Greece according to opinion polls, has said his priority is to secure the bailout package before dealing with the political fallout from the Syriza party rebellion.

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“..the decision to pursue a new IMF program means euro zone leaders may have to open talks on granting Greece significant debt relief much earlier than originally anticipated..”

Renewed Bailout Talks Between Greece And Creditors Hit Snags (FT)

Talks to agree a new €86bn bailout for Greece ran into trouble on Friday after Athens raised hurdles for negotiators in the Greek capital, forcing them to postpone their arrival amid renewed acrimony. Alexis Tsipras, the Greek prime minister, agreed last week to “fully normalize” talks with creditors on the ground in Athens after resisting their presence for months — a key demand made by euro zone leaders when they agreed to reopen rescue talks after coming close to pushing Greece out of the euro zone. But three senior officials from Greece’s bailout monitors said Athens had instead demanded restrictions on negotiators, including on whom creditors could meet and what topics were to be discussed in the talks.

Two of the officials said Greek authorities had also insisted negotiators no longer use the Athens Hilton as their base — a hotel close to central Syntagma Square and a short drive to the finance ministry — instead proposing hotels far from the capital’s government quarter. “It is fundamentally more of the same,” said a senior official from one of the bailout monitors,colloquially known as the “troika” after the three institutions originally involved in the talks, the EC, ECB and IMF. “They don’t want to engage with the troika.” Greek officials insisted the renewed stand-off was only a temporary delay and that talks would resume over the weekend or Monday at the latest.

George Stathakis, economy minister, said he was confident the negotiations would be finished by mid-August, when Athens needs the bailout cash to pay off a €3.2bn bond held by the ECB. Mr Stathakis said Greece and its creditors had already found common ground on many of the main issues,including fiscal targets, stabilizing the banking sector, liberalization of product markets and professions, labor market reforms and privatizations of state assets. “We have three weeks,and I’m confident that it’s enough for the existing agenda,” Mr Stathakis told the Financial Times. “We agree in certain areas. In others, there are different views and some distance needs to be covered. But the last European summit gave a framework that indicates which directions to follow, and that’s why I think three weeks will be enough.”

Still, one creditor official said negotiating teams were “sitting on their suitcases” and had no plans to go to Athens until the logistical issues were resolved. Adding another potential complication, the Greek government on Friday lodged a formal request with the IMF to begin discussions on a new, third bailout program. The request came after officials at the IMF determined that the current Greek program, which still has about €16.5bn to disburse and was due to expire in March, had become outdated. Those negotiations between Athens and the IMF could take months. But the decision to pursue a new IMF program means euro zone leaders may have to open talks on granting Greece significant debt relief much earlier than originally anticipated, since the IMF will not sign on to a new program unless euro zone lenders agree to restructure their bailout loans.

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Syriza differences are being magnified by the press.

Greek Gov’t Braces For Talks With Creditors Amid Upheaval In SYRIZA (Kath.)

Even as Prime Minister Alexis Tsipras grapples with serious divisions within SYRIZA, government officials are bracing for the launch of face-to-face negotiations with representatives of the country’s creditors which are expected to begin next week. The government is hoping to seal a deal with creditors by mid-August and certainly before August 20 when a €3.2 billion debt repayment to the ECB is to come due. Greece does not have the money to repay the debt and is hoping for a deal to be reached, allowing the partial disbursement of some funding, either from a new program or from residual funding from the recapitalization of Greek banks. But sources indicate that creditors are less optimistic about a deal being finalized so soon.

As a result officials are said to be considering the possibility of a second bridge loan to Greece, which would allow it to cover the ECB debt and other obligations, before an agreement on a third bailout is finalized. Although officials from countries that have taken a hard line opposite Greece, including Germany and some north European states, reportedly want Athens to commit to more prior actions, European Economy and Monetary Affairs Commissioner Pierre Moscovici has indicated that this will not be necessary. Creditors are expected to seek additional measures at some point, however, to plug a widening fiscal gap.

Tsipras is also struggling to keep a lid on dissent within SYRIZA as a bloc of around 30 of the party’s 149 MPs object to his compromise with creditors, which foresees more austerity. The premier has indicated that a party congress should be held in September to refocus SYRIZA. Early elections, which are considered inevitable in view of the upheaval within the party, are expected to take place immediately after the congress, either later in September or in October or even November. In comments on Saturday, State Minister Nikos Pappas acknowledged that the country cannot continue indefinitely with a minority government, referring to the mass defections by SYRIZA MPs in recent parliamentary votes. A meeting of SYRIZA’s political secretariat is due on Monday.

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As long as small depositors are left alone, fine by me.

Greek Bank Boldholders Fear Portuguese-Style “Bad Bank” Split (Reuters)

National Bank of Greece bondholders are nervous that they will suffer heavy losses if authorities decide to siphon off all of the bank’s healthy assets leaving a “bad bank” to deal with their claims, a source close to a creditor group said. A group of senior bondholders in NBG sent a letter to European institutions last week saying they were concerned about measures that may be taken to revitalise the Greek banking sector after months of economic upheaval. After drawn-out negotiations, Greece is close to clinching a third bailout deal but has kept in place the capital controls it used to prevent a bank run last month.

The investors, who hold a significant portion of a €750 million NBG senior bond issued last year, are worried the bank may be split into a good bank and a bad bank as was the case for Portugal’s Banco Espirito Santo last year. Portugal separated out and pumped money into the healthy part of the bank creating a new entity “Novo Banco”, while remaining BES shareholders and subordinated bondholders were left with near worthless investments in the remaining bad bank. NBG bondholders are concerned that such a split in Greece could require a level of recapitalisation that would also see senior bondholders left behind in the bad bank.

Under current Greek law, junior bondholders should contribute to a bail-in, while new legislation passed on Wednesday will also force senior bondholders to contribute from January 1 2016. Recapitalisations of Greek banks may be needed before then, however, leaving the option of a bad bank solution on the table. ECB governing council member Christian Noyer said an initial injection of capital for Greek banks would be preferable before stress tests in the autumn.

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To talk to Le Pen?

Chancellor George Osborne Takes EU Reform Campaign To Paris (Reuters)

Chancellor of the Exchequer George Osborne will take Britain’s case for European Union reform to Paris on Sunday, seeking support from his French counterpart for a deal the Conservative government can put before voters in a promised in-out referendum. British Prime Minister David Cameron has pledged to renegotiate ties with the European Union ahead of a vote on the country’s continuing membership by the end of 2017. Osborne’s trip to Paris, the first in a series of visits to European capitals, will seek to build on Cameron’s meetings with all 27 leaders of the bloc earlier this year, the government said. He will argue that with public support for reform rising across the EU, now is the time to deliver lasting change. “The referendum in Britain is an opportunity to make the case for reform across the EU,” he will say, according to excepts of his speech.

“I want to see a new settlement for Europe, one that makes it a more competitive and dynamic continent to ensure it delivers prosperity and security for all of the people within it, not just for those in Britain.” Cameron’s promise of a referendum was made before national elections in May to neutralise a threat from the anti-EU UK Independence Party and to pacify Euro sceptics in his own party. The possibility that Britain could leave the European Union as a result of the tactic has worried allies such as the United States and opposition parties in Britain. U.S. President Barack Obama said on Friday that a Britain within the European union gave Washington much greater confidence in the strength of the transatlantic union. Some lawmakers were angered by his intervention in the debate, saying he was lecturing Britain.

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What a refreshing MO.

Puerto Rico: Austerity For Residents, But Tax Breaks For Hedge Funds (Guardian)

Caught between the demands of billionaires, pro-bankruptcy activists and more than three million people plagued by unemployment, poverty and government debt, who would you choose? As Puerto Rico confronts the quagmire of its $72bn financial crisis, it has come up with an answer: humouring a few very wealthy people. The island has for three years courted some of Wall Street’s richest citizens, from solitary investors to hedge fund elites. Last year it sold at auction hundreds of millions of its debt to various funds, displeasing many who believe the “vulture funds” only want a quick profit off Puerto Rico as it desperately tries to repay debt with high local taxes and austerity cuts.

Hedge fund manager John Paulson, best known for making billions off the 2008 subprime loan market crash, led the charge last year when he declared the island “the Singapore of the Caribbean”. His fund bought more than $100m of Puerto Rico’s junk-rated bonds last year. The most visible effect has been a rush to buy property akin to the buying spree by two billionaires in Detroit as that city filed for bankruptcy. Detroit’s woes are often held up for comparison to Puerto Rico’s but the island lacks the statehood or permission from Congress it would need to file for bankruptcy and follow Michigan’s decision to declare Motor City bust. While funds have inched away from Puerto Rico’s debt debacle, Paulson has bought into land.

In 2014 he spent more than $260m to buy three of the island’s largest resort properties, and announced plans to develop $500m-worth of “residences and resort amenities” to add to the existing beachfront condos and golf courses. He has a fellow cheerleader in billionaire Nicholas Prouty, who has invested more than $550m into turning San Juan’s marina into a bastion of the elite that includes an exclusive club and slips for “megayachts of 200 feet or larger”. As in Detroit, ultra-high-end developments abut scores of empty buildings, either for sale or abandoned by owners searching for work. With unemployment more than twice the US national average, the island’s median household income is nearly $7,000 less than that in Detroit, and less than half the US average.

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Feudalism?

What A Federal Financial Control Board Means To Puerto Rico (The Hill)

Puerto Rico is spiraling out of control and the Federal government will not break the fall. Island leaders may not have the will, popular support, or financial tools to pay down the $72 billion debt. So it is no surprise that calls for a federal financial control board intensified after Governor Alejandro Garcia Padilla announced that Puerto Rico’s debt is unpayable. Establishing a control board may be the easy way out for a wary Congress but it is not as simple as it seems and could backfire. A federal financial control board for Puerto Rico was first proposed a year ago by supporters of Doral Bank in its dispute with the Puerto Rican government over a $230 million tax refund. Most of Doral’s supporters are affiliated with the conservative Koch brothers.

They include Republican Reps. Jeff Duncan (SC), Scott Garrett (NJ), Darrell Issa (CA) and Matt Salmon (AZ) who received Koch Industries PAC contributions and who prior to Doral had never been involved with Puerto Rico. Last month, Duncan recommended to his House colleagues that a control board be established. The 60 Plus Association, another Koch funding recipient, is lobbying for a control board. While frustrated Puerto Ricans are increasingly talking about the need for a control board, the majority of the Island opposes it with good reason. First, Puerto Ricans feel that given the right tools, they can fix the fiscal crisis on their own. Right now the most important tool is access to Chapter 9 federal bankruptcy. From 1933 until 1984, Puerto Rico could allow its municipalities and public corporations to declare bankruptcy in the same way as the 50 states.

In 1984 Congress amended the bankruptcy code and excluded Puerto Rico for reasons unknown. Most agree that overall losses to investors will be higher if Puerto Rico is not given access to Federal bankruptcy and defaults. To avoid this scenario Puerto Rico passed its own bankruptcy law which was challenged by bondholders of electricity provider PREPA which owes $9 billion. The law was recently struck down in Federal court. The Puerto Rican government may appeal to the U.S. Supreme Court. The same group of creditors is fighting bankruptcy legislation introduced in Congress. Issa, who sits in the subcommittee reviewing the bill, opposes it. The conservative Heritage Foundation calls it a bailout even though it supported Chapter 9 for Detroit.

Second, Puerto Ricans are distrustful of any financial control board established by a national government that has denied it political representation for 117 years. The distrust is heightened by knowledge that the chief supporters of a control board are members of the conservative Koch brothers’ network and creditors whose objective is to make money off Puerto Rico rather than enable Puerto Rico to remake itself.

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It’s not easy being Rahm.

Judge Finds Chicago’s Changes To Pension Funds Unconstitutional (Tribune)

Mayor Rahm Emanuel’s administration said it will appeal a Cook County judge’s decision Friday that ruled unconstitutional a state law reducing municipal worker pension benefits in exchange for a city guarantee to fix their underfunded retirement systems. The 35-page ruling by Judge Rita Novak, slapping down the city’s arguments point by point, could have wide-ranging effects if upheld by the Illinois Supreme Court. Her decision appeared to also discredit efforts at the state and Cook County levels to try to curb pension benefits to rein in growing costs that threaten funding for government services. The issue of underfunded pensions, and how to restore their financial health, is crucial for the city and its taxpayers.

The city workers and laborers funds at issue in Friday’s ruling are more than $8 billion short of what’s needed to meet obligations – and are at risk of going broke within 13 years – after many years of low investment returns fueled by recession and inadequate funding. Without reducing benefits paid to retired workers, or requiring current workers to pay more, taxpayers could eventually be on the hook for hundreds of millions of dollars more in annual payments to those city funds — before the even worse-funded police and fire retirement accounts are factored into the taxing equation. Friday’s ruling also could further harm the city’s rapidly diminishing credit rating. Even before the decision, Moody’s Investors Service had downgraded the city’s debt rating to junk status based on pension concerns.

And after Novak’s ruling, Standard & Poor’s Ratings Service warned that it would lower the rating on city debt within the next six months without a fix. Novak’s ruling was not unexpected because of a decision in May by the Illinois Supreme Court on a similar pension case. The state’s high court unanimously struck down a law changing state pensions, saying the Illinois Constitution’s protection against “diminished or impaired” pension benefits for public workers and current retirees was absolute. City officials had argued that an agreement reached with 28 of 31 labor unions to alter retirement benefits out of the municipal and laborers pension funds – two of the city’s four pension plans – was different from the plan struck down by the Supreme Court.

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Color me stunned.

Foreign Criminals Use London Real Estate To Launder Billions Of Pounds (Guardian)

Foreign criminals are using the London housing market to launder billions of pounds, pushing up house prices for domestic buyers, a senior police officer has warned. Donald Toon, the director of economic crime at the National Crime Agency, spoke after a spike in receipts from a tax on homes bought up by companies, trusts and investment funds rather than individuals. Such corporations, usually based in offshore tax havens, are sometimes used by buyers keen to hide ownership of assets from their own countries’ tax authorities. The secrecy they offer can equally be used to squirrel away ill-gotten gains. Toon told the Times: “I believe the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.”

He spoke after provisional tax receipts showed the Treasury had made £142m from the annual tax on enveloped dwellings in just the first three months of the financial year. The tax, introduced last year, is payable every year by companies that own a UK residential property valued above a certain amount. The City of Westminster and the Royal Borough of Kensington and Chelsea accounted for 82% of the revenue, but inflation at the top of the market is thought to ripple down to cheaper properties as wealthy buyers are pushed down the housing chain. Toon’s comments come amid increasing concern that billions of pounds of corruptly gained money has been laundered by criminals and foreign officials buying upmarket London properties through anonymous offshore front companies.

Experts say that London, with its myriad links to tax haven crown dependencies, is arguably the global capital of money laundering. This month a Channel 4 investigation found that estate agents in Britain’s wealthiest postcodes are willing to turn a blind eye to apparent money laundering by corrupt foreign buyers. In the documentary, titled From Russia With Cash, two undercover reporters posed as an unscrupulous Russian government official called Boris in London to purchase an upmarket property for his mistress. The couple viewed five properties ranging in price from £3m to £15m, on the market with five estate agents in Kensington, Chelsea and Notting Hill.

Despite being made aware they are dealing with apparently laundered money, the estate agents agreed to continue with a potential purchase. In several instances the estate agents recommended law firms to help a buyer hide his identity. The agents suggested that secretive purchases of multimillion-pound houses were common in the capital. One claimed that 80% or more of his transactions were with international, overseas-based buyers and “50 or 60%” of them were conducted in “various stages of anonymity … whether it be through a company or an offshore trust”.

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Blowing up one country at a time.

The – Goldman-Related – Scandal That Ate Malaysia (Bloomberg)

In the spring of 2013, Song Dal Sun, head of securities investment at Seoul-based Hanwha Life Insurance, sat down to a presentation by a Goldman Sachs banker. The young Goldman salesman, who had flown in from Hong Kong, made a pitch for bonds to be issued by 1Malaysia Development Bhd., a state-owned company closely tied to Malaysian Prime Minister Najib Razak. It was enticing. The 10-year, dollar-denominated bonds offered an interest rate of 4.4%, about 100 basis points higher than other A-minus-rated bonds were yielding at the time, he recalls. But Song, a veteran of 25 years in finance, sensed something was amiss. With such an attractive yield, 1MDB could easily sell the notes directly to institutional investors through a global offering.

Instead, Goldman Sachs was privately selling 1MDB notes worth $3 billion backed by the Malaysian government. “Does it mean ‘explicit guarantee’?” he recalls asking the Goldman salesman, whom he declined to name. “I didn’t get a straight answer,” Song says. “I decided not to buy them.” The bond sale that Song passed up is part of a scandal that has all but sunk 1MDB, rattled investors, and set back Malaysia’s quest to become a developed nation. Najib, who also serves as Malaysia’s finance minister, sits on 1MDB’s advisory board as chairman. The scandal’s aftershocks have rocked his office, his government, and the political party he leads, United Malays National Organisation, or UMNO.

A state investment company trumpeted as a cornerstone of Najib’s economic policy after he became prime minister in April 2009, 1MDB is now mired in debts of at least $11 billion. Former Prime Minister Mahathir Mohamad, a one-time political mentor who’s turned on Najib, says “vast amounts of money” have “disappeared” from 1MDB funds. 1MDB has denied the claim and said all of its debts are accounted for. From the moment in 2009 when Najib took over a sovereign wealth fund set up by the Malaysian state of oil-rich Terengganu and turned it into a development fund owned by the federal government, 1MDB has been controversial. Since the beginning of this year—with coverage driven by the Sarawak Report, a blog, and The Edge, a local business weekly—the scandal has moved closer and closer to the heart of government, sparking calls for Najib’s ouster and recalling Malaysia’s long struggle with corruption and economic disappointment.

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“..a bacterial disease nicknamed “olive ebola”..”

Olive Oil Prices Surge Due To Drought And Disease In Spain And Italy (Guardian)

Salads have rarely been so expensively dressed after a combination of drought and disease pushed the price of olive oil up 10% so far this year, amid warnings from suppliers that harvests are the worst they have seen. The Italian government has declared a “state of calamity” in the provinces of Lecce and Brindisi on the heel of the country, where olive groves are being attacked by a bacterial disease nicknamed “olive ebola”. Up to 1m centuries-old olive trees could be felled in one of the most picturesque tourist spots of Italy in an attempt to contain the problem. The cost of the raw material has been increasing for two years as crops have been hit by drought in Spain, the world’s biggest producer of the oil, and the bacterial disease Xylella fastidiosa, which is destroying trees in Italy.

Analysts are expecting prices to remain high in coming months as demand is increasing. Retailers and distributors wanted to buy 12% more olive oil than exporters were able to deliver last month, according to industry insiders. Buyers in Latin America have turned to Europe in the wake of poor harvests over the Atlantic, while eastern Europeans have also been using increasing amounts of olive oil. The next harvest from southern Europe is not expected until September, but fears of a third poor harvest in a row in Spain and Italy continue to push up wholesale prices of remaining stocks over the summer. The other two large olive oil producers, Greece and Tunisia, had good yield and production, but not enough to compensate for Spain and Italy.

In the UK, heavy price competition between retailers, led by the rise of discounters Aldi and Lidl, has helped keep prices relatively low for shoppers. But this year, retailers and processors have been forced to pass on increases as the cost of the raw material from Italy has hit a 10-year high. The average retail price of a litre of extra virgin olive oil has risen from £6.32 in December to £6.95 this month, according to data from trade journal the Grocer.

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Humane society.

The Future of Food Finance (Barron’s)

The way people produce and eat food is changing in major ways, presenting both risks and opportunities for those invested in the sustenance sector. Historically, much of our protein has come from animals, but producing just one pound of meat means feeding an animal up to 16 pounds of grains and other crops. The caloric conversion is weak, too: According to a recent report produced in collaboration with the World Bank, even the most efficient sources of meat convert only around 11% of gross feed energy into human food. As global population and per capita meat consumption have grown, this inefficient system has become overburdened. In 1950, the total number of farm animals in the U.S. was somewhere near 100 million; by 2007, that number was roughly 9.5 billion.

To accommodate the enormous demand, nearly all of those animals were moved from farms to factories. According to Agriculture Department data, during the same period that the number of farm animals increased by 9,400%, the number of farmers producing those animals decreased by 60%. So many more animals being reared by so few farmers has come with consequences for consumers, animals, producers, and investors. Take pig production. Over the past several decades, the vast majority of breeding pigs have been moved into “gestation crates,” which are tiny cages that confine animals so tightly they can’t even turn around. The cages are iron maidens for sows. Not surprisingly, some consumers have responded with anger. “Cruel and senseless” is what the New York Times called the cages. “Torture on the farm,” reported the American Conservative magazine.

This outcry has led major food companies to demand changes. More than 60 of the world’s largest food retailers – McDonald’s, Nestlé, Burger King, Oscar Mayer, Safeway, Kroger, Costco, and dozens more – have announced plans to eliminate gestation crates from their pork-supply chains. Addressing animal welfare in corporate-responsibility programs is becoming the norm. “Active concern about how we treat the world around us has moved from the left of center to the mainstream, and savvy businesses are playing a part,” noted an editorial in Nation’s Restaurant News. “The growing number of animal-welfare-related commitments made by companies large and small reflect well-thought-out business –strategies.”

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“11,000 years before the generally recognised advent of organised cultivation..”

Archaeologists Find Possible Evidence Of Earliest Human Agriculture (Guardian)

Israeli archaeologists have uncovered dramatic evidence of what they believe are the earliest known attempts at agriculture, 11,000 years before the generally recognised advent of organised cultivation. The study examined more than 150,000 examples of plant remains recovered from an unusually well preserved hunter-gatherer settlement on the shores of the Sea of Galilee in northern Israel. Previously, scientists had believed that organised agriculture in the Middle East, including animal husbandry and crop cultivation, had begun in the late Holocene period – around 12,000 BC – and later spread west through Europe. The new research is based on excavations at a site known as Ohalo II, which was discovered in 1989 when the water level in the sea of Galilee dropped because of drought and excessive water extraction.

Occupied by a community of hunter-gatherers at the height of the last ice age 23,000 years ago, it revealed evidence of six brush huts with hearths as well as stone tools and animal and plant remains. A series of fortuitous coincidences led to the site’s preservation. The huts had been built over shallow bowls dug by the occupants and later burned. On top of that a deposit of sandy silt had accumulated before the rising lake had left it under 4 metres of water. The study looked for evidence of early types of invasive weeds – or “proto-weeds” – that flourished in conditions created by human cultivation. According to the researchers, the community at Ohalo II was already exploiting the precursors to domesticated plant types that would become a staple in early agriculture, including emmer wheat, barley, pea, lentil, almond, fig, grape and olive.

Significantly, however, they discovered the presence of two types of weeds in current crop fields: corn cleavers and darnel. Microscopic examination of the edges of stone blades from the site also found material that may have been transferred during the cutting and harvesting of cereal plants. Prof Ehud Weiss, head of the archaeological botany lab at the Department of Land of Israel Studies, told the Guardian: “We know what happened ecologically: that these wild plants, some time in history, became weeds. Why? The simple answer is that because humans changed the environment and created new ecological niches, that made it more comfortable for species that would become weeds, meaning they only have to compete with one species.”

According to Weiss, the mixture of “proto-weeds” and grains that would become domesticated mirrors plant findings from later agricultural communities. The site also revealed evidence of rudimentary breadmaking from starch granules found on scorched stones, and that the community may have been largely sedentary, with evidence of consumption of birds throughout the year, including migrating species. “This botanical find is really opening new windows to the past,” Weiss said. “You have to remember Ohalo is a unique preservation. Between Ohalo and the beginning of the Neolithic we have a blank. And when the early Neolithic arrives people start [agriculture again] from scratch.

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