Oct 132017
 
 October 13, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Joan Miro Dancer 1925

 

The Shoeshine Boy Moment For FANG And Friends (DR)
Valuations Are Expensive (Lance Roberts)
Central Banks Have Effectively Manufactured The World’s Biggest Economy (BBG)
ECB to Consider Cutting QE Purchases in Half Next Year (BBG)
Boeing Passenger Jets Have Falsely Certified Kobe Steel Products (R.)
Kobe Steel Scandal Expands Into Core Business Overseas (BBG)
Distressed Investors Buying Houston Homes for 40 Cents on the Dollar (BBG)
Tesla Plays Auto Game By Silicon Valley Rules (DN)
What Powers America (CB)
Greek Civil Servants’ Wages 38% Higher Than Private Sector Staff (K.)
US Obesity Rates Hit New Records: 39.6% of Adults Now Obese (AFP)
Antibiotic Resistance Could Spell End Of Modern Medicine (G.)
Penguin Disaster As Only Two Chicks Survive From Colony Of 40,000 (G.)

 

 

My guess is that once one of them starts falling, the others will domino right along.

The Shoeshine Boy Moment For FANG And Friends (DR)

In early March 2009, the current bull market began in the same way that most of the great bull runs in history have, at a moment when investors were terrified to own stocks. Since then it has been nothing but good times. We are now eight and a half years into this bull market making it the second longest in history. This party has been fun. And for a handful of the most popular stocks, fun doesn’t do it justice. The party has been positively off the chains. The stocks that I’m talking about are the FANG (Facebook, Amazon, Netflix and Google) stocks plus a few of their friends (Tesla, Alibaba and others). These stocks have vastly outperformed the market during this bull-run. Now this is where I become a bit of a party-pooper.

Where Joseph Kennedy Sr. had his shoeshine boy moment for the market in 1929, I believe that a similar warning sign arrived for FANG and friends this summer. Remember, they don’t ring a bell at the top but there are signs. This I believe is a big one… The demand for these stocks has become so high that specific ETFs and dedicated index funds are being launched that are comprised only of FANG and friends. Not just an ETF or index fund, but multiple versions. That latest is called the NYSE FANG+ index. It includes 10 highly liquid stocks that are considered innovators across tech and internet/media companies. It is marketed as a benchmark of today’s tech giants. That may be true, but it is also a benchmark of some of the most expensive stocks in the entire S&P 500. Here are its components:

Yes, I’d love to go back in history and own this group of stocks three years ago. But would I want to own them after an already incredible run? No! As a group these stocks are frighteningly expensive today. That is generally what happens when stocks go up that fast, they become much less attractively valued.

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Another great effort by Lance.

Valuations Are Expensive (Lance Roberts)

[..] the repetitive cycle of monetary policy: • Using monetary policy to drag forward future consumption leaves a larger void in the future that must be continually refilled. • Monetary policy does not create self-sustaining economic growth and therefore requires ever larger amounts of monetary policy to maintain the same level of activity. • The filling of the “gap” between fundamentals and reality leads to consumer contraction and ultimately a recession as economic activity recedes. • Job losses rise, wealth effect diminishes and real wealth is destroyed. • Middle class shrinks further. • Central banks act to provide more liquidity to offset recessionary drag and restart economic growth by dragging forward future consumption. •Wash, Rinse, Repeat.

If you don’t believe me, here is the evidence. The stock market has returned more than 60% since 2007 peak, which is more than three times the growth in corporate sales growth and 30% more than GDP. The all-time highs in the stock market have been driven by the $4.5 trillion increase in the Fed’s balance sheet, hundreds of billions in stock buybacks, PE expansion, and ZIRP.

It is critical to remember the stock market is NOT the economy. The stock market should be reflective of underlying economic growth which drives actual revenue growth. Furthermore, GDP growth and stock returns are not highly correlated. In fact, some analysis suggests that they are negatively correlated and perhaps fairly strongly so (-0.40). However, in the meantime, the promise of a continued bull market is very enticing as the “fear of missing out” overrides the “fear of loss.” This brings us back to Jack Bogle and the importance of valuations which are often dismissed in the short-term because there is not an immediate impact on price returns. Valuations, by their very nature, are HORRIBLE predictors of 12-month returns should not be used in any strategy that has such a focus. However, in the longer term, valuations are strong predictors of expected returns.

[..] I have also previously modified Shiller’s CAPE to make it more sensitive to current market dynamics. “The need to smooth earnings volatility is necessary to get a better understanding of what the underlying trend of valuations actually is. For investor’s, periods of ‘valuation expansion’ are where the bulk of the gains in the financial markets have been made over the last 116 years. History shows, that during periods of ‘valuation compression’ returns are more muted and volatile. Therefore, in order to compensate for the potential ‘duration mismatch’ of a faster moving market environment, I recalculated the CAPE ratio using a 5-year average as shown in the chart below.”

To get a better understanding of where valuations are currently relative to past history, we can look at the deviation between current valuation levels and the long-term average going back to 1900.

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“Central Banks’ Return to Normalcy Is Nothing But a Charade”

Central Banks Have Effectively Manufactured The World’s Biggest Economy (BBG)

The Federal Reserve keeps talking about a “return to normal” in monetary policy. The media must buy into it, because it keeps repeating the phrase. Many investors buy into it, too. After all, it is the high and mighty Fed speaking. This “normal” is defined by interest rates, but interest rates are defined by the economics that surround them. Interest rates do not exist in a vacuum. But since we are in an economic environment never before seen in history, where data compiled by Bloomberg show that central banks have amassed $21.5 trillion in assets, how can there possibly be any notion of “normal?” Nothing in history supports the claim. Without a history, “normal” is a meaningless term. Think about it: In response to the financial crisis, central banks have essentially manufactured in just nine years an economy that is bigger than the gross domestic products of either the U.S. or China.

I am more than willing to recognize the accomplishment, but to call it “normal” is either a ruse or the height of foolishness. There is nothing “normal” about it. Some may say it is the “crown of creation,” and a case can be made for this argument, but it is not a crown that was ever seen before. This is why, when assessing financial markets, I keep pointing at the money. It is the giant amount of manufactured capital that is holding interest rates down, pushing equities up and compressing all risk assets against their sovereign benchmarks. It isn’t inflation or housing data or wages or any other piece of data that can be singled out. Those are, by comparison, flyspecks in the wind. Simply put, all that money has created demand that outstrips the current supply in bonds, in equities, in stock price-to-earnings multiples, in historical risk valuations and in credit assets.

Therefore, the economic environment that underlies asset pricing is, in fact, distorted. The Fed’s claim of some sort of “normalcy” is a charade. Fed Chair Janet Yellen can say it, and so can Fed governors and presidents, but there is not one grain of truth in the telling. It is nothing more than mumbo-jumbo because they do not wish you to recognize what is actually happening. They have taken over markets and now totally control and dominate them, regardless of the usual day-to-day antics.

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More ‘normalcy’.

ECB to Consider Cutting QE Purchases in Half Next Year (BBG)

ECB officials are considering cutting their monthly bond buying by at least half starting in January and keeping their program active for at least nine months, according to officials familiar with the debate. Reducing quantitative easing to €30 billion ($36 billion) a month from the current pace of €60 billion is a feasible option, said the officials, who asked not to be identified because the deliberations are private. While the central bank’s governors are split on the need to identify an end date for purchases, a pledge to keep buying bonds until September – with the proviso that it could be extended if needed – may offer grounds for compromise, they said. Policy makers led by President Mario Draghi are becoming increasingly confident that ECB policy makers will on Oct. 26 agree to the specifics of how much debt the euro-area’s central banks will buy in the coming year.

After more than 2 1/2 years of trying to revive the region’s economy through bond purchases, some governors see the recent period of robust growth as a reason to rein in the support. Others are concerned that inflation remains too weak. Any changes to the sum and time frame of quantitative easing would still fit into the ECB’s present guidance on monetary policy, which commits the ECB to promise “a sustained adjustment in the path of inflation consistent with its inflation aim.” It also pledges that if “the outlook becomes less favorable, or if financial conditions become inconsistent with further progress toward a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program in terms of size and/or duration.”

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The Japanese government better act fast. Kobe requires controlled demolition.

And this sort of comment needs to stop: “Boeing does not as yet consider the issue a safety problem..”

Of course it’s safety problem. Or are we to believe the safety standards never amounted to anything?

Boeing Passenger Jets Have Falsely Certified Kobe Steel Products (R.)

Boeing, the world’s biggest maker of passenger jets, has used Kobe Steel products that include those falsely certified by the Japanese company, a source with knowledge of the matter told Reuters. Boeing does not as yet consider the issue a safety problem, the source stressed, but the revelation may raise compensation costs for the Japanese company, which is embroiled in a widening scandal over the false certification of the strength and durability of components supplied to hundreds of companies. The U.S. airline maker is carrying out a survey of aircraft to ascertain the extent and type of Kobe Steel components in its planes and will share the results with airline customers, said the source who has knowledge of the investigation.

Even if the falsely certified parts do not affect safety, given the intense public scrutiny that airlines operate under they may opt to replace suspect parts rather than face any backlash over concerns about safety. Any large-scale program to remove those components, even during scheduled aircraft maintenance, could prove costly for Kobe Steel if it has to foot the bill. Kobe Steel’s CEO, Hiroya Kawasaki, on Thursday said his company’s credibility was at “zero.” The company, he said, is examining possible data falsification going back 10 years, but does not expect to see recalls of cars or airplanes for now.. Also in the U.S., General Motors said it is checking whether its cars contain falsely certified components from Kobe Steel, joining Toyota and around 200 other firms that have received falsely certified parts from the company.

Boeing does not buy products such as aluminum composites, used in aircraft because of their light weight, directly from Kobe Steel. Its key Japanese suppliers, including Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Subaru, however, do. These Japanese companies are key parts of Boeing’s global supply chain, building one fifth of its 777 jetliner and 35% of its carbon composite 787 Dreamliner.

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This is getting bigger by the minute.

“..the company holds roughly half of the global market share for the wires used in valve springs of auto engines

Kobe Steel Scandal Expands Into Core Business Overseas (BBG)

Kobe Steel’s fake data scandal expanded to its core business after the company admitted “inappropriate actions” related to steel wire produced overseas, triggering a fresh collapse in its shares and heightened speculation that the steelmaker may get broken up. Customers have been informed about the issue, which has been resolved, Tokyo-based spokeswoman Eimi Hamano said by phone, declining to provide details. Kobe Steel falsified quality certification data for steel wire used in auto engines and to strengthen tires, the Nikkei newspaper reported Friday. Kobe’s admission of misconduct in its steel business, which accounts for about a third of revenue, ratchets up the pressure on Japan’s third-biggest steelmaker.

The company’s disclosures had up until now dealt with aluminum, copper and iron ore products used in everything from cars to computer hard drives to Japan’s iconic bullet trains, although there haven’t been any reports of products being recalled or safety concerns raised. The deepening scandal “suggests that this is company culture, not just the actions of a few rogue employees,” Alexander Robert Medd, managing director at Bucephalus Research in Hong Kong, said by email. The question to be resolved is “were they trying to save money or just unable to produce the right spec in the right quantities,” he said. Kobe’s shares have plunged 42% this week, including a 9.1% drop on Friday, after it revealed on Sunday that it had fudged data on the strength and durability of metals supplied to as many as 200 customers around the world, including Toyota, General Motors and space rocket-maker Mitsubishi Heavy Industries.

[..] SMBC Nikko Securities said in a note the new revelations around steel wires could be “quite negative” for Kobe Steel’s creditworthiness as the company holds roughly half of the global market share for the wires used in valve springs of auto engines. If doubts arose over the safety of the wires, it could “shake the foundation” of the company, according to chief credit analyst Takayuki Atake.

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“The whole thing makes me feel like there’s a bunch of vultures sitting on my back fence..”

Distressed Investors Buying Houston Homes for 40 Cents on the Dollar (BBG)

Bryan Schild drives through the byways of Houston looking for what could be the investment opportunity of a lifetime: homes selling for as little as 40¢ on the dollar. “We Pay Cash For Flooded Homes $$$$$$$$ Don’t fix it, sell it. Quick close,” read the signs piled in the back seat of his Ford pickup. Schild stops by a ranch-style house where 74-year-old Paul Matlock lives with his wife, disabled from multiple sclerosis. Matlock is desperate to leave and is considering Schild’s offer of $120,000—half the home’s value three weeks earlier. A half-dozen other investors have made offers, one as low as $55,000. “The whole thing makes me feel like there’s a bunch of vultures sitting on my back fence,” Matlock says. “They’re waiting for the dead body to fall over.”

It’s axiomatic on Wall Street that the time to buy is when fear overtakes greed—when blood (or, in this case, water) is in the streets. Now some are eyeing the billions of dollars in hurricane-ravaged property in Texas and Florida and deciding it may be the time to take out their checkbooks. Investors such as Schild figure they can buy low, either fix up and flip the houses or rent them out for several years, and unload them later, doubling their money or more. Those kinds of bets have often paid off. Buyers who snapped up co-ops and office towers when New York was near bankruptcy in the 1970s made a killing. More recently, companies including Blackstone and other marquee names bought foreclosed homes after the 2008 financial crisis and are sitting on billions in potential gains.

The cycle begins with small-time investors such as Schild, who’s bought more than 30 waterlogged houses for an average $175,000 apiece. Then Wall Street swoops in. Gary Beasley, former CEO of Waypoint Homes, also sees an opportunity. He’s pitching private equity firms and pension funds on the potential profit in buying flooded homes, repairing them, and renting them back to homeowners. Bain Capital and billionaire Marc Benioff, co-founder of Salesforce.com, are backing Beasley’s two-year-old company, Roofstock. It runs a website where investors can buy and sell single-family rental properties. Beasley thinks owner-occupants may be interested in selling there, too, and that flooded neighborhoods are the Next Big Thing. “It’s much like the housing crisis, when the institutional guys came in to buy homes nobody wanted,” he says. Like other investors, Beasley and Schild view themselves as helping homeowners to move on and Houston to rebuild.

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Will Musk take Silicon Valley down with him?

Tesla Plays Auto Game By Silicon Valley Rules (DN)

Lest there be any doubt, the electrified race for supremacy in self-driving cars is being played by Silicon Valley rules. How do we know this? By Tesla Chairman Elon Musk’s recognition that his long-awaited Model 3 compact is “in production hell,” that it’s complicated by “bottlenecks” and by confirmation that parts of the cars are being “hand-built.” This amazing accomplishment is being greeted, well, differently by investors than it would if, say, General Motors Chairman Mary Barra copped to the same kind of chaos with its electric Chevrolet Bolt … or just about any other eagerly anticipated model in its lineup. Tesla mostly gets a pass, as it does for losing money on every car it produces. The nearly 4% slide in its shares Monday, the first trading day after The Wall Street Journal reported the messy Model 3 launch, has since recouped most of the loss, judging by the market close Wednesday.

To free “resources to fix Model 3 bottlenecks” and increase battery production to help hurricane-ravaged Puerto Rico, Musk tweeted that Tesla’s anticipated demonstration of its self-driving truck would be delayed until Nov. 16. Detroit (and its foreign-owned rivals) would get crucified for a similar mess. Analysts, the news media and, especially, investors would show scant tolerance for misses of that magnitude from traditional auto industry players — and all of them would demand answers. Tesla? Not so much. Never mind that Musk, the automotive wunderkind, might risk missing what Barclays Research calls the “iPhone moment” for the Model 3, Tesla’s long-awaited entry into the volume-priced electric car segment. You know, the segment already occupied by GM’s Chevy Bolt, Nissan’s Leaf and a slew of coming electric entrants from global automakers.

As a rule, they don’t botch production launches with the same aplomb as Musk’s hand-built production hell. They also have broader distribution networks under existing state franchise laws; more disciplined production systems with longer lead times to ensure more consistent quality at launch; and greater transparency with investors, analysts and the news media. This will be fascinating to watch. Tesla’s Model 3 is one of the most highly anticipated car launches in a long time. It’s supposed to be sheet metal and electric powertrain proof that Silicon Valley innovation can beat Detroit and Stuttgart, Tokyo and Seoul at their own game.

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Click the link to see the whole thing.

What Powers America (CB)

The US electricity system is often described as the world’s largest machine. It is also incredibly diverse, reflecting the policy preferences, needs and available natural resources of each state. Carbon Brief has plotted the nation’s power stations in an interactive map to show how and where the US generates electricity. A few key messages can be gleaned from the map and associated data interactives below: • The US electricity system has been changing rapidly over the past decade. This reflects not only federal policy, but also technologies, geographies, markets and state mandates. •The average US coal plant is 40 years old and runs half the time. Some 15% are at least 50 years old, against an average retirement age of 52. • Planned new power plants are almost exclusively gas, wind or solar.

Supplying electricity to a nation’s homes, business and industry is an almost uniquely challenging enterprise. For now, electrical energy is either expensive or inconvenient to store, meaning supply and demand must be balanced in real time. It is also easier to generate power close to home than to transport it over long distances. The way electricity is generated fundamentally depends on the fuels and technologies available. The march of progress means this mix is changing – but natural resources and geographies are fixed. Moreover, US states have broad powers to influence the electricity systems within their borders. Putting the US electricity system on a map offers visual confirmation of how important these factors are. Why is solar so prevalent in North Carolina, for example? Or coal in West Virginia?

You can use Carbon Brief’s interactive map to view all the power plants in the US and their relative electricity generating capacities, which are proportional to the size of the bubbles. The dynamic chart in the sidebar summarises the makeup of the capacity mix. It’s important to note that the map and related charts, below, are based on electrical generating capacity. The electricity generated each year by each unit varies according to its load factor (average output of a power station, relative to its installed capacity). US wind has a load factor of around 35% while solar is around 27%. These are lower load factors than for nuclear at around 90%. Coal and gas can, in theory, have similarly high load factors, but in practice both are at around 50% in the US.

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Article gets numbers mixed up, but one thing is certain: Greeks make very little money compared to cost of living.

Greek Civil Servants’ Wages 38% Higher Than Private Sector Staff (K.)

Despite years of austerity policies, Greek civil servants remain significantly better paid than private sector wages, with their average wages 38% higher than their counterparts in the private sector, according to the Hellenic Federation of Enterprises (SEV). The average net monthly wage in the public sector is €1,075 compared to €777 in the private sector, according to figures made public in SEV’s weekly bulletin which underlined that the gap between the two is widening rather than closing. In the first half of this year, the average wage in the public sector rose marginally – by 0.1% – compared to a drop of 1.3% for private sector salaries, according to SEV’s analysis, which concluded that private sector workers saw their wages shaved by about €10 a month over that period.

In a related development, a report conducted by the civil servants’ union ADEDY reported an increase in permanent staff in the Greek civil service over the past year. An additional 1,293 staff were hired between August 2016 and last August, bringing the total number to 566,022, according to the report. Another finding was that most Greek civil servants – 80% of the total – take home a net monthly salary of less than €1,300. Half earn up to €1,000 a month, 44% take home between €1,000 and €1,500 and 3.6% net between €1,500 and €2,100, according to the report. Last month, SEV painted a dire picture of the state of the Greek pension system, which it described as running on empty, while warning that the country’s beleaguered private sector has taken on a disproportionate share of the burden to support pensioners and the public sector.

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Easy to figure out what this will mean to health care. The richest country in the world kills its people for profit.

US Obesity Rates Hit New Records: 39.6% of Adults Now Obese (AFP)

The rate of obesity in the United States has reached a new high, at 39.6% of adults, according to US government data released Friday. Health experts are concerned about obesity because it is associated with a number of life-threatening health conditions, including heart disease, stroke, diabetes and certain kinds of cancer. The adult obesity rate in the United States has risen steadily since 1999, when 30.5% of adults were obese. “From 1999–2000 through 2015–2016, a significantly increasing trend in obesity was observed in both adults and youth,” said the report, based on a nationally representative sample of the population, and issued by the National Center for Health Statistics.

“The observed change in prevalence between 2013–2014 and 2015–2016, however, was not significant among both adults and youth.” Its previous report for 2013 to 2014 found that 37.7% of adults were obese. Researchers said the difference between the current and last report is not statistically significant because it falls within the margin of error of the estimate. Adult obesity is defined as having a body mass index (BMI) of 30 or higher. Among youths aged two to 19, 18.5% are obese, the report said. The rate of youth obesity was 13.9% in 1999.

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Another example of killing people for profit.

Antibiotic Resistance Could Spell End Of Modern Medicine (G.)

England’s chief medical officer has repeated her warning of a “post-antibiotic apocalypse” as she urged world leaders to address the growing threat of antibiotic resistance. Prof Dame Sally Davies said that if antibiotics lose their effectiveness it would spell “the end of modern medicine”. Without the drugs used to fight infections, common medical interventions such as caesarean sections, cancer treatments and hip replacements would become incredibly risky and transplant medicine would be a thing of the past, she said. “We really are facing – if we don’t take action now – a dreadful post-antibiotic apocalypse. I don’t want to say to my children that I didn’t do my best to protect them and their children,” Davies said.

Health experts have previously said resistance to antimicrobial drugs could cause a bigger threat to mankind than cancer. In recent years, the UK has led a drive to raise global awareness of the threat posed to modern medicine by antimicrobial resistance (AMR). Each year about 700,000 people around the world die due to drug-resistant infections including tuberculosis, HIV and malaria. If no action is taken, it has been estimated that drug-resistant infections will kill 10 million people a year by 2050. The UK government and the Wellcome Trust, along with others, have organised a call to action meeting for health officials from around the world. At the meeting in Berlin, the government will announce a new project that will map the spread of death and disease caused by drug-resistant superbugs.

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Too sad for words.

Penguin Disaster As Only Two Chicks Survive From Colony Of 40,000 (G.)

A colony of about 40,000 Adélie penguins in Antarctica has suffered a “catastrophic breeding event” – all but two chicks have died of starvation this year. It is the second time in just four years that such devastation – not previously seen in more than 50 years of observation – has been wrought on the population. The finding has prompted urgent calls for the establishment of a marine protected area in East Antarctica, at next week’s meeting of 24 nations and the European Union at the Commission for the Conservation of Antarctic Marine Living Resources (CCAMLR) in Hobart. In the colony of about 18,000 breeding penguin pairs on Petrels Island, French scientists discovered just two surviving chicks at the start of the year. Thousands of starved chicks and unhatched eggs were found across the island in the region called Adélie Land (“Terre Adélie”).

The colony had experienced a similar event in 2013, when no chicks survived. In a paper about that event, a group of researchers, led by Yan Ropert-Coudert from France’s National Centre for Scientific Research, said it had been caused by a record amount of summer sea ice and an “unprecedented rainy episode”. The unusual extent of sea ice meant the penguins had to travel an extra 100km to forage for food. And the rainy weather left the chicks, which have poor waterproofing, wet and unable to keep warm. This year’s event has also been attributed to an unusually large amount of sea ice. Overall, Antarctica has had a record low amount of summer sea ice, but the area around the colony has been an exception.

Ropert-Coudert said the region had been severely affected by the break-up of the Mertz glacier tongue in 2010, when a piece of ice almost the size of Luxembourg – about 80 km long and 40km wide – broke off. That event, which occurred about 250km from Petrels Island, had a big impact on ocean currents and ice formation in the region. “The Mertz glacier impact on the region sets the scene in 2010 and when unusual meteorological events, driven by large climatic variations, hit in some years this leads to massive failures,” Ropert-Coudert told the Guardian. “In other words, there may still be years when the breeding will be OK, or even good for this colony, but the scene is set for massive impacts to hit on a more or less regular basis.”

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Oct 082017
 
 October 8, 2017  Posted by at 8:19 am Finance Tagged with: , , , , , , , ,  5 Responses »
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Georgia O’Keeffe Street of New York II 1926

 

Bleak Legacy Of The Greek Crisis (K.)
The Truth Is Catching Up With Tesla (WSJ)
DOD, HUD Defrauded US Taxpayers Of $21 Trillion From 1998 To 2015 (MPN)
1.34 Million Chinese Officials Have Been Punished For Graft Since 2013 (R.)
The Coming Pension Storm May Be The End Of Europe As We Know It (Mauldin)
Uncle Sam’s Unfunded Promises (Mauldin)
How I Learnt To Loathe England (Joris Luyendijk)
Imperialism Still Stops Britain From Grasping How It Looks To The World (PM)
Federal Police Stay, No Talks & No Independent Catalonia – Spanish PM (RT)
Splits In EU Could See Bloc Topple: Polish President (PAP)
Antibiotic Apocalypse (G.)
Want To Avert The Apocalypse? Take Lessons From Costa Rica (G.)

 

 

From the Read and Weep department.

Bleak Legacy Of The Greek Crisis (K.)

Quarterly figures released by Greece’s statistical authority (ELSTAT) last week point to a range of interesting, albeit worrying, trends. Beyond the economy (the surpluses, the debt and the gross domestic product, which appears to be on the slow path of recovery after a decade of constant decline), ELSTAT’s “Greece in Numbers” survey highlights a multitude of structural shortcomings and widespread impoverishment that are undermining the country’s long-term prospects. Demographic trends are among ELSTAT’s most alarming findings. According to the survey, Greece’s dependency ratio – which acts as an indicator of the balance between the working population and older people typically supported by it – has increased from 51.8 in 2011 to 55.2 in 2015 (most recent data).

Meanwhile, the aging index, or the proportion of persons aged 60 years and above per 100 persons under the age of 15, rose from 132.9 in 2011 to 145.5 in 2015. Over the same period, the fertility index dropped from 1.5 to 1.3. (2.1 live births per woman is considered the replacement level in developed countries). Greece had a negative birth to death ratio every year in the past five years, as the deficit rose from 16,297 in 2012 to 29,365 in 2015 (the number last year declined to 25,894). In 2016, moreover, the Greek unemployment rate was 23.5% of the workforce (1.195 million people) – the lowest in five years. However, jobless numbers remain extremely high, with the highest figure being recorded in 2013 at 1.33 million unemployed persons, or 27.5% of the workforce.

ELSTAT data on long-term unemployment expose another dramatic dimension of the crisis, as the rate of people out of work for 12 months or more climbed from 59.1% in 2012 to 72% in 2016. The overwhelming majority of these people receive no state benefits. The belt-tightening imposed by the country’s lingering recession is confirmed by data on average monthly household spending on goods and services. Spending has plunged from 1,824.02 euros in 2011 to 1,419.57 euros in 2015. Meanwhile, annual household expenditure on health (which tends to be inelastic) dipped from 114.58 euros to 107.06 euros over the same period. However, annual spending on food has seen a sharp decline from 355.05 euros to 293.30 euros, while spending on hotels, cafes and restaurants has also dropped from 189.11 euros to 141.05 euros.

ELSTAT figures also show a spike in the share of the population that is deprived of at least three out of nine material necessities due to financial difficulties – the ability to pay unexpected expenses, to take a one-week annual holiday away from home, to enjoy a meal involving meat, chicken or fish every second day, to have adequate heating for their home, to purchase durable goods like a washing machine, color television, telephone or car, to cover payment arrears for the mortgage or rent, utility bills, hire purchase installments or other loan payments. This figure rose from 28.4% in 2011 to 38.5% last year (42.3% among persons aged up to 17 years old).

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Jim Kunstler not long ago published a book entitled World Made by Hand. Turns out Tesla’s are made by hand. There’s poetic justice in there somewhere.

The Truth Is Catching Up With Tesla (WSJ)

New revelations about Tesla’s production of the highly anticipated Model 3 sedan should shock, but not surprise, investors. The Wall Street Journal reported Friday that Tesla has recently been building major portions of the Model 3 by hand. This comes less than a week after Tesla announced it fell short of its third-quarter production guidance of 1,500 cars by more than 80%. At the time, Tesla attributed the shortfall to “production bottlenecks.” On Friday, Tesla said it would postpone its launch event for a new truck to November to deal with Model 3 issues and to help provide assistance to Puerto Rico. Tesla Chief Executive Elon Musk is known as a risk-taker, which has endeared him to Wall Street analysts and investors alike.

There is a fine line, however, between setting aggressive goals and misleading shareholders. Tesla is inching closer to that line. Tesla was making three Model 3s on an average day in the third quarter. Mr. Musk should have known in August, when production guidance was reiterated, that the company wasn’t going to produce 1,500 Model 3s by the end of September. There are other examples. At the Model 3 launch event in July, he told reporters that Tesla had received more than 500,000 customer deposits for the car. Five days later, after a series of questions from The Wall Street Journal, Mr. Musk revised that number to 455,000 on a conference call with investors. The earlier, higher figure he quoted had been “just a guess.”

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Creative accounting gone berserk.

DOD, HUD Defrauded US Taxpayers Of $21 Trillion From 1998 To 2015 (MPN)

Last year, a Reuters article brought renewed scrutiny to the budgeting practices of the U.S. Department of Defense (DOD), specifically the U.S. Army, after it was revealed that the department had “lost” $6.5 trillion in 2015 due to “wrongful budget adjustments.” Nearly half of that massive sum, $2.8 trillion, was lost in just one quarter. Reuters noted that the Army “lacked the receipts and invoices to support those numbers [the adjustments] or simply made them up” in order to “create an illusion that its books are balanced.” Officially, the DOD has acknowledged that its financial statements for 2015 were “materially misstated.” However, this was hardly the first time the department had been caught falsifying its accounting or the first time the department had mishandled massive sums of taxpayer money.

The cumulative effect of this mishandling of funds is the subject of a new report authored by Dr. Mark Skidmore, a professor of economics at Michigan State University, and Catherine Austin Fitts, former assistant secretary of housing. Their findings are shocking. The report, which examined in great detail the budgets of both the DOD and the Department of Housing and Urban Development (HUD), found that between 1998 and 2015 these two departments alone lost over $21 trillion in taxpayer funds. The funds lost were a direct result of “unsupported journal voucher adjustments” made to the departments’ budgets. According to the Office of the Comptroller, “unsupported journal voucher adjustments” are defined as “summary-level accounting adjustments made when balances between systems cannot be reconciled.

Often these journal vouchers are unsupported, meaning they lack supporting documentation to justify the adjustment [receipts, etc.] or are not tied to specific accounting transactions.” The report notes that, in both the private and public sectors, the presence of such adjustments is considered “a red flag” for potential fraud. The amount of money lost is truly staggering. As co-author Fitts noted in an interview with USA Watchdog, the amount unaccounted for over this 17 year period amounts to “$65,000 for every man, woman and child resident in America.” By comparison, the cost per taxpayer of all U.S. wars waged since 9/11 has been $7,500 per taxpayer. The sum is also enough to cover the entire U.S. national debt, which broke $20 trillion less than a month ago, and still have funds left over. What’s more, the actual amount of funds lost — measured at $21 trillion – is likely to be much higher, as the researchers were unable to recover data for every year over the period, meaning the assessment is incomplete.

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Corruption rules the world.

1.34 Million Chinese Officials Have Been Punished For Graft Since 2013 (R.)

China’s anti-graft watchdog said roughly 1.34 million lower-ranking officials have been punished since 2013 under President Xi Jinping’s anti-corruption drive. Xi, who is preparing for a major Communist Party leadership conference later this month, has made an anti-graft campaign targeting “tigers and flies,” both high and low ranking officials, a core policy priority during his five-year term. China is preparing for the 19th Congress later this month, a twice-a-decade leadership event where Xi is expected to consolidate power and promote his policy positions.

Those punished for graft since 2013 include 648,000 village-level officials and most crimes were related to small scale corruption, said the Central Commission for Discipline Inspection (CCDI) on Sunday. While much of the country’s anti-graft drive has targeted lower ranking village and county officials, several high-ranking figures have been taken down. In August the head of the anti-graft committee for China’s Ministry of Finance was himself put under investigation for suspected graft.

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John Mauldin is doing a series on pensions. He covered the US a few weeks ago, this is a chapter from his analysis of Europe.

The Coming Pension Storm May Be The End Of Europe As We Know It (Mauldin)

Switzerland and the UK have mandatory retirement pre-funding with private management and modest public safety nets, as do Denmark, the Netherlands, Sweden, Poland, and Hungary. Not that all of these countries don’t have problems, but even with their problems, these European nations are far better off than some others. The European nations noted above have nowhere near the crisis potential that the next group does: France, Belgium, Germany, Austria, and Spain. They are all pay-as-you-go countries (PAYG). That means they have nothing saved in the public coffers for future pension obligations, and the money has to come out of the general budget each year. The crisis for these countries is quite predictable, because the number of retirees is growing even as the number of workers paying into the national coffers is falling.

Let’s look at some details. Spain was hit hard in the financial crisis but has bounced back more vigorously than some of its Mediterranean peers did, such as Greece. That’s also true of its national pension plan, which actually had a surplus until recently. Unfortunately, the government chose to “borrow” some of that surplus for other purposes, and it will soon turn into a sizable deficit. Just as in the US, Spain’s program is called Social Security, but in fact it is neither social nor secure. Both the US and Spanish governments have raided supposedly sacrosanct retirement schemes, and both allow their governments to use those savings for whatever the political winds favor.

The Spanish reserve fund at one time had €66 billion and is now estimated to be completely depleted by the end of this year or early in 2018. The cause? There are 1.1 million more pensioners than there were just 10 years ago. And as the Baby Boom generation retires, there will be even more pensioners and fewer workers to support them. A 25% unemployment rate among younger workers doesn’t help contributions to the system, either. Overall, public pension plans in the pay-as-you-go countries would now replace about 60% of retirees’ salaries. Plus, several of these countries let people retire at less than 60 years old. In most countries, fewer than 25% of workers contribute to pension plans. That rate would have to double in the next 30 years to make programs sustainable. Sell that to younger workers.

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Here’s Mauldin on US pensions etc. I added a graph which shows that individuals save less just as Uncle Sam loses control of promises made.

Uncle Sam’s Unfunded Promises (Mauldin)

I have to warn you: You may be hopping mad when you finish reading this. In the United States we have two national programs to care for the elderly. Social Security provides a small pension, and Medicare covers medical expenses. All workers pay taxes that supposedly fund the benefits we may someday receive. That’s actually not true, as we will see in a little bit. Neither of these programs is comprehensive. Living on Social Security benefits alone is a pretty meager existence. Medicare has deductibles and copayments that can add up quickly. Both programs assume people have their own savings and other resources. Nevertheless, the programs are crucial to millions of retirees, many of whom work well past 65 just to keep up with their routine expenses. This chart from my friend John Burns shows the growing trend among generations to work past age 65. Having turned 68 a few days ago, I guess I’m contributing a bit to the trend:

Limited though Social Security and Medicare are, we attribute one huge benefit to them: They’re guaranteed. Uncle Sam will always pay them – he promised. And to his credit, Uncle Sam is trying hard to keep his end of the deal. In fact, he’s running up debt to do so. Actually, a massive amount of debt. Federal debt as a percentage of GDP has almost doubled since the turn of the century. The big jump occurred during the 2007–2009 recession, but the debt has kept growing since then. That’s a consequence of both higher spending and lower GDP growth. In theory, Social Security and Medicare don’t count here. Their funding goes into separate trust funds. But in reality, the Treasury borrows from the trust funds, so they simply hold more government debt.

The Treasury Department tracks all this, and you can read about it on their website, updated daily. Presently it looks like this: • Debt held by the public: $14.4 trillion • Intragovernmental holdings (the trust funds): $5.4 trillion • Total public debt: $19.8 trillion. Total GDP is roughly $19.3 trillion, so the federal debt is about equal to one full year of the entire nation’s collective economic output. In fact, it’s even more when you consider that GDP counts government spending as “production,” even when Uncle Sam spends borrowed money. Of course, that total does not count the $3 trillion-plus of state and local debt, which in almost every other country of the world is included in their national debt numbers. Including state and local debt in US figures would take our debt-to-GDP above 115%. And rising.

An old statute requires the Treasury to issue an annual financial statement, similar to a corporation’s annual report. The FY 2016 edition is 274 enlightening pages that the government hopes none of us will read. Among the many tidbits, it contains a table on page 63 that reveals the net present value of the US government’s 75-year future liability for Social Security and Medicare. That amount exceeds the net present value of the tax revenue designated to pay those benefits by $46.7 trillion. Yes, trillions. Where will this $46.7 trillion come from? We don’t know. Future Congresses will have to find it somewhere. This is the fabled “unfunded liability” you hear about from deficit hawks. Similar promises exist to military and civil service retirees and assorted smaller groups, too. Trying to add them up quickly becomes an exercise in absurdity.

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Must read. Dutch anthropologist Joris wrote about the City for the Guardian. You’d almost wish this had been his topic instead for those 5 years.

How I Learnt To Loathe England (Joris Luyendijk)

When I came to live in London with my family in 2011 I did not have to think of a work or residency permit. My children quickly found an excellent state primary school, and after a handful of calls we enjoyed free healthcare, and the right to vote in local elections. The only real bureaucratic hassle we encountered that warm summer concerned a permit to park. It all seemed so smooth compared to earlier moves to the United States, Egypt, Lebanon and Israel/Palestine. Then again, this time we were moving in with our cousins—weren’t we? We had arrived as fellow Europeans, but when we left this summer to return to the Netherlands we felt more like foreigners: people tolerated as long as they behave. At best we were “European Union nationals” whose rights would be subject to negotiations—bargaining chips in the eyes of politicians.

As we sailed from Harwich, it occurred to me that our departure would be counted by Theresa May as five more strikes towards her goal of “bringing down net immigration to the tens of thousands.” The Dutch and the British have a lot in common, at first sight. Sea-faring nations with a long and guilty history of colonial occupation and slavery, they are pro free-trade and have large financial service industries—RBS may even move its headquarters to Amsterdam. Both tend to view American power as benign; the Netherlands joined the occupations of Afghanistan and Iraq. Shell, Unilever and Elsevier are just three examples of remarkably successful Anglo-Dutch joint ventures. I say “remarkably” because I’ve learned that in important respects, there is no culture more alien to the Dutch than the English (I focus on England as I’ve no experience with Wales, Scotland or Northern Ireland).

Echoing the Calvinist insistence on “being true to oneself,” the Dutch are almost compulsively truthful. Most consider politeness a cowardly form of hypocrisy. Bluntness is a virtue; insincerity and backhandedness are cardinal sins. So let me try to be as Dutch as I can, and say that I left the UK feeling disappointed, hurt and immensely worried. We did not leave because of Brexit. My wife and I are both Dutch and we want our children to grow roots in the country where we came of age. We loved our time in London and have all met people who we hope will become our friends for life. But by the time the referendum came, I had become very much in favour of the UK leaving the EU. The worrying conditions that gave rise to the result—the class divide and the class fixation, as well as an unhinged press, combine to produce a national psychology that makes Britain a country you simply don’t want in your club.

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Also from Prospect magazine, like the previous article.

Imperialism Still Stops Britain From Grasping How It Looks To The World (PM)

Amongst politicians as well as writers, a passing reference to fallen empires could invoke the aura of national decline far more efficiently than any statistic. As the 1950s gave way to the 60s, decolonisation picked up pace, and Ian Macleod, the pragmatic Colonial Secretary, did not stand in the way. But he did—perhaps ruefully—recall how the vanishing empire had once brought “consolation” to “this bright little, tight little island.” What was at stake was not any specific longing for a particular colonial enclave, but a generalised feeling of relegation to the confined spaces of England. Many a contemporary British observer advocated “going into Europe” as the only way to break this cycle of confusion and self-hatred. It took three attempts, with first Harold Macmillan and then Wilson being given the “Non” before Edward Heath finally secured entry in 1973.

With a bold commitment to a new corporate enterprise, it was hoped Britain’s lost latitude could at last be restored. Any material prosperity at stake seemed almost incidental to the emotional shock therapy that lay in store. The deed was done with little regard for the future of Australian butter or New Zealand lamb, but these were sentimental hankerings that most in Britain could happily do without. More recently, however, the tables have turned. The once liberating tonic of “Europe” has come to be seen as the cause of Britain’s confinement. What the likes of Hartley would have made of the current fetish for “Global Britain” leaves little to the imagination. Despite the passing of nearly 60 years, concerns about the proper scale of Britain not only permeate the airwaves but also play directly into political decision-making.

Take the overwhelming support for Trident in the House of Commons, for example, and the widespread belief, which defies publicly-available information about how its maintenance entirely depends on US goodwill, that it constitutes an “independent” nuclear deterrent. Consider, too, the endlessly-repeated claim, earnestly mouthed by ministers of all stripes as a self-evident truth, that the UK must somehow “punch above its weight on the world stage.” And consider, most pressingly, the suggestion that the rest of the world will be excited by the chance to haggle a bespoke British trade deal, despite ample indications to the contrary and the obvious perils of jeopardising access to the world’s largest single market for such risky returns.

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Main protests this weekend are aimed at getting parties to talk. Can Rajoy continue to resist that? Will Merkel let him?

Federal Police Stay, No Talks & No Independent Catalonia – Spanish PM (RT)

Madrid will use all legal means to stop Catalonia’s secession, PM Mariano Rajoy said, ruling out talks with separatists and vowing to keep federal police in the region, where 800 people were injured in a crackdown on last week’s independence referendum. In an interview with El Pais newspaper on Saturday, Spanish Prime Minister Rajoy indicated that he is not going to back down from his tough stance on Catalonia’s independence, reiterating that until the regional government abandons its intention to proclaim independence, no talks can take place. “As long as it does not go back to legality, I certainly will not negotiate,” Rajoy said, adding that while the Spanish government appreciates proposals to mediate between the national and Catalan governments, it will have to reject them.

“I would like to say one thing about mediation: we do not need mediators. What we need is that whoever is breaking the law and whoever has put themselves above the law rectifies their position,” the PM said. Rajoy further said that the national government will do whatever it takes to ensure that an independent Catalonia never happens. “We are going to prevent independence from occurring. That is why I can tell you with absolute frankness that it will not happen,” he said, adding that Madrid is within its rights to “take any decisions that the laws allow us,” depending on the way the crisis unravels. One of the actions that the Spanish government is considering taking if necessary is the enforcement of Article 155 of the Spanish Constitution, which enables the prime minister to dissolve the Catalonian government and call for snap local elections.

“I do not rule out anything that the law says,” Rajoy said of the option, adding that there is “no risk at all” that Spain will disintegrate. “Spain will not be divided and national unity will be maintained. We will use all the instruments that the legislation gives us,” he said. [..] The Catalonia dispute should be considered a challenge not only to Spain but also to the “great European project,” Rajoy argued, calling it “the battle of Europe.” “The battle of European values is under way and we have to win it,” he said, drawing parallels between such challenges to the European project from populist and separatist sentiments that have been gaining traction in Europe recently.

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January 1 2018, Bulgaria takes over EU presidency. They don’t want any immigrants.

Splits In EU Could See Bloc Topple: Polish President (PAP)

Poland does not agree to the European Union ordering countries to accept “forcibly relocated” migrants, President Andrzej Duda has said, warning that splits in the bloc could bring about its collapse. After Thursday’s talks with his Bulgarian counterpart in Warsaw, Duda said the European Union’s rules of unity mean “we work together … we do not try to force other countries into acting against their will and against their people”. “Which is why we do not agree to being dictated to, against the Polish people’s will, as regards the quota system, as regards forcible relocation of people to Poland,” Duda added.

In September 2015, when an earlier government was in power in Warsaw, EU leaders agreed that each country would accept a number of migrants over two years to alleviate the pressure on Greece and Italy, which have seen the arrival of tens of thousands of people from the Middle East. EU leaders agreed to relocate a total of about 160,000 migrants of more than two million people who arrived in Europe since 2015. But after coming to power in 2015, Poland’s conservative Law and Justice party, from which Duda hails, refused to honour that commitment. Poland now faces action from Brussels, which has threatened possible sanctions.

Speaking at a press conference after his meeting with Bulgarian President Rumen Radev, Duda said the future of the European Union was the main topic of talks, as Bulgaria prepares to take over the rotating presidency over the bloc at the beginning of next year. He added that Poland and Bulgaria had “the same position” on Europe’s migration crisis. Duda said that both countries want “preventative action”, which means protecting the European Union’s borders and sending aid to refugees and potential migrants “close to their countries”.

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Standard hospital procedures will become impossible.

“The world will face the same risks as it did before Alexander Fleming discovered penicillin in 1928.”

Antibiotic Apocalypse (G.)

Scientists attending a recent meeting of the American Society for Microbiology reported they had uncovered a highly disturbing trend. They revealed that bacteria containing a gene known as mcr-1 – which confers resistance to the antibiotic colistin – had spread round the world at an alarming rate since its original discovery 18 months earlier. In one area of China, it was found that 25% of hospital patients now carried the gene. Colistin is known as the “antibiotic of last resort”. In many parts of the world doctors have turned to its use because patients were no longer responding to any other antimicrobial agent. Now resistance to its use is spreading across the globe. In the words of England’s chief medical officer, Sally Davies: “The world is facing an antibiotic apocalypse.”

Unless action is taken to halt the practices that have allowed antimicrobial resistance to spread and ways are found to develop new types of antibiotics, we could return to the days when routine operations, simple wounds or straightforward infections could pose real threats to life, she warns. That terrifying prospect will be the focus of a major international conference to be held in Berlin this week. Organised by the UK government, the Wellcome Trust, the UN and several other national governments, the meeting will be attended by scientists, health officers, pharmaceutical chiefs and politicians. Its task is to try to accelerate measures to halt the spread of drug resistance, which now threatens to remove many of the major weapons currently deployed by doctors in their war against disease.

The arithmetic is stark and disturbing, as the conference organisers make clear. At present about 700,000 people a year die from drug-resistant infections. However, this global figure is growing relentlessly and could reach 10 million a year by 2050. The danger, say scientists, is one of the greatest that humanity has faced in recent times. In a drug-resistant world, many aspects of modern medicine would simply become impossible. An example is provided by transplant surgery. During operations, patients’ immune systems have to be suppressed to stop them rejecting a new organ, leaving them prey to infections. So doctors use immunosuppressant cancer drugs. In future, however, these may no longer be effective.

Or take the example of more standard operations, such as abdominal surgery or the removal of a patient’s appendix. Without antibiotics to protect them during these procedures, people will die of peritonitis or other infections. The world will face the same risks as it did before Alexander Fleming discovered penicillin in 1928. [..] “In the Ganges during pilgrimage season, there are levels of antibiotics in the river that we try to achieve in the bloodstream of patients,” says Davies. “That is very, very disturbing.”

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What are we waiting for?

Want To Avert The Apocalypse? Take Lessons From Costa Rica (G.)

A beautiful Central American country known for its lush rainforests and stunning beaches, Costa Rica proves that achieving high levels of human wellbeing has very little to do with GDP and almost everything to do with something very different. Every few years the New Economics Foundation publishes the Happy Planet Index – a measure of progress that looks at life expectancy, wellbeing and equality rather than the narrow metric of GDP, and plots these measures against ecological impact. Costa Rica tops the list of countries every time. With a life expectancy of 79.1 years and levels of wellbeing in the top 7% of the world, Costa Rica matches many Scandinavian nations in these areas and neatly outperforms the United States. And it manages all of this with a GDP per capita of only $10,000, less than one fifth that of the US.

In this sense, Costa Rica is the most efficient economy on earth: it produces high standards of living with low GDP and minimal pressure on the environment. How do they do it? Professors Martínez-Franzoni and Sánchez-Ancochea argue that it’s all down to Costa Rica’s commitment to universalism: the principle that everyone – regardless of income – should have equal access to generous, high-quality social services as a basic right. A series of progressive governments started rolling out healthcare, education and social security in the 1940s and expanded these to the whole population from the 50s onward, after abolishing the military and freeing up more resources for social spending. Costa Rica wasn’t alone in this effort, of course.

Progressive governments elsewhere in Latin America made similar moves, but in nearly every case the US violently intervened to stop them for fear that “communist” ideas might scupper American interests in the region. Costa Rica escaped this fate by outwardly claiming to be anti-communist and – horribly – allowing US-backed forces to use the country as a base in the contra war against Nicaragua. The upshot is that Costa Rica is one of only a few countries in the global south that enjoys robust universalism. It’s not perfect, however. Relatively high levels of income inequality make the economy less efficient than it otherwise might be. But the country’s achievements are still impressive. On the back of universal social policy, Costa Rica surpassed the US in life expectancy in the late 80s, when its GDP per capita was a mere tenth of America’s.

Today, Costa Rica is a thorn in the side of orthodox economics. The conventional wisdom holds that high GDP is essential for longevity: “wealthier is healthier”, as former World Bank chief economist Larry Summers put it in a famous paper. But Costa Rica shows that we can achieve human progress without much GDP at all, and therefore without triggering ecological collapse. In fact, the part of Costa Rica where people live the longest, happiest lives – the Nicoya Peninsula – is also the poorest, in terms of GDP per capita. Researchers have concluded that Nicoyans do so well not in spite of their “poverty”, but because of it – because their communities, environment and relationships haven’t been ploughed over by industrial expansion.

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Sep 292017
 
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Pablo Picasso Weeping woman 1937

 

US Inequality Near Historic Highs, Wages Stagnant (BI)
UBS Indentifies 8 Cities With Biggest Housing Bubbles (ZH)
Chinese Money Is Still Leaking Into the World’s Housing Markets (BBG)
China’s Bitcoin Market Alive And Well As Traders Defy Crackdown (R.)
China Orders North Korean Companies Active In The Country To Shut Down (BBG)
The Closing Of The Catalan Polling Stations (EI)
French Vineyards Robbed Of Seven Tonnes Of Grapes (AFP)
Schäuble Leaves But Schäuble-ism Lives On (Varoufakis)
Over Half Of All Greek Enterprises Are In The Red (K.)
Surge In Migration To Greece Fuels Misery In Refugee Camps (G.)
China’s Love of Meat Is Driving Global Antibiotic Usage (BBG)
Tropical Forests Don’t Absorb Carbon. They Emit As Much As All US Transit (Q.)

 

 

Economy out of balance.

US Inequality Near Historic Highs, Wages Stagnant (BI)

There is a reason so many Americans feel the economy’s recovery from the Great Recession has not benefited them: It hasn’t. An expansion that began, believe it or not, more than seven years ago has extended a longer-run trend of wage stagnation for the average US worker, despite a sharp drop in the official unemployment rate to 4.4% from an October 2009 peak of 10%. No wonder the recovery seems so lopsided, particularly given economic inequality levels not seen since before the Great Depression. A new report from the Hamilton Project, an economic-policy initiative of the Brookings Institution in Washington, offers a range of startling figures and charts that paints a rather dramatic picture of US economic disparities. “The U.S. economy has experienced long-term real wage stagnation and a persistent lack of economic progress for many workers,” wrote Jay Shambaugh, a White House economist under President Barack Obama who now heads the Hamilton Project.

After adjusting for inflation, wages are just 10% higher in 2017 than they were in 1973, amounting to real annual wage growth of just below 0.2% a year, the report says. [..] One big source of the problem: Starting around the 1970s, US productivity growth began rising much more rapidly than workers’ compensation — meaning the share of growth was accumulating increasingly in corporate profits at the expense of pay. The report attributes this both to the increasing role of technology in the workplace but also to a loss of bargaining power brought on by anti-union labor policies and other wage-suppressing measures. “Changes in worker bargaining power, competition within and across industries, and globalization can all influence the share of output workers receive,” the report said.

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What happened to Auckland?

UBS Indentifies 8 Cities With Biggest Housing Bubbles (ZH)

Two years ago, when UBS looked at the world’s most expensive housing markets, it found that London and Hong Kong were the only two areas exposed to bubble risk. What a difference just a couple of years makes, because in the latest report by UBS wealth Management, which compiles the bank’s Global Real Estate Bubble Index, it found that eight of the world’s largest cities are now subject to a massive speculative housing bubble. And while perpetually low mortgage rates are clearly to blame for the rapid ascent of home prices, Chinese money laundering operations clearly seem to also be playing a role as their favorite markets of Vancouver, Toronto and Sydney all made this year’s list. Bubble risk seems greatest in Toronto, where it has increased significantly in the last year.

Stockholm, Munich, Vancouver, Sydney, London and Hong Kong all remain in risk territory, with Amsterdam joining this group after being overvalued last year. Valuations are stretched in Paris, San Francisco, Los Angeles, Zurich, Frankfurt, Tokyo and Geneva as well. In contrast, property markets in Boston, Singapore, New York and Milan seem fairly valued, while Chicago remains undervalued, just as it was last year. Price bubbles are a regularly recurring phenomenon in property markets. The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts. But recurring patterns of property market excesses are observable in the historical data. Typical signs include a decoupling of prices from local incomes and rents, and distortions of the real economy, such as excessive lending and construction activity. The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns.

As UBS points out, artificially low interest rates in Europe, for example, have kept mortgage payments below their 10-year average despite real prices surging 30% since 2007. Falling mortgage rates over the last decade have made buying a home vastly more attractive, which increased average willingness to pay for home ownership. In European cities, for example, the annual usage costs for apartments (mortgage interest payments and amortization) are still below their 10-year average, despite real prices escalating 30% since 2007. In Canada and Australia, too, a large part of the negative impact of higher purchase prices on affordability was cushioned by low mortgage rates.

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Xi must watch his reserves.

Chinese Money Is Still Leaking Into the World’s Housing Markets (BBG)

Tighter capital controls have done little to dent the appetite of Chinese buyers who already helped drive prices higher across the globe. While definitive data are hard to come by, real estate brokers including Knight Frank LLP, Savills Plc and domestic firm Shiju report rising purchases of overseas property this year. What’s changed is that the curbs have prompted buyers to look for cheaper homes in smaller cities, making down payments more manageable. Part of the reason for the unhindered overseas purchases could be that authorities have already succeeded in stemming capital outflows after cracking down on the most acquisitive companies. That eases the need to enforce limits on individuals, a more difficult and costly process, said Steven Zhang at Morgan Stanley Huaxin. “It’s a question of cost and benefit,” Zhang said.

Since the start of 2017, Chinese applying for their $50,000-a-year foreign-exchange quotas must sign pledges that the money won’t be used for real estate. Violators face a range of potential sanctions. [..] The impact of the increased currency scrutiny has been on the size rather than the quantity of deals. At real estate portal Juwai.com, the average price of overseas properties Chinese buyers inquired about dropped to just over $292,000 this year from more than $356,000 in 2016. Some buyers are eschewing pricey hubs like New York for less-expensive areas such as Florida and Texas, according to Eric Lam, chief executive of Shiju, the overseas broker unit of Shenzhen World Union Properties. They’re typically spending up to 3 million yuan ($450,000) for U.S. homes, and as much as 2 million yuan for U.K. properties, prices that make for manageable down payments using exchange quotas, Lam said.

Jones Lang LaSalle said it was mainly selling U.K. homes, often below $500,000, and Cushman & Wakefield also highlighted surging Chinese demand for British property after the pound weakened following the Brexit vote. [..] The undimmed appetite suggests Chinese money could continue to put upward pressure on prices, a trend that’s stoked concern among locals in cities from Vancouver to Sydney. Chinese buyers, mainly from the mainland but also from Taiwan and Hong Kong, spent a record $31.7 billion on U.S. residential properties in the year through March 31, remaining the biggest foreign force in the market.

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The crackdown doesn’t come into effect until October.

China’s Bitcoin Market Alive And Well As Traders Defy Crackdown (R.)

Weeks after Beijing banned fundraising through token launches and ordered some bitcoin exchanges to shut, casting a chill over the cryptocurrency industry, traders say that the market is far from dead. While several exchanges have announced that they will close by the end of this month, traders have now moved to buy and sell bitcoin directly with each other on peer-to-peer marketplaces and messenger apps. Industry insiders say some overseas-based initial coin offerings (ICOs) are still being marketed. Although the crackdown has dissuaded large swathes of less-experienced investors from participating in the trade, market participants point to the limits Chinese regulators ultimately face in controlling the industry, where many users are anonymous and difficult to track.

In the short-run, the crackdown has also created an arbitrage opportunity for investors, with the price of bitcoin in China now trading at a discount to overseas exchanges. “They can’t set rules to stop me from investing in what I want to invest in. They say you are protecting me, but as long as I think this is good, they have no way to intervene,” said a Chinese bitcoin investor named Victor, who declined to give his full name citing current sensitivities. [..] “The fact that bitcoin is still being traded is an indication that China isn’t looking to eliminate them, but reposition things in a way to have better control over them,” said Marshall Swatt, the founder of New York-based Coinsetter, a bitcoin exchange acquired by larger peer San Francisco-based Kraken in 2016.

Other Chinese cryptocurrency players said traders were also moving away from using Tencent’s WeChat app, to encrypted messenger app Telegram to avoid regulatory scrutiny. Some said they were still seeing overseas-based ICOs being marketed in China. The Sept. 4 shutdown of ICOs stipulated that Chinese citizens were not allowed to invest in ICOs. Overseas ICOs have been returning money on a voluntary basis.

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That’s going to hurt.

China Orders North Korean Companies Active In The Country To Shut Down (BBG)

China ordered North Korean companies active in the country to shut down as it seeks to implement United Nations’ sanctions against the hermetic regime. Joint ventures between Chinese firms and North Korean entities and individuals will also have to close, according to a statement on the website of China’s Ministry of Commerce Thursday. Companies are required to cease business within 120 days of Sept. 12 – the day after the UN passed new sanctions aimed at punishing North Korea for its latest missile and nuclear tests. Non-profit and non-commercial public utility and infrastructure projects are not subject to the order, the ministry said. The move comes ahead of U.S. Secretary of State Rex Tillerson’s visit to China at the weekend. North Korea is among topics to be discussed with senior Chinese leaders, along with President Donald Trump’s planned trip to the region and trade and investment issues, the State Department said in a statement on Wednesday.

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Please keep the peace.

The Closing Of The Catalan Polling Stations (EI)

As we reported yesterday, the Catalan head prosecutor has instructed the regional police, the Mossos d’Esquadra, to seal the designated polling stations for Sunday’s independence referendum by Friday. This may not be easy. The radical left separatist party CUP is calling for the seals to be broken, and there will be attempts to organise sit-ins at the polling stations before the police comes to seal them, which would force the police to clear the sit-in. As we noted yesterday they are about 2,700 polling stations in a Catalan election, which stretches the police’s ability to cover them all simultaneously. The Mossos have responded officially that they will act proportionately, and that there is a risk that sealing the polling places may lead to public unrest. In addition, they are demanding a court order – not just an instruction from the prosecutor – to seal the polling stations.

The Catalan government says that the police is there to guarantee order so that people can exercise their right to vote, while the Spanish government says the police is there to prevent illegal acts from being carried out. The Catalan premier has convened the region’s public safety board, which includes representatives of the Spanish interior minister who will be in attendance. The interior minister had previously set up security coordination meetings for all the Spanish and Catalan police forces, which the Mossos resent as they result in putting them under command of the national police. We have also reported that Mariano Rajoy will miss tomorrow’s informal EU summit in Tallinn, which starts today with a dinner, ostensibly on account of the Catalan referendum. The referendum is scheduled for Sunday. We wonder whether Mariano Rajoy feels he needs to be in Spain on the Friday just in case unrest breaks out.

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Sounds like a lot. The French are serious about wine.

French Vineyards Robbed Of Seven Tonnes Of Grapes (AFP)

At least seven tonnes of grapes have been stolen in the dead of night from vineyards in France’s prime winegrowing region of Bordeaux, following a disastrous yield blamed on poor weather, police say. Three vineyards have had grapes and even whole vines stolen since mid-September, police said on Wednesday. They said about six and a half tonnes of grapes disappeared from a vineyard in Genissac near the world-famous Saint Emilion region, adding that the theft was clearly committed by professional vintners. Between 600 and 700kg (1,300 and 1,500lb) of grapes were stolen from a vineyard in Pomerol, which produces top quality reds. Thieves also uprooted 500 vines from a vineyard in nearby Montagne, police said.

A fourth grape robbery took place in Lalande-de-Pomerol, according to a local press report. Thieves making away with grapes is not a new phenomenon but it has surged this year apparently because of a very low yield. “There’s a great temptation to help oneself from [the vineyard] next door,” an industry expert told AFP on condition of anonymity. France faces its poorest wine harvest since 1945 after an unusually mild March and frosty April, experts said last month, although a hot summer promises to deliver top vintages. The agriculture ministry said output was expected to total 37.2m hectolitres (983m US gallons), 18% less than 2016 and 17% below the average over the past five years.

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Merkel already sold off Greece to please her bankers. Now she’s planning to make things worse in order to cement a coalition.

Schäuble Leaves But Schäuble-ism Lives On (Varoufakis)

Wolfgang Schäuble may have left the finance ministry but his policy for turning the eurozone into an iron cage of austerity, that is the very antithesis of a democratic federation, lives on. What is remarkable about Dr Schäuble’s tenure was how he invested heavily in maintaining the fragility of the monetary union, rather than eradicating it in order to render the eurozone macro-economically sustainable and resilient. Why did Dr Schäuble aim at maintaining the eurozone’s fragility? Why was he, in this context, ever so keen to maintain the threat of Grexit? The simple answer is: Because a state of permanent fragility was instrumental to his strategy for using the threat of expulsion from the euro (or even of Germany’s withdrawal from it) to discipline the deficit countries – chiefly France.

Deep in Dr Schäuble’ thinking there was the belief that, as a federation is infeasible, the euro is a glorified fixed exchange rate regime. And the only way of maintaining discipline within such a regime was to keep alive the threat of expulsion or exit. But to keep that threat alive, the eurozone could not be allowed to develop the instruments and institutions that would stop it from being fragile. Thus, the eurozone’s permanent fragility was, from Dr Schäuble’s perspective an end-in-itself, rather than a failure. The Free Democratic Party’s ascension will see to it that Wolfgang Schäuble’s departure will not alter the policy of doing whatever it takes to prevent the eurozone‘s evolution into a sustainable macroeconomy.

The FDP’s sole promise to its voters was to prevent any of Emmanuel Macron’s plans, for some federation-lite, from being agreed to, and for pursuing Grexit. Even worse, whereas Wolfgang Schäuble understood that austerity plus new loans were catastrophic for countries like Greece (but insisted on them as part of his campaign to discipline France and Italy), his FDP successors at the finance ministry will probably be less ‘enlightened’ believing that the ‘tough medicine’ is fit for purpose. And so the never ending crisis of Europe’s social economy, that feeds the xenophobic political monsters, continues.

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Waterboarding. And worse. Do this to an economy, and it will fail outright. That, then, must be what Berlin is aiming for.

Over Half Of All Greek Enterprises Are In The Red (K.)

At least 56% of small and medium-sized enterprises (SMEs) are now in debt due to low liquidity and high borrowing, a combination that forbids them from meeting their short-term obligations. Only a fraction have a chance of having their debt restructured, which means that sooner or later they will follow the fate of many of their peers and be forced to shut down. This is the main conclusion of a Piraeus Bank analysis after a sample of 7,896 companies were assessed using its Enterprise Rating System (ERS). Given that over 97% of enterprises in Greece are SMEs, the risk both to them and the economy in general is clear, with an impact on state revenues, employment and bank provisions.

The ERS assessment resulted in four categories of enterprises based on liquidity, solvency, degree of leverage and debt servicing. Just 8.6% of all companies have made it into the A category. They are the healthiest businesses, with high cash flows, even though two-thirds face problems with their earnings. Category B accounts for 35.7% of companies, which display satisfactory performance; however, it should be observed that the obligations of these businesses exceed their assets by 1.2 times. The largest category is C, with two-fifths of all companies, or 40.4%; they are enterprises which have not yet reached the brink as they have some chances at becoming sustainable, but indicate a low degree of debt servicing, finding themselves in the red.

Finally there is category D, which hosts 15.4% of all companies. The vast majority (82.5%) has a substantial problem in terms of sustainability; not only do they have a negative operating profit rate, averaging at -9.1%, but they are also loss-making. The average company in this category has borrowing that is three-and-a-half times its assets and 25 times its earnings before interest, tax, depreciation and amortization (EBITDA).

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Lesvos Solidarity on Twitter: “Section C in #moria now houses around 200 unaccompanied minors, incl pregnant girls. They are unattended after 17.00.”

Surge In Migration To Greece Fuels Misery In Refugee Camps (G.)

Greece is experiencing a dramatic rise in the number of refugees and migrants entering the country, exacerbating already deplorable living conditions on island camps. The number of people arriving, across land and sea borders, has more than doubled since the beginning of the summer. Authorities estimate arrivals are now at their highest level since March 2016, with over 200 men, women and children being registered every day. “It is dramatic and it is the most vulnerable of the vulnerable coming in,” said Elias Pavlopoulos, who heads Médecins sans Frontières in Greece. “There are whole families fleeing war zones in Syria and Iraq. In the last few months our clinics have seen more people who have suffered violence, who are victims of rape, who have been tortured, than ever before.”

Despite a pledge by EU member states in September 2015 to relocate 160,000 asylum seekers – including 106,000 from Greece and Italy – a mere 29,000 have been moved to other European countries so far. With the 28-nation bloc failing to meet the deadline set out in its own plan, mass demonstrations are expected in capitals across Europe this weekend. Refugees and migrants have been arriving in Greece not only on rickety boats from Turkey but by foot across the frontier between the two countries. On Wednesday, police announced 37 refugees – including 19 children – from Iraq, Syria, Eritrea and Afghanistan, had been dumped by smugglers on the national highway outside Thessaloniki.

Human rights groups are increasingly likening the situation to 2015, when, at the height of the migrant crisis that engulfed Europe, Greece saw close to a million people enter the country on onward journeys that often took them to Germany. “We’re living the days of 2015,” said Pantelis Dimitriou from Iliaktida, a local NGO on Lesbos operating accommodation and support centres for the newly arrived. “The flows have become huge. From around 50 to 60 in early July they are now at more than 200 every day. Maybe it is the German elections, maybe it is about Turkey’s [worsening] relations with the EU, or maybe this is the last push before winter, but something is going on.” More worrying is the number of minors making the often treacherous journey to get to Greece. In a statement this week, Save the Children said around 40% of the new arrivals were under the age of 18. Over 1,500 unaccompanied minors are currently on waiting lists in Greece to be housed in child shelters.

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We need a global ban on using antibiotics on farms. But the industry is very powerful.

China’s Love of Meat Is Driving Global Antibiotic Usage (BBG)

Growing global demand for animal protein is good news for the pharmaceutical industry, but a worry for public health. Food animals will consume 200,235 tons of antimicrobial medicines by 2030, 53% more than they were getting in 2013, according to a study published Thursday in the journal Science. China, already the world’s largest consumer of veterinary antimicrobials, is forecast to lead the charge, with a 59% jump. That bodes badly for the efficacy of these infection-fighting medications. The study’s authors linked the quantity of drugs used on farms with the emergence of foodborne bacteria, like Campylobacter and Salmonella harboring antibiotic-resistance genes. Limiting daily meat intake worldwide to the equivalent of one standard fast-food burger per person could reduce global consumption of antimicrobials in food animals by 66%, the researchers said.

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It was fun while it lasted?!

Tropical Forests Don’t Absorb Carbon. They Emit As Much As All US Transit (Q.)

Since humans began to worry about having put too much carbon in the atmosphere, we’ve considered tropical forests an important “carbon sink.” Their fast growth rate, dense vegetation, and rich soils sucked more carbon out of the atmosphere then they produced. In other words, tropical forests were a natural greenhouse-gas vacuum. Except now, just when the world most needs them to be, they’re not. At some point, it turns out, deforestation, drought, and other forest-disturbing factors tipped the scales, making tropical forests a net producer of carbon rather than a sink, according to a new study published Sept. 28 in the journal Science. Each year, instead of absorbing carbon, these degraded forests are a source of more carbon (roughly 425 teragrams of carbon per year) than an entire year’s worth of US transportation emissions.

Scientists at Woods Hole Research Center and Boston University spent two and a half years trekking to tropical forests in 22 countries, measuring trees’ thickness and recording their growth rate, which is a big factor in how much carbon a forest is absorbing. They then paired their field data with laser remote-sensing data and 12 years of satellite data from NASA’s MODIS satellites. The researcher’s combined approach allowed them to figure out not just losses from dramatic deforestation, but also the harder-to-calculate losses from less obvious factors, like selective logging and small-scale farming. Previous studies have looked at large-scale deforestation in the tropics as a source of carbon, and more recent papers have pointed towards the subtler forms of degradation as a likely underestimated source.

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Aug 142017
 
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August Strindberg Alpine Landscape I 1894

 

Multiple Contraction : Stock Market Warning Siren is Blaring (WS)
Is The Euro Crisis Really Over? (Lacalle)
US Is The Real Trade Protectionist – China State Media (CNBC)
Fourth Turning: “It’s Going To Be A Rollercoaster Ride” (ZH)
Conspiracy or Chaos? (Jim Quinn)
Forget GDP – There’s More To Britain’s Wealth Than Its Bank Balance (Baggini)
Factory Farming, Antibiotics Use In Asia Creating Global Health Risks (G.)
More NGOs Follow MSF In Suspending Mediterranean Migrant Rescues (R.)
Syrian Refugees Can Return To Aleppo… And Do So In Their 100,000s (RT)
Do Elephants Have Souls? (NA)

 

 

Creative accounting is subject to inherent limits.

Multiple Contraction : Stock Market Warning Siren is Blaring (WS)

“Adjusted” earnings growth is 10.2% year-over-year in the second quarter, according to FactSet, based on the 91% of the companies in the S&P 500 that have reported results. The energy sector was a key driver, with 332% “adjusted” earnings growth from the oil-bust levels of a year ago. The sectors with double-digit earnings growth: information technology (14.7%), utilities (10.8%), and financials (10.3%). The rest were single digit. Earnings in the consumer discretionary sector declined. Revenues grew 5.1%, also led by the energy sector. At the beginning of Q2 last year, the WTI grade of crude oil traded at $35 a barrel. In Q2 this year, WTI ranged from $42 to $53 a barrel.

So the Wall-Street hype machine is cranking at maximum RPM to propagate the great news that earnings are soaring, and that this is the reason why stocks should also be soaring, and forget everything else. The hype machine carefully avoids showing the bigger picture which is dismal for earnings and ludicrous for stock valuations. Aggregate earnings per share (EPS) for the S&P 500 companies on a trailing 12-months basis rose for the second quarter in a row. That’s the foundation of the Wall Street hype. But here’s the thing with these EPS: they’re now back where they had been in… May 2014. Yep. More than three years of earnings stagnation. No growth whatsoever, even for “adjusted” earnings. In fact, on a trailing 12-month basis, aggregate EPS of the S&P 500 companies are down about 5% from their peak in Q4 2014.

And yet, over the same three-plus years of total earnings stagnation, the S&P 500 index has soared 34%. This chart shows those “adjusted” earnings per share for the S&P 500 companies (black line) and the S&P 500 index (blue line). I marked August 2012 as the point five years ago, and May 2014. And these are not earnings under the Generally Accepted Accounting Principles (GAAP). FactSet uses “adjusted” earnings for its analyses. These are the earnings with the bad stuff “adjusted” out of them by management to manipulate earnings into the most favorable light. Not all companies report “adjusted” earnings. Some only report GAAP earnings and live with the consequences. But others put adjusted earnings into the foreground, and that’s what Wall Street dishes up.

[..] This is the peculiar situation of today: On average, these companies have stagnating earnings per share propped up by “adjusting” these earnings and by financial engineering. The price-earnings multiple (P/E ratio) for stagnating companies should be low. In January 2012, the P/E ratio for the companies in the S&P 500 index was 14.9. And that was high. As of Friday, the aggregate P/E ratio is 24.3:

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Brussels keeps Europe from recovering. A continent of zombies.

Is The Euro Crisis Really Over? (Lacalle)

This week we have read that Brussels has certified “the end of the crisis”. In an uncomfortably triumphant statement, the group welcomed the fact that Europe had emerged from the crisis and returned to growth “thanks to the decisive action of the European Union”. Really? Thanks to the “decisive action” of the European Union the “economy is back in shape”? It is true that the communique says that “much remains to be done to overcome the legacy of the crisis years”, but if we can say something about the European crisis is that the “decisive” action of the European Union has not helped to end the crisis, but has perpetuated and silenced it. The European economy is not “in shape”.

According to the Bank of International Settlements and Merrill Lynch, Europe has more zombie companies today than before the crisis, 9% of large listed non-financial corporations are considered walking dead, ie generating operating profits that do not cover their financial costs, in spite of all-time low-interest rates and an unprecedented monetary stimulus. And that is among the big companies, where the business results of the Eurostoxx remain below 2008. If we go to SMEs, the European Union has higher rates of bankruptcies and losses than in 2008, yet the tax burden on companies has increased. In fact, if anything can be said of the European business fabric is that it has been devastated by taxes.

The European Union has continued to hamper the high-productivity sectors to support the so-called national champions and zombies, that large amount of low-value added conglomerates, ridden by high debt and poor margins. While the United States saw the astronomical takeoff of technology giants and corporate profits growing at double digit rates, the EU decided to put obstacles to growth, and today, in the Eurostoxx 100, we have the same collection of dinosaurs that we had a decade ago. European banks, at the end of 2016, had more than €1 trillion in non-performing loans, a figure that represents 5.1% of total loans compared to 1.5% in the US or Japan. Europe has gone from financial crisis to financial crisis, and recently we have had new episodes in Italy, Spain and Portugal.

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Theory: Xi will not put up a real fight if he’s not certain he can win (Deng Xiao Ping’s stance on US).

US Is The Real Trade Protectionist – China State Media (CNBC)

Trump is expected to issue the so-called Section 301 investigation under the 1974 Trade Act later on Monday to investigate Chinese trade practices that force U.S. firms operating in China to turn over intellectual property, multiple outlets reported. China will retaliate in such a case, said the Communist Party-linked Global Times, which is known for its nationalist slant. “The Trump administration should have second thoughts about putting pressure on China on trade and avoid a full-blown trade war,” said the newspaper, adding that the Beijing “should make use of the WTO mechanism to sue the U.S. for trade protectionism.” “The trade policies of the Trump administration have been widely criticized. Although filing a lawsuit with the WTO is time-consuming, it is highly likely that China would win,” it said.

The latest news about a U.S. probe into Chinese trade practices could lead to steep tariffs and comes as Trump is pressing for China’s cooperation in reining in North Korea’s nuclear program. “The U.S. now is walking softly and carrying a huge stick in regards to what it wants. Here, this is tactically nothing more than ‘We need your support with North Korea,’ part and parcel, that’s it. The symbolism of this is just politics and game play,” Frank Troise, managing director at SoHo Capital, told CNBC’s “The Rundown.” China has repeatedly said the two issues were not related, with the Global Times calling the link “illogical” in its Sunday night editorial. Commentaries in state media normally provide insight into government thinking beyond typically thin official statements.

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Neil Howe is an interesting voice, and that’s only partly because Steve Bannon likes his work.

Fourth Turning: “It’s Going To Be A Rollercoaster Ride” (ZH)

[..] .. although 9/11 changed America’s attitude towards the rest of the world, I think that the stock market boom and celebrity circus that’s here in the United States really hadn’t changed very much. And I don’t think you really had a shift, a fundamental shift, in America’s perception of themselves as a people, as their own country, to a fundamental degree until 2008. Also, 2001, as we explained to many people at the time, was simply too early. Every turning starts when each generation is beginning to move into a new phase of life. Back in 2001 boomers were not yet retiring, millennials were still—maybe the first one of them was barely graduating from high school.

So, this was not what we expected. 2008 really did coincide with the generational maturity of the turning, so to speak. And I think that, in terms of the basic shift in our efficacy of the social system, I think 2008 was a bigger change.” The crisis also ushered in an era where central banks exhibit total control of markets, which has created an “artificial quality,” Howe said. “The economic emergency that occurred in 2008-2009 really catapulted us into by far the biggest economic emergency we’ve been in since the early 1930s. And, arguably, we are still living out the consequences of that with complete change in central bank policy, monetary policy, with sustaining these record low interest rates and arguable very high valuations in financial markets—almost anything pushed by that—and people still wondering how we’re going to get out from under that.

The constant discussion is when are central banks going to pull back on their balance sheets and actually go back to the old normal? So, I think there is the sense, even in this the booming markets that we see today, that there is this artificial quality: people think that there’s something wrong about this. We have not re-righted where we were. We are not letting price discovery and actual markets function the way they did before then. So, I do believe that 2008 was the beginning of a whole new regime. And I also believe that the political dysfunction, the sense of political dysfunction—created during the two turns of the Obama presidency and, obviously, also into the Trump presidency—of government completely grinding to a halt is going to have some very powerful repercussions in the years shortly to come.”

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Anarchy in the UK.

Conspiracy or Chaos? (Jim Quinn)

Alan Moore, the renowned graphic novel writer, and author of the dystopian classic V for Vendetta, politically identifies as an anarchist. His view that all political states are an outgrowth of anarchy, with the biggest gang taking control and dictating how things will be run, is manifested in V for Vendetta. As an anarchist, you can understand why he is doubtful of conspiracy theories and an all-powerful entity controlling the world. He believes in a chaotic world competing gangs position themselves to gain power and control.

“We live in a badly developed anarchist situation in which the biggest gang has taken over and have declared that it is not an anarchist situation – that it is a capitalist or a communist situation. But I tend to think that anarchy is the most natural form of politics for a human being to actually practice.”- Alan Moore

The Guy Fawkes mask from V for Vendetta has been adopted by anarchist groups around the world, including: Anonymous, WikiLeaks, and the Occupy protestors. Moore’s positive view of the Occupy movement was based on his belief ordinary people had the right to reclaim what had been taken from them by criminal bankers. The initial impetus for the Occupy protests was the destruction of Main Street USA by Wall Street sociopaths, who not only escaped prosecution for their crimes, but were bailed out by the taxpayers they had pillaged and further enriched as captured politicians enabled them to get even bigger. Millions were evicted from their homes and lost their jobs. Middle class families have seen their real income continue to stagnate, while bankers, corporate executives, and politicians have reaped billions in bonuses, stock gains, and payoffs, provided by central bankers in their back pocket.

“I can’t think of any reason why as a population we should be expected to stand by and see a gross reduction in the living standards of ourselves and our kids, possibly for generations, when the people who have got us into this have been rewarded for it – they’ve certainly not been punished in any way because they’re too big to fail. I think that the Occupy movement is, in one sense, the public saying that they should be the ones to decide who’s too big to fail. As an anarchist, I believe that power should be given to the people whose lives this is actually affecting.” – Alan Moore

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Basic argument: technological growth beats economic growth. But why argue this using social housing and libraries?

Forget GDP – There’s More To Britain’s Wealth Than Its Bank Balance (Baggini)

How is this possible? Because “a lot of improvements in standard of living come not through what we normally consider as growth, but through technological improvements”. This is a concrete example of real growth without what is normally understood by economic growth. If we can grasp this, we can see why the argument about whether indefinite growth is environmentally sustainable is bogus. Orthodox economics says that it is essential if the world’s worst-off are to escape their poverty. Critics argue for zero or even negative growth, claiming that this is the only way to ensure we don’t deplete the planet’s resources. Both are wrong. Real wealth is created not just by exploiting more resources and increasing society’s cash pot but by exploiting the same or fewer resources better.

The whole question of GDP growth is a red herring if we are interested in real wealth. What matters is that we do more with the resources we have. Building a better future depends on seeing this clearly. Take the need to reduce inequality, which many now accept is urgent. To do this it is assumed we need to reduce the income gap between rich and poor. But real equality is increased simply by making it possible for the less well-off to do more with the money they have. Social housing was, and could again be, an example of that. Take two people, one of whom earns £30k a year and the other £15k. To close the real wealth gap between the two does not necessarily require increasing the income of the latter. Providing them with a decent council flat at low rent effectively allows their disposable income to equalise.

The basic principle here is that what matters most is giving people the resources they need to live better, which doesn’t necessarily require giving them more cash. This has in effect been the principle behind all sorts of socially levelling initiatives. Local authorities didn’t give local people free books, they gave them the use of libraries. They didn’t give them cars, they gave them bus passes. We need to relearn the wisdom of these policies, and update them for the modern age. In an era where car ownership is not rare, what about low-cost car clubs? Why shouldn’t more people be able to borrow laptops and tablets from libraries as well as books and DVDs?

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“Half of all antibiotics globally are now consumed in China alone.”

Factory Farming, Antibiotics Use In Asia Creating Global Health Risks (G.)

The use of antibiotics in factory farms in Asia is set to more than double in just over a decade, with potentially damaging effects on antibiotic resistance around the world. Factory farming of poultry in Asia is also increasing the threat of bird flu spreading beyond the region, with more deadly strains taking hold, according to a new report from a network of financial investors. Use of antibiotics in poultry and pig farms will increase by more than 120% in Asiaby 2030, based on current trends. Half of all antibiotics globally are now consumed in China alone. The Chinese meat and animal feed producers New Hope Group and Wen’s Group are now among the 10 biggest animal feed manufacturers in the world. The growth of Asian meat production in intensive units is also producing a rise in greenhouse gas emissions from the food chain, with emissions likely to rise by more than 360m tonnes, the equivalent of running 100 coal-fired power plants for a year.

There are knock-on impacts such as deforestation, as China’s need for animal feed is responsible for more than a third of Brazil’s soybean production. The report, Factory Farming in Asia: Assessing Investment Risks, comes three years after a meat scandal in China, in which suppliers to McDonalds, KFC and others were found to be using dirty meat and products past their sell-by date. It also comes in the midst of a growing food scandal in Europe, which has required the recall of millions of eggs tainted with harmful chemicals, and as concerns have been aired over the impact of Brexit on imports of farm products to the UK. Asian food companies have rapidly expanded their meat production in response to growing populations and the tastes of the rising middle class, but this expansion has come to the detriment of food safety.

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They’re being shot at. And the Italian Foreign Minister calls that “a welcome readjustment” and a “positive process”.

More NGOs Follow MSF In Suspending Mediterranean Migrant Rescues (R.)

Two more aid groups have suspended migrant rescues in the Mediterranean, joining Doctors Without Borders, because they felt threatened by the Libyan coastguard. Save the Children and Germany’s Sea Eye said on Sunday their crews could no longer work safely because of the hostile stance of the Libyan authorities. Doctors Without Borders – or Medecins sans Frontieres – cited the same concern when it said on Saturday it would halt Mediterranean operations. “We leave a deadly gap in the Mediterranean,” Sea Eye’s founder Michael Busch Heuer warned on Facebook, adding that Libya had issued an “explicit threat” against non-government organisations operating in the area around its coast. Libyan coastguard boats have repeatedly clashed with NGO vessels on the edge of Libyan waters, sometimes opening fire.

The coastguard has defended such actions, saying the shooting was to assert control over rescue operations. “In general, we do not reject (NGO) presence, but we demand from them more cooperation with the state of Libya … they should show more respect to the Libyan sovereignty,” coastguard spokesman Ayoub Qassem told Reuters on Sunday. Tension has also been growing for weeks between aid groups and the Italian government, which has suggested some NGOs are facilitating people smuggling, while Italy is trying to enhance the role of the Libyan coastguard in blocking migrant departures. This month, Italy began a naval mission in Libyan waters to provide technical and operational support to its coastguard, despite opposition from factions in eastern Libya that oppose the U.N.-backed government based in Tripoli.

[..] Italian Foreign Minister Angelino Alfano said in a newspaper interview on Sunday that Libya’s growing role in controlling its waters was curbing people trafficking and producing a welcome “readjustment” in the Mediterranean. MSF’s decision to halt its rescue operations was part of this positive process, he told the newspaper La Stampa.

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There’s propaganda and then there’s reality. You decide who you believe.

Syrian Refugees Can Return To Aleppo… And Do So In Their 100,000s (RT)

Aleppo, a city retaken by Damascus from rebels in December last year, has become a major destination for displaced Syrian returning home in 2017 as numbers of returnees to Syria spills over 600,000, according to the UN. Over the first seven months of 2017, over 600,000 displaced Syrians returned home, the International Organization for Migration (IOM) said Friday, citing its own figures as well as those of the UN Migration Agency and partners on the ground. The returnees are overwhelmingly internally-displaced people, but 16% returned to Syria from other nations, primarily Turkey. The number almost matched that recorded in the whole of 2016. An estimated 67% of returnees went to government-controlled Aleppo Governorate, with the provincial capital itself being the primary destination.

Among other places where refugees went in significant numbers, according to ICO, is Al-Hasakah Governorate, the north-eastern province dominated by Kurds. The city of Aleppo – the largest in Syria prior to the conflict – was retaken by the government army last year, aided by Russia, with hostilities ending in mid-December. For years before that, it was divided between two parts, held respectively by government forces and by a disjointed collection of militant groups, including hardcore jihadists. The battle for the city ended with a ceasefire deal, which allowed remaining rebel forces and their families leave Aleppo and go to Idlib governorate, which currently remains a rebel stronghold.

Earlier an increasing number of refugees returning to their homes in Syria was reported by the UN Refugee Agency (UNHCR), which said more than 440,000 internally-displaced persons and 31,000 refugees in other countries had done so over the first six months of 2016. Aleppo and other government-controlled governorates like Hama, Homs and Damascus were mentioned as destinations for the returnees. [..] The situation is far from rosy of course, according to IOM. The number of people forced to leave their homes in 2017 still outweighs that of returnees, with over 808,000 people estimated to be displaced. Around 10% of those who returned in 2016 and 2017 have ended up fleeing their homes again. Almost 20% of the returnees have no secure supply of food and access to water and health services is a problem for some 60%, a testament to the damage the Syrian war has taken on its civilian infrastructure.

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Love it. Absolute must read, the whole article. Very rich.

Do Elephants Have Souls? (NA)

The birth of an elephant is a spectacular occasion. Grandmothers, aunts, sisters, and cousins crowd around the new arrival and its dazed mother, trumpeting and stamping and waving their trunks to welcome the floppy baby who has so recently arrived from out of the void, bursting through the border of existence to take its place in an unbroken line stretching back to the dawn of life. After almost two years in the womb and a few minutes to stretch its legs, the calf can begin to stumble around. But its trunk, an evolutionarily unique inheritance of up to 150,000 muscles with the dexterity to pick up a pin and the strength to uproot a tree, will be a mystery to it at first, with little apparent use except to sometimes suck upon like human babies do their thumbs.

Over time, with practice and guidance, it will find the potential in this appendage flailing off its face to breathe, drink, caress, thwack, probe, lift, haul, wrap, spray, sense, blast, stroke, smell, nudge, collect, bathe, toot, wave, and perform countless other functions that a person would rely on a combination of eyes, nose, hands, and strong machinery to do. Once the calf is weaned from its mother’s milk at five or whenever its next sibling is born, it will spend up to 16 hours a day eating 5% of its entire weight in leaves, grass, brush, bark, and basically any other kind of vegetation. It will only process about 40% of the nutrients in this food, however; the waste it leaves behind helps fertilize plant growth and provide accessible nutrition on the ground to smaller animals, thus making the elephant a keystone species in its habitat. From 250 pounds at birth, it will continue to grow throughout its life, to up to 7 tons for a male of the largest species or 4 tons for a female.

Of the many types of elephants and mammoths that used to roam the earth, one born today will belong to one of three surviving species: Elephas maximus in Asia, Loxodonta africana (savanna elephant) or Loxodonta cyclotis (forest elephant) in Africa. There are about 500,000 African elephants alive now (about a third of them the more reticent, less studied L. cyclotis), and only 40,000 – 50,000 Asian elephants remaining. The Swedish Elephant Encyclopedia database currently lists just under 5,000 (most of them E. maximus) living in captivity worldwide, in half as many locations — meaning that the average number of elephants per holding is less than two; many of them live without a single companion of their kind.

For the freeborn, if it is a cow, the “allomothers” who welcomed her into the world will be with her for life — a matriarchal clan led by the oldest and biggest. She in turn will be an enthusiastic caretaker and playmate to her younger cousins and siblings. When she is twelve or fourteen, she will go into heat (“estrus”) for the first time, a bewildering occurrence during which her mother will stand by and show her what to do and which male to accept. If she conceives, she will have a calf twenty-two months later, crucially aided in birthing and raising it by the more experienced older ladies. She may have another every four to five years into her fifties or sixties, but not all will survive.

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Dec 162016
 
 December 16, 2016  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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John Vachon Big Four Cafe, Cairo, Illinois 1940

Obama’s Blunder; Trump’s Gambit (Rickards)
Trump Rally May Not Last Long – Marc Faber (CNBC)
This Stock Rally Is More Hope Than Substance (WSJ)
China, Others are Dumping US Treasurys as Never Before (WS)
The Longer China’s Record M&A Spree Lasts, The Stranger The Deals Get (BBG)
ECB Bond Buying Props Up Oil, Cars, Guns, Drones, Gambling, Handbags (DQ)
EU Agrees Dutch Demands On Ukraine Deal To Avoid ‘Present For Russia’ (R.)
Justin Trudeau: ‘Globalisation Isn’t Working For Ordinary People’ (G.)
Crackdown On Cash Is An Attack On The Poor And A Reward For Banks (Soos)
Why Are the Media Taking the CIA’s Hacking Claims at Face Value? (Nation)
Turkey Has Back-Up Plans If EU Fails To Keep Visa-Free Travel Promises (AFP)
“Without Antibiotics, Essentially You Do Not Have Modern Medicine” (R.)
The Shattering Effect Of Roads On Nature (G.)

 

 

We need more refreshing views like this. Actual thinking people.

Obama’s Blunder; Trump’s Gambit (Rickards)

[..] Russia is a more natural ally of the U.S. than China. Russia is a parliamentary system, albeit with autocratic overtones; China is a Communist dictatorship. Russia has empowered the Orthodox Church in recent decades, while China is officially atheistic. Russia is encouraging population growth while China’s one child policy and sex-selective abortions resulted in the deaths of over twenty million girls. These cultural aspects – elections, Christianity, and family formation – provide Russia with a natural affinity to western nations. Russia is also superior to China militarily despite recent Chinese advances. That makes Russia the more desirable ally in any two-against-one scenario.

The most powerful argument for embracing Russia to checkmate China is energy. The U.S. and Russia are the two largest energy producers in the world. U.S. energy production is set to expand with the support of the Trump administration. Russian production will expand also based in part on initiatives led by Rex Tillerson of Exxon, soon to be Secretary of State. China has few oil and natural gas reserves and relies heavily on dirty forms of coal and some hydropower. The remainder of China’s energy needs is met through imports. An energy alliance between the U.S. and Russia, supported by Saudi Arabia, could leave the Chinese economy and, by extension, the standing of the Communist Party of China, in jeopardy. That threat is enough to insure Chinese compliance with U.S. aims.

An emerging U.S.-Russian entente could also lead to the alleviation of western economic sanctions on Russia. This would open the door to an alliance between Germany and Russia. Those two economies have near perfect complementarity since Germany is technology rich and natural resource poor, while Russia is the opposite. Isolation of Russia is a fool’s errand. Russia is the twelfth largest economy in the world, has the largest landmass of any country in the world, is a nuclear power, has abundant natural resources, and is a fertile destination for direct foreign investment. The Russian culture is highly resistant to outside pressure, but open to outside cooperation. Just as fifty years of U.S. sanctions failed to change Cuban behavior, U.S. sanctions will not change Russian behavior except for the worse.

Engagement, not confrontation is the better course. The new Trump administration gets this. [..] Fortunately it’s not too late to reestablish a balance of power that favors the United States. China is a rising regional hegemon that should be constrained. Russia is a natural ally that should be empowered. The U.S. has blundered in its foreign policy for the past eight years. A new Trump administration has an opportunity to reverse those blunders by building bridges to Russia, and it seems to be moving in that direction.

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“..Ronald Reagan and Herbert Hoover also began their tenures with huge rallies, followed by crashes…”

Trump Rally May Not Last Long – Marc Faber (CNBC)

If President-elect Donald Trump’s rhetoric ends up fueling a trade war with China, it’s the U.S. that will take it on the chin, Marc Faber, the publisher of the Gloom, Boom & Doom report, told CNBC on Friday. “Mr. Trump is not particularly keen on China,” Faber told CNBC’s “Squawk Box” on Friday. “There may be some trade war escalation or trade restrictions with China, which in my view would rather be negative for the U.S. than for China.” Trump has certainly set his sights on China. On the campaign trail, Trump repeatedly accused China of manipulating its currency in order to give its exports an advantage over U.S.-made goods, and he threatened to slap a tariff of up to 45% on Chinese imports.

While China’s yuan has fallen against the U.S. dollar in recent months, policymakers on the mainland have been intervening to support the currency, not weaken it. But Faber, who is also known as Dr. Doom for his usually pessimistic predictions, noted that China wouldn’t be easily cowed. “China does not depend on the U.S. The U.S. is still its largest export destination as a country, but taken together, all the emerging markets are for China much more important,” Faber noted. China exported about $482 billion in goods to the U.S. last year, more than any other country exported to the United States, according to the Office of the United States Trade Representative. The U.S. exported about $116 billion in goods to China in 2015, putting its goods trade deficit $366 billion.

[..] “We have a credit bubble in China, like, by the way, everywhere else in the world. It’s just bigger in China and that, in my view, will have to be deflated,” he said. Dr. Doom also wasn’t trusting Wall Street’s rally since Trump’s election, nothing that Presidents Ronald Reagan and Herbert Hoover also began their tenures with huge rallies, followed by crashes. On Thursday, the Dow Jones rose 59.71 points, or 0.3%, to close at 19,858.24, after climbing at one point to a mere 50 points away from hitting the 20,000 mark. Faber said that the U.S. market was getting toppish. “If you want to be in equities, the U.S. market is now at the most expensive level compared to Europe, Japan and emerging economies it’s ever been,” he said.

Despite Thursday’s gains, “there were more new 12-month lows than new highs.” He wasn’t optimistic on how much further the market can run. “In March 2017, the U.S. bull market will be eight years old. By any standard, this is a very aging bull market. By June 2017, the economic recovery will be eight years old. By any standard, a recovery that is very mature,” he noted. Faber was also pessimistic about the market’s prospects under the Trump administration. “We have to be very careful when we talk about investments. We have a lot of volatility coming toward us. I think that in general people are far too optimistic about the U.S. becoming again a great country,” he said. “I doubt that one man alone can do it.”

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“When you have an adrenaline rush you don’t feel pain. It’s when the adrenaline wears off that you feel it.”

This Stock Rally Is More Hope Than Substance (WSJ)

Janet Yellen may not have an armored horse, but her effect on the bull market looks very like the ineffective stab of a picador. The stock market bull seemed to be badly hurt after the U.S. Federal Reserve chairwoman’s words on Wednesday. The Fed raised interest rates and said policy makers expected three rate increases next year, while Ms. Yellen said the economy is near full capacity and doesn’t need fiscal stimulus—suggesting rates will rise even faster if president-elect Donald Trump goes ahead with promised tax cuts. But after their stumble, stocks regained their feet on Thursday, with the S&P 500 recovering to where it was before Fed Day. A mere picador is never enough to take down a bull.

The true danger to this latest bull run—the Trump rally—comes from itself. The genius of a matador is to wear out the bull by persuading it to keep charging, entrancing the audience in the process. The stock market has been attracted by the flourishes of Mr. Trump, the appealing prospect of tax cuts and infrastructure spending. The question for the next month is whether the bull will be worn out before Mr. Trump even takes office. When markets move a long way very fast, they become vulnerable. Late investors who pile on to little more than momentum have less confidence in their positions. The more momentum builds, the more it hurts if the bull trips and those momentum investors jump off. This market has moved very fast indeed.

The post-election rotation from defensive stocks to economically sensitive cyclical shares has been the biggest of any similar period since the bounce back after the Lehman crash. The 10-year bond’s losses have almost matched the selloff of the 2013 taper tantrum. And the dollar has surged 9% against the yen, taking it to its strongest since 2002 against a basket of currencies. There are plenty of reasons to worry about whether Mr. Trump’s policies will be implemented quickly, or will be as big-league as he has said. So long as those remain worries for another day, the market can keep rising. David Bloom, head of foreign-exchange strategy at HSBC, says investors who missed out on the fast moves in stocks, bonds and the dollar after the election are now being sucked into the trade to avoid missing out. “We’re in a euphoric time,” he said. “When you have an adrenaline rush you don’t feel pain. It’s when the adrenaline wears off that you feel it.”

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We can only imagine where the dollar would be without this mass sell-off.

China, Others are Dumping US Treasurys as Never Before (WS)

All kinds of things are now happening in the world of bonds that haven’t happened before. For example, authorities in China today halted trading for the first time ever in futures contracts of government bonds, after prices had swooned, with the 10-year yield hitting 3.4%. Trading didn’t resume until after the People’s Bank of China injected $22 billion into the short-term money market. What does this turmoil have to do with US Treasurys? China has been dumping them to stave off problems in its own house…. The US Treasury Department released its Treasury International Capital data for October, and what it said about the dynamics of Treasury securities is a doozie of historic proportions. Net “acquisitions” of Treasury bonds & notes by “private” investors amounted to a negative $18.3 billion in October, according to the TIC data.

In other words, “private” foreign investors sold $18.3 billion more than they bought. And “official” foreign investors, which include central banks, dumped a net $45.3 billion in Treasury bonds and notes. Combined, they unloaded $63.5 billion in October. In September, these foreign entities had already dumped a record $76.6 billion. They have now dumped Treasury paper for seven months in a row. Over the past 12 months through October, they unloaded $318.2 billion. A 12-month selling spree in this magnitude has never occurred before. There have been a few months of timid net selling in 2012, and some in 2013, and a few in 2014, but no big deal because the Fed was buying under its QE programs. But then, with QE tapered out of the way, the selling picked up in 2015, and has sharply accelerated in 2016.

This chart (via Trading Economics), going back to the early 1980s, shows just how historic this wholesale dumping (circled in red) of US Treasury bonds and notes by foreign entities has been: The chart is particularly telling: It shows in brutal clarity that foreign buyers funded the $1 trillion-and-over annual deficits during and after the Financial Crisis, with net purchases in several months exceeding $100 billion. The other big buyer was the Fed. But since last year, the world has changed. China, once the largest holder of US Treasurys, has been busy trying to keep a lid on its own financial problems that are threatening to boil over. It’s trying to prop up the yuan. It’s trying furiously to stem rampant capital flight. It’s trying to keep its asset bubbles, particularly in the property sector, from getting bigger and from imploding – all at the same time. And in doing so, it has been selling foreign exchange reserves hand over fist.

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Beijing’s own policies come back to bite it hard. Fully predictable too.

The Longer China’s Record M&A Spree Lasts, The Stranger The Deals Get (BBG)

It’s no wonder the country’s regulators are getting concerned. This month, Chinese agencies including the National Development and Reform Commission said they’re closely watching “irrational” outbound purchases in sectors including entertainment and real estate, without naming specific deals. The heightened scrutiny coincides with a broader government effort to limit capital outflows, posing a risk to global takeover volumes after Chinese firms began rivaling their U.S. counterparts as the biggest buyers of overseas assets this year. For the Wall Street bankers helping to sell Western companies, the changing regulatory environment could make a delicate balance even trickier. Advisers need to court a widening pool of Chinese acquirers while at the same time making sure the companies are savvy enough to complete their deals.

“The M&A landscape has shifted focus to Chinese buyers,” said Brian Gu at JPMorgan Chase, the top-ranked adviser on Chinese outbound acquisitions tracked by Bloomberg this year. “How to solicit credible potential Chinese buyers now becomes an essential part of a pitch for any global sell-side mandates.” More than 360 Chinese companies announced their first cross-border acquisitions in the initial 11 months of this year, with the combined size of the transactions more than doubling from the full year 2015, according to data compiled by Bloomberg. Sifting through those new ranks of Chinese acquirers takes some work. When EQT Partners decided to sell Germany’s EEW Energy from Waste, its bankers at Morgan Stanley arranged for executives to meet potential buyers in Shanghai, Beijing and Hong Kong weeks before it began soliciting bids.

[..] While Chinese policy makers have been supportive of outbound acquisitions that help domestic companies gain foreign technology and strengthen industries seen as important drivers of economic growth, the worry is that some deals are being used as a way to move money offshore or make quick profits by re-listing acquired businesses at higher valuations in China. “Some of these companies invest outside of their core competency because they want to get money out of China, as they see the Chinese yuan will continue to depreciate,” said Christopher Balding, a professor at Peking University’s HSBC Business School in Shenzhen, without naming any specific deals.

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Nice piece of research from Don Quijones. Title is mine, couldn’t help myself.

ECB Bond Buying Props Up Oil, Cars, Guns, Drones, Gambling, Handbags (DQ)

In June 2016, the ECB activated its corporate bond buying program, ostensibly to revive the Eurozone’s stalled economy. The program has been shrouded in secrecy, as the ECB has refused to reveal the identity of most of the companies, divulging only the International Securities Identification Number (ISIN) of the bonds, but not the amounts. The ECB coordinates the overall effort, but the actual buying is done by the national central banks. Now the non-profit Corporate Europe Observatory (CEO) has cracked the code, so to speak: Finding the names via the ISIN code is a simple job. CEO has looked them all up to see what investments the ECB has found worthy of public money. Unfortunately, a lack of transparency at the ECB means the amounts held in bonds of individual corporations are not revealed.

While many pension funds do release this information, it seems that the common national bank for hundreds of millions of European citizens is unable to! Nevertheless, a lot can be learned from the lists… For instance, the fact that Europe’s oil majors have been particularly spoiled, with the ECB splurging on bonds issued by Shell no less than 11 times. The central bank bought bonds from Italian oil company Eni 16 times, Spain’s Repsol six times, Austrian OMV six times, and Total 7 times. Gas companies have also fared remarkably well. When counting the purchase of bonds in Spain, for example, 53% are from companies involved in the natural gas sector. The corresponding number in Italy is an astounding 68%. Also well favored are Europe’s biggest car companies, in particular those from Germany, with Daimler and BMW tied in top spot with 15 purchases apiece. The ECB also bought seven times bonds issued by Volkswagen, despite the reputational and financial fallout from its emissions scandal.

And it bought Renault bonds three times. Other companies on CEO’s list of coddled giants include Thales, a French producer of missiles, rifles, armored vehicles, and military drones, which has been engulfed in a spate of corruption scandals in recent years; France’s three major water corporations, Suèz, Vivendi, and Veolia; Novomatic, an Austrian-based gambling company owned by billionaire Johan Graf; and luxury goods companies like LVMH, producer of Moët & Chandon champagne, Hennessy cognac, and Louis Vuitton women’s handbags. These are just some of the corporations benefiting handsomely from a bond-buying binge that has already reached some €46 billion (as of Nov. 25, 2016). When the ECB buys these bonds, it inflates the bond prices and pushes their yields down, which is the purpose, and it thus lowers the cost of capital for this companies even further. By the end of the program, which is “scheduled” to finish in September, 2017, the ECB is expected to have lavished around €125 billion on them.

But that’s not the worst of it. As we reported in August, the ECB has admitted that it is not only buying already-issued bonds trading in secondary markets, as the public was initially led to believe; it is also buying bonds from companies via so-called “private placements.” These debt sales are not open to the broader market, so there’s no need for a prospectus. Only a small number of institutional investors participate. Private placements are not unusual. What’s new is that the ECB is using them to buy bonds. This was done discreetly, but it was leaked – and the ECB had some explaining to do. The central bank’s new role as “debt-buyer of first resort” raises a whole litany of concerns. It grants the ECB an almost god-like grip over Europe’s financial markets. And according to The Wall Street Journal, Citigroup figured “that bonds eligible for ECB purchases have already outperformed ineligible bonds by roughly 30% since the bond-buying program was announced in March.”

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A Dutch referendum in April voted down the EU association deal with Ukraine. PM Rutte now pretends that with a few minor tweaks it’s acceptable regardless. Rutte will now take it to his parliament for approval, which would overwrite the referendum result. Democracy. They’re handing the entire continent to Wilders and Le Pen on a platter. Oh, and who does Rutte blame for his behavior? You got it, Russia.

EU Agrees Dutch Demands On Ukraine Deal To Avoid ‘Present For Russia’ (R.)

EU leaders agreed on Thursday to additional Dutch demands over a landmark deal establishing closer ties with Ukraine, Maltese Prime Minister Joseph Muscat said. The EU’s so-called association agreement with Ukraine is central to the former Soviet republic’s efforts to move closer to the West. Mass street protests toppled a pro-Russian Ukrainian president in 2014 after he tried to ditch it. The Netherlands is the only EU country that has not ratified the deal, which fosters closer political ties and aims to free up trade between Ukraine and the bloc, after Dutch voters rejected it in a referendum last April. The Hague has asked the EU for additional guarantees to ensure the deal does not lead to EU membership for Ukraine.

Asked if all 28 EU leaders have arrived to a common position on the Dutch demand, Muscat said: “Yes, there is agreement.” Dutch Prime Minister Mark Rutte will now take it to his parliament for approval, which would overwrite the referendum result. Rutte told reporters before the talks that it was crucial to get a united European stance in the face of an emboldened Russia. “Russia is an increasing risk, look what happened in Crimea and eastern Ukraine and rockets being placed between Poland and Lithuania. You cannot, as the Netherlands … break this unity, that is why I’m so motivated to get this done,” he said.

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Justin is trying to make me believe that building pipelines is the way to go towards a “carbon-free economy”. Sure. He’s turning into soundbite man.

Justin Trudeau: ‘Globalisation Isn’t Working For Ordinary People’ (G.)

[..] A silver lining for Trudeau may lie in Trump’s pledge to resurrect plans for TransCanada’s Keystone XL pipeline. When the Obama administration rejected the plan last year, Trudeau said in a statement he was “disappointed” in the decision. When Trudeau called Trump to congratulate him after the election, the two briefly spoke about Keystone, said Trudeau, adding that it remains to be see how the US will move forward with plans for the pipeline. Any reluctance to move forward on climate change south of the border could be a boon for Canadian companies across various sectors, said Trudeau. “I know Canada is well positioned to pick up some of the slack and when people finally realise that it’s a tremendous business opportunity to lead on climate change, Canada will already have a head start.”

[..] Last week’s announcement of a national carbon price is a key part of Trudeau’s environmental policy – one that has been derided by environmentalists for enabling the expansion of fossil fuels, compensated by initiatives that include investments in clean tech and promises to phase out federal subsidies for oil and gas companies. The policy saw Trudeau recently approve a liquefied natural gas project in British Columbia as well as two pipelines that will offer Alberta’s oil sands nearly a million barrels a day in increased capacity. The approvals have sparked broad opposition among environmentalists, some First Nations and several of the communities affected by the planned infrastructure projects. “There is a number of people out there who’ve always [believed] if you stop pipeline, you stop the oil sands,” said Trudeau. “Well, actually as we’ve seen, it doesn’t work that way and what we end up with is much more oil by rail.”[..]

The government’s environmental policy takes a long view on the transition to a carbon-free economy, said Trudeau. “It’s not going to happen in a day, or in a week, but it will happen over years and perhaps a decade or two,” he said. “I know there are people out there extremely passionate about the environment, who don’t think I made the right decision on approving a couple of pipelines. But I think that everyone can see at least what it is we’re trying to do and that we’re consistent with what I’ve always said which is, you protect the environment and you build a strong economy at the same time.” The double-barrelled approach, said Trudeau, echoes his government’s broader effort to address the tensions currently wreaking havoc on the political status quo around the world. “People get that we need jobs, we need a protected environment,” he said. “On the other hand, if people have no jobs, if they have no opportunity, they’re not going to worry about protection of the air and water if they can’t feed their kids.”

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I don’t know that throwing in the drug legalization topic is very relevant. Just ‘hands off!’ should do it.

Crackdown On Cash Is An Attack On The Poor And A Reward For Banks (Soos)

The Coalition government recently announced a taskforce to investigate and recommend ways to deal with the so-called black economy. This primary revolves around business transactions conducted in cash to evade taxes. Other justifications concern the illicit drug trade and welfare fraud. The plan is to clamp down on this aspect of the black economy to make it more difficult for workers, businesses and households to evade tax, boosting taxation revenue. It is estimated the black economy accounts for about 1.5% of GDP or $21bn. There is also speculation that the $100-dollar bill may be removed from circulation. The Coalition government’s explanations seem sensible, with the mass media generally supportive. Yet, there are robust arguments why the Australian public should oppose this move – mostly because the government is trying to deal with problems it created itself.

The drug trade in Australia is thriving and constitutes a considerable portion of the black economy. This illegal trade, however, only exists because the government criminalises it. The primary reason offered is that it prevents the production and consumption of dangerous substances for recreational purposes. It clearly does nothing of the sort. By criminalising drugs, product is manufactured in unregulated and uncertain conditions, leading to vastly inferior quality relative to that in the legal and regulated pharmaceutical industry. Huge monopolistic profits are reaped by drug cartels and those in the supply chain, leading to a significant loss of taxable income. None of this would happen if the drug trade was legalised – and there is growing acceptance that it should be.

In short, the government cannot use the pretext of clamping down on an industry which is presently illegal by claiming the cash transactions facilitates the existence and growth of it when it is the government’s own criminalisation policy which brought it into existence. By legalising, billions of dollars of taxes could be raised through the GST, income tax and externality/sin taxes. Another area of alleged concern is welfare fraud. Recipients of welfare payments can work in the black economy, making a modest income without reporting it. If this were properly reported, welfare payments would be reduced. Again, this is a problem government has itself created. While the government and certain sections of the mass media pretend Australia has an out-of-control welfare system, the facts demonstrate Australia has some of the smallest welfare expenditures relative to GDP, easily the most well-targeted and has the highest “target-efficiency” (each dollar in spending reduces income inequality the most) in the OECD.

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I’d like to ignore this tale (who reads the WaPo anymore), but the Nation has a passable one: “..the CIA has “(1) attempted to overthrow more than 50 governments, most of which were democratically-elected, (2) attempted to suppress a populist or nationalist movement in 20 countries, (3) grossly interfered in democratic elections in at least 30 countries, (4) dropped bombs on the people of more than 30 countries, (5) attempted to assassinate more than 50 foreign leaders.”

Why Are the Media Taking the CIA’s Hacking Claims at Face Value? (Nation)

In 1977, Carl Bernstein published an exposé of a CIA program known as Operation Mockingbird, a covert program involving, according to Bernstein, “more than 400 American journalists who in the past 25 years have secretly carried out assignments for the Central Intelligence Agency.” Bernstein found that in “many instances” CIA documents revealed that “journalists were engaged to perform tasks for the CIA with the consent of the managements of America’s leading news organizations.” Fast-forward to December 2016, and one can see that there isn’t much need for a covert government program these days.

[..] The high-profile anchors and analysts on CNN, CBS, ABC, and NBC who have cited the work of The Washington Post and The New York Times seem to have come down with a bad case of historical amnesia. The CIA, in their telling, is a bulwark of American democracy, not a largely unaccountable, out-of-control behemoth that has often sought to subvert press freedom at home and undermine democratic norms abroad. The columnists, anchors, and commentators who rushed to condemn Trump for not showing due deference to the CIA seem to be unaware that, throughout its history, the agency has been the target of far more astute and credible critics than the president-elect.

In his memoir Present at the Creation, Truman’s Secretary of State Dean Acheson wrote that about the CIA, “I had the gravest forebodings.” Acheson wrote that he had “warned the President that as set up neither he, the National Security Council, nor anyone else would be in a position to know what it was doing or to control it.” Following the Bay of Pigs fiasco, President John F. Kennedy expressed his desire to “to splinter the CIA into a thousand pieces and scatter it to the winds.” The late New York Senator Daniel Patrick Moynihan twice introduced bills, in 1991 and 1995, to abolish the agency and move its functions to the State Department which, as the journalist John Judis has observed, “is what Acheson and his predecessor, George Marshall, had advocated.”

[..] To see what a corrosive effect outside powers can have on democratic processes, one need look no further than the 1996 Russian presidential election, in which Americans like the regime-change theorist Michael McFaul (later US Ambassador to Russia from 2012–14) interfered in order to keep the widely unpopular Boris Yeltsin in power against the wishes of the Russian people. For its part, the CIA has a long history of overthrowing sovereign governments the world over. According to historian William Blum, the CIA has “(1) attempted to overthrow more than 50 governments, most of which were democratically-elected, (2) attempted to suppress a populist or nationalist movement in 20 countries, (3) grossly interfered in democratic elections in at least 30 countries, (4) dropped bombs on the people of more than 30 countries, (5) attempted to assassinate more than 50 foreign leaders.”

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Yada yada

Turkey Has Back-Up Plans If EU Fails To Keep Visa-Free Travel Promises (AFP)

President Recep Tayyip Erdogan said Thursday Turkey had back-up plans if the EU failed to keep its promise over visa-free travel for Turks to the passport-free Schengen zone. Turkey and the EU signed a controversial deal in March, in which Ankara agreed to take back Syrian migrants landing on Greek islands in return for incentives including €3 billion in funds and visa-free travel. “If we do not get the expected outcome regarding the visa issue… if promises are not fulfilled, Turkey will no doubt have a plan B and it will have a plan C,” Erdogan warned during a news conference with his Slovenian counterpart in Ankara.

“We do not have to say ‘yes’ to every decision made about us. The EU has given us nothing so far,” he added, without elaborating. Ties between Brussels and Ankara have been strained since a failed July 15 coup in Turkey. The rocky relationship worsened after the European Parliament voted last month in favour of halting long-stalled membership talks with Turkey over its post-coup crackdown, a non-binding vote which Erdogan branded worthless. Turkey accuses the EU of failing to show enough solidarity after the failed putsch while Brussels has repeatedly urged Turkey to act within the rule of law as it arrests tens of thousands of people suspected of links to coup plotters.

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Horror story.

“Without Antibiotics, Essentially You Do Not Have Modern Medicine” (R.)

For nearly two years, a killer stalked the patients of Providence Alaska Medical Center. It was a bacteria called Acinetobacter baumannii, a common cause of infections in hospitals. This one was different. After a rash of mild cases in early 2011, doctors began seeing highly drug-resistant infections in patients, said Dr Megan Clancy, an infectious-disease specialist at the Anchorage, Alaska, hospital. And the bacteria was attacking more patients than just the severely ill ones who are the usual victims of drug-resistant “superbugs.” Clancy took emergency measures. Infected patients were isolated. Staff and visitors had to adhere to strict hand-washing and other infection-control protocols. Furniture and equipment were scrubbed to remove a microbe that can stubbornly persist on all sorts of surfaces.

Clancy also contacted outside researchers for help. They found that a strain of the bacteria had acquired a rare combination of traits. Bacteria typically are either highly resistant to drugs or highly virulent. This strain was both. Doctors quickly burned through the antibiotics used as the second and third lines of defense against superbugs. This strain shook them off. “When you start running out of medications, it gets pretty desperate,” Clancy said. Eventually, they turned to colistin. This powerful antibiotic was largely abandoned in the 1960s for its toxic side effects. Out of necessity, it has become in recent years a weapon of last resort against the worsening superbug scourge.

But in some of the Alaska cases, even colistin didn’t work. For public health officials, that’s the nightmare scenario. “It’s the worst of all possible worlds: You have a bacteria that is good at establishing infection, and it can’t be treated with antibiotics,” said Dr Robert Clifford, a microbiologist at the Walter Reed Army Institute of Research who studied the outbreak.

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Needs much more attention. This is how we kill the living world.

The Shattering Effect Of Roads On Nature (G.)

Rampant road building has shattered the Earth’s land into 600,000 fragments, most of which are too tiny to support significant wildlife, a new study has revealed. The researchers warn roadless areas are disappearing and that urgent action is needed to protect these last wildernesses, which help provide vital natural services to humanity such as clean water and air. The impact of roads extends far beyond the roads themselves, the scientists said, by enabling forest destruction, pollution, the splintering of animal populations and the introduction of deadly pests. New roads also pave the way to further exploitation by humans, such as poaching or mining, and new infrastructure.

An international team of researchers analysed open-access maps of 36m km of road and found that over half of the 600,000 fragments of land in between roads are very small – less than 1km2. A mere 7% are bigger than 100km2, equivalent to a square area just 10km by 10km. Furthermore, only a third of the roadless areas were truly wild, with the rest affected by farming or people. The last remaining large roadless areas are rainforests in the Amazon and Indonesia and the tundra and forests in the north of Russia and Canada. Virtually all of western Europe, the eastern US and Japan have no areas at all that are unaffected by roads. The scientists considered that land up to a kilometre on each side of a road was affected, which they believe is a conservative estimate.

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Oct 202016
 
 October 20, 2016  Posted by at 9:48 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Thomas Eakins Walt Whitman 1891

Fed Risks Repeating Lehman Blunder As US Recession Storm Gathers (AEP)
ECB Urges EU To Curb Virtual Money On Fear Of Losing Control (R.)
Saudi Arabia’s Bond: a Defining Trade for 2016 (WSJ)
How do Clinton and Trump’s Tax Plans Compare? (TF)
Trump is a Pink Elephant (Scott Adams)
California Launches Criminal Probe Into Wells Fargo Account Scandal (R.)
Who’s Powering the War on Cash? (DQ)
The Cult Of The Expert – And How It Collapsed (G.)
Theresa May To Tell EU Leaders ‘There Will Be No Second Referendum'(G.)
Australia Housing Boom Peak Has Passed – Morgan Stanley (BBG)
Did the White House Declare War on Russia? (Stephen F. Cohen)
What Obama’s Record Deportations Look Like (I’Cept)
Use Of Strongest Antibiotics Rises To Record Levels On European Farms (G.)

 

 

“The Bank for International Settlements estimates that 60pc of the world economy is locked into the US currency system, and that debts denominated in dollars outside US jurisdiction have ballooned to $9.8 trillion.”

Fed Risks Repeating Lehman Blunder As US Recession Storm Gathers (AEP)

The risk of a US recession next year is rising fast. The Federal Reserve has no margin for error. Liquidity is suddenly drying up. Early warning indicators from US ‘flow of funds’ data point to an incipent squeeze, the long-feared capitulation after five successive quarters of declining corporate profits. Yet the Fed is methodically draining money through ‘reverse repos’ regardless. It has set the course for a rise in interest rates in December and seems to be on automatic pilot. “We are seeing a serious deterioration on a monthly basis,” said Michael Howell from CrossBorder Capital, specialists in global liquidity. The signals lead the economic cycle by six to nine months. “We think the US is heading for recession by the Spring of 2017. It is absolutely bonkers for the Fed to even think about raising rates right now,” he said.

The growth rate of nominal GDP – a pure measure of the economy – has been in an unbroken fall since the start of the year, falling from 4.2pc to 2.5pc. It is close to stall speed, flirting with levels that have invariably led to recessions in the post-War era. “It is a little scary. When nominal GDP slows like that, you can be sure that financial stress will follow. Monetary policy is too tight and the slightest shock will tip the US into recession,” said Lars Christensen, from Markets and Money Advisory. If allowed to happen, it will be a deeply frightening experience, rocking the global system to its foundations. The Bank for International Settlements estimates that 60pc of the world economy is locked into the US currency system, and that debts denominated in dollars outside US jurisdiction have ballooned to $9.8 trillion.

The world has never before been so leveraged to dollar borrowing costs. BIS data show that debt ratios in both rich countries and emerging markets are roughly 35 percentage points of GDP higher than they were at the onset of the Lehman crisis. This time China cannot come to the rescue. Beijing has already pushed credit beyond safe limits to almost $30 trillion. Fitch Ratings suspects that bad loans in the Chinese banking system are ten times the official claim. The current arguments over Brexit would seem irrelevant in such circumstances, both because the City would be drawn into the flames and because the eurozone would face its own a shattering ordeal. Even a hint of coming trauma would detonate a crisis in Italy.

[..] The velocity of M1 money in the US has continued to slow, hitting a 40-year low of 5.75 over the summer, and markets are only just awakening to the unsettling thought that China’s latest boomlet has already topped out. Beijing is having to hit the brakes again. Crossborder said new rules for money market funds that came into force this month have complicated the picture, causing the stock of US commercial paper to shrivel by $200bn. Yet there are ways to filter out some of these effects. The plain fact is that 3-month lending rates in the off-shore ‘eurodollar’ markets in London have tripled since July to 0.93pc, sharply tightening conditions for global finance. Investors may have been too complacent in discounting these gyrations as part of a regulatory hiccup when something more sinister is emerging.

[..] Albert Edwards from Societe Generale says gross domestic income (GDI) was the most accurate gauge of the economy as the pre-Lehman crisis unfolded, and this measure has been flat for the last two quarters.”The pronounced weakness of GDI relative to GDP might be an ominous omen, for it may well be indicating that a US recession is already underway – just as it was in 2007,” he said.

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A central bank that tells politicians what legislation it desires can never again claim independence anymore.

ECB Urges EU To Curb Virtual Money On Fear Of Losing Control (R.)

The European Central Bank wants EU lawmakers to tighten proposed new rules on digital currencies such as bitcoin, fearing they might one day weaken its own control over money supply in the euro zone. The European Commission’s draft rules, aimed at fighting terrorism, require currency exchange platforms to increase checks on the identities of people exchanging virtual currencies for real ones and report suspicious transactions. In a legal opinion published on Tuesday, the ECB said EU institutions should not promote the use of digital currencies and should make clear they lack the legal status of currency or money.

“The reliance of economic actors on virtual currency units, if substantially increased in the future, could in principle affect the central banks’ control over the supply of money … although under current practice this risk is limited,” the ECB said in the opinion for the European Parliament and Council. “Thus (EU legislative bodies) should not seek in this particular context to promote a wider use of virtual currencies.” The ECB argues the Commission’s proposal does not go far enough as it does not cover the use of virtual money to buy goods and services. “Such transactions would not be covered by any of the control measures provided for in the proposal and could provide a means of financing illegal activities.”

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Dissaving.

Saudi Arabia’s Bond: a Defining Trade for 2016 (WSJ)

Want a single instrument that wraps together nearly every big political, financial and economic theme in today’s world? Saudi Arabia’s mammoth $17.5 billion bond issue, marking its debut in international markets, is it. The size of the deal is impressive but actually the least important thing about it. Big bond deals tend to build a momentum of their own. But it does speak to the search for yield. The $6.5 billion 30-year portion of Saudi Arabia’s bond is set to pay 2.1 percentage points more in yield than a comparable U.S. Treasury, or around 4.6%. That is a sizeable pickup in a world where developed-market bond yields are on the floor or in negative territory. That Saudi Arabia is doing the deal at all is a more telling factor: The oil bounty that has propelled the economy has run dry.

The 18-month-long rout in oil prices that started in 2014 sent the country hurtling from a budget surplus to a deficit in 2015 of 15.9% of GDP that is set to narrow only to 13% in 2016, according to the IMFd. In 2013, government debt stood at just 2.2% of GDP, according to Moody’s. By 2017, it is forecast to be 22.9%. The level isn’t a source of concern, but the swift change shows the country’s stark reversal of fortunes. In the near term, buyers of the bonds are betting largely on oil. Swings in the price are likely to have a direct impact on the perception of Saudi Arabia as a credit. The recovery in oil prices, which stand close to their high of the year, has eased concerns about financial stability and helps explain some of the enthusiasm for the deal. But further ahead, this is a bet on the ability and willingness of the country to transform itself while maintaining social and political stability.

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Explanations at the link. h/t Mish

How do Clinton and Trump’s Tax Plans Compare? (TF)

Both Hillary Clinton and Donald Trump have released tax plans during the campaign. The Tax Foundation has analyzed both the plans using our Taxes and Growth (TAG) model to estimate how their plans would impact taxpayers, federal revenues, and economic growth. Below, is a chart that contains all you need to know about the candidates’ plans.

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“..if you are afraid that Donald Trump is a racist/sexist clown with a dangerous temperament, you have been brainwashed by the best group of brainwashers in the business right now..”

Trump is a Pink Elephant (Scott Adams)

Here’s a little thought experiment for you: If a friend said he could see a pink elephant in the room, standing right in front of you, but you don’t see it, which one of you is hallucinating? Answer: The one who sees the pink elephant is hallucinating. Let’s try another one. If a friend tells you that you were both abducted by aliens last night but for some reason only he remembers it, which one of you hallucinated? Answer: The one who saw the aliens is hallucinating. Now let’s add some participants and try another one. If a crowd of people are pointing to a stain on the wall, and telling you it is talking to them, with a message from God, and you don’t see anything but a stain, who is hallucinating? Is it the majority who see the stain talking or the one person who does not? Answer: The people who see the stain talking are experiencing a group hallucination, which is more common than you think.

In nearly every scenario you can imagine, the person experiencing an unlikely addition to their reality is the one hallucinating. If all observers see the same addition to their reality, it might be real. But if even one participant can’t see the phenomenon – no matter how many can – it is almost certainly not real. Here I pause to remind new readers of this blog that I’m a trained hypnotist and a student of persuasion in all its forms. I’ve spent a lifetime trying to learn the tricks for discerning illusion from reality. And I’m here to tell you that if you are afraid that Donald Trump is a racist/sexist clown with a dangerous temperament, you have been brainwashed by the best group of brainwashers in the business right now: Team Clinton. They have cognitive psychologists such as Godzilla advising them. Allegedly.

I remind you that intelligence is not a defense against persuasion. No matter how smart you are, good persuaders can still make you see a pink elephant in a room where there is none (figuratively speaking). And Clinton’s team of persuaders has caused half of the country to see Trump as a racist/sexist Hitler with a dangerous temperament. That’s a pink elephant. As a public service (and I mean that literally) I have been trying to unhypnotize the country on this matter for the past year. I don’t do this because I prefer Trump’s policies or because I know who would do the best job as president. I do it because our system doesn’t work if you think there is a pink elephant in the room and there is not. That isn’t real choice. That is an illusion of choice.

Trump represents what is likely to be a once-in-a-lifetime opportunity to bring real change to a government that is bloated and self-serving. Reasonable people can disagree on policies and priorities. But Trump is the bigger agent for change, if that’s what you think the country needs. I want voters to see that choice for what it is. And it isn’t a pink elephant. If you are wondering why a socially liberal and well-educated cartoonist such as myself is not afraid of Trump, it’s because I don’t see the pink elephant. To me, all anti-Trumpers are experiencing a shared illusion.

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If you don’t even jail people for this kind of stuff, your justice system is fast eroding.

California Launches Criminal Probe Into Wells Fargo Account Scandal (R.)

The California Attorney General’s Office has launched a criminal investigation into Wells Fargo over allegations it opened millions of unauthorized customer accounts and credit cards, according to a seizure warrant seen by Reuters. Attorney General Kamala Harris authorized a seizure warrant against the bank that seeks customer records and other documents, saying there is probable cause to believe the bank committed felonies. The probe marks the latest setback for the bank in a growing scandal that led to the abrupt retirement of its chief executive officer, monetary penalties, compensation clawbacks, lost business and damage to its reputation.

[..] This is at least the second criminal probe to be opened into Wells Fargo since last month. In September a source told Reuters that federal prosecutors are also looking into the matter. An affidavit filed by Special Agent Supervisor James Hirt with the California Department of Justice reveals that interviews with possible victims of the fraud have already started. One victim, identified only as “Ms. B,” told the investigator that she had declined a request by a Wells Fargo teller in late 2011 or 2012 to open new accounts. But sometime in late 2013 or early 2014, she started to receive notices that she and her husband “allegedly owned on three life insurance policies held by the bank,” the affidavit says.

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Everyone with power is.

Who’s Powering the War on Cash? (DQ)

[..] cash’s days are numbered, as technological advances and changes in generational priorities dampen its allure. The world is brimming with individuals and institutions determined to put it out of its misery. Top of the list are the world’s central banks, which have the perfect motive for whacking cash: i.e. to make negative interest rates an eternal — or at least, more enduring — reality. And the only way to do that is to stop depositors from cashing out, as the Bank of England chief economist Andrew Hadlaine all but admitted in 2014. Japan and Europe are already deep into negative territory, and Fed Chair Janet Yellen has already said that the U.S. should be prepared for the same outcome. But as long as cash exists, there’s no way of preventing depositors from doing the logical thing – i.e. taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it.

Central banks are not the only ones who dream of a cash-free world. For credit card companies, cash is the ultimate rival. As such, it’s no surprise that the likes of Visa and MasterCard are among those pushing the hardest for a cashless economy. For banks, the benefits are no less obvious, including cost cuts, greater control over the flow of customer funds, and larger fees. As for politicians, Eurocrats and global plutocrats, including the senior servants of the IMF, World Bank and United Nations, they will enjoy even greater access to and dominion over the people’s funds. What better way of controlling the people than by controlling their access to the money they need to survive? It would amount to what Martin Armstrong calls “totalitarian control over the economy.”

These powerful agents have already created a perfect platform for achieving their dream: The Better Than Cash Alliance (BTCA), a UN-hosted partnership of governments, companies and international organizations. Its purpose, in its own words, is “to accelerate the transition from cash to digital payments globally through excellence in advocacy, knowledge and services to members.” The Better Than Cash Alliance’s membership list reads like a who’s who of some of the world’s most influential corporations and institutions. They include Coca Coca, Visa and Mastercard. Apple is, for now, conspicuously absent from the list, but in its place representing the tech industry is the Bill and Melinda Gates Foundation.

Also on the list are the Citi Foundation, the US Agency for International Development (USAID), and the World Saving Banks Institute, which represents 7,000 retail and savings banks worldwide. Member institutions range from powerful private foundations — including the Ford Foundation and the Clinton Development Initiative — to a bewildering alphabet soup of UN organizations, including WFP (the World Food Programme), UNFPA (the UN Population Fund), UNPD (the UN Development Program), IFAD (the International Fund for Agricultural Development) and UNCDF (the UN Capital Development Fund).

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Interesting theme, but in an article of this length, confining your self to central bankers only seems a shame.

The Cult Of The Expert – And How It Collapsed (G.)

When the history is written of the revolt against experts, September 2008 will be seen as a milestone. The $85bn rescue of the American International Group (AIG) dramatised the power of monetary gurus in all its anti-democratic majesty. The president and Congress could decide to borrow money, or raise it from taxpayers; the Fed could simply create it. And once the AIG rescue had legitimised the broadest possible use of this privilege, the Fed exploited it unflinchingly. Over the course of 2009, it injected a trillion dollars into the economy – a sum equivalent to nearly 30% of the federal budget – via its newly improvised policy of “quantitative easing”. Time magazine anointed Bernanke its person of the year. “The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world,” the magazine declared admiringly.

The Fed’s swashbuckling example galvanized central bankers in all the big economies. Soon Europe saw the rise of its own path-shaping monetary chieftain, when Mario Draghi, president of the European Central Bank, defused panic in the eurozone in July 2012 with two magical sentences. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he vowed, adding, with a twist of Clint Eastwood menace, “And believe me, it will be enough.” For months, Europe’s elected leaders had waffled ineffectually, inviting hedge-fund speculators to test the cohesion of the eurozone. But now Draghi was announcing that he was badder than the baddest hedge-fund goon. Whatever it takes. Believe me.

In the summer of 2013, when Hollywood rolled out its latest Superman film, cartoonists quickly seized upon a gag that would soon become obvious. Caricatures depicted central-bank chieftains decked out in Superman outfits. One showed Bernanke ripping off his banker’s shirt and tie, exposing that thrilling S emblazoned on his vest. Another showed the bearded hero hurtling through space, red cape fluttering, right arm stretched forward, a powerful fist punching at the void in front of him. “Superman and Federal Reserve chairman Ben Bernanke are both mild-mannered,” a financial columnist deadpanned. “They are both calm, even in the face of global disasters. They are both sometimes said to be from other planets.”

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They’re going to roast her today, and not in a funny way.

Theresa May To Tell EU Leaders ‘There Will Be No Second Referendum'(G.)

Theresa May is to warn her 27 fellow European Union leaders over a working dinner in Brussels that Britain’s decision to leave is irreversible and there can be no second referendum. Thursday’s meeting of the European council will be the prime minister’s first opportunity to address the leaders of all the other member states since the UK voted to leave the European Union in June. Donald Tusk, the European council president, has insisted Britain’s future relationship with the EU will not be on the formal agenda for the two-day meeting, but he will give May the opportunity to set out the “current state of affairs in the country” over coffee at the end of the meal.

A No 10 source said she would tell her fellow EU leaders: “The British people have made a decision and it’s right and proper that that decision is honoured. There will be no second referendum. The priority now has got to be looking to the future, and the relationship between the UK, once we leave”. The source added that the prime minister would also seek to reassure the other member states, amid growing fears that Brexit could unleash political and economic instability in Britain and the rest of Europe. “She wants the outcome at the end of this process to be a strong UK, as a partner of a strong EU,” the source said. “She doesn’t want the process of the UK leaving to be damaging for the rest of the EU. She wants it to be a smooth, constructive, orderly process.”

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Painful times ahead.

Australia Housing Boom Peak Has Passed – Morgan Stanley (BBG)

Australia’s housing boom has passed its peak, with a looming apartment glut set to lead to a sharp slowdown in future developments, according to Morgan Stanley. The slowdown in construction will hurt economic growth, put 200,000 jobs at risk and prompt the central bank to resume cutting interest rates next year, Morgan Stanley analysts led by Daniel Blake said in a note dated Oct. 19. “We believe the growth contribution from the housing boom has already peaked and look for a plateau over 2017 and decline through 2018,” the analysts said. The housing industry is also facing a “more imminent credit crunch” for purchases and developments, they said. “The greatest vulnerability is settlement risk on the 160,000 apartments we forecast being completed through the end of 2017,” they said in the report.

“Listed developers report low failure rates currently, but also confirm credit availability has tightened, especially for foreign investors. Non-bank credit is moving to plug the gap at higher interest rates, but we expect some projects will land with the receiver.” Shares of developer Lendlease Group slumped as much as 5.5% in Sydney trading Thursday after the company flagged a slowdown in building activity, saying Sydney apartment activity is peaking and the Melbourne apartment sector is facing a high level of supply. In May, all 391 apartments offered by Lendlease at a project in Sydney were snapped up in just four hours. A national housing oversupply of about 100,000 dwellings will develop by 2018, Morgan Stanley said, as a glut of apartment projects are completed, particularly in Sydney and Melbourne.

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Cohen is the no. 1 American expert on Russia. Audio file at the link.

Did the White House Declare War on Russia? (Stephen F. Cohen)

Nation Contributing Editor Stephen F. Cohen and John Batchelor continue their weekly discussions of the new US-Russian Cold War. Cohen reports that a statement by Vice President Joe Biden on NBC’s Meet the Press on October 16, released on October 14, stunned Moscow (though it was scarcely noted in the American media). In response to a question about alleged Russian hacking of Democratic Party offices, in order to disrupt the presidential election and even throw it to Donald Trump, Biden said the Obama administration was preparing to send Putin a “message,” presumably in the form of some kind of cyber-attack.

The Kremlin spokesman and several leading Russian commentators characterized Biden’s announcement as a virtual “American declaration of war on Russia” and as the first ever in history. Cohen observed that at this fraught stage in the new US-Russian Cold War, Biden’s statement, which clearly had been planned by the White House, could scarcely have been more dangerous or reckless—especially considering that there is no actual evidence or logic for the two allegations against Russia that seem to have prompted it. Biden was reacting to official US charges of Kremlin hacking for political purposes. Cohen points out that in fact no actual evidence for this allegation has been produced, only suppositions or, as Glenn Greenwald has argued, “unproven assertions.”

While the US political-media establishment has uncritically stated the allegation as fact, a MIT expert, professor Theodore Postol, has written that there is “no technical way that the US intelligence community could know who did the hacking if it was done by sophisticated nation-state actors.” Instead, Cohen suggests, the charges, leveled daily by the Clinton campaign as part of its McCarthyite Kremlin-baiting of Donald Trump, are mostly political, and he laments the way US intelligence officials have permitted themselves to be used for this unprofessional purpose. Moreover, it is far from clear that the Kremlin actually favors Trump, despite Clinton’s campaign claims.

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“Obama is now on pace to deport more people than the sum of all 19 presidents who governed the United States from 1892-2000..”

What Obama’s Record Deportations Look Like (I’Cept)

Donald Trump noted during the third presidential debate that the Democratic president, Barack Obama has deported millions of people. Indeed, Obama has deported more people than any modern president. From January, at Fusion.net: “Donald Trump’s bilious blather about immigrants reminds us—more often than most people need reminding—that words matter. But the Obama administration’s recent wave of police-state raids on Central American women and children, whose only crime is poverty and a lack of proper paperwork, reminds us that actions matter too. When it comes to getting tough on immigration, Republican candidates talk the talk, but Obama walks the walk. Obama has deported more people than any U.S. president before him, and almost more than every other president combined from the 20th century.

“Immigration-flow numbers are staggering in both directions. In 2014, it’s estimated that more than 200,000 Central Americans tried to emigrate to the United States without documentation. But the Obama government has been deporting them as fast as it can. Since coming to office in 2009, Obama’s government has deported more than 2.5 million people—up 23% from the George W. Bush years. More shockingly, Obama is now on pace to deport more people than the sum of all 19 presidents who governed the United States from 1892-2000, according to government data.

“And he’s not done yet. With the clock ticking down his final months in office, Obama appears to be running up the score in an effort to protect his title as deporter-in-chief from future presidents. To pad the numbers, Homeland Security is now going after the lowest-hanging fruit: women and children who are seeking asylum from violence in Central America. “This is the only time I remember enforcement raids on families of women and children who are fleeing some of the most violent places on the planet,” says Royce Bernstein Murray, director of policy for the National Immigrant Justice Center.

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Intelligent species.

Use Of Strongest Antibiotics Rises To Record Levels On European Farms (G.)

Use of some of the strongest antibiotics available to treat life-threatening infections has risen to record levels on European farms, new data shows. The report reinforces concerns about the overuse of antibiotics on farms, following revelations from the Guardian of the presence of the superbug MRSA in UK-produced meat, in imported meat for sale in UK supermarkets, and on British farms. According to the data from the European Medicines Agency, medicines classified as “critically important in human medicine” by the World Health Organisation appear to be in frequent use on farm animals across the major countries of the EU, including the UK.

This comes in spite of WHO advice that, because of their importance, these drugs should be used only in the most extreme cases, if at all, in treating animals. The latest report from the EMA collates data from member states on the sales of antibiotics for veterinary purposes in 2014, and shows that antibiotic use on farms fell by about 2% on the previous year overall, and by as much as 12% in many countries. But this disguises the rise in the use of the strongest medicines, such as colistin, which is a last resort for life-threatening human illness. The percentage of antibiotics sales made up by the most potent antibiotics remained steady or in some cases increased slightly, indicating an increase in the amount of so-called critically important antibiotics used.

For instance, sales of fluoroquinolones – the newest versions of which are used to treat life-threatening illnesses including pneumonia and Legionnaire’s disease – stood at 141 tonnes across the countries surveyed in 2013, and rose to 172 tonnes in 2014. Sales of macrolides, also classed as critically important to human health, rose from 59 to 67 tonnes in the same period. This shows that efforts to prevent the drugs most crucial for human health from being used in farming are failing.

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Dec 122015
 
 December 12, 2015  Posted by at 10:17 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle December 12 2015
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Banksy Steve Jobs, son of a Syrian immigrant 2015

Russia Calls Saudi Bluff, Plans $40 Oil For Seven Years (AEP)
December 16, 2015 – When The End Of The Bubble Begins (Stockman)
Stocks Are More Overvalued Now Than At 2000 And 2007 Peaks (MarketWatch)
As Commercial Real-Estate Prices Soar, Fed Weighs Consequences (WSJ)
Why The Junk Bond Selloff Is Getting Very Scary (MarketWatch)
Carl Icahn: Junk Bond Market A ‘Keg Of Dynamite’ (CNBC)
It Starts: Junk-Bond Fund Implodes, Investors Stuck (WS)
Gundlach Says ‘Never Just One Cockroach’ In Any Credit Meltdown (Reuters)
Third Avenue Redemption Freeze Sends Chill Through Credit Market (BBG)
Stone Lion Capital Partners Suspends Redemptions in Credit Hedge Funds (WSJ)
Bank of Canada Crushes Loonie, Creates Mother of All Shorts (WS)
China Property Firms’ Debt Issuance Jumps, More To Come (Reuters)
Even the Mafia Wants Out of Italy’s South (BBG)
New Superbug Resistant To All Antibiotics Linked To Imported Meat (Forbes)
Banksy Uses Steve Jobs Artwork To Highlight Refugee Crisis (Guardian)

It’s not a bluff, it’s desperation on all sides.

Russia Calls Saudi Bluff, Plans $40 Oil For Seven Years (AEP)

Russia is battening down the hatches for a Biblical collapse in oil revenues, warning that crude prices could stay as low as $40 a barrel for another seven years. Maxim Oreshkin, the deputy finance minister, said the country is drawing up plans based on a price band fluctuating between $40 to $60 as far out as 2022, a scenario that would have devastating implications for Opec. It would also spell disaster for the North Sea producers, Brazil’s off-shore projects, and heavily indebted Western producers. “We will live in a different reality,” he told a breakfast forum hosted by Russian newspaper Vedomosti. The cold blast from Moscow came as US crude plunged to $35.56, pummelled by continuing fall-out from the acrimonious OPEC meeting last week. Record short positions by hedge funds have amplified the effect.

Bank of America said there was now the risk of “full-blown price war” within Opec itself as Saudi Arabia and Iran fight out a bitter strategic rivalry through the oil market. Brent crude fell to $37.41, even though demand is growing briskly. It is the lowest since the depths of the Lehman crisis in early 2009. But this time it is a ‘positive supply shock’, and therefore beneficial for the world economy as a whole. The International Energy Agency said in its monthly market report that Opec has stopped operating as a cartel and is “pumping at will”, aiming to drive out rivals at whatever cost to its own members. Opec revenues will fall to $400bn (£263bn) this year if current prices persist, down from $1.2 trillion in 2012. This is a massive shift in global wealth.

The IEA said global oil stocks were already at nose-bleed levels of 2,971m barrels, and were likely to increase by another 300m over the next six months as “free-wheeling Opec policy” floods the market. The watchdog played down fears that the world was running out of sites to store the glut, citing 230m barrels of new storage coming on stream. Inventories in the US are still only at 70pc capacity. But this could change once Iranian crude comes on stream later next year. Russia’s $40 warning is the latest escalation in a game of strategic brinkmanship between the Kremlin and Saudi Arabia, already at daggers drawn over Syria. The Russian contingency plans convey a clear message to Riyadh and to Opec’s high command that the country can withstand very low oil prices indefinitely, thanks to a floating rouble that protects the internal budget.

Saudi Arabia is trapped by a fixed exchange peg, forcing it to bleed foreign reserves to cover a budget deficit running at 20pc of GDP. Russia claims to have the strategic depth to sit out a long siege. It is pursuing an import-substitution policy to revive its industrial and engineering core. It can ultimately feed itself. The Gulf Opec states are one-trick ponies by comparison. The deputy premier, Arkady Dvorkovich, told The Telegraph in September that Opec will be forced to change tack. “At some point it is likely that they are going to have to change policy. They can last a few months, to a couple of years,” he said. Kremlin officials suspect that the aim of Saudi policy is to force Russia to the negotiating table, compelling it to join Opec in a super-cartel controlling half the world’s production.

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“Wall Street margined the Fed’s gift of collateral, and did so over and over in an endless chain of rehypothecation.”

December 16, 2015 – When The End Of The Bubble Begins (Stockman)

They are going to layer their post-meeting statement with a steaming pile of if, ands & buts. It will exude an abundance of caution and a dearth of clarity. Having judged that a 25 bps pinprick is warranted, the FOMC will then plant itself firmly in front of the great flickering dashboard in the Eccles Building. There it will repose to a regimen of “watchful waiting”, scouring the entrails of the “incoming data” to divine its next move. Perhaps the waiting won’t be so watchful as all that, however. What is actually coming down the pike is something that may put the reader, at least those who have already been invited to join AARP, more in mind of that once a year hour-long special broadcast by Saturday morning TV back in the days of yesteryear; it explained how the Lone Ranger got his mask.

Memory fails, but either 12 or 19 Texas Rangers rode high in the saddle into a box canyon, confident they knew what was around the bend. Soon there was a lot of gunfire and then there was just one, and that was only because Tonto’s pony needed to stop for a drink. Yellen and her posse better pray for a monetary Tonto because they are riding headlong into an ambush in the canyons of Wall Street. To wit, they cannot possibly raise money market interest rates—-even by 75 bps—-without massively draining liquidity from the casino. Don’t they know what happened to the $3.5 trillion of central bank credit they have digitally printed since September 2008? Do they really think that fully $2.8 trillion of it just recycled right back to the New York Fed as excess bank reserves?

That is, no harm, no foul and no inflation? The monetary equivalent of a tree falling in an empty forest? To the contrary, how about recognizing the letter “f” for fungibility. What all that “excess” is about is collateral, not idle money. The $2.8 trillion needed an accounting domicile—so “excess reserves” was as good as any. But from a financial point of view it amounted to a Big Fat Bid for existing inventories of stocks and bonds. Stated more directly, Wall Street margined the Fed’s gift of collateral, and did so over and over in an endless chain of rehypothecation. So that’s why December 16th will be the beginning of the end of the bubble. If the Fed were to actually raise money market rates the honest way, and in the manner employed by central banks for a century or two, it would have to drain cash from the system; and it would have to do so in the trillions in order to levitate the vast sea of money it has pinned to the zero bound.

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What excess money will buy you.

Stocks Are More Overvalued Now Than At 2000 And 2007 Peaks (MarketWatch)

The stock market currently is even more overvalued than it was at the bull market peaks of both March 2000 and October 2007 — according to not just one, but two, valuation measures. That at least is the message of an analysis released earlier this week by Ned Davis Research, the quantitative research firm. What caught my eye in the firm’s analysis was that, unlike virtually all others that conclude that stocks are overvalued, this one was not based on the Shiller P/E — the cyclically-adjusted P/E ratio championed by Nobel laureate Robert Shiller. That’s noteworthy, since there would be nothing new in reporting that Shiller’s P/E shows stocks to be overvalued. That ratio has been giving this same message for several years now, and skeptics have found many ways of wriggling out from underneath its bearish implications.

But Ned Davis’s latest report focuses on something different: the median stock’s price/earnings and price/sales ratios. The median stock, of course, is the one for which exactly half have higher ratios and half have lower. By focusing on the median, Davis’s findings are immune from the charge that they are being skewed by outliers — such as the terrible earnings among energy companies. The chart at the top of this column summarizes what Davis found. Currently, according to his firm’s research, the median NYSE-listed stock has a price/earnings ratio of 25.6, when calculated based on trailing 12-month earnings. At the bull market peak in October 2007, for example, the comparable ratio was below 20; at the top of the Internet bubble in March 2000, it was even lower. In fact, according to Davis, the price/earnings ratio currently for the median NYSE stock is the highest it’s ever been since his data series began in 1980 — except for the bear-market lows of October 2002 and March 2009, when earnings were depressed by recessions.

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Fed mouthpiece Hilsenrath with an pretty astonishing tale: After creating the biggest bubble ever, “the central bank remained ill-equipped to quell [..] dangerous asset bubbles..”

As Commercial Real-Estate Prices Soar, Fed Weighs Consequences (WSJ)

Federal Reserve officials participating in a “war game” exercise this year came to a disturbing conclusion: Six years after the financial crisis ended, the central bank remained ill-equipped to quell the kind of dangerous asset bubbles that destabilized the savings-and-loan industry during the late 1980s, tech stocks in the 1990s and housing in the mid-2000s. The five officials—gathered at a conference table in Charlotte, N. C.—had to determine if hypothetical booms in commercial real estate and corporate borrowing risked collapse and damaging fallout for the broader economy. The group was asked what to do about it. Fed officials said afterward they saw they lacked clear-cut tools or a proper road map of regulatory measures to help stem the simulated booms.

They also disagreed on whether to use higher interest rates to stop bubbles, a blunt instrument affecting the entire economy. “I walked away more sure about the discomfort I originally had,” said Esther George, president of the Federal Reserve Bank of Kansas City and a participant in the June exercise. She and others believe the Fed’s low-rate policies might have played a role in booming asset prices. The worry has turned more concrete. Commercial real-estate prices are soaring and Fed officials face the conundrum of what, if anything, to do. “Signs of valuation pressures are emerging in commercial real-estate markets, where prices have been rising at a solid clip and lending standards have deteriorated, although debt growth has not yet accelerated notably,” Stanley Fischer, vice chairman of the Fed, said in a speech Thursday.

Central bank officials would feel an urgency to act only if they believed the commercial real-estate market could suffer a sharp reversal that destabilizes the financial system or hurts the U.S. economy. That isn’t clear. Commercial real estate is a relatively small segment of the overall economy, and unsustainable debt hasn’t emerged as a problem. But financial bubbles have been root causes of the past three recessions and is a consideration as the Fed nears a decision on interest rates. Officials have signaled they will raise short-term interest rates from near zero at their policy meeting next week with the economy and job market improving. For some officials, the commercial real estate boom—and other financial sector froth—could be an added incentive.

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“High-yield bonds have led previous big reversals in S&P 500..”

Why The Junk Bond Selloff Is Getting Very Scary (MarketWatch)

The junk bond market is looking more and more like the boogeyman for stock market investors. The iShares iBoxx $ High Yield Corporate Bond exchange-traded fund dropped 2% on Friday to close at the lowest price since July 17, 2009. Volume 54.1 million shares, or nearly six times the 30-day average of 9.5 million shares, according to FactSet. While weakness in the junk bonds – bonds with credit ratings below investment grade – is nothing new, fears of meltdown have increased after high-yield mutual fund Third Avenue Focused Credit Fund on Thursday blocked investors from withdrawing their money amid a flood of redemption requests and reduced liquidity. This chart shows why stock market investors should care:

The MainStay High Yield Corporate Bond Fund was used in the chart instead of the iShares iBoxx ETF (HYG), because HYG started trading in April 2007. When investors start scaling back, and market liquidity starts to dry up, the riskiest investments tend to get hurt first. And when money starts flowing again, and investors start feeling safe, bottom-pickers tend to look at the hardest hit sectors first. So it’s no coincidence that when the junk bond market and the stock market diverged, it was the junk bond market that proved prescient.

There’s still no reason to believe the run on the junk bond market is nearing an end. As Jason Goepfert, president of Sundial Capital Research, points out, he hasn’t seen any sign of panic selling in the HYG, which has been associated with previous short-term bottoms. “Looking at one-month and three-month lows [in the HYG] over the past six years, almost all of them saw more extreme sentiment than we’re seeing now,” Goepfert wrote in a note to clients.

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Icahn likes Trump to ‘shake up the system’.

Carl Icahn: Junk Bond Market A ‘Keg Of Dynamite’ (CNBC)

Activist investor Carl Icahn renewed his warnings about the high-yield debt market Friday, criticizing a perceived lack of liquidity in junk bond funds. “The high-yield market is just a keg of dynamite that sooner or later will blow up,” he said on CNBC’s “Fast Money: Halftime Report.” Icahn’s comments echoed remarks he has made in recent months about the dangers of high-yield debt. They come as Third Avenue Management looked to block investors from withdrawing money from a nearly $1 billion junk bond fund that it is trying to liquidate. Third Avenue’s troubles could fuel concerns as markets await an interest rate decision next week from the Federal Reserve, another frequent Icahn target.

High-yield funds look perilous because “there’s no liquidity” behind them, Icahn contended. He voiced similar criticism of BlackRock this summer, saying some of its bond funds create an “extremely dangerous situation.” “The average person that goes into this should basically be warned,” he said Friday. Icahn stressed that financial support for some high-yield funds may prove shaky, and investors should be better informed about the risks. He noted that, while he does not support more government intervention, regulators may want to put increased attention on risks in the junk bond market.

Video from Icahn’s website, Sep 2015

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Wille the Fed end up bailing out junk bonds?

It Starts: Junk-Bond Fund Implodes, Investors Stuck (WS)

We have warned about “open-end” bond mutual funds, particularly those with a lot of high-yield bonds. We know some folks who got burned when Charles Schwab’s $13-billion bond fund SWYSX blew up during the financial crisis and lost 60% or so of its value before its data went offline. Schwab settled all kinds of class-action and individual lawsuits for cents on the dollar. It got in trouble over other bond funds. And other purveyors of bond funds got in trouble too. It works like this: When an “open-end” bond fund starts losing money, investors begin to sell it. Fund managers first use all available cash to pay investors. When the cash is gone, they sell the most liquid securities that haven’t lost much money yet, such as Treasuries. When they’re gone, they sell the most liquid corporate paper.

As they go down the line, they sell bonds that have already lost a lot of value. By now the smart money is betting against the fund, having figured out what’s happening. They’re shorting the very bonds these folks are trying to sell. The longer this goes on, the more money investors lose and the more spooked they get. It turns into a run. And people who still have that fund in their retirement account are getting cleaned out. Bond funds can be treacherous – especially if they hold dubious paper, which is never dubious until it suddenly is. And when they get in trouble, you want to be among the first out the door. The $1.8-trillion or so of US junk bonds are everywhere. Investors loved them because they have discernible yields in the Fed-designed zero-interest-rate environment. Junk bonds were hot, and so were the funds.

People went for them, with no idea that they were putting their nest egg in a fund larded with explosives. A significant part of Corporate America is junk rated, well-known names like Chrysler, Valeant Pharmaceuticals, or iHart Communications, yup, the LBO wunderkind owned by private equity firms and weighed down by $8.9 billion in debt that is now “distressed.” They issue debt because they’re cash-flow negative and need new money, or because they gorge on M&A, or have to fund share-buybacks and special billion-dollar dividends back to the private equity firms that own them. During the boom years of the credit bubble, nothing could go wrong. And now, as ever more junk bonds wither, crash, default, and cause their owners to tear out their hair – just then, a bond fund implodes. And the next crisis hasn’t even started yet.

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Gundlach stands to lose big.

Gundlach Says ‘Never Just One Cockroach’ In Any Credit Meltdown (Reuters)

Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital, warned Friday that crumbling credit markets could expose more fund debacles such as Third Avenue Management’s junk bond portfolio and the Federal Reserve should take note of deteriorating financial conditions. “I’d have to believe that if they met today that they wouldn’t raise rates,” Gundlach told Reuters in a telephone interview. “I mean, Wow. Look at the chart of JNK (The SPDR® Barclays High Yield Bond ETF). It’s accelerating to the downside.” Thursday, Martin Whitman’s Third Avenue Management said it was barring investor withdrawals while it liquidated its high-yield bond fund, an unusual move that highlights the dangers of loading up on risky assets that are hard to trade even in good times.

“There’s never just one cockroach” in any kind of credit meltdown, said Gundlach, who oversees $80 billion at the Los Angeles-based DoubleLine Capital. Investors have been on “credit overload,” in a reach for yield, Gundlach said. “People are too long credit and the credit is melting down and the stock market is whistling through the graveyard. It is so similar to 2007, it’s scary.” The junk-bond fund blowup comes ahead of next week’s Federal Reserve’s Open Market Committee meeting on December 15 and 16, at which time policy makers are expected to raise rates from near-zero levels for the first time in nearly a decade. Gundlach, who has been warning that the U.S. Federal Reserve should not tighten monetary policy next week, said: “They’re just hell-bent on raising rates. They talked that they would do it and they want to do it – and yet nominal GDP is lower than it was in September of 2012.” “Yet they did QE3 in September 2012,” Gundlach said.

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Cockroach no. 1. Or is it no. 2?

Third Avenue Redemption Freeze Sends Chill Through Credit Market (BBG)

Investors who piled into the riskiest corners of the credit markets during seven years of rock-bottom interest rates are getting a reminder of how hard it can be to cash out. With outflows from U.S. high-yield bond funds running at the fastest pace in more than a year, Martin Whitman’s Third Avenue Management took the rare step of freezing withdrawals from a $788 million credit mutual fund on Dec. 9. The firm’s assessment that meeting redemptions would be impossible without resorting to fire sales has put a spotlight on the dangers for junk-bond investors as the Federal Reserve prepares to lift interest rates as soon as next week. “It’s definitely a dark cloud over the market,” said Anthony Valeri at LPL Financial. Investor withdrawals “are driving the high yield market now more than anything.

Institutions – hedge funds and mutual funds – are being forced to get out and unfortunately that’s pressuring the entire market.” The selloff in riskier debt, fueled by tepid global economic growth and a collapse in earnings at commodity companies, deepened on Thursday as news of Third Avenue’s decision rattled investors. Yields on U.S. high-yield debt climbed to the highest in almost four years, putting the market on pace for its first annual loss since 2008, a Bank of America Merrill Lynch index shows. Growing tumult in credit markets comes eight years after BNP Paribas helped spark a global financial crisis by freezing withdrawals from three investment funds because it couldn’t “fairly” value their mortgage holdings.

While Third Avenue said its positions have the potential to deliver returns over a longer investment horizon, Berwyn Income Fund’s George Cipolloni said the similarities between today’s markets and those before the crisis are getting too big to ignore. “A lot of this looks like late 2007 or early 2008,” when the credit crunch began to take root, said Cipolloni, whose fund has outperformed 72% of peers tracked by Bloomberg over the past five years. “But instead of housing and mortgages, it’s energy and materials leading the decline.”

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Losers. Big losers.

Stone Lion Capital Partners Suspends Redemptions in Credit Hedge Funds (WSJ)

Stone Lion Capital Partners said it suspended redemptions in its credit hedge funds after many investors asked for their money back. The move, nearly unprecedented in the hedge-fund industry since the financial crisis, is the latest example of the sudden crunch facing traders across Wall Street looking to sell beaten-down positions. On Thursday, Third Avenue stunned investors with the announcement it was barring withdrawals while it liquidates a high-yield bond mutual fund, a move that intensified a selloff sweeping the junk-bond world. Stone Lion, founded in 2008 by Bear Stearns veterans Gregory Hanley and Alan Mintz, is in a similar malaise, facing heavy losses on so-called distressed investments including junk bonds, post reorganization equities and other special situations, people familiar with the matter said.

Its oldest set of credit funds, which manage $400 million altogether, received “substantial redemption requests,” precipitating the decision, the firm said in a statement. The firm didn’t give a time frame for when the money would be returned. A Stone Lion spokesman said suspending redemptions was the only way to “ensure fair and equitable treatment for all” investors. The firm continues to operate several other funds, including one that bets on Puerto Rico’s economic recovery. Stone Lion’s hedge funds were down about 7% through the end of July, when it cut off many prospective investors from receiving updates, people familiar said. In a midyear letter to investors, Messrs. Hanley and Mintz professed optimism in the “ultimate recovery figures underpinning our investment theses.” But the funds have suffered significant losses since then, the people said; investor documents indicate the funds manage 24% less now than they did at the end of July.

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Beggar thy neighbor. And thyself?

Bank of Canada Crushes Loonie, Creates Mother of All Shorts (WS)

The Canadian dollar swooned 1% against the US dollar on Friday, to US$0.7270, after having gotten hammered for the past six of seven trading days. It’s down 5% in November so far, 15.5% year-to-date, and 31% from its post-Financial Crisis peak of $1.06 in April 2011. It hit the lowest level since June 2004. The commodities rout would have been bad enough. Given the importance of commodities to the Canadian economy, the multi-year decline in the prices of metals, minerals, and natural gas, and then starting in mid-2014, the devastating plunge of the price of oil, would have been sufficient in driving down the loonie. That the Fed has tapered QE out of existence last year and has been waffling and flip-flopping about rate hikes ever since made the until then beaten-down US dollar, at the time the most despised currency in the universe, less despicable – at the expense of the loonie.

Those factors would have been enough to knock down the loonie. But it wasn’t enough, not for the ambitious Bank of Canada Governor Stephen Poloz. The man’s got a plan. He is in an all-out currency war. He’s out to crush the loonie beyond what other forces are already accomplishing. He’s out to pulverize it, and no one knows how far he’ll go, or where he’ll stop, or if he’ll ever stop. He has singlehandedly created the short of a lifetime. It should spook every Canadian with income and assets denominated in Canadian dollars and those wanting to buy a home in Canada (we’ll get to that bitter irony in a moment). Poloz has been in office since June 2013, and this is what he has accomplished so far:

One reason for pulverizing the Canadian dollar is to boost revenues and earnings of exporters. They get to translate their foreign-currency revenues into Canadian dollars on their financial statements. And analysts love that. It doesn’t matter how the bigger numbers got there, whether by inflation or devaluation, as long as they’re bigger. And Canadian stocks could use some help. Despite the destruction of the loonie, the Toronto Stock Exchange index TSX has plunged 18% since its peak in June 2014 and is now back where it had been in September 2013.

So Poloz is trying to get Canadian workers to be able to compete with workers in Mexico and China and Bangladesh, and with those beaten-down wages in the US. His tool is to pulverize the currency. Alas, the Mexican peso too has gotten crushed. But ironically, the Bank of Mexico is spinning in circles to halt the decline. It’s selling its limited dollar reserves and buying pesos to prop up its currency, even as Canadians watch helplessly as their own currency descends into banana-republic status – something the US dollar used to excel at when the Fed was on its path of total dollar destruction.

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Of course, more debt will solve everyhting.

China Property Firms’ Debt Issuance Jumps, More To Come (Reuters)

China’s real estate companies have sharply increased the amount of funds raised from debt so far this year compared with 2014 as borrowing costs hit historical lows, and they are planning to borrow more. Property developers have raised 495 billion yuan ($77 billion) from domestic Chinese bonds, almost double 2014 levels, Barclays Capital estimates. Goldman Sachs suggests property companies have issued more than 400 billion yuan ($62.5 billion) in domestic bonds, over seven times total issuance in 2014. It uses a different set of companies as the basis of its estimate. “Conditions are great for these developers who should take this opportunity to strengthen their balance sheets and deleverage in a disciplined manner, rather than leverage up,” said Dhiraj Bajaj at Lombard Odier Singapore.

After tightening regulations in recent years to dampen a hot property market, regulators have moved this year to make it easier for developers to raise debt in the hope a lift for the real estate market will boost the wider economy. The property sector drives about 15% of gross domestic product and could help support an economy that many analysts predict will grow this year at its slowest pace in more than two decades. Historically low interest rates are helping to fuel the rush. The central bank has cut its benchmark interest rates six times since November by 1.65%age points and reduced banks’ reserve requirements three times this year.

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Two nations under the same flag.

Even the Mafia Wants Out of Italy’s South (BBG)

A large portion of Italy is being left behind. The economic gap between Italy’s prosperous north and its depressed south has widened so much that the difference between Lombardy near the Swiss Alps and Calabria in the toe of the boot-shaped peninsula is wider than that between Germany and Greece. “With the latest recession, a whole chunk of the south’s productive structure has disappeared,” said Stefano Prezioso, head of forecasts at research institute Svimez, which seeks to promote industry in the south. “The process of decoupling that began in 2001 has quickened and it may now take many years to get back to a growth pace similar to the north.”

Italy has suffered through two recessions in seven years and its recovery is lagging behind other euro-area countries. That means a large part of the country’s population living in the south, known as Mezzogiorno, may not even see an improvement in economic conditions. Bank of Italy Director General Salvatore Rossi, who comes from the southern city of Bari, highlighted the issue in a Dec. 3 speech by saying the regional disparity is at a record and widening. Successful companies in northern Italy were increasingly subjected to “contamination” by organized-crime groups, including those from the south, as the businesses tried to weather the effects of the nation’s recession, Milan-based Assolombarda, the Lombardy industrialists’ association, said earlier this year. Prosecutors have also said the Mafia and other organized crime gangs are moving more of their operations to the north.

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“We’re One Giant Step Closer To The End Of Antibiotics..”

New Superbug Resistant To All Antibiotics Linked To Imported Meat (Forbes)

Just last month, Yi-Yun Liu’s team discovered the mcr-1 gene, which conveys resistance to colistin, an antibiotic of last resort. They were doing a surveillance project on E. coli bacteria from food animals in China. A whopping 15% of meat samples and 21% of animals tested between 2011 and 2014 also had bacteria that carried this gene. The researchers from South China also found this resistance gene in E. coli and Klebsiella pneumonia isolates from 16 hospitalized patients’ blood, urine or other sites. The isolates were all very resistant ESBL bacteria to begin with, so now were resistant to all antibiotics. It gets worse. This week, Frank Aarestrup’s team, from the Danish National Food Institute, reported that they also searched their collection of bacteria, looking for this new gene.

They found the mcr-1 gene in the blood of a patient and in 5 poultry samples that originated in Germany between 2012-14. The patient had not left the country and was believed to have become infected by eating contaminated meat. The genes found in the poultry were identical to those from the Danish patient and from China. Why is this important? The mcr-1 gene transfers resistance to E. coli, Klebsiella, Pseudomonas—common bacteria—by plasmids, small bits of DNA that can be transferred to different types of bacteria. Previously, colistin resistance was transferred on chromosomes, and therefore affected only those bacteria and their descendants. Plasmid-borne resistance genes are more likely to be rapidly spread widely, and can spread between species of bacteria. According to George Washington University’s Dr. Lance Price, it’s a bit less likely to be a problem with Salmonella for now, as “we don’t have those bordering on pan-resistance like E. coli.”

One of the problems is that colistin is widely used in China’s agriculture industry. Co-author Professor Jianzhong Shen explains, “The selective pressure imposed by increasingly heavy use of colistin in agriculture in China could have led to the acquisition of mcr-1 by E. coli.” The WHO called for limiting the use of colistin in 2012, calling it a critically important antibiotic. Yet most of the 12,000 tons of colistin fed to livestock each year is in China. In Europe, polymyxins (the colistin class) were the 5th most heavily used type of antibiotic in agricultural use in 2013. Colistin is not widely used in the U.S., but it is not prohibited either. Colistin is a nasty antibiotic. Until the past few years, when we were desperate for options for treating carbapenem resistant bacteria (CRE), it was not used due to its toxicity. I’ve had to use it a rarely, resulting in inevitable renal failure in the patients receiving it.

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Interesting artist.

Banksy Uses Steve Jobs Artwork To Highlight Refugee Crisis (Guardian)

Banksy has revealed a new artwork, sprayed on a wall in the Calais refugee camp called “the Jungle”, intended to address negative attitudes towards the thousands of people living there. The work depicts the late Steve Jobs, the founder of Apple, with a black bin bag thrown over one shoulder and an original Apple computer in his hand. The work is a pointed reference to Jobs’s background as the son of a Syrian migrant who went to America after the second world war. In a rare statement accompanying the work, Banksy said: “We’re often led to believe migration is a drain on the country’s resources but Steve Jobs was the son of a Syrian migrant. Apple is the world’s most profitable company, it pays over $7bn (£4.6bn) a year in taxes – and it only exists because they allowed in a young man from Homs.”

The graffiti is one of a series of works Banksy has created in response to the refugee crisis. During his trip to Calais, the artist covered several walls across the French port with related graffiti, including a riff on Theodore Gericault’s Raft of the Medusa, featuring a luxury yacht. This summer, his temporary “bemusement” park in Weston-Super-Mare featured an installation of boats filled with bodies. On the closing night of Dismaland, Banksy also invited Pussy Riot to debut their song criticising the global failure to help the migrants entering Europe. Since the park closed in September, the artist has been shipping leftover infrastructure from Dismaland to help build emergency housing for the 7,000 migrants, mainly from Syria, Eritrea and Afghanistan, now living on the site of a former rubbish tip in Calais.

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Nov 192015
 
 November 19, 2015  Posted by at 9:51 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Wyland Stanley REO taxicab, San Francisco 1924

China’s Steel Industry Peers Into Abyss as Output to Plunge (Bloomberg)
Rio Tinto’s Optimistic About Iron Ore And That’s Reason To Worry (Bloomberg)
Zinc Lowest in 6 Years, Nickel at 12-Year Low on China Concerns (Bloomberg)
Can Anything Stop Companies From Loading Up on Debt? UBS Says No. (Alloway)
Debt, The Never-Ending Story (Economist)
Finland’s Depression Is The Final Indictment Of Europe’s Monetary Union (AEP)
China Inclusion In IMF Currency Basket Not Just Symbolic (FT)
New Players Break Into Credit Derivatives (FT)
Atlantic City’s Mayor Warns of Insolvency by April Without Aid (Bloomberg)
Fed Tipping Toward December Rate Hike, Minutes Show (Hilsenrath)
Australia Blocks Ranch Sale to Foreigners on Security Fears (Bloomberg)
Turkey Could Cut Off Islamic State’s Supply Lines. So Why Doesn’t It? (Graeber)
Trudeau Tells Canada To Reject Racism Amid Opposition To Refugee Plan (Reuters)
History Is A Cruel Judge Of Intolerance In America (Bloomberg)
Former Yugoslav Republic of Macedonia Building Fence Along Greek Border (Kath.)
EU Nations Miss Deadline To Appoint Officers For Refugee Relocations (Guardian)
20 African Migrants Lost At Sea In Atlantic After Boat Sinks (Reuters)
Antibiotic Resistance: World On Cusp Of ‘Post-Antibiotic Era’ (BBC)

Overleveraged overinvestment.

China’s Steel Industry Peers Into Abyss as Output to Plunge (Bloomberg)

Crude steel production in China will collapse by 23 million metric tons next year, according to the nation’s leading industry group. That’s equivalent to more than a quarter of annual output from the U.S. Supply from the top producer may drop 2.9% to about 783 million tons from 806 million tons in 2015, according to the China Iron & Steel Association. The slump would be driven by a deepening downturn in local demand and as mills encounter stiffer opposition to exports, Deputy Secretary General Li Xinchuang said in an interview on Wednesday. “You can’t find any bright spots,” Li said in Shanghai, citing weakness across Asia’s largest economy.

“Property developments used to enjoy annual growth of 20% and now at best it is 5%. Infrastructure investments haven’t taken off due to lack of funds despite of all the planned numbers of projects. Manufacturing investments have also dropped like a stone.” China’s mills, which produce about half of worldwide output, are battling against losses, oversupply and sinking prices as local consumption shrinks for the first time in a generation. The fallout from the steelmakers’ struggles is hurting iron ore prices and boosting trade tensions as mills seek to sell their surplus overseas. Shanghai Baosteel Group Corp. has forecast that China’s steel production may eventually shrink 20%.

Li’s estimate of 783 million tons of Chinese production compares with supply from the U.S. of 88.3 million tons in 2014, according to data from the World Steel Association for 2014, the last complete year of figures. That year, output in China was 823 million tons. Steel demand in China would slump to about 654 million tons in 2016 from 668 million tons this year, said Li, who’s also president of the China Metallurgical Industry Planning & Research Institute. Iron ore imports may drop to 920 million tons in 2016 from about 930 million tons, according to Li. The oversupply of steel in China is so acute that David Humphreys, a former chief economist at mining company Rio Tinto Group, said that the country would do well to demolish unneeded mills. “There’s about 300 million tons of surplus capacity in China that needs to be not just shut down, it needs to be eradicated, it needs to be bulldozed,” Humphreys said ..

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What can they do but talk their books?

Rio Tinto’s Optimistic About Iron Ore And That’s Reason To Worry (Bloomberg)

You’re concerned about the slowdown in China’s economy. It bothers you that industrial output has plunged to the weakest levels since 2008. You’re unsettled that the China Iron & Steel Association “can’t see any bright spots” for the metal that’s driven the country’s urbanization. You’re perturbed Jim Chanos thinks the world’s second-biggest economy is heading the same way as Japan in the 1990s. Stop fretting: Rio Tinto, the world’s second-biggest iron ore miner, says China’s going to be O.K. The world should stop focusing on daily price gyrations for the steelmaking metal and concentrate on the long-term trend, CEO Sam Walsh told Bloomberg. The company’s analysts have been “very, very careful” in their forecasts that iron ore demand will reach 3 billion tons by 2030, up about 36% from last year, Megan Clark, a non-executive director at the miner, said.

That’s good news, right? Not so fast.The Anglo-Australian miner has good reason to err on the side of optimism. Like peers Vale and BHP Billiton, it has some of the world’s cheapest iron ore mines, and the least to lose from oversupply hitting the market.The big three miners are engaged in the same game with higher-cost competitors as the one Saudi Arabia is playing against the U.S. shale industry: Let’s flood the market, and see who’s left standing. Like Ali al-Naimi, the Saudi minister who said in June that Chinese oil demand was growing, Walsh and Clark are glass-half-full sorts of people. But their optimism stands in contrast to the industry’s own assessment. China’s steel sector needs to go through a “painful restructuring” and output will collapse by 20%, Baosteel Chairman Xu Lejiang said last month.

Demand is evaporating at “unprecedented speed” and oversupply is worsening, the deputy head of the China Iron & Steel Association said a week later. Steel demand in China fell in 2014 and will slip again in 2015 and 2016, the World Steel Association said in April. Even the flood of exports driven by lackluster domestic demand is shrinking as mills in other countries push governments to impose import charges and start trade disputes. The U.S. is levying tariffs of as much as 236% on some varieties of Chinese steel. A price index for the rebar used in making reinforced concrete for buildings dropped below 2,100 yuan a metric ton Monday for the first time since at least 2003:

For a reality check, see what the higher-cost producers have to say. Rio Tinto and BHP are in an “imaginary world” and more production needs to be halted, according to Lourenco Goncalves, the chief executive officer of U.S.-headquartered Cliffs Natural Resources. Steel demand in China has “plateaued”, Nev Power, his counterpart at the world’s fourth-largest producer Fortescue Metals, said last month. Commodity gluts do eventually correct themselves as the least profitable producers quit the market and bring supply back in line with demand. But there’s little sign of that happening right now. After a modest recovery during the third quarter, an index of Chinese iron ore prices compiled by Metal Bulletin has slipped, and on Tuesday was just 99 cents above July’s record-low $44.59 a metric ton.

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Everything’s becoming a worry going into 2016.

Zinc Lowest in 6 Years, Nickel at 12-Year Low on China Concerns (Bloomberg)

Zinc dropped to the lowest in more than six years amid signs of ample supply and concern that demand is faltering in China, the world’s biggest user. Nickel closed at the lowest in 12 years. Global refined zinc output of 10.486 million metric tons January through September exceeded demand of 10.298 million tons, the International Lead and Zinc Study Group said in a report Wednesday. China President Xi Jinping said the economy faces “considerable downward pressure,” while data showed the nation’s home-price recovery slowed in October. “It certainly continues to point to a more bearish view on China, and they haven’t released any other stimulative type of measure,” Mike Dragosits at TD Securities in Toronto, said. “The market continues to trade pessimistically on the Chinese demand outlook.”

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ZIRP. How the Fed destroys markets.

Can Anything Stop Companies From Loading Up on Debt? UBS Says No. (Alloway)

It’s no secret that companies have been taking advantage of years of low interest rates to sell cheap debt to eager investors, locking in lower funding costs that have allowed them to go on a spree of share buybacks and mergers and acquisitions. With fresh evidence that investors are becoming more discerning when it comes to corporate credit as the first U.S. interest rate rise in almost a decade approaches, it’s worth asking whether anything might stop the trend of companies assuming more and more debt on their balance sheets. In a note published on Wednesday, UBS analysts Matthew Mish and Stephen Caprio offer an answer to that question. After looking at four factors that could theoretically derail the corporate debt train they answer: pretty much nothing.

For a start, they note that higher funding costs are unlikely to dissuade companies from continuing to tap the debt market since, even after a rate hike, financing costs will remain near historic lows. “The predominant reason is the Fed[eral Reserve] is anchoring low interest rates,” the analysts wrote. When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn’t mince words. “We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower,” they wrote.

“Several management teams have been on the road indicating higher funding costs of up to 100 to 200 basis points would not impede attractive M&A deals, in their view.” Higher market volatility has often been cited as one factor that could knock the corporate credit market off its seat, but the UBS duo sees little reason for it to put a dent in debt issuance. “In a low-yield environment, we anticipate significant vol[atility] selling interest to resurface so long as fundamentals are not falling off a cliff,” they said. Even in the third quarter of 2015, when markets were roiled by a global stock selloff, sales of investment-grade bonds were up 32% year-on-year, they noted.

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What goes up…

Debt, The Never-Ending Story (Economist)

It is close to ten years since America’s housing bubble burst. It is six since Greece’s insolvency sparked the euro crisis. Linking these episodes was a rapid build-up of debt, followed by a bust. A third instalment in the chronicles of debt is now unfolding. This time the setting is emerging markets. Investors have already dumped assets in the developing world, but the full agony of the slowdown still lies ahead. Debt crises in poorer countries are nothing new. In some ways this one will be less dramatic than the defaults and broken currency pegs that marked crashes in the 1980s and 1990s. Today’s emerging markets, by and large, have more flexible exchange rates, bigger reserves and a smaller share of their debts in foreign currency.

Nonetheless, the bust will hit growth harder than people now expect, weakening the world economy even as the Federal Reserve begins to raise interest rates. In all three volumes of this debt trilogy, the cycle began with capital flooding across borders, driving down interest rates and spurring credit growth. In America a glut of global savings, much of it from Asia, washed into subprime housing, with disastrous results. In the euro area, thrifty Germans helped to fund booms in Irish housing and Greek public spending. As these rich-world bubbles turned to bust, sending interest rates to historic lows, the flow of capital changed direction. Money flowed from rich countries to poorer ones. That was at least the right way around. But this was yet another binge: too much borrowed too fast, and lots of the debt taken on by firms to finance imprudent projects or purchase overpriced assets.

Overall, debt in emerging markets has risen from 150% of GDP in 2009 to 195%. Corporate debt has surged from less than 50% of GDP in 2008 to almost 75%. China’s debt-to-GDP ratio has risen by nearly 50 percentage points in the past four years. Now this boom, too, is coming to an end. Slower Chinese growth and weak commodity prices have darkened prospects even as a stronger dollar and the approach of higher American interest rates dam the flood of cheap capital. Next comes the reckoning. Some debt cycles end in crisis and recession—witness both the subprime debacle and the euro zone’s agonies. Others result merely in slower growth, as borrowers stop spending and lenders scuttle for cover. The scale of the emerging-market credit boom ensures that its aftermath will hurt.

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“The IMF warned this week against austerity overkill and “pro-cyclical” cuts before the economy is strong enough to take it. [..] Finland should not even be thinking of a “front-loaded” fiscal contraction or slashing investment at a time when its output gap is 3.2pc of GDP. The Finnish authorities admitted in their reply to the IMF’s Article IV report that they had no choice because they had to comply with the Stability Pact. This is what European policy-making has come to.”

Finland’s Depression Is The Final Indictment Of Europe’s Monetary Union (AEP)

Finland is sliding deeper into economic depression, a prime exhibit of currency failure and an even more unsettling saga for theoretical defenders of the euro than the crucifixion of Greece. A full 6.5 years into the current global expansion, Finland’s GDP is 6pc below its previous peak. It is suffering a deeper and more protracted slump than the post-Soviet crash of the early 1990s, or the Great Depression of the 1930s. Nobody can accuse Finland of being spendthrift, or undisciplined, or technologically backward, or corrupt, or captive of an entrenched oligarchy, the sort of accusations levelled against the Greco-Latins. The country’s public debt is 62pc of GDP, lower than in Germany. Finland has long been held up as the EMU poster child of austerity, grit, and super-flexibility, the one member of the periphery that supposedly did its homework before joining monetary union and could therefore roll with the punches.

Finland tops the EU in the World Economic Forum’s index of global competitiveness. It comes 1st in the entire world for primary schools, higher education and training, innovation, property rights, intellectual property protection, its legal framework and reliability, anti-monopoly policies, university R&D links, availability of latest technologies, as well as scientists and engineers. Its near-perfect profile demolishes the central claim of the German finance ministry – through its mouthpiece in Brussels – that countries get into bad trouble in EMU only if they drag their feet on reform and spend too much. The country has obviously been hit by a series of asymmetric shocks: the collapse of its hi-tech champion Nokia, the slump in forestry and commodity prices, and the recession in Russia.

The relevant point is that it cannot now defend itself. Finland is trapped by a fixed exchange rate and by the fiscal straightjacket of the Stability Pact, a lawyers’ construct that was never intended for such circumstances. The Pact is being enforced anyway because rules are rules and because leaders in the Teutonic bloc have an idee fixee that moral hazard will run rampant if any country in the EMU core sets a bad example. Finland’s output shrank a further 0.6pc in the third quarter and the country’s three-year long recession is turning into a fourth year. Industrial orders fell 31pc in September. “It’s spooky,” said Pasi Sorjonen from Nordea. Sweden was able to navigate similar shocks by letting its currency take the strain at key moments over the last decade. Swedish GDP is now 8pc above its pre-Lehman level.

The divergence between Finland and Sweden is staggering for two Nordic economies with so much in common, and it has rekindled Finland’s dormant anti-euro movement. The Finnish parliament is to hold ‘Fixit’ hearings next year on exit from monetary union and a return to the Markka, the currency that saved Finland in the early 1990s (once the ill-judged hard-Markka policy and the fixed ECU-peg was abandoned). Paavo Väyrynen, a Euro-MP and honorary chairman of the ruling Centre party, forced the euro hearings onto the parliamentary agenda after collecting 50,000 signatures. “The eurozone is not an optimal currency area and people are becoming aware of the real reasons for our crisis,” he said. “We are in a similar situation to Italy and have lost a quarter of our industry. Our labour costs are too high,” he said. [..] .. if the euro cannot be made to work for what is supposed to be the most competitive country in the EU, who can it work for?

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My gut says Xi’s going to regret this, and/or get into trouble with the rest of the world. He gives no sign of understanding hia own power limits.

China Inclusion In IMF Currency Basket Not Just Symbolic (FT)

Back in 2009, the west was desperately seeking green shoots of recovery and paid little attention when Zhou Xiaochuan called for nothing less than a new world financial order. China’s central bank governor proposed replacing the US dollar as the international reserve currency with a global system controlled by the IMF. If, as expected, the IMF this month approves the inclusion of China’s renminbi as a reserve currency, it will mark a small step for Mr Zhou’s 2009 vision, but a big move for the renminbi. The prospect of China’s currency joining the dollar, euro, yen and sterling in backing the IMF’s Special Drawing Rights — its unit of account, restricted to member governments — has been described as everything from a symbolic ego trip by Beijing to the dawning of a new era.

In all probability it will be like many Chinese financial reforms: significant in hindsight, but harder to get excited about in its early stages. Market enthusiasm over early-stage reforms such as the de-pegging of the renminbi 10 years ago has gradually given way to a level of ennui as the changes get smaller and China gets bigger. The result is often disappointment in the numbers as China maintains a staunch antipathy to the sort of sweeping changes, accompanied by headline-grabbing figures, beloved of newly-installed western executives and politicians. Even the Shanghai-Hong Kong Stock Connect, one year old this week, was shrugged aside by many, because the absolute numbers involved are relatively small.

However, its real significance lies in the fact that it was the first scheme under which China had let foreign investors in “blind” — that is, without requiring approval of each investor. SDR inclusion risks being categorised the same way. That would miss the point, since this is not about boosting short-term demand from central banks for renminbi. Rather, it is about embedding the currency in the international system and committing China to financial reform. If China were to constitute up to 10% of the SDR basket, that would result in a need for reserve managers to buy just $28bn or its currency — not a particularly meaningful number compared with the $20bn traded daily in the onshore spot market. Reserve figures are thus another source of headline number disappointment.

If China were to make up 3% of the $11.5tn of reserves held globally by the end of 2016, as forecast by DBS economist Nathan Chow, the $340bn that implies would vault the renminbi straight into the top league alongside sterling and the yen. Yet the dollar comprises almost two-thirds of reserves and the euro a further 20%. Numbers aside, the bigger ramifications of SDR inclusion come from its effect on financial reform. Xiangrong Yu, economist at CICC, likens it to the impact of China joining the World Trade Organisation in 2002. “Even if the renminbi fails to be added this time around, it will be impossible to reverse these reform measures,” he adds.

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Oh, lovely…

New Players Break Into Credit Derivatives (FT)

New entrants are breaking into the dealer-dominated credit derivatives market as trading increasingly occurs on electronic platforms. Eagle Seven, a proprietary trading firm in Chicago, confirmed it began quoting prices on cleared index credit default swaps last week. Verition, a New York-based hedge fund and Stifel Nicolaus, a new bank entrant to CDS markets, have also been making inroads, according to people familiar with the matter. It comes as banks draw close to settling a court case in which investors allege they have been shut out of the clubby CDS market for years. Traditionally CDS has been traded bilaterally between banks and their clients.

But regulation mandating the electronic trading of index CDS has since been introduced in the US, with platforms like Bloomberg replicating the bilateral model using a “request for quote system”, whereby investors can request electronic quotes from market makers. The new entrants are active in RFQ, with Eagle Seven also streaming prices on to a public screen called a central limit order book — a nascent trading model for CDS investors. Similar changes have also occurred in interest rate swap markets with Citadel, a non-bank electronic market maker, claiming to be one of the leading participants on Bloomberg’s trading venue.

A number of firms have also actively been pushing single-name CDS — which tracks the likelihood of default of a single company — to trade electronically and with the counterparty risk of buyers and sellers pushed centrally into a clearing house. Centralised clearing mutualises counterparty risk across the market and helps reduce bank capital requirements. Michael Hisler, head of fixed income cleared products at Stifel, said central clearing also removes the need for bilateral execution documents because all trades face the clearing house. Investors hope this may help encourage more new entrants and improve liquidity in the product, which has waned since the 2008 financial crisis. “Central bank regulation is making uncleared derivatives punitive for banks to hold on their balance sheet,” said Mr Hisler.

“Consequently, the traditional financing of uncleared positions is being significantly reduced or eliminated and forcing clearing of all standardised products.” Some of the biggest CDS users are currently drafting a letter with the intention of collecting investor signatures to commit to begin clearing single name CDS starting in the new year, according to a person familiar with the matter. Some banks have also begun offering clients incentives to move old trades into clearing, including cutting fees or giving very favourable pricing. “Clearly there is an incentive,” the head of CDS sales at a European bank said. “You are trying to reduce your counterparty exposure and capital. There is a value attached to that.”

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Detroit was never alone.

Atlantic City’s Mayor Warns of Insolvency by April Without Aid (Bloomberg)

Atlantic City, the distressed New Jersey gambling hub that’s under state oversight, will run out of money by the end of April if bills aimed at bolstering its finances aren’t enacted, Mayor Don Guardian said. “Cash flow runs out April 29,” Guardian told reporters Wednesday during the New Jersey State League of Municipalities conference in his city. Governor Chris Christie conditionally vetoed legislation that would have redirected a portion of casino revenue to the city, which was counting on the money to help close a $101 million deficit this year. He requested changes that steps up the state’s power over the funds. Lawmakers must approve them by Jan. 12 to avoid having to re-introduce the bills in the next session.

The measures were aimed at addressing the financial strains that have gripped Atlantic City as its onetime dominance over East Coast gambling is eroded by competition from neighboring states. The closing of four of 12 casinos last year battered Atlantic City’s revenue, and some of those that remain have sought to lower their property-tax bills by challenging the city’s assessments. If the city runs out of cash, it won’t be able to borrow to stay afloat, Guardian said. Moody’s Investors Service grades the city’s debt Caa1, seven steps below investment grade. Standard & Poor’s ranks it B, five levels into so-called junk. “It would be foolish to bond at the rates we would have to,” he said. “If we could find anyone to take our bonds.”

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Yada yada yada.

Fed Tipping Toward December Rate Hike, Minutes Show (Hilsenrath)

The Federal Reserve sent out new signals that officials will raise interest rates in December as long as job growth and inflation trends don’t take a turn for the worse. Most officials meeting last month anticipated that December “could well be” the time to lift short-term rates after leaving them near zero for seven years, according to minutes of their last meeting three weeks ago, released Wednesday. Officials changed the wording of their policy statement at the October meeting—adding a reference to the possibility of a December increase—to ensure their options were open. The Fed has been waiting to see further improvement in the job market and to gain confidence that inflation, which is running below its 2% target, will start moving up.

“Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting,” the October meeting minutes said. Since the Fed’s October gathering, economic data have generally supported the central bank’s view that the job market is improving and offered some evidence wage and inflation pressures are slowly and gradually starting to build. The U.S. central bank has now warned about rate increases so many times that investors appear to be getting used to the idea. Raising the cost of borrowing typically sends stock prices tumbling, but stocks rose Wednesday, a sign that a rate increase is already priced into markets.

[..] The minutes stated “some” Fed officials felt in October it was already time to raise rates. “Some others” believed the economy wasn’t ready. The wording meant that minorities on both sides of the Fed’s rate debate are pulling in different directions, with a large center inside the central bank inclined to move. Officials cited a number of reasons to avoid delay: They risked creating uncertainty in financial markets by holding off; they risked allowing financial market excesses to build if they kept rates too low; they risked signaling a lack of confidence in the economy if they didn’t move rates higher; and they risked ignoring cumulative gains in the economy already registered. At the same time, the Fed minutes included several new signals that after the Fed does move rates higher, the subsequent path of rate increases is likely to be exceptionally shallow and gradual.

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They need to stop selling themselves. The reason why makes no difference.

Australia Blocks Ranch Sale to Foreigners on Security Fears (Bloomberg)

Australia blocked the sale of the nation’s largest private landowner to an overseas buyer, saying the location of one of the company’s 10 cattle ranches in a weapons testing area could compromise national security. S. Kidman & Co.’s properties were listed for sale in April, with local media reporting that China’s Shanghai Pengxin Group was in exclusive talks to buy the string of ranches for about A$350 million ($250 million). Treasurer Scott Morrison said in a statement that half of Kidman’s Anna Creek station, the nation’s largest single property holding, sits within the Woomera Prohibited Area – a remote stretch of the outback that’s been used to test nuclear bombs, launch satellites and track space missions. Selling Kidman in its current form to a foreigner would be “contrary to Australia’s national interest,” Morrison said in the statement.

Australia’s government has increased scrutiny of foreign acquisitions of agricultural land and earlier this month passed legislation to set up a register of overseas holdings of farm properties. Kidman’s ranches span 101,000 square kilometers (39,000 square miles), or about 1.3% of the nation’s total land area, and carry about 185,000 cattle. The Woomera range “makes a unique and sensitive contribution to Australia’s national defense and it is not unusual for governments to restrict access to sensitive areas on national security grounds,” Morrison said. All bidders have withdrawn their applications to the Foreign Investment Review Board to buy Kidman, Morrison said without identifying them, and it was “now a matter for the vendor to consider how they wish to proceed.”

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The world’s biggest hornet’s nest.

Turkey Could Cut Off Islamic State’s Supply Lines. So Why Doesn’t It? (Graeber)

In the wake of the murderous attacks in Paris, we can expect western heads of state to do what they always do in such circumstances: declare total and unremitting war on those who brought it about. They don’t actually mean it. They’ve had the means to uproot and destroy Islamic State within their hands for over a year now. They’ve simply refused to make use of it. In fact, as the world watched leaders making statements of implacable resolve at the G20 summit in Antalaya, these same leaders are hobnobbing with Turkey’s president Recep Tayyip Erdogan, a man whose tacit political, economic, and even military support contributed to Isis’s ability to perpetrate the atrocities in Paris, not to mention an endless stream of atrocities inside the Middle East. How could Isis be eliminated? In the region, everyone knows.

All it would really take would be to unleash the largely Kurdish forces of the YPG (Democratic Union party) in Syria, and PKK (Kurdistan Workers party) guerillas in Iraq and Turkey. These are, currently, the main forces actually fighting Isis on the ground. They have proved extraordinarily militarily effective and oppose every aspect of Isis’s reactionary ideology. But instead, YPG-controlled territory in Syria finds itself placed under a total embargo by Turkey, and PKK forces are under continual bombardment by the Turkish air force. Not only has Erdoan done almost everything he can to cripple the forces actually fighting Isis; there is considerable evidence that his government has been at least tacitly aiding Isis itself. It might seem outrageous to suggest that a Nato member like Turkey would in any way support an organisation that murders western civilians in cold blood.

That would be like a Nato member supporting al-Qaida. But in fact there is reason to believe that Erdoan s government does support the Syrian branch of al-Qaida (Jabhat al-Nusra) too, along with any number of other rebel groups that share its conservative Islamist ideology. The Institute for the Study of Human Rights at Columbia University has compiled a long list of evidence of Turkish support for Isis in Syria. How has Erdogan got away with this? Mainly by claiming those fighting Isis are terrorists’ themselves And then there are Erdogan’s actual, stated positions. Back in August, the YPG, fresh from their victories in Kobani and Gire Spi, were poised to seize Jarablus, the last Isis-held town on the Turkish border that the terror organisation had been using to resupply its capital in Raqqa with weapons, materials, and recruits – Isis supply lines pass directly through Turkey.

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What’s Justin going to do when the pressure increases?

Trudeau Tells Canada To Reject Racism Amid Opposition To Refugee Plan (Reuters)

The Canadian prime minister, Justin Trudeau, urged Canadians to resist hatred and racism as a poll showed most Canadians were opposed to his plan to bring in 25,000 Syrian refugees by year-end and a flurry of racist incidents were reported around the country. The Liberals, who took power after an election last month, campaigned on a promise to bring in the refugees by 1 January. Critics say the number is too large and could threaten security following the Paris terror attacks. An Angus Reid poll released on Wednesday showed 54% of Canadians opposed the plan, up from 51% before the bloodshed in Paris.

But support for the plan also increased, with 42% in favour, up from 39% in October. Most of those who opposed Trudeau’s plan did so because of the short timeline, with 53% saying the schedule was too short to ensure all the necessary security checks were completed. Another 10% said 25,000 was too many, and 29% said Canada should not be accepting any Syrian refugees. Trudeau has vowed to stick to the plan despite the growing criticism. Travelling through Europe and Asia as part of his first global trip, Trudeau issued an appeal to Canadians to reject racism, and condemned attacks on “specific Canadians” in the aftermath of the attacks by Islamic State in Paris.

A mosque was burned in the Ontario city of Peterborough at the weekend, windows were smashed at a Hindu temple in another city, and a Muslim woman was attacked in Toronto by two men who called her a terrorist and said she should go home. “Diversity is Canada’s strength. These vicious and senseless acts of intolerance have no place in our country and run absolutely contrary to Canadian values of pluralism and acceptance,” Trudeau said. A separate poll by Leger for the TVA news network showed 73% of people in the predominantly French-speaking province of Quebec were worried about attacks in Canada while 60% felt that 25,000 refugees were too many.

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Well, some of the intolerance lasted for centuries. And is over only in law, not in practice.

History Is A Cruel Judge Of Intolerance In America (Bloomberg)

History is a cruel judge of intolerance in America. Let that be a warning to politicians rushing to bar Syrian refugees, especially Muslims, from seeking sanctuary in the U.S. Segregationists are condemned today, even those who later recanted; think of George Wallace. There are few kind words for the American nativist strain, embodied by political movements like the anti-Roman Catholic Know-Nothing Party that flourished in the 1850s. Even progressive icons like Franklin Delano Roosevelt and Chief Justice Earl Warren are censured for their role in interning Japanese-Americans in World War II. On the positive side, Seth Masket of Vox wrote this week about Governor Ralph Carr of Colorado, who in 1942 became a lonely voice for the rights of Japanese-Americans.

Now Republican presidential candidates and governors, and a handful of Democrats, are playing a politically motivated fear card. It doesn’t matter, they argue, if families and little children are fleeing mayhem and carnage in Syria. Don’t let them in, especially if they are Muslims. They cite, of course, the terrorist attack in Paris. Public concern about Syrian refugees is understandable; one of the Paris terrorists might have slipped into Europe with refugees. But real leaders shouldn’t exploit people’s fears. Sometimes their responsibility is to calm them. That’s not what we’re getting from Donald Trump, or from Governor Bobby Jindal of Louisiana, who is straining to get to the right of the other candidates.

Jindal and David Vitter, the Republican senator who is running to replace him – the election is Saturday – have warned of hordes of Syrian refugees threatening the citizens of Louisiana. Vitter said there’s an “influx coming” and that vetting can’t guard against possible “terrorist elements.” The New Orleans Times-Picayune reported this week that there are Syrian refugees in the Bayou State – 14 to be exact. The resettling agency is the New Orleans Archdiocese’s Catholics Charities. The general counsel for the Archdiocese is Wendy Vitter, the wife of Senator Vitter. After Pearl Harbor, the Roosevelt administration decided to put Japanese-Americans in guarded camps.

Colorado’s Carr objected. He said Japanese-Americans were entitled to the same constitutional rights as other citizens and decried the “shame and dishonor” of racial hatred. He was dumped by his own Republican party. The country overwhelmingly supported FDR and Earl Warren, then attorney general of California, who whipped up anti-Japanese sentiment. FDR is now celebrated as a great president. Warren went on to become governor of California and Chief Justice of the United States. His Supreme Court expanded civil rights and civil liberties. Both, however, get bad marks from most historians for their role in internment. Carr’s courage ended his political career. But history smiled. Today there’s a statue of him in downtown Denver. A scenic section of a highway bears his name. The Japanese-American Citizens League has an award in his honor.

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Someone’s got to be getting wealthy over this?!

Former Yugoslav Republic of Macedonia Building Fence Along Greek Border (Kath.)

The Former Yugoslav Republic of Macedonia is erecting a fence on its border with Greece in a bid to block refugees and migrants heading to Central Europe, Kathimerini understands. FYROM has threatened in recent days to put up a fence along the Greek border if countries further along the Balkan refugee trail reduce the number of refugees they are taking in. FYROM’s security council has also taken a decision foreseeing such a move. According to Christos Gountenoudis, the mayor of Paionia, close to the FYROM border, construction is already under way. “Machines have started work behind the border,” he told Kathimerini. The project, which is being overseen by the Balkan state’s army, is expected to raise a 1.5-kilometer-long barbed wire fence running from opposite the small Greek town of Idomeni to the bank of the Axios River.

It appears that FYROM authorities are rushing to get the fence up before countries further north close their borders. Hungary and Slovenia have already built fences along their respective borders with Croatia while Croatia has threatened to put up a fence along its border with Serbia. Thousands of migrants and refugees have crossed into FYROM from Greece in recent weeks. On Wednesday around 5,000 people gathered at Idomeni, while on Tuesday it was 4,600 and on Monday 6,892, sources said. Gountenoudis told Kathimerini he briefed Immigration Policy Minister Yiannis Mouzalas on the construction of the fence. He said he asked Mouzalas what will happen if thousands of refugees end up unable to leave Greece. “He told me the government has a plan,” he said. There are plans for reception centers in Thessaloniki, Kavala and Kilkis, the mayor said.

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Found under ‘disgrace’ in your dictionary.

EU Nations Miss Deadline To Appoint Officers For Refugee Relocations (Guardian)

EU nations have once again missed their own deadline for appointing liaison officers required to coordinate refugee relocations with Greece and Italy, according to information provided by the European commission this week. European council conclusions from 9 November noted that member states committed to appointing the liaison officers to Italy and Greece by 16 November. But the figures released the day after the self-imposed deadline show that 11 member states still have not done so – and six of these – Bulgaria, Croatia, the Czech Republic, Hungary, Latvia and Slovakia – have not provided liaison officers at all. At the council meeting member states had also said they would “endeavour to fill by 16 November 2015 the remaining gaps in the calls for experts and border guards” requested by the European Asylum Support Office (EASO) and Frontex, the European border control agency.

However, the commission figures reveal that only 177 of the 374 experts requested, and 392 border guards of the 775 requested, have so far been provided. The pace of relocation of refugees from the most affected countries – such as Greece and Italy – remains slow. Only 128 refugees from Italy and 30 from Greece have been relocated so far. EU member states agreed in September to relocate 160,000 people in “clear need of international protection” through a scheme set up to relocate Syrian, Eritrean and Iraqi refugees from the most affected EU states to others. The relocation is meant to take place over the next two years, but at this rate it would take 166 years to meet the commitment.

European nations are also falling short in terms of their funding pledges. As of 17 November there is a shortfall of €2.2bn (£1.5bn) to reach the €5.6bn pledged for the UN refugee agency, UNHCR, World Food Programme and other relevant organisations and funds. Member states have collectively provided €573m so far, while the EU, which is matching the national funds, has provided its €2.8bn share. Moreover, the latest data reveals that still too few member states have responded to calls from Serbia, Slovenia and Croatia to provide the resources they need to cope with the refugee crisis. Many items requested by the three countries have not been delivered, including essentials such as beds, blankets, winter tents, clothing and first aid kits.

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Not even near Greece.

20 African Migrants Lost At Sea In Atlantic After Boat Sinks (Reuters)

Around 20 African migrants are missing at sea after their boat sunk in the Atlantic Ocean around 20 miles off the coast of Western Sahara, Spanish sea rescue services said on Wednesday. Spanish lifeguards rescued 22 African men from the sea late on Tuesday in stormy conditions and recovered the corpse of one man. The search continues for the remaining migrants. Survivors say there were over 40 people traveling in the boat, including one woman, the sea rescue services spokesman said. Photographs showed the survivors being transferred from the rescue boat to Gran Canaria island where they were attended to by Red Cross workers in makeshift tents set up in the port. The sea route from West Africa to Spain’s Canary Islands was a major route for migrants attempting to enter Europe until about 10 years ago when Spain stepped up patrols.

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Only solution: immediate ban on feeding livestock antibiotics. Which won’t happen because the chemical industry likes its profits too much.

Antibiotic Resistance: World On Cusp Of ‘Post-Antibiotic Era’ (BBC)

The world is on the cusp of a “post-antibiotic era”, scientists have warned after finding bacteria resistant to drugs used when all other treatments have failed. Their report, in the Lancet, identifies bacteria able to shrug off colistin in patients and livestock in China. They said that resistance would spread around the world and raised the spectre of untreatable infections. Experts said the worrying development needed to act as a global wake-up call. Bacteria becoming completely resistant to treatment – also known as the antibiotic apocalypse – could plunge medicine back into the dark ages. Common infections would kill once again, while surgery and cancer therapies, which are reliant on antibiotics, would be under threat.

Chinese scientists identified a new mutation, dubbed the MCR-1 gene, that prevented colistin from killing bacteria. It was found in a fifth of animals tested, 15% of raw meat samples and in 16 patients. The resistance was discovered in pigs, which are routinely given the drugs in China. And the resistance had spread between a range of bacterial strains and species, including E. coli, Klebsiella pneumoniae and Pseudomonas aeruginosa. There is also evidence that it has spread to Laos and Malaysia. Prof Timothy Walsh, who collaborated on the study, from the University of Cardiff, told the BBC News website: “All the key players are now in place to make the post-antibiotic world a reality. “If MRC-1 becomes global, which is a case of when not if, and the gene aligns itself with other antibiotic resistance genes, which is inevitable, then we will have very likely reached the start of the post-antibiotic era.

“At that point if a patient is seriously ill, say with E. coli, then there is virtually nothing you can do.” Resistance to colistin has emerged before. However, the crucial difference this time is the mutation has arisen in a way that is very easily shared between bacteria. “The transfer rate of this resistance gene is ridiculously high, that doesn’t look good,” said Prof Mark Wilcox, from Leeds Teaching Hospitals NHS Trust. His hospital is now dealing with multiple cases “where we’re struggling to find an antibiotic” every month – an event he describes as being as “rare as hens’ teeth” five years ago. He said there was no single event that would mark the start of the antibiotic apocalypse, but it was clear “we’re losing the battle”.

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 May 23, 2015  Posted by at 10:31 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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G. G. Bain Hudson-Fulton celebration. Union League Club. New York. 1909

Our $58 Trillion Love Affair With Debt, In One Crazy Chart (CNBC)
Fed On Track To Hike Rates As Economic Headwinds Wane: Yellen (Reuters)
BRICS To Establish New Multi-Currency Financial Order (RT)
How ‘Mathiness’ Made Me Jaded About Economics (Bloomberg)
Jim Chanos Thinks China Could Be The Next Greece (MarketWatch)
Greece and Creditors Struggle for Elusive Deal (WSJ)
Eurozone Says No Greek Deal Without IMF (FT)
Yanis Varoufakis Is More Than His Clothes (AlJazeera)
How Politics Will Seal The Fate Of Greece (FT)
German Business Morale Weakens And Trade Dampens Q1 Growth (Reuters)
The Strikes Sweeping Germany Are Here To Stay (Guardian)
Bank Of England Secretly Investigates Financial Fallout Of Brexit (Guardian)
GM Inquiry Said to Find Criminal Wrongdoing (NY Times)
Ireland Says Yes To Same-Sex Marriage By Up To 2:1 Margin (Ind.ie)
‘March Against Monsanto’ in 38 Countries, 428 Cities (RT)
Bayer CEO: The World Needs An Antibiotics Bailout (Reuters)
California Accepts Offer By Farmers To Cut Water Usage By 25% (Guardian)
Attacks On The Last Elephants And Rhinos Threaten Entire Ecosystems (Monbiot)
Yet Another Antarctic Ice Mass Is Becoming Destabilized (WaPo)

The one area where the US sees actual growth.

Our $58 Trillion Love Affair With Debt, In One Crazy Chart (CNBC)

Those having a hard time finding growth in the U.S. economy are looking in the wrong places. Forget about real estate, technology or manufacturing: The real American growth industry is debt. While gross domestic product has lingered in the 2 to 2.5% growth range for years, the level of debt as measured through credit market instruments has exploded. As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened. The gap began to widen during the decade, and then became basically parabolic through the ’90s and into the early part of the 21st century.

Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion, 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve’s St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102% of GDP and is a subset of the total figure.) Of the total debt, nonfinancial debt leads the way at $41.4 trillion, which breaks down as household and nonprofits holding just shy of $13.5 trillion, nonfinancial business debt at $12 trillion and total government debt at $15.9 trillion.

Growth, such as it is, has been present in all debt categories: In the fourth quarter of 2014, when GDP was growing at just a 2.2% rate, business debt jumped 7.2%, federal government debt surged 5.4% and household debt rose 2.7%, with overall domestic nonfinancial debt up 4.7. So while many economists have bemoaned the 0.2% GDP growth in the first quarter and the dimming prospects for growth the remainder of the year, the debt engine is keeping things humming along—until, of course, the next crisis comes and we start all over again.

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What was it? 0.2% GDP growth in Q1? That can’t be the reason. The Fed made up its mind a long time ago.

Fed On Track To Hike Rates As Economic Headwinds Wane: Yellen (Reuters)

Federal Reserve Chair Janet Yellen was clearer than ever on Friday that the central bank was poised to raise interest rates this year, as the U.S. economy was set to bounce back from an early-year slump and as headwinds at home and abroad waned. Yellen spoke amid growing concern at the Fed about volatility in financial markets once it begins to raise rates, and a desire to begin coaxing skeptical investors toward accepting the inevitable: that a 6-1/2-year stretch of near-zero interest rates would soon end. In a speech to a business group in Providence, Rhode Island, Yellen said she expected the world’s largest economy to strengthen after a slowdown due to “transitory factors” in recent months, and noted that some of the weakness might be due to “statistical noise.”

The confident tone suggested the Fed wants to set the stage as early as possible for its first rate rise in nearly a decade, with Yellen stressing that monetary policy must get out ahead of an economy whose future looks bright. While cautioning that such forecasting is always highly uncertain, and citing room for improvement in the labor market, the Fed chief said delaying a policy tightening until employment and inflation hit the central bank’s targets risked overheating the economy. “For this reason, if the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target,” and begin normalizing monetary policy, Yellen told the Providence Chamber of Commerce.

In a speech in March, Yellen said only that a rate hike “may well be warranted later this year,” though the Fed was at the time giving “serious consideration” to making the move. Investors globally are attempting to predict when the Fed will modestly tighten policy. Most economists point to September, while traders in futures markets held firm on December. Ahead of a three-day U.S. holiday weekend, Treasury yields hit session highs after Yellen spoke on Friday, and short-term interest rate futures extended losses, hitting session lows. U.S. stocks were largely flat. “This is probably the most telegraphed Fed lift-off in some time,” said Bruce Zaro at Bolton Global. “I think they’re concerned about the market’s reaction – they don’t want to have a period of volatility that causes the market to react in a crash-type form.”

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At some point it will reach critical mass.

BRICS To Establish New Multi-Currency Financial Order (RT)

The new BRICS initiatives break the monopoly of existing western institutions over the financial order – a very important symbolic change, as it’s the first time a global financial institution is led by developing countries, said experts to RT. “If the new development bank experiment succeeds, it will show the world that the emerging countries can do and manage a multilateral economic institution by themselves,” Akshay Mathur, geo-economic fellow head of research at the Indian Council on Global Relations, told RT at the BRICS academic forum. While talking about the bank’s challenge to western-dominated financial system, he said that one of its goals is to stimulate lending to countries in local currencies for the new projects in that region.

“Right now the bank has clauses in its charter to encourage lending in local currencies. It can do it for lending in the new projects in the East, for Russian projects in the ruble,” he said. BRICS has already employed tools to move away from US dollar dominance, believes H.H.S. Viswanathan, Distinguished Fellow at India’s Observer Research Foundation. “A lot of trade between China and Russia is already taking place in local currencies. As far as India is concerned, it’s not that advanced, but in some areas – yes, we are using local currencies,” he said adding that the main advantage of the banks’ moving away from the dollar is that trading in local currencies reduces the operational cost.

Akshay Mathur also pointed out the potential risks the bank may face, cautioning that China, the largest of the five BRICS economies, could end up dominating the new financial institution. China has already shown notable success in internationalizing yuan. It is issuing foreign loans in its national currency and has currency swaps with 21 countries. “China is lending now more than the World Bank and the IMF combined in Africa and Latin America. So, what I mean about the risk of Chinese financial architecture is that we want to move to a more multilateral multi-currency equitable architecture, because now we have been moving from the risks of one currency to the risks of another,” he said.

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“..math is central to everything that economists do. But the way math is used in macroeconomics isn’t the same as in the hard sciences..”

How ‘Mathiness’ Made Me Jaded About Economics (Bloomberg)

Economics has a lot of math. In no other subject except mathematics itself will you see so many proofs and theorems. Some branches of econ, such as game theory, could legitimately be housed in university math departments. But even in fields such as macroeconomics, which ostensibly deal with real-world phenomena, math is central to everything that economists do. But the way math is used in macroeconomics isn’t the same as in the hard sciences. This isn’t something that most non-economists realize, so I think I had better explain.

In physics, if you write down an equation, you expect the variables to correspond to real things that you can measure and predict. For example, if you write down an equation for the path of a cannonball, you would expect that equation to let you know how to aim your cannon in order to actually hit something. This close correspondence between math and reality is what allowed us to land spacecraft on the moon. It also allowed engineers to build your computer, your car and most of the things you use. Some economics is the same way, especially in microeconomics, or the study of individuals’ actions — you can predict which kind of auction will fetch the highest prices, or how many people will ride a train. But macroeconomics, which looks at the broad economy, is different.

Most of the equations in the models aren’t supported by evidence. For example, something called the consumption euler equation is at the core of almost every modern macroeconomic model. It specifies a relationship between consumption growth and interest rates. But when researchers looked at real data on consumption growth and interest rates, they found that the equation gives exactly the wrong predictions! Yet it continues to be used as the core of almost every macro model. If you read the macro literature, you see that almost every famous, respected paper is chock full of these sort of equations that don’t match reality. This paper predicts that everyone will hold the same amount of cash. This paper predicts that people buy financial assets that only pay off if people are able to change the wage that they ask to receive.

These and many other mathematical statements don’t remotely correspond to observable reality, nor do they have any evidence in support of them. Yet they are thrown into big multi-equation models, and those models are then judged only on how well they fit the aggregate data (which usually isn’t very well). That whole approach would never fly in engineering. Engineering is something you expect to work. But macroeconomists often treat their models as simply ways, in the words of David Andolfatto, vice president of the Federal Reserve Bank of St. Louis, to “organize our thinking” about the world. In other words, macroeconomists use math to make their thoughts concrete, to persuade others, and to check the internal consistency of their (sometimes preposterous) ideas, but not to actually predict things in the real world.

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So do I: .

Jim Chanos Thinks China Could Be The Next Greece (MarketWatch)

China could be the next Greece and its debt woes may even exceed the European country’s in the next few years, predicts prominent hedge-fund manager Jim Chanos of Kynikos Associates. “I joke to my Chinese friends, somewhat half-seriously, another three-four years they are going to be like my homeland Greece,” said Chanos in an interview, which will air this weekend on Wall Street Week, a show hosted by Anthony Scaramucci, co founder of investment-management firm SkyBridge Capital. The perennial China bear pointed to China’s debt-to-GDP ratio of nearly 300% and projected that the ratio is likely to balloon to 400% over the next few years. Here’s an excerpt from the interview:

“The problem is the credit story,” Chanos said. “China’s banking system is bloated and it’s basically taking on more and more leverage.” Chanos declined to elaborate further when contacted for comments but he has been an unabashed critic of China’s debt-fueled economic growth and has been sounding alarm bells of possible hard landing for the world’s second largest economy for several years. A so-called hard landing can refer to a rapid economic slowdown that occurs typically as a government’s central bank is attempting to tighten fiscal policy and combat inflation. China’s total debt hit $28.2 trillion in 2014, equivalent to 280% of its gross domestic product, according to The Wall Street Journal. Chinese monetary officials earlier this month lowered interest rates to combat a worse-than-expected economic slowdown as companies and governments struggled under heavy debt. China’s GDP rose 7% in the first quarter, slowing from the 7.3% growth in the fourth quarter, the National Bureau of Statistics said in April.

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As I predicted, the June 5 date is no longer a stumbling block. The 16th looks darker, though.

Greece and Creditors Struggle for Elusive Deal (WSJ)

Greece and its lenders are casting around for ways to prevent the country from defaulting on debts to the International Monetary Fund in June, as negotiations to unlock bailout aid barely inch forward and the Athens government runs dangerously low on cash. Greece needs financial help in some form by mid-June in order to repay a series of IMF loans falling due, several officials from the country and its creditors said. The Greek government is expected to be able to cover pensions and public-sector wages in May, and it can probably scrape together enough cash to repay a €300 million IMF loan on June 5, these people said.

But three subsequent IMF payments totaling €1.25 billion due in mid-June pose a severe challenge to Athens’s bare treasury, the officials say, and could force the government to either take politically costly measures such as raiding pension funds or delay the payments and risk an unpredictable fallout at home and abroad. Missing an IMF payment would signal that Athens’s coffers are empty. That could spark heavy deposit withdrawals from Greek banks and force capital controls, deepening the country’s economic crisis, said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington.

The looming IMF payments are putting massive pressure on the government, led by the left-wing Syriza party, to agree by early June to the economic-overhaul demands of its creditors. The IMF itself, which is withholding fresh loans pending a deal on policy measures, wants tough pension cutbacks and labor deregulation, without which it believes Greece can’t achieve sustainable growth or solvency. Those measures are anathema to Syriza, elected in January on an antiausterity platform, leaving Greek Prime Minister Alexis Tsipras faced with only unappealing options. Signing the creditors’ terms and putting them to parliament could split his party. A referendum or elections would need time, which is fast running out, and could trigger uncertainty, bank runs and capital controls.

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The White House will be needed to get the IMF in line.

Eurozone Says No Greek Deal Without IMF (FT)

European leaders have told Greece there will be no deal to release desperately needed bailout aid without approval from the more hardline IMF, setting up a stand-off that could leave cash-strapped Athens without funds well into June. The message, delivered by Angela Merkel, the German chancellor, to Alexis Tsipras, her Greek counterpart, at a private meeting in Riga, Latvia’s capital, as well as by lower-level European officials to their Greek interlocutors, comes as the IMF has been weighing whether to withhold its €3.6bn portion of the €7.2bn bailout tranche Athens needs to avoid default. Eurozone and Greek negotiators have been pushing to complete a deal by the end of the month to free up bailout funds before the first in a series of loan repayments owed the IMF totalling €1.5bn falls due June 5.

But securing IMF approval for a bailout deal significantly complicates that timeline. IMF officials believe Mr Tsipras’s government has reversed many of the economic reforms the IMF had agreed with previous Greek governments and do not feel Athens will be able to hit budget targets that would allow its growing debt pile to be reduced quickly. IMF staff have told their board they would not disburse aid without a “comprehensive” deal that started to lower debt levels. They also want EU assurances that Greece will be able to pay its bills for the next 12 months, a demand that could require eurozone governments to commit to another bailout programme. “It has to be a comprehensive approach, not a quick and dirty job,” Christine Lagarde, IMF chief, said at an event in Rio de Janeiro on Friday..

Greek officials have told their eurozone counterparts they are worried about the IMF’s hardline stance and have argued their conditions are politically undeliverable, especially when it comes to the pension reforms, which remain the biggest stumbling block. The IMF has clashed with the European Commission over how tough a line to take, with the commission going so far as to moot cutting the IMF out of a deal. But German officials have bristled at the commission’s interventions and have made clear all three bailout monitors — the IMF, the commission and the ECB — must approve any deal. “The deal must be concluded with the three institutions,” Ms Merkel said at a gathering of leaders from the EU and former Soviet states on Friday. “There is very, very intensive work to be done.”

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“..when close to a solution, the EU goes back to the table with demands that make no sense in the current context..”

Yanis Varoufakis Is More Than His Clothes (AlJazeera)

As the media picked apart Varoufakis, from his smirk to his casual footwear, ugly stereotypes about Greeks resurfaced. In a German daily, the reporter wrote that while “the other finance ministers looked pale and tired, Varoufakis looked as if he had just come back from vacation.” The fallacy of hardworking northerners and lazy southerners should have been put to rest with the 20th century but is still around in 2015. The press briefings cited in most media — which come almost exclusively from unofficial, anonymous sources — said that the discussions that took place over the past few months were no better. They spoke of Greece having no viable proposals and of living in an alternative reality.

They accused Varoufakis of being an ideologue, as though German Chancellor Angela Merkel’s notion of “expansionary contraction,” which was used to justify the austerity dogma, wasn’t in and of itself an ideological intervention (let alone a contradiction in terms). They even complained that Varoufakis was lecturing them on macroeconomics. He was, in a way. “One of the great ironies of the Eurogroup is that there is no macroeconomic discussion. It’s all rules based, as if the rules are God given and as if the rules can go against the rules of macroeconomics,” Varoufakis said in The Irish Times, in response to a criticism by Ireland’s finance minister that he was “too theoretical.”

For now, Varoufakis, like Greece, enjoys too much unwanted attention. While support for Syriza is growing and the party is now leading with 21 percentage points over New Democracy, everyone from everyday supporters of the party (as recent polls have shown) to Greek businesses agrees that the negotiations have gone on too long. But it’s also becoming obvious that when close to a solution, the EU goes back to the table with demands that make no sense in the current context. Earlier this week The Wall Street Journal reported that German Finance Minister Wolfgang Schäuble “showed no willingness to compromise in the negotiations to unlock the final installment of Greece’s €245 billion bailout.”

And in late-night talks on Thursday, Greek Prime Minister Alexis Tsipras met with his counterparts from France and Germany; the atmosphere, Bloomberg reported, was convivial, but the team failed to reach an agreement to release additional bailout funds. We’re running out of time, as we’re only a few weeks before Greece is forced to default on billions of euros in debt repayments. Europe and the international media should stop talking about its finance minister’s clothes and address his nation’s needs and the ideas that he is putting on the table.

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Wait, who said that before? “The Greek crisis was always as much about politics as economics. Now it is all about politics.” I sure didn’t use the same ‘logic’, however: Greece Is Now Just A Political Issue .

How Politics Will Seal The Fate Of Greece (FT)

Forget debt ratios, fiscal balances, liquidity crunches and the rest. The EU and IMF technicians negotiating with Athens are going through the motions. The Greek crisis was always as much about politics as economics. Now it is all about politics. There are two theories of the Syriza government led by Alexis Tsipras. One presents a cast of bungling amateurs who have spent the past several months digging Greece into an ever deeper economic hole — all the while squandering the trust and goodwill of its eurozone partners. The other says the antics of Yanis Varoufakis, finance minister, are an elaborate political charade calculated to set Greece free from the shackles of merciless creditors.

The first hypothesis is the most popular. The preening and pirouetting, the interviews in glossy magazines, the undergraduate Marxism and love of the limelight — all point to a colossal failure on Mr Varoufakis’s part to grasp the depth of Greece’s plight or the sensitivities of its European partners. Along the way, tens of billions of dollars have drained from Greek banks as citizens stash their savings elsewhere. The conspiracy theory, though, also has its adherents. They start with the assumption that no one could be quite as witless as Syriza has often seemed. Mr Tsipras’s government knew from the outset that it could not reconcile its domestic promises with Greece’s international obligations.

The problem was that Greeks had voted at once for an end to austerity and to stay in the euro. A crisis had to be manufactured to show the government’s hand had been forced. By the Germans, of course. I lean towards the former theory, but it hardly matters. Even at this late hour it would be unwise to say that a deal with creditors is absolutely impossible. High-stakes politics occasionally demands that pigs are seen to fly. What strikes me, though, is how far the conversation in other capitals has moved on. The risk of contagion in the rest of the eurozone has long been discussed. The talk now is about the chaos that would descend on Greece after default and euro exit. Would it be manageable or would the EU be left with a failed state?

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More ‘logic’: “..in view of the long recovery the German economy already has behind it, it was normal that its growth rate would be weaker than the rest of the euro zone..”

German Business Morale Weakens And Trade Dampens Q1 Growth (Reuters)

German business morale deteriorated slightly in May for the first time in seven months though it remained at a high level overall, a leading survey showed, adding to signs of softening in Europe’s largest economy. Although growth levels remain decent, separate data published on Friday showed the slowing of the German economy during the first quarter was down to a drag from foreign trade, which had propelled the economy for much of the past decade. The Munich-based Ifo think tank said its business climate index, based on a monthly survey of 7,000 firms, edged down to 108.5 in May from 108.6 in April. That was slightly above the Reuters consensus forecast for 108.3, sending the euro to a day’s high against the dollar.

It comes after ZEW’s survey this week showed investor sentiment weakening and a purchasing managers’ survey (PMI) showed private sector expansion slowing. “With today’s GDP data, yesterday’s PMIs and now the Ifo, new doubts about the strength of the German economy could emerge again,” said Carsten Brzeski, economist at ING. “Germany is at the end of a very positive reform-growth cycle, which is artificially extended by external tailwinds,” he said, adding that in view of the long recovery the German economy already has behind it, it was normal that its growth rate would be weaker than the rest of the euro zone. The Ifo survey showed companies were more optimistic about the current situation than at any point since June 2014 but they became slightly more pessimistic about their future prospects.

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Germany is not used to inequality.

The Strikes Sweeping Germany Are Here To Stay (Guardian)

German strikes once seemed like German jokes: a contradiction in terms. But no more: this year, Europe’s largest economy is on course to set a new record for industrial action, with everyone from train drivers, kindergarten and nursery teachers and post office workers staging walkouts recently. The strike wave is more than a conjunctural blip: it is another facet of the inexorable disintegration of what used to be the “German model”. Good economic conditions play a part, but unions in the thriving export industries are not the ones that are striking these days. Strikes cluster in domestic services, especially the public sector, and indications are that they are here to stay.

In the old days, the powerful unions of the metalworkers set the pace for wage increases throughout the economy. But the last time IG Metall went on a nationwide strike was in 1984. In the 1990s, its members, in particular those in the large car factories, learned the hard way that manufacturing jobs could more easily than ever be moved abroad, to China or the formerly communist eastern Europe. International competition is now no longer just about market share, but also employment. It did not take long for the union leadership to notice this. Fear of unemployment, incidentally, accounts also for German manufacturing workers’ unwillingness to contribute to macroeconomic balance under European monetary union by pushing for higher wages in order to bring down the German export surplus.

Today, the action has shifted to services, where job export is more difficult. But other factors also account for the rise of industrial disorder. Since unification, public employers, in pursuit of fiscal consolidation, have broken up Germany’s peculiar public sector collective bargaining regime, which covered everyone from refuse collectors to professors and generated, essentially, the same yearly wage increases for all. Moreover, several occupations – including train drivers, teachers and postal workers – lost the uniquely German employment status of Beamter, of civil servants without a right to strike but with lifelong tenure and guaranteed pay raises in line with the rate of economic growth.

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How is this a big story? Of course the BoE studies Brexit.

Bank Of England Secretly Investigates Financial Fallout Of Brexit (Guardian)

Bank of England officials are secretly researching the financial shocks that could hit Britain if there is a vote to leave the European Union in the forthcoming referendum. The Bank blew its cover on Friday when it accidentally emailed details of the project – including how the bank intended to fend off any inquiries about its work – direct to the Guardian. According to the confidential email, the press and most staff in Threadneedle Street must be kept in the dark about the work underway, which has been dubbed Project Bookend. It spells out that if anyone asks about the project, the taskforce must say the investigation has nothing to do with the referendum, saying only that staff are involved in examining “a broad range of European economic issues” that concern the Bank.

The revelation is likely to embarrass the bank governor, Mark Carney, who has overhauled the central bank’s operations and promised greater transparency over its decision-making. MPs are now likely to ask whether the Bank intended to inform parliament that a major review of Britain’s prospects outside the EU was being undertaken by the institution that acts as the UK’s main financial regulator. Carney is also likely to come under pressure within the Bank to reveal whether there are other undercover projects underway.

Officials are likely to have kept the project under wraps to avoid entering the highly charged debate around the EU referendum, which has jumped to the top of the political agenda since the Conservatives secured an overall majority. Many business leaders and pro-EU campaigners have warned that “Brexit” would hit British exports and damage the standing of the City of London.

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More cooperative criminals?!

GM Inquiry Said to Find Criminal Wrongdoing (NY Times)

Justice Department investigators have identified criminal wrongdoing in General Motors’ failure to disclose a defect tied to at least 104 deaths, and are negotiating what is expected to be a record penalty, according to people briefed on the inquiry. A settlement could be reached as soon as this summer. The final number is still being negotiated, but it is expected to eclipse the $1.2 billion paid last year by Toyota for concealing unintended acceleration problems in its vehicles, said the people, who did not want to be identified because the negotiations weren’t complete. GM’s eagerness to resolve the investigation – a strategy that sets it apart from Toyota, which fought prosecutors – is expected to earn it so-called cooperation credit, one of the people said.

That credit could translate into a somewhat smaller penalty than if GM had declined to cooperate. Former GM employees, some of whom were dismissed last year, are under investigation as well and could face criminal charges. Prosecutors and GM are also still negotiating what misconduct the company would admit to. For more than a year, federal prosecutors in Manhattan and the F.B.I. have homed in on whether the company failed to comply with laws requiring timely disclosure of vehicle defects and misled federal regulators about the extent of the problems, the people who were briefed on the inquiry said. The authorities also examined whether GM committed fraud during its bankruptcy proceedings in 2009 by not disclosing the defect.

An agreement with the Justice Department, which could still fall apart, would represent a crucial step as GM tries to move past a scandal-laden year that tainted its reputation for quality and safety and damaged its bottom line. “We are cooperating fully with all requests,” the automaker said in a statement. “We are unable to comment on the status of the investigation, including timing.” In February 2014, the automaker began recalling 2.6 million Chevrolet Cobalts and other small cars with faulty ignitions that could unexpectedly turn off the engine, disabling power steering, power brakes and the airbags. The switch crisis prompted a wave of additional recalls by GM for various safety issues. All told, GM recalled more than 30 million vehicles worldwide last year – a record for the automaker.

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Is there any other choice?

Ireland Says Yes To Same-Sex Marriage By Up To 2:1 Margin (Ind.ie)

The same-sex marriage referendum will be comfortably passed, based on early tallies from across the country. The margin of victory is tipped to be heading towards a 2:1 majority. The high turnout favoured Yes campaigners as the efforts to get the vote out worked effectively, particularly among young voters. Few, if any locations, are showing a No vote winning the referendum. Even in traditionally conservative rural area, the vote is coming in at 50:50. Dublin will be strongly Yes, right across the city and county. But this trend is being matched in locations across the country.

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“Monsanto is a monopoly, and it’s acting like one. It’s basically controlling 90% of the seed market in the United States..”

‘March Against Monsanto’ in 38 Countries, 428 Cities (RT)

Hundreds of thousands of demonstrators in 428 cities are expected to turn out this weekend to protest agribusiness giant Monsanto. The third annual ‘March Against Monsanto’ seeks to highlight the company’s part in control of the food supply. The worldwide protest scheduled for May 23 is a continuation of growing awareness and opposition to industrial agriculture’s increasing consolidation of farming resources and methods, according to organizers. In 2013, the first March Against Monsanto garnered more than 2 million protesters in 436 cities across the world, according to a previous report by RT. Similar numbers were reported for last year’s demonstrations.

Monsanto’s track record has been scrutinized ever since it aided US warfare during the Vietnam war. Agent Orange was manufactured for the US Department of Defense primarily by Monsanto Corporation, the use of which is estimated to have killed and maimed around 400,000 while causing birth defects for 500,000 children. Scientific studies have linked the chemicals in Monsanto’s biocides to Parkinson’s disease, Alzheimer’s disease, autism, and cancer. “People are fed up. We should break up Monsanto,” Adam Eidinger of Occupy Monsanto told RT. “Monsanto is a monopoly, and it’s acting like one. It’s basically controlling 90% of the seed market in the United States. We wouldn’t let one cell phone company control 90% of the cell phones. But for some reason we let food be controlled.”

As the most powerful multinational biotech corporation today, Monsanto has drawn the ire of those within the movement for its firm grip on the global food chain. The company’s control and advancement of genetically modified organism (GMO) seeds is of prime concern. “In polls conducted by the New York Times, Washington Post, Consumer Reports, and many others, over 90% of respondents were in support of national GMO labeling – an initiative that has been defeated time and time again at the state level thanks to heavy spending by Monsanto-backed lobbying groups,” wrote March Against Monsanto in a news release.

Amid a wave of concern over genetically engineered foods sweeping through the US and around the world, major agribusiness and biotechnology conglomerates like Monsanto have spent immense amounts of cash to cloud the ‘right-to-know’ movement in the US. According to the Center for Food Safety, dozens of US states have in recent years considered labeling legislation and ballot initiatives while a handful have passed laws mandating GMO transparency. Vermont’s governor signed the nation’s first clean GMO-labeling requirement into law in 2014, to take effect in 2016, but a coalition of biotech firms filed a lawsuit to prevent that from happening. Other states have passed labeling laws, but with strings attached.

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These are the people who are instrumental in creating the problem, and now want us to pay them for a solution.

Bayer CEO: The World Needs An Antibiotics Bailout (Reuters)

German drugmaker Bayer expects the world’s largest economies to pool billions of euros in funding for the development of antibiotics against the growing threat of drug-resistant superbugs, its chief executive said on Friday. “I expect a multinational fund for antibiotics research. One country alone can’t shoulder it,” CEO Marijn Dekkers told Germany’s Der Spiegel magazine, according to an excerpt of an interview provided to Reuters on Friday. The funds were expected to be pledged during the June summit of the Group of Seven (G7) wealthy nations in Germany, he was quoted as saying. He mentioned reports that four new antibiotics would cost $22.4 billion to develop, saying that was “maybe a bit too much, but it will be really expensive”.

The World Health Organization has deemed the rising tide of drug-resistant bacteria, or so-called superbugs, as the “single greatest challenge in infectious diseases”. Germany’s health ministry has said Berlin would seek to address drug-resistant superbugs as part of the country’s presidency of the G7, leading up to the G7 summit in Bavaria in June. Governments should award development contracts for more antibiotics to pharmaceuticals companies, modelled on development contracts tendered to the defence industry, Dekkers told Der Spiegel. The pharma industry has argued that the private sector was being deterred from funding the development of new antibiotics because, to prevent the emergence of even more resistant bacteria, they would only be used when existing therapies have failed.

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A frist step. But nobody knows if it will be enough.

California Accepts Offer By Farmers To Cut Water Usage By 25% (Guardian)

California’s drought has produced a plot twist too singular even for Chinatown: farmers volunteering to give up a quarter of their water. Scores of farmers in the delta of the Sacramento and San Joaquin rivers made the unprecedented offer on Friday in a deal to stave off even steeper mandatory cuts. Agricultural players have fiercely guarded their water rights since the 19th century, rebuffing competing claims from cities and other rivals in the so-called water wars, a web of intrigues immortalised in Roman Polanski’s Chinatown. The film’s fictional farmers never countenanced voluntarily cutting their water use but as California endures a fourth year of drought growers in the delta calculated it was the lesser evil.

By promising to forfeit a quarter of this season’s water – by fallowing land or finding other measures to cut usage – they have averted harsher restrictions from state authorities. The State Water Board had warned it was days away from ordering some of the first cuts in more than 30 years to senior water rights holders. “This proposal helps delta growers manage the risk of potentially deeper curtailment, while ensuring significant water conservation efforts in this fourth year of drought,” State Water Board chair Felicia Marcus said in a statement.

“It allows participating growers to share in the sacrifice that people throughout the state are facing because of the severe drought, while protecting their economic well-being by giving them some certainty regarding exercise of the State Water Board’s enforcement discretion at the beginning of the planting season.” The agreement applies only to so-called riparian rights holders – farmers with direct access to streams. Those who participate can opt to reduce water diversions from streams by 25%, or fallow 25% of their land. In both cases, the reductions will be from 2013 levels.

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They threaten my mental sanity, too.

Attacks On The Last Elephants And Rhinos Threaten Entire Ecosystems (Monbiot)

Until 2008, conservationists, in some places at least, appeared to be winning. But in that year the number of rhinos killed in South Africa rose (from 13 in 2007) to 83. By 2011, the horrible tally had risen to 448. It climbed to 668 in 2012, 1004 in 2013 and 1215 in 2014. In the first four months of this year, 393 rhinos have been killed there, which is 18% more than in the same period last year. The reasons for this acceleration in the Great Global Polishing are complex and not always easy to tease out. But they appear to be connected to rising prosperity in Vietnam, the exhaustion of illegal stocks held by Chinese doctors and, possibly, speculative investment in a scarce and tangible asset during the financial crisis. Corruption and judicial failure help to keep the trade alive.

Already, the western black rhino is extinct (the declaration was made in 2011). The northern white rhino has been reduced to five animals: a male at the end of its anticipated lifespan and four females, scattered between Kenya, the US and the Czech Republic. Similar stories can be told about some populations of elephants – in particular the forest elephants of west and central Africa. It’s not just these wonderful, enchanting creatures that are destroyed by poaching, but also many of the living processes of the places they inhabit. Elephants and rhinos are ecological engineers, creating conditions that hundreds of other species have evolved to exploit. As the paper in Science Advances notes, the great beasts maintain a constantly shifting mosaic of habitats through a cycle of browsing and toppling and trampling, followed by the regrowth of the trees and the other plants they eat.

They open up glades for other herbivores, and spaces in which predators can hunt. They spread the seeds of trees that have no other means of dispersal (other animals are too small to swallow the seeds whole, and grind them up). Many trees in Africa and Asia are distributed exclusively by megaherbivores. They transport nutrients from rich places to poor ones and in some places reduce the likelihood of major bushfires, by creating firebreaks and eating twigs and leaves that would otherwise accumulate as potential fuel on the ground. Many animal species have co-evolved with them: the birds that eat their ectoparasites, the fish that feed on hippos’ fighting wounds (some of these species, I believe, are now used for fish pedicures), the wide range of life that depends on their dung for food and moisture, on their wallows for habitats, on the fissures they create in trees for nesting holes.

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Crumbling stability all around.

Yet Another Antarctic Ice Mass Is Becoming Destabilized (WaPo)

The troubling news continues this week for the Antarctic peninsula region, which juts out from the icy continent. Last week, scientists documented threats to the Larsen C and the remainder of the Larsen B ice shelf (most of which collapsed in 2002). The remnant of Larsen B, NASA researchers said, may not last past 2020. And as for Larsen C, the Scotland-sized ice shelf could also be at potentially “imminent risk” due to a rift across its mass that is growing in size (though it appears more stable than the remainder of Larsen B). And the staccato of May melt news isn’t over, it seems.

Thursday in Science, researchers from the University of Bristol in Britain, along with researchers from Germany, France and the Netherlands, reported on the retreat of a suite of glaciers farther south from Larsen B and C along the Bellingshausen Sea, in a region known as the Southern Antarctic Peninsula. Using satellite based and gravity measurements, the research team found that “a major portion of the region has, since 2009, destabilized” and accounts for “a major fraction of Antarctica’s contribution to rising sea level.” The likely cause of the change, they say, is warmer waters reaching the base of mostly submerged ice shelves that hold back larger glaciers — melting them from below.

This has been a common theme in Antarctica recently — a similar mechanism has been postulated for melting of ice shelves in nearby West Antarctica (which contains vastly more ice, and more potential sea level rise, than does the Antarctic peninsula). “This is one of now three really quite substantial signals that we’ve seen from different parts of West Antarctica and the Antarctic peninsula that is all going in the same way,” said Jonathan Bamber of the University of Bristol, one of the paper’s authors. The other two are the losses of ice in the Larsen ice shelf region — where glaciers have sped up their seaward lurches following past ice shelf collapses — and in West Antarctica.

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Mar 252015
 
 March 25, 2015  Posted by at 7:39 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle March 25 2015
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William Henry Jackson Jupiter & Lake Worth R.R., Florida 1896

The Long-Distance Relationship Between Americans and Jobs (WSJ)
American Cash Is Flooding Into European Stocks (CNN)
Bank of Canada, Government and Others Face Lawsuit for IMF Conspiracy (Epoch T.)
ECB Said to Limit Greek Lenders’ Treasury-Bill Holdings (Bloomberg)
Greeks Celebrate Independence as EU Creditors Discuss Their Fate (Bloomberg)
Next Task For Tsipras Is To Convince His Party (Kathimerini)
Greece: Fascists At The Gate (Hallinan)
China’s Influence Poised To Climb In Revamp Of Postwar Order (Bloomberg)
The New Chinese Dream (Pepe Escobar)
Gulf Should Be More Worried About Yemen Than Oil (CNBC)
Oil Stand-Off In Ukraine Shows Oligarchs Won Maidan Revolution (Sputnik)
Fiscal Virtue And Fiscal Vice – Macroeconomics At A Crossroads (Skidelsky)
Pension Funds Seek Shelter From Dollar’s Rise (WSJ)
Brazil Investigates Deficit-Ridden Pension Fund (Bloomberg)
Money May Make The World Go Round, But At What Cost? (BBC)
Obama Snubs NATO Chief as Crisis Rages (Bloomberg)
Paulson and Warren: The Unlikely Twin Towers of Dodd-Frank (Bloomberg)
Presidents, Bankers, the Neo-Cold War and the World Bank (Nomi Prins)
Financial Feudalism (Dmitry Orlov)
Antibiotics In Meat Rising Fast Worldwide, Especially Bacon (UPI)
Monsanto Bites Back at Roundup Findings (WSJ)

3 trillion kilometers driven last year.

The Long-Distance Relationship Between Americans and Jobs (WSJ)

For more Americans, jobs are moving out of reach, literally. The number of “nearby jobs”–jobs within a typical commute for residents in a major metropolitan area–dropped 7% between 2000 and 2012, according to a new study of census data by Elizabeth Kneebone and Natalie Holmes of the Metropolitan Policy Program at the Brookings Institution. Minorities and poor Americans, who have moved to the suburbs in droves, fared worse. The number of nearby jobs fell 17% for Hispanic residents and 14% for blacks over this time period, compared with a drop of 6% for whites. Typical poor residents saw a drop in job proximity of 17%, versus 6% for the nonpoor. The growing distance between Americans and job opportunities is a discouraging trend amid what’s become the strongest job creation in two decades.

Last month, U.S. employers added a seasonally adjusted 295,000 jobs, the 12th straight month of 200,000-plus net job creation. That’s the best streak since 1995. Most of those jobs are full-time. (In 2012, where the Brookings analysis ends, overall U.S. employment in America’s largest metros was about 2% higher than in 2000, following the Great Recession’s catastrophic job losses.) But what matters for Americans’ employment prospects isn’t just the number of job opportunities, or even how “good” they are, but where they are. People near jobs are more likely to work, and have shorter job searches and periods of joblessness—especially black Americans, women and older workers, Brookings says. Among the poor, being near a job increases the chances of leaving welfare.

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The world gets more distorted by the day.

American Cash Is Flooding Into European Stocks (CNN)

American cash is pouring into European stocks. Last week alone, U.S.-based funds sent a record amount -$3.9 billion – into Europe equities. That’s according to EPFR Global, a research firm that tracks fund flow data. “The trend is definitely accelerating,” says Cameron Brandt, director of research at EPFR. U.S. investments going to Europe thru mid-March have already outpaced February’s total and are triple the size of January’s figure. Here’s why investors are flocking to Europe:

• Europe’s stock success: It’s no secret that European stocks are hot right now. Since the ECB announced its stimulus plan for the continent in January, markets have surged. The STOXX index (SXXL) is up 16% this year while Germany’s DAX has risen 21% in 2015. Markets in Belgium, Sweden and even Spain – yes, Spain! – are doing great so far too. That’s a lot better than the U.S. markets, which are up just over 1% so far this year. As U.S. stocks look pricey, investors see more upside potential across the pond.
“It’s time for Europe to play catch up,” says Kevin Kelly at Recon Capital. “That’s why you’re seeing investors and funds flow into Europe.”

The stimulus plan has weakened the value of the euro, and at the same time the U.S. dollar is gaining value. The euro has rallied a bit this week, but it’s still near 12-year lows. Many believe the dollar and euro could be equal later this year. The currency situation makes European companies more attractive to investors because their products are cheaper to sell than American companies’ products. European exports are on the rise, and the eurozone economy is showing signs of a pick up.

• Expect the trend to continue: The flood of money into Europe is unlikely to stop any time soon. Sixty-three% of fund managers want to invest more in Europe this year, according to the most recent BofA Merrill Lynch fund manager survey. That’s the highest rate since 2001. One of the hot-ticket items right now for investors is exchange-traded fund (ETF) that own European stocks. Investment in those ETFs so far this year has doubled compared to the same time a year ago, according to BlackRock.

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Intriguing.

Bank of Canada, Government and Others Face Lawsuit for IMF Conspiracy (Epoch T.)

It would be easy to assume the people suing the Queen of England, the Bank of Canada, and three ministers for a conspiracy against “all Canadians” wear tinfoil hats. They don’t. They may be conspiracy theorists, but they are also intelligent, thoughtful people who have a lawyer with a history of winning unlikely cases. And despite the government’s best efforts to have this case thrown out, it’s going ahead after winning an appeal that overturned a lower court’s ruling to have it tossed and surviving a follow-up motion to have it tossed again. The government has one more chance to have it thrown out through an appeal at the Supreme Court, but that has to be filed by Mar. 29 and that looks unlikely. That means the Committee on Monetary and Economic Reform (COMER) is going to have its day in federal court.

This little think-tank alleges that the Bank of Canada, the Queen, the attorney general, the finance minister, and minister of national revenue are engaging in a conspiracy with the International Monetary Fund (IMF), the Financial Stability Board (FSB), and the Bank for International Settlements (BIS) to undermine Canada’s financial and monetary sovereignty. No major media have covered this story. That could be because of the powerful vested interests the suit targets, as Rocco Galati, the lawyer trying the case, suggests. Or it could be because there are parts of the statement of claim that read like they were pulled from the dark corners of some Internet conspiracy forum. They weren’t. These are serious people with wide knowledge of the financial and monetary system. And their lawyer is no slouch.

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Dangerous games.

ECB Said to Limit Greek Lenders’ Treasury-Bill Holdings (Bloomberg)

The ECB banned Greek banks from increasing holdings of short-term government debt, two people familiar with the matter said. The decision, approved by the ECB Governing Council, comes five days after the same body stalled a previous proposal by the institution’s supervisory arm, pending legal review. In the intervening days, Greek Prime Minister Alexis Tsipras met high-level euro-area officials, including ECB President Mario Draghi and German Chancellor Angela Merkel. Tsipras agreed to submit a comprehensive list of policy measures aimed at securing more financial aid from European partners.

Euro-area finance officials will hold a call on Wednesday to discuss progress on Greece, amid concerns that the country will run out of money by early April. The Governing Council decision makes previous supervisory recommendations legally binding, and reflects increasing concern at the ECB’s bank oversight body, the SSM, about Greek lenders’ exposure to the state and the accompanying default risk. The ban echoes decisions already made on the monetary policy side, such as a €3.5 billion limit on accepting Greek treasury bills as collateral, one of the people said.

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Independence Day. But not a lot of independence.

Greeks Celebrate Independence as EU Creditors Discuss Their Fate (Bloomberg)

Greeks celebrate their independence Wednesday with a military parade and a folk-music festival sponsored by the Ministry of Defense, as European officials more than 1,000 miles away review the financial aid that will shape their future. The ECB Governing Council will hold a weekly call to assess the Emergency Liquidity Assistance keeping Greece’s banking system afloat while euro-area finance ministry officials will have a separate discussion on the progress of the country’s economic policy program. Without access to capital markets, or the ECB’s normal financing operations, Greek banks rely on almost €70 billion of ELA to cover a financing shortfall exacerbated by steep deposit withdrawals.

While inspectors are gauging the case for continuing financial support for Europe’s most-indebted nation, many Athenians will be watching a parade of battle tanks and fighter jets to mark the beginning in 1821 of the war that won independence from the Ottoman Empire. The government of George Papandreou scaled down military parades to cut costs after the Greek debt crisis erupted in 2010. Fighter jets made a comeback to the skies of Athens last year at a cost of about €500,000, according to a defense ministry official from the previous administration.

With government cash supplies running out and negotiations on financial aid only inching forwards, European officials have said that Greece could default on its obligations within weeks unless there’s a breakthrough. The government has to pay about €1.5 billion of salaries and pensions by the end of March and Prime Minister Alexis Tsipras is at loggerheads with its creditors over the conditions attached to its emergency loans. Revenue from taxes also missed budget targets by about €1 billion in the first two months of the year, the country’s Ministry of Finance said Tuesday, further depleting cash buffers.

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Will Syriza blow it all up?

Next Task For Tsipras Is To Convince His Party (Kathimerini)

Returning from his official visit to Germany, one of Prime Minister Alexis Tsipras’s main tasks will be to ensure his party’s support for the reform list his government is compiling and preparing to send to lenders, possibly by the end of the week. Sources said that Tsipras will take it upon himself to convince SYRIZA members and MPs to back the reform plan, which should secure Greece the funding it needs to survive until the end of June, when the government will have to reach a new agreement with its lenders. The prime minister’s first port of call in this effort to sell the current package will be the party’s political secretariat. A meeting is expected to take place in the next few days.

This will be followed by a gathering of SYRIZA’s parliamentary group, where Tsipras will try to persuade the party’s 149 MPs to back the reforms when they come to Parliament. The content of the reform package is not yet known but the government is concerned that it will contain a number of items that will not go down well within SYRIZA. This could include the retention of the contentious ENFIA property tax for another year, albeit adjusted so that the less well-off pay less, as well as labor and pension reforms. The coalition has already sought to defuse any tension over privatizations by saying that it will only seek strategic partnerships that allow the state to retain a controlling majority.

An area of increasing friction is what the government plans to do with value-added tax. Lenders want the special 30% reduction on VAT enjoyed by islands to be scrapped. Alternate Finance Minister Nadia Valavani told ANT1 TV yesterday that one option might be to adopt regular VAT rates on the most popular islands, such as Santorini and Myconos. However, this runs counter to what government sources have been saying so far. It is believed the coalition is examining the option of adopting an across-the-board VAT rate of 15%, which means some goods will become cheaper and others more expensive, but with possible exceptions for some basic items such as medicines.

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Next in line if Syriza fails?!

Greece: Fascists At The Gate (Hallinan)

When some 70 members of the neo-Nazi organization Golden Dawn go on trial sometime this spring, there will be more than street thugs and fascist ideologues in the docket, but a tangled web of influence that is likely to engulf Greece’s police, national security agency, wealthy oligarchs, and mainstream political parties. While Golden Dawn—with its holocaust denial, its swastikas, and Hitler salutes—makes it look like it inhabits the fringe, in fact the organization has roots deep in the heart of Greece’s political culture Which is precisely what makes it so dangerous. Golden Dawn’s penchant for violence is what led to the charge that it is a criminal organization. It is accused of several murders, as well as attacks on immigrants, leftists, and trade unionists. Raids have uncovered weapon caches.

Investigators have also turned up information suggesting that the organization is closely tied to wealthy shipping owners, as well as the National Intelligence Service (EYP) and municipal police departments. Several lawyers associated with two victims of violence by Party members—a 27-year old Pakistani immigrant stabbed to death last year, and an Afghan immigrant stabbed in 2011— charge that a high level EYP official responsible for surveillance of Golden Dawn has links to the organization. The revelations forced Dimos Kouzilos, director of EYP’s third counter-intelligence division, to resign last September. There were several warning flags about Kouzilos when he was appointed to head the intelligence division by rightwing New Democracy Prime Minister Antonis Samaras.

Kouzilos is a relative of a Golden Dawn Parliament member, who is the Party’s connection to the shipping industry. Kouzilos is also close to a group of police officers in Nikea, who are currently under investigation for ties to Golden Dawn. Investigators charge that the Nikea police refused to take complaints from refugees and immigrants beaten by Party members, and the police Chief, Dimitris Giovandis, tipped off Golden Dawn about surveillance of the Party. In handing over the results of their investigation, the lawyers said the “We believe that this information provides an overview of the long-term penetration ands activities of the Nazi criminal gang with the EYP and the police.” A report by the Office of Internal Investigation documents 130 cases where Golden Dawn worked with police.

It should hardly come as a surprise that there are close ties between the extreme right and Greek security forces. The current left-right split goes back to 1944 when the British tried to drive out the Communist Party—the backbone of the Greek resistance movement against the Nazi occupation. The split eventually led to the 1946-49 civil war when Communists and leftists fought royalists and former German collaborationists for power.

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What if a big recession hits?

China’s Influence Poised To Climb In Revamp Of Postwar Order (Bloomberg)

Seven decades after the end of World War II, the international economic architecture crafted by the U.S. faces its biggest shakeup yet, with China establishing new channels for influence to match its ambitions. Three lending institutions with at least $190 billion are taking shape under China’s leadership, one of them informally referred to as a Marshall Plan – evoking the postwar U.S. program to rebuild an impoverished Europe. Also this year, China’s yuan may win the IMF’s blessing as an official reserve currency, a recognition of its rising use in trade and finance. China’s clout has been expanding for decades, as its rapid growth allowed it to snap up a rising share of the world’s resources, its exports penetrated global markets, and its bulging financial assets gave it power to make big individual loans and purchases.

Now, the creation of international lending institutions is leveraging that economic influence closer to the political and diplomatic arenas, as U.S. allies defy America to back China’s initiative. “This is the beginning of a bigger role for China in global affairs,” said Jim O’Neill, formerly at Goldman Sachs, who coined the term BRICs in 2001 to highlight the rising economic power of Brazil, Russia, India and China. Chinese President Xi Jinping’s vision of achieving the same great-power status enjoyed by the U.S. received a major boost this month when the U.K., Germany, France and Italy signed on to the Asian Infrastructure Investment Bank. The AIIB will have authorized capital of $100 billion and starting funds of about $50 billion.

Canada is considering joining, which would leave the U.S. and Japan as the only Group of Seven holdouts as they question the institution’s governance and environmental standards. Australian Prime Minister Tony Abbott’s cabinet approved negotiations to join too, according to a government official who asked not to be identified as the decision hasn’t been made public. “China’s economic rise is acting as a huge pull factor forcing the existing architecture to adapt,” said James Laurenceson, deputy director of the Australia-China Relations Institute in Sydney. “The AIIB has shown the U.S. that a majority in international community support China’s aspirations for taking on greater leadership and responsibility, at least on economic initiatives.”

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It’s still all just printed Monopoly cash, Pepe.

The New Chinese Dream (Pepe Escobar)

It’s no wonder top nations in the beleaguered EU have gravitated to the AIIB – which will play a key role in the New Silk Road(s). A German geographer – Ferdinand von Richthofen – invented the Seidenstrasse (Silk Road) concept. Marco Polo forever linked Italy with the Silk Road. The EU is already China’s number one trade partner. And, once again symbolically, this happens to be the 40th year of China-EU relations. Watch the distinct possibility of an emerging Sino-European Fund that finances infrastructure and even green energy projects across an integrated Eurasia. It’s as if the Angel of History – that striking image in a Paul Klee painting eulogized by philosopher Walter Benjamin – is now trying to tell us that a 21st century China-EU Seidenstrasse synergy is all but inevitable.

And that, crucially, would have to include Russia, which is a vital part of the New Silk Road through an upcoming, Russia-China financed $280 billion high-speed rail upgrade of the Trans-Siberian railway. This is where the New Silk Road project and President Putin’s initial idea of a huge trade emporium from Lisbon to Vladivostok actually merge. In parallel, the 21st century Maritime Silk Road will deepen the already frantic trade interaction between China and Southeast Asia by sea. Fujian province – which faces Taiwan – will play a key role. Xi, crucially, spent many years of his life in Fujian. And Hong Kong, not by accident, also wants to be part of the action.

All these developments are driven by China being finally ready to become a massive net exporter of capital and the top source of credit for the Global South. In a few months, Beijing will launch the China International Payment System (CIPS), bound to turbo-charge the yuan as a key global currency for all types of trade. There’s the AIIB. And if that was not enough, there’s still the New Development Bank, launched by the BRICs to compete with the World Bank, and run from Shanghai.

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.. the Saudi Arabian foreign minister said the GCC would take “necessary measures” to resolve the Yemeni conflict..”

Gulf Should Be More Worried About Yemen Than Oil (CNBC)

Civil strife and terrorism in Yemen could pose a greater threat to the Gulf countries of the Middle East than tumbling oil prices, a major bank said on Tuesday. “We can’t help but think that the turmoil in Yemen is the emerging and underappreciated risk for investors in GCC (Gulf Cooperation Council) stocks,” said Citi analysts Josh Levin and Rahul Bajaj in a research note. Despite worries about Islamic insurgency and destabilization in the Middle East and North Africa, investors in the oil-exporting GCC countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) have focused on the potential hit from the slump in energy prices, with crude oil down around 50% since a peak in June 2014.

However, Levin and Bajaj said that increasing strife in Yemen—which borders Saudi Arabia to the south and Oman to the west— could be an “underappreciated risk” to the GCC. “One of the key takeaways from our GCC trip in early February came from an executive in Qatar who observed that while most people are focused on the price of oil, the recent instability in Yemen posed a greater and underappreciated risk to the GCC. Recent events appear to bear out this executive’s observation,” they said on Tuesday. Yemen is in the grips of a worsening civil war, with fighting intensifying between ousted Sunni President Abd-Rabbuh Mansuh Hadi and the Shiite, anti-American rebels who seized power in a coup in January.

The rebels also face violent resistance from Sunni tribesman and competing Islamist extremists in the south. Last week, suicide bombers opposed to the rebels killed 137 people and injured more than 300 others during Friday prayers in the Yemini capital of Sana’a. On Monday, the Saudi Arabian foreign minister said the GCC would take “necessary measures” to resolve the Yemeni conflict, according to media reports. This is in response to requests for military assistance from Hadi, who belongs to the same Muslim Sunni sect as Saudi Arabia’s leaders. Levin and Bajaj warned that the turmoil in Yemen had the potential to spill over into nearby countries. “We have no edge or ability to predict whether or not the conflict in Yemen will spill over into neighboring countries or impact other GCC countries,” they said.

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Kolomoysky ‘resigned’ after the article was written.

Oil Stand-Off In Ukraine Shows Oligarchs Won Maidan Revolution (Sputnik)

Whatever the outcome of the stand-off between President Petro Poroshenko and his subordinate Igor Kolomoysky may be, their conflict over Ukrainian oil giant Ukrnafta reveals realities about post-Maidan Ukraine which mainstream media manages to circumvent. Firstly, the country is still ruled by oligarchs, not by the people, even though Igor Kolomoysky is formally governor of Dnepropetrovsk region. Kolomoysky’s private army simply took control first of Ukrtransnafta (Ukraine’s oil transportation monopoly) and later of Ukrnafta. What does this tell us about the Ukrainian state? Secondly, Ukraine’s oligarchs are not at peace with each other; the country is bracing for a major ‘war for assets’ between the country’s richest men (Kolomoysky is worth $2.4 billion on the Forbes list and Poroshenko is worth $1.3 billion).

Thirdly, the Maidan revolution not only left the country without any meaningful legal opposition in the parliament or in the media – as Kost Bondarenko, director of the Kiev-based Foundation for Ukrainian Politics, put it in his article for the Moscow-based Nezavisimaya Gazeta – but the revolution also left Ukraine in a situation of complete lawlessness, when neither laws nor even the words of the president mean much before brutal force and big money (the main weapons of oligarchs). The story of the weekend conflict between Ukraine’s president and the governor of Ukraine’s most important industrial region is a perfect illustration of all these sad truths. Kolomoysky’s men with submachine guns not only took control of Ukrtransgaz on Friday, but the governor of Dnepropetrovsk was apparently untroubled by President Poroshenko’s reprimand for his “unethical behavior” issued the next day.

Kolomoysky’s response to this “scolding” from Poroshenko was widely reported, along with an officially unconfirmed freeze on the accounts of Poroshenko’s companies in Kolomoysky’s bank (Privat-bank). Adding armed insult to the financial injury, Kolomoysky’s men on Sunday took control of Ukrnafta, the country’s biggest oil company, presenting themselves as members of the “voluntary battalion Dnieper” (a Kolomoysky-sponsored paramilitary group known for its atrocities against civilians in the rebellious Donetsk Region). Despite Poroshenko’s order to disarm the gunmen and the president’s promise that “there will be no pocket armies in Ukraine,” Kolomoysky’s men did not leave the building on Monday; instead, they started to put up metal fences around it.

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“..fiscal tightening has cost developed economies 5-10 percentage points of GDP growth since 2010..”

Fiscal Virtue And Fiscal Vice – Macroeconomics At A Crossroads (Skidelsky)

Until a few years ago, economists of all persuasions confidently proclaimed that the Great Depression would never recur. In a way, they were right. After the financial crisis of 2008 erupted, we got the Great Recession instead. Governments managed to limit the damage by pumping huge amounts of money into the global economy and slashing interest rates to near zero. But, having cut off the downward slide of 2008-2009, they ran out of intellectual and political ammunition. Economic advisers assured their bosses that recovery would be rapid. And there was some revival; but then it stalled in 2010. Meanwhile, governments were running large deficits – a legacy of the economic downturn – which renewed growth was supposed to shrink.

In the eurozone, countries such as Greece faced sovereign-debt crises as bank bailouts turned private debt into public debt. Attention switched to the problem of fiscal deficits and the relationship between deficits and economic growth. Should governments deliberately expand their deficits to offset the fall in household and investment demand? Or should they try to cut public spending in order to free up money for private spending? Depending on which macroeconomic theory one held, both could be presented as pro-growth policies. The first might cause the economy to expand, because the government was increasing public spending; the second, because they were cutting it. Keynesian theory suggests the first; governments unanimously put their faith in the second.

The consequences of this choice are clear. It is now pretty much agreed that fiscal tightening has cost developed economies 5-10 percentage points of GDP growth since 2010. All of that output and income has been permanently lost. Moreover, because fiscal austerity stifled economic growth, it made the task of reducing budget deficits and national debt as a share of GDP much more difficult. Cutting public spending, it turned out, was not the same as cutting the deficit, because it cut the economy at the same time. That should have ended the argument. But it did not. Some economists claim that governments faced a balance of risk in 2010: cutting the deficit might have slowed growth; but not committing to cut it might have made things even worse.

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Reinforce your local infrastructure!

Pension Funds Seek Shelter From Dollar’s Rise (WSJ)

The soaring U.S. dollar is driving pension funds into the currency markets, in part to protect their overseas investments but also to take advantage of some of the biggest price swings in the financial world. In January, the California State Teachers Retirement System, the nation’s second-largest public pension fund with $190.8 billion under management, handed $500 million to a pair of specialist currency funds as part of an effort to limit losses on their international investments, which fall in value as the dollar rises against other currencies. Late last year, the $150.2 billion Florida State Board of Administration expanded its currency investments by more than 10%, to $2.25 billion.

Last June, the $29 billion Connecticut Retirement Plans & Trust Funds hired two managers to help reduce the foreign-currency risks in its international stock investments. And the $14.3 billion Kansas Public Employees Retirement System is now looking to hire a currency manager. The clamor to protect against currency swings marks a return to a strategy that pension funds have tried on and off for years, with mixed results. While it is good news for the money managers that provide the strategies, which stand to reap tens of thousands of dollars in fees for every pension plan that signs up, it also adds to the risks taken on by pensions. Currency markets are among the most volatile, raising the potential for big profits, but also big losses.

“The pickup since December has been extraordinary,” said Adrian Lee, who manages Adrian Lee & Partners hedge fund. “We’ve had more funds interested in our strategies in the last three months than we’ve had in the last three years.” The fund’s assets have grown 30% in the past year, as existing clients raised their allocations, Mr. Lee said. At their most basic, currency strategies come in two flavors. A passive currency-overlay program that seeks to hedge against foreign-exchange losses typically costs between 0.05% and 0.1% of assets, based on a pension’s exposure to foreign markets, according to NEPC, a consultant to pension plans.

Active strategies that seek to profit from currency swings tend to be several times more expensive, as they include higher management fees and allow hedge funds to keep a share of profits. The rising dollar has re-energized interest in both strategies. While the U.S. Federal Reserve is expected to raise interest rates as soon as June, both Europe and Japan are pumping out economic stimulus at unprecedented levels, seeking to stimulate their economies by keeping rates low. The divergence in borrowing costs has sparked an exodus of capital, as investors quit euro and yen-denominated assets and head into the greenback.

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From one scandal to the next.

Brazil Investigates Deficit-Ridden Pension Fund (Bloomberg)

The deficit-ridden pension fund for Brazilian postal workers is being investigated for alleged reckless management after several years of money-losing bets ranging from investments in Lehman Brothers bonds to Argentine debt, two people with knowledge of the matter said. Pension-fund agency Previc, securities regulator CVM, the central bank and federal prosecutors are collaborating on the probe and meeting weekly to conclude a report on Postalis, Brazil’s third-largest retirement system by number of beneficiaries, said one of the people, who asked not to be named because the issue is private. The findings may be released in coming days, the person said. Under Brazilian law, the agencies may seek penalties that may include fines of as much as 1 million reais ($320,200) and a 10-year ban from managing pension funds.

Postalis has been running a deficit every year since 2011 and the shortfall of 5.6 billion reais now eclipses its 5 billion reais in assets, public records show. Now, the pension fund created in 1981 to take care of Brazil’s more than 100,000 postal workers is requiring those same employees to boost contributions so it can keep making payments to beneficiaries. “They threw us under the bus,” said 36-year-old Douglas Melo, who is required to pitch in an extra 40 reais a month on top of the 55 reais he already contributes to guarantee future benefits of 200 reais a month. “The fund’s investments that later defaulted or were involved in scandals make no sense.”

Postalis amassed billions of reais in losses pursuing risky bets while its peers flocked to the relative safety and high yields of Brazilian government debt. Brazil’s pension funds allocated 15% of their combined 641.7 billion-real portfolio to Brazil local sovereign debt in 2012, according to the nation’s association that tracks the industry. Postalis held less than 1% in 2012. Postalis bet on a fund that booked 18 million reais of Lehman Brothers debt in August 2008, one month before the New York investment bank filed for bankruptcy, according to data from Brazil’s securities regulator. It bought bonds or invested in funds of mid-sized Brazilian banks that were liquidated by the central bank in 2012 amid fraud allegations and lack of capital.

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Rage against the monopoly. And then create another one just as fast.

Money May Make The World Go Round, But At What Cost? (BBC)

Banks once had a near monopoly on moving money around the world, and they charged a pretty penny for it. But since the 2008 financial crisis, their reputations have taken an almighty battering, and a growing number of technology-focused start-ups are intent on getting a slice of the action. Cost has become the battleground and technology the weapon in this huge business: people send more than $500bn (£334bn) abroad each year. TransferWise, for example, says banks and independent money transfer giants such as Western Union and MoneyGram, charge about 5-8% in fees when transferring money abroad, and these fees are often concealed within the exchange rate. It charges just 0.5% of the amount being converted. This can equate to a £100-£150 saving on a £5,000 international money transfer.

Founded by Estonians Taavet Hinrikus and Kristo Kaarman, the firm achieves this by matching people transferring money in one direction with people transferring it in the other – so called peer-to-peer transfers. In other words, you are in effect buying your currency from other individuals, thereby cutting out a big chunk of exchange rate and “foreign transaction” charges normally levied by banks. “We didn’t understand why transferring money had to be so expensive,” says Mr Hinrikus, who was one of the first employees of Skype, the online communications company. “With us, it’s all about transparency – that’s really important. We choose the mid-market rate when we transfer money.” Another key to their success – TransferWise has shifted more than £3bn of customers’ money since 2011 – is the simplicity of design, he says.

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Does he do this of his own accord?

Obama Snubs NATO Chief as Crisis Rages (Bloomberg)

President Barack Obama has yet to meet with the new head of NATO, and won’t see Secretary General Jens Stoltenberg this week, even though he is in Washington for three days. Stoltenberg’s office requested a meeting with Obama well in advance of the visit, but never heard anything from the White House, two sources close to the NATO chief told me. The leaders of almost all the other 28 NATO member countries have made time for Stoltenberg since he took over the world’s largest military alliance in October. Stoltenberg, twice the prime minister of Norway, met Monday with Canadian Prime Minister Stephen Harper in Ottawa to discuss the threat of the Islamic State and the crisis in Ukraine, two issues near the top of Obama’s agenda. Kurt Volker, who served as the U.S. permanent representative to NATO under both President George W. Bush and Obama, said the president broke a long tradition.

“The Bush administration held a firm line that if the NATO secretary general came to town, he would be seen by the president … so as not to diminish his stature or authority,” he told me. America’s commitment to defend its NATO allies is its biggest treaty obligation, said Volker, adding that European security is at its most perilous moment since the Cold War. Russia has moved troops and weapons into eastern Ukraine, annexed Crimea, placed nuclear-capable missiles in striking distance of NATO allies, flown strategic-bomber mock runs in the North Atlantic, practiced attack approaches on the UK and Sweden, and this week threatened to aim nuclear missiles at Denmark’s warships. “It is hard for me to believe that the president of the United States has not found the time to meet with the current secretary general of NATO given the magnitude of what this implies, and the responsibilities of his office,” Volker said.

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Barney Frank memoirs.

Paulson and Warren: The Unlikely Twin Towers of Dodd-Frank (Bloomberg)

On the surface, Henry Paulson, the former CEO of Goldman Sachs and Secretary of the Treasury under President George W. Bush, and Senator Elizabeth Warren, the populist Democrat from Massachusetts, seem an unlikely team. But former Representative Barney Frank, co-author of the Dodd-Frank financial reform legislation enacted in 2010, said he views Paulson and Warren as twin pillars protecting the financial system. In an interview this week on the Charlie Rose television program, Frank, who was chairman of the House Financial Services Committee during the 2008-2009 financial crisis, recalled former Federal Reserve Chairman Ben Bernanke and Paulson telling Congressional Democratic leaders, “The economy is about to fall apart and we have got to do something the public isn’t going to like.”

Frank worked with Bernanke and Paulson to push through the unpopular but ultimately successful financial bailout known as the Troubled Asset Relief Program. Paulson, Frank said, remained helpful even after leaving government, assisting in the drafting and passing of Dodd-Frank. While Paulson helped establish Dodd-Frank, Frank said, “Elizabeth Warren is helping safeguard it” from Republicans eager to scuttle the law. He acknowledged that Dodd-Frank is complex. But Frank insisted it was neither politically nor substantively possible to make the legislation, which overhauls some regulations dating to the 1930s, less complicated. “In the thirties, there was no such thing as credit default swaps and collateralized loan obligations and collateralized debt obligations,” he said.

Frank’s memoir – titled “Frank” – chronicles his more than four decades in public life. For the first two decades, he said, he felt it necessary to hide his sexuality while celebrating his advocacy of liberal policies. Now, he says, it’s easier to be gay — he was married during his final term in Congress – and harder to champion liberal policies.

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The World Bank as a power tool.

Presidents, Bankers, the Neo-Cold War and the World Bank (Nomi Prins)

At first glance, the neo-Cold War between the US and its post WWII European Allies vs. Russia over the Ukraine, and the stonewalling of Greece by the Troika might appear to have little in common. Yet both are manifestations of a political-military-financial power play that began during the first Cold War. Behind the bravado of today’s sanctions and austerity measures lies the decision-making alliance that private bankers enjoy in conjunction with government and multinational entries like NATO and the World Bank. It is President Obama’s foreign policy to back the Ukraine against Russia; in 1958, it was the Eisenhower Doctrine that protected Lebanon from a Soviet threat. For President Truman, the Marshall Plan arose partly to guard Greece (and other US allies) from Communism, but it also had lasting economic implications.

The alignment of political leaders and key bankers was more personal back then, but the implications were similar to the present day. US military might protected its major trading partners, which in turn, did business with US banks. One power reinforced the other. Today, the ECB’s QE program funds swanky Frankfurt headquarters and prioritizes Germany’s super-bank, Deutschebank and its bond investors above Greece’s future. These actions, then and now, have roots in the American ideology of melding military, political and financial power that flourished in the haze of World War II. It’s not fair to pin this triple-power stance on one man, or even one bank; yet one man and one bank signified that power in all of its dimensions, including the use of political enemy creation to achieve financial goals.

That man was John McCloy, ‘Chairman of the Establishment’ as his biographer, Kai Bird, characterized him. The relationship between McCloy and Truman cemented a set of public-private practices that strengthened private US banks globally at the expense of weaker, potentially Soviet (now Russian) leaning countries. [..] During the Cold War, the World Bank provided funds for countries that leaned toward capitalism versus communism. Political allies of the United States got better treatment (and still do). The Nations that private bankers coveted for speculative and lending purposes saw their debt loads increase substantially and their industries privatized. Equally, the bankers decided which bonds they could sell to augment public aid funds, which meant they would have control over which countries the World Bank would support. The World Bank did more to expand US banking globally than any treaty or entity that came before it.

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Good read.

Financial Feudalism (Dmitry Orlov)

Once upon a time—and a fairly long time it was—most of the thickly settled parts of the world had something called feudalism. It was a way of organizing society hierarchically. Typically, at the very top there was a sovereign (king, prince, emperor, pharaoh, along with some high priests). Below the sovereign were several ranks of noblemen, with hereditary titles. Below the noblemen were commoners, who likewise inherited their stations in life, be it by being bound to a piece of land upon which they toiled, or by being granted the right to engage in a certain type of production or trade, in case of craftsmen and merchants. Everybody was locked into position through permanent relationships of allegiance, tribute and customary duties: tribute and customary duties flowed up through the ranks, while favors, privileges and protection flowed down.

It was a remarkably resilient, self-perpetuating system, based largely on the use of land and other renewable resources, all ultimately powered by sunlight. Wealth was primarily derived from land and the various uses of land. Feudalism was essentially a steady-state system. Population pressures were relieved primarily through emigration, war, pestilence and, failing all of the above, periodic famine. Wars of conquest sometimes opened up temporary new venues for economic growth, but since land and sunlight are finite, this amounted to a zero-sum game. But all of that changed when feudalism was replaced with capitalism. What made the change possible was the exploitation of nonrenewable resources, the most important of which was energy from burning fossilized hydrocarbons: first peat and coal, then oil and natural gas.

Suddenly, productive capacity was decoupled from the availability of land and sunlight, and could be ramped up almost, but not quite, ad infinitum, simply by burning more hydrocarbons. Energy use, industry and population all started going up exponentially. A new system of economic relations was brought into being, based on money that could be generated at will, in the form of debt, which could be repaid with interest using the products of ever-increasing future production. Compared with the previous, steady-state system, the change amounted to a new assumption: that the future will always be bigger and richer—rich enough to afford to pay back both principal and interest.

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A tragic species killing itself:”..antibiotic use in livestock will likely rise 67% by 2030 if livestock conditions don’t improve. About 80% of antibiotics sold in the United States go to livestock”.

Antibiotics In Meat Rising Fast Worldwide, Especially Bacon (UPI)

In the next 15 years, countries around the world will see a major increase in antibiotic use in livestock, a new study finds. “The invention of antibiotics was a major public health revolution of the 20th century,” said senior author Ramanan Laxminarayan, a senior research scholar at the Princeton Environmental Institute and director of the Center for Disease Dynamics, Economics and Policy. “Their effectiveness – and the lives of millions of people around the world – are now in danger due to the increasing global problem of antibiotic resistance, which is being driven by antibiotic consumption.” The study was done by researchers at the Center for Disease Dynamics, Economics and Policy, Princeton University, the International Livestock Research Institute and the Université Libre de Bruxelles.

The researchers found antibiotic use in livestock will likely rise 67% by 2030 if livestock conditions don’t improve. About 80% of antibiotics sold in the United States go to livestock. Antibiotic resistance not only applies to the animals, but it can affect the humans eating the meat. The researchers found pig farmers producing pork and bacon use four times as many antibiotics as cattle farmers. One of the major reasons farmers are having to use more and more antibiotics is that demand for meat is going up, and animals are often subjected to smaller and smaller living quarters, where disease can spread.

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Feel the power.

Monsanto Bites Back at Roundup Findings (WSJ)

Monsanto Co. escalated its criticism of a World Health Organization agency’s finding last week that a commonly used herbicide probably has the potential to cause cancer in humans. The St. Louis-based agribusiness giant—a major seller of the weed killer—sought a meeting with senior WHO officials on the International Agency for Research on Cancer’s finding, while a WHO agency official defended what he called an “exhaustive” review of eligible data. The IARC’s classification of glyphosate, the U.S.’s most commonly used weedkiller, as “probably carcinogenic” in a report published Friday reignited debate over a chemical that environmental groups have long criticized and the agricultural industry has defended as safe for humans and less harsh on the environment than others.

“We are outraged with this assessment,” Robert Fraley, Monsanto’s chief technology officer, said Monday, arguing that the finding was derived from “cherry picking” data based on an “agenda-driven bias.” Monsanto, which markets glyphosate under the Roundup brand, sent letters to WHO members seeking to discuss the IARC classification, which Monsanto officials said ran counter to many other findings, including those by other WHO programs, according to Philip Miller, the company’s vice president of global regulatory affairs. Dana Loomis, deputy head of the monographs section for the IARC, said the agency’s classification of glyphosate as “probably carcinogenic” was based on an examination of peer-reviewed research and completed government reports on the herbicide.

“We feel confident that our process is transparent and rigorous, based on the best available scientific data, and that it’s free from conflicts of interest,” Mr. Loomis said. He also said it was “categorically not true” that the IARC overlooked research on glyphosate, as Monsanto and other agriculture groups alleged. He said the IARC seeks to find and review all publicly available, peer-reviewed research and government documents in their final form. That excludes draft research, he said, which can change before it is completed.

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