Aug 242018
 
 August 24, 2018  Posted by at 7:57 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh Café, le soir, Arles 1888

 

Thoughts On The ‘Longest Bull Market Ever’ (Black)
New Reality of China’s Failing Economy Is Coming Soon (Rickards)
UK Tells Drug Companies To Stockpile Medicine In Case Of No-Deal Brexit (Ind.)
Big Oil Asks Government To Protect It From Climate Change (AP)
Scott Morrison New Australian PM As Turnbull Denounces ‘Insurgency’ (G.)
Saudi Modernisation Drive Is Reflected In Aramco’s Faltering Sale (G.)
Libya Refuses To Take Migrants Rejected By Italy (AFP)
Italy Threatens To Stop EU Funding Unless Other States Accept Refugees (ZH)
Inflation Adjusted Gold Is At Historical Lows (von Greyerz)
Monsanto Faces A Surge In Lawsuits Following Cancer Ruling (BBC)
‘Monsanto’s History Is One Full of Vast Lies’ (Spiegel)
After 70 Years, Korean Father, Son Share A Drink For First, Last? Time (H.)

 

 

“..a full SIXTY PERCENT of corporate debt issued by companies in the Russell 2000 is rated as JUNK..”

Thoughts On The ‘Longest Bull Market Ever’ (Black)

Well, it happened. Yesterday the US stock market broke the all-time record for the longest bull market ever. This means that the US stock market has been generally rising for nearly a decade straight… or even more specifically, that the market has gone 3,453 days without a 20% correction. That’s a pretty big milestone. And there’s no end in sight. So it’s possible this market continues marching higher for the foreseeable future. But if you step back and really look at the big picture, there are a lot of things that might make a rational person scratch his/her head. For example– the Russell 2000 index (which is comprised of smaller companies whose shares are listed on various US stock exchanges) is currently right at its all-time high.

Yet simultaneously, according to the Wall Street Journal, a full SIXTY PERCENT of corporate debt issued by companies in the Russell 2000 is rated as JUNK. How is that even possible– a junk debt rating coupled with an all-time high? It’s as if investors are saying, “Well, there’s very little chance these companies will be able to pay their debts… but screw it, I’ll pay a record high price to buy the stock anyhow.” It just doesn’t make any sense. Looking at the larger companies in the Land of the Free (which make up the S&P 500 index), the current ‘CAPE ratio’ is now the second highest on record. ‘CAPE’ stands for ‘cyclically-adjusted price/earnings ratio’. Essentially it refers to how much investors are willing to pay for shares of a company, relative to the company’s long-term average earnings.

And right now investors are willing to pay 33x long-term average earnings for the typical company in the S&P 500. The median CAPE ratio based on data that goes back to the 1800s is about 15.6. So at 33, investors are literally paying more than TWICE as much for every dollar of a company’s long-term average earnings than they have throughout all of US market history. And it’s only been higher ONE other time– just before the 2000 stock market crash (when the dot-com bubble burst). 33 is higher than right before the 2008 crisis. It’s even higher than it was before the Great Depression.

Read more …

Building zombies for the future.

New Reality of China’s Failing Economy Is Coming Soon (Rickards)

There’s no denying China’s remarkable economic progress over the past thirty years. Hundreds of millions have escaped poverty and found useful employment in manufacturing or services in the major cities. Infrastructure gains have been historic, including some of the best trains in the world, state-of-the-art transportation hubs, cutting edge telecommunications systems, and a rapidly improving military. Yet, that’s only half the story. The other half is pure waste, fraud and theft. About 45% of Chinese GDP is in the category of “investment.” A developed economy GDP such as the U.S. is about 70% consumption and 20% investment. There’s nothing wrong with 45% investment in a fast-growing developing economy assuming the investment is highly productive and intelligently allocated.

That’s not the case in China. At least half of the investment there is pure waste. It takes the form of “ghost cities” that are fully-built with skyscrapers, apartments, hotels, clubs, and transportation networks – and are completely empty. This is not just western propaganda; I’ve seen the ghost cities first hand and walked around the empty offices and hotels. Chinese officials try to defend the ghost cities by claiming they are built for the future. That’s nonsense. Modern construction is impressive, but it’s also high maintenance. Those shiny new buildings require occupants, rents and continual maintenance to remain shiny and functional. The ghost cities will be obsolete long before they are ever occupied.

Other examples of investment waste include over-the-top white elephant public structures such as train stations with marble facades, 128 escalators (mostly empty), 100-foot ceilings, digital advertising and few passengers. The list can be extended to include airports, canals, highways, and ports, some of which are needed and many of which are pure waste. Communist party leaders endorse these wasteful projects because they have positive effects in terms of job creation, steel fabrication, glass installation, and construction. However, those effects are purely temporary until the project is completed. The costs are paid with borrowed money that can never be repaid. China might report 6.8% growth in GDP, but when the waste is stripped out the actual growth is closer to 4.5%. Meanwhile, China’s debts grow faster than the economy and its debt-to-GDP ratio is even worse than the U.S.

Read more …

It’s beginning to hit home that time has run out. Wait till the days shorten for real.

UK Tells Drug Companies To Stockpile Medicine In Case Of No-Deal Brexit (Ind.)

Health secretary Matt Hancock has told drug companies to ensure they have six weeks additional supplies of medicines on top of their normal stockpiles to avoid disruption caused by a possible no-deal Brexit. The remarks from Mr Hancock came as Dominic Raab, the Brexit secretary, released the first tranche of technical notes outlining the government’s preparations and warnings to businesses if Britain crashes out of the bloc without a deal. Among the 24 detailed papers it was also revealed that credit card users could be hit with a new “Brexit tax” amounting to £166m, UK citizens living in Europe face the prospect of losing access to pension income and new red tape could delay foreign sperm donations arriving in Britain.

In one of the most stark warnings, Mr Hancock told NHS staff and service providers that the move to increase pharmaceutical companies’ stockpiles was necessary “in case imports from the EU through certain routes” are affected if Theresa May fails to strike a deal with negotiators in Brussels. The request, according to the chief executive of the UK Bioindustry Association, Steve Bates, would be a “massive challenge” for the industry to deliver in less than 200 days. But Mr Hancock also warned that hospitals, GPs and community pharmacies should not hoard or stockpile additional drugs “beyond their business” as usual levels.

Read more …

Priceless.

Big Oil Asks Government To Protect It From Climate Change (AP)

As the nation plans new defenses against the more powerful storms and higher tides expected from climate change, one project stands out: an ambitious proposal to build a nearly 60-mile “spine” of concrete seawalls, earthen barriers, floating gates and steel levees on the Texas Gulf Coast. Like other oceanfront projects, this one would protect homes, delicate ecosystems and vital infrastructure, but it also has another priority — to shield some of the crown jewels of the petroleum industry, which is blamed for contributing to global warming and now wants the federal government to build safeguards against the consequences of it.

The plan is focused on a stretch of coastline that runs from the Louisiana border to industrial enclaves south of Houston that are home to one of the world’s largest concentrations of petrochemical facilities, including most of Texas’ 30 refineries, which represent 30 percent of the nation’s refining capacity. Texas is seeking at least $12 billion for the full coastal spine, with nearly all of it coming from public funds. Last month, the government fast-tracked an initial $3.9 billion for three separate, smaller storm barrier projects that would specifically protect oil facilities.

That followed Hurricane Harvey, which roared ashore last Aug. 25 and swamped Houston and parts of the coast, temporarily knocking out a quarter of the area’s oil refining capacity and causing average gasoline prices to jump 28 cents a gallon nationwide. Many Republicans argue that the Texas oil projects belong at the top of Washington’s spending list. “Our overall economy, not only in Texas but in the entire country, is so much at risk from a high storm surge,” said Matt Sebesta, a Republican who as Brazoria County judge oversees a swath of Gulf Coast. But the idea of taxpayers around the country paying to protect refineries worth billions, and in a state where top politicians still dispute climate change’s validity, doesn’t sit well with some.

Read more …

Another rightwing anti-immigrant yokel. That’s all they have down under.

Scott Morrison New Australian PM As Turnbull Denounces ‘Insurgency’ (G.)

Australia will have a new prime minister in Scott Morrison – the socially conservative architect of Australia’s hardline anti-asylum seeker policies – after he mounted a late challenge during a drawn-out struggle for power in the governing Liberal party. On Friday, incumbent Malcolm Turnbull failed in his attempt to stare down a challenge from hard right MP Peter Dutton, with insurgents in his party gathering enough signatures to call for a “spill” of the leadership. It led to a three-way challenge that included Morrison, Turnbull’s treasurer, and Julie Bishop, the foreign minister. Turnbull himself stood aside from the contest.

In a party room ballot, Bishop was eliminated in the first round, and Morrison won against former home affairs minister Dutton in a subsequent run-off, 45 votes to 40, suggesting the party is still deeply divided. There appears no end in sight to the civil war consuming the ruling Liberal-led coalition government. The country may be headed to an election, with Turnbull saying he will not stay in parliament. His resignation in between general elections would erase the government’s single-seat majority in the House of Representatives. Australia has now had five prime ministers in just over five years. Since 2010 four prime ministers have lost office not at the ballot box, but torn down by their own parties, earning Canberra the unhappy appellation “the coup capital of the Pacific”.

Read more …

Selling 5% of Aramco was supposed to finance ‘diversification’.

Saudi Modernisation Drive Is Reflected In Aramco’s Faltering Sale (G.)

For the Saudis, the implications of the Paris agreement were obvious: the drive to decarbonise the world economy would mean that a considerable part of their oil reserves would have to stay in the ground. This made a warning at the turn of the millennium by the former Saudi energy minister Sheikh Ahmed Zaki Yamani, seem suddenly urgent. “Thirty years from now, there will be a huge amount of oil – and no buyers”, Yamani said. “Oil will be left in the ground. The stone age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”

It was not long before Saudi’s rulers responded to this twin challenge. In the short term, they sought to persuade fellow oil producing nations to agree production curbs that would limit supply, drive up crude prices and so ease the pressures on the public finances. At the current oil price of around $70 a barrel, the Saudis can make their budget arithmetic stack up. In the longer term, there was a plan to diversify the economy away from oil. Saudi Vision 2030 was announced by Crown Prince Mohammed bin Salman in April 2016, shortly after the oil price reached its trough. The idea was to make Saudi Arabia a global investment giant, to turn the country into a hub linking the three continents of Europe, Asia and Africa and to be the heart of the Arab and Islamic worlds.

The proposed sale of part of the state-owned oil company – Saudi Aramco – was a key part of this attempt to transform and modernise the economy. Proceeds were earmarked for the country’s sovereign wealth fund so it could continue investing in companies such as the electric car company Tesla and the ride-hailing app Uber.

Read more …

Thank you Barack and Hillary.

Libya Refuses To Take Migrants Rejected By Italy (AFP)

Libya has refused to take in a group of 177 migrants stranded on an Italian coastguard boat off a Sicilian port after Rome insisted they would not be allowed to disembark. Italy’s Interior Minister Matteo Salvini threatened earlier this week to return the migrants to the North African country unless other European governments offered to take some of them in. But Mohamed Siala, foreign minister of the UN-backed Libyan unity government, said that “Libya does not accept this unjust and illegal measure because it already has more than 700,000 migrants” on its territory.

In a statement late Wednesday, he called on the international community “to put pressure on the countries of departure to repatriate their nationals”, adding that Libya had only served as a transit point. The Italian boat “Diciotti” arrived on Monday night off the Sicilian port of Catania. Plunged into chaos following the fall and killing of longtime dictator Moamer Kadhafi in a 2011 NATO-backed uprising, Libya has become a prime transit point for sub-Saharan African migrants making dangerous clandestine bids to reach Europe. The country takes in migrants whose boats are intercepted in its waters by the Libyan coastguard, but it has repeatedly rejected those rescued by foreign navies or by humanitarian organisations off its coast.

Read more …

Who’s going to blame them?

Italy Threatens To Stop EU Funding Unless Other States Accept Refugees (ZH)

On Thursday, out of the blue, Italy’s Deputy Prime Minister Luigi Di Maio threatened to stop financial contributions to the European Union next year unless other states agreed to take in migrants being held on a coastguard ship in Sicily. The Italian’s ultimatum comes less two months after Europe triumphantly announced a “vaguely worded” deal on how to resolve the continent’s migrant influx. “If tomorrow at the meeting of the European Commission nothing is decided on the redistribution of migrants and the Diciotti ship, I and the entire Five Star Movement are not willing to give 20 billion to the European Union,” Di Maio said in a video posted on his Facebook page.

He echoed statements by Interior Minister and Deputy Premier Matteo Salvini, who has refused to allow 177 migrants to leave the Italian coastguard ship Ubaldo Diciotti, which is docked in the Sicilian port of Catania. While Italian prosecutors opened an investigation into the detention of the migrants and 29 children were allowed to disembark, Salvini still won’t allow the rest of the people to come ashore and has attacked the EU for its “cowardly silence.” Salvini described those aboard as “illegal immigrants,” and said they won’t be allowed to step foot on Italian soil. Instead, he insisted fellow European Union nations take in some of the asylum-seekers. “Italy’s no longer Europe’s refugee camp,” he tweeted. “Upon my authorization, no one is disembarking from the Diciotti.”

Salvini, who is also interior minister, was defiant in the face of a criminal probe into possible kidnapping charges for forcing the migrants to remain on the vessel. The chief prosecutor from the Agrigento court, Luigi Patronaggio, on Wednesday boarded the Diciotti and said afterwards he had opened a probe against “unknown” persons for holding the migrants against their will. “There’s a court that is investigating whether those illegally on board the ship have been kidnapped,” Salvini said in a radio interview. “I’m not unknown. My name is Matteo Salvini… I’m the Interior Minister and I think it is my duty to defend the security of this country’s borders.”

Read more …

Just liked the graph, don’t want to tell anyone to buy anything.

Inflation Adjusted Gold Is At Historical Lows (von Greyerz)

Gold at $1,220, adjusted for real inflation, is almost as cheap as it was in 1999 at the $250 low. More importantly, inflation adjusted gold is now very near the 300 year low of 1999. So right now gold is again unloved and undervalued and therefore a bargain. On an inflation adjusted basis, the 1980 high of $850 would today be $16,650. Long before we get hyperinflationary gold prices, that $16,600 level should be easily reached. Owning physical gold for wealth protection purposes is the best preserved secret in the West. In this part of the world, virtually nobody holds gold. At the same time, the wise people in the East continue to buy all the gold that is produced annually. China, India, Iran, Turkey, Russia and many more Eastern nations understand history and economics. That is why they are accumulating major gold reserves at these levels.

Read more …

Bayer really didn’t see this coming.

Monsanto Faces A Surge In Lawsuits Following Cancer Ruling (BBC)

American agro-chemicals company Monsanto is facing a surge in lawsuits that may cost its new owners, Bayer, billions in damages. Monsanto manufactures glyphosate-based weedkillers which some believe are carcinogenic. Last month it lost a $289m (£225m) court case that alleged its products Roundup and RangerPro had led to a Californian man’s terminal cancer. Bayer said the number of outstanding cases had risen from 5,200 to 8,000. The German firm’s shares have lost 11% of their value since it lost the case in a California court to groundskeeper Dewayne Johnson, who claimed Monsanto herbicides containing glyphosate, had caused his non-Hodgkins lymphoma.

Bayer shares fell another 1.7% on Thursday. Chief executive Werner Baumann said that when it bought Monsanto, Bayer “could not foresee the scope of the current lawsuits.” The $63bn deal was completed earlier this month. “In the course of the acquisition, we carried out due diligence as is standard practice when taking over a listed company. In doing so, we of course also considered the legal risks,” he said in an interview with Germany’s Handelsblatt newspaper. In a conference call on Thursday, Mr Baumann added: “Our view is that the number is not indicative of the merits of the plaintiffs’ cases”.

Read more …

“..Another program is called “Freedom to Operate.” Its purpose is to eliminate everything that might disrupt sales of their products – laws, scientific articles, they go after everything.”

‘Monsanto’s History Is One Full of Vast Lies’ (Spiegel)

On Aug. 10, lawyer Brent Wisner, 34, scored a landmark verdict on behalf of his client, cancer patient Dewayne Johnson. A court in San Francisco ruled that Monsanto was guilty of concealing the potential health risks associated with its weed killer glyphosate, which is sold in the United States under the brand name Round Up. The jury ordered the company to pay $289 million in damages to the plaintiff, who had used Round Up at his job as a janitor for a school district. The court said Monsanto should have labeled the product’s possible dangers for consumers. Monsanto, which was recently acquired by German pharmaceuticals giant Bayer, has denied any link between the product and the disease. Wisner spoke to DER SPIEGEL about the case in an interview.

[..] DER SPIEGEL: How much does Monsanto have to do with the fact that a verdict was reached only now? Wisner: A lot! Monsanto has an internal program called “Let Nothing Go.” The aim of this program is to attack scientists who are critical of Monsanto products. They go after people directly and discredit them. They also pay others to do so. DER SPIEGEL: Are there other such PR strategies? Wisner: Another program is called “Freedom to Operate.” Its purpose is to eliminate everything that might disrupt sales of their products – laws, scientific articles, they go after everything. As part of that effort, they also engage lobbyists – scientists who Monsanto pays for their opportunism. Such programs reflect a corporate culture that shows no interest whatsoever in public health, only in profits.

DER SPIEGEL: Monsanto continues to dispute that it tried to influence scientific research. What was the critical factor for jurors in reaching the verdict? Wisner: I believe it was the scientific findings themselves. The 12 jurors were not lightweights after all. There was a molecular biologist, an environmental engineer, a lawyer. Some colleagues told me: “Be careful Brent, so much intelligence can be an impediment.” But I was certain that the arguments in the critical studies, parts of which were suppressed, were the strongest evidence we had.

Read more …

Sad and joyful. Why Korea’s really want peace.

After 70 Years, Korean Father, Son Share A Drink For First, Last? Time (H.)

As soon as 91-year-old Lee Gi-sun got up on the morning of Aug. 22, he pulled out one of the bottles of soju, a potent distilled liquor, that he’d stashed in the bottom of his suitcase. He’d brought this precious liquor to accompany a ceremony for which he’d waited his entire life – a daytime drink with his son! At 10 am on Aug. 22, the final day of the three-day reunion for families divided by the Korean War, family members met in the banquet hall on the second floor of the Mt. Kumgang Hotel to say their goodbyes. A few hours hence, they would return to their respective homes in South and North Korea, with no guarantee of seeing each other again. The father filled a cup with the soju he’d brought.

After taking a sip himself, he silently passed the cup to his son. Gi-sun’s North Korean son, Gang-son (69 years old himself), was also silent as he took the cup and brought it to his lips. This was the first drink shared by the white-haired father and son, and it very well might be their last. It was a heartrending moment when the father’s lifelong dream came true. “We were separated when he was two years old. Two years old,” the father said, letting the last phrase linger in the air. In Jan. 1951, he and his older brother had left their families behind in their home of Yonbaek County, Hwanghae Province, fleeing south with UN troops beaten back by the Chinese onslaught. Gi-sun had assumed he would soon be able to return.

Read more …

Aug 232018
 
 August 23, 2018  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , ,  


Pablo Picasso Seated woman 1903

 

 

 

The Weaponization of the Dollar (Lebowitz)
Turkey’s Lira Crisis Was Written In Istanbul’s Skyline (G.)
U.S.-China Trade War Escalates As New Tariffs Kick In (R.)
Shooting War With China More Likely Than You Think (Rickards)
Wall Street Marks Longest-Ever ‘Bull Market’ (AFP)
Saudi Energy Minister Denies Aramco IPO Will Be Called Off (R.)
Australia In Crisis As Prime Minister Faces Down Political Coup Attempt (G.)
Trump Says He’s Considering Pardon For Manafort (R.)
Making Plans For A New World Order (Heiko Maas)
Italian Prosecutors Investigate Salvini’s Bar On Ship Arrivals (G.)

 

 

“..the true all-in cost of borrowing was not 5% but 54%.”

The Weaponization of the Dollar (Lebowitz)

China, Turkey, and Iran are all classified as emerging markets. While the classification is broad and includes a diverse group of countries, these countries have many things in common. One is that their currencies, for the most part, are not liquid or highly valued. Thus, they heavily rely on the world’s reserve currency, the U.S. dollar, to conduct international trade. As an example, when Pakistan buys oil from Qatar, they transact in U.S. dollars, not rupees or riyals. To facilitate trade efficiently, these countries must hold excess dollars in reserve. In almost all cases, emerging market nations rely on U.S. dollar-denominated debt for their transactional needs.

Dollar-denominated debt is currently the cause of much economic pain for Turkey. To understand why, we present a simplified example. Suppose on January 1, 2018, a Turkish corporation borrowed $100 million U.S. dollars with an agreement to pay it back with interest of 5% on August 15th, 2018. The company, as is typical, converts the loaned dollars to Turkish Lira. On August 15, 2018, the company will convert the Lira back to dollars in order to pay the principal and interest due on the loan. The following graph charts the Turkish Lira versus the Dollar over the life of the loan.

On January 1, 2018, one U.S. Dollar was worth 3.79 Lira. Over the next eight months, the U.S dollar appreciated significantly versus the Lira such that one U.S. dollar was worth approximately 5.81 Lira. As such, the company will now need 5.81 Lira to purchase each dollar it needs to repay the loan. Due to the strengthening of the U.S. dollar versus the Lira over the time period of the outstanding loan, the company would need 584,282,000 Lira to pay back what was originally a 378,750,000 Lira loan. In other words, the true all-in cost of borrowing was not 5% but 54%.

Read more …

“90% of the credit in Turkish real estate companies came from loans in foreign currencies.”

Turkey’s Lira Crisis Was Written In Istanbul’s Skyline (G.)

From a distance, Esenyurt, a newly built up neighbourhood on the edges of Istanbul, looks a bit like Hong Kong or Dubai, with a bustling downtown of shiny skyscrapers. Upon closer examination, however, you notice that tower after tower stands incomplete, lacking windows or furnishings; others are only half-occupied, their windows dark after nightfall. “In the residential areas, 100% of the construction has stopped,” says Mohamed Karman, a local estate agent, from his small office in the central square of Esenyurt. “Do you know why? The materials. Everything is in dollars, you pay in dollars.” The crash of the Turkish lira last week after two years of steady decline spooked global markets – but anyone looking at Istanbul’s skyline would have been far from surprised.

Everywhere you look in the city, evidence of a debt-fuelled construction boom abounds: new skyscrapers frame the horizon, huge shopping malls dot the streets and among several megaprojects is a new airport, set to be the world’s largest. Funding for this construction frenzy has been at the heart of Turkey’s economy, accounting for up to 20% of the country’s GDP growth in recent years, and employing around two million people. In a parallel to the 2008 financial crash, the boom was funded by low-interest loans and ballooning debt. Property developers funded their buildings with cheap loans in foreign currencies – and will be struck particularly hard by the lira’s collapse, as those loans grow harder to repay every day. According to government statistics, at the end of 2016 nearly 90% of the credit in Turkish real estate companies came from loans in foreign currencies.

[..] The Istanbul Sapphire – one of the tallest buildings in Europe when completed in 2011 – was financed through loans worth 164m lira in 2013, 154m of which was in US dollars. That loan would now cost around 539m lira.

Read more …

Is this the best they can do?

U.S.-China Trade War Escalates As New Tariffs Kick In (R.)

The United States and China escalated their acrimonious trade war on Thursday, implementing punitive 25 percent tariffs on $16 billion worth of each other’s goods, even as mid-level officials from both sides resumed talks in Washington. The world’s two largest economies have now slapped tit-for-tat tariffs on a combined $100 billion of products since early July, with more in the pipeline, adding to risks to global economic growth. China’s Commerce Ministry said Washington was “remaining obstinate” by implementing the latest tariffs, which kicked-in on both sides as scheduled at 12:01 p.m. in Beijing (0401 GMT). “China resolutely opposes this, and will continue to take necessary countermeasures,” it said in a brief statement.

“At the same time, to safeguard free trade and multilateral systems, and defend its own lawful interests, China will file suit regarding these tariff measures under the WTO dispute resolution mechanism,” it said. President Donald Trump has threatened to put duties on almost all of the more than $500 billion of Chinese goods exported to the United States annually unless Beijing agrees to sweeping changes to its intellectual property practices, industrial subsidy programs and tariff structures, and buys more U.S. goods. That figure would be far more than China imports from the United States, raising concerns that Beijing could consider other forms of retaliation, such as making life more difficult for American firms in China or allowing its yuan currency to weaken further to support its exporters.

Read more …

“The U.S. will win this trade war because Xi does not want to lose his throne.”

Shooting War With China More Likely Than You Think (Rickards)

The mainstream media narrative about the U.S.-China trade war implies that Trump is on a highly damaging ego trip and China holds all the cards. The exact opposite is true. Trump has ample financial warfare weapons including tariffs, penalties, bans on direct investment, improved cybersecurity, forced divestiture and freezing of assets. Meanwhile, China has almost run out of room to impose tariffs. Further, they will invite retribution if they try to devalue their currency further. China’s vulnerabilities run deeper than that. The U.S.-China trade war comes in the aftermath of a Chinese Communist Party conference that made Xi Jinping dictator for life and enshrined his doctrines on the same level as Mao Zedong.

Once Xi got these powers, he proceeded on a disastrous policy course that has resulted in a slowdown of the Chinese economy, higher debt defaults, lost investment opportunities in the U.S. and declining hard currency reserves. The knives are now out in Beijing. Reports are circulating that Xi’s opponents are questioning his judgment and the wisdom of expanding his powers at such a critical time. Many are starting to blame Xi for the trade war almost as much as they blame Trump. Xi still has torture, firing squads and concentration camps at his disposal, but the notion of a unified, coherent leadership structure in Beijing is now seen to be a myth. Trump will keep up the pressure; he never backs off and always doubles down.

It will be up to Xi to blink and acquiesce in many U.S. demands. The U.S. will win this trade war because Xi does not want to lose his throne. Yet there will still be material damage to the global economy and lasting animosity between Xi and Trump.

Read more …

Party.

Wall Street Marks Longest-Ever ‘Bull Market’ (AFP)

Wall Street graduated to the longest-ever “bull market” Wednesday, a run that began amid extraordinary crisis-era monetary policy and which experts think could persist at least a while longer. US President Donald Trump cheered the news after the S&P 500 closed for the 3,453rd straight time without a drop of 20 percent over the more than nine-year stretch. “Longest bull run in the history of the stock market. congratulations America!” Trump said on Twitter shortly after the closing bell. The marathon run comes amid signs the US economy has accelerated this year after a long period of slow but steady growth. Experts say trade wars and higher interest rates are among potential threats to the persistence of the bull run.

Market watchers liken the landmark to other stock market records, such as when the Dow hit 25,000 points for the first time. Investing in stocks remains concentrated among the wealthiest, with many Americans still hesitant to buy stocks following the 2008 financial crisis. While financial experts are well aware of the durability of the current stock market cycle, the record is “news more to Main Street than to Wall Street,” according to Art Hogan, chief market strategist at B. Riley FBR. The S&P 500 finished the day down less than 0.1 percent at 2,861.82. When stocks fall at least 20 percent below their previous record, they enter a “bear market.”

Read more …

But several people insist it is. it’s just that it can’t be announced right now.

Saudi Energy Minister Denies Aramco IPO Will Be Called Off (R.)

Saudi Arabia’s energy minister denied a Reuters report that state oil giant Aramco’s initial public offering will be called off, in a statement issued early on Thursday. “The government remains committed to the initial public offering of Saudi Aramco, in accordance with the appropriate circumstances and appropriate time chosen by the Government,” Energy Minister Khalid al-Falih said in a statement released on Saudi Press Agency. Reuters reported on Wednesday that four senior industry sources said Saudi Arabia has called off both the domestic and international stock listing of Aramco.

Read more …

Oz politics is so bad it’s not even funny.

Australia In Crisis As Prime Minister Faces Down Political Coup Attempt (G.)

Australia is on the brink of having its sixth prime minister in a decade after a chaotic, internecine coup attempted, but failed, to topple the incumbent Malcolm Turnbull on Thursday. In a media conference during which he refused to resign, Turnbull called on his challengers to prove he had lost the confidence of his own party, and made a thinly veiled swipe at influences “outside the parliament”. The reference was widely interpreted as an attack on the power of Rupert Murdoch’s News Corporation newspapers and TV channels, which have consistently campaigned against him. “The reality is that a minority in the party room supported by others outside the parliament have sought to bully, intimidate others into making this change of leadership that they’re seeking,” Turnbull said.

The leadership brawl stalled political business on Thursday morning when the government voted to shut down the House of Representatives until 10 September, unsure it would be able to command a majority on the floor of the House, and unwilling to face questions from the opposition after at least 13 ministers tendered their resignations. Since 2007, no Australian prime minister has served a full term in office, with four cut down by their own parties while in office, earning Canberra the title of “coup capital of the Pacific”. Turnbull survived Thursday, but appears almost certain to lose the prime ministership to a party room vote, likely as soon as Friday.

Read more …

But not today, for sure.

Trump Says He’s Considering Pardon For Manafort (R.)

U.S. President Donald Trump said he would consider pardoning his former campaign chairman Paul Manafort, who was convicted on Tuesday of bank and tax fraud, according to a Fox News reporter who interviewed Trump. Fox News reporter Ainsley Earhardt said Trump told her in an interview on Wednesday that “he would consider” pardoning Manafort.“I think he feels bad for Manafort. They were friends,” Earhardt said in an appearance on Fox News’ “Hannity” program on Wednesday night.

Fox News has been airing excerpts of the interview with Trump, which is scheduled to be shown in its entirety on Thursday morning. The excerpts have not included a clip of Trump saying he would consider pardoning Manafort. Manafort was convicted on Tuesday of two counts of bank fraud, five counts of tax fraud and one charge of failing to disclose foreign bank accounts. In a tweet on Wednesday about the verdict, Trump called Manafort a “brave man” and said, “I feel very badly for Paul Manafort and his wonderful family.”

Read more …

Maas is the new German foreign minister. His proposal for an alternative SWIFT system launched a debate. But really, “new world order”?

Making Plans For A New World Order (Heiko Maas)

It starts with us exposing fake news. Like this: If the current account balance of Europe and the US includes more than just trade in goods, then it is not the US that has a deficit, it’s Europe. One reason is the billions in profits that European subsidiaries of Internet giants such as Apple, Facebook and Google transfer to the US every year. So when we talk about fair rules, we must also talk about the fair taxation of profits like that. It is also important to correct fake news because it can quickly result in the wrong policies. As Europeans, we have made it clear to the Americans that we consider the withdrawal from the nuclear agreement with Iran to be a mistake. Meanwhile, the first US sanctions have come back into force.

In this situation, it is of strategic importance that we make it clear to Washington that we want to work together. But also: That we will not allow you to go over our heads, and at our expense. That is why it was right to protect European companies legally from sanctions. It is therefore essential that we strengthen European autonomy by establishing payment channels independent of the US, a European monetary fund and an independent SWIFT [payments] system. The devil is in thousands of details. But every day that the Iran agreement lasts, is better than the potentially explosive crisis that threatens the Middle East otherwise.

Read more …

Let the courts decide.

Italian Prosecutors Investigate Salvini’s Bar On Ship Arrivals (G.)

Italian prosecutors have opened an investigation into the illegal detention of 177 migrants onboard a coastguard vessel that the minister of the interior, Matteo Salvini, refuses to allow to land. The Ubaldo Diciotti has been docked for 48 hours at the port of Catania, Sicily, but the migrants have not been allowed to disembark without having certainties from Brussels on their distribution to other countries. The investigation, conducted by the prosecutor of the city of Agrigento, was launched against “unknowns” but it is clear that if the magistrates were to go ahead with a judicial proceeding, Salvini would end up under investigation, being the only one responsible for the landing ban.

“I heard that the prosecutor’s office in Agrigento has opened an investigation,” said Salvini in a recent video on Facebook Live. “I also heard that the suspects are ‘unknown’ at the moment. But I’m not unknown. My name is Matteo Salvini, I’m the minister of the interior. Come on, try me too, I’m here.” The Ubaldo Diciotti docked on Monday night in the port of Catania but the migrants, including 29 unaccompanied minors, were refused authorisation to disembark. The ship picked up 190 people on 15 August from an overcrowded boat about 17 nautical miles from the Italian island of Lampedusa. Thirteen of them were evacuated for emergency medical treatment.

Read more …

Nov 052017
 
 November 5, 2017  Posted by at 9:37 am Finance Tagged with: , , , , , , , , , ,  


Edward S. Curtis Navajo weaver c. 1907

 

Senior Princes, One Of World’s Richest Men Arrested In Saudi Crackdown (BBG)
Saudi Arabia Detains Princes, Ex-Ministers After Cabinet Reshuffle (MEE)
Shakeup Stuns Analysts Who Say It Shows Saudis Mean Business (BBG)
Lebanon PM Resigns, Bringing Saudi-Iran Proxy Conflict to the Fore (BBG)
Trump Urges Saudi Aramco to List on New York Stock Exchange (BBG)
China’s Zhou Warns on Rising Financial Risk in Blunt Article (BBG)
China To Expand Corruption Supervision Pilot Scheme Nationwide (R.)
Donna Brazile Considered Replacing Hillary Clinton With Joe Biden (G.)
The Great College Loan Swindle (Taibbi)
Santa Claus May Be Coming To Town, But Will The Shoppers Go Too? (G.)
In the World’s Most Livable Cities, Hardly Anyone Can Afford a Home (BBG)
Australia -Again- Snubs New Zealand Offer To Take Refugees (AFP)

 

 

Was there a coup? If so, who against who? Jared Kushner just came back from one of his secretive trips to Saudi a few days ago. He’s allegedly close with MBS. Osama Bin Laden’s older brother also arrested. Too much money floating around. And too many princes.

Senior Princes, One Of World’s Richest Men Arrested In Saudi Crackdown (BBG)

Saudi Arabia’s King Salman removed one of the royal family’s most prominent princes from his ministerial role and arrested other royals and top officials in an anti-corruption drive that clears any remaining obstacles to his son’s potential ascension to the throne. Acting on orders from a newly established anti-corruption committee, headed by Crown Prince Mohammed bin Salman, police arrested 11 princes, four ministers and dozens of former ministers, the Saudi-owned Al Arabiya television said. Prince Miteb, son of the late King Abdullah, was removed from his post as head of the powerful National Guards. Prince Alwaleed bin Talal, one of the world’s richest men and a shareholder of Citigroup and Twitter, was among those detained, according to a senior Saudi official who spoke on condition of anonymity.

“Laws will be applied firmly on everyone who touched public money and didn’t protect it or embezzled it, or abused their power and influence,” King Salman said in comments shown on state TV. “This will be applied on those big and small, and we will fear no one.” Prince Miteb was replaced by Prince Khaled Ayyaf, according to a royal decree. Before his ouster, Prince Miteb was one of the few remaining senior royals to have survived a series of cabinet shuffles that promoted allies of the crown prince, who is the direct heir to the throne. King Salman had already sidelined other senior members of the royal family to prevent any opposition to the crown prince, 32-year-old Prince Mohammed, known as MBS among diplomats and journalists, who replaced his elder cousin, Muhammed bin Nayef, in June.

That maneuver removed any doubt of how succession plans will unfold following the reign of King Salman, now 81. “The hardline approach is risky because it will solidify the dislike many powerful Saudis have for the crown prince, but it is likely that MBS succeeds, and emerges from this episode more empowered,” Hani Sabra, founder of Alef Advisory, a Middle East political risk practice, wrote in a note. “We can’t confidently project when a leadership transition will take place, but today’s developments are a signpost that MBS is moving toward the role of king.”

Read more …

From Middle East Eye.

Saudi Arabia Detains Princes, Ex-Ministers After Cabinet Reshuffle (MEE)

Saudi Arabia has detained 11 princes and dozens of former ministers through its newly formed anti-corruption committee, including erstwhile national guard minister Mutaib bin Abdullah. According to an MEE source in Riyadh, Mutaib was arrested along with his brother Turki. Famous multi-billionaire prince Al-Waleed bin Talal bin Abdulaziz and a number of former ministers and businessmen were also arrested. Both Mutaib bin Abdullah and Al-Waleed bin Talal are senior members of Saudi’s royal family. Also among the arrested were Waleed al-Ibrahim, founder of the MBC broadcasting group, and billionaire businessman Saleh Kamel. The arrests came hours after Saudi appointed new ministers. Economy minister Adel Fakieh was replaced by Mohammed al-Tuwaijri while Khaled bin Ayyaf replaced Mutaib, son of the late King Abdullah, as national guard minister.

The new anti-corruption committee, headed by Crown Prince Mohammed bin Salman, was formed by royal decree earlier on Saturday. The arrests and dismissals came just two months after King Salman replaced his nephew Mohammed bin Nayef with his son Mohammed as the country’s crown prince. The move consolidates Mohammed’s control of the kingdom’s security institutions, which had long been headed by separate powerful branches of the ruling family. “Since Mohammed bin Salman became the crown prince in June, we’ve seen a lot of upheaval,” Ian Black, of the London School of Economics, told Al Jazeera. “We’ve seen the announcement of this very ambitious Saudi plan to transform the Saudi economy, Vision 2030.” “The breadth and scale of the arrests appears to be unprecedented in modern Saudi history,” said Kristian Ulrichsen at Rice University.

In September the authorities arrested about two dozen people, including influential clerics, in what activists denounced as a coordinated crackdown. Analysts said many of those detained were resistant to Prince Mohammed’s aggressive foreign policy that includes the boycott of Gulf neighbour Qatar as well as some of his bold policy reforms, including privatising state assets and cutting subsidies.

Read more …

“Everybody will be worried now. Some of these names have been there for 30 years.”

Shakeup Stuns Analysts Who Say It Shows Saudis Mean Business (BBG)

Saudi Arabia’s unprecedented decision to arrest senior princes and billionaires shocked analysts across the region, but to some it’s a sign the kingdom is serious about change. The nation’s stocks declined. A newly formed anti-corruption committee, headed by Crown Prince Mohammed bin Salman, instructed police to arrest 11 princes, four ministers and dozens of former ministers, the Saudi-owned Al Arabiya television said. The decision comes about two weeks after the kingdom announced a series of projects, including a $500 billion city, as part of a plan to overhaul an economy that has been almost entirely dependent on oil revenue for decades. The Tadawul All Share Index fell 1.8% as of 10:04 a.m. in Riyadh.

Purges haven’t “been done at this scale or in this public manner before,” said Mohammed Ali Yasin, CEO of Abu Dhabi-based NBAD Securities. “Accountability has been introduced, no one is immune. Everybody will be worried now. Some of these names have been there for 30 years. This affects Kingdom Holding, Saudi Airlines and the Finance Ministry.” A plunge in crude prices has forced Saudi Arabia to face the shortcomings of its $650 billion economy. Part of its plan to prepare for life after oil is to sell shares in oil giant Aramco in 2018 and transform its stock market to a gateway into Saudi Arabia. “There should be some initial speculation in general as people are just concerned about what happened, this will be priced in,” said Mazen Al-Sudairi, the head of research at Al Rajhi Capital in Riyadh. “But if you look on the long term, this should be seen as a positive measure that is good for the country and the market.”

Read more …

More Saudi.

Lebanon PM Resigns, Bringing Saudi-Iran Proxy Conflict to the Fore (BBG)

Lebanese Prime Minister Saad al-Hariri unexpectedly resigned on Saturday in a televised speech from Saudi Arabia, saying he feared for his life and accusing Iran and its proxies of destabilizing his country and the region. Hariri, a pro-Saudi Sunni politician, said Lebanon has suffered enough because of the Iranian-backed Hezbollah and its grip on domestic politics. “I want to say to Iran and its followers that they are losing in their interference in the affairs of Arab nations, and our nation will rise as it did before – and the hands that are extended to it with evil will be cut off,” he said. The resignation raises the prospect of a renewed political confrontation between Iran and Saudi Arabia in Lebanon at a time when the Islamic Republic and its allies are widely seen to have won the proxy war against Sunni powers in neighboring Syria.

Saudi Arabia and Iran are on opposite ends of other regional conflicts such as Yemen and Iraq. The Lebanese government includes Hezbollah members, and Hariri’s decision aims to weaken the group’s legitimate representation, said Sami Nader, head of the Beirut-based Levant Institute for Strategic Affairs. “It’s part of an all-out Saudi confrontation with Iran,” he said. As the war against Islamic State in Syria and Iraq winds down, analysts are warning against a surge in other conflicts as regional and global powers seek to divide spheres of influence. And while Saudi Arabia failed in its pursuit to remove Syrian President Bashar al-Assad, an ally of Iran, from power, the kingdom has found a backer in U.S. President Donald Trump in his focus on containing Iran’s clout in the Middle East.

Read more …

And yet more Saudi.

Trump Urges Saudi Aramco to List on New York Stock Exchange (BBG)

President Donald Trump, raising the political stakes in what would be the largest initial public offering, said the U.S. would “very much appreciate” if Saudi Arabia’s government lists the Saudi Arabian Oil Co. on the New York Stock Exchange. “Important to the United States!” Trump said in a Twitter post from Honolulu early Saturday. Trump’s tweet, sent hours before he was set to depart for an 11-day tour of Asia, came out of the blue for Aramco, according to a person familiar with the company, who asked not to be named. But the move is consistent with a growing push by American regulators to lure companies to U.S. stock exchanges. Trump told reporters later Saturday aboard Air Force One that he was motivated to send the tweet because the Aramco IPO “will be just about the biggest ever” and the U.S. wants “to have all the big listings.”

The Saudis were not currently looking at listing on a U.S. exchange “because of litigation risk, and other risk, which is sad,” he said. “I want them to very strongly consider the New York Stock Exchange or NASDAQ or frankly anybody else located in this country,” Trump said. He added that he had recently spoken to King Salman. The tweet was “energy geopolitics in action,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former senior oil official in the Obama administration. “At a time when the Saudis are looking for the U.S. to get tougher on Iran, the Saudi-Russian relationship is warming, the Saudis are trying to attract international private capital, and the Chinese are rumored to be considering taking a piece of Aramco, Trump’s personal plea to list in N.Y. raises the diplomatic stakes of Aramco’s decision.”

Read more …

“Latent risks are accumulating, including some that are “hidden, complex, sudden, contagious and hazardous..”

China’s Zhou Warns on Rising Financial Risk in Blunt Article (BBG)

China’s financial system is getting significantly more vulnerable due to high leverage, according to central bank governor Zhou Xiaochuan, who also flagged the need for deeper reforms in the world’s second-biggest economy. Latent risks are accumulating, including some that are “hidden, complex, sudden, contagious and hazardous,” even as the overall health of the financial system remains good, Zhou wrote in a lengthy article published on the People’s Bank of China’s website late Saturday. The nation should toughen regulation and let markets serve the real economy better, according to Zhou. The government should also open up financial markets by relaxing capital controls and reducing restrictions on non-Chinese financial institutions that want to operate on the mainland, he wrote.

“High leverage is the ultimate origin of macro financial vulnerability,” wrote Zhou, 69, who is widely expected to retire soon after a record 15-year tenure. “In sectors of the real economy, this is reflected as excessive debt, and in the financial system, this is reflected as credit that has been expanding too quickly.” Zhou’s comments signal that policy makers remain committed to a campaign to reduce borrowing levels across the economy. Concern that regulators may intensify the deleveraging drive after the twice-a-decade Communist Party Congress has helped push yields on 10-year government bonds to a three-year high. Still, measures of credit continue to show expansion, with aggregate financing surging to a six-month high of 1.82 trillion yuan ($274 billion) in September. China’s corporate debt surged to 159% of the economy in 2016, compared with 104% 10 years ago, while overall borrowing climbed to 260%.

Read more …

Hard not to see Saudi and China doing the same thing.

China To Expand Corruption Supervision Pilot Scheme Nationwide (R.)

China will expand a pilot project for anti-graft supervision reforms nationwide next year that will consolidate existing corruption agencies, state-run news agency Xinhua reported, as President Xi Jinping expands his signature policy drive. Xinhua said in a report published late on Saturday China’s top legislature adopted a decision calling for new supervisory commissions to be set up by the People’s Congresses at provincial, city and county-levels to “supervise those exercising public power”. Xi’s signature anti-graft drive has jailed or otherwise punished nearly 1.4 million Communist Party members since 2012. The leader, who began his second five-year term in October, has vowed to maintain the “irreversible” momentum of the campaign to root out corruption.

China aims to pass a national supervision law and set up a new commission at the annual parliament meetings early next year. The new National Supervision Commission will work with the Communist Party’s anti-graft body, the Central Commission for Discipline Inspection, expanding the purview of Xi’s anti-graft campaign to include employees at state-backed institutions. Xinhua said the commissions to be set up nationwide under the China legislature’s new directive will have the power to investigate illegal activities such as graft, misuse of authority, neglect of duty, and wasting public funds.

Read more …

if you didn’t get yet what a catastrophe the Democratic party has become.

Donna Brazile Considered Replacing Hillary Clinton With Joe Biden (G.)

The former head of the Democratic National Committee says she considered initiating effort to replace Hillary Clinton as the party’s presidential nominee with then vice-president Joe Biden. Donna Brazile makes the revelation in a memoir being released on Tuesday entitled Hacks: The Inside Story of the Break-ins and Breakdowns that Put Donald Trump in the White House. Brazile writes that she considered initiating Clinton’s removal after she collapsed while leaving a 9/11 memorial service in New York City. Clinton later acknowledged she was suffering from pneumonia. But Brazile says the larger issue was that her campaign was “anemic” and had taken on “the odor of failure”.

After considering a dozen combinations to replace Clinton and her running mate, Tim Kaine from Virginia, Brazile writes that she settled on Biden and Cory Booker of New Jersey as those with the best chance of defeating Trump. Ultimately, the former DNC head says, “I thought of Hillary, and all the women in the country who were so proud of and excited about her. I could not do this to them.”

Read more …

“In higher education, every party you meet, from the moment you first set foot on campus, is in on the game.”

The Great College Loan Swindle (Taibbi)

Horror stories about student debt are nothing new. But this school year marks a considerable worsening of a tale that ought to have been a national emergency years ago. The government in charge of regulating this mess is now filled with predatory monsters who have extensive ties to the exploitative for-profit education industry – from Donald Trump himself to Education Secretary Betsy DeVos, who sets much of the federal loan policy, to Julian Schmoke, onetime dean of the infamous DeVry University, whom Trump appointed to police fraud in education. Americans don’t understand the student-loan crisis because they’ve been trained to view the issue in terms of a series of separate, unrelated problems. They will read in one place that as of the summer of 2017, a record 8.5 million Americans are in default on their student debt, with about $1.3 trillion in loans still outstanding.

In another place, voters will read that the cost of higher education is skyrocketing, soaring in a seemingly market-defying arc that for nearly a decade now has run almost double the rate of inflation. Tuition for a halfway decent school now frequently surpasses $50,000 a year. How, the average newsreader wonders, can any child not born in a yacht afford to go to school these days? In a third place, that same reader will see some heartless monster, usually a Republican, threatening to cut federal student lending. The current bogeyman is Trump, who is threatening to slash the Pell Grant program by $3.9 billion, which would seem to put higher education even further out of reach for poor and middle-income families. This too seems appalling, and triggers a different kind of response, encouraging progressive voters to lobby for increased availability for educational lending.

But the separateness of these stories clouds the unifying issue underneath: The education industry as a whole is a con. In fact, since the mortgage business blew up in 2008, education and student debt is probably our reigning unexposed nation-wide scam. It’s a multiparty affair, what shakedown artists call a “big store scheme,” like in the movie The Sting: a complex deception requiring a big cast to string the mark along every step of the way. In higher education, every party you meet, from the moment you first set foot on campus, is in on the game.

Read more …

Fear of Christmas.

Santa Claus May Be Coming To Town, But Will The Shoppers Go Too? (G.)

Christmas is still seven weeks away, but, unsurprisingly, that does not stop retailers getting into the festive spirit early in the hope to attract crowds to the tills. On Tuesday, singer Rita Ora will turn on the Christmas lights on Oxford Street to mark the beginning of the festivities, close to Marks & Spencer’s Marble Arch branch. But will it be a merry Christmas for retailers? This week both M&S and Sainsbury’s will announce half-year results at an uncertain time for the high street. A recent survey from the CBI showed high street sales falling at their fastest rate since the height of the recession in 2009 as inflation causes households to put the brakes on spending. The cost of groceries, clothes and electronics has been rising since the Brexit vote last year, piling pressure on shoppers.

Recently, Asda’s income tracker found that there has been a slump on the spending power of the average household, while research from Lloyds Bank found that families are feeling the strain of the rising costs of living compared with a year ago. All of which could add up to a grim Christmas for retailers as shoppers struggle to deal with the post-Brexit economy. A further warning was sounded last week when Next reported a fall in October high street sales. Retailers will be hoping that Rita Ora will be able to instil some festive cheer to start off the shopping season.

Read more …

Same story all over the world.

In the World’s Most Livable Cities, Hardly Anyone Can Afford a Home (BBG)

Home ownership among young Australians has fallen to the lowest level on record, as an explosive property boom squeezes out all but the wealthiest. Supercharged by record low interest rates, a lack of supply and a tax system that favors property investors, home prices have surged more than 140% in the past 15 years, propelling Sydney past London and New York to rank as the world’s second-most expensive housing market. Melbourne, ranked the world’s most livable city the past seven years by the Economist Intelligence Unit, is now the planet’s sixth-most expensive place to buy a house. In response, home ownership among the young has plunged: only 45% of 25-to-34 year-olds own their own home, down 16%age points from the 1980s, with almost half the decline coming in the past decade.

At the same time, hefty mortgages have pushed household debt to a record, acting as a drag on the economy’s 26 years of unbroken growth. As more people retire still owing a mortgage, or renting, they are more likely to qualify for government welfare, undermining the A$2.3 trillion ($1.8 trillion) pension savings system. “The great Australian dream of home ownership is becoming a nightmare,’’ said Brendan Coates, a housing policy expert at the Grattan Institute. “It’s down to a collective failure of government policy that will take at least two decades to fix.” Voter angst over housing affordability is mounting: almost 90% of Australians fear future generations won’t be able to buy a home, according to an Australian National University survey.

Failure to address the issue is heaping pressure on a government already under fire for the botched rollout of a A$49 billion national high-speed internet network, and energy-policy bungling that’s sent power bills soaring and triggered fears of blackouts this summer. One of the biggest flashpoints are tax incentives that have turned housing into a speculative financial asset. First-home buyers complain they can’t compete against investors, who through a perk known as negative gearing can claim the costs of owning a property-for-rent – including mortgage interest – as a tax deduction against other income. The allure of property investment was turbocharged in 1999, when capital gains tax was halved. With housing prices seen as a one-way bet, investors piled in.

Read more …

People deserve to go to jail for what Australia has done to these people.

Australia -Again- Snubs New Zealand Offer To Take Refugees (AFP)

Australia Sunday snubbed New Zealand’s renewed offer to resettle 150 refugees held at remote Pacific camps, despite the closure of one detention centre in Papua New Guinea which has triggered a stand-off between detainees and the authorities. Canberra has been forced on the defensive by the move from Wellington’s new government, with Prime Minister Malcolm Turnbull saying Australia would instead prioritise a similar deal with the US to resettle refugees in America, despite slow progress. The issue re-emerged when the conservative Australian prime minister met his centre-left New Zealand counterpart Jacinda Ardern for the first time Sunday in Sydney. Pressure to resettle refugees increased after the Australian centre on PNG’s Manus Island was shut Tuesday after the nation’s Supreme Court ruled it unconstitutional.

About 600 detainees are refusing to leave citing safety fears if they move to transition centres where locals are reportedly hostile. But conditions in the camp are deteriorating with limited food and water and electricity cut off, with the United Nations warning of a humanitarian emergency. Under its tough immigration policy, Canberra sends asylum seekers who try to reach Australia by boat to two camps, in Manus and Nauru, and they are barred from resettling in Australia. Australia has struggled to move the refugees to third countries such as Cambodia or PNG. “The offer is very genuine and remains on the table,” Ardern told reporters after meeting Turnbull. But the Australian leader replied that while he appreciated the offer – first made by Wellington in 2013 – “we are not taking it up at this time”.

Read more …

May 092016
 
 May 9, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , , ,  


DPC Broad Street lunch carts, New York 1906

Iron Ore in Free Fall (BBG)
Dollar Jump Catches Traders Short in One More Currency Calamity (BBG)
China Stocks Plunge Again As Hopes For Economic Recovery Fade (R.)
China Continues to Prop Up Ailing Factories, Adding to Global Glut (WSJ)
Government Policies Make China Prone To Asset Bubbles (Balding)
Even China’s Party Mouthpiece Is Warning About Debt (BBG)
Saudi Aramco Plans London Listing But Doubts Grow On $2.5 Trillion Claim (AEP)
Oil Discoveries Slump To 60-Year Low (FT)
Negative Rates Hit Global Shipping Market (BBG)
Draghi, Schäuble And The High Cost Of Germany’s Savings Culture (Münchau)
The Folly Of German Economic Policy (Coppola)
Turkey Economic A-Team Down to Last Man as Erdogan Exerts Power (BBG)
UK’s Nationwide Raises Home Loan Age Limit To 85 Years (BBC)
The End of American Meritocracy (Luce)
Panama Papers Allege New Zealand Prime Place For Rich To Hide Money (R.)
Greek Lawmakers Pass Painful Reforms To Attain Fiscal Targets (R.)
Greece Keeps Wary Eye On Turkey Border Violations (Kath.)

Well that’s a surprise….

Iron Ore in Free Fall (BBG)

Iron ore’s in free fall. Futures in Asia plummeted after port stockpiles in China expanded to the highest in more than a year following moves by local authorities to quell speculation in raw-material futures. The SGX AsiaClear contract for June settlement tumbled 9.1% to $50.50 a metric ton at 1:24 p.m. in Singapore, while futures in Dalian sank 7.1%, retreating alongside contracts for steel and coking coal. The benchmark Metal Bulletin price for 62% content spot ore in Qingdao plunged 12% last week for the worst loss since 2011. Iron ore is falling back to Earth after an unprecedented wave of speculation in China, triggered by signs the economy was stabilizing, helped to hoist benchmark prices to the highest in 15 months.

The jump prompted regulatory authorities and exchanges to team up to quell the excesses, while banks including Brazil’s Itau Unibanco warned the price gains weren’t justified in an oversupplied market. Data on Friday showed port holdings have expanded to almost 100 million tons. [..] Inventories held at ports across China increased 1.4% to 99.85 million tons last week to the highest since March 2015, according to data from Shanghai Steelhome Information. The holdings have expanded 7.3% this year after rising for five of the past six weeks.

Read more …

Really, that was a surpsie too?

Dollar Jump Catches Traders Short in One More Currency Calamity (BBG)

Just when investors thought they’d finally made a good call in the currency market, the dollar’s advance messed it up. The U.S. currency on Friday capped its best week all year versus major peers, shortly after hedge funds finally switched to betting on dollar declines, known as going short. That’s not the only wrong move foreign-exchange managers have made this year – an index tracking their returns shows they’ve failed to turn a profit in 2016. Many of the assumptions traders made at the start of the year turned out to be misguided. Anticipated Federal Reserve interest-rate increases have failed to materialize, creating less policy divergence between the U.S. and its counterparts. And though investors were right to speculate the pound would tumble in the run-up to next month’s EU referendum, it’s recovered since.

“It’s been a very challenging year in the currency market given the lack of solid fundamental themes and the difficulties for some market-consensus trades which haven’t worked,” said Chris Chapman at Manulife Asset Management. “A lot of people were expecting a lower euro, lower yen and higher dollar, but the market moves have so far been against those expectations.” The lack of profit comes at a difficult time for the foreign-exchange market. Banks including Morgan Stanley, Barclays and Societe Generale have cut traders from their currency desks as they grapple with a 20% drop in volumes in the past 18 months amid increasing automation. And it’s not just currency trading that’s suffering: global stocks are headed for a second straight year of losses, following a rout in January and February that wiped out as much as $9 trillion.

Read more …

Yeah, sure, a recovery bought with debt. We do it all the time.

China Stocks Plunge Again As Hopes For Economic Recovery Fade (R.)

China stocks fell sharply again on Monday, reaching eight-month lows, as investors saw hopes for a strong economic recovery fade and worried about fresh regulatory curbs on speculation. Following the market’s nearly 3% slump on Friday, China’s blue-chip CSI300 fell 2.1%, to 3,065.62, while the Shanghai Composite lost 2.8%, to 2,832.11 points. China April trade data, released on Sunday, doused investor hopes of a sustainable economic recovery, with both exports and imports falling more than expected. Recovery hopes were further dimmed by an article on Monday in the People’s Daily, the Communist Party’s mouthpiece.

It cited an “authoritative source” saying China’s economic trend will be “L-shaped”, rather than “U-shaped”, and definitely not “V-shaped”, but the government will not use excessive investment or rapid credit expansion to stimulate growth. Shares fell across the board, but selling concentrated in relatively expensive small caps amid fears of fresh regulatory crackdown on speculation. China’s securities regulator said on Friday that the valuation gap between the domestic and overseas market and speculation on “shell” companies – firms used for backdoor listings – merited attention. An index tracking raw material shares tumbled nearly 5% as China’s commodity prices continued to fall amid a government crackdown on speculative trading.

Read more …

Where do they store all the stuff?

China Continues to Prop Up Ailing Factories, Adding to Global Glut (WSJ)

China is doubling down on efforts to keep unprofitable factories afloat despite for years pledging to curb excess capacity, adding to a glut of basic materials flooding the global economy. The country’s overproduction of steel, aluminum, diesel and other industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere. China’s continuing aid for unneeded factories is triggering a sharp rise in trade disputes and protectionist sentiment, especially in the U.S., where trade has emerged as one of the pivotal issues in the U.S. presidential election. According to a Wall Street Journal analysis of Chinese public companies, Chinese government support includes billions of dollars in cash assistance, subsidized electricity and other benefits to companies.

Recipients include steelmakers, coal miners, solar-panel manufacturers, and other producers of other goods including copper and chemicals. One beneficiary, Aluminum Corp. of China, or Chalco, said in October one of its units would shut down a roughly 500,000-ton-per-year smelter in the far-western Gansu region as it struggled to make profits. Executives prepped for thousands of layoffs. Then Gansu officials slashed the plant’s electricity bill by 30%, employees say, and the factory was saved. Although a portion of capacity was taken offline, most is operational. “We’re in full production now with 380,000 tons of capacity,” said Fei Zhongchang, a company sales manager.

In Europe, workers have joined protests against Chinese steel imports. Australia has investigated dumping of products including solar panels and steel and India has raised import taxes on steel after a surge of cheap Chinese goods. The U.S. launched seven new investigations into alleged dumping or government subsidies involving Chinese goods in the first three months of this year, more than the same period of any other year dating back to at least 2003, government data show. Earlier this year, the U.S. Commerce Department slapped preliminary import duties of 266% on imported Chinese cold-rolled steel. The decision came after U.S. Steel lost $1.5 billion last year, closed its last blast furnace in the South and laid off thousands of workers, blaming China.

Late last month , U.S. Steel filed a trade complaint against China at the International Trade Commission, alleging price fixing, trans-shipment via third countries to avoid duties and cyber-espionage to loot technology off U.S. Steel computers. China’s Commerce Ministry has urged U.S. authorities to reject the complaint, and said allegations of intellectual property infringement “are completely without factual basis.” China says it isn’t guilty of dumping—or selling a product at a loss in order to gain market share—and calls U.S. and EU measures and investigations forms of protectionism. It says it has mothballed factories and intends to cut more, with plans to lay off up to 1.8 million steel and coal workers.

Read more …

Goodness, Gracious, Great Ball of Money.

Government Policies Make China Prone To Asset Bubbles (Balding)

Chinese markets have rarely looked more like Vegas casinos. In recent weeks, investors have driven up trading volumes in China to astronomical levels, betting on everything from rebar to eggs. China traded enough steel in one day last month to build 178,082 Eiffel Towers and enough cotton to make at least one pair of jeans for every person on the planet. These commodity markets aren’t gyrating purely because Chinese are inveterate gamblers. Government policies have made China especially prone to asset bubbles. Even as some of those bubbles are carefully deflated, new ones are sure to emerge unless the policies themselves change. The issue is surplus liquidity – what’s been described as China’s “great ball of money,” which bounces from asset class to asset class as if in a pinball machine.

Even Chinese leaders acknowledge it was their effort to fend off the 2009 global financial crisis that allowed that pile of money to grow to epic proportions. By now, credit and money growth has far outstripped any good opportunities for investment in China’s real economy, which is hobbled by excess capacity. And the mismatch is getting worse: Total social financing, China’s broadest measure of lending, grew nearly four times as fast as nominal GDP last year. Money doesn’t sit still; all this increased liquidity is flooding into real estate and financial assets. Last summer, that led to the boom-and-bust of the Shanghai stock market. Now it’s driving up property prices in top cities – Shenzhen real estate is up more than 50% in the past year – to levels higher than in any U.S. metropolis other than New York. Yet rather than retreating, the government is doubling down on its strategy.

In January, soon after drafting a new five-year plan that focused in part on the need to shrink industries such as steel and coal, the government eased credit yet again, boosting loan growth by 67% in January and 43% through the first quarter. The money was meant to – and did – buy an uptick in GDP growth. But it’s also gone into new loans to zombie companies as well as speculation in the commodity and bond markets. Officials have also maintained their firm grip on the economy, thus encouraging investors to focus on government statements, rather than economic fundamentals, when deciding where to put their money. Prior to the stock market peak in July 2015, top leaders were actively talking up the virtues of equities and boasting of how high the Shanghai index could go. More recently, they’ve extolled the virtues of home ownership and lowered down-payment requirements for some homebuyers.

Read more …

Same function as US two-party mouthpieces.

Even China’s Party Mouthpiece Is Warning About Debt (BBG)

China’s leading Communist Party mouthpiece acknowledged the risks of a build-up of debt that is worrying the world and said the nation needed to face up to its nonperforming loans. High leverage is the “original sin” that leads to risks in the foreign-exchange market, stocks, bonds, real estate and bank credit, the People’s Daily said in a full-page interview with an unnamed “authoritative person” starting on page one and filling the second page on Monday. China should put deleveraging ahead of short-term growth and drop the “fantasy” of stimulating the economy through monetary easing, the person was cited as saying. The nation needs to be proactive in dealing with rising bad loans, rather than delaying or hiding them, the report said.

“Overall, the report suggests to us that future policy easing may be more cautious and that the government may try to hasten the pace of reform,” said Zhao Yang at Nomura in Hong Kong. Similar commentaries have had a “large impact” in the past, the analyst said in a note. The pace of China’s accumulation of debt and dwindling economic returns on each unit of credit have fueled concern that the nation is set for either a financial crisis or a Japanese-style growth slump. The Bank for International Settlements warned late last year of an increased risk of a banking crisis in China in coming years. Brokerage CLSA was the latest to sound an alarm, saying on Friday that the nation’s true level of nonperforming loans may be at least nine times higher than the official numbers, suggesting potential losses of at least $1 trillion.

“A tree cannot grow up to the sky – high leverage will definitely lead to high risks,” the person was cited as saying. “Any mishandling will lead to systemic financial risks, negative economic growth, or even have households’ savings evaporate. That’s deadly.”

Read more …

The value of reserves expressed in dollars. Not pretty: “..any purchase of Aramco is an option play on a future oil boom.”

Saudi Aramco Plans London Listing But Doubts Grow On $2.5 Trillion Claim (AEP)

Saudi Arabia is planning a three-way foreign listing in London, Hong Kong, and New York for the record-smashing privatisation of its $2.5 trillion oil giant Aramco, anchored on a triad of interlocking ties with three foreign energy companies. The Saudi authorities hope to entice ExxonMobil, China’s Sinopec, and potentially BP, into taking strategic stakes, offering them long-term access to upstream operations in return for cutting-edge technology or refinery deals, according to sources close to Saudi thinking. The moves come amid a profound shake-up of the kingdom’s energy strategy, with the dismissal of veteran oil minister Ali al-Naimi over the weekend. Aramco chief Khalid al-Falih will take over, though there may not be immediate changes to Opec policy.

The Aramco sale is planned as soon as 2017 or 2018 and would in theory be five times larger than any IPO in history, a huge prize for the London Stock Exchange. Shares will be listed in Riyadh but the internal Saudi market is too small to absorb such a colossus, responsible for a ninth of global oil supply. Prince Mohammad bin Salman, Saudi Arabia’s deputy crown prince and de facto ruler, says Aramco will sell 5pc of its equity, valuing the shares at $100bn to $150bn. The vast IPO is the spearhead of his “2030 Vision” to break the country’s “addiction” to oil and diversify, using the proceeds for an investment spree covering everything from car plants to weapons production, petrochemicals, and tourism. “We will not allow our country ever to be at the mercy of commodity price volatility,” he says.

The 31-year-old prince aims to clear away a clutter of subsidies, pushing through a Thatcherite shake-up of what still remains a medieval economic structure. The plans draw on a McKinsey report, “Beyond Oil”, which warned that the kingdom is heading for bankruptcy if it fails to grasp the nettle. London’s hopes for the IPO may have increased with the election of Sadiq Khan as London’s first Muslim mayor, extensively covered in the Saudi media. It underscores Britain’s tolerant outlook at a time when attitudes are hardening in the US. While the Saudis are shocked by the anti-Muslim rhetoric of Donald Trump, they are more disturbed by legislation in Congress that would let survivors of the 9/11 terrorist attacks file lawsuits for damages against Saudi Arabia. Mr Al Falih told the Economist that an Aramco listing in New York would open the country to “frivolous lawsuits”, a hint that the Saudis may eschew the city altogether and concentrate on London and Hong Kong.

[..] Aramco funds the Saudi state, paying for a sprawling bureaucracy and a cradle-to-grave welfare system that keeps a lid on dissent. It also funds the prince’s military ambitions and a war in Yemen. Saudi defence spending was the world’s third highest last year. Robin Mills from Qamar Energy said the market value of Aramco is probably just $250bn to $400bn, given that the state creams off a royalty rate of 20pc and tax of 85pc. Saudi officials insist that a fair deal could be found for shareholder dividends, even though the Saudi constitution stipulates that Aramco’s 260bn barrels of estimated reserves belong to the kingdom. In a sense, any purchase of Aramco is an option play on a future oil boom. At current prices there would be no money for dividends: the Saudi state is consuming all the revenue, and burning through more than $100bn a year in foreign exchange.

Read more …

No, there will be no supply shortfall in 2035. Economic reality will make sure of that. In 20 years, the world will be a whole different place.

Oil Discoveries Slump To 60-Year Low (FT)

Discoveries of new oil reserves have dropped to their lowest level for more than 60 years, pointing to potential supply shortages in the next decade. Oil explorers found 2.8bn barrels of crude and related liquids last year, according to IHS, a consultancy. This is the lowest annual volume recorded since 1954, reflecting a slowdown in exploration activity as hard-pressed oil companies seek to conserve cash. Most of the new reserves that have been found are offshore in deep water, where oilfields take an of average seven years to bring into production, so the declining rate of exploration success points to reduced supplies from the mid-2020s. The dwindling rate of discoveries does not mean that the world is running out of oil; in recent years most of the increase in global production has come from existing fields, not new finds, according to Wood Mackenzie.

But if the rate of oil discoveries does not improve, it will create a shortfall in global supplies of about 4.5m barrels per day by 2035, Wood Mackenzie said. That could mean higher oil prices, and make the world more reliant on onshore oilfields where the resource base is already known, such as US shale. Paal Kibsgaard, chief executive of Schlumberger, the world’s largest oil services company, told analysts last month: “The magnitude of the E&P [exploration and production] investment cuts are now so severe that it can only accelerate production decline and the consequent upward movement in [the] oil price.” The slump in oil and gas prices since the summer of 2014 has forced deep cuts in spending across the industry. Exploration has been particularly vulnerable because it does not offer a short-term pay-off.

ConocoPhillips is giving up offshore exploration altogether, and Chevron and other companies are cutting back sharply. The industry’s spending on exploring and appraising new reserves will fall from $95bn in 2014 to an expected $41bn this year, and is likely to drop again next year, according to Wood Mackenzie. There also has been a predominance of gas, rather than oil, in recent finds. In spite of the decline in activity, the total combined volume of oil and gas discovered last year rose slightly, but the proportion of oil dropped from about 35% in 2014 to about 23% in 2015.

Read more …

Think anyone recognizes the demise of world trade yet? Or is the bias still too strong?

Negative Rates Hit Global Shipping Market (BBG)

The owner of the world’s biggest shipping line says negative interest rates are hurting the industry by delaying the consolidation wave so badly needed. The monetary policy environment “means that consolidation will be much slower because it’s easy for banks to keep weak shipping companies above water,” Nils Smedegaard Andersen, CEO of A.P. Moeller-Maersk, said in an interview. It’s the latest example of how negative interest rates are distorting markets and potentially even slowing growth. The policy has so far had limited success in reviving inflation while money managers in countries with negative rates are warning of the risk of asset price bubbles. With the unintended consequences potentially including a slower global shipping recovery, questions as to the policy’s efficacy are bound to persist.

“Politicians aren’t making the reforms that are needed and are leaving it to the monetary policy makers to solve the economic problems that many countries face with low competitiveness and low investment levels,” Andersen said. A reliance on cheap finance in container shipping has led to “many negative effects,” he said. The shipping industry doesn’t have the buffers to deal with more hurdles. Container lines are “staring at a terrible 2016,” with a slowdown in global trade volumes, low freight rates and overcapacity, Drewry Maritime Equity Research said in a report last month. It estimates the industry will lose $6 billion this year. Hanjin Shipping, South Korea’s biggest container carrier and the world’s no. 8, is in the middle of a debt restructuring. Its banks on Wednesday agreed on the terms on condition that all creditors, including corporate bond holders, join the plan.

Hanjin shares have slumped 41% this year, compared with a 0.8% gain for the benchmark Kospi index. Maersk surged 6.4% as of the close of trading Wednesday in Copenhagen, bringing the stock to a 3.1% gain this year. Thursday and Friday were holidays in Denmark. Global shipping lines are increasingly forming alliances to help cut costs and underpin freight rates. Last month, CMA CGM SA and three other major lines signed a preliminary agreement to form a new group called Ocean Alliance, which could become the second biggest after Maersk Line’s partnership with Mediterranean Shipping Co. “We’re satisfied with our current position within our alliance,” Andersen said. “But if a container line were to come up for sale – with the right profile and also at the right price – we would consider it. We are, after all, businessmen.”

Read more …

Germany stands accused of the causing euro crisis. Something tells me Schäuble doesn’t agree.

Draghi, Schäuble And The High Cost Of Germany’s Savings Culture (Münchau)

Right now the biggest problem for Mario Draghi is not Greece. It is Germany. Last week the president of the European Central Bank hit back at Berlin’s criticism of his loose interest rate policies by pointing out that Germany’s persistent current account surplus is one of the main causes. The furious reaction he faced says much about the faultlines in Europe’s economic debate. Low interest rates and Germany’s current account surplus are the poisonous twins of the eurozone economy. The surplus caused low rates, as Mr Draghi rightly says. But it is also true that low interest rates have increased the German current account surplus through the devaluation of the euro in the past year. A cheaper currency makes German goods and services more competitive outside the eurozone. The more pertinent of the two interpretations is Mr Draghi’s.

By insisting on austerity during the eurozone crisis, and failing to raise investment spending at home, Berlin was instrumental in depressing aggregate demand at home and in the eurozone at large. The eurozone’s long depression caused a fall in inflation below the target rate of just under 2%. The ECB response has been to cut short-term rates to negative levels and buy financial assets. If German fiscal policy had been neutral during that period, the ECB’s job would have been easier. It would have been able to achieve its inflation target and would not have had to cut rates by as much. Berlin views the current account surplus simply as a reflection of Germany’s superior competitiveness. This is an economically illiterate view – or rather it deliberately deflects from the real problem.

If Germany had its own currency and a floating exchange rate, the current account imbalance would have mostly disappeared. Even in a monetary union, a large imbalance would not matter if the union was politically integrated and had a common fiscal policy. But imbalances matter in the monetary union we have, one without redistribution and reinsurance systems. It is no coincidence Germany rejects these redistribution mechanisms. This is how it maximises its current account surplus. It constitutes an implicit policy goal. In the long run, I cannot see how this is in Germany’s interests. Wolfgang Schäuble, finance minister, was right to say that low rates are driving voters to Alternative for Germany, an anti-euro and anti-immigrant party. Only it was not the ECB’s fault.

Read more …

There’s just one way out of this, because Germany won’t change policy: Greece, Italy et al must leave the euro.

The Folly Of German Economic Policy (Coppola)

In his latest blogpost, the economist Michael Pettis is severely critical of European economic policies, especially those of Germany, saying that they are “among the most irresponsible in modern history”. He is not alone. Wolfgang Munchau, writing in the FT, lays the blame for the Eurozone’s protracted depression firmly at Berlin’s door: “[..]Berlin was instrumental in depressing aggregate demand at home and in the eurozone at large. [..] If German fiscal policy had been neutral [..] the ECB’s job would have been easier. It would have been able to achieve its inflation target and would not have had to cut rates by as much.”

Unsurprisingly, Berlin does not agree. For German finance minister Wolfgang Schaueble, German economic policy is a model that other countries should adopt. Even the enormous current account surplus is a sign of Germany’s production strength and export competitiveness. It is to be celebrated, not criticized. However, Berlin’s view is not shared by some Eurozone policymakers. In a recent speech to German policymakers, ECB chief Mario Draghi observed that low rates of return are due to an imbalance between saving and investment:

“The forces at play are fairly intuitive: if there is an excess of saving, then savers are competing with each other to find somebody willing to borrow their funds. That will drive interest rates lower. At the same time, if the economic return on investment has fallen, for instance due to lower productivity growth, then entrepreneurs will only be willing to borrow at commensurately lower rates. On both counts, it is structural factors that have lowered the real return on investment. And since we operate in a global capital market, this has exerted downward pressure on returns on savings everywhere.”

And Germany’s current account surplus is a significant contributory factor to low interest rates: “The role of Asian economies in this story has been well-documented, for instance in the “global savings glut” thesis. But today the euro area is also a protagonist. We have a current account surplus over 3% of GDP, and our largest economy, Germany, has had a surplus above 5% of GDP for almost a decade.” The gap between Germany’s domestic saving and investment can be clearly seen on this chart from the IMF . The chart only goes to 2012, but the gap has if anything widened since. Currently, it stands at about 8% of GDP:

Read more …

Luckily, he’s our best friend…

Turkey Economic A-Team Down to Last Man as Erdogan Exerts Power (BBG)

Turkish Deputy Prime Minister Mehmet Simsek is the last man standing from the team feted by investors as the driving force behind the nation’s rapid growth years. One-by-one, President Recep Tayyip Erdogan is removing the AK Party policy makers whose focus on balancing budgets, taming inflation and fiscal stability led to average growth of 5% over 13 years to 2015. His handpicked prime minister, Ahmet Davutoglu, decided to step down on Thursday, ending a power struggle over management of the economy and Erdogan’s efforts to add executive power to his traditionally ceremonial office. Like Davutoglu, former Merrill Lynch strategist Simsek has defended the kind of orthodox monetary policy that so riles Erdogan, specifically the use of high interest rates to curb inflation.

Erdogan argues that lower borrowing costs and subsequent faster growth would more effectively slow price gains, and with Davutoglu gone, there may be little to insulate Simsek from pressure to fall into line. That may spell the end to an unspoken truce between Erdogan and investors, who tolerated his quest for more power as long as people trusted by markets like Simsek ran the economy. “There would be no AK Party economic miracle without this team of capable technocrats,” said Tim Ash at Nomura in London. “The concern now is that without these individuals, and with a coterie of untested economic policy advisers around Erdogan, Turkey will be very vulnerable to market pressure.”

Read more …

Perverse incentives.“Why pay off the mortgage at at all?” ” [..] why worry about paying it off when you are alive?”

UK’s Nationwide Raises Home Loan Age Limit To 85 Years (BBC)

Nationwide is raising its age limit for people paying off mortgages by 10 years to 85, in the latest sign of the impact of rising house prices on buyers. The building society said the increase was due to “growing demand”, and the limit would be in force from July. It means a 60-year-old could take out a 25-year mortgage as long as they prove they can afford the repayments. The move comes as Halifax increases its age limit for mortgages from 75 to 80 from Monday. There have been calls for the industry to do more to help older buyers after tougher mortgage checks, introduced in the wake of the financial crisis, have made it harder for middle-aged people to get a home loan. Rising house prices have exacerbated the issue, with many people not able to afford to buy their first home until they are in their thirties or forties.

Nationwide said the new age limit would apply to existing customers for all its standard mortgages, but the maximum loan size would be £150,000, and could be no greater than 60% of the property value. “Access to the mainstream market has been a challenge for older customers, resulting in their needs going unfulfilled. This measure helps to address these needs in a prudent, controlled manner,” said Nationwide head of mortgages Henry Jordan. Tom McPhail, head of pensions research at Hargreaves Lansdown, told the BBC the change could shake up the mortgage market. “Why pay off the mortgage at at all?” he said on Radio 5 Live. “As long as the value of the property is there to meet the liability in the future, why worry about paying it off when you are alive?” he added.

Read more …

“.. two sides of a debased coin.”

The End of American Meritocracy (Luce)

What is in a word? When it is packed with as much moral zeal as “meritocracy”, the answer is a lot. A meritocrat owes his success to effort and talent. Luck has nothing to do with it — or so he tells himself. He shares his view with everyone else, including those too slow or indolent to follow his example. Things only go wrong when the others dispute it. Now magnify that to a nation of 320m people — one that prides itself on being a meritocracy. Imagine that between a half and two-thirds of its people, depending on how the question is framed, disagree. They believe the system’s divisions are self-perpetuating. They used not to think that way. Imagine, also, that the meritocrats are too enamoured of their just rewards to see it. The fact that they are split — one group calling itself Democratic, the other Republican — is detail.

They are two sides of a debased coin. Sooner or later something will give. An exaggeration? Financial Times readers might be inclined to think so. The fact that Donald Trump has completed a hostile takeover of one of those groups — the Republicans — is a shock to everyone, including, I suspect, the property billionaire himself. The rest should not be a surprise. Since the late 1960s both parties, in different ways, have turned a blind eye to the economic interests of the middle class. In 1972 the McGovern-Fraser Commission revamped the Democratic party’s rules for selecting its nominee after the disastrous 1968 convention in Chicago. The overhaul changed the party’s course. It included obligatory seats for women, ethnic minorities and young people — but left out working males altogether.

“We aren’t going to let these Camelot Harvard-Berkeley types take over our party,” said the head of the AFL-CIO, the largest American union federation. That is precisely what happened. Democrats cemented the shift from a class-based party to an ethnic coalition by enshrining affirmative action for non-whites. Getting a leg up to university, the ultimate meritocratic vehicle, was based on your skin colour rather than your economic situation. Unsurprisingly, swaths of the white middle class turned Republican. Forty years on, many Democrats, not least Bernie Sanders’ supporters, are suffering buyer’s remorse. Before he became president, Barack Obama argued it would be fairer to base affirmative action on income not colour. “My daughters should probably be treated by any admissions officer as folks who are pretty advantaged,” he said.

Last week it was announced that Malia Obama had been accepted into Harvard, her father’s alma mater. About a third of legacy applicants, those whose parent attended, are accepted into Harvard. No one suggests she is not deserving of her place. However, there are plenty of lower-income black and white children who do not benefit from the advantages Malia Obama or Chelsea Clinton (Stanford and Oxford) had from birth.

Read more …

Would this surpsrise anyone?

Panama Papers Allege New Zealand Prime Place For Rich To Hide Money (R.)

New Zealand is at the heart of a tangled web of shelf companies and trusts that are being used by wealthy Latin Americans to channel funds around the world, according to a report on Monday based on leaks of the so-called Panama Papers. Local media has analyzed more than 61,000 documents relating to New Zealand that are part of the massive leak of offshore data from Mossack Fonseca, a Panama-based law firm. The papers have shone spotlight on how the world’s rich take advantage of offshore tax regimes. Mossack Fonseca ramped up its interest in using New Zealand as one of its new jurisdictions in 2013, actively promoting the South Pacific nation as a good place to do business due to its tax-free status, high levels of confidentiality and legal security, according to a joint report by Radio New Zealand, TVNZ and investigative journalist Nicky Hager.

Mossack Fonseca’s main contact in New Zealand was allegedly Robert Thompson, co-founder and director of accountant firm Bentleys New Zealand, the registered office of Mossack Fonseca New Zealand, according to the report. Thompson was listed in more than 4,500 Panama paper documents, the report said. Thompson said in his experience, the use of trusts for tax evasion was not common and his firm did not assist people to illegally hide assets. “I think the assumption that all New Zealand foreign trusts are being used for illegitimate purposes is unfounded and based largely on ignorance,” Thompson was quoted as saying by Radio New Zealand. [..] Prime Minister John Key dismissed concerns that international tax avoidance was rife in New Zealand. “New Zealand is barely ever mentioned, it’s a footnote,” Key told TVNZ in reference to the Panama Papers.

Read more …

There’s no way protests are not going to intensify going forward. Is Tsipras is ousted, you just watch.

Greek Lawmakers Pass Painful Reforms To Attain Fiscal Targets (R.)

Greece’s parliament on early Monday passed a package of unpopular pension and tax reforms that the country’s leftist-led government hopes will persuade official creditors to unlock bailout cash. The measures aim to ensure Greece will attain savings to meet an agreed 3.5% budget surplus target before interest payments in 2018, helping it to regain bond market access and render its debt load sustainable. The vote was a test of the ruling coalition’s cohesion, given its wafer-thin majority of three lawmakers in the 300-seat parliament. All of the coalition’s 153 lawmakers voted in favor. Athens wants to boost tax revenues and slash pension spending to reduce the drain on the budget, hoping impressed creditors will unlock aid. But Germany and the IMF remain deadlocked over the terms of country’s bailout plan.

Prime Minister Alexis Tsipras’ government drew fire from the political opposition during the debate on grounds the pension cuts and tax hikes will prove recessionary, dealing another blow to a population fatigued by years of austerity. “Mr. Prime Minister, you promised hope and turned it into despair,” said Fofi Gennimata, leader of the opposition PASOK socialists, who see the package as the bill for Tsipras’ failed push to roll back austerity in last year’s clash with lenders which set back the economy and triggered capital controls. Tsipras’ government was re-elected in September on promises to ease the pain of austerity for the poor and protect pensions after he was forced to sign up to a new bailout in July to keep the country in the euro zone.

The package aims to generate savings equal to 3% of GDP and contemplates raising income tax for high earners and lowering tax-free thresholds. It increases a so-called ‘solidarity tax’ – which goes straight into state coffers – and introduces a national pension of €384 a month after 20 years of work, phases out a benefit for poor pensioners and recalculates pensions. Finance Minister Euclid Tsakalotos defended the reforms, saying lower pension replacement rates will affect the rich and not the poor. He heads to Brussels on Monday to face a Eurogroup meeting, seeking to conclude a key bailout review. “Our word is a contract. We have done what we promised and hence the IMF and Germany must provide a solution that is feasible, a solution for the debt that will open a clear horizon for investors,” Tsakalotos told lawmakers.

Read more …

Erdogan will make sure there’s more of this.

Greece Keeps Wary Eye On Turkey Border Violations (Kath.)

Turkey’s continuing violations of Greek air space and waters could lead to a spike in bilateral tensions or to a “serious accident,” Greek Defense Minister Panos Kammenos told Kathimerini’s Sunday edition, adding that NATO’s naval patrols in the area can strengthen the country’s position regarding Ankara’s expansionist policies. Asked about the spate of Greek air space violations and transgressions of the Athens Flight Information Region (FIR) by Turkish fighter jets in recent weeks, Kammenos denounced the trend as propaganda aimed at domestic consumption. “Greece knows there are forces [in Turkey] that want to create tension and, perhaps, cause a serious incident or an accident,” said Kammenos, who is also the leader of SYRIZA’s right-wing coalition partner, Independent Greeks.

“Greece will not be dragged into actions that might undermine its rights,” he said, adding that he had recently spoken to NATO Secretary-General Jens Stoltenberg, asking that the transatlantic alliance take action against Turkish hostility. Meanwhile, the minister rejected criticism that NATO’s Aegean mission, aimed at curbing migrant crossings, had strengthened Ankara’s hand in questioning Greece’s sovereign rights, deeming that NATO states, and more importantly those who are also EU members, now had firsthand experience of Turkish provocations. Kammenos referred to a recent incident in the Aegean whereby a Turkish torpedo boat allegedly executed maneuvers in close proximity to a Dutch frigate deployed in the NATO mission. “This dangerous incident has been recorded and included in the Dutch captain’s report to NATO,” he said.

Read more …

Apr 262016
 
 April 26, 2016  Posted by at 9:04 am Finance Tagged with: , , , , , , , , , ,  


Harris&Ewing Inauguration of air mail service, Washington, DC 1918

Japan Government Weighs Shopping Vouchers, Promotions To Boost Consumption (R.)
How Long Can the Bank of Japan Wait on Easing? (WSJ)
China Clamps Down On Commodities Frenzy (FT)
Goldman Says China’s Iron Speculation ‘Concerns Us the Most’ (BBG)
“China Is Hoarding Crude At The Fastest Pace On Record” (ZH)
China Expected To See $538 Billion Capital Exodus In 2016 (R.)
Obama Says TTiP Should Be Signed By The ‘End Of The Year’ (Ind.)
German Scorn Could Kill the TTiP (BBG)
ECB Pushes For Eurozone Deposit Protection, At Odds With Germany (R.)
The Euro’s Next Existential Crisis Might Arrive on Friday (BBG)
Saudi Prince Vows Thatcherite Revolution And Escape From Oil (AEP)
Saudi Arabia Puts Aramco Valuation Above $2 Trillion (BBG)
How America’s Rich Betrayed Their Fellow Citizens (Gaughan)
Syrian Food Crisis Deepens As War Chokes Farming (Reuters)
Merkel’s Refugee Strategy – A Brown Nose Becomes the Chancellor (Rose)
UK Government, Tories Vote Against Accepting 3,000 Child Refugees (G.)

And why not?! If Abenomics’ 4th arrow is shopping vouchers, will the 5th be spoon feeding?

Japan Government Weighs Shopping Vouchers, Promotions To Boost Consumption (R.)

Japan’s government might issue spending vouchers and promote national discount-sales events similar to Black Friday in the United States to boost its lackluster consumer spending and accelerate GDP growth. The government could decide the details as soon as next month as it finalizes the policies for its annual growth strategy, which could potentially help the Bank of Japan in its struggle to accelerate inflation. Authorities will also take steps to increase inbound tourism, raise the national minimum wage and encourage more IT investment, according to a draft approved on Monday by the government’s top advisory panel. The focus of this year’s growth strategy is meeting Prime Minister Shinzo Abe’s target of raising nominal GDP to 600 trillion yen ($5.40 trillion).

However, some economists have said sluggish growth in real wages and Japan’s shrinking workforce make it difficult to reach this target. At the end of 2015, nominal GDP was around 500 trillion yen. Consumer spending accounts for around 60% of Japan’s economy, and there is renewed focus on the household sector as consumption has struggled to gain momentum recently. There is also lingering speculation that Abe will cancel a nationwide sales tax increase scheduled for 2017 and focus more on fiscal spending to raise GDP and rebuild areas damaged by an earthquake in southern Japan earlier this month. Previously, Japan’s ruling Liberal Democratic Party has issued shopping vouchers, which economists say tends to only temporarily lift consumer spending and the broader economy.

Read more …

These people are lost because they have no idea what inflation is: “..that could considerably affect the mindset” of the public and rejuvenate inflation expectations..”

How Long Can the Bank of Japan Wait on Easing? (WSJ)

Officials and market participants agree that the Bank of Japan ought to do more to beat deflation, but they are split about whether it has to do so this week. Economic data offer plenty of reasons for easing at the central bank’s two-day meeting, which concludes Thursday. The economy is at risk of shrinking in second quarter because of big earthquakes that shook southern Japan recently. Inflation—including energy—is stuck near zero, while inflation expectations are by some measures the weakest in three years. Wage growth has slowed and the yen has strengthened. All of that runs counter to Bank of Japan Gov. Haruhiko Kuroda’s three-year-old campaign to deliver 2% inflation and put Japan on a steady growth path.

His latest gambit, a Jan. 29 decision to introduce negative interest rates on some commercial bank deposits at the central bank, hasn’t delivered results so far. Officials recognize the challenge. At least five of the BOJ’s nine policy-setting board members think that at the coming meeting, the bank should push back its forecast date for achieving its 2% inflation target, according to people close to the bank. The current forecast calls for 2% to be reached between April 2017 and September 2017. The target date has already been pushed back three times in the past year. “Risks to prices remain skewed to the downside,” one of the people said. The yen remains 8% higher than in late January, despite a modest pullback over the past week. That spells trouble for exporters that are already struggling with a global economic slowdown.

It also saps inflation by making imports cheaper. In an interview earlier this month with The Wall Street Journal, Mr. Kuroda said about the yen: “If excessive appreciation continues, that could affect not just actual inflation but even the trend in inflation.” Private economists’ expectations for additional easing are the strongest in months. “We expect aggressive easing from the BOJ this week,” said Morgan Stanley MUFG Securities chief Japan economist Robert Feldman. Among other steps, Mr. Feldman believes the BOJ will cut its rate on excess commercial-bank deposits to at least minus 0.2% and perhaps to minus 0.3% from minus 0.1%. Others question that timing. Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe, suggested this week in an interview that he wanted the BOJ to hold fire for now.

That is partly because global financial market turbulence has subsided, and partly because Mr. Honda hopes further BOJ easing could come as part of a coordinated action. Mr. Abe is looking into expanded government spending later this year and a possible delay in a sales-tax increase set to take effect in April 2017. “I know it’s hard to implement all three at the same time, but if we could do so with a relatively close timing…that could considerably affect the mindset” of the public and rejuvenate inflation expectations, Mr. Honda said. He said the prime minister’s Abenomics policy was in a “new phase” in which monetary policy alone was no longer sufficient to affect expectations.

Read more …

It would be bad enough if it were ‘only’ commodities. But the actual scariest part is this: “Almost half of the world’s most active commodity derivatives are now traded on Chinese exchanges.”

China Clamps Down On Commodities Frenzy (FT)

China moved to clamp down on excessive speculation in commodities on Monday after weeks of frenzied trading boosted prices and ignited fears of another bubble in its domestic markets. Activity on China’s largest commodity exchanges has surged in recent days with turnover in key steel contracts exceeding the combined volume of the Shanghai and Shenzhen stock exchanges on one day last week. Investors around the world have zeroed in on the latest trading binge as the prices of many commodities have risen sharply, with iron ore gaining almost a third in just two weeks. Cash has started to flow into raw materials in part because Chinese officials imposed curbs on equities trading last year. “China’s latest speculative spike has stunned global markets,” said Tom Price, a Morgan Stanley analyst.

Shanghai steel futures have risen more than 50% this year and more than a fifth this month. Iron ore traded on the Dalian Commodity Exchange hit its highest level since September 2014 last week. The surge led the country’s largest commodity trading venues — the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodities Exchange — to curb activity by lifting transaction costs, margins and daily trading limits on some contracts. Pricing power for the world’s most important raw materials has shifted east during a decade of economic growth that has transformed China into the largest importer of almost every major commodity. Almost half of the world’s most active commodity derivatives are now traded on Chinese exchanges.

Analysts said the trigger for increased speculative interest in commodities was a credit surge engineered by Chinese policymakers this year to prop up the economy and its currency. This led to a pick-up in construction activity and stoked investor appetite for ways to bet on the Chinese economy. Beijing imposed draconian rules on equities last year as fears of a slowing economy triggered a sell-off that threatened stability. “The Chinese speculative community seems to have decided the big credit figures that came out two weeks ago were a green light to get levered up,” Michael Coleman, co-founder of RCMA Asset Management in Singapore, “They don’t want to buy the stock market because of all the curbs that are in place and seem to have taken the view that commodities are really cheap.”

Read more …

“There have been two days in the past month where futures volumes have been greater than the total amount of iron ore that China actually imported for the whole of 2015..”

Goldman Says China’s Iron Speculation ‘Concerns Us the Most’ (BBG)

Goldman Sachs has expressed its concern about the surge in speculative trading in iron ore futures in China, saying that daily volumes are now so large that they sometimes exceed annual imports. The increase in futures trading in the world’s largest importer was among factors that have lifted prices, according to a report from analysts Matthew Ross and Jie Ma received on Tuesday. Iron ore volumes traded on the Dalian Commodity Exchange are up more than 400% from a year ago, they said. “While increased fixed-asset investment in China, a bring-forward of steel production (ahead of a government curtailment) and mining disruptions help to explain the strong rally in the iron ore price, the one driver that concerns us the most is the increased speculation in the Chinese iron ore futures market,” they wrote.

Iron ore has rallied in 2016, buttressed by the explosion in speculative trading in China’s commodity futures markets as mills boosted monthly output to a record. The spike in raw materials trading in China has stunned global markets, according to Morgan Stanley, which cited the jump in local activity in iron ore as well as steel. The increase has prompted exchange authorities in Asia’s top economy including Dalian to tighten rules on the trading of some contracts. “There have been two days in the past month where futures volumes have been greater than the total amount of iron ore that China actually imported for the whole of 2015 (950 million tons),” the Goldman analysts wrote. To slow trading activity, the Dalian exchange has announced it would be increasing margin requirements and transaction costs on iron ore futures, they said.

Read more …

How much capital flees the country in these deals?

“China Is Hoarding Crude At The Fastest Pace On Record” (ZH)

In the aftermath of China’s gargantuan, record new loan injection in Q1, which saw a whopping $1 trillion in new bank and shadow loans created in the first three months of the year, many were wondering where much of this newly created cash was ending up. We now know where most of it went: soaring imports of crude oil. We know this because as the chart below shows, Chinese crude imports via Qingdao port in Shandong province surged to record 9.86 million metric tons last month based on data from General Administration of Customs. As Energy Aspects pointed out in a report last week, “Imports through Qingdao surged to another record as teapot utilization picked up, leading to rising congestion at the Shandong ports.”

And sure enough, this kind of record surge in imports should promptly lead to another tanker “parking lot” by China’s most important port. This is precisely what happened when according to reports, some 21 crude oil tankers with ~33.6 million bbls of capacity signaled from around Qingdao last Monday, according to data compiled by Bloomberg. 12 of those vessels, with about 18 million bbls, were also there 10 days earlier, data show. As Bloomberg adds, port management had met to discuss measures to ease congestion, citing an official at Qingdao port’s general office, however for now it appears to not be doing a great job. Incidentally, putting Qingdao oil traffic in context, last year the port handled 69.9 million metric tons overseas oil shipments, or ~21% of nation’s total crude imports, more than any other Chinese port.

So what caused this surge in demand? The answer is China’s “teapot” refineries. According to Oilchem.net, the operating rate at small refineries in eastern Shandong province rose to 51.84% of capacity as of the week ended Apr. 22. The utilization rates climbed as various teapot refiners completed maintenance and restarted production. How much of a boost in oil demand did teapot refineries represent? Well, the current operating run rates is averaging 50.42% this tear compared to just 37.72% a year ago, Bloomberg calculated. Notably, this may be just the beginning of China’s. As Bloomberg adds today, China, the world’s second-biggest crude consumer, may be poised for another increase in imports after the number of supertankers bound for the Asian country’s ports rose to a 16-month high amid signs it’s stockpiling.

Read more …

How about we double that number?

China Expected To See $538 Billion Capital Exodus In 2016 (R.)

Global investors are expected to pull $538 billion out of China’s slowing economy in 2016, the Institute of International Finance (IIF) estimated on Monday, although the pace of outflows has dropped. That number would be down a fifth from the $674 billion pulled out last year, the industry association said, but could accelerate again if fears re-emerge of a “disorderly” drop in the yuan, or the renminbi, as the currency is also known. Capital exodus from China can influence emerging markets more generally, partly because of its sheer size and partly because sustained outflows can trigger more exchange rate volatility, which could then feed a fresh wave of outflows. “A sharp drop in the renminbi would likely spark a renewed sell-off of global risk assets and trigger a flight of portfolio capital from emerging markets,” the IIF said in a new report.

“Moreover, a sharp depreciation of the renminbi could lead to a round of competitive devaluation in other emerging markets, particularly in those with close trade linkages to China.” For now, though, outflows are slowing. Roughly $35 billion was pulled out in March, bringing the total since the start of the year to around $175 billion, well below the pace seen in the second half of 2015. The IIF cited progress Chinese authorities had made in easing worries about the yuan’s direction. They have emphasized there is more focus on its value against a basket of currencies, rather than just the U.S. dollar. One “important unknown”, however, is the threshold of currency reserves below which Chinese authorities would start to worry. They might then either allow the yuan to fall again or markedly tighten capital controls.

Read more …

He sees failure on the horizon. Does it matter? Reality is that it won’t be ratified before the end of his term, so it’s all up for grabs no matter what.

Obama Says TTiP Should Be Signed By The ‘End Of The Year’ (Ind.)

US President Barack Obama has said that the controversial Trans-Atlantic Trade and Investment Partnership should be signed “by the end of the year”. During a visit to an industrial trade fair in Hannover on Sunday, Obama warned that TTIP must be signed before it is derailed by political events, in what was likely a reference to the US election. “We’ve now been negotiating TTIP for three years. We have made important progress. But time is not on our side,” Obama said in the speech. “If we don’t complete negotiations this year, then upcoming political transitions – in the US and Europe – could mean this agreement won’t be finished for quite some time.” TTIP is the biggest transatlantic trade deal in history. Opponents say it would give corporations the power to sue governments when they pass regulation that could hit that corporation’s profits.

UNs figures have shown that that US companies have made billions of dollars by suing other governments nearly 130 times in the past 15 years under similar free-trade agreements. Details of the cases are often secret, but notorious precedents include Philip Morris suing Australia and Uruguay for putting health warnings on cigarette packets. Obama has described national laws and protections as “regulatory and bureaucratic irritants and blockages to trade.” In Hanover, he used a speech alongside the German Chancellor Angela Merkel to make a renewed push for the treaty to be signed. “Angela and I agree that the US and EU need to keep moving forward with the Transatlantic Trade and Investment Partnership negotiations,” he said. “I don’t anticipate that we will be able to have completed ratification of a deal by the end of the year, but I do anticipate that we can have completed the agreement.”

Read more …

The Germans have turned really antagonistic.

German Scorn Could Kill the TTiP (BBG)

In Hannover on Sunday, Barack Obama sought to convince a hostile German public of the merits of a transatlantic free-trade deal. Pitching EU membership in Britain was a walk in the park by comparison. It’s hard to overstate the level of opposition to the new deal in Germany. The Transatlantic Trade and Investment Partnership, or TTIP, is more unpopular in Germany these days than President Obama in a room full of Tory euroskeptics. Ask an American what they think about investor-state dispute settlement provisions and you are likely to get a blank face. Ask a German, and there’s a good chance you’ll get an earful. That wasn’t always the case. Two years ago, when negotiations for a new transatlantic trade deal were announced (it was Germany that pushed for an agreement then, by the way), more than half of Germans favored the deal.

A survey released last week showed only one in five Germans want it now. To Germans, TTIP reflects a capitalism that is too finance-driven, dominated by large multinationals, cavalier about privacy and not as serious about product standards. A new round of negotiations – the 13th, for anyone keeping track – started in New York Monday for a pact that would liberalize trade affecting 40% of the global economy. The key to a deal, as Obama’s Hannover visit suggested, rests with Germany. That a global exporting powerhouse and Europe’s biggest economy has become such a reluctant partner ought to be at least as worrying as the prospect of losing Britain’s voice in the EU. It’s unusual even in these highly charged times for a trade agreement to receive the kind of attention that TTIP has in parts of Europe.

But TTIP isn’t a typical free-trade agreement. For one thing, it’s much bigger than anything attempted before. It would create the world’s largest free market of some 800 million people. According to U.S. chamber of commerce estimates, it would add €119 billion to Europe’s economy and €95 billion to the U.S. economy, creating thousands of jobs in the process. But the real difference is qualitative. While tariffs are already low between the two economies (they would be reduced further under TTIP), the main thrust of the agreement is the removal of non-tariff barriers in agriculture, services, procurement and other areas. It is this large-scale regulatory liberalization that many Europeans, and principally Germans, find dangerous. Americans, too, are losing their appetite for free trade agreements, but their reasons are rather more prosaic.

Among Americans opposed to the deal, half say they are worried about job losses and lower wages. Only 17% of Germans had those concerns. Germans, instead, are focused on what they see as inferior American standards (something that will strike many Americans as ironic after the Volkswagen emission scandal), concerns about privacy and also lack of transparency in the negotiations. These sentiments took American negotiators by surprise. America is the destination of over 8% of German exports; some 600,000 German jobs directly or indirectly depend on that trade, according to a 2013 study by the Cologne Institute for Economic Research. German trust for America’s business standards has been low for a while – there was near hysteria over chlorine-washed U.S. chickens, even though a German body declared them perfectly safe – but many figured France would present bigger obstacles to clinching an agreement.

Read more …

These centralization attempts are dead in the water, and it’s hard to see what it would take to get them out of there.

ECB Pushes For Eurozone Deposit Protection, At Odds With Germany (R.)

The ECB backed plans on Monday for a common means to protect savers, setting it on course for another collision with Germany over a scheme Berlin has so far blocked. After the financial crash, the ECB took charge of bank supervision across the 19 countries in the euro zone as part of wider reforms known as ‘banking union’ to make the sector safer. A parallel plan for pan-euro zone deposit protection, however, has yet to get off the ground, chiefly due to opposition from Germany, which does not want to be on the hook for bank failures elsewhere. On Monday, the ECB appealed for the introduction of common deposit protection as set out in plans from the EU’s executive European Commission. It would eventually replace the current country-by-country patchwork and help stop a repeat of the bank runs seen during the financial crisis.

In a legal opinion to European ministers signed by its President Mario Draghi, the ECB argued that “establishing a common safety net for depositors at the European level is the logical complement” to ECB supervision. “A European Deposit Insurance Scheme is the necessary third pillar to complete the Banking Union,” the letter said. The first ‘pillar’ is banking supervision and the second is resolution, a scheme for winding banks down. The call again puts the ECB at odds with Germany, where politicians including Finance Minister Wolfgang Schaeuble have stepped up criticism of its cheap money policy. Schaeuble was even reported as blaming the ECB’s stance in part for the rise of the right-wing, anti-immigration Alternative for Germany (AfD). Although influential, the ECB’s opinion is not binding and may be ignored by the ministers. Before it becomes law, such saver protection would require approval from euro zone countries, including Germany – unlikely for now.

Read more …

“Surely Portugal can’t be a kind of simultaneously dead-and-alive-Schrodingers-cat?”

The Euro’s Next Existential Crisis Might Arrive on Friday (BBG)

The euro’s future still looks far from secure. The ECB is defending its independence amid an attack on its negative interest-rate policies by Germany. European Commission President Jean-Claude Juncker admitted last week that “the European project has lost parts of its attractiveness.” Greece is still wrangling over the terms of its next bailout payment. And at the end of this week, a geeky decision in a corner of the bond market could send the bloc back into crisis mode. A credit-rating agency called Dominion Bond Rating Service is scheduled to complete its review of Portugal’s financial fitness on Friday. Moody’s, Standard & Poor’s and Fitch all view Portugal as undeserving of investment-grade status; put another way, Portugal is deemed a risky, junk-rated borrower. DBRS, though, has maintained its country classification at investment grade.

So long as at least one of the four rating agencies judges Portugal to be worthy, its government debt remains eligible to participate in the ECB’s bond-buying program. But if the country drops to sub-investment grade at all four, the ECB’s own rules forbid it from buying any more Portuguese government securities – purchases which have ballooned to almost €15 billion in the program’s one-year lifetime. So if DBRS lowers the nation’s grade – a distinct possibility, given the weakness of the Portuguese economy and the fact that the judgments of three other assayers of creditworthiness are all worse than DBRS’s – it could trigger a renewed crisis in the euro area. The ECB’s purchases are arguably responsible for keeping Portugal’s 10-year borrowing cost at an average of a bit less than 3% in the past six months.

Compare that with Greece, which doesn’t qualify for ECB assistance and has had an average yield of almost 9% since October, and it becomes clear how valuable ECB eligibility is – and how financially damaging it might be for Portugal if it was shut out after a downgrade. Surely Portugal can’t be a kind of simultaneously dead-and-alive-Schrodingers-cat? Surely it either is or isn’t investment grade, and therefore either should or shouldn’t qualify for the ECB program? Unfortunately, rating assessments are fraught with subjectivity and bias, as the world learned to its cost during the credit crisis. Where one analyst sees a life-threatening debt-to-gross-domestic-product ratio, another may see indebtedness that’s merely troubling.

Read more …

Yeah, that’ll happen. Saudi as a tourism destination. Come watch the beheadings!

Saudi Prince Vows Thatcherite Revolution And Escape From Oil (AEP)

Saudi Arabia has launched a radical ‘Thatcherite’ shake-up to an avert economic crisis and prepare the kingdom for the post-carbon world, stunning analysts with claims that it could break reliance on oil within just four years. Prince Mohammad bin Salman, the country’s de facto ruler, vowed to build a $3 trillion wealth fund and break onto the world stage as an investment superpower, the spearhead of an historic package of measures intended to bring the deformed economy kicking and screaming into the 21st Century. “We have an addiction to oil. This is dangerous. I think that by 2020 we can live without it,” he told Al Arabiya television. It is an extraordinary claim for a government that has historically relied on oil exports for 90pc of its income and has yet to achieve much success in building alternative industries.

Gulf veterans say his words should be understood as poetic licence. Prince Mohammad, a 31 year-old tornado determined to smash the status quo, has amassed immense power over the economy and defence that belies his title as deputy crown prince, filling the cabinet with modern technocrats and startling his sinecure cousins from the Al Saud family with the unfamiliar prospect of hard work. The plan known as “Vision2030” aims to slash $80bn of wasteful spending each year and impose some degree of order on the kingdom’s chaotic finances with a consumption tax and fresh levies. Water prices have already risen tenfold as subsidies are paired back, though this prompted a protest storm on Twitter and is a warning of how hard it will be to dismantle the cradle-to-grave welfare system that keeps a lid on dissent.

Petrol has jumped 50pc, but it still costs just 16 pence a litre. Female participation in the workforce will rise from 22pc to 30pc. The share of non-oil exports is to jump from 16pc to 50pc. The country is to build its own defence industry. “We have the third or fourth-largest military spending in the world, yet our army is ranked in the twenties,” he said. “When I enter a Saudi military base, the floor is tiled with marble, and the finishing is five stars. Enter a base in the US, you can see the pipes in the ceiling. It’s made of cement. It is practical,” he said.

The reform blueprint is inspired by a McKinsey study – Beyond Oil – that laid out how the country can double GDP over the next fifteen years and reinvent itself with a $4 trillion of investment across eight industries, from electrical manufacturing, to cars, healthcare, metals, steel, aluminium smelting, solar power, and most surprisingly tourism. McKinsey warned that half-hearted reform risks disaster, and bankruptcy. There is some logic to the Vision2030 plan given Saudi Arabia’s access to cheap energy. Delivery is another matter. “We have seen these sorts of transition plans before and they never come to much,” said Patrick Dennis from Oxford Economics. “I don’t think they can pull this off. The riyal peg is grossly overvalued and that makes it even harder. We think market pressures will become overwhelming if there is little evidence of real reform by 2018.”


Saudi Arabia has one of the lowest production costs in the world


But Saudi Arabia needs $100 oil to balance the budget. That is its Achilles Heel

Read more …

Pie in the sky.

Saudi Arabia Puts Aramco Valuation Above $2 Trillion (BBG)

Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman said he expects the value of Saudi Arabian Oil Co. to exceed $2 trillion as the kingdom prepares to sell part of the company in what could be the world’s largest initial public offering. The valuation of the oil producer known as Saudi Aramco hasn’t been completed, Prince Mohammed said in an interview with Saudi-owned Al Arabiya television. The government plans to turn Aramco into a holding company and will sell less than 5% of that entity, he said. Aramco units may be offered for sale at a second stage, he said. Prince Mohammed is leading the biggest economic shakeup since the founding of Saudi Arabia in 1932, with measures that represent a radical shift for a country built on petrodollars.

Saudi Aramco’s sale is a key part of the “Saudi 2030 Vision” announced Monday to overhaul the economy and reduce the kingdom’s reliance on oil, he said. It will help increase transparency, he said. “If Saudi Aramco is listed then it must announce its statements and it will do that every quarter,” he said. “It will be under the supervision of all Saudi banks, all analysts, all Saudi thinkers. Even more all international banks and research and planning centers in the world will monitor it intensively.” Aramco’s crude reserves of about 260 billion barrels are almost 10 times those of Exxon Mobil. Its daily production of more than 10 million barrels is more than the domestic output of every U.S. oil company combined.

“In 2020, I think we will be able to live without oil,” Prince Mohammed said. “We will need it but we can live without it.” Saudi Arabia has “huge” mining assets it can use to create jobs, according to the prince. The country has 6% of global uranium reserves, which is “another oil that we have not exploited,” he said. Saudi Arabia uses only 3 to 5% of its mining resources such as gold, silver and phosphate, he said.

Read more …

“Romney defended his sons by declaring that they served their country by “helping me get elected”.

How America’s Rich Betrayed Their Fellow Citizens (Gaughan)

[..] No single location encapsulates the worldview of “old money” families better than Harvard’s Memorial church, which stands in the center of Harvard Yard. The church’s walls list the Harvard students, alumni and faculty members who have perished in America’s wars since 1917. The numbers are breathtaking. During the world wars, thousands of Harvard students and alumni served in the US military. In all, about 400 died in WWI and nearly 700 in WWII. The ranks of Harvard fatalities included Quentin Roosevelt, the youngest son of Theodore Roosevelt, and Joseph Kennedy Jr, the older brother of John F Kennedy. Harvard’s military death toll is particularly staggering when one considers that in the early 20th century, Harvard’s student body was drawn primarily from America’s richest and most well-connected families.

Those families could have pulled strings to ensure their sons stayed out of combat. But they did not, as powerfully demonstrated by the list of names at Memorial church and similar memorials across the Ivy League. During the world wars, the upper classes did their part to defend the nation. Things could not be more different today. Only a small number of Harvard alumni serve in the military, and until recently, the university barred the military’s officer training programs from campus. Harvard is not unique. Military experience is rare among America’s political and economic elite. None of the current presidential candidates has served in the military, and only 18% of members of Congress are veterans, the lowest %age in generations.

As the children of elites have opted out of military service, middle-class and working-class families have taken up the slack, providing the vast majority of the nation’s service members. Mitt Romney, an immensely wealthy Harvard graduate, revealed the cavalier attitude of the rich toward military service during the 2008 presidential campaign. As the Iraq and Afghanistan wars raged, critics pointed out that none of Romney’s five sons had served in the military. In response, Romney defended his sons by declaring that they served their country by “helping me get elected”. The fact that Romney viewed working on a relative’s political campaign as the patriotic equivalent of battlefield service revealed just how tone-deaf many in America’s upper classes have become.

The military is only one example of how disconnected wealthy Americans are from their country. The extraordinarily low rate of charitable giving among the rich offers more evidence. Even though we live in a time of entrenched income inequality, poor Americans actually give a higher%age of their income to charity than the rich do. The lack of generosity among America’s upper classes shows no signs of abating. Although the overall wealth of the upper classes is growing, levels of charitable giving continue to fall among the rich.

Read more …

No, the refugee flow will not stop.

Syrian Food Crisis Deepens As War Chokes Farming (Reuters)

Syria’s war has destroyed agricultural infrastructure and fractured the state system that provides farmers with seeds and buys their crops, deepening a humanitarian crisis in a country struggling to produce enough grain to feed its people. The country’s shortage of its main staple wheat is worsening. The area of land sown with the cereal – used to make bread – and with barley has fallen again this year, the UN Food and Agriculture Organization (FAO) told Reuters. The northeast province of Hasaka, which accounts for almost half the country’s wheat production has seen heavy fighting between the Kurdish YPG militia, backed by the US-led air strikes, and Islamic State militants.

Farming infrastructure, including irrigation canals and grain depots, has been destroyed, according to the FAO. It said the storage facilities of the state seeds body across the country had also been damaged, so it had distributed just a tenth of the 450,000 tonnes of seeds that farmers needed to cultivate their land this season. Farmers are also struggling to get their produce to market so it can be sold and distributed to the population. The conflict has led to the number of state collection centers falling to 22 in 2015, from 31 the year before and about 140 before civil war broke out between government forces and rebels five years ago, according to the General Organisation for Cereal Processing and Trade (Hoboob), the state agency that runs them.

Many of those lost have been damaged or destroyed. The breakdown of the agricultural system means Syria could struggle to feed itself for many years after any end to the fighting, and need a significant level of international aid, the FAO says. It has had a major impact on plantings; the area of land sown with wheat and barley for the 2015-2016 season stood at 2.16 million hectares, down from 2.38 million hectares the previous season and 3.125 million in 2010 before the war, and only around two-thirds of the area targeted by the government, said the FAO.

Read more …

Caveat: Merkel has not ‘raised charges’ against Böhmermann. Other than that, it’s about time more people speak out against her.

Merkel’s Refugee Strategy – A Brown Nose Becomes the Chancellor (Rose)

It is a visit most Germans would like to forget – quickly. Their Chancellor Angela Merkel travelled to Turkey last Saturday, dropped in at what is termed a “sanitised” refugee camp for a well-orchestrated public relations exercise, and then held a press conference, effusing over Turkey’s exemplary treatment of refugees. It was “Brown Nose Tour The Second” to Turkey for Ms Merkel (the last in October, just before Turkish elections, in a veiled endorsement of Turkey’s dictator Recip Erdogan in return for a deal to stop the flow of refugees from Turkey to Greece). This spectacle was much more than a display of hypocrisy. Ms Merkel’s newest kowtow to Erdogan, following her recent decision to raise charges against the German satirist Jan Böhmermann for libelling Erdogan, demonstrated to the German people that they are not the generous, enlightened people they thought they were and the EU has nothing to do with Beethoven’s ode of joy, its unofficial anthem.

Still Ms Merkel hopes her brown nose may yet revive her failing political fortune. Ms Merkel has every reason to be thankful to Erdogan. Since the two completed their deal on 20 March the number of refugees crossing from Turkey has steadily declined. In the past five weeks a mere 113 refugees have purportedly been transferred from Turkey to the EU. That is not even 20 per week. Ms Merkel’s visit is however just one element in a vastly larger development. It is just eight months ago that the Germans were celebrating their Willkommenskultur, solidarity with refugees fleeing wars in Syria, Iraq and Afghanistan. At the forefront was Ms Merkel, nicking Barack Obama’s 2008 election motto “Yes we can!” (Wir schaffen das). Currently Willkommenskultur is being redefined in Germany: Bringing Arab and African dictators and war criminals out of the cold to support the EU’s anti-refugee policy.

The motivation for this generous gesture by Germany’s Chancellor and the German government is to dump Willkommenskultur I. Willkommenskultur II will furnish authoritarian leaders and warlords with cash, weapons, equipment to secure borders and other assistance to keep refugees from reaching Europe as well as repatriating those that manage to survive the journey and enter EU territory. This has become an integral aspect of Ms Merkel’s present policy of closing EU borders and deportation.

Read more …

Wow. Just wow. Voting against defenseless children. What does that say about a person (294 of them, actually)?

UK Government, Tories Vote Against Accepting 3,000 Child Refugees (G.)

A high-profile campaign for the UK to accept 3,000 child refugees stranded in Europe has failed after the government narrowly won a vote in the House of Commons rejecting the plan. MPs voted against the proposals by 294 to 276 on Monday after the Home Office persuaded most potential Tory rebels that it was doing enough to help child refugees in Syria and neighbouring countries. The amendment to the immigration bill would have forced the government to accept 3,000 unaccompanied refugee minors, mostly from Syria, who have made their way to mainland Europe. It originated in the House of Lords after being introduced by Alf Dubs, a Labour peer who was a beneficiary of the Kindertransport, the government-backed programme that took child refugees from Germany in the run-up to WWII.

Following the vote, Labour vowed to continue its efforts to make the government change its mind, tabling a new amendment in the House of Lords asking it to accept a specified number of child refugees from Europe after consultation with local councils. The Home Office successfully saw off the Dubs amendment in the Commons after arguing it would act as an incentive for refugees to make the dangerous Mediterranean crossing to Europe. James Brokenshire, a Home Office minister, said the government could not support a policy that would “inadvertently create a situation in which families see an advantage in sending children alone ahead and in the hands of traffickers, putting their lives at risk by attempting treacherous sea crossings to Europe which would be the worst of all outcomes”.

The amendment was backed by Labour, the SNP and Liberal Democrats. Keir Starmer, a shadow Home Office minister, said “history would judge” MPs for voting against the plan, saying it was the biggest refugee crisis in Europe since the second world war. “It is the challenge of our times and whether we rise to it or not will be the measure of us,” Starmer said. “We have the clear evidence of thousands of vulnerable children and we now need to act. This is the moment to do something about it, by voting with us this evening.”

Read more …

Apr 022016
 
 April 2, 2016  Posted by at 9:56 am Finance Tagged with: , , , , , , , , ,  


Gottscho-Schleisner Fishing boat at Fulton Market Pier, NY 1933

2016: The End Of The Global Debt Super Cycle (PR)
Saudi Arabia Plans $2 Trillion Megafund for Post-Oil Era (BBG)
Defiant China Slaps Steel Tariffs On Britain, EU As Trade War Looms (AEP)
Tata’s Pain Intensifies As China Imposes Hefty Tariffs On Hi-Tech Steel (Tel.)
Anbang’s Starwood Retreat Is Setback For China’s M&A Campaign (Reuters)
How People In China Afford Their Outrageously Expensive Homes (Forbes)
Even Bankrupt US Shale Drillers Keep Pumping Oil (Reuters)
Native American Tribes Mobilize Against Proposed North Dakota Oil Pipeline (G.)
Solar-Energy Company SunEdison Preparing to File for Bankruptcy (WSJ)
Greece Reacts To Wikileaks Claims About IMF Conversation On Bailout (Kath.)
EU-Turkey Refugee Deal: Staff Shortages, Rights Concerns Pose Twin Threat (G.)
Afghan Refugee Shot Dead Trying To Enter Bulgaria (AJ)
Turkey Is No ‘Safe Haven’ For Refugees – It Shoots Them At The Border (G.)

Deflation. “Deflation destroys financial asset values like stocks and corporate bonds and hard assets like real estate. It also lowers incomes while making debt more expensive to service as debt to income ratios rise.”

2016: The End Of The Global Debt Super Cycle (PR)

[..] The credit markets are signaling that the debt fueled expansion that began in 2010 is turning to bust. This is the most precarious moment in financial market history because as the world slides into recession global central banks have no ability to soften the oncoming recession with debt creation. Globally interest rates are close to zero and even negative in Europe and Japan. Long term government bond yields are also extremely low. This is sending a very clear and ominous signal that the world cannot service more debt and in fact needs to deleverage and get on more solid financial footing. The last time the world deleveraged was during The Great Depression. The defining quality of The Great Depression was the destructive deflation that gripped the economy.

Deflation destroys financial asset values like stocks and corporate bonds and hard assets like real estate. It also lowers incomes while making debt more expensive to service as debt to income ratios rise. The world economy is on the precipice of another Great Depression. This state of affairs demands a dramatic repositioning of investment portfolios. Investors who choose to remain passive but want to preserve their wealth need to liquidate their investments in stocks and corporate bonds and hold cash only. Investors who are more opportunistic can hold a combination of cash and U.S. government bonds. U.S. government bonds have already begun to rally so buying at current levels is not quite as attractive as it was a month ago but we expect negative interest rates to eventually visit America so there is still considerable upside.

The more aggressive investor can find opportunities to earn high returns employing strategies that will benefit from a financial collapse and a severe, deflationary recession. These strategies include shorting stock index futures, getting long VIX futures, etfs, and options, getting long stock index option volatility via index etfs, and on a limited basis shorting individual company stocks whose business plans will be acutely affected by economic developments. We would not simply be short financial assets every day because we recognize that the markets will initially be quite volatile which means sharp bear market rallies in between dramatic declines in financial assets. We would initially be positioned to benefit from this two-way volatility and as the declines become more severe and investors begin to throw in the towel the fund will be more short oriented.

Read more …

Selling off Aramco.

Saudi Arabia Plans $2 Trillion Megafund for Post-Oil Era (BBG)

Saudi Arabia is getting ready for the twilight of the oil age by creating the world’s largest sovereign wealth fund for the kingdom’s most prized assets. Over a five-hour conversation, Deputy Crown Prince Mohammed bin Salman laid out his vision for the Public Investment Fund, which will eventually control more than $2 trillion and help wean the kingdom off oil. As part of that strategy, the prince said Saudi will sell shares in Aramco’s parent company and transform the oil giant into an industrial conglomerate. The initial public offering could happen as soon as next year, with the country currently planning to sell less than 5%. “IPOing Aramco and transferring its shares to PIF will technically make investments the source of Saudi government revenue, not oil,” the prince said in an interview. “What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”

Almost eight decades since the first Saudi oil was discovered, King Salman’s 30-year-old son is aiming to transform the world’s biggest crude exporter into an economy fit for the next era. As his strategy takes shape, the speed of change may shock a conservative society accustomed to decades of government handouts. The sale of Aramco is planned for 2018 or even a year earlier, according to the prince. The fund will then play a major role in the economy, investing at home and abroad. It would be big enough to buy Apple, Google parent Alphabet, Microsoft and Berkshire Hathaway – the world’s four largest publicly traded companies. PIF ultimately plans to increase the proportion of foreign investments to 50% of the fund by 2020 from 5% now, said Yasir Alrumayyan, secretary-general of the fund’s board.

Read more …

The trade war is much further advanced than ‘looming’.

Defiant China Slaps Steel Tariffs On Britain, EU As Trade War Looms (AEP)

China has thrown down the gauntlet in an escalating trade war over the global steel glut, imposing punitive tariffs of 46pc on hi-tech steel produced in Britain and the rest of the EU. The astonishing move came as the Prime Minister, David Cameron, confronted the Chinese leader Xi Jinping at a meeting in Washington, pleading for action to slow the flood of Chinese steel exports reaching Europe. The imminent demise of the Port Talbot steelworks and Tata’s wider steel operations in Britain has mushroomed within days into a full-blown national drama, calling into question the Government’s whole approach to China. The Chinese ministry of commerce said in a terse statement that it was slapping anti-dumping tariffs of 14.4pc to 46.3pc on companies from the EU, South Korea, and Japan, claiming that China had suffered “substantial damage” from trade abuses.

In a macabre twist, the measures target the Tata plant in Port Talbot, which produces the specialist flat-rolled electrical steel used in transformers. A tiny amount is exported to China. “If this is not a trade war, I don’t know what is,” said Gareth Stace, director of UK Steel. “We’re literally drowning in a flood of Chinese imports globally. We’re certainly not seeing a flood of European steel into China.” China’s share of global steel output has risen from 10pc to 50pc over the last twelve years, with the single province of Hebei now producing twenty times as much as Britain. China’s excess capacity 400m tonnes, double the size of the entire EU steel industry. The country can no longer absorb its own supply as the construction boom fades and the catch-up phase of breakneck industrial growth hits the limit.

A record 112m tonnes was exported last year but Chinese producers are also suffering huge losses. Anshan Iron and Steel announced today that it had lost $7bn over the last year and warned that the steel industry faces an “Ice Age that will force a brutal consolidation”. The US Trade Representative accused China of systematic trade abuse and illicit subsidies for its steel industry in a blistering report released today. “China’s trade policies and practices in several specific areas cause particular concern for the United States. Chinese government actions and financial support in manufacturing industries like steel and aluminium have contributed to massive excess capacity in China,” it said.

The US trade report said China’s steel capacity has continued to grow “exponentially” to 1.4bn tonnes – even higher than previously feared – despite weakening global demand. This now dwarfs the rest of the world’s combined output and is profoundly distorting the global steel market. It said China has no natural advantages in raw materials or energy costs to justify this, and claimed that it is the result of export subsidies, cheap credit, and an opaque regime of state support. “These practices have caused tremendous disruption, uncertainty, and unfairness in the global markets. To date, however, China has not made any movement toward the adoption of international best practices,” it said. It cited a long list of alleged violations, especially in “strategic emerging industries”, technology, intellectual property, and services, accusing Beijing of obstructing access its own markets.

Read more …

Maybe China will buy Tata? There are no other buyers.

Tata’s Pain Intensifies As China Imposes Hefty Tariffs On Hi-Tech Steel (Tel.)

China has levied huge new tarrifs on a type of steel produced by Britain despite David Cameron personally challenging the country’s president to help save UK steelmakers, it emerged yesterday. The Prime Minister used a dinner at the White House to confront President Xi Jinping over the possible extinction of the UK steel industry due to Chinese dumping. However it later emerged that China will levy a 46% duty on a type of high tech steel made by just 16 producers worldwide including Tata Steel’s Cogent subsidiary in Newport. China’s decision comes after the European Union imposed tariffs of up to 13% on steel from the country used to reinforce concrete earlier this year.

The development raised the pressure on Britain to better protect the country’s steel manufacturing amid fears 40,000 jobs could be lost as Tata Steel looks to sell off its UK business. It came amid reports Tata is pulling out of Britain in order to smooth a merger with German engineering conglomerate Thyssenkrupp. Credit Suisse analysts said Tata’s planned exit from the UK was a prerequisite to any potential deal with Thyssenkrupp. Sajid Javid, the Business Secretary, yesterday travelled to Port Talbot in South Wales to meet managers and face the anger of hundreds of workers over the government’s handling of the crisis. He appeared to indicate a deal is possible by saying there were “viable buyers” to take over Tata’s operations but said he could not go into details for commercial reasons. Mr Javid said steel remains “absolutely vital” to the British economy and addressed fears work could dry up within days by indicating he had secured more time for negotiations.

Read more …

Credibility shot.

Anbang’s Starwood Retreat Is Setback For China’s M&A Campaign (Reuters)

Anbang Insurance’s unexpected withdrawal this week of its $14 billion offer to acquire Starwood Hotels & Resorts Worldwide is a wider blow to the unprecedented drive by Chinese companies to acquire North American and European assets. From semiconductors and industrial equipment, to financial services and real estate, China’s insatiable appetite for Western companies has pushed the country’s outbound cross-border M&A to $101.1 billion year-to-date, nearly surpassing the full-year record of $109.5 billion set last year. Yet Anbang’s abrupt move, which came after Starwood said on Monday that the Chinese insurer’s latest offer was “reasonably likely” to be superior to a cash-and-stock deal with Marriott International, added fuel to concerns that many Chinese companies may not be able to deliver on their acquisition expectations.

“To succeed in the U.S., Chinese companies will have to adapt to American styles of governance and transparency. It will be difficult to close mega deals without a more open style, so we may see more modest deals until China changes,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. To be sure, the largest M&A deal of this year thus far globally is by a Chinese company: China National Chemical’s agreement to acquire Swiss seeds and pesticides group Syngenta for $43 billion. Several Chinese companies, however, are having trouble convincing Western peers that they are a credible M&A counterparty. Earlier this week, for example, U.S. gene-sequencing products maker Affymetrix rejected an offer by some of its former executives that was financed by a Chinese investment firm, even though they offered more money than an existing deal with Thermo Fisher Scientific, on the basis of financing and regulatory risks.

[..] Anbang said on Thursday that it withdrew its offer due to “market considerations”, without elaborating. One of Anbang’s private equity partners, Primavera Capital Ltd chairman Fred Hu, said Anbang walked away to avoid a protracted bidding war, even though Marriott had not disclosed a higher offer. “We have little independent insight into what happened, but based on what Starwood has told us, Anbang did not deliver the same kinds of undertakings or arrangements that would have allowed the Starwood board to conclude that they were credible at $82.75,” Marriott Chief Executive Arne Sorenson told investors and analysts on a conference call. Anbang became concerned that Starwood had no intention of declaring its latest offer superior and was stalling for time for Marriott to come in with a new offer, according a source close to Anbang’s consortium.

Sources close to Starwood, however, said Anbang did not deliver the assurances on financing its latest offer it had said it would on Monday, and had since had no communication with Starwood until its withdrawal on Thursday. Chinese financial magazine Caixin reported last month that China’s insurance regulator would likely reject a bid by Anbang to buy Starwood, since it would put the insurer’s offshore assets above a 15% threshold for overseas investments. “(Anbang) told us what they told the market, (that their withdrawal was due to) the market considerations,” Starwood Chief Executive Thomas Mangas told the same conference call.

Read more …

Debt by another name.

How People In China Afford Their Outrageously Expensive Homes (Forbes)

Before we can understand how people in China can afford to frolic in their country’s over-inflated housing market, we must look at where this market came from. Hardly 20 years ago China’s real estate market didn’t exist. It wasn’t until the mid-90s that a series of reforms allowed urban residents to own and sell real estate. People were then given the option to purchase their previously government-owned homes at extremely favorable rates, and most of them made the transition to being property owners. Now with a population provisioned with houses that they could sell at their discretion and the ability to buy homes of their choice, China’s real estate market was set to boom. By 2010, a little over a decade later, it would be the largest such market in the world.

When we talk about how people afford houses in China today, more often than not we’re not talking about individuals going out and buying property on their own — as is the general modus operandi in the West. No, we’re talking about entire familial and friend networks who financially assist each other in the pursuit of housing. At the inner-circle of this social network is often the home buyer’s parents. When a young individual strikes out on their own, lands a decent job, and begins looking to pursue marriage, getting a house is often an essential part of the conversation. Owning a home is virtually a social necessity for an adult in China, and is often a major part of the criteria for evaluating a potential spouse. As parents tend to move into their children’s homes in old age, this truly is a multi-generational affair.

So parents will often fork over a large portion of their savings to provision their children with an adequate house – oftentimes buying it years in advance. If parents are not financially able to buy their kids a house outright, they will generally help with the down payment, or at the very least provide access to their social network to borrow the required funds. Take for example the case of Ye Qiuqin, a resident of Ordos Kangbashi who owns two houses across the country in Guangdong province, where she is originally from. Together with her fiancé, she makes roughly US$3,200 per month from running a cram school. For her first home she made a down payment of roughly US$20,000; of which $3,300 came from her parents, $10,000 came in the form of loans from her sister and friends, and the rest came from her savings.

To decrease the amount of volatility in China’s often hot property market, there are very strict rules as to how much money people can borrow from the bank for purchasing real estate. Although this slightly varies by city and wavers in response to current economic conditions, for their first home a buyer must lay down a 30% down payment, for the second it’s 60%, and for any property beyond this financing isn’t available. So for people to buy homes in this country they need to step up to the table with a large amount of cash in hand. Why there is so much liquid cash available for these relatively large down payments is straight forward: the Chinese are some of the best savers in the world. In fact, with a savings rate that equates to 50% of its GDP, China has the third highest such rate in the world. As almost a cultural mandate, the Chinese stash away roughly 30% of their income, which is often called into use for such things as making a down payment on a home — which is the most important financial transaction that many Chinese will ever make.

Read more …

Drilling zombies.

Even Bankrupt US Shale Drillers Keep Pumping Oil (Reuters)

As oil prices nosedived by two-thirds since 2014, a belief took hold in global energy markets that for prices to recover, many U.S. shale producers would first have to falter to allow markets to rebalance. With U.S. oil prices now trading below $40 a barrel, the corporate casualties are already mounting. More than 50 North American oil and gas producers have entered bankruptcy since early 2015, according to a Reuters review of regulatory filings and other data. While those firms account for only about 1% of U.S. output, based on the analysis, that count is expected to rise. Consultant Deloitte says a third of shale producers face bankruptcy risks this year.

But a Reuters analysis has found that bankruptcies are so far having little effect on U.S. oil production, and a tendency among distressed drillers to keep their oil wells gushing belies the notion that deepening financial distress will prompt a sudden output decline or oil price rebound. Texas-based Magnum Hunter Resources, the second-largest producer among publicly-traded companies that have filed for bankruptcy, is a case in point. It filed for creditor protection last December, but even as the debt-laden driller scrambled to avoid that outcome, its oil and gas production rose by nearly a third between mid-2014 and late 2015, filings show.

Once in Chapter 11, its CEO Gary Evans said the bankruptcy, which injected new funds to ensure it would stay operational, could help to “position Magnum Hunter as a market leader.” The company did not respond to a request for comment for this story. However, John Castellano, a restructuring specialist at Alix Partners, said that all of the nearly 3,000 wells in which Magnum Hunter owns stakes have continued operations during its bankruptcy. Production figures can be hard to track post-bankruptcy, but restructuring specialists say that many bankrupt drillers keep pumping oil at full tilt. Their creditors see that as the best way to recover some of what they are owed. And as many bankrupt firms seek to sell assets, operating wells are valued more than idled ones.

“Oil companies in bankruptcy do not seem to automatically curtail production,” said restructuring expert Jason Cohen at the Bracewell firm in Houston. “Lenders are willing to let them continue to produce as long as economically viable.” For most companies in bankruptcy or considering it, maximizing near-term production does make economic sense. Day-to-day well operating costs in most U.S. shale fields remain well below $40 a barrel. Bankrupt firms are also eligible for new financing that can allow them to keep pumping for some time.

Read more …

What need is there for a pipeline at this point int ime?

Native American Tribes Mobilize Against Proposed North Dakota Oil Pipeline (G.)

Dozens of tribal members from several Native American nations took to horseback on Friday to protest the proposed construction of an oil pipeline which would cross the Missouri river just yards from tribal lands in North Dakota. The group of tribal members, which numbered around 200, according to a tribal spokesman, said they were worried that the Dakota Access Pipeline, proposed by a subsidiary of Energy Transfer Partners, would lead to contamination of the river. The proposed route also passes through lands of historical significance to the Standing Rock Lakota Sioux Nation, including burial grounds.“They’re going under the river 500 yards from my son’s grave, my father’s grave, my aunt who I buried last week,” said Ladonna Allard, a member of the Standing Rock nation and the closest landowner to the proposed pipeline.

“I really love my land, and if that pipeline breaks everything is gone.” “We must fight every inch of our lives to protect the water,” Allard said. A “spiritual camp” will be set up starting Saturday at the point where the proposed pipeline would cross the river, and the tribal members plan to stay and protest indefinitely. The group is composed of members of the Standing Rock nation as well as others from North and South Dakota nations, including the Cheyenne River Lakota and the Rosebud Sioux. They joined together to ride, run and walk from the Tribal Administration Building north to Cannonball, North Dakota, on the reservation’s northern edge.

The Missouri river is the primary source of drinking water for the tribal reservation, according to Doug Crow Ghost, a spokesperson for the Standing Rock Sioux and the director of the tribe’s water office, who joined the protest on Friday. Tribal members also fish in the river, he said. “Because we are going to be fighting this giant, all the rest of the nations came on horseback to say ‘we support you’,” said Allard. “That is why this horse ride is so important to us. Because we’re not alone in this fight. All of our nations are coming to stand with us, and all our allies and partners. This pipeline is illegal.”

Read more …

Renewable bubble?!

Solar-Energy Company SunEdison Preparing to File for Bankruptcy (WSJ)

Solar-energy company SunEdison plans to file for bankruptcy protection in coming weeks, a dramatic about-face for a company whose market value stood at nearly $10 billion in July. The company is preparing a chapter 11 filing and is in talks with two creditor groups to obtain a loan to fund its operations during the process, according to people familiar with the matter. Creditors are likely to take control of the company and its portfolio of power projects, the people said. SunEdison, whose stock has plunged in recent months, would rank among the largest financial collapses in recent years. The company, based about 20 miles outside St. Louis, used a combination of financial engineering and cheap debt to grow to be one of the country’s biggest developers of renewable-power plants.

But a proposed $1.9 billion takeover of residential-rooftop installer Vivint Solar, which was terminated last month, was unpopular with investors. Meanwhile, falling oil prices caused a broad selloff for energy stocks, and capital-market turbulence stoked concerns about SunEdison’s ability to continue financing acquisitions. SunEdison’s stock fell to fresh lows this past week on bankruptcy fears and news that the company is facing Securities and Exchange Commission and Justice Department investigations. Its market capitalization is now about $150 million, and it had long-term debt of about $7.9 billion as of Sept. 30, according to a regulatory filing.

Read more …

Where Wikileaks meets the real world. Gov’t spokeswoman: “Greece demands to know whether the creation of bankruptcy conditions in Greece is official position of the IMF”

Greece Reacts To Wikileaks Claims About IMF Conversation On Bailout (Kath.)

Prime Minister Alexis Tsipras was reportedly to chair an emergency meeting with key ministers on Saturday after the publication of a leaked transcript of a conversation that is alleged to have taken place between Poul Thomsen, the head of the IMF’s European department, and Delia Velculescu, the IMF mission chief for Greece. WikiLeaks, which made the revelation, said it obtained the details of the conversation, which took place last month, and in which the two leading IMF officials apparently discuss putting pressure on Germany over the eurozone’s position regarding Greece’s bailout review by threatening that the IMF will leave the program.

According to the WikiLeaks transcript, the two IMF officials discuss an “event” that would force the Europeans to accept the IMF’s position so the bailout review can be concluded. “What is going to bring it all to a decision point? In the past there has been only one time when the decision has been made and then that was when they were about to run out of money seriously and to default. Right?” Thomsen is claimed to have told Velculescu. “I agree that we need an event, but I don’t know what that will be,” Velculescu allegedly added a little later in the conversation. The transcript quotes Velculescu as saying: “What is interesting though is that [Greece] did give in … they did give a little bit on both the income tax reform and on the … both on the tax credit and the supplementary pensions”.

Thomsen’s view was that the Greeks “are not even getting close [to coming] around to accept our views”. Velculescu argued that “if [the Greek government] get pressured enough, they would … But they don’t have any incentive and they know that the commission is willing to compromise, so that is the problem.” A Greek official told the ANA-MPA news agency that the government “is not willing to allow games to be played to the detriment of the country.”

Read more …

A tragedy in the making.

EU-Turkey Refugee Deal: Staff Shortages, Rights Concerns Pose Twin Threat (G.)

Serious concerns have been raised about the viability and legality of the EU-Turkey refugee deal just three days before its implementation, after rights campaigners alleged that Ankara had been deporting hundreds of refugees back to Syria on a daily basis in recent weeks, and the Greek asylum service said it needed more staff to make the deal work. In a double blow to the deal, the most senior Greek asylum official, Maria Stavropoulou, called for a 20-fold increase in personnel – while Amnesty International alleged that unaccompanied children were among scores of Syrians illegally expelled from Turkey since January. Hours later, the UN refugee agency again called for a halt to the deal unless Turkey could guarantee refugees’ basic rights.

The news came as hundreds of people detained on a Greek island fled their camp en masse, and other refugees began to sail from mainland Greece to Italy for the first time since eastern European governments began to block their onward route through the Balkans last month. Seeking to block off a migration route that brought more than 800,000 refugees to Greece from Turkey last year, European and Turkish leaders are set to implement a deal on Monday that will see almost all asylum seekers deported back to Turkey. The success of the deal rests on both Greece’s ability to process thousands of people in a short space of time, and Turkey’s ability to prove itself a safe country for refugees.

Both factors were called into question on Friday, as the Greek parliament voted to begin deportations on Monday. Stavropoulou said her department did not have enough people to process the claims of the many people who, prior to the deal, would simply have passed through Greece on their way to Germany and other wealthier European countries. “I’m worried about very many things, but the main worry now is about having the capacity to process all these claims,” she said in an interview with the Guardian. “We have about 300 staff,” she said. “My estimate is that if we are asked to handle anything like half the flow of last year, then we need to have 20 times more capacity.”

Read more …

First refugee shot dead in Europe?!

Afghan Refugee Shot Dead Trying To Enter Bulgaria (AJ)

Bulgarian border guards have shot dead an Afghan asylum seeker after he crossed into the country from Turkey. The man was killed near the border with Turkey after police fired and struck him with a warning shot that ricocheted, Bulgarian authorities said on Friday. Interior Ministry chief of staff Georgi Kostov said: “A group of 54 people aged between 20 and 30, all from Afghanistan, were intercepted by border guards and a police officer after crossing into Bulgarian territory. “One of my colleagues used his personal weapon and fired.” The man was injured and died from his wounds en route to hospital.

The targeted group of refugees were seen by a patrol near the southeastern Bulgarian town of Sredets. The UNHCR said it was the first time an asylum seeker had been shot dead while trying to cross into Europe. “We, at UNHCR, are deeply shocked by this incident,” said Boris Cheshirkov, a spokesman for the UN refugee agency. “We deplore the death of an Afghan asylum seeker, trying to reach safety across the border. We call on the Bulgarian authorities to conduct an immediate, transparent and independent investigation. Seeking asylum is an universal human right and not a crime.” The other refugees were detained while an investigation was launched. The men carried no identification documents.

Read more …

“.. recent deal that sees the world’s richest continent (population 500 million) corral a single Middle Eastern country (population 80 million) into caring for more Syrian refugees than the rest of the world combined.”

Turkey Is No ‘Safe Haven’ For Refugees – It Shoots Them At The Border (G.)

It was beyond sad to read in the Times this week that Turkish border guards have allegedly shot dead Syrians trying to reach safety in Turkey. Sixteen refugees, including three children, have been killed trying to escape the battlegrounds of northern Syria in the past four months, according to the Syrian Observatory for Human Rights, a frequently cited watchdog. It is shocking to think of people fleeing the combined atrocities of Islamic State and Bashar al-Assad being gunned down just as they make their bid for safety. But what is perhaps most shocking of all is that we observers are still shocked by this. The shooting of Syrians on the border is not a new phenomenon. Refugees and rights groups have reported shootings of migrants on the Turkish-Syrian border since at least 2013.

These abuses are well-documented, and the reports widely circulated. So why, in the months following a shady European deal that forces Turkey to shoulder the biggest burden of the refugee crisis, are we still so appalled when Turkey continues to use deadly violence to stop that burden getting any bigger? A surge in border abuses is the logical result of a recent deal that sees the world’s richest continent (population 500 million) corral a single Middle Eastern country (population 80 million) into caring for more Syrian refugees than the rest of the world combined. We shouldn’t have expected any other outcome. But sadly, some did. And Europe’s leaders – including David Cameron – apparently still do. Turkey is in the process of being designated by the EU as a “safe third country” for refugees – a sobriquet that gives Greece the right to send back almost all of those who land on its shores from Turkey.

Leaders, including Cameron, have justified this with the claim that refugees are safe from mortal danger in Turkey. Border shootings show this is not always strictly true, as do well-substantiated allegations that Turkey has illegally returned some Syrians and Afghans to the danger of their home countries, even after they had safely settled on Turkish soil. An alarming new report by Amnesty International, released today, alleges that in recent weeks large groups of Syrians have been deported back to Syria from southern Turkey, as officials there attempt to reduce their refugee burden.

In Cameron’s favour, most refugees in Turkey are not at risk of death on a battlefield. But this is not what refugee advocates mean when they say that Turkey is an unsuitable place for refugees. Refugee rights extend far beyond the simple right to life: they include the right to education, to healthcare and to work. The point of giving people refugee status is to guarantee them all the opportunities that are extended to natural-born citizens of the country in which they now live.

Read more …

Jan 102016
 
 January 10, 2016  Posted by at 10:09 am Finance Tagged with: , , , , , , , , , ,  


DPC Levee, Ohio River at Louisville, Kentucky 1905

The US Economy Is Dead In The Water (Stockman)
America, Your Credit Rating Stinks (BBG)
Up To A Million Americans Will Be Kicked Off Food Stamps This Year (HuffPo)
How Debt Conquered America (Thacker)
Saudis Told To Prop Up Currency Amid Global Devaluation War Fears (Tel.)
Could Saudi Aramco Be Worth 20 Times Exxon? (WSJ)
Saudi Arms Sales Are In Breach Of International Law, Britain Is Told (Observer)
China Heightens the Contradictions (BBG)
Germany’s Sparkassen: Banking On Capital Exports (Coppola)
VW Proposes Catalytic Converter To Fix US Test Cheating Cars (Reuters)
‘Tax Wall Street,’ Trump Pledges After Worst Market Week Since 2011 (BBG)
Heavily Armed Men Offer ‘Security’ For Oregon Militia At Refuge (Guardian)
Two-Thirds Of Tory MPs Want Britain To Quit European Union (Observer)
EU Eyes Start Of Greek Reforms Review January 18 (Reuters)
‘Greek Government Has Solid Majority To Pass Pension Reform’ (Reuters)
Anger Over Fate Of Child Refugees Denied UK Asylum Hearing (Observer)

Seasonable adjustments strike again.

The US Economy Is Dead In The Water (Stockman)

Here’s a newsflash that CNBC didn’t mention. According to the BLS, the US economy generated a miniscule 11,000 jobs in the month of December. Yet notwithstanding the fact that almost nobody works outdoors any more, the BLS fiction writers added 281,000 to their headline number to cover the “seasonal adjustment.” This is done on the apparent truism that December is generally colder than November and that workers get holiday vacations. Of course, this December was much warmer, not colder, than average. And that’s not the only deviation from normal seasonal trends. The Christmas selling season this year, for example, was absolutely not comparable to the ghosts of Christmas past. Bricks and mortar retail is in turmoil and in secular decline due to Amazon and its e-commerce ilk, and this trend is accelerating by the year.

So too, energy and export based sectors have been thrown for a loop in the last few months by a surging dollar and collapsing commodity prices. Likewise, construction activity has been so weak in this cycle—-and for the good reason that both commercial and residential stock is vastly overbuilt owing to two decades of cheap credit—–that its not remotely comparable to historic patterns. Never mind. The BLS always adds the same big dollop of jobs to the December establishment survey come hell or high water. In fact, the seasonal adjustment has averaged 320,000 for the last 12 years! For crying out loud, folks, every December is different—–and not just because of the vagaries of the weather. Capitalism is about incessant change and reallocation of economic activity and resources.

And now the globalized ebbs and flows of economic activity have only accentuated the rate and intensity of these adjustments. Yet the statistical wizards at the BLS think they can approximate a seasonal adjustment factor for December that at +/- 300k amounts to just 0.2% of the currently reported 144.2 million establishment survey jobs, and an even smaller fraction of the potential adult work force which is at least 165 million. But that’s a pretentious stab in the dark. The December seasonal adjustment (SA) could just as easily be 0.3% of the job base or 0.1%, depending upon the specific point in the business cycle and structural trends roiling the economy.

[..] So what happened to the non-seasonally adjusted (NSA) job count in December at similar points late in the course of prior cycles? Well, in December 1999 about 140,000 jobs were added and in December 2007 there was a NSA gain of 212,000. This time we got the magnificent sum of 11,000, and by the way, last year was only 6,000. The real news flash in the December “jobs” report, therefore, is that even by the lights of the BLS’ rickety, archaic and virtually worthless establishment survey, the domestic economy is dead in the water. We are not on the verge of “escape velocity”, as our foolish monetary politburo keeps insisting; the US economy is actually knocking on the door of recession.

Read more …

Here come your tax hikes.

America, Your Credit Rating Stinks (BBG)

They are home to the nation’s credit elite, and they have another thing in common: the tech industry. Certain neighborhoods on the West Coast boast residents with some of the best credit, according to a new report by free credit score site Credit Sesame. Those zip codes1 include the main stomping grounds of Microsoft, Yahoo!, and Google. Between the coasts, and certainly away from the tech plutocracy, the story is different. The average score for all U.S. states combined is a lowly 604, considered subprime by many lenders, said Stew Langille, Credit Sesame’s chief strategy officer. The highest credit score possible is 850, although only a rare few have reached it. Those close to it reside in zip codes of Seattle (Redmond, Wash., to be precise), with an average score of 719 under TransUnion’s FICO rival, VantageScore. They also populate parts of Mountain View, Calif., (748) Sunnyvale, Calif., (730) and San Francisco (707).

[..] While credit scores are supposed to be based on how you manage your credit, Credit Sesame stats show a strong correlation with income. In Mountain View, Calif., median household income is $92,125, the Census Bureau says, and the percentage of people living below the poverty line is just below 11%. Among the lowest-scoring zip codes in Chicago and Detroit, median income is $19,5483 and $26,648, respectively. The percentage of people living in poverty in Chicago’s Southside is 47.4%; it’s 42.8% for Detroit. Those with the top credit scores in the study benefit from a virtuous cycle. They have high incomes and work in growing industries. More money means you can enter more transactions, such as taking out and repaying loans, which strengthen your credit score. Homeowners showed higher overall credit scores than renters, for example.

The highly educated citizens of Silicon Valley are probably more credit savvy, too. “Potentially part of the problem is that if you don’t have a high level of education, and you’re busy working and managing your life, it’s hard to know what to do to get the optimal credit score,” said Langille. You won’t know, for example, that how much of your credit line you use makes up about 30% of your credit score. And speaking of credit usage, whether on a credit card or home equity line of credit, Credit Sesame looked at that too. It graded the pool of 2.5 million users on a scale of A to F, with those using the smallest percentage of available credit getting the best scores. That leaves less than 19% of Americans with an A, using zero to 10% of available credit. And it leaves 57% of Americans with an F, meaning that they use 70% or more of available credit. [..] Many credit experts recommend that people use less than 30% of the credit available to them to avoid having their credit score dinged.

Read more …

For not finding work…

Up To A Million Americans Will Be Kicked Off Food Stamps This Year (HuffPo)

As many as a million Americans will be kicked off food stamps this year thanks to the return of federal rules targeting unemployed adults without children. That’s according to a new analysis by the Center on Budget and Policy Priorities, a liberal Washington, D.C. think tank, which finds that no fewer than 500,000 people will lose benefits. “The loss of this food assistance, which averages approximately $150 to $170 per person per month for this group, will cause serious hardship among many,” the Center on Budget says. New Jersey, North Carolina, Georgia and 20 other states will allow able-bodied adults without dependents to receive food assistance for only three months unless they work at least 20 hours per week.

Though states are carrying out the policy, it’s a requirement of federal law that had been waived for the past several years because of widespread joblessness. With unemployment rates tumbling, the rule is returning. Several states brought it back ahead of schedule last year, and by the end of this year, only a handful of states will qualify for waivers from the rule. “It’s inexplicable how anyone could call compliance with a federal policy a punitive action by the state,” a spokesman for New Jersey Gov. Chris Christie (R) told AP last week in response to criticism that the policy punishes poor people. The three-month limit has traditionally been called a “work requirement,” but the Center on Budget quibbles with that characterization because work or qualifying “work activities” are not necessarily available.

“Because this provision denies basic food assistance to people who want to work and will accept any job or work program slot offered, it is effectively a severe time limit rather than a work requirement, as such requirements are commonly understood,” the Center says. “Work requirements in public assistance programs typically require people to look for work and accept any job or employment program slot that is offered but do not cut off people who are willing to work and looking for a job simply because they can’t find one,” it adds.

Read more …

A great history lesson.

How Debt Conquered America (Thacker)

The tragedy of the Spaniards’ devastation of untold millions of native lives was compounded by seven million African slaves who died during the process of their enslavement. Another 11 million died as New World slaves thereafter. The Spanish exploitation of land and labor continued for over three centuries until the Bolivarian revolutions of the Nineteenth Century. But even afterward, the looting continued for another century to benefit domestic oligarchs and foreign businesses interests, including those of U.S. entrepreneurs. Possibly the only other manmade disasters as irredeemable as the Spanish Conquest – in terms of loss of life, destruction and theft of property, and impoverishment of culture – were the Mongol invasions of the Thirteenth and Fourteenth centuries.

The Mongols and the Spaniards each inflicted a human catastrophe fully comparable to that of a modern, region-wide thermonuclear war. Unlike Spaniards, Anglo-American colonists brought their own working-class labor from Europe. While ethnic Spaniards remained at the apex of the Latin American economic pyramid, that pyramid in North America would be built largely from European ethnic stock. Conquered natives were to be wholly excluded from the structure. While contemporary North Americans look back at the Spanish Conquest with self-righteous horror, most do not know the majority of the first English settlers were not even free persons, much less democrats. They were in fact expiration-dated slaves, known as indentured servants.

They commonly served 7 to 14 years of bondage to their masters before becoming free to pursue independent livelihoods. This was a cold comfort, indeed, for the 50% of them who died in bondage within five years of arriving in Virginia – this according to “American Slavery, American Freedom: The Ordeal of Colonial Virginia” by the dean of American colonial history, Edmund S. Morgan. Also disremembered is that the Jamestown colony was founded by a corporation, not by the Crown. The colony was owned by shareholders in the Virginia Company of London and was intended to be a profit-making venture for absentee investors. It never made a profit. After 15 years of steady losses, Virginia’s corporate investors bailed out, abandoning the colonists to a cruel fate in a pestilential swamp amidst increasingly hostile natives.

Jamestown’s masters and servants alike survived only because they were rescued by the Crown, which was less motivated by Christian mercy than by the tax it was collecting on each pound of the tobacco the colonists exported to England. Thus a failed corporate start-up survived only as a successful government-sponsored oligarchy, which was economically dependent upon the export of addictive substances produced by indentured and slave labor. This was the debt-genesis of American-Anglo colonization, not smarmy fairy tales featuring Squanto or Pocahontas, or actor Ronald Reagan’s fantasized (and plagiarized) “shining city upon a hill.”

Read more …

“The S&P 500 endured its worst start to a year since 1928, while European equities suffered their biggest opening year losses for over 45 years.”

Saudis Told To Prop Up Currency Amid Global Devaluation War Fears (Tel.)

Saudi Arabia should use its massive foreign exchange reserves to defend the riyal, amid fears the world is descending into a new phase of global currency wars, the World Bank has said. The kingdom’s shaky currency peg with the dollar has come under record pressure this week as the price of oil has plummeted to near 12-year lows at $32-a-barrel. With the global stock markets in turmoil, analysts fear a Saudi devaluation could spark a new wave of deflation and competitive “beggar-thy-neighbour” policies in a fragile global economy. But the world’s largest producer of Brent crude should continue to defend its exchange rate by drawing down on its war chest of reserves, according to Franziksa Ohnsorge, lead economist at the World Bank. “For now they have large reserves, and reserves can be used during an adjustment period”, Ms Ohnsorge told The Telegraph.

Oil accounts for more than three-quarters of Saudi Arabia’s government revenues. But a record supply glut has led to the kingdom burning through its reserves at a record pace in order to defend its 30-year-old exchange rate regime. Central bank reserves have dropped from a peak of $735bn to around $635bn this year – a pace of spending which will exhaust the kingdom’s fiscal buffers within five years, Bank of America Merrill Lynch calculate. A fresh round of conflict with rivals Iran and a sustained low oil price world would reduce this cushion substantially, said David Hauner at BaML. The monarchy has vowed to stick by the exchange regime and is instead planning to strengthen its coffers through the unprecedented flotation of its state-owned oil giant, Aramco.

Concerns about the Saudi peg come as fears that China was engineering on its own covert currency devaluation rippled through global markets this week. The S&P 500 endured its worst start to a year since 1928, while European equities suffered their biggest opening year losses for over 45 years. More than £85bn was also wiped off the FTSE 100 in a torrid start to 2016 trading. Investment bank Goldman Sachs has warned Beijing may soon abandon its support for the renminbi and engineer a full-blown devaluation. “Just as the US and European phases of the financial crisis were eventually curtailed by currency devaluation and quantitative easing, the fear is that emerging market economies and even China might need to do the same”, said Peter Oppenheimer at Goldman.

Faced with declining revenues, the Saudi monarchy has been forced to unveil a radical programme of government austerity to compensate for the 70pc decline in Brent prices over the last 18 months. Markets are now betting the kingdom will have to abandon its exchange rate regime – which has fixed the riyal at 3.75 to the dollar since 1986. Forward contracts for the riyal have soared to their highest levels in nearly 20 years – a sign that investors no longer believe in the viability of the peg.

Read more …

Depends how far Exxon plunges?!

Could Saudi Aramco Be Worth 20 Times Exxon? (WSJ)

Saudi Arabia’s potential sale of shares in its state-owned oil giant could lead to a publicly listed company valued in the trillions of dollars, more than 10 times Apple’s peak of about $756 billion. Saudi Arabian Oil Co., better known as Saudi Aramco, on Friday held out the prospect of an IPO on the Saudi stock exchange. Aramco said it was considering “the listing in capital markets of an appropriate percentage of the company’s shares and/or the listing of a bundle of its downstream subsidiaries.” That potential drew attention because the company produces more than 10% of the world’s oil supply every day and controls a large chain of refineries and petrochemical facilities to complement its exploration and production operations.

Taken together the business could be valued at more than $10 trillion by some estimates. Exxon, the largest non-state-controlled oil company, has a market value of $317 billion. Mohammad al-Sabban, an independent oil analyst and former senior adviser to the Saudi oil ministry, said it was unlikely the Saudi kingdom would list shares in the parent. That could open it up to scrutiny about financial controls and lift a veil on information that the royal family regards as state secrets. More likely is a Saudi Aramco listing of parts of its refining and chemical operations, Mr. Sabban and others said. That would still be significant given the size of those businesses. A person familiar with the national oil company said Western banks likely are months away from hearing what the Saudis’ decision will be.

There hasn’t been serious discussions with banks about the particulars of any stock offering, that person added. One clue to the scale of Aramco’s domestic refining operations is its Sadara Chemical complex in the eastern city of Jubail. It will be the largest petrochemicals project ever built at one time when it starts full operations in 2017. Built in partnership with Dow Chemical, it has already been earmarked for an IPO this year to raise the funds to pay its $20 billion price-tag.

Read more …

As if they care.

Saudi Arms Sales Are In Breach Of International Law, Britain Is Told (Observer)

The government has been put on notice that it is in breach of international law for allowing the export of British-made missiles and military equipment to Saudi Arabia that might have been used to kill civilians. The hugely embarrassing accusation comes after human rights groups, the European parliament and the UN all expressed concerns about Saudi-led coalition attacks in Yemen. Lawyers acting for the Campaign Against the Arms Trade (CAAT) have stepped up legal proceedings against the Department for Business, Innovation and Skills, which approves export licences, accusing it of failing in its legal duty to take steps to prevent and suppress violations of international humanitarian law.

In a 19-page legal letter seen by the Observer, CAAT warns that the government’s refusal to suspend current licences to Saudi Arabia, and its decision “to continue the granting of new licences” for military equipment that may be destined for use in Yemen, is unlawful. The letter cites article two of the EU Council Common Position on arms sales, which would compel the UK to deny an export licence if there was “a clear risk” that equipment might be used in a violation of international humanitarian law. Lawyers for CAAT have given the government 14 days to suspend licences allowing the export of military equipment to Saudi Arabia, pending the outcome of a review of its obligations under EU law and its own licensing criteria.

A failure to comply would see proceedings against the government, which would force it to explain in the high court what steps it has taken to ensure that UK military hardware is not being used in breach of international law. “UK weapons have been central to a bombing campaign that has killed thousands of people, destroyed vital infrastructure and inflamed tensions in the region,” said Andrew Smith of CAAT. “The UK has been complicit in the destruction by continuing to support airstrikes and provide arms, despite strong and increasing evidence that war crimes are being committed.”

Read more …

Beijing just ordered a new magic wand.

China Heightens the Contradictions (BBG)

Another tumultuous week for China’s stock markets has dealt yet another blow to global confidence in Beijing’s policy makers. Each tripped circuit-breaker and policy reversal has underscored the inherent contradiction China faces — between the leadership’s desire for the certainty of state control and the benefits of free markets. This contradiction has been part of the Chinese economic system since pro-market reform began in the early 1980s. The government’s model encouraged private enterprise, foreign investment and international trade while keeping the “commanding heights” of the economy – the financial sector, critical industries – firmly in state hands. The system may have run counter to classical economics, but it was effective, transforming China from an impoverished basket case to the world’s second-largest economy, and earning Beijing’s policy makers a reputation for sagacity and infallibility.

The problem is that this tension between state and market becomes more dangerous as an economy advances. We know this is true from the experiences of Japan and South Korea, which both used systems similar to China’s, produced similar results and then suffered similar problems. China’s current woes of high debt, excess capacity and a strained financial sector are all creations of the state-market conundrum. The only way to solve it is for the state to allow the market to hold more and more sway over the economy. That allows resources to be allocated more wisely, productivity to improve and entrepreneurship to flourish. Yet it also requires the party to relinquish control. China’s leaders are not unaware of the need for such change. That’s why they’ve promised to free up capital flows, liberalize the currency, reform the state sector and slash red tape. But that sticky contradiction remains firmly in place.

The Communist Party plenum in 2013 that drew up a long-term road map for economic reform enshrined the state-market conflict as a core principle of Chinese policy. The plenum’s communique declares the twin goals of creating an economy “centering on the decisive role of the market” but “with public ownership playing a dominant role.” That conflict is at the heart of the stock-market fiasco. Setting the expansion of capital markets as a priority, the government made the mistake of propagating equity investments on a wide scale. Then, when prices began to tumble last summer, the government, terrified by the instability, jumped in to “fix” the problem. Now policy makers have trapped themselves – attempting to control a market too big and complex to answer to bureaucrats. Instead of developing a respected stock exchange, the state has undermined its credibility.

Read more …

A complicated mess.

Germany’s Sparkassen: Banking On Capital Exports (Coppola)

German households save a very high proportion of their earnings. Unlike the UK and Ireland, where households save principally in the form of pensions and property, German savers like to keep their money in banks. The success of the public savings banks stems from their role as principal savings vehicle for the famously thrifty German savers. In fact, they are a little too successful. Savings banks have excess deposits. Ordinarily, an excess of deposits over lending opportunities would drive down interest rates to zero or below. Interest rates have fallen at Sparkassen, but not as much as might be expected, given Germany’s dismal record of both private and public sector investment. So how do Sparkassen manage to maintain positive returns to savers?

Simple. They place their excess deposits with larger institutions – the regional public banks (Landesbanken), and the Frankfurt-based asset manager Dekabank Group. Landesbanken provide wholesale banking services both within Germany and cross-border, while Dekabank manages an asset portfolio of about 155bn Euros, some of it in Luxembourg and Switzerland. In other words, Sparkassen export their excess deposits. The Sparkassen model depends on there being a tier of compliant larger banks that will find profitable investment opportunities both inside and outside Germany to generate the returns that Sparkassen want to provide to savers. The Landesbanken and Dekabank together act like a giant sump.

The sump used to work well. Landesbanken pooled liquidity for the Sparkassen and lent to larger enterprises, while Dekabank invested excess deposits. But then the Landesbanken over-extended themselves, loading up on – among other things – American subprime MBS, risky investments in the Balkans and Irish property loans. In the 2008 financial crisis, several of the Landesbanken had to be bailed out. Since then, the Sparkassen’s equity stakes in the Landesbanken have gradually shrunk, replaced with municipal government ownership. Without this, the Sparkassen would have taken heavy losses. In 2011, the German Savings Bank Association (the Sparkassen’s umbrella organisation) bought out the Landesbanken’s stake in Dekabank. The Landesbanken are still too damaged to deliver the returns that Sparkassen want, and their new prudent lending model is not going to deliver much in the future either.

So Dekabank, not Landesbanken, should now be regarded as the asset management part of the Sparkassen empire. The sump has changed its nature. But it doesn’t generate the returns that it used to – asset managers have to “reach for yield” to make respectable returns these days, and after their experience with the Landesbanken, the savings banks are understandably not too happy for their asset manager to do anything too risky. So the result is a profits squeeze for Sparkassen. They aren’t getting the returns, either on their own lending or on their assets under management at Dekabank, that they need in order to give positive returns to savers.

Read more …

Only interesting question that remains: can US risk bankrupting the company?

VW Proposes Catalytic Converter To Fix US Test Cheating Cars (Reuters)

Volkswagen engineers have come up with a catalytic converter that could be fitted to around 430,000 cars in the United States as a fix for vehicles capable of cheating emissions tests, German daily Bild am Sonntag reported. The converter would be fitted to cars with the first generation of the EA 189 diesel engine, the paper reported on Sunday, without providing information on its sources. A source familiar with the matter told Reuters that the proposal for a technical solution VW has drawn up includes a new catalytic converter system made in part from new materials.

Volkswagen has struggled to agree with U.S. authorities on a fix for vehicles fitted with the emissions test cheating devices, Reuters reported this week, showing how relations between the two sides remained strained four months after the scandal broke. The fix would need to be approved by the U.S. Environmental Protection Authority, and Volkswagen CEO Matthias Mueller hopes to convince EPA officials at a meeting on Wednesday in Washington, Bild am Sonntag further added.

Read more …

“I’m really good at that stuf..”

‘Tax Wall Street,’ Trump Pledges After Worst Market Week Since 2011 (BBG)

Republican presidential front-runner Donald Trump pledged to “tax Wall Street” as he sought to use a severe stock market selloff to plant new seeds of fear among voters during a campaign rally Saturday in Ottumwa, Iowa. At times, the real estate mogul sounded more like Democratic presidential candidate Senator Bernie Sanders, a constant critic of Wall Street, than a billionaire candidate running for the Republican presidential nomination. “There’s a bubble,” Trump told his audience in southeastern Iowa, noting the nation’s high level of debt. “You see the stock market is starting to, you know, see what’s going on,” he said. “It’s starting to have some very bad weeks and some very bad numbers.”

Volatility skyrocketed in financial markets last week as anxiety about global growth increased. The Standard & Poor’s 500 Index tumbled 6 percent on the week, the biggest drop since September 2011 and the steepest slide over five days to begin a year on record. Trump said his financial experience was right for such troubled times. “I’m really good at that stuff,” he said. “I know Wall Street. I know the people on Wall Street. We’re going to have the greatest negotiators of the world, but at the same time I’m not going to let Wall Street get away with murder. Wall Street has caused tremendous problems for us. We’re going to tax Wall Street.” Trump also highlighted his independence from campaign contributions. “I don’t care about the Wall Street guys,” he said. “I’m not taking any of their money.”

Read more …

How is this not a third world country, private armies, warlords and all?!

Heavily Armed Men Offer ‘Security’ For Oregon Militia At Refuge (Guardian)

A large group of heavily armed men showed up to the wildlife refuge occupation in eastern Oregon on Saturday, further escalating tensions and causing internal conflicts at the protests. Just as a number of the regular occupiers at the Malheur national wildlife refuge were finishing up a morning press conference, a fleet of more than a dozen vehicles drove up to the site. Men armed with rifles got out of their trucks and began stationing themselves along a road. The men said they were with a group called the Pacific Patriot Network and were a “neutral party”, there to provide security and protection for everyone at the refuge.

LaVoy Finicum, a regular spokesman for the armed militia, which has occupied the federal land since last Saturday, told the men they were not welcome or needed and that the militia was trying to minimize conflicts – not bring more guns to the compound. Ammon Bundy, the leader of the militia, had no idea a new group of armed men would be coming, according to Todd Macfarlane, who said he was acting as a liaison between the militia and the public. “Ammon felt blindsided,” Macfarlane said. “This was not a welcome development. We are trying to de-escalate here – then boom, they all show up.” Many of the men with the so-called Pacific Patriot Network declined to speak to reporters, saying they had orders to abide by a “media blackout”. Some were carrying semi-automatic rifles.

Joe Oshaughnessy, with a group calling itself the North American Coalition of Constitutional Militias, said his organization and the Pacific Patriot Network were trying to provide a “buffer zone” between government officials and the occupation, meaning they could help diffuse any conflicts that might arise. “They do not want to cause any trouble,” he said, adding: “Some of these guys are unarmed.” But the presence of yet another armed group only seemed to create further concerns and disputes as the occupation entered its second week with no end in sight. “We’ve got this image with long guns – that is not what we want,” said Jon Pratt, a Utah resident who has been at the occupation since Friday. “These guys are a third party. They do not represent the Bundys … and if they’re coming to keep the peace, I would’ve left the guns behind.”

Read more …

Clear enough?

Two-Thirds Of Tory MPs Want Britain To Quit European Union (Observer)

Two-thirds of Conservative MPs now support Britain’s exit from the European Union, despite David Cameron’s clear preference for staying in, according to senior sources within the party. Key figures in Tory high command say analysis of public statements and private views expressed by their 330 MPs shows that at least 210 now believe that the UK would be better off “out”. The surge in support within the parliamentary party for leaving will greatly encourage “out” campaigners, who believe many people will take their lead from local MPs when they decide which way to vote. However, party managers say the total number of Tory MPs who will join the campaign to leave could turn out to be significantly fewer – around 110 – if in the next few months opinion polls begin to point towards a close result or a win for the pro-EU side.

“Certainly at least two-thirds want to leave as it stands,” said a senior party figure. “But if things are very tight some will be bought off by offers of patronage and will be reluctant to take a different line to the prime minister. Plenty will not want their careers blighted by being on the wrong side of such an important debate.” The Observer has also been told that soundings taken by MPs show the “vast majority” of grassroots activists now want to quit the EU – and that most will not be swayed by whatever deal Cameron achieves in his attempt to renegotiate UK membership. Last week Cameron, in effect, conceded that his party was split from top to bottom over Europe when he agreed that members of his government, including cabinet ministers, would be allowed to speak out against the official line during the campaign, which is expected to be later this year.

While the holders of the top offices of state – including the chancellor, George Osborne, the foreign secretary, Philip Hammond and the home secretary, Theresa May – are likely to back staying in, other senior ministers, including the work and pensions secretary, Iain Duncan Smith, the leader of the House of Commons, Chris Grayling, and the Northern Ireland secretary, Theresa Villiers, want to campaign to leave. The spotlight will inevitably now turn to Boris Johnson, who attends cabinet in his role as mayor of London and sees himself as a future leader of the party. A longstanding critic of the EU, Johnson has yet to indicate whether he will campaign to stay in or leave.

Read more …

What would happen if pensions were cut along ‘Greek lines’ in countries like Holland, France? A two-tier union will not survive.

EU Eyes Start Of Greek Reforms Review January 18 (Reuters)

European creditors have penciled in Jan. 18 as the start of a review of reforms agreed under Greece’s latest bailout and aim to finish it in February, opening the door to talks on debt relief, euro zone officials said on Friday. “The first review mission is tentatively to start in the week beginning on Jan 18th. In practice, it might probably be a bit later,” one senior official said. A Commission spokesperson confirmed the EU executive expected the review mission to start later in January, but not the exact date. The formal review, the first since the euro zone and Greece agreed on a third bailout package in August, is to include controversial reforms like changes to Greece’s pension system, a plan for which Athens sent to Brussels this week.

Euro zone officials said the broad outline of the Greek pension reform was acceptable, but it was still unclear if the measures would bring the desired fiscal effect. For European creditors, one of the key aims of the reform is to increase incentives for Greeks to work longer. “We don’t have a problem with the broad architecture of the reform. But does it add up? We need to get more numbers and technical data from Athens to be able to tell,” a second official said. The official said that while there was no real urgency to closing the reform review, a pre-requisite for further loan disbursements and for the start of promised talks on debt relief, Greece’s liquidity situation was tightening. Greece will have to pay around €1.4 billion in interest in February, around €470 million of which would be on loans from the euro zone bailout fund EFSF and the rest on other bonds, a third official said. The country’s government also owes around €7 billion to various companies in unpaid invoices, putting some on the edge of bankruptcy.

Read more …

SYRIZA and Europe’s main problem: Democracy can pass swiftly from the booth to the street.

‘Greek Government Has Solid Majority To Pass Pension Reform’ (Reuters)

Greece’s leftist government will be able to push through a crucial pension reform in parliament, part of measures the country has agreed to under its international bailout, the deputy prime minister said in a newspaper interview released on Saturday. Greece has drafted a proposal to overhaul its ailing pension system, which envisages merging all six pension funds into one and a possible cut of future main pensions by up to 30 percent. It plans to submit the proposal to parliament by the end of the month and to hold a vote on it in early February. Prime Minister Alexis Tsipras’s government has a parliamentary majority of just three seats and the reform, which opposition parties and many pensioners and workers oppose, will test its resolve to implement actions agreed with international creditors.

Asked whether Tsipras’ ruling coalition has secured enough support from lawmakers for the reform, Deputy Prime Minister Yannis Dragasakis said in an interview with Avgi newspaper: “The government has a strong and solid (parliamentary) majority.” “But passing the relevant law won’t be enough,” he said, adding that the government should also secure backing from workers and political parties to implement the changes. Hundreds of Greek pensioners and workers marched in central Athens on Friday to protest against the plan, which is part of a package of reforms Athens needs to implement to conclude the first review of its €86 billion bailout and start debt relief talks.

A representative of the country’s international lenders said on Saturday that the review could be wrapped up within a reasonable time frame as long as Greece stuck to its reform program. “The Greek government demonstrated a certain degree of commitment to delivering on its mandate to implement the Memorandum of Understanding (MoU) which was agreed last August with the other euro area governments,” the ECB’s Monetary Policy Strategy division head Rasmus Rueffer said in an interview with Proto Thema newspaper.

Read more …

This is France, Britain.. What on earth have we become? “Every unaccompanied child the Observer spoke to testified to alleged police brutality. All claimed to have had either pepper sprays, water cannon or truncheons used on them. …”

Anger Over Fate Of Child Refugees Denied UK Asylum Hearing (Observer)

Under a clause in the EU’s Dublin Regulation covering hearing of asylum claims, refugees who have close family members in a particular EU country can claim asylum there. But according to campaigners, the Home Office has in numerous cases chosen to ignore that right. Masud was among a group of children listed in a legal challenge against the Home Office that will be heard in London on 18 January. Lawyers had handpicked the young Afghan as one of the most desperate cases in Calais – a vulnerable and lonely child who deserved to be urgently reunited with a family member. “Masud was a 15-year-old boy in need of protection, a boy in need of his sister here in the UK,” said the Bishop of Barking, Peter Hill, a spokesperson for campaign group Citizens UK.

“Every single night, desperate children are climbing into lorries and jumping on to train tracks to try and reach their families. Our government must act to honour its obligations and help these children.” On Saturday, Citizens UK launched an online petition demanding that David Cameron act to stop more teenagers from dying as they attempt to reach their relatives. Shadow immigration minister Keir Starmer, who visited the Jungle on Friday, announced that he would be writing to the home secretary, Theresa May, on Monday, asking why pledges she made last year to implement the Dublin Regulation and help the most vulnerable migrants – unaccompanied children – had led to so little action on the ground.

Aid charities have reported a surge in the volume of unaccompanied youngsters living in tents in Calais with no support from the French state. Others warn they are vulnerable to traffickers, describing the child protection issues as enormous. “We are aware that there is an increasing trend for unaccompanied minors to be facilitated into and across the EU,” a Europol spokesman said, adding that about 7,000 had been reported among the flow of refugees – a figure they said was rising. Liz Clegg, who runs an independent women’s and children’s hospital in the Jungle, estimates that there are hundreds of unaccompanied children in the camp at any given point. [..] Provisional work to identify Jungle migrants who have a clear legal right to live in Britain under the Dublin Regulation has tentatively identified 200, scores of them unaccompanied children.

“They all have the right to transfer their claim to Britain, so what is going on? It’s disgusting,” said Clegg. Charities warn that many unaccompanied minors simply disappear from the Jungle, often mysteriously. “We’ve even had siblings who don’t know where the other has gone,” added Clegg. “Sometimes we never hear of them again.” Of the seven refugees who once shared a tent with Masud and Nabi, four are believed to have made it to England, one is in Paris, the youngest is dead and Nabi remains in the Jungle. Elizabeth Fraser, whose charity Miracle Street provides a generator for refugees to use in the Jungle, said: “So many unaccompanied children seem to go missing. I remember once there were three Afghan brothers aged 10, 13, 16, and after a few days they also went. Nobody knows where to.”

Read more …

Jan 092016
 
 January 9, 2016  Posted by at 9:42 am Finance Tagged with: , , , , , , , , ,  


DPC Longacre Square, soon to be Times Square 1904

Worst First Five Days of Year Ever For US Stocks Dim Outlook (WSJ)
The End of the Monetary Illusion Magnifies Shocks for Markets (BBG)
More Than 40% Of Young Americans Use Payday Loans Or Pawnshops (Ind.)
British People Donating Bodies To Science To Avoid Funeral Costs (Tel.)
Multiple Jobholders Responsible For 64% Of Net US Job Gains (ECRI)
First Profit Fall In 48 Years Looms Over US Energy Sector (MarketWatch)
Mining’s $1.4 Trillion Plunge Like Losing Apple, Google, Exxon Combined (BBG)
Inventor of Market Circuit Breakers Says China Got It Wrong (BBG)
China Market Tsar In Spotlight Amid Stock Market Turmoil (Reuters)
As Growth Slows, China’s Era of Easy Choices Is Over (WSJ)
Why China Shifted Its Strategy for the Yuan, and How It Backfired (WSJ)
China Finds $3 Trillion Just Doesn’t Pack the Punch It Used To (BBG)
Shock, Laughter Greet Plan for Saudi Arabia’s Record Oil IPO (BBG)
Saudi Aramco’s Fire Sale (BBG)
US Accuses Volkswagen Of Poor Co-Operation With Probe (FT)
Visible Light From Black Holes Detected For First Time (Guardian)
Refugees Struggle In Sub-Zero Temperatures In Balkans (BBC)
Greek Police, Frontex To ‘Check’ Volunteers On Islands Receiving Migrants (Kath.)

China went up on Friday, but Wall Street did not. Omen?

Worst First Five Days of Year Ever For US Stocks Dim Outlook (WSJ)

The Dow industrials tumbled more than 1,000 points this week, marking the worst first five days of any year, as volatility across the globe rattled investors. Traders said they are bracing for further big swings in the weeks to come. The Dow fell 1% Friday after starting the day in positive territory amid a strong U.S. jobs report and an uneventful session in China’s markets overnight. But shares slumped in afternoon trading as investors became unwilling to enter the weekend exposed to the risk of further losses. In all, U.S. stocks lost $1.36 trillion in value this past week.

The unusually severe drop highlighted the precarious position of markets caught between relatively high valuations—attributable in part to years of easy money from central banks—and a new round of uncertainty about the fundamental underpinnings of key parts of the global economy. “The conundrum is there are parts of the world that are doing fine…and we have pockets that aren’t doing so well,” said Lawrence Kemp, head of BlackRock’s Fundamental Large Cap Growth team. “Given what’s going on in China and the rest of the world, the U.S. economy could grow a little more slowly.” The Dow Jones Industrial Average lost 1,078.58 points in the first week of 2016, down 6.2%. The broader S&P 500 was down 6%, also its worst five-day start to a year, and the Nasdaq Composite Index was down 7.3%.

Traders said the glum tone is likely to carry over into the coming week, as U.S. companies start reporting earnings for the last quarter of 2015. Corporate-earnings reports are widely expected to be underwhelming. The strong dollar is weighing on the competitiveness of U.S. exporters and the dollar value of companies’ overseas sales. Oil prices, which fell below $33 a barrel Friday in New York before closing at $33.16, continue to weaken. And China’s growth remains slow. Fourth-quarter earnings by companies in the S&P 500 are expected to come in 4.7% lower than they were a year earlier, according to FactSet.

Read more …

Central banks

The End of the Monetary Illusion Magnifies Shocks for Markets (BBG)

Central bankers are no longer the circuit breakers for financial markets. Monetary-policy makers, market saviors the past decade through the promise of interest-rate reductions or asset purchases, now lack the space to cut further or buy more. Even those willing to intensify their efforts increasingly doubt the potency of such policies. That’s leaving investors having to cope alone with shocks such as this week’s rout in China or when economic data disappoint, magnifying the impact of such events. “The monetary illusion is drawing to a close,” said Didier Saint Georges at Carmignac Gestion, an asset-management company. “With central banks becoming increasingly restricted in their stimulus policies, 2016 is likely to be the year when the markets awaken to economic reality.” Even against the backdrop of this week’s market losses, Fed officials signaled their intention to keep raising interest rates this year.

Those at the ECB and BoJ ended last year playing down suggestions they will ultimately need to intensify economic-aid programs. They have only themselves to blame for becoming agents of volatility, according to Christopher Walen at Kroll Bond Rating. He told Bloomberg TV this week that officials’ willingness to keep interest rates near zero and repeatedly buy bonds and other assets meant they became “way too involved in the global economy” and should have left more of the lifting work to governments. The handover to looser fiscal policy now needs to happen if economic growth and inflation are to get the spur they need, said Martin Malone at London-based brokerage Mint Partners. “Major economies have exhausted monetary and foreign-exchange policies,” he said. “Government action must take over from central-bank policies, triggering more confident private-sector investment and spending.”

Read more …

Yeah, recovery.

More Than 40% Of Young Americans Use Payday Loans Or Pawnshops (Ind.)

Young people are turning to desperate means to make ends meet. New figures that show 42% of Millennials, the generation born between 1980 and the mid-1990s, have turned to alternative finance including payday lenders and pawnshops in the past five years. The numbers come from a survey of more than 5,000 Millennials in the US by PriceWaterhouseCoopers and the Global Financial Literacy Excellence Center at George Washington University. Reports show that Millennials are high users of payday loans in the UK too. A 2014 report by the Financial Ombudsman Service showed that customers complaining about payday lenders were far more likely to be drawn from the 25-34 age group than any other.

The PwC study showed that a third of Millennials are very unsatisfied with their current financial situation and 81% have at least one long term debt, like a student loan or mortgage. That’s before they are saddled with interest on a payday loan that can be as much as 2000%. “They have already maxed out everything else and so they’re going to behavior that’s deemed even riskier,” said Shannon Schuyler, PwC’s corporate responsibility leader. The report also found that almost 30% of Millennials are overdrawn on their current accounts and more than half carry a credit card. Millennials are not the only generation suffering from rising debts. Earlier this week the Bank of England published a report showing that household borrowing surged in the run up to Christmas. The monthly cash rise in consumer credit for November 2015 was the highest since February 2008.

Read more …

The shape of things to come. Who can afford a $5000-6000 funeral?

British People Donating Bodies To Science To Avoid Funeral Costs (Tel.)

People are choosing to donate their body to science to avoid the cost of paying for a funeral, MPs have been warned. A leading forensic anthropologist said giving remains to anatomy departments can be seen as a way of avoiding the burden of funeral costs. However, science departments are not always able to take a person’s body, because of disease or because there is simply no space. Professor Sue Black, Director of the Centre for Anatomy and Human Identification at the University of Dundee, told the bereavement benefits inquiry families can be shocked to realise their loved one’s remains cannot be donated. “It is important that bequeathal is not viewed as an option to address funeral poverty although for some individuals it is unquestionably used in this manner,” she said.

As Dundee has one of the highest levels of child and adult poverty in Scotland, Professor Black said it is “not unusual for our bequeathal secretary to receive calls that will relate to concerns over funeral costs.” The Work and Pensions Committee is investigating funeral poverty after a freedom of information request by the BBC found the cost to local councils of so-called “paupers’ funerals” has risen almost 30pc to £1.7m in the past four years. The number of public health funerals, carried out by local authorities for people who die alone or whose relatives cannot afford to pay, has also risen by 11pc. [..] Bodies donated to science are mainly used for medical training and research.

But some are turned down because they are not suitable for educational use, for example if there has been a post-mortem and the body has already been dissected, or because the person has had a particularly destructive form of cancer, or if they have had an organ transplant. Potential donors must also make their wishes clear in their lifetime. “It’s really important that if people think that they want to donate their body, there are things that they must do. It’s not enough to say if verbally, they have to either find the consent forms or make a legal statement in a will or testament,” Professor Black said. The average cost of a basic funeral is now £3,702 according to a recent report.

Read more …

Could be the major take-away from yesterday’s BLS report. Employment numbers do not reflect those of the employed.

Multiple Jobholders Responsible For 64% Of Net US Job Gains (ECRI)

The latest jobs report far exceeded consensus expectations as the economy added 292,000 nonfarm payroll jobs. But a closer look at the details reveals why concerns remain about the health of the labor market. In December, year-over-year (yoy) growth in multiple jobholders rose to an 11-month high, while yoy growth in single jobholders eased to a three-month low. Specifically, since May the number of multiple jobholders has increased by 752,000, while single jobholders have increased by 429,000. In other words, multiple jobholders have been responsible for 64% of the net job gains since last spring. The disproportionate importance of multiple jobholders – forced to cobble together a living – shows why the labor market is weaker than it seems. Notably, as long as these multiple jobholders log 35 hours of work per week – no matter how many part-time jobs that takes – they are considered full-time.

Read more …

1967. Remember?

First Profit Fall In 48 Years Looms Over US Energy Sector (MarketWatch)

The energy sector will depress U.S. fourth-quarter earnings and subdue growth for the entire S&P 500, making 2015 the weakest year for earnings since 2008, Goldman Sachs said Friday. The bank trimmed its S&P 500 earnings-per-share estimates for 2015, 2016 and 2017 in a note that highlighted three factors it expects to feature in earnings releases and on conference calls this year. The fourth-quarter and 2015 earnings season kicks off next week. The report from Aluminum producer Alcoa, scheduled for Monday after the market’s close, is seen as the unofficial start of several weeks of corporate news. The first factor Goldman highlighted is the energy sector, which the bank says is about to show a decline in operating earnings per share for 2015, its first negative reading since the bank started keeping records in 1967. “Energy EPS has collapsed along with crude oil prices,” analysts wrote in a note.

Energy EPS is highly sensitive to the price of oil, which Goldman is assuming will average $44 a barrel this year. Crude futures were trading below $33 a barrel early Friday, after hitting their lowest level since 2004 this week. Energy companies have been hammered by the slump in oil prices caused by oversupply, which has made some shale plays unprofitable and led companies to slash spending budgets, sell underperforming assets and cut staff and other costs. “The write-down in energy company assets has exacerbated the earnings hit from the 35% fall in Brent crude oil prices in 2015, following a 48% plunge in the commodity price in 2014,” said the note. In 2014, the energy sector accounted for $13, or 12%, of the overall S&P 500’s EPS reading of $113. In 2015, that contribution had tumbled to a loss of $2. That means energy contributed a $15 decline to S&P 500 earnings, which more than outweighed EPS gains in other sectors, said the note.

Read more …

Much more downside to come.

Mining’s $1.4 Trillion Plunge Like Losing Apple, Google, Exxon Combined (BBG)

The $1.4 trillion lost in global mining stocks since 2011 exceeds the total market value of Apple, Exxon Mobil and Google’s parent Alphabet. When you’ve spent a decade building new mines from the Andean mountains to the West African jungle, it’s bad news when a downturn in China, your biggest customer, shows no signs of stopping. Investors have been unforgiving and concerns that it will only get worse pushed the Bloomberg World Mining Index to an 11-year low. “It’s terrible, there are no two ways about it,” said Paul Gait at Sanford C. Bernstein in London. “A lot of people were hoping at the start of 2016 to see at least some stabilization in the commodity performance in these stocks. Essentially people were looking to close the consensus short that has characterized 2015. This has clearly not happened.”

BHP Billiton and Rio Tinto were once among the world’s largest companies. Shares of the biggest commodity producers trading in London are now at least twice as volatile as the U.K.’s benchmark stock index. Raw-material prices slipped to the lowest since 1999 on Thursday, with China’s stock market suffering its worst start to the year in two decades after the central bank cut the yuan’s reference rate by the most since August. A weaker currency encourages exports from the nation and makes it costlier for it to import commodities, hurting those that supply them. Anglo American, worth almost £50 billion ($73 billion) in 2008, is now valued at £3.1 billion. The 99-year-old company, which is the world’s biggest diamond and platinum producer and owns some of the best copper and coal mines, is now worth less than mid-tier Randgold and copper miner Antofagasta.

Apple, the world’s most valuable company, is worth about $549 billion. Alphabet is valued at $510 billion and Exxon $321 billion. The Bloomberg mining index of 80 stocks slumped as much as 4.1% on Thursday to the lowest since 2004. Anglo closed down 11% in London to the lowest since it started trading in 1999. BHP tumbled 5% and Rio retreated 3.4%. Glencore settled down 8.3%.

Read more …

They seem to get a lot wrong.

Inventor of Market Circuit Breakers Says China Got It Wrong (BBG)

The man responsible for stock circuit breakers says Chinese officials must revise their safety net to avoid creating panic, joining critics who argue the nation’s trading halts are triggered too easily for such a volatile market. “They’re just on the wrong track,” said Nicholas Brady, 85, the former U.S. Treasury secretary who ran a committee that recommended the curbs on equity trading after the 1987 crash. “They need a set of circuit breakers that appropriately reflects their market.” Brady spoke Thursday after Chinese regulators suspended their newly introduced program that ends stock trading for the entire day after a 7% plunge. The halt was set off twice in its first week of operation, bolstering speculation China set its threshold too low. “The right thing to do is to widen their band,” Brady said in an interview.

The U.S. confronted a similar problem in the 1990s. The curb that the Brady Commission helped implement shut the market for the first time on Oct. 27, 1997, when the Dow Jones Industry Average lost 554 points. That was only a 7.2% decline, almost identical to the Thursday plunge in China’s CSI 300 Index. The trouble was that a decade-long surge in U.S. stock prices had diminished the value of each point in the Dow. The 1987 crash’s 508-point slump had amounted to a 23% tumble, three times greater than the decline that froze trading 10 years later. Regulators and exchanges pushed through a revision: If the Dow fell 10%, there would be an hour pause. At 20%, trading would cease for two hours, and at 30%, the day would end early.

In recent years, the benchmark that triggers the halts switched to the Standard & Poor’s 500 Index and the levels changed. Now it takes 7% and 13% drops to prompt a brief pause, and a 20% decline to close markets early for the day. Whereas 7% losses are rare in the U.S. – they were only common during the 2008 financial crisis, October 1987, and the Great Depression – Chinese shares have dropped about that much seven times in the past year. “I don’t think this is an exact science,” said Sang Lee, an analyst at financial-markets researcher Aite Group. With circuit breakers, “If you set these too low, instead of easing volatility it may increase volatility. That echoes the view of Brady, who was chairman of Wall Street powerhouse Dillon Read & Co. when President Ronald Reagan asked him to figure out what happened during the 1987 crash and propose solutions.

Read more …

Lost in Beijing hubris.

China Market Tsar In Spotlight Amid Stock Market Turmoil (Reuters)

Xiao Gang, China’s stock market tsar, once remarked that the only thing he’d done right in life was marry his wife. No doubt the self-effacing Xiao, chairman of China Securities Regulatory Commission (CSRC), has done many other things right. Managing the stock market, though, might not be a high point of his career. Xiao faced internal criticism from the ruling Communist Party for his handling of the stock market crash last year, sources with ties to the leadership said at the time. In another blow, a “circuit breaker” mechanism to limit stock market losses that was introduced on Monday was deactivated by Thursday after it was blamed for exacerbating a sharp selloff. Online media had nicknamed Xiao “Mr Circuit Breaker”.

“There has to be responsibility. People are looking to the leader at the regulator. Xiao Gang is the public face,” said Fraser Howie, an independent China market analyst. “He was lucky to keep his job after the fiasco of July and August.” Xiao, 57, became chairman of the CSRC in the leadership churn when President Xi Jinping came into power, taking the helm of the regulator in March 2013. At the time, Chinese markets had been among the world’s worst-performing for six years – indeed they had not recovered from their collapse during the global financial crisis. Unfortunately for Xiao, they still haven’t. The challenge Xiao faced upon taking up the post was enormous: to attract fresh investment into equities from speculative bubbles in sectors like real estate, while defending against endemic insider trading.

To pull any of this off he needed to first convince China’s legions of small retail investors, who dominate transactions but are infamously fond of quick-hit speculative plays, that stocks are a safe place to park long-term capital. The urgency was heightened by the need to deal with China’s corporate debt overhang – Chinese firms had become almost entirely dependent on bank loans for financing, which naturally prejudiced economic development toward collateral-rich heavy industry and away from the innovative, nimble technology companies that tend to rely more on stock issuances to fund quick growth.

Read more …

Chinese politics clash with economics. By default. It’s not just pushing a button or pulling a lever.

As Growth Slows, China’s Era of Easy Choices Is Over (WSJ)

China has pulled hundreds of millions of people from poverty, supercharged its economy and burnished the pride of a nation that stood weak and isolated only decades ago. But swelling levels of debt, bloated state companies and an overall aversion to market forces are swamping the world’s second-largest economy, threatening to derail China’s ascent to the ranks of rich countries. As Beijing battles another bout of stock-market turmoil—and global markets shudder in response—the risks of doing nothing about these deep-seated problems are rising, economists said. Without a change in course, they said, China faces a period of low growth, crimped worker productivity and stagnating household wealth. It’s a condition known as “the middle-income trap.” “The era of easy growth is over,” said Victor Shih, professor at the University of California-San Diego.

“It’s increasingly about difficult choices.” Some economists don’t rule out an abrupt drop in growth, a hard landing that would see bad debts soar, consumer confidence tank, the Chinese yuan plunge, unemployment spiral and growth crater. More likely is that Beijing will continue to prop up growth, steering more capital to money-losing companies, unneeded infrastructure and debt servicing, depriving the economy of productive investment and leading to the sort of protracted malaise seen in Japan in recent decades. But China is less prosperous than Japan. An anemic China would weaken global growth at a time of low demand and prolong the downturn for big commodity producers like Brazil that have been dependent on the Asian economic giant. “They don’t want to take the pain,” said Alicia Garcia Herrero at investment bank Natixis. “But the longer they wait, the more difficult it becomes.”

Chinese leaders are aware of the risks. On Tuesday, Premier Li Keqiang called for a greater focus on innovation to spur new sources of economic growth and to revitalize traditional sectors, according to the Xinhua. A far-reaching economic blueprint laid out in 2013 after President Xi Jinping came to power vowed to let markets take a “decisive” role and build out a legal framework to restructure the economy and benefit consumers and small businesses, rather than industry. Progress to date, economists said, has been disappointing. Political objectives stand in the way. Mr. Xi has committed the government to meeting a goal of doubling income per person between 2010 and 2020, the eve of the 100th anniversary of the ruling Communist Party. That means, in Mr. Xi’s eyes, that growth must reach 6.5% annually. With global demand slipping and fewer Chinese entering the workforce, Beijing will need to resort to stimulus spending to get there, analysts said, delaying the reckoning with restructuring.

Read more …

“As of September, China’s outstanding foreign debt stood at $1.53 trillion. More than two-thirds of that amount is expected to come due within a year..”

Why China Shifted Its Strategy for the Yuan, and How It Backfired (WSJ)

The IMF’s decision on Nov. 30 to declare the yuan an official reserve currency removed an incentive for the central bank to keep propping up the currency. Rather, it aims to let it gradually depreciate with an eye toward sending it modestly higher in this year’s second half, according to advisers to the PBOC. That is when Beijing will host leaders from the Group of 20 major economies and will be eager to showcase China’s economic might. But that strategy is fraught with risks. Chief among them, analysts say, is the difficulty in reversing continued market expectations for a still-weaker yuan. In Hong Kong, where the yuan can be bought and sold freely, the Chinese currency now trades at a steep discount to its mainland cousin, whose trading is limited within a government-dictated band.

The gap has led some investors to try to profit from the different exchange rates, causing irregular flow of funds across China’s borders. By intervening in the Hong Kong market Thursday to try to cap the offshore yuan rate and at the same time allowing the onshore rate to weaken faster, the central bank appears to be attempting to find “a near-term market equilibrium level that can help the exchange rates converge,” analysts at HSBC wrote in a research note. The central bank also doesn’t want a too-weak yuan to exacerbate capital outflows and make it more difficult for Chinese companies to pay off their dollar-denominated debt. As of September, China’s outstanding foreign debt stood at $1.53 trillion. More than two-thirds of that amount is expected to come due within a year, according to government data.

Among the big foreign-debt holders are Chinese property companies, which have more than $60 billion of dollar debt outstanding, according to data provider Dealogic. Wary of continued weakening of the yuan, some Chinese companies are moving to pay off their debt early. State-run airliner China Eastern Airlines paid down $1 billion of dollar debts on Monday, citing the need to reduce its exposure to exchange-rate fluctuations. For many years, the prevailing investor sentiment had been the yuan had no way to go but up as China’s trade surplus surged. Investors have now shifted their mind-set to the other extreme.

Read more …

Will they have any FX reserves left a year from now? It’s not all that obvious.

China Finds $3 Trillion Just Doesn’t Pack the Punch It Used To (BBG)

China’s $3 trillion-plus in foreign currency reserves, the biggest such stockpile in the world, would seem to be a gold-plate insurance policy against the country’s current market chaos, a depreciating currency and torrent of capital leaving the country. Maybe not, say economists. First off, data point to an alarming burn rate of dollars at the People’s Bank of China. The nation’s stockpile of foreign exchange reserves plunged by $513 billion, or 13.4%, in 2015 to $3.33 trillion as the nation’s central bank coped with a weakening yuan and an estimated $843 billion in capital that left China between February and November, the most recent tally available according to data compiled by Bloomberg. “My greatest worry is the fast depletion of FX reserves,” said Yu Yongding, a member of China’s monetary policy committee when the currency was revalued in 2005.

True, trillions of dollars under the central bank’s care are thought to be invested in safe liquid securities, including Treasury bonds. The U.S. measure of China’s holdings of Treasuries, the benchmark liquid investment in dollars, stood at $1.25 trillion in October, according to the U.S. Treasury Department, which cautions that the figures may not reflect the true ownership of securities held in a custodial account in a third country. In China, like some other countries, the exact composition of China’s reserves is a state secret. But analysts worry the currency armory may not be as strong as it looks. That’s because some of the investments may not be liquid or easy to sell. Others may have suffered losses that haven’t been accounted for.

In addition, some Chinese reserves may have already been committed to fund pet government projects like the Silk Road fund to build roads, ports and railroad across Asia or tens of billions in government-backed loans to countries such as Venezuela, much of which is repaid through oil shipments. Then there are other liabilities that China needs to cover, such as the nation’s foreign currency debt to finance and manage imports denominated in overseas currencies. When those factors are taken into account, some $2.8 trillion in reserves may already be spoken for just to cover its liabilities, according to Hao Hong at Bocom International. “Considering China’s foreign debt, trade and exchange rate management, it needs around $3 trillion in foreign exchange reserves to be comfortable.” he said.

[..] “Where is the line in the sand, and what happens when we get there?,” said Charlene Chu, the former Fitch analyst known for her warnings over China’s debt risks. “China’s large hoard of foreign reserves gives the country considerable power and influence globally, and I would think they would want to protect that. If there is such a line in the sand, it is very possible we hit it in 2016.” To be sure, intervention isn’t the only thing dragging China’s reserves lower. There’s also a valuation impact from fluctuating currencies. Some of the fall may also reflect authorities accounting for its investments. Chu reckons much of the decline up to June 2015 was mostly due to investments in illiquid assets and valuation changes rather than capital outflows.

Read more …

“The company could be worth anything from $1 trillion to upwards of $10 trillion..”

Shock, Laughter Greet Plan for Saudi Arabia’s Record Oil IPO (BBG)

When one financial adviser heard about Saudi Arabia’s plans to list a company larger than the economies of most nations, he had to pull over his car because he was laughing so hard. Saudi Arabian Oil Co., or Aramco, the world’s largest oil producer, said Friday it’s considering an initial public offering. It confirmed an interview with Deputy Crown Prince Mohammad bin Salman published in the Economist Thursday. The news was greeted with incredulity in the financial industry, according to interviews with a half dozen bankers who do business in the Middle East. They asked not to be identified to protect their business interests. For one thing, Aramco’s inner workings are opaque, making its true value a mystery. Then there’s the timing. The price of crude oil is near its lowest level in more than a decade.

Discussions with Aramco about selling assets in the past had been about much smaller parts of the business, five of the people said. An initial public offering of the entire enterprise had only ever been discussed as a joke, one of the people said. The company could be worth anything from $1 trillion to upwards of $10 trillion, which would make it the most valuable company in the world, according to a note from Jason Tuvey at research firm Capital Economics. The last mega IPO from the oil industry was a decade ago, when Russia’s OAO Rosneft raised more than $10 billion. Even if Saudi Arabia sells a small stake, a listing could easily surpass that of Alibaba whose $25 billion IPO is the largest on record. Still, Aramco is unlikely to list on the biggest exchanges, according to Bloomberg oil strategist Julian Lee.

That would require the government to give investors more detailed information about Aramco’s reserves and production capacity, something oil-producing nations consider state secrets, he said. Aramco is considering selling an “appropriate%age” of its shares in the capital markets or listing a bundle of its subsidiaries, it said in the statement. Saudi Arabia typically sells stakes in state-owned companies to the public at below market value as part of its efforts to redistribute wealth. National Commercial Bank raised $6 billion in 2014 in the Middle East’s largest share sale. As the bankers do the sums, a big IPO won’t necessarily translate into big fees. Governments often pay low fees on their exits.

Read more …

“.. it’s hard not to see talk of floating Aramco as a defensive move forced on a kingdom that is under pressure on the financial, political and military fronts.”

Saudi Aramco’s Fire Sale (BBG)

That strange and rather unappetizing sound you just heard was the world’s energy bankers simultaneously salivating over the prospect of the oil deal of the century. In an interview published Thursday by The Economist, Saudi Arabia’s deputy crown prince Muhammad bin Salman said his country is considering privatizing Saudi Aramco. A quick back-of-the-envelope calculation for a company whose oil reserves dwarf those of Exxon Mobil yields a potential market capitalization of: gajillions. Apart from anything else, Aramco’s role in supplying roughly a tenth of the world’s oil would make its earnings guidance required reading not merely for sell-side analysts, but central bankers, government leaders and generals, too.There are many caveats here, beginning with the fact that the privatization is “something that is being reviewed.”

And if privatization were to proceed, it might well involve listing shares in some downstream part of Aramco such as petrochemicals, rather than the core upstream business or parent company. The bigger issue, though, is the idea appearing to have any traction at all and being spoken of publicly by no less a figure than the deputy crown prince. It adds a further twist to a narrative emanating from Saudi Arabia that suggests the global oil market is undergoing epochal change. The interview was wide-ranging, touching on relations with Iran and the U.S., women in the workforce, tax reform and possible privatization in many sectors, not just energy. And the deputy crown prince was in expansive mode, agreeing with his interviewer’s supposition that the autocratic kingdom is undergoing a “Thatcher revolution” and answering one question on attracting foreign investors with an almost Trumpian “I’m only giving out opportunities.”

The context for this sweeping vision, though, is the OPEC benchmark oil price having just slipped below $30 a barrel. The rational time to sell shares in Aramco would have been, let’s see, about 18 months ago, when oil was still trading in triple digits and the MSCI Emerging Markets Index was nudging 1100 rather than languishing below 750. Of course, other things play a part in deciding to privatize any state jewel of this scale – such as, in the words of the deputy crown prince, fostering transparency and strengthening the domestic stock market. Such factors were there, for example, in the privatization of China’s oil majors at the start of this century. Yet it’s hard not to see talk of floating Aramco as a defensive move forced on a kingdom that is under pressure on the financial, political and military fronts.

Saudi Arabia still sits on sizable foreign reserves. But the increases in (heavily subsidized) domestic fuel prices announced recently, as part of the country’s annual budget, indicate Riyadh’s desire to hunker down for a prolonged period of low oil prices. Indeed, it is possible that raising money from an Aramco IPO would be designed to show that the state is making its own sacrifices. [..] Change is clearly in the air. Riyadh is due later this month to unveil a medium-term “National Transformation Plan” aimed at, among other things, streamlining a public sector where wages swallow up nearly a fifth of GDP and diversifying the country’s tax base. This comes soon after a decision to open the country’s stock market to foreign investors. And, of course, it is happening amid an ongoing policy to maximize oil production in a suddenly much more competitive global oil market.

In one unnerving respect, this is bullish for oil: Ossified political structures are highly vulnerable precisely when they seek even partial reform. Any destabilization in Saudi Arabia could provide the supply shock that clears the glut in oil and raises oil prices. But don’t forget the warnings given by Saudi Arabia’s petroleum minister just over a year ago that global oil demand growth may face a “black swan” in the next few decades. Viewed through that lens, the policy of pumping more barrels out now looks like not merely a strategy to maintain market share but also to simply monetize reserves that might otherwise be left to mire underground. Take it one step further, and you might say the same of Riyadh suddenly deciding it’s time to cash in on Saudi Aramco now, oil price be damned.

Read more …

“VW cited German law as its reason for not co-operating.”

US Accuses Volkswagen Of Poor Co-Operation With Probe (FT)

Volkswagen is failing to co-operate sufficiently with a US investigation into the emissions scandal, according to New York attorney-general Eric Schneiderman, who warned that the authorities’ patience was “wearing thin”. Mr Schneiderman said on Friday that VW’s co-operation with a probe involving 47 state attorneys-general had been “spotty” and “slow”, adding to the German carmaker’s mounting troubles in the US. On Monday, the Department of Justice sued VW in a civil case, seeking at least $45bn in penalties. The US authorities’ clash with VW came as the company said that its annual sales had fallen last year for the first time in more than a decade.

A combination of the emissions scandal and turmoil in emerging markets has taken a toll on Europe’s biggest carmaker, pushing group-wide sales below 10m units in 2015. VW admitted in September that it had installed “defeat devices” in up to 11m cars, including 482,000 in the US, that served to understate the diesel-powered vehicles’ emissions of nitrogen oxides during official tests. The 47 state attorneys-general, plus prosecutors in Washington DC, are investigating whether VW violated environmental laws and misled consumers. The justice department is pursuing a similar probe now relating to almost 600,000 VW cars in the US.

“Volkswagen’s co-operation with the states’ investigation has been spotty — and frankly, more of the kind one expects from a company in denial than one seeking to leave behind a culture of admitted deception,” Mr Schneiderman said. He added that VW had been slow to produce documents from its US files, had sought to delay responses until it completed its own investigation, and had “failed to pursue every avenue to overcome the obstacles it says that German privacy law presents to turning over emails from its executives’ files in Germany”. “Our patience with Volkswagen is wearing thin,” Mr Schneiderman said. The New York Times first reported that VW was not handing over documents to the US authorities. VW cited German law as its reason for not co-operating.

Read more …

Not long ago the very idea was considered heresy.

Visible Light From Black Holes Detected For First Time (Guardian)

Astronomers have discovered that black holes can be observed through a simple optical telescope when material from surrounding space falls into them and releases violent bursts of light. The apparent contradiction emerges when a black hole’s gravity pulls in matter from nearby stars, producing light that can be viewed from a modest 20cm telescope. Japanese researchers detected light waves from V404 Cygni – an active black hole in the constellation of Cygnus, the Swan – when it awoke from a 26-year-long slumber in June 2015. Writing in the journal Nature, Mariko Kimura of Kyoto University and others report how telescopes spotted flashes of light coming from the black hole over the two weeks it remained active. The flashes of light lasted from several minutes to a few hours. Some of the telescopes were within reach of amateur astronomers, with lenses as small as 20cm.

“We now know that we can make observations based on optical rays – visible light, in other words – and that black holes can be observed without high-spec x-ray or gamma-ray telescopes,” Kimura said. The black hole, one of the closest to Earth, has a partner star somewhat smaller than the sun. The two objects circle each other every six-and-a-half days about 8,000 light years from Earth. Black holes with nearby stars can burst into life every few decades. In the case of V404 Cygni, the gravitational pull exerted on its partner star was so strong that it stripped matter from the surface. This ultimately spiralled down into the black hole, releasing a burst of radiation. Until now, similar outbursts had only been observed as intense flashes of x-rays and gamma-rays.

At 18.31 GMT on 15 June 2015, a gamma ray detector on Nasa’s Swift space telescope picked up the first signs of an outburst from V404 Cygni. In the wake of the event, Japanese scientists launched a worldwide effort to turn optical telescopes towards the black hole. The flickers of light are produced when x-rays released from matter falling into the black hole heat up the material left behind. Poshak Gandhi, an astronomer at Southampton University, said the black hole looked extremely bright when matter fell in, despite being veiled by interstellar gas and dust. “In the absence of this veil, V404 Cygni would have been one of the most distant objects in the Milky Way visible in dark skies to the unaided eye in June 2015,” he writes in the journal.

Read more …

Death stalks Europe.

Refugees Struggle In Sub-Zero Temperatures In Balkans (BBC)

Medics working at refugee aid camps in the Balkans say they are seeing a spike in the number of migrants falling ill as freezing temperatures arrive. It has fallen to as low as -11C (12F) in the region. The medical charities International Medical Corps and Medecins Sans Frontieres say most patients are suffering with respiratory problems such as bronchitis and flu. There are also concerns about people refusing or not seeking treatment. Migrants are offered medical assistance, warm clothes and food at the main refugee points at the Serbian border with Macedonia to the south, and Croatia to the north. International Medical Corps runs a makeshift clinic at the train station in the tiny town of Sid, in northern Serbia “Last week, when temperatures were a bit less, we were seeing around 50 to 60 people a day,” said Sanja Djurica, IMC team leader.

“This week, now that temperatures have fallen, it’s more like 100 or so a day.” “Almost all of them are suffering with respiratory illnesses brought on by the cold.” I met the Al-Maari family, who are making the journey as the snow falls thick and fast. They fled Syria three weeks ago, and have been on the road ever since. They are travelling with four children, the youngest is just two years old. His brother Mohammad, seven, is suffering with fever and a chest infection. “We are on a journey of death,” said Mohammad’s uncle, Iyad Al-Maari. “We can endure. But I am worried about the children – the cold, disease and hunger.” Mohammad is not thought to be seriously ill. Iyad said the family are determined to continue to Germany, where the children’s father is waiting for them.

“Some people are refusing further medical help after we’ve assessed them,” said Tuna Turkmen from MSF in Serbia. “Even if they are referred to hospital, most don’t go. They just want to keep moving… in case borders suddenly close and they are left stranded.” With tears in her eyes, Mohammad’s mother, Malak, said: “We didn’t want any of this… we just want the war to end in Syria.” The stress and anxiety can be seen clearly on Malak’s face. She is traumatised and desperate. Medics have also highlighted the enormous psychological impact on those making these journeys. International Medical Corps has psychologists on hand in Sid, and even though people only tend to stay there for a few hours, medics and aid workers do have some time to deliver “psychological first aid”. “It’s emotional comfort, empathetic listening and encouraging coping techniques,” said Sanja Djurica.

Read more …

Checking those who filled in when Europe was a no-show. What a joke.

Greek Police, Frontex To ‘Check’ Volunteers On Islands Receiving Migrants (Kath.)

The Greek Police and [EU border agency] Frontex are to carry out checks on non-governmental organizations and volunteers on islands of the northern Aegean which have been receiving large numbers of migrants, sources have told the Athens-Macedonia News Agency. “Our goal is not to offend the volunteers and employees of NGOs nor to disrupt their work but to simply highlight the presence of the police on the coastline and generally in areas where migrants and refugees are disembarking,” a police source told AMNA. There will also be an investigation into reports that certain individuals posed as refugees in order to steal the personal belongings of refugees or the smuggling boats on which they reach the islands. The broader checks will seek to determine that people declaring themselves as volunteers are working for an accredited organization. The aim is to restore a sense of security on the islands, police source said, not to prevent the work of the NGOs.

Read more …

Jan 082016
 
 January 8, 2016  Posted by at 9:50 am Finance Tagged with: , , , , , , , , ,  


Unknown Charleston, SC, after bombardment. Ruins of Cathedral of St John and St Finbar 1865

Slowing Productivity Fast Becoming A Global Problem (Lebowitz)
Dow, S&P Off To Worst Four-Day Jan Start Ever As China Fears Grow (Reuters)
US Stock Markets Continue Plunge (Guardian)
China Has Not One Insolvable Problem, But Many Of Them (Mish)
Capital Flight Pushes China To The Brink Of Devaluation (AEP)
China Stocks Rebound as State Funds Said to Buy Equities (BBG)
China’s Yuan Fixing Calms Markets as Asian Stocks Rally With Oil (BBG)
The Decline Of The Yuan Destroys Belief In Central Banking (Napier)
One Big Market Casualty: China Regulators’ Reputation (CNBC)
China Orders Banks To Limit Dollar Buying This Month To Stem Outflows (CNBC)
Yuan Depreciation Risks Competitive Devaluation Cycle (Reuters)
China’s Forex Reserves Post Biggest Monthly Drop On Record (Xinhua)
China’s Stock Market Is Hardly Free With Circuit Breakers Gone (BBG)
Iran Severs All Commercial Ties With Saudi Arabia (Reuters)
Saudi Arabia Considers IPO For World’s Biggest Energy Company Aramco (Guardian)
VW Weighs Buyback of Tens of Thousands of Cars in Talks With US (BBG)
Human Impact Has Pushed Earth Into The Anthropocene (Guardian)
Europe’s Economy Faces Confidence Test as Borderless Ideal Fades (BBG)
Turkey Does Nothing To Halt Refugee Flows, Says Greece (Kath.)

We’ve reached the end of a line. Not even the narrative works from here.

Slowing Productivity Fast Becoming A Global Problem (Lebowitz)

In “The Fed And Its Self-Defeating Monetary Policy” we focused our discussion on U.S. productivity, but weak and slowing productivity growth is not just an American problem. All of the world’s leading economies are, to varying degrees, exhibiting the same worrisome pattern. And slowing productivity is something investors across asset classes should pay attention to in 2016. The graph below compares annualized productivity trends from three time periods – the 7 years immediately preceding the financial crisis, the 5 years immediately following the crisis, and the 2 most recently reported years (2013 and 2014). The black dots display the change in trend from pre to post crisis.

In all cases the black dots are below zero representing slowing productivity growth. More troublesome, the world’s largest economies are most recently reporting either negligible productivity growth or a decline in productivity. Assuming that demographics are already “baked” and debt has been over-used to produce non-productive growth since well before the crisis, good old-fashioned productivity gains are what the global economy requires to produce durable organic growth in the developed world. Central bankers, politicians and investors are well advised to understand this dynamic.

Read more …

Jobs numbers today will be big.

Dow, S&P Off To Worst Four-Day Jan Start Ever As China Fears Grow (Reuters)

U.S. stocks sold off further on Thursday, giving the Dow and S&P 500 their worst four-day starts to a year ever, dragged down by another drop in Chinese equities and oil prices at 12-year lows. China allowed the biggest fall in its yuan currency in five months, adding to investor fears about the health of its economy, while Shanghai stocks were halted for the second time this week after another steep selloff. Oil prices fell to 12-year lows and copper prices touched their lowest since 2009, weighing on energy and materials shares. Shares of Freeport McMoran dropped 9.1% to $5.61. All 10 S&P 500 sectors ended in the red, though, and the Nasdaq Biotech index fell 4.1%. “People see the weakness in China and in the overall equity market and think there’s going to be an impact on corporations here in the United States,” said Robert Pavlik at Boston Private Wealth in New York.

“When you have a market that begins a year with weakness, people are sort of suspect anyway. The economy isn’t moving all that well, the outlook is modest at best, and they don’t want to wait for the long term. China creates more uncertainty.” The Dow Jones industrial average closed down 392.41 points, or 2.32%, to 16,514.1, the S&P 500 had lost 47.17 points, or 2.37%, to 1,943.09 and the Nasdaq Composite had dropped 146.34 points, or 3.03%, to 4,689.43. The Dow has lost 5.2% since the end of 2015 in the worst first four trading days since the 30-stock index was created in 1928. The S&P 500 is down 4.9% since Dec. 31, its worst four-day opening in its history, according to S&P Dow Jones Indices, while the Nasdaq is down 6.4%.

Read more …

Serious losses and serious jitters.

US Stock Markets Continue Plunge (Guardian)

US stocks continued to fall on Thursday as fears of an economic slowdown in China spooked investors around the world. The Dow Jones industrial average fell 392.41 points, or 2.32%, capping its worst four-day start to a year in more than a century. The S&P 500 posted its largest daily drop since September, losing 47.17 points, or 2.37%, to 1,943.09 and the Nasdaq Composite dropped 146.34 points, or 3%, to 4,689.43. The falls followed another day of turmoil on the world’s stock markets amid more signs that the Chinese economy is slowing. China moved early to try to head off more panic, scrapping a new mechanism that Beijing had initially hoped would prevent sharp selloffs.

Beijing suspended the use of “circuit breakers” introduced to halt trading after dramatic selloffs. The circuit breakers appear to have exacerbated the selloffs, as would-be sellers waited for the markets to open again in order to sell. The decision came after the breaker was tripped for the second time in a week as the market fell 7% within half an hour of opening. Signs of problems in the world’s second largest economy triggered selling in Europe. The German DAX was the worst performer, falling 2.29%, as manufacturing firms were hit by fears about China’s impact on the global economy. In London the FTSE 100 staged a late rally but still ended the day down 119 points, or 1.96%, at 5,954. That’s a three-week low, which wipes around £30bn ($43.86bn) off the index.

Read more …

Well put.

China Has Not One Insolvable Problem, But Many Of Them (Mish)

Yuan and Capital Flight
• China needs to prop up the yuan to slow capital flight.
• China needs to let the yuan drop to support exports.
• China needs to float the yuan and remove capital controls to prove it really deserves to be taken seriously as a reserve currency.
• If the yuan sinks, capital flight will increase and China risks the ire of US congress and those play into protectionist sentiment, notably Donald Trump.
• Artificial stabilization of the yuan will do nothing but create an oversized move down the road as we saw in Switzerland.

SOEs and Malinvestments
• China needs to write off malinvestments in state owned enterprises (SOEs).
• If China does write off malinvestments in SOEs it will harm those investing in them, generally individual investors who believed in ridiculous return guarantees.
• If China doesn’t write off malinvestments it will have to prop up the owners of those enterprises, mainly the ruling class, at the expense of everyone else, delaying much needed rebalancing.

Property Bubble
• China needs to fill tens of millions of vacant properties, but no one can afford them.
• If China makes the properties affordable it will have to cover the losses, or builders will suffer massive losses.
• If China subsidizes losses for the builders, there are still no real jobs in in the vacant cities.
• If China does not subsidize the losses, the builders and current investors will both suffer massive damage.

Jobs
• China is losing exports to places like Vietnam that have lower wage points.
• Property bubbles, the overvalued yuan, SOEs, and capital flight all pose conflicting problems for a government desperate for job growth.

Stock Market
• China’s stock market is insanely overvalued (as are global equity markets in general). Many investors are trapped. A sinking stock market and loss of paper profits will make overvalued properties even more unaffordable.
• Propping up the market, as China has attempted (not very effectively at that), encourages more speculation.

Pollution
• Curtailing pollution will cost tens of millions of jobs.
• Not curtailing pollution will cost tens of millions of lives.

Read more …

“Our new base case is that the Chinese government will simply let the debt party go on until it eventually collapses under its own weight..”

Capital Flight Pushes China To The Brink Of Devaluation (AEP)

China is perilously close to a devaluation crisis as the yuan threatens to break through the floor of its currency basket, despite massive intervention by the central bank to defend the exchange rate. The country burned through at least $120bn of foreign reserves in December, twice the previous record, the clearest evidence to date that capital outflows have reached systemic proportions. “There is certainly a sense that the situation is spiraling out of control,” said Mark Williams, from Capital Economics. Mr Williams said the authorities botched a switch in early December from a dollar currency peg to a trade-weighted exchange basket, accidentally setting off an exodus of money. Skittish markets suspected – probably wrongly – that it was camouflage for devaluation. The central bank is now struggling to pick up the pieces.

Global markets are acutely sensitive to any sign that China might be forced to abandon its defence of the yuan, with conspiracy theories rampant that it is gearing up for currency war in a beggar-thy-neighbour push for export share. Any such move would send a powerful deflationary impulse though a world economy already on its knees, and risk setting off a chain-reaction through Asia, replicating the 1998 crisis on a larger and more dangerous scale. The confused signals coming from Beijing sent Brent crude crashing to an 11-year low of $32.20. They have also set off a parallel drama on China’s equity markets. The authorities shut the main exchange after the Shanghai Composite index plunged 7.3pc in less than half an hour, triggering automatic circuit-breakers. The crash wiped out $635bn of market capitalisation in minutes.

It was triggered by a witches’ brew of worries: a fall in China’s PMI composite index for manufacturing and services below the boom-bust line of 50, combined with angst over an avalanche of selling by company insiders as the deadline neared for an end to the share-sales ban imposed last year. Faced with mayhem, regulators have retreated yet again. They have extended the ban, this time prohibiting shareholders from selling more than 1pc of the total float over a three-month period. The China Securities Regulatory Commission said the move was to “defuse panic emotions”. The freeze on sales is an admission that the government is now trapped, forced to keep equities on life-support to stop the market crumbling. The commission said its “national team” would keep buying stocks if necessary, doubling down on its frantic buying spree to rescue the market last year.

[..] Jonathan Anderson, from Emerging Advisors Group in Shanghai, said the latest burst of stimulus – led by an 18pc rise in credit – is clear evidence that Beijing is unwilling to take its medicine and deflate the country’s $27 trillion loan bubble. “The debt ratio is rocketing upwards. China is still adding new leverage at a massive, frenetic pace,” he said. “The authorities have clearly shown that they have no intention of addressing leverage problems. Our new base case is that the Chinese government will simply let the debt party go on until it eventually collapses under its own weight,” he said.

Read more …

Light. Tunnel. Oncoming freight train.

China Stocks Rebound as State Funds Said to Buy Equities (BBG)

Chinese stocks gained in volatile trading after the government suspended a controversial circuit breaker system, the central bank set a higher yuan fix and state-controlled funds were said to buy equities. The Shanghai Composite Index rose 3% at 1:34 p.m. local time, after falling as much as 2.2% earlier. Regulators removed the circuit breakers after plunges this week closed trading early on Monday and Thursday. The central bank set the currency’s reference rate little changed Friday after an eight-day stretch of weaker fixings that roiled global markets. State-controlled funds purchased Chinese stocks on Friday, focusing on financial shares and others with large weightings in benchmark indexes, according to people familiar with the matter.

“The scrapping of the circuit breaker system will help to stabilize the market, but a sense of panic will remain, particularly among retail investors,” said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management. “The ‘national team’ will probably continue to buy stocks significantly to stabilize the market.” While China’s high concentration of individual investors makes its stock-market notoriously volatile, the extreme swings this year have revived concern over the Communist Party’s ability to manage an economy set to grow at the weakest pace since 1990. The selloff has spread around the world this week, sending U.S. equities to their worst-ever start to a year and pushing copper to the lowest levels since 2009.

[..] The flip-flop in the circuit breaker rule adds to the sentiment among global investors that authorities are improvising – and improvising poorly – as they try to stabilize markets and shore up the economy. “They are changing the rules all the time now,” said Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague with about $206 billion under management. “The risks seem to have increased.” Investors should expect more volatility in Chinese markets as the government attempts to shift away from a planned economy to one driven by market forces, Mark Mobius, chairman of the emerging markets group at Franklin Templeton Investments, wrote in a blog post on Thursday. Policy makers face a “conundrum” as they seek to maintain financial stability while at the same time loosening their grip on markets, he said.

Read more …

“Global shares have lost more than $4 trillion this year..”

China’s Yuan Fixing Calms Markets as Asian Stocks Rally With Oil (BBG)

China’s efforts to stabilize its markets showed early signs of success as the yuan strengthened and regional equities rallied for the first time in five days. Treasuries and the yen fell as demand for havens eased. The Shanghai Composite Index gained 2.4% at the midday break after the securities regulator suspended a controversial circuit-breaker system. Asia’s benchmark share index pared its biggest weekly drop since 2011. The yuan rose 0.1% in onshore trading after the People’s Bank of China ended an eight-day stretch of setting weaker reference rates. Crude oil rallied, while Treasuries and the yen headed for their first declines this week. Global shares have lost more than $4 trillion this year as renewed volatility in Chinese markets revived doubts over the ruling Communist Party’s ability to manage the world’s second-largest economy.

The tumult has heightened worries over competitive devaluations and disinflation as emerging-market currencies tumbled with commodities. Investors will shift their attention to America’s economy on Friday as the government reports monthly payroll figures, a key variable for U.S. interest rates. “The PBOC may have been surprised at how badly China and global stock markets reacted to yuan depreciation,” said Dennis Tan at Barclays in Singapore. “They may want to keep the yuan stable for a while to help calm the stock market.” The PBOC set the yuan’s daily fixing, which restricts onshore moves to a maximum 2% on either side, at 6.5636 per dollar. That’s 0.5% higher than Thursday’s onshore effective closing price in the spot market and ends an eight-day reduction of 1.42%.

China’s markets regulator abandoned the circuit breaker just days after it was introduced, as analysts blamed the new mechanism for exacerbating this week’s selloff. Mainland exchanges shut early on Thursday and Monday after plunges of 7% in the CSI 300 triggered automatic halts. Chinese shares rallied after a volatile start to the day that sent the Shanghai Composite down as much as 2.2%. Producers of energy and raw-materials led the advance as investors gravitated to some of last year’s most beaten-down stocks and state funds were said to intervene to by purchasing shares with large index weightings.

Read more …

China will be exporting a crushing deflation.

The Decline Of The Yuan Destroys Belief In Central Banking (Napier)

The key failure of control is in China because that failure will overwhelm other seeming successes. In 2012 this analyst labelled one chart “the most important chart in the world”. It was a chart of China’s foreign exchange reserves. It showed how they were declining and The Solid Ground postulated that this would produce a decline in real economic activity in China and higher real interest rates in the developed world. The result of these two forces would be deflation, despite the amount of wind puffed below the wings of the global economy in the form of QE. Of course, no sooner had this report been issued than China’s grand falconer got to work by borrowing hundreds of billions of USD through its so-called commercial banking system!

The alchemical process through which this mandated capital inflow supported the exchange rate while permitting money creation in China stabilized the global economy- for a while. However, by 2014 it was ever more difficult to borrow more money than the people of China were desperate to export and the market began to win. Since then foreign reserves have been falling and the grand falconer has tried to support the exchange rate while simultaneously easing monetary policy to boost economic growth. I’m no falconer but isn’t this akin to trying to get a bird to fly while tying back its wings? Some investors, well paid to believe six impossible things before breakfast, did not question the ability of the grand Chinese falconer to fly a falcon with tethered wings.

They changed their minds briefly as the bird plummeted earthwards in August 2015 but still the belief in the ability to reflate the economy and simultaneously support an overvalued exchange rate continued. In January 2016 this particular falcon, let’s call it the people’s falcon, was more ‘falling with attitude’ than flying. This bird does not fly and if this bird does not fly the centre does not hold. A major devaluation of the RMB is just beginning and the faith in all the falconers will wane as deflation comes to the world almost seven years after the falconers first fanned the winds of QE supposed to levitate everything.

Read more …

Whack-a-mole.

One Big Market Casualty: China Regulators’ Reputation (CNBC)

The wobbles in China that rocked financial markets this week have not only cast doubts over the economy, they’ve also shaken confidence in policymakers’ ability to stem the volatility. For two decades, China’s frenetic growth has been the source of the world’s envy, with investors placing faith in the ability of policymakers to help transform China from a manufacturing-led powerhouse to a consumer-driven economy . As the economy stutters and regulators scramble to contain wild moves in the yuan and stocks, analysts are calling out what appears to be a ham-fisted approach to managing market volatility.

“Market volatility this week suggests that nobody really knows what the policy is right now. Or if the government itself knows or is capable of implementing the policy even if there is one,” DBS said in a currency note Friday. “The market’s message was loud and clear that more clarity and less flip-flopping is needed going forward.” China-listed stocks plunged this week, with trade suspended completely in two sessions after the CSI 300 index dropped more than 7 percent, triggering a circuit breaker meant to limit market volatility. The China Securities Regulatory Commission (CSRC) suspended the circuit-breaker system, implemented for the first time on Monday, before the start of trade Friday. The quick regulatory flip-flops spurred a lot of derision among social media commentators.

“The CSRC all treated us as experiments to make history. When it failed, it concluded with ‘lacking experience,’ and that’s it,” Weibo user Li Hua posted. “I strongly call for resignation of related personnel who designed this policy! There’s no cost of failure so that decision makers can do whatever they want.” Another factor weighing on faith in China’s regulators: Policy makers at the central bank, the People’s Bank of China (PBOC), have tinkered again with its currency without providing much indication to the market about its endgame. On Thursday the PBOC allowed the yuan to fall by the most in five months, to the lowest level since the fixing mechanism was established in 2011.

Read more …

Money will continue to flow out no matter what they do.

China Orders Banks To Limit Dollar Buying This Month To Stem Outflows (CNBC)

China’s foreign exchange regulator has ordered banks in some trading hubs to limit dollar purchases this month, three people with direct knowledge said on Friday, in the latest attempt to stem capital outflows. The spread between the onshore and offshore markets for the yuan, or renminbi, has been growing since the devaluation last year, spurring Beijing to adopt a range of measures to curb outflows of capital. All banks in certain trading hubs, including Shenzhen, have been affected, the people added. China suspended forex business for some foreign banks, including Deutsche, DBS and Standard Chartered at the end of last year.

Read more …

Beggar all of thy neighbors.

Yuan Depreciation Risks Competitive Devaluation Cycle (Reuters)

The depreciation of the Chinese yuan risks triggering a cycle of competitive devaluation and is causing enormous worry in the world’s financial markets, Mexican Finance Minister Luis Videgaray said on Thursday. China allowed the biggest fall in the yuan in five months on Thursday, sending global markets down on concerns that China might be aiming for a devaluation to help its struggling exporters and that other countries could follow suit. “This is one of the worst starts of the year for all the world’s markets,” Videgaray said at an event in Mexico City. “There is a real worry that in the face of the slowing Chinese economy that the public policy response is to start a round of competitive devaluation,” he said.

Mexico has been committed to a freely floating currency since a devastating financial crisis in the mid-1990s and authorities refrain from some of the more direct forms of intervention seen in other emerging markets. Mexico’s peso slumped to a record low on Thursday, triggering two auctions of $200 million each by Mexico’s central bank to support the currency. The country’s program of dollar auctions, under which the central bank can sell up to $400 million a day, is set to expire on Jan. 29. Videgaray said policymakers would announce if the plan would be maintained or modified before that deadline. He noted the program’s goal is not to defend a certain peso level but to ensure sufficient order and liquidity in the market. “We have managed to achieve this objective in a satisfactory manner,” he said. “Up until now, there has been no decision to modify the mechanism.”

Read more …

Can’t be a good sign no matter what they say.

China’s Forex Reserves Post Biggest Monthly Drop On Record (Xinhua)

China’s foreign exchange reserves posted the sharpest monthly fall on record in December, official data showed Thursday. Foreign exchange reserves fell to $3.33 trillion at the end of last month, the lowest level in more than three years and down by 108billion dollars from November, according to the People’s Bank of China. The fall in December extended a month-on-month decline of $87.2 billion registered in November. The yuan has been heading south since the central bank revamped the foreign exchange mechanism in August to make the rate more market-based. The yuan has been losing ground as the Chinese economy is expected to register its slowest pace of growth in a quarter of a century in 2015.

Meanwhile, the United States raised interest rates in December and more rises are expected in 2016. The onshore yuan (CNY), traded in the Chinese mainland, declined 4.05% against the greenback in 2015. Li Huiyong, analyst with Shenwan Hongyuan Securities, said the faster decline indicated greater pressure for capital outflow as the yuan depreciated. On Thursday, the central parity rate of the yuan weakened by 332 basis points to 6.5646 against the U.S. dollar, its weakest level in nearly five years, according to the China Foreign Exchange Trading System. “An appropriate size for China’s forex reserves should be around 1.5 trillion U.S. dollars. There is still large room for necessary operations to sustain a stable yuan,” Li said.

Read more …

They need to let it go. But won’t.

China’s Stock Market Is Hardly Free With Circuit Breakers Gone (BBG)

China’s removal of market-wide circuit breakers after just four days still leaves investors facing plenty of restrictions in how they trade. A 10% daily limit on single stock moves and a rule preventing investors from buying and selling the same shares in a day remain in force. Volume in what was once the world’s most active index futures market is minimal after authorities curtailed trading amid a summer rout, making it more difficult to implement hedging strategies. Officials unveiled curbs Thursday on share sales by major stockholders just a day before an existing ban was due to expire. And the activity of foreign investors is limited by quotas, given either to asset managers or to users of the Hong Kong-Shanghai exchange link.

“Although there’s more ability now for offshore participation, it’s largely a market that’s restricted the domestic users,” said Ric Spooner at CMC Markets Asia Pacific. “That means it doesn’t get the arbitrage benefits that international investors bring. It’s a work in progress.” There’s also the prospect that regulators and executives will dust off last year’s playbook as they seek to stem losses. At the height of the summer rout, about half of China’s listed companies were halted, while officials investigated trading strategies, made it harder for investors to borrow money to buy equities and vowed to “purify” the market. Chinese equities seesawed in volatile trading on Friday, with the CSI Index rising 1.3% as of 10:02 a.m. local time after climbing 3.1% and sinking 1.7%.

The gauge slid 12% in the first four days of the week, two of which were curtailed as the circuit breakers triggered market-wide halts for the rest of the day. The flip-flop on using the mechanism, which was meant to help stabilize the market, is adding to investor concern that authorities are improvising. Policy makers weakened the yuan for eight days straight through Thursday, and authorities were said to intervene on Tuesday to prop up equities. Policy makers used purchases by government-linked funds to bolster shares as the CSI 300 plunged as much as 43% over the summer. State funds probably spent $236 billion on equities in the three months through August, according to Goldman Sachs.

Read more …

Saudi rocket attack on embassy in Yemen.

Iran Severs All Commercial Ties With Saudi Arabia (Reuters)

Relations between Iran and Saudi Arabia deteriorated even further on Thursday as Tehran severed all commercial ties with Riyadh and accused Saudi jets of attacking its embassy in Yemen’s capital. A row has been raging for days between Shi’ite Muslim power Iran and the conservative Sunni kingdom since Saudi Arabia executed cleric Nimr al-Nimr, an opponent of the ruling dynasty who demanded greater rights for the Shi’ite minority. Saudi Arabia, Bahrain, Sudan, Djibouti and Somalia have all broken off diplomatic ties with Iran this week, the United Arab Emirates downgraded its relations and Kuwait, Qatar and Comoros recalled their envoys after the Saudi embassy in Tehran was stormed by protesters following the execution of Nimr and 46 other men.

In a cabinet meeting chaired by Iran’s President Hassan Rouhani on Thursday, Tehran banned all imports from Saudi Arabia. Saudi Arabia had announced on Monday that Riyadh was halting trade links and air traffic with the Islamic Republic. Iran also said on Thursday that Saudi warplanes had attacked its embassy in Yemen’s capital, Sanaa, an accusation that Riyadh said it would investigate. “Saudi Arabia is responsible for the damage to the embassy building and the injury to some of its staff,” Foreign Ministry Spokesman Hossein Jaber Ansari was quoted as saying by the state news agency, IRNA. Residents and witnesses in Sanaa said there was no damage to the embassy building in Hadda district.

Read more …

Aramco is so big, it may be impossible to value.

Saudi Arabia Considers IPO For World’s Biggest Energy Company Aramco (Guardian)

Saudi Arabia is considering a stock market listing for its national oil group – the world’s biggest energy company and probably the most valuable company on the planet. Saudi Aramco is a highly secretive organisation but is likely to be valued at well over $1tn (£685bn). Any public share listing would be viewed as a potent symbol of the financial pain being wreaked by low prices on the world’s biggest crude exporting country. Prince Muhammad bin Salman, the country’s highly influential deputy crown prince, confirmed in an interview on Monday with the Economist magazine that a decision would be taken within months whether to raise cash in this way, even as oil company shares are depressed at this time.

“Personally I am enthusiastic about this step,” he said. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that may be circling around.” The sale via an initial public offering (IPO) of any part of Saudi Aramco would be a major change in direction for a country, which has jealously guarded its enormous – and cheaply produced – oil reserves. Aramco’s reserves are 10 times greater than those of Exxon, which is the largest publicly listed oil company. The prince, considered the power behind the throne of his father King Salman, is keen to modernise the largely oil-based Saudi economy by privatisation or other means but it also needs to find money.

The country is under pressure, with oil prices plunging to their lowest levels in 11 years and more than 70% below where they were in June 2014. This has put huge strain on Saudi public spending plans, which were drawn up when prices were much higher and pushed the public accounts into deficit.

Read more …

A long way from salvation.

VW Weighs Buyback of Tens of Thousands of Cars in Talks With US (BBG)

Volkswagen may buy back tens of thousands of cars with diesel engines that can’t be easily fixed to comply with U.S. emissions standards as part of its efforts to satisfy the demands of regulators, according to two people familiar with the matter. Negotiations between the German automaker and the U.S. Environmental Protection Agency are continuing and no decisions have been reached. Still, a buyback would be an extraordinary step that demonstrates the challenge of modifying vehicles that were rigged to pass emission tests. VW has concluded it would be cheaper to repurchase some of the more than 500,000 vehicles than fix them, said the people, who declined to be cited by name.

One person said the number of cars that might be bought back from their owners totals about 50,000, a figure that could change as talks continue. “We’ve been having a large amount of technical discussion back and forth with Volkswagen,” EPA Administrator Gina McCarthy said Thursday, when asked about the possibility of VW having to buy back some vehicles. “We haven’t made any decisions on that.” McCarthy told reporters after an event in Washington Thursday that VW’s proposals to bring its cars into compliance with emissions standards have so far been inadequate. “We haven’t identified a satisfactory way forward,” McCarthy said. The EPA is “anxious to find a way forward so that the company can get into compliance,” she said.

Read more …

“..the presence of isotopes from nuclear weapons testing..”

Human Impact Has Pushed Earth Into The Anthropocene (Guardian)

There is now compelling evidence to show that humanity’s impact on the Earth’s atmosphere, oceans and wildlife has pushed the world into a new geological epoch, according to a group of scientists. The question of whether humans’ combined environmental impact has tipped the planet into an “anthropocene” – ending the current holocene which began around 12,000 years ago – will be put to the geological body that formally approves such time divisions later this year. The new study provides one of the strongest cases yet that from the amount of concrete mankind uses in building to the amount of plastic rubbish dumped in the oceans, Earth has entered a new geological epoch.

“We could be looking here at a stepchange from one world to another that justifies being called an epoch,” said Dr Colin Waters, principal geologist at the British Geological Survey and an author on the study published in Science on Thursday. “What this paper does is to say the changes are as big as those that happened at the end of the last ice age . This is a big deal.” He said that the scale and rate of change on measures such as CO2 and methane concentrations in the atmosphere were much larger and faster than the changes that defined the start of the holocene. Humans have introduced entirely novel changes, geologically speaking, such as the roughly 300m metric tonnes of plastic produced annually. Concrete has become so prevalent in construction that more than half of all the concrete ever used was produced in the past 20 years.

Wildlife, meanwhile, is being pushed into an ever smaller area of the Earth, with just 25% of ice-free land considered wild now compared to 50% three centuries ago. As a result, rates of extinction of species are far above long-term averages. But the study says perhaps the clearest fingerprint humans have left, in geological terms, is the presence of isotopes from nuclear weapons testing that took place in the 1950s and 60s. “Potentially the most widespread and globally synchronous anthropogenic signal is the fallout from nuclear weapons testing,” the paper says. “It’s probably a good candidate [for a single line of evidence to justify a new epoch] … we can recognise it in glacial ice, so if an ice core was taken from Greenland, we could say that’s where it [the start of the anthropocene] was defined,” Waters said.

Read more …

It’s all become a joke.

Europe’s Economy Faces Confidence Test as Borderless Ideal Fades (BBG)

Here’s the latest in a long line of threats to Europe’s economy: the border guard. Danish officers checking travel documents on the boundary with Germany this week aren’t out to stymie trade or hinder tourism – they’re under orders from politicians anxious to stem the flow of refugees. Even so, analysts are beginning to worry about what could happen to the already-embattled region when the free movement of people is called into question. Like the euro, the single currency used by 19 of the European Union’s 28 nations, the Schengen Agreement has long been touted by politicians as an irrevocable pillar of a multi-national union, allowing unimpeded travel between states for business or pleasure. So with an already fragile recovery, monetary policy stretched trying to fend off deflation and companies deferring investment, the mere threat that Schengen could unravel may be hard to shrug off.

“If in the migrant crisis Schengen were to disintegrate, this would send a disastrous signal to markets: the European project would be seen as in fact reversible,” said Wolfango Piccoli, managing director of Teneo Intelligence in London. “Nobody could blame investors if against that backdrop, they would suddenly start to re-evaluate the reliability of promises made by European institutions in the euro-zone crisis.” The EU says Europeans make over 1.25 billion journeys within the Schengen zone every year, which comprises 26 countries from the Barents Sea to the eastern Mediterranean. It also includes countries such as Iceland and Norway that aren’t part of the EU. Signed in 1985, Schengen took effect 10 years later. In normal times, it means travelers within the bloc aren’t subjected to border checks, and external citizens holding a visa for one country may usually travel without restriction to all.

These aren’t normal times and now the edifice of carefree travel across the continent is cracking. During 2015, the arrival of people fleeing wars and persecution in Asia, Africa and the Middle East exceeded 1 million, sparking political tension and public debate over how, and where, to settle the newcomers. Denmark’s decision to establish temporary controls seems, according to the EU, to be covered by Schengen rules that allow such curbs in emergencies. But it’s not the first; that move came hours after Sweden started systematic ID checks at its borders, while Germany was forced to take similar action in September along its frontier with Austria. Hungary erected a fence at its borders with Serbia and Croatia last year.

Read more …

€3 billion, Angela.

Turkey Does Nothing To Halt Refugee Flows, Says Greece (Kath.)

Turkey has not taken any action to clamp down on human traffickers and between 3,000 and 4,000 migrants and refugees are reaching Greece every day, Immigration Policy Minister Yiannis Mouzalas said Thursday. Mouzalas suggested in an interview on Skai TV that Ankara has not lived up to its pledges to stem the flow of people traveling across the Aegean to Greece. “It has not done anything to stop human trafficking, as is evident from the migratory flows.” The minister said that the high level of arrivals has continued because the news that some migrants are not being allowed through European borders has yet to filter through but, at the same time, refugees waiting to cross from Turkey are concerned that if they do not do so soon they will be prevented from reaching Central and Northern Europe.

“The high rate has to do with refugees’ fear that the borders will close for everyone,” he said, adding that he thought this possibility is “very likely.” “When the message reaches Morocco that Moroccans are not being allowed to cross into Europe but are being held and repatriated, the flows will drop.” Mouzalas said that around half of the people arriving in Greece over the last two months have been undocumented migrants.

Read more …