Jun 142016
 
 June 14, 2016  Posted by at 8:00 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


G. G. Bain Metropolitan Opera baritone Giuseppe De Luca, New York 1920

Donald Tusk: Brexit Could Destroy Western Political Civilisation (BBC)
Dutch PM Says He’s ‘Totally Against Referendums’ (EuA)
ECB Says Oil-Price Slump Not the Global Boon It Might Have Been (BBG)
What American Consumers Owe Uncle Sam (BBG)
There’s a Seismic Change Coming to Money Markets (BBG)
Silicon Valley’s Audacious Plan to Create a New Stock Exchange (BBG)
How China Tamed Stocks (WSJ)
Bringing the Troika to Paris (Weisbrot)
Executive Pay Is Obscene (Mason)
More Freeloaders Than Free Market (G.)
Rethinking Robin Hood (Angus Deaton)
Wikileaks To Publish ‘Enough Evidence’ To Indict Hillary – Assange (RT)
First Mammal Species Wiped Out By Human-Induced Climate Change (G.)
Merkel Ready To Give In To ‘Blackmail’ Over Turkish Visas (BB)
Stranded Refugees Line Up For Greek Asylum Cards (Kath.)

On June 24, you will see pigs fly! Tusk wants Cameron to lose, I guess.

Donald Tusk: Brexit Could Destroy Western Political Civilisation (BBC)

European Council president Donald Tusk has warned that a UK vote to leave the EU could threaten “Western political civilisation”. Mr Tusk said a vote to leave the EU would boost anti-European forces. “As a historian I fear Brexit could be the beginning of the destruction of not only the EU but also Western political civilisation in its entirety,” he told the German newspaper Bild. UKIP MP Douglas Carswell said the Remain campaign was “falling apart”. He tweeted: “Why hasn’t Western civilisation come to an end already seeing as how most countries are self governing?” The UK votes on whether to remain in the EU or leave on 23 June. Mr Tusk said everyone in the EU would lose out economically if Britain left.

“Every family knows that a divorce is traumatic for everyone,” he said. “Everyone in the EU, but especially the Brits themselves, would lose out economically.” In the interview he also said Turkey would not become a member of the European Union “in its current state”. Leave campaigners have regularly accused Remain of scaremongering after repeated warnings from high-profile figures against leaving the EU. Employment Minister Priti Patel said: “This is extraordinary language from the EU president, and serves only to reveal his own desperation. “The only thing that is destroying civilisations is the euro, which has ruined economies and led to youth unemployment soaring to nearly 50% in southern Europe.”

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Not sure you could say anything less appropriate as a PM of a democracy. But he’ll keep trying.

Dutch PM Says He’s ‘Totally Against Referendums’ (EuA)

Dutch Prime Minister Mark Rutte today (13 June) admitted a referendum called by eurosceptic groups on whether to back closer ties between Ukraine and the EU had been “disastrous” after voters soundly rejected the pact. “I’m totally against referenda, and I’m totally, totally, totally against referenda on multilateral agreements, because it makes no sense as we have seen with the Dutch referendum,” Rutte told a conference of European MPs. “The referendum led to disastrous results,” he added. His comments were his toughest since the 6 April Dutch referendum, which had been closely watched by eurosceptic groups in Britain, who hailed the results as a blow to EU unity.

Although the Dutch referendum only scraped past the 30% voter turnout to be valid, over 60% of those who cast ballots rejected the EU-Ukraine cooperation accord. The Netherlands, which currently holds the rotating presidency of the European Union, is the only country in the 28-nation bloc which has still not ratified the deal. Even though April’s vote is non-binding Rutte’s coalition government is now left with a dilemma of how to proceed. Although Rutte did not mention the June 23 referendum when British voters will choose whether to leave the EU, Britain’s eurosceptic parties have seized upon the Dutch results as supporting their own campaign to leave the European Union.

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You heard it here first. Oil is such an integral part of so much of the economy that any large price swing will have outsize consequences.

ECB Says Oil-Price Slump Not the Global Boon It Might Have Been (BBG)

Cheaper oil prices since 2014 have probably been of little net benefit to the global economy and may even have been a drag on growth, according to the ECB. “While most of the oil-price decline in 2014 could be explained by the significant increase in the supply of oil, more recently the lower price has reflected weaker global demand,” the ECB said on Monday in an article from its Economic Bulletin. “Although the low oil price may still support domestic demand through rising real incomes in net oil-importing countries, it would not necessarily offset the broader effects of weaker global demand.”

The analysis strikes at the ECB’s debate over whether it should be adding monetary stimulus to the euro-area economy as lower heating and fuel bills give consumers more spending power. President Mario Draghi has argued that as well as depressing inflation — the ECB’s main challenge – a drop in energy prices can be a sign of subdued economic activity that needs to be countered. “Assuming that, for example, 60% of the oil price decline since mid-2014 has been supply driven and the remainder demand driven, the models suggest that the combined impact of these two shocks on world activity would be close to zero, or even slightly negative,” the ECB report showed.

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The economy can survive only by digging itself ever deeper into debt.

What American Consumers Owe Uncle Sam (BBG)

U.S. consumers have long had an impressive propensity to get into debt. Lately, though, one lender has been playing a much bigger role in enabling them: Uncle Sam. Total U.S. consumer credit – which includes credit cards, auto loans and student debt, but not mortgages – stood at $3.54 trillion at the end of March, according to the latest data from the Federal Reserve. That’s the most on record, both in dollar terms and as a share of GDP. What’s really unusual, though, is the source of the money: The federal government accounted for almost 28% of the total. That’s up from less than 5% before the 2007-2009 recession, thanks in large part to the government’s efforts to promote education by making hundreds of billions of dollars in student loans directly, rather than going through banks. Here’s how that looks:

To some extent, the government’s growing role makes sense. Amid a deep economic slump and slow recovery, it was best equipped to satisfy the demand for credit among Americans looking to improve their job prospects through education. Without the government’s involvement, consumer credit as a share of gross domestic product would still be well below the pre-recession level (all else equal). Here’s how that looks:

That said, the government assist has helped push total student debt to a record $1.3 trillion, much of which has been spent on rising tuition costs or on courses that didn’t do much to improve people’s earning potential. Because student debt is extremely difficult to discharge through bankruptcy, it will weigh on the borrowers – and on the U.S. economy – for many years to come.

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Seismic? A Libor successor?

There’s a Seismic Change Coming to Money Markets (BBG)

Bankers seeking to manipulate the London Interbank Offered Rate with a flurry of tactless messages probably had little idea that the impact of their actions would be felt all the way to the Federal Reserve target rate. But—like bubbles from a bottle of Bollinger champagne—the effects of the Libor scandal are still emanating across money markets many years later. In 2014, the Financial Stability Oversight Council (FSOC) asked U.S. regulators to look into creating a replacement for Libor—one that would prove more immune to the subjective, scandalous, scurrilous whims of traders. The Alternative Reference Rates Committee (ARRC), as the resulting body is known, last month suggested two potential replacements for the much-maligned Libor.

While the new reference rate would be important simply by dint of underpinning trillions of dollars worth of derivatives contracts, its significance could go much further. Fresh research from Credit Suisse Securities USA LLC suggests the chosen rate could also become the new target rate for the Federal Reserve, replacing the federal funds rate that has dominated money markets for decades but has been neutered by recent regulation and asset purchase programs. “The question of alternative reference rates and alternative policy rates are [sic] intertwined: ideally, they would be the same,” writes Zoltan Pozsar, director of U.S. economics at the Swiss bank. “So it is likely that the rate the ARRC will ultimately choose will also be the Fed’s new target rate. But there are problems with both alternatives.”

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“..compensation plans designed to make sure executive pay is not tied to short-term stock performance..”

Silicon Valley’s Audacious Plan to Create a New Stock Exchange (BBG)

Five years ago, when Eric Ries was working on the book that would become his best-selling entrepreneurship manifesto “The Lean Startup,” he floated a provocative idea in the epilogue: Someone should build a new, “long-term” stock exchange. Its reforms, he wrote, would amend the frantic quarterly cycle to encourage investors and companies to make better decisions for the years ahead. When he showed a draft around, many readers gave him the same piece of advice: Kill that crazy part about the exchange. “It ruined my credibility for everything that had come before,” Ries said he was told. Now Ries is laying the groundwork to prove his early skeptics wrong.

To bring the Long-Term Stock Exchange to life, he’s assembled a team of about 20 engineers, finance executives and attorneys and raised a seed round from more than 30 investors, including venture capitalist Marc Andreessen; technology evangelist Tim O’Reilly; and Aneesh Chopra, the former chief technology officer of the United States. Ries has started early discussions with the U.S. Securities and Exchange Commission, but launching the LTSE could take several years. Wannabe exchanges typically go through months of informal talks with the SEC before filing a draft application, which LTSE plans to do this year. Regulators can then take months to decide whether to approve or delay applications. If all goes according to plan, the LTSE could be the stock exchange that fixes what Ries sees as the plague of today’s public markets: short-term thinking that squashes rational economic decisions.

It’s the same stigma that’s driving more of Silicon Valley’s multi-billion-dollar unicorn startups to say they’re not even thinking of an IPO. “Everyone’s being told, ‘Don’t go public,'” Ries said. “The most common conventional wisdom now is that going public will mean the end of your ability to innovate.” [..] A company that wants to list its stock on Ries’s exchange will have to choose from a menu of LTSE-approved compensation plans designed to make sure executive pay is not tied to short-term stock performance. Ries complains that it’s common to see CEOs or top management getting quarterly or annual bonuses tied to certain metrics like earnings per share, which pushes them to goose the numbers. Ries wants to encourage companies to adopt stock packages that continue vesting even after executives have left the company, which will push them to make healthy long-term moves.

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It’s a really bright idea for a government to control its markets whenever it doesn’t like what they do. Kill price discovery. Why should anyone want to know what things are really worth?

How China Tamed Stocks (WSJ)

Chinese stocks are at an odd crossroads this week: A key decision by index provider Morgan Stanley Capital International could make them a bigger part of international investors’ portfolios, even as a regulatory clampdown drives local traders away. Average daily trading turnover of shares on China’s two main markets, in Shanghai and Shenzhen—so-called A-shares—plunged last month to less than one-third of its level at its peak in June 2015. The amount of money that investors are borrowing from brokers to trade, known as margin debt, has dropped to its lowest level since December 2014.

And despite a 3.2% drop on Monday, the Shanghai stock market has just passed one of its least-eventful months ever, having moved less than 1% either way on all but two trading days in the past three weeks. Observers attribute the calm to heavy-handed intervention by Chinese officials who have tried to tame the country’s roller-coaster stock markets with support from state funds, curbs on some trading and direct hints to investors. All of that presents a forbidding backdrop for global investors ahead of MSCI’s decision, due Tuesday evening in New York, on whether to include mainland-listed shares in a key index tracked by international fund managers.

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French protests are not over.

Bringing the Troika to Paris (Weisbrot)

I have argued for years, and in my last post on this blog, that a big part of the story we have seen in Europe over the past eight years is a result of social engineering. This has involved a major offensive by the European authorities, taking advantage of an economic crisis, to transform Europe into a different kind of society, with a smaller social safety net, lower median wages, and – whether intended or not – increasing inequality as a result. In recent weeks France has faced strikes and protests as the battle has come to their terrain, over a new, sweeping labor law. Among other provisions, the law would weaken workers’ protections regarding overtime pay, the length of the work week, and job security. But most damaging of all are the provisions that would structurally weaken unions and undermine their bargaining power.

These would push collective bargaining away from the sectoral level, and toward the level of individual companies, thus making it more difficult for unions to establish industry standards for wages, hours and working conditions. Such structural “reforms” have been promoted by the European authorities (including the IMF) for years, and the ostensible rationale is to reduce unemployment. Economist Thomas Piketty succinctly sums up the major flaw in that argument: In the labor law you find the same mixture of lack of preparation and cynicism. If unemployment hasn’t stopped climbing since 2008, with an additional 1.5 million unemployed workers (and 2.1 million category A jobseekers in mid 2008, 2.8 million in mid 2012, 3.5 million in mid 2016) it’s not because the [current] labor law has suddenly become more rigid.

It’s because France and the Eurozone have provoked, through excessive austerity, an absurd slowdown of activity from 2011 to 2013, contrary to the U.S. and to the rest of the world, thereby transforming the financial crisis that came from the other side of the Atlantic into an interminable European recession. In a recent discussion, economist Yanis Varoufakis recounts a conversation that he had with his German counterpart Wolfgang Schäuble. It was at the height of the conflict between Greece and the European authorities last summer: “I had many interesting conversations with the Finance Minister of Germany, Dr. Wolfgang Schäuble. At some point, when I showed him this ultimatum, and I said to him… “Would you sign this? Just, let’s take off our hats as Finance Ministers for a moment. I’ve been in politics for five months. You’ve been in politics for 40 years.

You keep barking in my ear that I should sign it. Stop telling me what to do. As human beings, you know that my people, now, are suffering a Great Depression. We have children at school that faint as a result of malnutrition. Can you just do me the favor and advise me on what to do? Don’t tell me what to do. As somebody with 40 years, a Europeanist, somebody who comes from a democratic country, just Wolfgang to Yanis, not Finance Minister to Finance Minister.” And to his credit, he looked out of the window for a while. .. and he turned around and he said, “As a patriot I wouldn’t.” Of course the next question was, “so why are you forcing me to do it?” He said, “Don’t you understand?! I did this in the Baltics, in Portugal, in Ireland, you know, we have discipline to look after. And I want to take the Troika to Paris.” The Troika has arrived.

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Shock doctrine in the UK.

Executive Pay Is Obscene (Mason)

[..] if you want to prevent wealth flowing from productive people to the elite, you have to restructure the economy. You have to stop believing £24m annual paydays are the result of an accident. You have to make property speculation a crime and pursue policies that can suppress boom and bust, whether it is in the property market, the stock market or any other market. And you have to tax assets, not just income. Executive pay is structured around share options, not just salaries and bonuses, because it is more “tax efficient”. A tax on shares held; a tax on the value of property designed to stop it rising faster than GDP – these are the measures that would actually work. Plus, make a positive case for rent controls.

If Jeremy Corbyn’s Labour can become the first advanced-country government to suppress the causes of obscene executive pay, it will reap a massive first-mover advantage. The property market will stabilise; housing will become affordable as billionaires – foreign and domestic – take their money elsewhere. The stock market then will move in line with the real economy, not the fantasy economy created by a shortage of housing and a glut of money. Finally, the overpaid elite will drag their sorrows through the world to another jurisdiction. Personally, I cannot wait to see them go.

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Still surprised Britain will vote against anything Cameron does or says?

More Freeloaders Than Free Market (G.)

On Wednesday, two very different men will have to explain themselves. Both appear in London, to a room full of authority figures – but their finances and their status place them at opposite ends of our power structure. Yet put them together and a picture emerges of the skewedness of today’s Britain. For the Rev Paul Nicolson, the venue will be a magistrate’s court in London. His “crime” is refusing to pay his council tax, in protest against David Cameron’s effective scrapping of council tax benefit, part of his swingeing cuts to social security. In order to pay for a financial crisis they didn’t cause, millions of families already on low incomes are sinking deeper into poverty. In order to pay bills they can’t afford, neighbours of the retired vicar are going without food.

The 84-year-old faces jail this week, for the sake of £2,831. Meanwhile, a chauffeur will drive Philip Green to parliament, where he’ll be quizzed by MPs over his part in the collapse of BHS. A business nearly as old as the Queen will die within a few weeks, leaving 11,000 workers out of a job and 22,000 members of its pension scheme facing a poorer retirement. There the similarities peter out. Nicolson was summoned to court; Green wasn’t going to bother showing up at Westminster. When the multibillionaire was invited by Frank Field to make up BHS’s £600m pension black hole, he demanded the MP resign as chair of the work and pensions select committee.

But then, Green is used to cherry-picking which rules he plays by. Take this example: he buys Arcadia, the company that owns Topshop, then arranges for it to give his wife a dividend of £1.2bn. Since Tina Green is, conveniently, a resident of Monaco, the tax savings on that one payment alone are worth an estimated £300m. That would fund the building of 10 large secondary schools – or two-thirds of the annual cut to council tax benefits.

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Sorry Angus, but “cosmopolitan prioritarianism” sounds like a real silly term. Maybe you should talk to people in words they can understand.

Rethinking Robin Hood (Angus Deaton)

International development aid is based on the Robin Hood principle: take from the rich and give to the poor. National development agencies, multilateral organizations, and NGOs currently transfer more than $135 billion a year from rich countries to poor countries with this idea in mind. A more formal term for the Robin Hood principle is “cosmopolitan prioritarianism,” an ethical rule that says we should think of everyone in the world in the same way, no matter where they live, and then focus help where it helps the most. Those who have less have priority over those who have more. This philosophy implicitly or explicitly guides the aid for economic development, aid for health, and aid for humanitarian emergencies.

On its face, cosmopolitan prioritarianism makes sense. People in poor countries have needs that are more pressing, and price levels are much lower in poor countries, so that a dollar or euro goes twice or three times further than it does at home. Spending at home is not only more expensive, but it also goes to those who are already well off (at least relatively, judged by global standards), and so does less good. I have thought about and tried to measure global poverty for many years, and this guide has always seemed broadly right. But I currently find myself feeling increasingly unsure about it. Both facts and ethics pose problems. Huge strides have undoubtedly been made in reducing global poverty, more through growth and globalization than through aid from abroad.

The number of poor people has fallen in the past 40 years from more than two billion to just under one billion – a remarkable feat, given the increase in world population and the long-term slowing of global economic growth, especially since 2008. While impressive and wholly welcome, poverty reduction has not come without a cost. The globalization that has rescued so many in poor countries has harmed some people in rich countries, as factories and jobs migrated to where labor is cheaper. This seemed to be an ethically acceptable price to pay, because those who were losing were already so much wealthier (and healthier) than those who were gaining.

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Can’t wait.

Wikileaks To Publish ‘Enough Evidence’ To Indict Hillary – Assange (RT)

Wikileaks co-founder Julian Assange warns more information will be published about Hillary Clinton, enough to indict her if the US government is courageous enough to do so, in what he predicts will be “a very big year” for the whistleblowing website. Expressing concerns in an ITV interview about the Democratic presidential candidate, who he claims is monitoring him, Assange described Republican presumptive nominee Donald Trump as an “unpredictable phenomenon”, but predictably, given their divergent political views, didn’t say if he preferred the billionaire to be president.

“We have emails relating to Hillary Clinton which are pending publication,” Assange told Peston on Sunday when asked if more of her leaked electronic communications would be published. About 32,000 emails from her private server have been leaked by Wikileaks so far, but Assange would not confirm the number of emails or when they are expected to be published. Speaking via video link from the Ecuadorian Embassy in London, Assange said that there was enough information in the emails to indict Clinton, but that was unlikely to happen under the current Attorney General, Obama appointee Loretta Lynch. He does think “the FBI can push for concessions from the new Clinton government in exchange for its lack of indictment.”

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Well done, boys. Next!

First Mammal Species Wiped Out By Human-Induced Climate Change (G.)


The Bramble Cay melomys has become extinct, Australian scientists say (/span)

Human-caused climate change appears to have driven the Great Barrier Reef’s only endemic mammal species into the history books, with the Bramble Cay melomys, a small rodent that lives on a tiny island in the eastern Torres Strait, being completely wiped-out from its only known location. It is also the first recorded extinction of a mammal anywhere in the world thought to be primarily due to human-caused climate change. An expert says this extinction is likely just the tip of the iceberg, with climate change exerting increasing pressures on species everywhere. The rodent, also called the mosaic-tailed rat, was only known to live on Bramble Cay a small coral cay, just 340m long and 150m wide off the north coast of Queensland, Australia, which sits at most 3m above sea level.

It had the most isolated and restricted range of any Australian mammal, and was considered the only mammal species endemic to the Great Barrier Reef. When its existence was first recorded by Europeans in 1845, it was seen in high density on the island, with sailors reporting they shot the “large rats” with bows and arrows. In 1978, it was estimated there were several hundred on the small island. But the melomys were last seen in 2009, and after an extensive search for the animal in 2014, a report has recommended its status be changed from “endangered” to “extinct”.

Led by Ian Gynther from Queensland’s Department of Environment and Heritage Protection, and in partnership with the University of Queensland, the survey laid 150 traps on the island for six nights, and involved extensive measurements of the island and its vegetation. In their report, co-authored by Natalie Waller and Luke Leung from the University of Queensland, the researchers concluded the “root cause” of the extinction was sea-level rise. As a result of rising seas, the island was inundated on multiple occasions, they said, killing the animals and also destroying their habitat.

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It’s starting to look like Merkel no longer understands the limits of her powers.

Merkel Ready To Give In To ‘Blackmail’ Over Turkish Visas (BB)

According to a British diplomat, Chancellor Angela Merkel is ready to give visa-free travel in the Schengen zone to 75 million Turkish citizens despite the failure to meet key EU conditions. In starkly undiplomatic language, British Ambassador to Germany Sir Sebastian Wood has said that Chancellor Merkel’s officials are ready to strike a “compromise formulation” on the Turkish terrorism law which was a sticking point to the proposed EU-Turkey migrant deal. The Turkish leader, President Erdogan, recently said that telling his country to soften its counter-terror laws was tantamount to asking it to give up its struggle against terrorism. In saying so he was threatening to scupper the deal which is designed to give Turks visa-free travel to Europe in return for stemming the flow of illegal migrants to the continent.

At first the EU said it would not give in to Turkish pressure, but now The Daily Telegraph reports that a leaked diplomatic telegram (‘DipTel’) written last month by Sir Sebastian suggests otherwise. In the May 13 memo, Sir Sebastian said President Erdogan’s pursuit of German satirist Jan Böhmermann “only strengthened the view that he is an authoritarian bully who is trying to blackmail Europe.” He also wrote, regarding the migrant deal: “Despite the tough public line, there are straws in the wind to suggest that in extremis the Germans would compromise further to preserve the EU-Turkey deal. “Merkel has begun to paint the deal in humanitarian terms, (pointing out that since it came into force, only 9 people have drowned), to pre-empt human rights opposition. Officials here have shown some interest, behind the scenes, about possible compromise formulations on the anti-terror law.”

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As I said before: the plan is to leave them all stranded in Greece.

Stranded Refugees Line Up For Greek Asylum Cards (Kath.)

Greece aims to register 1,400 people a day in its new asylum access system in a bid to expedite asylum applications by refugees, to relocate them to other EU member-states or reunite them with their families. The operation, which began last Wednesday, seeks to deal with the some 48,000 migrants – many with expired papers – who got stranded on the Greek mainland after the Balkan route into Europe was closed. So far, 1,200 people have been “pre-registered” – as the process has been dubbed – in Athens and Thessaloniki. Pre-registration will grant refugees and migrants the legal right to stay in Greece for one year and access to basic services.

According to the head of Greece’s asylum service, Maria Stavropoulou, “pre-registration” will be “a first step either for relocation to other member-states, or for family reunification, or to apply for international protection in Greece.” Once they are registered, refugees receive an asylum applicant’s card which means they will get an interview in the next few months with the asylum service. The program will last for two months and aims to pre-register all applicants that arrived in Greece from January 1 2015 until March 19, 2016, the day before the treaty between the EU and Turkey to stem their flow went into effect. The process is open to three different groups: those with the right to move to EU countries where they have relatives as part of the family reunion program, those that will be part of the resettlement program (Syrians and Iraqis), and those who want to apply for asylum in Greece.

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Jun 092016
 
 June 9, 2016  Posted by at 8:33 am Finance Tagged with: , , , , , , , , ,  2 Responses »


G. G. Bain Temporary footpath, Manhattan Bridge 1908

Everything’s a Buy as Central Banks Keep on Greasing Markets (BBG)
Draghi Starts Buying Junk Bonds, “Means Business” (BBG)
FinMin: Greece In ECB’s QE Program By This Fall (Kath.)
Europe Junk Borrowers Rush to Refinance Before Brexit Vote (BBG)
China’s Factory-Gate Deflation Eases Somewhat (BBG)
Chinese Trade Data Lies Exposed -Again- (ZH)
Cheap Oil Will Weigh On Global Economy, Says World Bank (G.)
Gulf Nations Must Cut Deficits to Keep Currency Pegs, IMF Says (BBG)
Hedge Funds’ Fast Money Not Welcome as Iceland Bolsters Defenses (BBG)
Britain’s Defiant Judges Fight Back Against Europe’s Imperial Court (AEP)
Greek Asylum Service Starts Process Of Recording Applications (Kath.)
Erdogan’s Draconian New Law Demolishes Turkey’s EU Ambitions (G.)

As per the apt title of my article yesterday, ‘the only thing that grows is debt’. Markets need price discovery to function, but right now it’s everyone’s biggest fear. “Oil at 8-month high!”

Everything’s a Buy as Central Banks Keep on Greasing Markets (BBG)

Misery is making strange bedfellows in global markets. At a time when risky assets including stocks, commodities, junk bonds and emerging-market currencies are rallying to multi-month highs, so are the havens, from gold, government bonds to the Swiss franc and the Japanese yen. No matter that the U.S. labor market is deteriorating and the World Bank has just cut its estimates for global economic growth. Investors either don’t believe the news is bad enough to kill a global recovery that’s already long in the tooth, or they’re betting that sluggishness in some of the biggest economies means central banks will stay more accommodative for longer.

“Everything is being driven by high liquidity that ultimately is being provided by central banks,” Simon Quijano-Evans at Commerzbank, Germany’s second-largest lender, said in London. “It’s an unusual situation that’s a spill over from the 2008-09 crisis. Fund managers just have cash to put to work.” For much of the time since the financial meltdown eight years ago, investors have been in the mindset that bad economic data is good news for markets. The near-zero interest-rate policies by major central banks – and negative borrowing costs in Japan and some European nations – have pushed traders to grab anything that offers yield. And every indication that the liquidity punch bowl will stay in place is greeted by markets with a cheer.

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Paraphrasing Springsteen: “Someday we’ll look back on this and it will all seem not one bit funny.”

Draghi Starts Buying Junk Bonds, “Means Business” (BBG)

Since a surprise interest-rate cut at his first meeting as ECB President, Mario Draghi has shown a penchant for pushing the envelope. The bank’s entry into the corporate bond market on Wednesday was no exception: buying bonds with junk ratings. Purchases on the first day included notes from Telecom Italia, according to people familiar with the matter, who aren’t authorized to speak about it and asked not to be identified. Italy’s biggest phone company has speculative-grade ratings at both Moody’s Investors Service and S&P Global Ratings. The company’s bonds only qualifies for the central bank’s purchase program because Fitch Ratings ranks it at investment grade.

By casting his net as wide as the program allows, Draghi ensured that the first day of corporate bond purchases made an impact. While the ECB has said it would buy bonds from companies with a single investment-grade rating, investors expected the central bank to start with the region’s highest-rated securities. “It’s been an aggressive start to the program,” said Jeroen van den Broek at ING Groep in Amsterdam. “The wide-reaching nature of the purchases shows Draghi means business.” [..] Telecom Italia’s bonds are in Bank of America Merrill Lynch’s Euro High Yield Index and credit-default swaps insuring the notes against losses are part of the Markit iTraxx Crossover Index linked to companies with mostly junk ratings.

Moody’s and S&P have ranked Telecom Italia one level below investment grade, at Ba1 and an equivalent BB+ respectively, since 2013. Fitch puts the company at the lowest investment-grade rating and only revised its outlook on that level to stable from negative in November. “This dispels any doubts investors may have had about the commitment of the ECB and the central banks to tackle lower-rated names,” said Alex Eventon at Oddo Meriten Asset Management. “Telecom Italia is firmly at the weak end of the spectrum the ECB can buy.”

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I’ll have to see it to believe it. Draghi buys everything not bolted down, but not Greece.

FinMin: Greece In ECB’s QE Program By This Fall (Kath.)

Greece will enter the ECB’s quantitative easing (QE) program “soon,” Finance Minister Euclid Tsakalotos told Bloomberg in an interview on Wednesday. However, the Greek government’s optimism is not shared by banking sources and analysts, who estimate that Greece’s inclusion in ECB Governor Mario Draghi’s bond-buying program will be tied to the successful completion of the second bailout review in the fall, as well as the progress in talks on settling the problem of the Greek national debt.

In his interview Tsakalotos went as far as to say that Greece will join the QE program by September, stressing that such a development would open the way for the lifting of the capital controls and the gradual restoration of investor trust. He also said that the ECB will start accepting Greek bonds as collateral for loans after Athens completes the July debt repayments to Frankfurt. “I feel confident the Greek bonds will be eligible” by September, he predicted. He also forecast that once Greece enters the QE program, depending also on the decisions on the country’s debt, “you can take Grexit off the table,” referring to the possibility of a Greek exit from the eurozone. “Then you have a straight runway for investors,” he added in the same optimistic spirit.

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Draghi’s got your back, guys.

Europe Junk Borrowers Rush to Refinance Before Brexit Vote (BBG)

Junk-rated companies in Europe are hurrying to refinance debt, locking in borrowing costs at one-year lows amid concerns that a U.K. referendum on EU membership will paralyze markets. Leveraged-loan borrowers are poised to raise more money in euros this week for refinancing than in the whole of May, according to data compiled by Bloomberg. The amount amassed for repaying old debt from selling high-yield bonds is on track to be equal to about two-thirds of comparable sales last month. Companies including Altice and Verisure Holding have entered the market as the start of corporate-bond purchases by the ECB on Wednesday has driven down borrowing costs across the continent.

The window may prove short-lived as banks including Goldman Sachs have said a June 23 vote in favor of a Brexit could roil European markets and endanger economic growth. “It’s possible that uncertainty will rise as we approach the Brexit referendum,” said Colm D’Rosario at Pioneer Investment Management. “Issuers won’t want to wait until then.” Companies may sell about €2.5 billion of leveraged loans and at least €2.6 billion of high-yield bonds for refinancing this week, the Bloomberg data show.

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The new reality: “..raw-material producer prices fell 7.2%, less than the prior month’s 7.7% decline..” And what does BBG call this? Yes, that’s right: “Firmer producer prices..”

China’s Factory-Gate Deflation Eases Somewhat (BBG)

Deflationary pressures in China’s industries eased further in May, while consumer price gains continued to be subdued enough to offer the central bank scope for more easing if needed. Amid a drive by the Communist Party leadership to cut excess capacity, producer prices fell 2.8%, the least since late 2014 and less than the 3.2% decline economists had estimated in a Bloomberg survey. The consumer price index rose 2% from a year earlier, less than the median forecast of 2.2%. Easing factory-gate deflation is the latest signal of stabilization after more than four years of falling producer prices. Tepid consumer price gains may allow the People’s Bank of China, which has kept interest rates at a record low since October, room to add further stimulus in the short term to help prop up growth.

“The deflationary threat has substantially diminished,” said Raymond Yeung at Australia & New Zealand Banking Group in Hong Kong. “Domestic demand has stabilized so we don’t see a strong upward pressure either. We still think the PBOC will remain moderately accommodative.” [..] Mining and raw-materials producer prices slumped less in May than the previous month, though still recorded the biggest declines. Mining producer goods fell 9.6% last month, versus a 13% drop in April, while raw-material producer prices fell 7.2%, less than the prior month’s 7.7% decline, the statistics bureau reported.

“Firmer producer prices reflect a combination of factors,” Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. “Commodity prices are a big part of the picture, with oil and iron ore both down less sharply than in 2015. So, too, is slightly more resilient domestic demand. Capacity utilization remains extremely low in historical comparison, but has ticked up over the last few months.”

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Different version of the graph I posted yesterday with the comment: “Where would China’s imports be without the fake invoices?”

Chinese Trade Data Lies Exposed -Again- (ZH)

If March’s 116.5% surge in China imports from Hong Kong didn’t raise eyebrows as the veracity of the trade data, then perhaps following last night’s data drop, this month’s 242.6% explosion year-over in China imports from Hong Kong must at minimum deserve a second glance. As Bloomberg’s Tom Orlik previously noted, the implausible 242.6% YoY surge screams that China is clearly disguising capital flows… Trade mis-invoicing as a way to hide capital flows remains a factor. In the past, over-invoicing for exports was used as a way to hide capital inflows. The latest data show the reverse phenomenon, with over-invoicing of imports as a way of hiding capital outflows. Does this look “real”?

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Yes, that’s right. Cheap oil is now bad, all of a sudden. Who could have thought? Oh wait, me.

Cheap Oil Will Weigh On Global Economy, Says World Bank (G.)

Global growth will slow this year as oil exporters in the developing world struggle to cope with lower energy prices, the World Bank has said in its half-yearly economic health check. The benefit of cheaper oil prices for Europe, Japan and other oil importing nations, which has sustained their growth through 2015 and 2016, has failed to offset a slowdown in parts of Africa, Asia and South America that depend on selling energy to sustain their incomes. In one of the gloomiest predictions by an international forecaster, the bank said the effect of the collapse in oil income on developing countries would restrict global growth to 2.4% this year, well down on its January forecast of 2.9%.

In the UK the growth rate will be restricted to 2% this year and 2.1% in 2017 and in 2018. The US will also stabilise at about 2% annually for the next couple of years, while the eurozone will expand at a more modest 1.6% in 2016 and in 2017 before slipping to 1.5% in 2018. The tumbling price of metals and food on world markets last year hit emerging and developing economies without triggering a significant rise in spending by richer countries. The Washington-based bank, which lends more than £25bn a year to developing countries, said weaker global trade, a downturn in private and public investment and a slump in manufacturing added to the woes of economies that have become dependent on high oil prices to bolster growth.

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They all pray for growing demand. There won’t be any.

Gulf Nations Must Cut Deficits to Keep Currency Pegs, IMF Says (BBG)

Gulf oil exporters must cut spending and narrow their budget shortfalls to keep their currencies pegged to the dollar, the IMF said. While substantial foreign assets have allowed the six members of the Gulf Cooperation Council to fix the value of their currencies to the greenback, keeping the status quo comes at a price as lower crude prices strain public finances, the lender said in a report titled “Learning to Live with Cheaper Oil.” “When a country faces prolonged fiscal and external deficits, policy adjustment must come from fiscal consolidation measures,” the IMF said in the report authored by Martin Sommer, deputy chief of its regional studies division. Maintaining the currency pegs “will require sustained fiscal consolidation through direct expenditure cutbacks and non-oil revenue increases,” it said.

As investors increased bets that currency fixes may become too expensive to maintain, the United Arab Emirates and Saudi Arabia renewed their commitment to their pegs – with the latter also said to ban betting against its currency. Gulf oil producers’ budgets swung from surplus to deficit as Brent crude fell by as much as 75% from June 2014 to January this year, before a partial recovery in recent months. Even after cutting spending, the combined budget gap in the GCC region – which also includes Kuwait, Qatar, Bahrain and Oman – as well as Algeria is expected to reach $900 billion for the period 2016-2021, and represent 7% of their gross domestic product in the final year, the IMF said. Their debt-to-GDP ratio is expected to rise to 45% in 2021 from 13% last year as governments issue debt to plug their budget gaps.

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Iceland’s learned a lesson or two.

Hedge Funds’ Fast Money Not Welcome as Iceland Bolsters Defenses (BBG)

Iceland has gone its own way since its three largest lenders collapsed in 2008 under a mountain of debt almost eight times the size of its economy. The steps included capital controls that locked in hedge funds, mortgage writedowns and throwing bankers in jail. With the recovery well under way, the island nation – once a hedge fund paradise – is continuing on its isolated path. Lawmakers have effectively outlawed the kind of trade that inflated the bubble a decade ago, protecting against a repeat. Surrounded by sub-zero interest rates, Iceland’s benchmark gauge of 5.75%, the highest in the developed world, is luring cash from abroad. That’s unlikely to change any time soon.

“The problem is the ability to have an independent monetary policy and an independent monetary policy means the ability to have a different interest rate than the rest of the world,” central bank Governor Mar Gudmundsson said on Monday. “If that’s not possible, then you can’t have an independent monetary policy. And the problem of very significant interest rate differential – interest rates in Iceland are higher than the rest of the world – will not disappear overnight.” Both geographically and financially Iceland is a small island in vast, turbulent waters. Under the law enacted last week, the central bank over the weekend set rules that will force investors in Icelandic bonds to keep 40% of their investments in a 0% account for a year. That will limit the profit to be made from investing in Iceland, where government bonds offer yields of more than 6%.

Those type of returns are tempting in a world of near zero and even negative key rates. As evidence, the Icelandic krona has strengthened this year even as the central bank has been selling the currency to build up foreign holdings as it prepares to lift the capital controls that have been in place since 2008. But the country may have seen nothing yet, according to the governor. The new rules are a “precautionary” measure to stifle any major flows after the controls are lifted, he said. “There have been certain inflows in the last few months,” he said. “We thought there was a possibility of much greater inflows going forward, especially if the auction goes well and we take further steps to liberalize the capital account and the economy is booming and interest rates are high.”

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As I’ve said many times, the EU is made up of sovereign countries, and they’re not going to give up their sovereignty, not a single one of them.

Britain’s Defiant Judges Fight Back Against Europe’s Imperial Court (AEP)

The British judiciary has begun to draw its sword. For the first time since the European Court asserted supremacy and launched its long campaign of teleological conquest, our own judges are fighting back. It is the first stirring of sovereign resistance against an imperial ECJ that acquired sweeping powers under the Lisbon Treaty, and has since levered its gains to claim jurisdiction over almost everything. What has emerged is an EU supreme court that knows no restraint and has been captured by judicial activists – much like the US Supreme Court in the 1970s, but without two centuries of authority and a ratified constitution to back it up. This is what the Brexit referendum ought to be about, for this thrusting ECJ is in elemental conflict with the supremacy of Parliament. The two cannot co-exist. One or the other must give.

It is the core issue that has been allowed to fester and should have been addressed when David Cameron went to Brussels in February to state Britain’s grievances. It was instead brushed under the carpet. The explosive importance of Lisbon is not just that it enlarged the ECJ’s domain from commercial matters (pillar I), to broad areas of defence, foreign affairs, immigration, justice and home affairs, nor that this great leap forward was rammed through without a referenda – after the French and the Dutch had already rejected it in its original guise as the European Constitution. Lisbon also made the Charter of Fundamental Rights legally-binding. As we have since discovered, that puts our entire commercial, social, and criminal system at the mercy of the ECJ.

The Rubicon was crossed in Åklagaren v Fransson, a VAT tax evasion case in non-euro Sweden. The dispute had nothing to do with the EU. The Charter should come into force only when a country is specifically applying EU law. The ECJ muscled into the case on the grounds that since VAT stems from an EU directive, Sweden was therefore operating “within the scope of EU law”. This can mean anything, and that is the point. To general consternation, it ruled that Sweden had violated the double-jeopardy principle of Article 50 of the Charter. Almost nothing is safe when faced with a court like this, neither the City of London, nor our tax policies or labour laws, nor even our fiscal and monetary self-government. The ECJ can strike down almost any law it wants, with no possibility of appeal.

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The EU slowly but surely forces Greece to take in 10s of 1000s of refugees on a -much more- permanent basis. But Erdogan can send a million more.

Greek Asylum Service Starts Process Of Recording Applications (Kath.)

Greece’s asylum service on Wednesday launched a new scheme for processing registrations from migrants who want to apply for asylum in the country, a process that could take up to a year for many of the applicants, according to sources. The “recognition documents” issued to migrants to date will have their validity extended to cover a year. Many of the documents held by migrants in camps across the country have expired as they apply for six months for Syrians and just one month for all other nationalities.

Once the migrants have been registered, they will be issued with a yellow bracelet bearing their name and other personal details. The registration document and bracelet will grant each migrant the right to legal residence in Greece and access to free healthcare but will not give them permission to work in Greece which must be sought separately. The applicants will be informed by SMS about their interview, according to an official of Greece’s asylum service who said the interview could take place several months after their application “due to the large population of refugees in the country.”

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Got the feeling he’s just getting started.

Erdogan’s Draconian New Law Demolishes Turkey’s EU Ambitions (G.)

Any chance Turkey could join the EU by 2020, as Brexit campaigners have asserted, went up in smoke on Wednesday after the country’s president, Recep Tayyip Erdogan, signed a draconian new law that in effect demolishes any notion that his country is a fully functioning, western-style democracy. EU rules dating to 1993, known as the Copenhagen criteria, insist all applicant states must adhere to a system of democratic governance and uphold other basic principles, such as the rule of law, human rights, freedom of speech, and protection of minorities. Turkey is struggling to meet these standards. The new measures make EU membership even more of a chimera.

They are expected to eviscerate parliamentary opposition to Erdog an’s ruling neo-Islamist Justice and Development party (AKP) by allowing politically inspired, criminal prosecutions of anti-government MPs. The main target is the pro-Kurdish Peoples’ Democratic party (HDP), which Erdog an accuses of complicity in terrorism, although other opposition parties are also affected. By signing the new law, Erdog an, who has dubbed the EU a “Christian club”, has signalled the end of any realistic chance of Turkey joining the union for the foreseeable future. Critics say he may also have sounded the death knell for Turkey’s secular democracy and set the stage for intensified armed conflict with Kurdish groups. Erdogan’s move comes against a backdrop of heightened violence between Turkey’s security forces and militants belonging to the outlawed Kurdistan Workers’ party (PKK) and its radical offshoots.

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Apr 012016
 
 April 1, 2016  Posted by at 8:32 am Finance Tagged with: , , , , , , , , ,  16 Responses »


William Henry Jackson Jupiter & Lake Worth R.R., Florida 1896

Asia Stocks Head for Biggest Drop in 7 Weeks Amid Broad Declines (BBG)
Hong Kong Retail Sales Plunge the Most in 17 Years (BBG)
A Bear Market Is Now Underway And It’s Likely To Be A Painful One (Felder)
Foreigners’ ‘Dumb Money’ Flees Japan Stocks (BBG)
‘Protectionist’ China Tax on Overseas Purchases Set to Kick In (WSJ)
Global Steel Industry Facing ‘Ice Age,’ Top China Mill Warns (BBG)
China’s Anbang Abandons $14 Billion Bid To Buy Starwood Hotels (Reuters)
The UK Once Made 40% Of Global Steel. Soon It May Produce Almost None (BBG)
Britain Courts Fate On Brexit With Worst External Deficit In History (AEP)
A Plan To Turn The Euro From Zero To Hero (Andricopoulos)
In Technology We Trust -Maybe- (Coppola)
How To Hack An Election (BBG)
Canada To Accept Additional 10,000 Syrian Refugees (Reuters)
Greece, Turkey Take Legal Short-Cuts In Race To Return Migrants (Reuters)
Amnesty Says Turkey Illegally Sending Syrians Back To War Zone (Reuters)
Turkey ‘Shooting Dead’ Syrian Refugees As They Flee Civil War (Ind.)
Greek Asylum System Under ‘Insufferable Pressure’ (IRIN)

Nikkei off 3.55%.

Asia Stocks Head for Biggest Drop in 7 Weeks Amid Broad Declines (BBG)

Asian stocks headed for the biggest decline in seven weeks as Japanese corporate sentiment deteriorated and a broad-based selloff from consumer discretionary stocks to healthcare engulfed the region’s equities markets. The MSCI Asia Pacific Index slid 2.2% to 126.04 as of 1:49 p.m. in Tokyo. The gauge climbed 8.2% in March, the best month since October, to end a tumultuous quarter for global markets. Equities had rebounded from lows in February as the Federal Reserve reassured investors that it won’t rush to increase borrowing costs. A stellar performance in March was tested immediately on the first day of the second quarter. Japan’s Topix index lost 3.4%, the worst start to a quarter since 2008, after the Tankan index of confidence among large manufacturers missed economist estimates.

“After strong gains from their February lows, shares are overbought and vulnerable to a pullback,” said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors Ltd., which oversees about $122 billion. “March quarter Tankan business conditions and confidence readings were disappointing.” The Tankan index of sentiment among large manufacturers fell to a reading of 6 in the first quarter, the lowest level since mid-2013, from 12 in the previous three months, the Bank of Japan reported Friday. Economists had expected a reading of 8. A positive number means there are more optimists than pessimists among manufacturers. The Shanghai Composite Index lost 1.3% even after China’s official factory gauge showed improving conditions for the first time in eight months, suggesting the government’s fiscal and monetary stimulus is kicking in.

A jump in the official factory gauge was overshadowed by a cut in the nation’s credit rating by Standard & Poor’s. S&P cut the outlook for China’s credit rating to negative from stable, saying the nation’s economic rebalancing is likely to proceed more slowly than the ratings firm had expected. The reduction may not have much of an impact on the markets as it comes at a time when the nation’s stocks are rallying and the currency is stabilizing, according to Sinopac Securities.

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Retail sales are getting bad in multiple locations.

Hong Kong Retail Sales Plunge the Most in 17 Years (BBG)

Hong Kong’s retail sales in February have plunged the most since 1999 as fewer Chinese tourists visited the city during the Lunar New Year holiday. Retail sales dropped 21% in February to HK$37 billion ($4.8 billion) year on year, according to a statement from Hong Kong’s statistics department. Combining January and February, sales fell 14%. The monthly decline is the worst since January 1999 when sales were also down 21%. “Apart from the severe drag from the protracted slowdown in inbound tourism, the asset market consolidation might also have weighed on local consumption sentiment,” a government said in a statement on Thursday. “The near-term outlook for retail sales will still be constrained by the weak inbound tourism performance and uncertain economic prospects.”

The government will monitor closely its repercussions on the wider economy and job market, it said. Chow Tai Fook Jewellery, the world’s largest-listed jewelry chain, and Sa Sa International reported slumping sales over the holiday when mainland Chinese tourists to the territory dropped 12% during Feb. 7-13. The stock market rout and a slowing Chinese economy have affected consumer sentiment for luxury goods, Chow Tai Fook has said. Mainland China tourists “are unlikely to come back in the short term,” said Forrest Chan at CCB International Securities. Hong Kong residents are also consuming less due to stagnant property values and the weak stock market, he said. “Hong Kong’s retail market will continue to fall for the rest of 2016 as all the negative factors won’t be solved in the near term,” Chan said.

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Margin debt. Next up is margin calls.

A Bear Market Is Now Underway And It’s Likely To Be A Painful One (Felder)

NYSE margin debt fell again during the month of February. After the selloff in stocks that kicked off 2016, this should come as no surprise. Investors are usually forced to reduce leveraged bets during these sorts of episodes in the stock market. In fact, this forced selling can actually exacerbate the volatility. And because margin debt is only now beginning to come down from record highs, surpassing those seen at the 2000 and 2007 peak, this should be of concern to most equity investors. To fully appreciate this risk, I prefer to look at margin debt relative to overall economic activity. When leveraged financial speculation becomes large relative to the economy, it’s usually a sign investors have become far too greedy. As Warren Buffett would say, this is usually a good time to become more fearful, or conservative towards the stock market.

Not only did margin debt recently hit nominal record-highs, it hit new record-highs in relation to GDP, as well. In other words, over the past several decades, investors have never become so greedy as they did recently. And yes, this includes the dotcom bubble. One reason I prefer this measure is that it has a fairly high negative correlation with forward 3-year returns in the stock market. When investors become too greedy, returns over the subsequent 3 years are poor and vice versa. As of the end of February, the latest forecast implied by this measure is for a loss of about 35% over the next three years. While this measure is pretty good at forecasting 3-year returns that doesn’t help much for investors concerned with the next year or so. In this regard, it may be helpful to observe the trend of margin debt.

Where is the nominal level of margin debt relative to its 12-month moving average or simply its level from one year ago? Historically, when these indicators turn negative from such lofty levels, a bear market, as defined by at least a 20% drawdown, is already underway. Right now both of these measure are, in fact, negative. So margin debt right now is sending a very clear signal that investors have recently become very greedy. This suggests returns over the next several years should be very poor. Finally, the trend in margin debt also suggests that a new bear market is likely underway. If history is to rhyme, that means a decline of at least 20% in the S&P 500 is very likely to occur sometime soon. And because of the sheer size of the potential forced supply that could come to market in this sort of environment, that could easily be just the beginning.

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Abenomics chapter 827-B.

Foreigners’ ‘Dumb Money’ Flees Japan Stocks (BBG)

Brian Heywood, who oversees about $2 billion mostly in Japanese equities, is putting on a brave face as the market tumbles and many foreigners head for the exit. The CEO of Taiyo Pacific Partners says he welcomes the selling by overseas investors as it gives him a better chance to beat his benchmark. His logic is that many money managers invest indiscriminately in Tokyo, pushing up the entire Topix index and making stock-picking less effective. Heywood says his fund is outperforming the equity gauge this year, while declining to give details.

Foreign investors offloaded shares for 12 straight weeks, with net selling reaching a record earlier this month, as they lose faith in the Bank of Japan’s monetary policy and Prime Minister Shinzo Abe’s commitment to reviving the economy. The Topix is down 13% in 2016, and while Taiyo’s biggest holdings have posted strong gains, many others have fallen. “We don’t do well when there is a flood of money into Japan, because it’s dumb money,” Heywood, 49, said in an interview during a visit to Tokyo last week. “When the market punctures, there are companies that we want to add to. The market overreacts. We know the company. We’re at 3% and we’d like to be at 6%. We use it as an opportunity.”

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We’re going to see a lot of ‘hidden’ protectionism going forward. Globalization is now turning against individual nations.

‘Protectionist’ China Tax on Overseas Purchases Set to Kick In (WSJ)

China is tightening its grip on cross-border e-commerce, imposing a new tax system on overseas purchases that form a growing business catering to Chinese consumers with an appetite for foreign goods. The changes, announced by the Finance Ministry last week, include raising the so-called parcel tax that is currently imposed on foreign retail products that e-commerce firms ship into China. Moreover, such goods sent directly to consumers will now be treated as imports and will be subject to tariffs and value-added and consumption taxes, whose rates vary depending on the type and value of goods. The ministry said the changes, which become effective April 8, are intended to put foreign and domestic products on an equal footing.

Industry analysts said the move seems designed to give a boost to “made-in-China” products and could dent a small, but growing, market for foreign goods sold by Alibaba, JD.com. and other e-commerce players. Those marketplaces feature nutritional supplements and food by brands such as Ocean Spray, as well as diapers and other baby and maternal products. They form a slice of the 5 trillion yuan ($773 billion) in sales by e-commerce firms in China last year, double the level of 2012, according to Beijing-based research firm Analysys International. The new levies could dampen some demand, just as an increasing number of retailers world-wide are hoping to sell into China, said Charles Whiteman, senior vice president of client services for MotionPoint, a technology company that helps international retailers sync their e-commerce websites across languages and currencies.

“Increases in prices always have the effect of driving demand down,” but the effect will be “modest,” Mr. Whiteman said. “It probably won’t be too noticeable for branded products,” for which consumers are willing to pay a premium. Chinese consumers have demonstrated a willingness to pay more for products such as cosmetics, infant formula and other baby products. Chinese e-commerce companies have said that such products form the vast majority of the imported products sold on their websites, because of product-safety concerns in China. Alibaba and JD.com said they expected robust demand from Chinese consumers for overseas products, especially high-quality ones, to continue, even with the changes in policy.

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Yeah, that metaphor sort of works.

Global Steel Industry Facing ‘Ice Age,’ Top China Mill Warns (BBG)

The crisis engulfing the global steel industry is so severe that one of China’s top producers has warned a new Ice Age has set in as mills confront overcapacity and rising competition that threaten their survival. “In 2015, China experienced a slowdown in economic growth and excess steel capacity, which caused the domestic and overseas steel industry to enter into an ‘Ice Age’,” Angang Steel said after posting a net loss of 4.59 billion yuan ($710 million) for last year. There are severe challenges, fierce competition and difficult survival conditions, it said. Steel demand in China is shrinking for the first time in a generation as growth slows and policy makers seek to steer the economy toward consumption.

Faced with declining sales at home, mills in the top producer – which accounts for half of global supply – have shipped record volumes overseas, heightening competition from Europe to the U.S. Tata Steel Ltd. in India said this week it’s planning to sell off its loss-making U.K. plants, prompting Prime Minister David Cameron to call crisis talks on Thursday. The steel industry is set for a “severe winter,” Angang said, describing the market that it and others faced as complex. Output of steel by the country’s fourth-biggest producer contracted 4.4% last year, and the company is seeking to reduce costs and boost efficiency, it said.

Benchmark steel prices sank 31% in China last year, pummeling mills’ margins and spurring the government to step up efforts to force the industry to shut overcapacity and shift workers to other jobs. While reinforcement bar has rebounded since November, Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd., forecasts the rally may not last. “The short-term rally we’ve seen in steel prices will give way to the longer-term dynamic of weaker steel consumption in China,” Hynes said by phone on Thursday. “I suppose the positive thing is that maybe the restructuring we’re seeing in the steel industry will speed up the rationalization of the market.”

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This is becoming a curious case. Rumor has it Anbang couldn’t produce details on how they would finance the deal.

China’s Anbang Abandons $14 Billion Bid To Buy Starwood Hotels (Reuters)

China’s Anbang Insurance said on Thursday it has abandoned its $14 billion bid for Starwood Hotels & Resorts Worldwide, paving the way for Marriott International to buy the Sheraton and Westin hotels operator. The surprise withdrawal marks an anticlimactic end to a bidding war that had pitted Marriott’s ambitions to create the world’s largest lodging company, with about 5,700 hotels, against Anbang’s drive to create a vast portfolio of U.S. real estate assets. It also represents a blow to corporate China’s growing ambitions to acquire U.S. assets. Anbang’s acquisition of Starwood would have been the largest takeover of a U.S. company by a Chinese buyer.

“We were attracted to the opportunity presented by Starwood because of its high-quality, leading global hotel brands, which met many of our acquisition criteria, including the ability to generate consistent, long-term returns over time,” Anbang said. “However, due to various market considerations, the consortium has determined not to proceed further,” Anbang added, referring to the joint bid it had put together with private equity firms J.C. Flowers and Primavera Capital. Anbang did not offer Starwood a reason for not following through on its raised offer of March 26, according to people familiar with the matter. They asked not to be identified disclosing confidential discussions. “The reason of withdrawal is simple – Anbang isn’t interested in a protracted bidding war,” Fred Hu, Chairman of Primavera, told Reuters..

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What happens when all your priorities are short term.

The UK Once Made 40% Of Global Steel. Soon It May Produce Almost None (BBG)

The U.K. once made nearly half the world’s steel. Soon it may produce almost none. Tata Steel plans to sell its U.K. business which include the country’s last blast furnace sites in Scunthorpe and Port Talbot. Used to turn iron ore into steel, these giant plants are the focus of the entire industry. They are also the assets that may prove the most difficult to unload, according to at least one potential buyer. Should Tata’s plants follow Redcar, shut last year, the U.K. would become the first member of the Group of Seven leading economies to operate no blast furnaces. It’s a far cry from its Victorian metal-bashing heyday when Britain produced about 40% of global supply. But beyond the immediate impact on employment, does it matter? Does a major industrial economy need to produce steel, a material vital to industries from construction to car making?

“They’re probably done for,” said Keith Burnett, vice-chancellor at the University of Sheffield, a place that won the moniker Steel City before the industry’s decline. “But if we accept that, it’s a really big step and the long-term consequences are to lose the capabilities to make our own railways, make our own weapon systems, make our own nuclear reactors.” The U.K. was already the industrial world’s laggard when it comes to steel, producing just 12.1 million tons in 2014, less than a third of what Germany makes each year and just over a tenth of Japan’s 110.7 million=ton output. China is the world’s biggest producer making about half the world’s 1.67 billion tons of steel.

British steelmaking has been in relative decline for more than a century, eclipsed by the by the U.S. by the start of World War I and later overtaken by Germany. In the 1970s and 1980s, inefficient and outdated plants led to production falling 64% to less than 10 million metric tons, and the country’s output slipped below France, Italy and Belgium. Still, manufacturing in steel-consuming industries is buoyant. U.K. car production hit a 10-year high last year with 1.6 million cars being made in Britain as overseas sales reached record numbers. The country employs 2.6 million people in manufacturing, much of it steel related, and it accounts for 44% of exports.

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More of the same short term focus that will end up damaging Britain for decades to come.

Britain Courts Fate On Brexit With Worst External Deficit In History (AEP)

Britain’s current account deficit is the worst ever recorded in peace-time since the Bank of England started collecting records in 1772 under the reign of George III. Even during the grimmest moments of the First World War it only slightly exceeded the eye-watering figure of 7pc of GDP racked up in the fourth quarter of last year. No other country in the OECD club is close to this. It has been getting worse for the last four years in a row. Excuses are running thin. The Government can no longer blame the double-dip recession in the eurozone, our biggest export market. Europe has been recovering for three years and is currently enjoying as much growth as it is ever likely to see. The UK deficit is prima facie evidence of a nation living beyond its means, reliant on foreign capital to fund consumption.

Global investors have so far chosen to overlook this chronic deterioration, accepting the stock assurance from London that it is a temporary blip caused by declines in investment income. This may change as the vote on Brexit draws near and the polls tighten. Most investors in Asia, the US, and the Middle East have treated the referendum as political pantomime, taking it for granted that British voters would (as the world sees it) make the “rational” choice. “Very few people have been focusing on the current account. Brexit is now bringing it firmly into focus. We are getting a lot more questions about this from clients in Europe,” said David Owen from Jefferies. The dawning realization that Britain might indeed opt for secession has clearly begun to rattle markets. Sterling has fallen 9pc against a trade-weighted basis since November. The spread between Gilts and German Bunds has been creeping up, an early warning sign of trouble.

The Bank of England’s Financial Policy Committee noted signs of stress in the sterling options market in a statement this week, and warned that it may become harder to the inflows of capital needed to cover the external deficit. Lena Komileva from G+Economics said the current account deficit is now so large that it leaves the country vulnerable to external shocks, amplifying the potential impact of Brexit. Britain’s credit-driven consumer credit is “plainly unsustainable”. The UK savings ratio has fallen to a record low of 3.8pc. Consumer credit has risen by 44pc over the last year to £1.3bn. “We are not very different from the structural fragility of the economy that we had prior to the 2007 global crash,” she said. The Office for Budget Responsibility warned earlier this month that households are running an “unprecedented” deficit of 3pc of GDP – worse than the pre-Lehman peak – with no improvement expected through to the early 2020s.

People are running through savings and taking on debt to fund their lifestyles and buy new cars. They are expected to spend £58bn more than they earn this year, rising to £68bn by the end of the decade. This roughly mirrors what was happening just before the 2007 financial crisis when people were treating their homes as a cash machine, drawing down £50bn a year in home equity. Events were to show brutally that this was not benign.

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Well, one can dream, surely. But without -unacceptable to many- ‘transfers’ from north to south, can the euro survive at all?

A Plan To Turn The Euro From Zero To Hero (Andricopoulos)

It is difficult to read the history of inter-war Europe and the US without feeling a deep sense of foreboding about the future of the Eurozone. What is the Eurozone if not a new gold standard, lacking even the flexibility to readjust the peg? For the war reparations demanded at Versailles, or the war debts owed by France and the UK to the US, we see the huge debts owed by the South of Europe to the North, particularly Germany. The growth model of the Eurozone now appears to be based largely on running a current account surplus. Competitive devaluation is required to make exports relatively cheap. While this may have been a very successful policy for Germany during a period of high economic growth in the rest of the world, it cannot work in the beggar-thy-neighbour demand-starved world economy of today.

As I’ve explained elsewhere, reasonably large government deficits are very important for sustainable economic growth. However, in the Eurozone this is prohibited both by the Stability and Growth Pact (SGP) and by the fear of losing market confidence in the national debt. At the same time credit growth for productive investment is constrained by weak banks and Basel regulation. And the Eurozone as a whole is already running a large current account surplus; the rest of the world will not allow much more export-led growth. Helicopter money would be a solution, but politically this is a long way away. Summing up, if economic growth cannot be funded by government deficits, private sector debt, export growth or helicopter money it is very difficult to see where nominal GDP growth can come from.

In a way, this can be seen as a Prisoner’s Dilemma. Every country knows (or should know) that if all states provided fiscal stimulus, the Eurozone would benefit from more economic growth. However, for any individual state, a unilateral fiscal boost would increase their own government debt whilst giving a fair amount of the GDP growth to other states (because some of the stimulus would go to increasing imports from the other nations). And if all others provide stimulus, then it is in an individual state’s interest to take the benefit of the other states’ stimulus, and become more competitive versus the rest.

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We could do with more blockchain scrutiny.

In Technology We Trust -Maybe- (Coppola)

David Andolfatto of the St. Louis Federal Reserve wonders if investors see Bitcoin as a “safe asset”. By this he means the sort of asset that investors run to when economic storm clouds gather and other asset classes start to look dangerous: “Loosely speaking, I’m thinking about an asset that people flock to in bad or uncertain economic times. In normal times, it’s an asset that is held despite having a relatively low rate of return, perhaps because of its use as a hedge, or because of its liquidity properties.” Like gold, in fact. In important respects, Bitcoin is indeed like gold. Digital gold. It is “mined”, with mining becoming more difficult and expensive as undiscovered supplies dwindle.

There is an absolute limit (21 million) on the number of bitcoins that can ever be mined: once all have been “discovered”, the supply is fixed, unless the Bitcoin community decides that the hard limit should be changed – which at present seems rather less likely than mining asteroids for gold. The gold-like nature of Bitcoin protects it from hyperinflationary collapse, believed by many goldbugs and Bitcoin geeks to be the inevitable future of today’s government-issued fiat currencies. And, importantly, it is not under the control of governments or central banks. Neither the political mafia nor the economics establishment have any say over how, when or if it is produced, nor over its market price. For people who believe that “GUBBMINT WILL STEAL YOUR MONEY”, Bitcoin is possibly even more secure than gold.

After all, in the 1930s the US government confiscated private sector gold holdings. But it has no means of confiscating Bitcoin holdings, since identifying exactly who holds them is costly and difficult, and they can easily be transferred out of reach anyway. Bitcoin is, after all, an international currency with its own highly efficient money transfer technology. Like gold, Bitcoin’s market price tends to be volatile. And like gold, its value also tends to be counter-cyclical. When the US economy weakens, or global risks rise, up goes gold…..and Bitcoin. The profiles of both vis-à-vis the US dollar since the end of 2013 look remarkably similar. We can perhaps say that investors run to gold when trust in government and its instruments fails. In God We Trust becomes In Gold We Trust. But where does Bitcoin fit in?

Bitcoin’s advocates claim that the system is a “trust-free system”, because there are no intermediaries. But for the system to work at all, there must be trust – trust that the technology will work. In Gold We Trust becomes In Technology We Trust. It is perhaps not surprising that Bitcoin use is highest among those with a background in computer science. But hang on. There’s a problem, isn’t there? After all, governments are human constructs. And so are cryptocurrencies. The coders behind Bitcoin are human. Why should anyone have more trust in a digital currency created by an anonymous group of coders accountable to no-one than in a democratically-elected government accountable to everyone? Why is an essentially feudal governance model “safer” than a democratic one?

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The election hit man.

How To Hack An Election (BBG)

It was just before midnight when Enrique Peña Nieto declared victory as the newly elected president of Mexico. Peña Nieto was a lawyer and a millionaire, from a family of mayors and governors. His wife was a telenovela star. He beamed as he was showered with red, green, and white confetti at the Mexico City headquarters of the Institutional Revolutionary Party, or PRI, which had ruled for more than 70 years before being forced out in 2000. Returning the party to power on that night in July 2012, Peña Nieto vowed to tame drug violence, fight corruption, and open a more transparent era in Mexican politics. Two thousand miles away, in an apartment in Bogotá’s upscale Chicó Navarra neighborhood, Andrés Sepúlveda sat before six computer screens.

Sepúlveda is Colombian, bricklike, with a shaved head, goatee, and a tattoo of a QR code containing an encryption key on the back of his head. On his nape are the words “” and “” stacked atop each other, dark riffs on coding. He was watching a live feed of Peña Nieto’s victory party, waiting for an official declaration of the results. When Peña Nieto won, Sepúlveda began destroying evidence. He drilled holes in flash drives, hard drives, and cell phones, fried their circuits in a microwave, then broke them to shards with a hammer. He shredded documents and flushed them down the toilet and erased servers in Russia and Ukraine rented anonymously with Bitcoins. He was dismantling what he says was a secret history of one of the dirtiest Latin American campaigns in recent memory.

For eight years, Sepúlveda, now 31, says he traveled the continent rigging major political campaigns. With a budget of $600,000, the Peña Nieto job was by far his most complex. He led a team of hackers that stole campaign strategies, manipulated social media to create false waves of enthusiasm and derision, and installed spyware in opposition offices, all to help Peña Nieto, a right-of-center candidate, eke out a victory. On that July night, he cracked bottle after bottle of Colón Negra beer in celebration. As usual on election night, he was alone.

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Bright spot. Europe must study Canadian law.

Canada To Accept Additional 10,000 Syrian Refugees (Reuters)

Canada will take in an additional 10,000 Syrian refugees, adding to the more than 25,000 already received in the last few months, said immigration minister John McCallum. McCallum told the Canadian Broadcasting Corp he was responding to complaints from Canadian groups who want to sponsor Syrian refugees but did not have their applications processed quickly enough to be among the government’s initial target of 25,000. “We are doing everything we can to accommodate the very welcomed desire on the part of Canadians to sponsor refugees,” McCallum said in a phone interview with CBC News from Berlin, where he is meeting with the German interior minister. The Liberal government won election in October 2015 pledging to bring in more Syrian refugees more quickly than the previous Conservative government.

Private groups including church, family and community organizations had lined up to sponsor Syrian families. The welcome contrasts sharply to Europe, where resettlement has sparked an anti-migrant backlash amid security fears. While there have been some delays finding permanent housing for refugees arriving in Canada, particularly in large cities like Toronto where the housing market is tight, the resettlement program has been mostly smooth. [..] . A total of 26,200 Syrian refugees had arrived in Canada as of 28 March, according to the immigration department. But nearly 16,000 more applications are in process or have been finalized, even though the refugees have not yet arrived, according to official figures.

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Fast and loose.

Greece, Turkey Take Legal Short-Cuts In Race To Return Migrants (Reuters)

Greece and Turkey are rushing through changes to their asylum rules in a race to implement a EU-Turkey agreement on the return of refugees and migrants from Greek islands to Turkey from next Monday, EU officials and diplomats said. Both Athens and Ankara must amend their legislation to permit the start of a scheme – denounced by the U.N. refugee agency and rights groups – to send back all migrants who crossed to Greece after March 20. The policy is meant to end the uncontrolled influx of refugees and other migrants in which more than a million people crossed into Europe last year, causing a political backlash and pitting EU countries against each other. Greece, which started evacuating hundreds of people stranded in Athens’ Piraeus port on Thursday, submitted to parliament an asylum amendment bill on Wednesday.

Brussels said it had assurances from Athens that it would be passed this week. But it does not explicitly designate Turkey as a “safe third country” – a formula to make any mass returns legally sound – and a senior official of the United Nations High Commissioner for Refugees said that change did not remove its concerns about protecting the rights of asylum seekers. “Our concerns regarding legal safeguards remain unchanged and we hope that the Greek authorities will take them fully into consideration,” UNHCR Europe director Vincent Cochetel said. The EU executive’s spokeswoman, Natasha Bertaud, was unable to say how exactly rejected asylum seekers would be removed from camps on Greek islands or transported back to Turkey, saying those details were still being worked out.

[..]The Greek bill does not name Turkey, but Bertaud said that was not essential provided rules were in place allowing people to be sent back to a “safe third country” or a “safe first country of asylum”, and each case was examined individually. EU officials said the formula was devised to get around unease among lawmakers in Greece’s ruling Syriza party at declaring Turkey safe when it is waging a military crackdown on Kurdish separatists and is accused of curbing media freedom and judicial independence. Asked why Turkey was not mentioned, Greece’s alternate minister for European affairs, Nikos Xydakis, told To Kokkino radio: “It cannot be in a law, because the examination of each application for asylum will be on a case by case basis. That is the safety trigger under international refugee law. Each person is a special case.”

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“It is a deal that can only be implemented with the hardest of hearts and a blithe disregard for international law..”

Amnesty Says Turkey Illegally Sending Syrians Back To War Zone (Reuters)

Turkey has illegally returned thousands of Syrians to their war-torn homeland in recent months, highlighting the dangers for migrants sent back from Europe under a deal due to come into effect next week, Amnesty International said on Friday. Turkey agreed with the EU this month to take back all migrants and refugees who cross illegally to Greece in exchange for financial aid, faster visa-free travel for Turks and slightly accelerated EU membership talks. But the legality of the deal hinges on Turkey being a safe country of asylum, which Amnesty said in its report was clearly not the case. It said it was likely that several thousand refugees had been sent back to Syria in mass returns in the past seven to nine weeks, flouting Turkish, EU and international law.

“In their desperation to seal their borders, EU leaders have wilfully ignored the simplest of facts: Turkey is not a safe country for Syrian refugees and is getting less safe by the day,” said John Dalhuisen, Amnesty International’s Director for Europe and Central Asia. Turkey’s foreign ministry denied Syrians were being sent back against their will. Turkey had maintained an “open door” policy for Syrian migrants for five years and strictly abided by the “non-refoulement” principle of not returning someone to a country where they are liable to face persecution, it said. “None of the Syrians that have demanded protection from our country are being sent back to their country by force, in line with international and national law,” a foreign ministry official told Reuters.

But Amnesty said testimonies it had gathered in Turkey’s southern border provinces suggested the authorities have been rounding up and expelling groups of around 100 Syrian men, women and children almost daily since the middle of January. Many of those returned to Syria appear to be unregistered refugees, though the rights group said it had also documented cases of registered Syrians being returned when apprehended while not carrying their papers. Amnesty also said its research showed the authorities had scaled back the registration of Syrian refugees in the southern border provinces. Those with no registration have no access to basic services such as healthcare and education. [..] “The large-scale returns of Syrian refugees we have documented highlight the fatal flaws in the EU-Turkey deal. It is a deal that can only be implemented with the hardest of hearts and a blithe disregard for international law,” Amnesty’s Dalhuisen said.

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How can Europe continue with the Turkey deal under these conditions?

Turkey ‘Shooting Dead’ Syrian Refugees As They Flee Civil War (Ind.)

Turkish security forces have shot dead refugees escaping from the Syrian conflict, according to reports. UK-based monitoring group the Syrian Observatory for Human Rights alleged 16 people seeking sanctuary in Turkey have been shot over the past four months. They said those killed included three children. Other examples compiled by the Syrian Observatory include the alleged killings of a man and his child at Ras al-Ain, at the eastern end of the Turkish-Syrian border. In the west of the country, two refugees were reportedly shot dead at Guvveci on 5 March. “It’s in all areas. It happens to people coming from Idlib, Aleppo, Isis areas, Kurdish areas,” a spokesman for the Syrian Observatory told The Independent.

Other sources, including a Syrian people smuggler based in Turkey and an officer of the UK-supported Free Syrian Police, told The Times they believed the number of refugees killed by Turkish forces was actually far higher. They said this was because people killed on the Syrian side of the border were buried in the conflict zone, where record keeping is much more difficult. The smuggler told the newspaper refugees attempting to cross the border would now “either be killed or captured”. Citing Turkey’s former open-door refugee policy, he added: “Turkish soldiers used to help the refugees across, carry their bags for them. Now they shoot at them.” It is not the first time Turkish authorities have faced criticism over their treatment of refugees. In March, the Turkish Coast Guard allegedly attacked a dinghy filled with migrants in the Aegean. The latest allegations are likely to cast further scrutiny on the EU migrant deal with Turkey.

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“This is how true refugees are lost. Do we really think that a Somali woman who has been raped will sit down and merrily rattle off her experiences?”

Greek Asylum System Under ‘Insufferable Pressure’ (IRIN)

As Greece prepares to deport an initial 500 migrants and refugees on Monday under a controversial agreement between the EU and Turkey, senior Greek officials say the pressure to process applications quickly has become too great, at the expense of legal and ethical standards. “Insufferable pressure is being put on us to reduce our standards and minimise the guarantees of the asylum process,” Maria Stavropoulou, who heads the Greek Asylum Service, told IRIN. “[We’re asked] to change our laws, to change our standards to the lowest possible under the EU directive [on asylum procedures].” Under the terms of the 18 March agreement, Greece must screen all new arrivals from Turkey as quickly as possible and return those deemed not in need of international protection on the basis that Turkey is a “safe third country” or “first country of asylum” where they were already protected.

Most of the pressure, according to Stavropoulou, is coming from “countries that are very invested in the deal with Turkey working.” Germany, which received more than one million asylum seekers last year, took a leading role in negotiations with Turkey during a tense two-day summit earlier this month. In addition to having to screen and return new arrivals, Greece is also dealing with high numbers of asylum applications from the more than 50,000 refugees and migrants who were already trapped inside Greece before the agreement with Turkey came into effect. An overland route through the western Balkans to Germany has been closed for a month and many of those who cannot afford to pay smugglers to find a new route to Western Europe are now applying for asylum in Greece. Authorities here expect to receive just under 3,000 applications in March, double the figure for January and three times last year’s monthly average.

But even as the numbers have mounted, so has the pressure for speedy processing. The Greek Asylum Service has just hired three dozen new personnel, bringing its total staff to 295. But it says it will need at least double that number to handle the expected caseload in the wake of the EU-Turkey agreement. The European Commission has estimated that some 4,000 personnel are likely to be needed in Greece and is sending reinforcements. Many of those slated to join the effort are coastguard officers, but some 800 are asylum experts and interpreters from other member states and from the European Asylum Support Office, the EU’s coordinating body for asylum matters. The first 60 are to arrive in Greece on Sunday.

[..] Some asylum experts believe that the pressure for rapid screening will mean that vital information for determining asylum claims is overlooked. “It always takes time,” said Spyros Kouloheris, head of legal research at the Greek Council for Refugees (GCR), the country’s most respected legal aid NGO. “Someone who is traumatised will speak in fits and starts. They appear not to be telling the truth. We’ve lost a lot of cases because we didn’t have the time, the information, the culture, the experience, to understand that the more broken up the narrative, the more likely it is that there is a background of torture and abuse. This is how true refugees are lost. Do we really think that a Somali woman who has been raped will sit down and merrily rattle off her experiences?”

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Sep 212015
 
 September 21, 2015  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


Arthur Rothstein Interior of migratory fruit worker’s tent, Yakima, Washington Jul 1936

The Least-Believed Recovery And The Least-Believed Bull Market (Bloomberg)
Yellen Is Trapped in the Worst Nightmare Ever (Martin Armstrong)
Yellen Pause Ups Pressure on Draghi as Global Pessimism Mounts (Bloomberg)
Fed’s Lacker Says Economy Strong Enough For Higher Rates (Reuters)
Fed’s Williams Still Sees 2015 Rate Hike After ‘Close Call’ (Reuters)
Volkswagen Plunges 25% After US Emissions Cheat Scandal (Bloomberg)
Greece’s Year Of Tumult Enters New Chapter As Tsipras Dominates (Bloomberg)
Debt Relief Tops Tsipras Agenda, Party Official Says (Reuters)
EU’s Schulz Says Cannot Understand Tsipras’ Greek Coalition Choice (Reuters)
A Frontline Solution to Europe’s Refugee Crisis: Remember Ellis Island (WSJ)
Central Europe Gives Up On Holding Refugees Back From Austria (Guardian)
We Must Act Together, Says Merkel Ahead Of Refugee Summit (Guardian)
Merkel Coalition at Odds Over Proposal to Cap EU Asylum Places (Bloomberg)
15,000 More Refugees To Be Resettled In US Next Year (WaPo)
UN Meets To Fight Poverty, Europe Puts Up Razor Wire To Keep Poor Out (Guardian)
Why China Is Turning Back to Confucius (WSJ)
Was Standard Chartered Flouting US Iranian Sanctions? (FT)
Nine On Lagarde List Being Probed For Money Laundering (Kath.)
The Massacre Of The Kurds And The Silence Of Europe (M5S Lower House)
Safe Assets In A World Gone Mad (Chatham)
People Have No Idea How Money Is Created (PM.org)

“This is the least-believed economic recovery and the least-believed bull market of our careers..”

The Least-Believed Recovery And The Least-Believed Bull Market (Bloomberg)

Investors hate stocks – again. Amid a six-year bull market that’s notable mainly for how little conviction there is in it, equity sentiment is plunging at a historic rate, falling by some measures at the fastest pace since Federal Reserve Chairman Paul Volcker had just finished pushing up interest rates in the 1980s. The cost to hedge against stock losses is soaring, valuations are contracting, and bearishness among professional stock handicappers is rising the most in three decades. Fret not. All of this is good news for bulls, if history is any guide. Since 1963, the S&P’s 500 Index has advanced an average 11% in the year after newsletter writers surveyed by Investors Intelligence were as pessimistic as they are now, data compiled by Bloomberg show. That compares with an annualized return of 8.3%.

Skepticism is one thing the rally since 2009 hasn’t lacked – and it may be the best thing stocks have going for them as corporate profits fall, concerns deepen over China’s travails, oil and commodities plunge and the Fed turns more pessimistic on global growth. Some traders even say they see bargains after S&P 500 posted its first 10% retreat in four years. “This is the least-believed economic recovery and the least-believed bull market of our careers,” said Bob Doll, chief equity strategist at Chicago-based Nuveen Asset Management, which oversees $130 billion and bought stocks during the August selloff. “The nervousness means people have stepped to the sidelines. The question is, who is left to sell? Everybody who has cash is a potential buyer.”

Investors have bailed out of stocks at every sign of trouble since 2009, from the euro crisis to ebola, with the latest catalyst coming from China’s devaluation of its currency. The distrust has been a barrier to euphoria, a quality that historically is the bigger threat to bull markets. Fear reigns, spreading faster than any time since 1984 as the S&P 500 tumbled 10% over four days in August. At the start of this month, the bull-to-bear ratio in Investors Intelligence’s survey of newsletter writers fell to a four-year low of 0.9. In April, when bulls dominated the market that was heading for an all-time high, the ratio reached 4.1.

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“..they MUST raise rates or they will bankrupt countless pension funds and international where emerging markets will go into default..”

Yellen Is Trapped in the Worst Nightmare Ever (Martin Armstrong)

Yellen has inherited a complete nightmare. Thursday’s decision to delay yet again the long-awaited liftoff from zero interest rates is illustrating that the world economy is totally screwed. There is a lot of speculation about why the Fed seems so reluctant to “normalize monetary policy”. There are of course the typical domestic issues that there is low inflation, weak wage gains in the face of strong job growth, a hike will increase the Federal deficit and then there is the argument that corporations that now have $12.5 trillion in debt. All that is nice, but with corporate debt, our clients are locking in long-term at these levels, not funding anything short-term.

Those clients who have listened are preparing for what is to come unlike government which has been forced to shorten the average duration of their debts blind to what happens when rates rise, which will be set in motion by the markets – not Yellen. Fed is really caught between a rock and a very dark place. Yes, they have the IMF and the world pleading with them not to raise rates for it will hurt other debtors who borrowed excessively using dollars to save money. The Fed is also caught between domestic policy objectives that dictate they MUST raise rates or they will bankrupt countless pension funds and international where emerging markets will go into default because commodities have collapsed and they have no way of paying off this debt that has risen to about 50% of the US national debt.

By avoiding the normalization of interest rates (hikes), the Fed has encouraged government to spend far more than they realize because money is cheap. This will eventually light the fire under the economy helping to fuel the Sovereign Debt Crisis. There appears to be no hope for the Fed and they will be forced to raise rates only when they see asset inflation in equities. Then they will have no choice. This is the worst possible mess and the longer they have waited to normalize interest rates, the worst the total crisis is becoming for they will have zero control over the economy and once that is seen, holy Hell will break lose.

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“..a structural shift has beset the world economy.”

Yellen Pause Ups Pressure on Draghi as Global Pessimism Mounts (Bloomberg)

The global economy caused Janet Yellen to pause for thought. It could spur Mario Draghi to act. After the Federal Reserve chair held off from a U.S. interest-rate increase amid concerns that world growth will weaken, her counterpart at the ECB may give clues on the need for further stimulus for the euro area. Draghi and other Governing Council members will make public appearances this week, while data releases will show whether the currency bloc is succumbing to, or shaking off, the gloom. Like the U.S., the euro area is stuck with stubbornly low inflation. Unlike Yellen, Draghi can’t yet rely on domestic demand to lift prices. Whether because the Fed’s delay leads to a stronger euro, or because of the drag of emerging markets, economists see it as increasingly likely that the ECB will be called on its pledge to boost its €1.1 trillion bond-buying program if needed.

“The worry is that, previously, central banks assumed that global growth would be materially stronger in 2016, but that doesn’t look likely now,” said Nick Kounis at ABN Amro in Amsterdam. “If the Fed had hiked rates, it would have given the ECB some breathing space. Now the pressure is on them again.” The ECB’s optimism that a home recovery coupled with stronger external demand would steer inflation back to the goal of just under 2% is now being replaced by concern that a structural shift has beset the world economy. Executive Board member Peter Praet, the institution’s chief economist, said in an interview published over the weekend that policy makers “won’t hesitate to act” if it they reach that conclusion. Draghi’s lieutenants have been reinforcing that message since the Fed’s rate decision last week.

Benoit Coeure, the ECB’s markets chief, said in a speech in Paris on Friday that prospects for growth in the euro area have “clearly weakened,” and aren’t helped by a euro that’s now strengthening against the currencies of its main trading partners. The single currency has gained 3.5% in trade-weighted terms since mid-July and more than 4% against the dollar. European bonds jumped after the Fed’s Sept. 17 decision to keep its benchmark rate at a record low. Both Praet and Coeure speak in public on Monday, followed by Draghi’s appearance at a European Parliament hearing in Brussels on Wednesday. Hours before Draghi addresses lawmakers, purchasing managers’ surveys for September may tell investors whether Europe’s manufacturing and services industries are indeed succumbing to lower external demand, or whether domestic consumers are helping to prop them up.

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“..public understanding of the Fed’s behavior “an essential foundation for the monetary stability we currently enjoy.”

Fed’s Lacker Says Economy Strong Enough For Higher Rates (Reuters)

Richmond Federal Reserve President Jeffrey Lacker on Saturday said he dissented at a Fed policy meeting because he thought the economy was now strong enough to warrant higher interest rates. Fed policymakers on Thursday voted to keep the Fed’s target interest rate at between zero and a quarter point. “Such exceptionally low real interest rates are unlikely to be appropriate for an economy with persistently strong consumption growth and tightening labor markets,” Lacker said in a statement. He was the lone dissenter among the 10 Fed officials who voted at the meeting. Lacker said the Fed’s target should rise by a quarter point. Lacker has a history of dissent in Fed policy meetings. In 2012, he voted against eight straight policy decisions by the central bank.

At the time he was urging the Fed to wind down asset purchases that were aimed at stimulating the economy. Regarding Thursday’s decision at the Fed, Lacker said a rebound in consumer spending and “tightening labor markets” meant the economy no longer needed zero interest rates. He said keeping interest rates at their current level deviated from the way the Fed has responded to the economy in the past, which was dangerous because public understanding of the Fed’s behavior was “an essential foundation for the monetary stability we currently enjoy.” “Such departures are risky and raise the likelihood of adverse outcomes,” Lacker said.

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Extending the narrative.

Fed’s Williams Still Sees 2015 Rate Hike After ‘Close Call’ (Reuters)

An interest rate hike will likely be appropriate this year given the U.S. Federal Reserve’s decision last week to stand pat was a “close call,” a top Fed policymaker said on Saturday. John Williams, a centrist and president of the San Francisco Fed, said the arguments for and against beginning to tighten U.S. monetary policy are about balanced now that the economy is on solid footing, giving him confidence in continued economic and labor market growth. Williams, the first U.S. policymaker to speak publicly since the Fed’s much-anticipated decision on Thursday, suggested he is almost ready to pull the trigger on a rate hike. He acknowledged the risks from a slowdown in China and global downward pressure on inflation, noting a rate rise in 2015 is not guaranteed.

But he said full U.S. employment should be achieved “in the near future” and inflation, while still too low for comfort, should gradually move back to a 2% goal. “Given the progress we’ve made and continue to make on our goals, I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year,” he said at a weekend conference on the China-U.S. financial system. The Fed’s decision to leave rates near zero “was a close call in my mind, in part reflecting the conflicting signals we’re getting,” he said. “The U.S. economy continues to strengthen while global developments pose downside risks to fully achieving our goals.”

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Falling further as the day goes on. “The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines.”

Volkswagen Plunges 25% After US Emissions Cheat Scandal (Bloomberg)

Volkswagen dropped the most in almost seven years after it admitted to cheating on U.S. air pollution tests for years, risking billions in potential fines and a backlash from consumers in the world’s second-biggest car market. The shares declined as much as 17%, or €27.9, to €134.5 in Frankfurt, the most since Nov. 3, 2008. The drop extends the slump for the year to 25%, valuing the Wolfsburg, Germany-based company at €65.3 billion. Volkswagen Chief Executive Officer Martin Winterkorn said on Sunday that the company is cooperating with the probe and ordered its own external investigation into the issue. The CEO said he was “deeply sorry” for breaking the public’s trust. VW has halted sales of the car models involved, which were a cornerstone of Winterkorn’s effort to catch up in the U.S.

The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines. Criminal prosecution is also possible. “If this ends up having been structural fraud, the top management in Wolfsburg may have to bear the consequences,” said Sascha Gommel, a Frankfurt-based analyst for Commerzbank AG, whose share rating is under review. The German carmaker admitted to fitting its U.S. diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the Environmental Protection Agency said Friday. The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines. Criminal prosecution is also possible.

Analysts at Kepler Cheuvreux downgraded the shares to “hold” from “buy,” cutting their target price 27% to €185. Volkswagen faces not only a short-term drop in sales and hit to its reputation but also the longer-term risk of litigation in the U.S., the analysts wrote in a note on Monday. During normal driving, the cars with the software – known as a “defeat device” – would pollute 10 times to 40 times the legal limits, the EPA estimated. The discrepancy emerged after the International Council on Clean Transportation commissioned real-world emissions tests of diesel vehicles including a Jetta and Passat, then compared them to lab results. Volkswagen had counted on clean, powerful diesel cars to help it build its sales in the U.S., where it has struggled for years. Sales of VW-brand cars in the country dropped 10% last year to 366,970.

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Lame duck.

Greece’s Year Of Tumult Enters New Chapter As Tsipras Dominates (Bloomberg)

Greek voters had the choice to reject the man who led their country closer than ever to being forced out of Europe’s single currency. Instead, they embraced him. Alexis Tsipras and his Coalition of the Radical Left, or SYRIZA, emerged from a second election in eight months with a level of support barely diminished from the emphatic victory that catapulted him both into power and a standoff with the euro region. SYRIZA, which took 35.5% of the vote compared with 28.1% for the center-right New Democracy, will enter a coalition with the same small party that helped it rule before. While the victory tightens Tsipras’s hold over Greek politics, it also exposes the paradoxes of a country whose economy is a shadow of its former self and where controls remain on bank withdrawals.

After coming to power pledging to end austerity and restore “dignity,” Tsipras now must implement the further sharp spending cuts and tax increases he ended up agreeing to in exchange for €86 billion of fresh European aid. The electorate has voted to return to power a party that “ditched its promises, switched its policies, and caused the collapse of Greek banks, bringing in an unneeded recession,” said Stathis Kalyvas, a professor of political science at Yale University. On the other hand, “this government will be called to implement a stringent set of fiscal and structural reforms that it vigorously rejected before,” he said.

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What EU says is non-negotiable.

Debt Relief Tops Tsipras Agenda, Party Official Says (Reuters)

Negotiations over Greece’s debt will top the agenda for Prime Minister-elect Alexis Tsipras from Monday as he prepares for a return to office following a surprisingly easy national election win, a senior source from his party said. Tsipras and his leftist SYRIZA party clinched a clear victory in Sunday’s poll as voters put aside his dramatic U-turn over Greece’s international bailout to offer him a second chance to steer a battered economy to recovery. SYRIZA said on Sunday it plans to govern in a coalition with the small right wing Independent Greeks party, the same partner Tsipras chose after winning the country’s previous general election in January. But to strengthen his hand in talks with EU partners over how to ease Greece’s debt burden, he will seek a broader consensus among the parties he defeated on Sunday, the party source said.

“We will continue negotiations in the coming period, with the debt issue being the first and most important battle,” the source said. “We will ask all political forces to support our efforts.” Some European governments, particularly Germany, are opposed to cutting Greece’s debt – a so-called haircut – but not averse to stretching out its repayment schedule. Eurozone officials told Reuters last week that governments are ready to cap Greece’s debt-servicing costs at 15% of GDP annually over the long term. That would mean the nominal payment would be lower if the Greek economy struggled, higher if it was more robust, they said.

Tsipras is also planning to form a national council for European policy, including representatives of parties other than the Independent Greeks and which would advise the finance minister, the SYRIZA source said. Centre-left daily newspaper Ethnos tipped Euclid Tsakalotos, the former finance minister who brokered terms of the bailout accord in August, to be re-appointed. JP Morgan analyst Malcolm Barr said he expected some sort of debt restructuring to be in place by early next year. “We continue to think that… the (bailout) programme will make enough progress to allow a restructuring of loans from euro area countries by the end of the first quarter of 2016,” he wrote in a note.

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Brussels has lost all sense of the limits of interfering in sovereign nations. This is none of Schulz’s business.

EU’s Schulz Says Cannot Understand Tsipras’ Greek Coalition Choice (Reuters)

The head of the European Parliament, Martin Schulz, lamented on Monday the decision by Greek leftist Alexis Tsipras to renew a coalition with the small right-wing Independent Greeks party. Tsipras stormed back into office with an unexpectedly decisive election victory on Sunday, claiming a clear mandate to steer Greece’s battered economy to recovery. The vote ensured Europe’s most outspoken leftist leader would remain Greece’s dominant political figure, despite having been abandoned by party radicals last month after he caved in to demands for austerity to win a bailout from the eurozone. Speaking to France Inter radio, Schulz said he could not understand Tsipras’ decision to bring the Independent Greeks, who polled less than 4% of the vote, back into government.

“I called him (Tsipras) a second time to ask him why he was continuing a coalition with this strange, far-right party,” Schulz said. “He pretty much didn’t answer. He is very clever, especially by telephone. He told me things that seemed convincing, but which ultimately in my eyes are a little bizarre.” Independent Greeks leader Panos Kammenos says the bailout by the European Union, European Central Bank and International Monetary Fund has reduced Greece to the status of a debt colony.

The party differs from Syriza on many traditionally conservative issues, pledging to crack down on illegal immigration and defend the close links between the Orthodox Church and the state. Schulz said he admired Tsipras for the way he had navigated through the last year to get himself re-elected, but said Kammenos was a loose canon who always needed to be controlled. “It’s politically and strategically something that you have to admire,” he said. “But after … this renewed mandate with this far-right, populist party, that I don’t understand.”

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The US must be part of the solution too.

A Frontline Solution to Europe’s Refugee Crisis: Remember Ellis Island (WSJ)

Tabanovce, Macedonia: This quaint Macedonian village provides a useful vantage point for anyone hoping to grasp the scale of the current European refugee crisis. Up to 7,000 refugees have been passing through here daily before crossing the border with Serbia. A generation ago this region escaped communism, then fought bitter ethnic and sectarian wars that lasted until 2001. Now its nations find themselves in the eye of a humanitarian storm. And Europe is no closer to a durable solution. Short of military intervention to stabilize some of the Middle East hotspots the refugees are fleeing, the only long-term response is to develop legal, safe conduits that bring refugees to European Union-funded and operated frontline processing centers, say, on the Greek and Italian isles and Turkey’s western coast.

Asylum-seekers would be offered fair, humane and expedient processing. Those relying on trafficker routes would be routed back to these centers. Accepted refugees would be placed depending on host-country capacity, family and communal ties, and related factors. The U.S. experience on Ellis Island at the turn of the 20th century is instructive. The island processed an astonishing 1.25 million immigrants in 1907, a banner year for U.S. immigration. In the next decade U.S. immigration authorities also mastered immigrant processing—including ultra-efficient medical checks and questioning—aboard ships. The situations aren’t precisely analogous. At Ellis Island’s height as a processing center, America maintained a more or less open-door policy.

But the main lesson for Europe today lies in the American government’s ability at that time to impose order on human chaos on a scale similar to the current refugee crisis. Central to that success was the existence of a singular executive with broad discretion to examine, process, accept and in some cases reject migrants. Compare that achievement with Europe’s mess today. As the crisis mounted, the states on the Balkan corridor—Greece, Macedonia, Serbia and Turkey—provided refugees easy passage toward Hungary. Macedonia and Serbia especially became efficient at getting refugees in and out of their territory as quickly as possible, sometimes within a day. Balkan governments knew that most refugees were headed for Germany, Sweden and the like, and after minimal processing they granted papers allowing refugees to head north.

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Should have been done from the start.

Central Europe Gives Up On Holding Refugees Back From Austria (Guardian)

The countries of central Europe suspended their resistance this weekend to Europe’s largest refugee exodus since the second world war, as Hungary, Slovenia and Croatia all shunted tens of thousands of people towards Austria, reversing most recent attempts to block their passage. At least 15,000 refugees mainly from Syria, Afghanistan and Iraq were funnelled from Croatia into Hungary and then onwards to Austria over the weekend, the Austrian news agency APA said, after Hungary temporarily gave up trying to stop refugees from crossing its border. Another 2,500 have crossed from Croatia into Slovenia, despite Slovenia initially trying to block their passage. The moves represent a volte-face from both countries – and in particular from Hungary.

The Budapest government had previously tried to stop the entry of undocumented travellers by building a fence along its southern border with Serbia, and by posting military vehicles on its western border with Croatia. But by Sunday, its resistance was mostly rhetorical. The country admitted thousands of refugees over the weekend from Croatia, whose shared border is not yet blocked by a fence, even as foreign minister Péter Szijjártó promised tougher measures in the future. Szijjártó said: “We are a state that is more than 1,000 years old that throughout its history has had to defend not only itself, but Europe as well many times. That’s the way it’s going to be now.”

Thousands more continued to enter Europe on Saturday and Sunday at the other end of the refugee route in the Greek islands, where coastguards said that 24 people were feared to have drowned on Sunday. An inflatable refugee boat, attempting to reach Lesbos from the Turkish shoreline, capsized before it reached its destination, and only 22 out of 46 passengers were rescued. The number of migrant shipwrecks in the Aegean has increased in recent days, with Sunday’s incident the sixth in a week of accidents that have left around 100 dead.

For many of the survivors, the trauma has not ended with their rescue: it emerged on Sunday that more than 200 Syrians and Iraqis saved by the Turkish coastguard following the sinking of their ship near Kos had allegedly been threatened with deportation back to the war zones they had just fled. One Syrian survivor, who asked not to be named as she is still in detention, said in a voice message: “They are threatening us that Syrians will be deported to Syria, Iraqis to Iraq. If they send us back to Syria we will die.” The Turkish government has denied any Syrians will be deported.

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No kidding, the headline still said ‘emergency summit’.

We Must Act Together, Says Merkel Ahead Of Refugee Summit (Guardian)

A divided European leadership will try to seek a credible response to the continent’s worst migration crisis since second world war at an emergency summit on Wednesday. As central European countries abandoned attempts to stop thousands of refugees from crossing their borders towards Austria on Sunday, German chancellor Angela Merkel called on her peers to accept joint responsibility. “Germany is willing to help. But it is not just a German challenge, but one for all of Europe,” Merkel told a gathering of trade unionists. “Europe must act together and take on responsibility. Germany can’t shoulder this task alone.“ Striking a more sceptical tone on migration than in previous weeks, Merkel also warned that Germany could not shelter those who were moving for economic reasons rather than to flee war or persecution.

“We are a big country. We are a strong country. But to make out as if we alone can solve all the social problems of the world would not be realistic,” she told a gathering of the Verdi trade union. The foreign ministers of the Czech Republic, Hungary, Poland, Slovakia, Romania and Latvia will hold talks on Monday with their counterpart from Luxembourg, which currently holds the EU presidency, aimed at addressing divides between neighbouring states. Donald Tusk, president of the European Council, who chairs EU summits, said on Twitter on Sunday following a weekend visit to Jordan and Egypt that the EU needed to help Syrian refugees find a better life closer at home.

That will be one of the topics of discussion for Wednesday’s summit in Brussels as hundreds of thousands of refugees and migrants brave the seas and trek across the Balkan peninsula to reach the affluent countries of northern Europe. The 28-member bloc has struggled to find a unified response to the crisis, which has tested many of its newer members in the east that are unaccustomed to large-scale immigration. On Sunday Hungary erected a steel gate and fence posts at a border crossing with Croatia, the EU’s newest member state. Overwhelmed by an influx of some 25,000 migrants this week, Croatia has been sending them north by bus and train to Hungary, which has waved them on to Austria.

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Europe remains in bland denial of reality. And that’s dangerous.

Merkel Coalition at Odds Over Proposal to Cap EU Asylum Places (Bloomberg)

German Vice Chancellor Sigmar Gabriel said he doesn’t “understand” Interior Minister Thomas de Maiziere’s proposal for the European Union to set an upper limit to the number of people it accepts as asylum seekers. “It’s the opposite of what the Chancellor has rightly said, namely that those who arrive in Germany and apply for asylum need a fair procedure,” Gabriel, who’s also chairman of the Social Democratic Party, said Sunday on ARD public television. “It is not a solution to establish quotas for asylum seekers. Incidentally, it is also contrary to the German constitution.” Support for two German opposition parties not represented in parliament rose as criticism of Merkel’s handling of Europe’s refugee crisis mounted.

Backing for the Free Democrats, Merkel’s former coalition partner, and the anti-euro Alternative for Germany party each increased 1%age point to 5% in a weekly poll, Bild am Sonntag reported. “We can’t host all the people from conflict areas and all poverty refugees who want to come to Europe and to Germany,” de Maiziere told Germany’s Spiegel magazine. “The right way would be that we in the EU commit ourselves to fixed, generous quotas for the admission of refugees.” A call by one of his party deputies that de Maiziere, a member of Chancellor Angela Merkel’s Christian Democratic Union, should resign unless he succeeds at accelerating asylum procedures was “nonsense,” Gabriel said.

Labor Minister Andrea Nahles said in an interview with Deutschlandfunk public radio she expects German unemployment figures to rise next year due to “a significant increase” in the number of refugees seeking work as “not every refugee who comes now is already automatically a qualified worker.” All parties represented in the lower house of parliament shed 1%age point in the Emnid poll, with Merkel’s Christian Union bloc dropping to 40%, her Social Democrat coalition partner to 24%, the Greens to 10% and the Left party to 9%.

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How about 1 million, just to begin with?

15,000 More Refugees To Be Resettled In US Next Year (WaPo)

The United States will increase its cap on the number of refugees it admits and resettles to 85,000 in the coming fiscal year and to 100,000 in 2017, Secretary of State John F. Kerry said Sunday. The additional refugees, up from 70,000 in the current fiscal year that ends Sept. 30, will come from countries around the world. But the increase largely reflects the 10,000 Syrian refugees that the White House earlier this month promised to admit. Kerry said the administration is exploring ways to admit even more, but Congress must approve enough money to cover the extra cost of resettlement. “This step is in keeping with America’s best tradition as a land of second chances and a beacon of hope,” Kerry said in announcing the increase during a visit to Berlin to discuss the Syrian refugee crisis with his German counterpart, Frank-Walter Steinmeier.

Even before Syrian refugees began streaming into Europe in recent weeks, the State Department had been considering a modest increase of about 5,000 refugees, including more from Congo, where human rights abuses are rampant. At the end of each fiscal year, the State Department announces the new target number for refugees. Although the administration can unilaterally set a numerical goal for the refugees it wants to accept, it is up to Congress to agree to fund the resettlement. In the current fiscal year, it cost $1.1 billion to bring 70,000 refugees to the United States, put them through an orientation program run by refugee charities and have them dispersed throughout the country. It was not immediately clear how much more it will cost to bring in more Syrians.

One of the reasons it is so expensive is that every refugee must undergo extensive background checks under security measures enacted after the terrorist attacks of Sept. 11, 2001. Those checks have been taking 18 to 24 months for Syrians, according to State Department figures. A senior State Department official said many, many more refugees could be admitted if officials can find ways to streamline the system without jeopardizing security. Refugees admitted for resettlement are selected from lists provided by the United Nations High Commissioner for Refugees. So far, about 1,600 of more than 18,000 Syrians referred by the U.N. refugee agency since the conflict began have arrived in the United States about 1,500 in this fiscal year alone. More than 10,000 are well along in being vetted, and they are expected to arrive in much greater numbers in the coming months.

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Let’s be honest, that UN meeting willl lead to nothing at all.

UN Meets To Fight Poverty, Europe Puts Up Razor Wire To Keep Poor Out (Guardian)

The contrast could hardly be sharper. Razor wire fences are being constructed to keep the uprooted poor out of the European Union at the very moment the United Nations meets to agree anti-poverty goals for the next 15 years. No question, the gathering in New York will be a regular jamboree. There will be mutual backslapping about the progress that has been made over the past 15 years, a good deal of it justified. Countries will solemnly pledge to meet the 17 sustainable development goals, with 169 specific targets, by 2030. They will turn a blind eye to what is happening in Serbia, Hungary, Croatia and Austria. The truth, though, is that there is a link between the UN shindig and the most severe refugee crisis in generations: inequality.

It is the obvious disparity between life in a rich country and life in a poor country that makes the long and dangerous journey to the west attractive. It is the gap between rich and poor within developed countries that has helped foster a deep suspicion, not just of unlimited migration, but of free movement of capital and goods as well. And without addressing inequality head on, ensuring that growth benefits the poor by as much as it benefits the rich, there is not the remotest chance that the ambitious goals being embraced in New York this week will be met. Here’s the picture. The SDGs replace the millennium development goals that set the framework for poverty reduction between 2000 and 2015, but are much tougher.

The MDGs sought to make progress in areas such as poverty reduction or infant mortality: the SDGs will commit the international community to more ambitious goals, which include ending poverty and hunger, and ensuring healthy lives and access to quality education for all. There are reasons to be optimistic. Much progress has been made in the past two decades, in large part due to the rapid growth in China. One billion people have been lifted out of poverty and the MDG objective of halving the number living below the global agreed minimum was achieved five years early. This will be seen by world leaders as evidence that even more can be done in the next 15 years.

But achieving the new SDGs would be a gargantuan task in the best of times. And these are not the best of times. China is growing more slowly, with concerns that doctored official figures mask a hard landing. Emerging markets in the rest of the world are being hurt both by weaker Chinese demand for their commodities and by the continued sluggishness of the big western economies. The Great Recession of 2008-09 continues to cast a long shadow.

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Back to the future. “Mr. Xi is backfilling his vision and seeking a fresh source of legitimacy by reinventing the party as inheritor and savior of a 5,000-year-old civilization.”

Why China Is Turning Back to Confucius (WSJ)

One Thursday morning in June, 200 senior officials crammed into an auditorium in the Communist Party’s top training academy to study a revolutionary idea at the heart of President Xi Jinping’s vision for China. They didn’t come to brush up on Marx, Lenin or Mao, staple fodder at the Central Party School since the 1950s. Nor were they honing their grasp of the state-guided capitalism that defined the nation for the last 35 years. They came to hear Wang Jie, a professor of ancient Chinese philosophy and a figure in the country’s next ideological wave: a renaissance of the traditional culture the Communist Party once sought to destroy.

For two hours, Prof. Wang says, he reeled off quotes from Confucius and other Chinese sages—whom the party long denounced as feudal relics—and urged his audience to incorporate traditional concepts of filial piety and moral rectitude into their personal and professional lives. “I’m getting hoarse,” Prof. Wang says over a cup of green tea after class. The previous day, he had lectured at the culture ministry and, the day before, at the commerce ministry. Monday would be the insurance regulator. “Xi Jinping’s words,” he says, “have lit a fuse.” Two years after outlining a “China Dream” to re-establish his nation as a great world power, Mr. Xi is backfilling his vision and seeking a fresh source of legitimacy by reinventing the party as inheritor and savior of a 5,000-year-old civilization.

The shift forms the backdrop for Mr. Xi’s visit to the U.S. this week and could shape China for years. Mr. Xi appears to be seeking to inoculate Chinese people against the spread of Western political ideals of individual freedom and democracy, part of what some political insiders say he views as a long-term contest of values and ideology with the U.S. The effort is gaining urgency now, as an economic slowdown and stock-market rout fray the social compact of the last three decades in which citizens traded political freedom for rapid wealth creation. With Communist dogma and Chinese-style capitalism losing appeal, the party needs fresh ideas. “It’s like the prodigal son returning,” says Guo Yingjie, a University of Sydney Chinese-studies professor who wrote a book on Chinese cultural nationalism. “China has had more than a century of anti-traditionalism. Now they’re heading in the opposite direction.”

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Well, obviously: “You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

Was Standard Chartered Flouting US Iranian Sanctions? (FT)

The expletive-laden exclamation attributed to a senior Standard Chartered executive in 2006 may well come back to haunt the British bank. “You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?” For US authorities, who included the quote in a legal filing, the statement came to define StanChart’s “obvious contempt” for American banking regulations, including sanctions designed to cut Iran off from access to the US dollar. Nine years on, after paying nearly $1bn in fines to US regulators and law enforcement agencies for sanction breaches and compliance failures, StanChart seems no closer to ending its legal problems. An FT investigation has identified transactions involving Iran that could put the bank at risk of severe penalties ranging from further fines to suspension or loss of its crucial dollar clearing licence.

Documents seen by the FT suggest that StanChart continued to seek new business from Iranian and Iran-connected companies after it had committed in 2007 to stop working with such clients. These activities include foreign exchange transactions that, people familiar with StanChart operations say, would have involved the US dollar. The documents suggest the bank — a few months after a costly settlement with US authorities in 2012 — was still internally reviewing its client list and was unable to determine in certain cases whether customers were Iranian or not. For Bill Winters, the American former JPMorgan investment banker who took over as StanChart’s chief executive in June, the stakes could hardly be higher. The London-listed lender, that specialises in Asia, the Middle East and Africa, is already grappling with slowing growth in emerging markets and a slide in commodity prices.

While it has relatively small operations in the US, the loss of its dollar clearing licence would deal a crippling blow to StanChart’s ability to finance the trade, energy and cross-border activities that have become its main focus. Suspending the dollar clearing rights for banks accused of breaching sanctions is a rare punishment. But US regulators have cracked down hard on institutions for breaching sanctions on Iran, amid concerns about money flowing to the country’s nuclear programme or to militant Islamist organisations such as Hizbollah in Lebanon or the Palestinian group, Hamas. The US has mostly relied on levying heavy fines against non-US banks for using dollars to do business with Iran — frequently causing controversy in those banks’ home countries. BNP Paribas last year paid $8.9bn in fines and had some dollar clearing rights suspended temporarily for such breaches, prompting angry accusations from French politicians of US over-reach.

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I’ll believe it when I see it.

Nine On Lagarde List Being Probed For Money Laundering (Kath.)

Greek judicial authorities are investigating the possibility that up to nine people on the Lagarde list of Greeks with deposits at the Geneva branch of HSBC were involved in a large money-laundering network, Kathimerini understands. Prosecutors from Greece recently questioned Herve Falciani, the former HSBC employee who extracted the data on the list, and he is believed to have given them information that points to the existence of a major money-laundering operation. Prior to speaking to Falciani, Greek authorities had identified three suspects. Kathimerini understands that Greek prosecutors, led by the head of the first instance prosecutor’s office, Ilias Zagoraios, have been in contact with counterparts in France, Spain and Italy regarding the matter. They are expected to make a second trip to Paris to interview Falciani in the coming weeks.

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More trouble on the way.

The Massacre Of The Kurds And The Silence Of Europe (M5S Lower House)

“In the last few days, Turkish Military units have entered northern Iraq in an operation against the guerrillas of the Kurdistan Workers’ Party (PKK). The Ankara government has defined it as land-based incursion and a “short-term” measure to finally “eliminate” the “rebels”. We are given to believe that Erdogan took the decision to intervene following the PKK attack in Igdir last Tuesday which killed 13 local police officers. But the truth is that for some months now, the Turkish army has being besieging the only entity that has demonstrated it is really able to stop the advance of ISIS. And Europe stays silent, enclosed in a shell of hypocrisy and opportunism. The “popular resistance” cells have collapsed.

They were formed last March when different member states (including Italy) gave the green light to sending in arms to the Peshmerga. Even the government stays silent. There’s not a word from Minister Gentiloni even while the Turkish air force is continuing an indiscriminate attack on rebels and civilians. This is not simply shameful. It’s showing the double standards used by the West where people are ready to tear their hair out when looking at the dead body of little Aylan, but where they are careful to stay silent when their own interests, or the interests of their allies are at stake. In fact, Turkey is the only member that NATO has in the Middle East.

It is in a strategic position (to the East it has borders with Armenia, Azerbaijan and Iran, to the South East it borders Iraq and to the South, Syria). The USA cannot do without it and the EU feels it has a duty to protect it. It doesn’t matter whether the game play involves the sacrifice of the fundamental rights of a people who for decades have been legitimately claiming their independence and autonomy. This is why the EU remains silent even in relation to Erdogan’s intentions to change the constitution to give himself more powers and even thinking of the city of Cizre that is now on its last legs – after suffering a blackout for more than a week, without new supplies of food and water. And meanwhile ISIS is moving forward, conquering, and threatening our country, but above all threatening the survival of democracy.

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Reads the Automatic Earth?

Safe Assets In A World Gone Mad (Chatham)

Gold and silver are good assets to hold to insure the preservation of EXCESS wealth but there are other assets that are even more valuable longterm. Those things that can be used to produce a product are the elements that can be used to leverage your time, resources and talents to produce wealth. The ability to produce excess is the basis of the need for wealth preservation. Physical goods in the form of equipment that can be used to create or produce goods needed by society are the basis of prosperity and wealth in the world. Gold and silver only become necessary when society begins to produce more products than the producer can use. This excess production is then traded for those things that can preserve the value of this excess production until it is needed by individuals.

Machines to build or repair such as saws and hammers, sewing machines, metal fabricating machines such as lathes and mills and machines to convert raw materials to value added products such as steel to I beams or pots and pans, wheat to flour or pasta, lumber to finished furniture and cotton to cloth are the assets that define how prosperous you are as a nation. A nation derives its wealth from having a product to sell. That will never change. It is true for nations as well as for individuals.

Individuals need to have the ability to produce something in excess of their needs to advance to the need to store that excess. This requires tools and equipment in most cases. You do not necessarily need to process your own resources to generate this excess. A miller can provide the equipment to grind grain for the community taking part of the production for his time and effort. This gives rise to the service economy where individual specialization is traded for other services and resources rendered. In most cases this service will require specialized equipment not possessed by the general population. This specialized equipment is an asset more valuable than gold and silver in many cases.

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Only 4% of Swiss know.

People Have No Idea How Money Is Created (PM.org)

Interesting news from our sister organisation MoMo in Switzerland: The survey results from a master’s thesis from the Institute of Finance and Banking at Zurich University confirm that Swiss people have no idea about how Swiss Francs are created. Here are the results and the main reactions from the press: A survey has been carried out as part of a master’s thesis at the University of Zurich about the level of knowledge in the general population about the financial system. The results are astonishing:
• Only 13% know that private commercial banks provide the majority of the money in circulation.
• However, 78% of the Swiss population would like money to be produced and distributed solely by a public organisation working for the common good, such as the National Bank.
• Only 4% preferred the system we actually have today – that money is mostly created by private, for-profit companies such as commercial banks.

The survey results reinforce the Vollgeld Initiative, which currently has more than 90,000 signatures of the 100,000 required to force a binding national referendum in Switzerland. The study shows clearly that the Swiss people do not know who actually creates the Swiss Franc: Only 13% of the population are aware that, in the current system, private banks produce the majority of the money through the extension of loans. 73% mistakenly believe money is created by the state or by the Swiss National Bank.

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Sep 122015
 
 September 12, 2015  Posted by at 9:23 am Finance Tagged with: , , , , , , , , ,  18 Responses »


DPC The Mammoth Oak at Pass Christian, Mississippi 1900

UN Warns Of Millions More Refugees Coming To Europe (Reuters)
Migrant Crisis Could Be ‘Biggest Challenge’ In EU History: Germany (AFP)
EU Refugee Quota Plan Rebuffed By At Least 4 European Nations (AP)
Hungary Wants European Military Forces At Greek Borders (DW)
Welcoming the Refugees: Has Germany Really Changed? (Juan Moreno)
Germany’s Asylum System Struggles to Cope (Spiegel)
China Is Dumping US Debt (CNN)
Citi’s Chief Economist Says China Is ‘Financially Out of Control’ (Bloomberg)
Goldman’s Next 11 Markets Are Sinking Even Faster Than the BRICs (Bloomberg)
Poland Versus Greece (Paul Krugman)
Greece at the Cross-Roads: A Test Case of Austerity (Pollack)
A Plan B in Europe (Mélenchon, Fassina, Konstantopoulou, Lafontaine, Varoufakis)
1.5 Million People Take Part In Catalan Independence March (RTE)
Canadian Household Debt Hits New Record, Fuelled By Low Mortgage Rates (Star)
$15 Minimum Wage for NY State: Ford Paid Workers That 100 Years Ago (Intercept)
Russia Calls On World Powers To Arm Syrian Military (AP)
Dairy Farmers at the Barricades (Bloomberg)
Global Food Prices Hit Lowest Level In Over 6 Years (CNBC)

There should have been highest level emergency meetings for a long time now. Is Merkel afraid her Teflon may wear off?

UN Warns Of Millions More Refugees Coming To Europe (Reuters)

[..] More than 170,000 migrants have crossed into Hungary from non-EU Serbia so far this year. Many try to avoid being registered in Hungary for fear of being stranded there or returned to the country later in their journey across Europe. In Geneva, the U.N. High Commissioner for Refugees (UNHCR) said it was sending pre-fabricated housing units to provide temporary overnight shelter for 300 families in Hungary but also expressed concern over Budapest’s tough approach, including the possible deployment of troops to tackle the crisis. “Obviously we expect authorities to respect rights of refugees whether they are the police or army,” said UNHCR spokesman William Spindler.

Syria’s four-year civil war has so far displaced almost eight million people, said Peter Salama of UNICEF, the U.N. childrens’ agency, adding: “There could be millions and millions more refugees leaving Syria and ultimately (going) to the European Union and beyond.” So far this year, a record 433,000 refugees and migrants have crossed the Mediterranean to Europe, more than double the total for all of 2014, the International Organization for Migration (IOM) said on Friday. The EC, backed by Germany and France, wants EU member states to accept mandatory quotas to share out some 160,000 refugees but the plan faces stiff resistance in some capitals. On Friday the UNHCR said the number of people requiring relocation had now risen to 200,000.

Speaking in Prague, Steinmeier said Germany was expecting about 40,000 refugees this weekend alone, adding the EU needed a “fair mechanism of redistribution of migrants (still coming)”. “This challenge cannot be borne by one country. We have to invoke European solidarity,” he told a joint news conference with the foreign ministers of the Czech Republic, Slovakia, Hungary and Poland – countries opposed to the EU’s proposal for mandatory quotas. Germany has come under fire from Orban and other east European leaders for opening its door to Syrian asylum seekers, saying such generosity will only encourage many more to come. Denmark, which like Britain has opted out of EU rules on justice and home affairs, said on Friday it would not take part in the Commission’s relocation scheme.

Earlier this week, Denmark shut off some traffic with Germany to curb refugees trying to reach Sweden, which remains much more welcoming than other Scandinavian countries, but later allowed them to travel through. Finland said it would accept its 2% share of asylum seekers under the Commission plan but said it remained opposed to mandatory quotas and would cut benefits for refugees. EU interior ministers are due to discuss the Commission proposals on Monday. If they fail to reach a deal on tackling the crisis, European Council chief Donald Tusk said on Friday he would call an extraordinary summit of EU leaders this month.

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No doubt there.

Migrant Crisis Could Be ‘Biggest Challenge’ In EU History: Germany (AFP)

The unprecedented influx of refugees and migrants flooding into the EU could be the bloc’s greatest-ever challenge, Germany’s foreign minister said Friday, adding Berlin expects 40,000 new migrants to arrive this weekend. Europe’s largest refugee crisis since the end of World War II could be “the biggest challenge for the EU in its history,” said Frank-Walter Steinmeier, calling for solidarity at Prague crisis talks with eastern EU members who have ruled out binding migrant quotas proposed by the European commission. “If we are united in describing the situation as such, we should be united that such a challenge is not manageable for a single country,” he said, adding “we need European solidarity.”

“Germany expects 40,000 new migrants from the south at the weekend, despite the willingness of German people our possibilities are smaller and smaller,” Steinmeier told counterparts from the Czech Republic, Hungary, Slovakia and Poland. Record numbers of people, many of them fleeing war and conflict in Syria and Iraq, continued to pour into Europe, with around 7,600 entering Macedonia in the last 12 hours.

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This is going to be a fight.

EU Refugee Quota Plan Rebuffed By At Least 4 European Nations (AP)

At least four countries Friday firmly rejected a European Union plan to impose refugee quotas to ease a worsening migrant crisis that Germany’s foreign minister said was “probably the biggest challenge” in the history of the 28-nation bloc. Hungary, which along with the Czech Republic, Slovakia and Poland said it would not support the proposal, threatened instead to crack down on the thousands of people streaming across its borders daily as they flee war and persecution. The stance by those Central European countries reflected a hardening front against distributing at least some of the refugees among them and was a stinging rebuff to German Foreign Minister Frank-Walter Steinmeier, who traveled to Prague to try to persuade them to reconsider.

While the Czechs, Slovaks and Poles have been relatively unaffected by the influx, Hungary has faced growing criticism about its stance toward the asylum seekers. Other EU leaders and human rights groups accuse the government of gross mismanagement or serious negligence in housing, feeding and processing the migrants traveling from the Balkans and through Hungary to Western Europe. Peter Bouckaert of Human Rights Watch asserted Hungary was keeping migrants and refugees “in pens like animals, out in the sun without food and water.” A video that the rights group said was from inside a holding facility at the border town of Roszke showed metal fences surrounding clusters of tents and dividing migrants into groups. Guards were depicted throwing food into the air for desperate people to grab.

Erno Simon, a spokesman in Hungary for the U.N. refugee agency, said the housing situation in Roszke with nighttime temperatures falling to near freezing “is really very, very alarming.” Unfazed, Hungarian Prime Minister Viktor Orban threatened an even harder line, saying his country intended to catch, convict and imprison people who continue to penetrate its new border barriers as part of get-tough border security measures scheduled to begin Tuesday. “If they don’t cross into Hungary territory legally, we will consider it a crime,” Orban said, saying the “illegal immigrants” had no one to blame but themselves for any hardships suffered. “They don’t cooperate. They are not willing to go to the places where they receive provisions: food, water, shelter, health care. They have risen up against Hungary’s legal order,” he told a Budapest news conference.

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How long till we see refugees get shot to death?

Hungary Wants European Military Forces At Greek Borders (DW)

Beginning on September 15, “Hungarian authorities cannot be forgiving of illegal border-crossing,” Orban said on Friday after meeting with Manfred Weber, the chairman of the conservative European People’s Party in the EU Parliament. “We will not courteously accompany them as until now.” Stricter immigration laws are set to take place next week to block the flow of migrants passing through the country on their way to northern European countries. Many are trying to avoid registering in Hungary out of fear of being stranded or returned to the country later. Over 170,000 people have entered Hungary this year, with the UN expecting another 42,000 to arrive next week. Orban also accused refugees of “rebelling against Hungarian legal order” after numerous camp breakouts and standoffs at the Budapest train station.

“They have seized railway stations, refused to give fingerprints, failed to cooperate, and are unwilling to go to places where they would get food, water, accommodation and medical care,” he said. The prime minister also blamed Greece for Hungary’s current refugee crisis. “If Greece is not capable of protecting its borders, we need to mobilize European forces to the Greek borders so that they can achieve the goals of European law instead of the Greek authorities. That is one of the foremost goals,” Orban said. His statements come at the end of an uneasy week which saw increasing tensions at the Serbian-Hungarian border. The country’s decision to build a fence along its border with Serbia, as well as a recent video of refugees being fed “like animals in a pen” at a border reception center drew international criticism on Friday.

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Juan Moreno, child of Spanish immigrants to Germany, tries to find out for Der Spiegel if the country’s really changed.

Welcoming the Refugees: Has Germany Really Changed? (Juan Moreno)

I continue my journey to Leipzig, to the next person who is an expert on foreigners. Oliver Decker is a psychologist, sociologist and philosopher. He received his PhD, became a professor and has focused his academic attentions for the last 13 years on right-wing extremism and xenophobia. Last year, he published his latest study, which was widely quoted in the press. The conclusion: Germans have become less xenophobic. Whereas 9.7% of Germans still had a right-wing extremist weltbild 13 years ago, only 5.4% do today. Anti-Semitism, sympathy for National Socialism, support for a dictatorship: all of that, Decker wrote, is on the wane. That seemed to be the answer to my question. Right down to the decimal point.

Decker is a calm man with a penchant for holding forth in long and complicated sentences. I meet him in a café not far from Leipzig University, where he works. We order something to eat, but before our food comes, Decker makes it clear to me that Laschet is wrong. “There is only an ostensive reduction in xenophobia,” Decker says, explaining that the rejection of certain groups has become more acute. Sinti, Roma and Muslims, for example, are more disapproved of than they used to be, he says. According to Decker, many Germans feel there are two types of foreigners: the useful and the useless. “The Italians brought us their cuisine, so they can stay,” Decker says with ironic bitterness. Americans, Britons, French and Spaniards all integrate well, find work and pay taxes.

But if people believe that newcomers don’t contribute, they are rejected even more than before. Someone once called it “Usefulness-racism.” Decker says that the German identity is deeply bound up with the economy. “Even the poor are proud of the fact that the world envies us for our economy. If that is threatened by immigration, acceptance begins to fall,” he says. So is it all just a big misunderstanding, this new German tolerance of foreigners? Decker smiles. “Germany is currently experiencing a period of economic sunshine, which has led to a reduction in xenophobia. I will be interested to see what studies find a few years from now.”

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German reality beyond the initial euphoria: pretty soon, dramatic scenes will start to unfold.

Germany’s Asylum System Struggles to Cope (Spiegel)

Hannelore Kraft, the Social Democratic (SPD) governor of North Rhine-Westphalia, Germany’s most populous state, made clear at the beginning of the week that the number of refugees to be expected this year will likely rise from the 800,000 the federal government forecast in August. She also made clear that the effort needed to deal with the influx will be much greater than previously thought. Just how great that effort might be became clear on Thursday morning during a conference call of all state interior ministries in addition to the federal Interior Ministry in Berlin. As part of the meeting, states indicated how much shelter capacity they possessed, and the results, according to the phone conference’s protocol, were not particularly promising.

Seven states – including Baden-Württemberg, Hesse and Rhineland-Palatinate – reported that they had no remaining capacity whatsoever. Bavaria complained of “uncontrolled access pathways.” And Schleswig-Holstein lamented the “uncoordinated influx into the reception facilities.” The Interior Ministry in Berlin also had an alarm bell to sound: Austria, through which refugees must travel on their way from Hungary to Germany, is beginning to diverge from the joint approach. The conference call provides a small insight into the immense challenges facing Germany this year and in the years to come. Indeed, the effects are likely to remain with the country for decades to come — and will have consequences for Germany’s identity, its prosperity and for its self-image. Against that backdrop, the question arises: Can we handle the crisis? Or will the crisis handle us?

Either is possible. It could be that Germany, with its gleeful welcoming party, is currently sowing the seeds for problems that the country will face in 2040. It could be that the foreigners will remain foreign, that they will create a new, parallel underclass. Simultaneously, it could also be that Germany is currently solving those problems that would, without immigration, face the country in 2040: Labor market problems, pension fund problems and old-age care problems. It will take many years before it becomes clear in which direction the pendulum is swinging. But if Germany wants the opportunities to win out over the dangers, then that state will have to confront the chaos and do all it can to integrate the newcomers, the majority of whom are likely to stay. And that project will have to begin soon, even if the state is currently having difficulties accelerating asylum procedures, providing therapy to traumatized children and training adults for the labor market.

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“Capital outflows have skyrocketed in China and the yuan is under intense selling pressure..”

China Is Dumping US Debt (CNN)

It’s no secret that China is the largest holder of U.S. debt. So should Americans be concerned that China has started dumping some of its Treasury holdings? After all, it raises serious questions about whether China will keep lending Washington money to help finance the federal deficit in the future. But right now, China is selling because it’s in dire need of cash. Recently, it unleashed multiple moves to support its markets and prevent its currency from a freefall, while at the same time trying to stimulate the economy. China owned $1.3 trillion of U.S. Treasuries as of June, making it the biggest holder of U.S. debt. But China’s foreign-exchange reserves plunged by a record $94 billion in August, according to the country’s central bank, leaving it with a war chest of $3.6 trillion.

Analysts say it’s very safe to believe a big chunk of that decline occurred due to a reduction in U.S. Treasury holdings. The selling and the potential that China will not be buying U.S. debt in the near future raises questions on its potential to increase America’s borrowing costs. Some of this might already be happening, at least at a small scale. When stock markets are turbulent, investors usually rush to the safety of U.S. Treasurys and yields fall. However, despite August’s extreme stock volatility, rates on Treasurys actually rose slightly in late August. Part of that move is likely due to Wall Street betting the Federal Reserve may raise interest rates next week. But market participants also suspect the unusual action in the bond market was driven by China dumping Treasuries.

This time, Beijing is cutting its Treasury holdings out of a weakened position as it tries to stave off more declines in its currency. China is also propping up its stock market, which lost half its value in the span of just a few months this summer. “Capital outflows have skyrocketed in China and the yuan is under intense selling pressure. The only thing they could do is sell Treasuries to buy their own currency,” said Walter Zimmerman, chief technical analyst at United-ICAP.

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The 55% chance is a loony number and Buiter’s ‘solutions’ make zero sense, but his headline may well be correct for once. Coming from America’s biggest bank, this should have Beijing in a nervous state.

Citi’s Chief Economist Says China Is ‘Financially Out of Control’ (Bloomberg)

Willem Buiter, Citigroup chief economist, sees a storm brewing in China. This week, he estimated that there is a 55% chance of a made-in-China global recession in the not too distant future, which he defines as a period of sub-2% global growth. Without a massive, consumer-focused stimulus plan, he argues, Chinese growth will slip below 4%. This would constitute a recession for the world’s second-largest economy, according to Buiter, and the rest of the world wouldn’t be insulated from the slowdown. Buiter appeared on BloombergTV to discuss his headline-grabbing call.

The cause of his consternation is the immense debt that Chinese non-financial companies have racked up in a short period of time. Over the past decade, the indebtedness of China’s private sector has exploded and exceeded that of the U.S., which Buiter pointed out has a much more advanced economy and sophisticated financial system: “I think things are financially out of control in China and we are waiting for the regulators and supervisors to bring things back under control and to do for the financial system the kind of things – recapitalizing banks and other systemically important financial institutions – that would give you the underpinning for continued growth,” he said.

The economist isn’t too optimistic about the prospects for the powers in Beijing to resolve their bloated credit situation. Chinese policymakers are playing a game of “extend and pretend,” said Buiter, drawing a parallel to the EU’s penchant for reaching short-term solutions to the crisis in Greece. “Until the problems in the banking sector, the financial sector generally, and in the corporate sector – the excessive debt burden – is tackled by the government, the only entity that can do it, I think the prospects for resumption of healthy growth in China are dim,” he concluded.

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It’s called deflation. Global stock markets have lost $12.5 trillion.

Goldman’s Next 11 Markets Are Sinking Even Faster Than the BRICs (Bloomberg)

This time last year, it looked like Goldman Sachs’s selection of emerging market up-and-comers was ready to fill the void left by shrinking investment returns in Brazil, Russia, India and China. Share prices in these “Next 11” countries – places like the Philippines, Turkey and Mexico – were trading at all-time highs as foreign investors flooded their markets with cash. Inflows into Goldman Sachs’s U.S.-domiciled Next 11 equity fund sent assets under management to twice the level of the firm’s BRICs counterpart. Now, though, the Next 11 countries are looking even worse for investors than the larger markets they were supposed to supplant. MSCI’s Next 11 equity gauge has tumbled 19% this year, versus a 14% slump for the BRIC index. Foreign capital is rushing out, with the Goldman Sachs fund shrinking by almost half as losses deepened to 11% since its inception four years ago.

The turnaround shows how young populations and a rising middle class – characteristics that first lured Goldman Sachs to the Next 11 economies a decade ago – have failed to safeguard stock-market returns in a world facing higher U.S. interest rates, tumbling commodity prices and a Chinese economic slowdown. For John-Paul Smith, one of the few strategists to accurately predict the losses in emerging markets, it also illustrates the dangers of grouping so many disparate countries into a single investment theme. Money managers “are increasingly moving away from acronym-based investment,” said Smith, the former Deutsche Bank AG strategist who founded Ecstrat, a London-based research firm, last year. “Within emerging markets, it is difficult to think of a market that has a combination of attractive valuations and constructive policy developments.”

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It’s the euro.

Poland Versus Greece (Paul Krugman)

Yannis Ioannides and Christopher Pissarides, in a new Brookings Paper, talk about the ways lack of structural reform hurts Greek productivity and competitiveness. I have no reason to doubt that there are big things that should change, and that Greece would be much better off if it could somehow break the political barriers to making these changes. But I would argue that it’s very, very wrong to point to factors limiting Greek productivity and claim that these factors are the “cause” of the Greek crisis. Low productivity exacts a price from any economy; it does not normally, or need not, create financial crisis and a huge deflationary depression. Consider, in particular, a comparison that should be made — between Greece and Poland. Poland, like Greece, is a country on Europe’s periphery, closely linked to the rest of the European economy.

It’s also a country with relatively low productivity by northwestern European standards, indeed lower productivity than Greece by standard international measures. But Poland has not had a Greek-style crisis, or indeed any crisis at all. Instead, it has powered through the turmoil of recent years. What’s the difference? The main answer, surely, is the euro: by adopting the euro Greece first brought on massive capital inflows, then found itself in a trap, unable to achieve the needed real devaluation without incredibly costly deflation. Every time someone asserts that the Greek problem is really on the supply side, you should ask, not whether it has supply-side problems — it does — but why this should lead to collapse. Greece seems to have about 60% of Germany’s productivity, which means that it should have real wages only about 60% as high as Germany’s. It should not have 25% unemployment.

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Interesting critique of Varoufakis.

Greece at the Cross-Roads: A Test Case of Austerity (Pollack)

Austerity entails sacrifice. It suggests an ascetic mental cast and, perhaps secondarily, enforced or extreme economy (Webster’s). Speaking personally, I have always favored an ascetic cast of mind as the ultimate negation of conspicuous consumption, and beyond, a dependence on consumerism as a principal mode of class identity, and a gut-addiction to luxury, as diversion from the real world of living. The ascetic cast is absolutely essential to a gracious view of Nature and respect for the environment. And it also rules out militarism as incompatible with a nation’s servicing of the basic needs of its people. Asceticism promotes sharing and conserving of scarce resources and, be it said, a spiritual cleanliness not cluttered with status needs and consideration. So much on the positive side.

But what happens when what I take to be a moral category of human belief and conduct has become politicized to favor exactly the opposite societal results. For austerity has been the tool of upper groups to fasten poverty on the remainder, a bone-dry social system devoid of everything from progressive taxation and enforced business regulation to a vibrant social safety net—all in the vacuous name of balanced budgets. Austerity is the battering ram of plutocracy to enhance its own wealth and subjugate working people and the poor to unfulfilled lives often coming down to human social misery. It is a class weapon of power, a means, thoroughly respectable at that, of promoting class differentiation and wealth concentration.

Not unexpectedly, it is the method of choice of the IMF, World Bank, EU, and, standing behind all three, the US (though meant to apply to others more than to itself). It is legitimation in its nastiest form, meant to seal a hierarchical order in place at the expense of its most deprived members. Within the EU, Greece became the designated victim, 1.e., sacrificial lamb, to justify a malicious economic policy-construct pointing the way to where capitalist development was heading: greater inequality through enforced strict ground rules that favor corporatist goals of financial-business hegemony over governments and peoples.

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“..an international summit on a plan B for Europe..” If they can make that work, it would be a positive development. Somewhat surprised to see Zoe be part of this little group.

A Plan B in Europe (Mélenchon, Fassina, Konstantopoulou, Lafontaine, Varoufakis)

This is our plan A: We shall work in each of our countries, and all together throughout Europe, towards a complete renegotiation of the European Treaties. We commit to engage with the struggle of Europeans everywhere in a campaign of Civil European disobedience toward arbitrary European practices and irrational “rules” until that renegotiation is achieved. Our first task is to end the unaccountability of the Eurogroup. The second task is to end the pretence that the ECB is “apolitical” and “independent”, when it is highly political (of the most toxic form), fully dependent on bankrupt bankers and their political agents, and ready to end democracy at the touch of a button.

The majority of governments representing Europe’s oligarchy, and hiding behind Berlin and Frankfurt, also have a plan A: Not to yield to the European people’s demand for democracy and to use brutality to end their resistance. We’ve seen this in Greece last July. Why did they manage to strangle Greece’s democratically elected government? Because they also had a plan B: To eject Greece from the Eurozone in the worst conditions possible by destroying its banking system and putting to death its economy. Facing this blackmail, we also need a plan B of our own to deter the plan B of Europe’s most reactionary and anti-democratic forces. To reinforce our position in the face of their brutal commitment to policies that sacrifice the majority to the interests of a tiny minority.

But also to re-assert the simple principle that Europe is about Europeans and that currencies are tools for promoting shared prosperity, not instruments of torture or weapons by which to murder democracy. If the euro cannot be democratised, if they insist on using it to strangle the people, we will rise up, look at them in the eye, and tell them: Do your worst! Your threats don’t scare us. We shall find a way of ensuring that Europeans have a monetary system that works with them, not at their expense. Our Plan A for a democratic Europe, backed with a Plan B which shows the powers-that-be that they cannot terrorise us into submission, is inclusive and aims at appealing to the majority of Europeans. This demands a high level of preparation. Debate will strengthen its technical elements.

Many ideas are already on the table: the introduction of parallel payment systems, parallel currencies, digitization of euro transactions, community based exchange systems, the euro exit and transformation of the euro into a common currency. No European nation can work towards its liberation in isolation. Our vision is internationalist. In anticipation of what may happen in Spain, Ireland – and potentially again in Greece, depending on how the political situation evolves – and in France in 2017, we need to work together concretely towards a plan B, taking into account the different characteristics of each country.

We therefore propose the convening of an international summit on a plan B for Europe, open to willing citizens, organisations and intellectuals. This conference could take place as early as November 2015. We shall begin the process on Saturday the 12th of September during the Fête de l’Humanité in Paris. Do join us !

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Europe’s next black swan?!

1.5 Million People Take Part In Catalan Independence March (RTE)

Some 1.4 million people have joined a march demanding independence for the Catalonia region from Spain, Barcelona city police said. Officials published the figure on Twitter after the demonstration, which marked the start of campaigning for a 27 September regional election billed by Catalan leaders as an indirect vote on independence. The city police force, which is controlled by city hall, estimated turnout at 1.4 million. Spanish government officials say half a million people are taking part in the march. Waving red and yellow Catalan flags, they marched down a major road into the city, yelling “Independence!” while some formed human pyramids – a Catalan folk tradition. The show of force on Catalan national day came at a time of high political tensions, some three months ahead of a general election in Spain, the eurozone’s fourth-biggest economy.

State officials and other authorities did not immediately release their own estimates for turnout in Barcelona, capital of this region which counts 7.5m inhabitants. Before the rally, organisers had said 500,000 people had signed up to take part. At last year’s Catalan national day demo, Spanish state officials and local authorities gave wildly different turnout figures for the politically-sensitive rally. Polls this week showed pro-secession candidates could win a majority of seats in the Catalan parliament during this month’s vote. If they win, Catalan president Artur Mas has vowed to push through an 18-month roadmap to secession for the region, which accounts for a fifth of Spain’s economy.

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Blind into the abyss: “..for every $1 of after-tax income Canadians earned, they owed nearly $1.65 in credit market debt..”

Canadian Household Debt Hits New Record, Fuelled By Low Mortgage Rates (Star)

A key indicator of household debt hit a record high in the second quarter of 2015 as lower mortgage rates drove increased borrowing, Statistics Canada figures show. The ratio of debt to disposable income reached 164.6% as debt loads grew faster than incomes, the federal agency noted in its quarterly National Balance Sheet Accounts. That means for every $1 of after-tax income Canadians earned, they owed nearly $1.65 in credit market debt, which includes mortgages, credit cards and other kinds of consumer loans. The ratio was 163% in the previous three-month period, Statistics Canada said. The increase “came as no surprise,” TD Bank economist Jonathan Bendiner wrote in a commentary.

Rising mortgage debt drove most of the growth as interest rate cuts by the Bank of Canada earlier in the year spurred borrowing, especially in the hot housing markets in British Columbia and Ontario, Bendiner noted. The report comes two days after the Bank of Canada held its trendsetting overnight interest rate at 0.5%, citing strength in exports and consumer spending. In the past, Bank governor Stephen Poloz has raised concerns about growing household debt loads as a risk to future economic stability. But that concern was pushed onto the back burner as plunging oil prices sent the Canadian economy into a mild recession in the first half of the year. A credit counselling agency said consumers need to be cautious about taking on debt levels they may not be able to carry if interest rise from their current very low levels.

“Household debt levels are continuing their upward trend, and this puts Canadian consumers in a precarious situation,” said Scott Hannah, the president and chief executive officer of the Credit Counselling Society, a non-profit agency in British Columbia. “If they’re struggling to manage their increasing debt obligations now, a sudden change in external factors — like a rise in interest rates or the loss of a job — will leave many Canadians in greater financial difficulty.” Overall, Canadian households held $1.874 trillion in credit market debt at the end of the quarter, Statistics Canada said.

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“According to the Wall Street Journal, Ford had “committed economic blunders, if not crimes” that would “get riddance to Henry Ford of his burdensome millions..”

$15 Minimum Wage for NY State: Ford Paid Workers That 100 Years Ago (Intercept)

This Thursday in Manhattan, New York Gov. Andrew Cuomo called for the state to raise its minimum wage to $15 an hour for all workers. Cuomo can’t just do this by edict — as he essentially could using an industry-specific wage board when he raised the minimum pay for New York fast food workers to $15 an hour by 2021 — so any raise for everyone will have to pass the state legislature. Still, simply getting the endorsement of the governor of the third-biggest U.S. state is a huge victory for a national movement of low-wage workers. What will come next is a series of hysterical warnings from conservative pundits that New York can’t meddle with the almighty power of supply and demand, and that this will cause massive unemployment and destroy the very people it’s supposed to help, etc.

So here’s some historical context: Adjusted for inflation, $15 an hour is exactly what Henry Ford paid his workers over 100 years ago. Ford famously decided in 1914 to raise his workers’ wages to $5 a day while cutting the workday from nine hours to eight. Five dollars in 1914 has the same buying power as $119.32 in 2015. Divided by eight, that’s $14.92 an hour. When Ford made his announcement, the New York Times proclaimed that “The theory of the management at Ford Motor Company is distinctly Utopian and runs dead against all experience.” According to the Wall Street Journal, Ford had “committed economic blunders, if not crimes” that would “get riddance to Henry Ford of his burdensome millions” and “may return to plague him and the industry he represents, as well as organized society.”

Instead, Ford had kicked off the age of mass consumption, a huge century-long economic expansion, and the creation of the first real middle class in world history. As Ford later wrote: “We increased the buying power of our own people, and they increased the buying power of other people, and so on and on. It is this thought of enlarging buying power by paying high wages and selling at low prices which is behind the prosperity of this country.” (Interestingly, someone making $5 dollars a day at Ford would have had to work a little more than 100 days to afford a Model T – and if New York workers get a raise to $15 an hour, they’ll have to work about the same period of time to afford a Ford Fiesta.)

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Russia’s fed up with US chaos theories.

Russia Calls On World Powers To Arm Syrian Military (AP)

Sergei Lavrov, Russia’s foreign minister, has called on world powers to help arm the Syrian army, saying it was the most efficient force against Islamic State. The US and Nato have raised concerns over Russia’s military buildup in Syria since they see the president, Bashar al-Assad, as the cause of the Syrian crisis, which has claimed more than 250,000 lives over four years. Moscow, meanwhile, has sought to cast arms supplies to Assad’s government as part of international efforts to combat Isis militants. The increased Russian activity reflects Moscow’s concern that its longtime ally is on the brink of collapse, as well as hopes by the president, Vladimir Putin, that a common battle against Isis can improve Russia’s ties with the west, which have been strained over Ukraine.

Lavrov said in Moscow that Russia would continue to supply Assad with weapons and called on other countries to help the Syrian government and its ground troops. “You cannot defeat Islamic State with airstrikes only,” Lavrov said. “It’s necessary to cooperate with ground troops and the Syrian army is the most efficient and powerful ground force to fight the Islamic State.” Lavrov insisted that by sending weapons to Syria, Russia was not propping up Assad but was contributing to defeating Isis fighters. “I can only say once again that our servicemen and military experts are there to service Russian military hardware, to assist the Syrian army in using this hardware,” he said at a news conference in Moscow. “And we will continue to supply it to the Syrian government in order to ensure its proper combat readiness in its fight against terrorism.”

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“The world is awash in milk..”

Dairy Farmers at the Barricades (Bloomberg)

Talk to dairy farmers in Britain, the U.S., New Zealand, Canada, Argentina, and countries worldwide, and you ll hear the same thing: Times are tough. Russia’s ban on European Union milk and the EU’s removal of production quotas have driven local prices down 20% in the past 12 months. That s why 6,000 farmers and 2,000 tractors converged on Brussels on Sept. 7 to protest EU farm policies. Audrey Le Bivic, a dairy farmer from France s Brittany region, was grim: “I cannot pay my bills. If tomorrow I can no longer buy food for my cows, they will not produce any more milk, and I cannot let my cows starve”. “The world is awash in milk, with global trade in whole milk powder at its lowest since 2011”, the U.S. Department of Agriculture says.

For the first seven months of 2015, American dairy exports were down 28%, compared with the same period in 2014, says the U.S. Dairy Export Council; the USDA expects purchases of whole milk powder by China, the world s biggest dairy importer, to drop 40% this year. The former No. 2 importer, Russia, has banned imports from not only the EU, but also the U.S. and Australia in retaliation for sanctions imposed to protest Russian intervention in Ukraine. “We don’t see any major recovery in sight”, says Pekka Pesonen, secretary general of Copa-Cogeca, a farm lobby in Brussels. The Brussels demonstrations were the culmination of a summer of unrest in the countryside. French farmers blockaded highways; their Lithuanian counterparts dumped 30 tons of milk to highlight their plight.

In the U.K. angry farmers raided supermarkets and emptied shelves of milk to pressure retailers including Wal-Mart Stores to commit to higher prices. Dairy farmers have been losing huge amounts of money, says Rob Harrison, an English farmer. China and Russia aren’t the only culprits. Record prices last year primed farmers to bolster output in the U.S., where milk production in 2015 will reach 208.7 billion pounds, the fifth consecutive record-setting year. In April the EU, seeking to liberalize trade, removed quotas that had been in place for the past 30 years, leading to increased production from Ireland, the Netherlands, and the U.K. China is producing more milk thanks to investments such as a $140 million, 20,000-cow facility that China Modern Dairy Holdings, partly owned by private equity firm KKR, unveiled in 2013. The Chinese are also consuming stockpiled milk powder and importing less. Global milk supply grew 3.7% last year, almost triple the growth rate of 2013, the USDA says.

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Food must be a local trade, not an international one.

Global Food Prices Hit Lowest Level In Over 6 Years (CNBC)

Global oversupply and concerns over China’s economic slowdown have knocked food commodity prices to the lowest level in over six years, the UN’s food body said on Thursday. The Food and Agriculture Organization of the UN’s trade-weighted food price index posted its steepest monthly drop in August since December 2008, falling to 155.7 points, its lowest level since April 2009. “In addition to ample supplies, a number of other factors contributed to the decrease, including the slump in energy prices and concerns about China’s economic slowdown and its negative consequences on the global economy and financial markets,” the organization said in an statement on Thursday. The index is a measure of the monthly change in international prices of a basket of five food commodities cereal, vegetable oil, dairy, meat and sugar.

Cereal prices were at their lowest level since June 2010 and the prices of milk powders, cheese and butter “dropped substantially.” Vegetable oil prices hit a March 2009 trough and sugar prices also fell on the previous month, hit by a falling Brazilian real and expectations that India will become a net exporter of the commodity. The only food commodity that didn’t see a fall was the price of meat, which remained virtually unchanged from the previous month. “International prices of ovine (sheep) meat moved up somewhat, while those for other types of meat were stable,” the UN said. “Nevertheless, compared to the index’s historic peak in August 2014, overall prices were down by 18%, with pig and ovine meat the most affected, although poultry and bovine meat quotations also slid markedly over the period.”

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Aug 192015
 
 August 19, 2015  Posted by at 8:43 am Finance Tagged with: , , , , , , , , , ,  7 Responses »


Lewis Wickes Hine Newsies in St. Louis 1910

Asian Shares Plunge To Two-Year Lows As China Stocks Continue To Fall (Guardian)
Do Markets Determine The Value Of The Renminbi? (Michael Pettis)
China’s Devaluation May Be Bad News For FX Industry (Reuters)
China Shadow Banks Appeal For Government Bailout (FT)
China’s Richest Traders Are Fleeing Stocks as the Masses Pile In (Bloomberg)
US Lacks Ammo for Next Economic Crisis (WSJ)
Abe Aide Says Japan Needs $28 Billion Economic Package (Bloomberg)
Europe, Listen to the IMF and Restructure the Greek Debt (NY Times Ed.)
The Hot Thing for Wall Street Banks: Capital-Relief Trades (WSJ)
Oil Goes Down, Bankruptcies Go Up – The 5 Frackers Next To Fall (Forbes)
Brace For More Dividend Cuts As Canada’s Oil Patch Runs Out Of Cash (Bloomberg)
Brazil’s Political Crisis Puts the Entire Economy on Hold (Bloomberg)
Immigration – Issue of the Century (Patrick J. Buchanan)
Hungary Deploys ‘Border Hunters’ to Keep Illegal Immigrants Out (WSJ)
Europe Struggles To Respond As Migrants Numbers Rise Threefold (Reuters)
Germany May Receive Up To 750,000 Asylum Seekers This Year (Reuters)

Note: Shanghai plunge protection came in in late trading. It ended up 1.23%.

Asian Shares Plunge To Two-Year Lows As China Stocks Continue To Fall (Guardian)

Asian shares on Wednesday struggled at two-year lows after Chinese stocks extended their fall, stoking fears about the stability of China’s economy. The Shanghai Composite Index retreated 3.9% a day after worries that the central bank could be in no hurry to ease policy further pushed it down 6.1%. The plunge dented hopes of Chinese share markets stabilising after Beijing effectively pulled out all the stops to stem the rout. Japan’s Nikkei fell 0.5% and South Korea’s Kospi lost 1.3%. “Investors care about these two things: China’s economy and the timing of a US rate hike. These two concerns dominate their minds now,” said Masaru Hamasaki, head of market and investment information department at Amundi Japan.

MSCI’s broadest index of Asia-Pacific shares outside Japan slid to a two-year low and was last down 0.1%. Australian stocks bucked the trend and climbed 1.2%. Shares of importers and firms with high US dollar-denominated debt have been under pressure following last week’s yuan devaluation. The spectre of a slowdown in China’s economic growth and a US interest rate hike has hit asset markets in emerging economies hardest. MSCI’s emerging market index fell to its lowest level since October 2011. It has dropped more than 20% from the year’s peak it hit in April. Wall Street shares also retreated overnight, with the S&P 500 sliding 0.26%, pressured by weak earnings from retail giant Wal-Mart.

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Must read from Pettis.

Do Markets Determine The Value Of The Renminbi? (Michael Pettis)

One of the main questions being batted around is whether, under the new system, the value of the RMB is finally going to be determined by the market. If it is, it almost certainly means that the value of the RMB will decline. Why? Because the balance of payments, which is the sum of the current account surplus and the capital account deficit, is in deficit if we exclude PBoC interventions. At current prices there is more RMB selling than there is buying, and the PBoC has to sell reserves and buy RMB in order to keep the currency from depreciating. This, many people argue, proves that the RMB is overvalued. The “market”, they claim, has spoken, and it has told us that the RMB is overvalued. They are wrong. The “market” is not telling us that the RMB is overvalued.

It is telling us only that there is more supply of RMB than there is demand for RMB at the current exchange rate. Because “overvaluation” and “undervaluation” usually refer to the fundamental value of a currency, this excess of supply over demand would only imply an overvaluation of the RMB if supply and demand were driven primarily by economic fundamentals. Excluding central bank intervention, which is mainly a residual contributed automatically by the PBoC to balance supply and demand for foreign currency, all purchases or sales of foreign currency in China can be divided into current account activity, which mostly consists of the trade account, along with other transactions including tourism, royalty payments, interest payments, etc., and capital account activity, which consists of direct investment, portfolio investment, and official flows.

Imbalances in both the current account and the capital account can be driven by economic fundamentals, in which case it might make sense to say that the RMB’s “correct” exchange rate is broadly equal to the clearing price at which supply is equal to demand. In this case if the central bank were to purchase RMB, reserves would decline and it would be reasonable to assume that PBoC intervention would cause the RMB to become overvalued, while PBoC sales of RMB would cause reserves to increase and the RMB to become undervalued. But neither the current account nor the capital account is necessarily driven only by economic fundamentals. As an aside, most people, including unfortunately most economists, typically assume that the current account is independent and the capital account, if they think of it at all, simply adjusts to maintain the balance, but this is an extremely confused way to think about the balance of payments.

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“Her credit markets are fragile and they are unwinding what has been the world’s biggest ever credit boom, and capital outflows are meaningful..”

China’s Devaluation May Be Bad News For FX Industry (Reuters)

China’s currency devaluation should give a shot in the arm to global foreign exchange volumes as traders take advantage of and protect themselves against the surprise surge in volatility, but its longer-term impact on market activity may not be so benign. Investors with longer-term horizons than a day’s trading profit, from pension funds seeking stable returns to companies considering expanding overseas, will be alarmed by the prospect of wild swings in exchange rates triggered by another round of “currency wars”. Former Brazilian finance minister Guido Mantega coined the term “currency wars” in 2010. It refers to countries trying to make their exports more competitive – and ultimately boost their growth – at the expense of rivals, by weakening their exchange rates.

Policymakers fear Beijing’s move could accelerate this race to the bottom, particularly as most countries, including those in the developed and industrialized world, have few growth-boosting policy tools left open to them. It’s a worry for a troubled foreign exchange industry. After years of rapid growth, which made it the world’s largest financial market and a money-spinner for big banks, trading volumes are slowly shrinking and jobs are being lost. Tighter regulation, increased automation, greater competition, and a global market-rigging scandal all suggest its glory days are over. The depressive impact on investment of a lengthy currency war would do little to restore its fortunes. “Any prolonged uncertainty in the market resulting from this, and real-money players such as pension and mutual funds will be less inclined to invest,” said Neil Mellor at Bank of New York Mellon.

As analysts at Morgan Stanley point out, China accounts for 21% of the trade-weighted dollar index used by the Federal Reserve. It is the biggest single component of the equivalent euro trade-weighted index at around 23%. So what happens to the yuan has a growing influence on dollar and euro flows. Analysts at Cross Border Capital say China’s credit markets have grown 12-fold since 2000 and are now worth around $25 trillion – roughly the same size as U.S. credit markets. “Her credit markets are fragile and they are unwinding what has been the world’s biggest ever credit boom, and capital outflows are meaningful,” they wrote in a report last month. “China remains the key risk and reward for global investors.” In that, the foreign exchange industry is no exception.

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The 800 pound blind spot in Beijing’s financial Ponzi politics comes back to haunt it.

China Shadow Banks Appeal For Government Bailout (FT)

The collapse of a state-owned credit guarantee company in China’s rust belt has shone a new spotlight on risk from bad debt and moral hazard in the country’s shadow banking system. As China’s economy slows, concerns are mounting over rising defaults, especially on loans from non-bank lenders, which provide credit to risky borrowers at high interest rates. Eleven shadow banks have written an open letter to the top Communist party official in northern China’s Hebei province asking for a bailout that would enable the bankrupt credit guarantee company to continue to backstop loans to borrowers. If the guarantor cannot pay, it could spark defaults on at least 24 high-yielding wealth management products (WMPs).

Analysts worry that a series of bailouts in recent years has encouraged irresponsible lending by fuelling the perception the government will not tolerate default. The latest appeal for a bailout will again force officials to choose between ensuring short-term financial stability or imposing market discipline on investors, which should improve lending practices in the long term. Hebei Financing Investment has guaranteed Rmb50bn ($7.8bn) in loans from nearly 50 financial institutions, according to Caixin, a respected financial magazine. More than half of this total is from non-bank lenders, mainly trust companies, who lent to property developers and factories in overcapacity industries. The letter appeals directly to the government’s concern about social stability and the fear of retail investors protesting the loss of “blood and sweat money”.

The 11 companies sold 24 separate WMPs worth Rmb5.5bn. “The domino effect from the successive and intersecting defaults of these trust products involves a multitude of financial institutions, an immense amount of money, and wide-ranging public interests,” 10 trust companies and a fund manager wrote to Zhao Kezhi, Hebei party secretary. “In order to prevent this incident from inciting panic among common people and creating an unnecessary social influence, we represent more than a thousand investors, more than a thousand families, in asking for a resolution.” Most trust products are distributed through state-owned banks, leaving unsophisticated investors with the impression that the bank and ultimately the government stands behind them, even when the fine print says otherwise.

There has been a series of technical defaults on bonds and high-yield trust products in recent years, but bailouts have shielded retail investors from losses in most if not all cases, often following public protests by angry investors at bank branches. Trust lending has exploded since 2010 amid a pullback by traditional banks. Trusts sell WMPs to investors, marketing the products as a higher-yielding alternative to traditional savings deposits. They use the proceeds for loans to property developers, coal miners and manufacturers in overcapacity sectors to which banks are reluctant to lend. Trust loans outstanding rose from Rmb1.7tn in 2011 to Rmb6.9tn at the end of June. Hebei Financing stopped paying out on all loan guarantees in January, when its chairman was replaced and another state-owned group was appointed as custodian.

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Much of it is fleeing abroad.

China’s Richest Traders Are Fleeing Stocks as the Masses Pile In (Bloomberg)

The wealthiest investors in China’s equity market are heading for the exits. The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28% in July, even as those with less than 100,000 yuan rose by 8%, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA Ltd. says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June. Investors with the most at stake are finding fewer reasons to own Chinese shares amid weak corporate earnings and some of the world’s highest valuations.

With this month’s devaluation of the yuan adding to outflow pressures, bulls have started to question whether there’s enough buying power to prop up prices once the government pares back its unprecedented rescue effort – a concern that contributed to the Shanghai Composite Index’s 6% plunge on Tuesday. “The high net worth clients are the ones who moved the market,” Francis Cheung, the head of China and Hong Kong strategy at CLSA, wrote in an e-mail. “They tend to be more savvy.” The median stock on mainland bourses traded at 72 times reported earnings on Monday, more expensive than any of the world’s 10 largest markets. The ratio was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg.

More than 62% of companies in the Shanghai Composite trailed analysts’ 2014 earnings estimates as the economy expanded at its weakest pace since 1990. Profits at Chinese industrial firms declined by 0.3% in June, versus a 0.6% gain in the previous month. “There is not a lot of fundamental support for the A-share market,” Cheung said. “Earnings are weak.” “This lack of a clear trend in the market causes overreactions by investors” The ranks of investors with at least 10 million yuan in stocks dropped to about 55,000 in July from 76,000 in June. Those with between 1 million yuan and 10 million yuan declined by 22%, according to data compiled by China Securities Depository and Clearing Corp. “Wealthy investors, who have been through bear markets, are better at exiting,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology.

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From Fed mounthpiece Hilsenrath.

US Lacks Ammo for Next Economic Crisis (WSJ)

The U.S. over the past quarter century regularly turned to the Fed to provide stimulus when the economy stumbled. In the most recent recession, short-term interest rates were pushed to near zero, then the central bank embarked on massive—and controversial—bond-buying programs to drive down long-term interest rates. The Fed also promised to keep short-term interest rates low for an extended period. The tactics were meant to make it easier for households to pay off debts, encourage new borrowing and promote risk-taking; officials hoped that would push investment and consumer spending higher.

The next downturn could further expand Fed bondholdings, but with the central bank’s balance sheet already exceeding $4 trillion, there are limits to how much more the Fed can buy. Mr. Bernanke said he was struck by how central banks in Europe recently pushed short-term interest rates into negative territory, essentially charging banks for depositing cash rather than lending it to businesses and households. The Swiss National Bank, for example, charges commercial banks 0.75% interest for money they park, an incentive to lend it elsewhere. Economic theory suggests negative rates prompt businesses and households to hoard cash—essentially, stuff it in a mattress. “It does look like rates can go more negative than conventional wisdom has held,” Mr. Bernanke said.

Others, including Sen. Bob Corker (R.,Tenn.), see only the Fed’s limits. “They have, like, zero juice left,” he said. Many economists believe relief from the next downturn will have to come from fiscal policy makers not the Fed, a daunting prospect given the philosophical divide between the two parties. Republicans doubt federal spending expands the economy, and they seek to shrink rather than grow government. Democrats, meanwhile, say government austerity hobbles the economy, especially in a downturn. At issue is how much the U.S. can afford to borrow and spend to goose the economy out of the next recession. The experience of the past recession has set off sharp disagreement among economists.

Federal debt has grown to 74% of national output, from 39% in 2008. To restrain short-term budget deficits, Congress and the White House agreed earlier this decade on a mix of spending cuts and tax increases. In all, total state, local and federal government spending, adjusted for inflation, shrank 3.3% since the recovery began in 2009, compared with an average increase of 23.5% over comparable periods in past postwar expansions.

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Sure, throw some more oil on the fire.

Abe Aide Says Japan Needs $28 Billion Economic Package (Bloomberg)

Japan needs an economic injection of as much as 3.5 trillion yen ($28 billion) to shore up consumption and stave off a further economic contraction, said Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe. “Households feel their income has been reduced,” Honda, 60, said in an interview Tuesday at the Prime Minister’s Office in Tokyo. “The negative legacy of the previous tax hike is waning, but increases in wages are lower than expected and prices of food and daily commodities are rising.” The world’s third-biggest economy shrank an annualized 1.6% in the three months through June as households and businesses cut spending and exports tumbled.

While the tailwind from the weaker yen and the Bank of Japan’s unprecedented monetary stimulus have helped propel stocks to an eight-year high, consumer confidence has slumped. Honda said a package of 3-3.5 trillion yen is needed to help lower-income households and pensioners. He suggested it should be delivered as subsidies such as child-care support or coupons, rather than spending on public works. Additional spending can be funded from higher-than-expected tax revenues, rather than issuing new government bonds, he said. Economy Minister Akira Amari said Monday he doesn’t expect to add fiscal stimulus, and Bank of Japan Governor Haruhiko Kuroda is counting on growth returning this quarter as he pursues a distant 2% inflation target with unprecedented monetary stimulus.

Honda said fiscal stimulus would be more effective than further central bank easing right now because it kicks in quicker. He said additional central bank easing wasn’t needed now, but didn’t rule it out later should inflationary expectations fall. “We should be on alert. There should be some possibility, of course, for the BOJ to pursue its next round” of easing, he said. Honda, a former Ministry of Finance official, has known Abe since they met at a wedding reception around 30 years ago. They played golf together at the weekend.

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Everyone knows what should happen, but that doesn’t mean it will.

Europe, Listen to the IMF and Restructure the Greek Debt (NY Times Ed.)

The IMF is doing the right thing by not participating in a deeply flawed loan agreement that European leaders have negotiated with Greece. Years of misguided economic policies sought by Germany and other creditors have helped to push Greece into a depression, left more than a quarter of its workers unemployed and saddled it with a debt it cannot repay. The latest European attempt to bail out Greece will make the situation even worse by requiring the country’s government to cut spending and raise taxes while increasing the country’s debt to 200% of its GDP, from about 170% now. The IMF, which joined European countries in their first two loan programs for Greece, says it cannot lend more money because Greece’s debt has become unsustainable.

In a statement on Friday, the fund’s managing director, Christine Lagarde, said Greece’s creditors had to provide “significant debt relief” to the country. Last month, the fund said creditors needed to either reduce the amount of money Greece owes or extend the maturity of that debt by up to 30 years. This is a much tougher position than the IMF has taken before. In 2010, it did not insist that Greek debt be restructured. That was a big mistake because it left Greece with more debt than it had before the crisis and reduced the government’s ability to stimulate the economy. What Ms. Lagarde, a former French finance minister, says matters because European leaders like Chancellor Angela Merkel of Germany want the fund to be a part of the loan program since it has extensive expertise in dealing with financial crises.

European officials have said only vaguely that they might be willing to consider debt relief. Many lawmakers and voters in other European nations oppose providing more help because they think the Greek government has failed to carry out the economic and fiscal reforms that would make the country more productive. There is no question that Prime Minister Alexis Tsipras of Greece needs to do more to raise economic growth. But even if he does everything European leaders are asking him to do — a list that includes cutting pensions, simplifying regulations, privatizing state-owned businesses — the country will still not be able to pay back the €300 billion it owes. Rather than go through a messy default in a few years, it is in Europe’s interest to heed the IMF’s advice and restructure Greece’s debt now.

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There are still plenty instruments available to hide risks and losses.

The Hot Thing for Wall Street Banks: Capital-Relief Trades (WSJ)

Faced with new global regulations requiring them to strengthen their capital, big lenders in the U.S. and Europe have turned to a trading tactic that flatters their positions without actually raising extra funds. Banks that have done such “capital-relief trades” include some of the largest in the world: Citigroup, Bank of America, Deutsche Bank and Standard Chartered. But the Office of Financial Research, a U.S. Treasury office created to identify financial-market risks, is suggesting the trades run the risk of “obscuring” whether a bank has adequate capital and pose other “financial stability concerns.” The Securities and Exchange Commission and the Federal Reserve also have also voiced concerns about the trades.

Capital-relief trades are opaque, little-disclosed transactions that make a bank look stronger by reducing its ” risk-weighted” assets. That boosts key ratios that measure the bank’s capital as a%age of those assets, even as capital itself stays at the same level. In a capital-relief trade, a bank can keep a risky asset on the balance sheet, using credit derivatives or securitizations to transfer some of the risk to a hedge fund or other investor. The investor potentially gets extra yield and the credit risk of smaller borrowers in a way it would be hard for them to get otherwise, while the bank gets to remove part of the asset’s value from its closely watched “risk-weighted asset” count. Banks say the trades help them manage their risk, even if they don’t go as far as a bona fide asset sale, and are just one tool among many they are using to meet new capital requirements.

Some say the Office of Financial Research is mischaracterizing the transactions, or that the trades didn’t significantly affect their capital ratios. Bank of America, for example, disclosed $11.6 billion in purchased capital protection in 2014 regulatory filings, but said the impact of the trades on its capital ratios was less than 0.01 %age point. Critics fear the trades can spread risk to unregulated parts of the financial system–just as similar trades did before the financial crisis. “It just seems like another repackaging of risk to mask who’s holding the bag,” said Arthur Wilmarth, a George Washington University law professor and banking expert.

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Pretty funny: “KKR and its partners might at least feel cold comfort that some of their cash is going to a good cause.”

Oil Goes Down, Bankruptcies Go Up – The 5 Frackers Next To Fall (Forbes)

With West Texas Intermediate crude now below $42 a barrel, the edifice of America’s oil and gas boom is finally crumbling. The number of companies in bankruptcy or restructuring has increased, and the clouds will only grow darker in the months ahead. Declining revenues, evaporating earnings and shrinking values of oil and gas reserves will put the crunch on oil companies’ ability to refinance loans, let alone borrow new cash or sell shares. Last week two companies showed that having a heroic name is no defense. Hercules Offshore, a Gulf of Mexico drilling contractor, announced it had reached a prepackaged bankruptcy with creditors to convert $1.2 billion in debt into equity and raise $450 million in new capital.

While Samson Resources on Friday said it is negotiating a restructuring that will see second lien holders inject another $450 million into the company in return for all the equity in the reorganized company. Samson is the biggest bankruptcy of the oil bust so far, and a huge black eye to private equity giant KKR, which in 2011 led a $7.2 billion leveraged buyout of the company. The deal was a classic LBO: about $3 billion in equity backed by more than $4 billion in debt. It seemed like a good idea at the time. Tulsa, Oklahoma-based Samson, founded in the 1970s by Charles Schusterman, had grown to be one of the biggest privately owned oil companies in the nation. It held vast swaths of acreage in North Dakota, Texas and Louisiana seemingly ripe for redevelopment.

The sophisticated KKR team assumed it could squeeze a lot of value out of Samson, which since Schusterman’s death in 2001 had been run by his daughter Stacy. Charles would be proud of her for inking the deal of a lifetime, selling the family jewels at what turned out to be the top of the market for shale-y acreage. It didn’t take long for KKR and its equity partners to realize they had overpaid tremendously. The pain has been spread around. Japan’s Itochu Corp. put up $1 billion in the LBO for a 25% equity stake. Two months ago it sold back its shares to Samson for $1. KKR and its partners might at least feel cold comfort that some of their cash is going to a good cause. The Schusterman family, led by matriarch Lynn, contributed $2.3 billion of their windfall to the Charles & Lynn Schusterman Foundation, which is devoted to Jewish charities and education projects in Tulsa.

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Dying breaths?!

Brace For More Dividend Cuts As Canada’s Oil Patch Runs Out Of Cash (Bloomberg)

Dividend cuts among Canadian energy producers are poised to accelerate as cost reductions fail to boost shrinking cash flow. Companies from Canadian Oil Sands to Baytex Energy are in line for deeper payout decreases, according to analysts, after Crescent Point Energy Corp. slashed its dividend for the first time last week as crude sank to a six-year low. Just 38% of the 63 energy companies in Canada’s Standard & Poor’s/TSX Energy index had positive free cash flow, defined as operating cash flow minus capital expenditures, as of Aug. 17. That’s down from 43% in 2013, data compiled by Bloomberg show. The dwindling cash flow comes even after Canadian companies joined some US$180 billion in global cutbacks this year, the most since the oil crash of 1986, according to Rystad Energy.

“There’s so much cash being spent on dividends,” said Greg Taylor at Aurion Capital Management in Toronto. “You can get increased cash flow by cutting costs but that’s not a sustainable model. The idea dividends are a sacred cow, that’s being put on the backburner.” Companies most likely to cut their dividends include Canadian Oil Sands, Baytex and Pengrowth Energy, said Sam La Bell at Veritas Investment in a telephone interview in Toronto. All three have already cut their dividends, though Baytex and Pengrowth will become more vulnerable if oil prices remain low as their hedges begin to roll off as soon as the second half of this year, La Bell said.

Canadian Oil Sands, which chopped its payout by 86% in January, may be better off canceling the dividend altogether as it struggles to generate cash, he said. “We know the dividend is important to our investors, but even more so is protecting the long-term value of their investment,” said Siren Fisekci, a spokeswoman at Canadian Oil Sands, in an e-mailed response. “We will continue to consider dividends in the context of crude oil prices and Syncrude operating performance.”

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Wile E.

Brazil’s Political Crisis Puts the Entire Economy on Hold (Bloomberg)

In Brazil, General Motors has been halting factories and laying off thousands. Latam Airlines, the region’s biggest, is cutting flights. And the world’s third-largest planemaker, Embraer, is delaying its biggest new aircraft. In the midst of its deepest economic and political crisis in a generation, Brazil is contending with a business climate so punishing that major projects across numerous sectors are being frozen or shrunk, while small businesses slash prices and shift focus. “Political instability is enormous, and it’s paralyzing Brazil,” said Eduardo Fischer, co-CEO at homebuilder MRV Engenharia, in an Aug. 5 interview. In Brasilia, the nation’s capital, “decisions and actions that need to be taken are being delayed, questioned or defeated, and nothing happens.” Even luncheonettes are hurting.

Carambola’s, a juice and sandwich shop in Sao Paulo’s financial district, saw a 30% drop during lunch starting a couple of months ago. The corner store fired two employees, and closes earlier as customers stop coming in after-hours. “People are bringing lunch from home,” Rafael Bruno da Silva, the afternoon manager, said on a recent day as a lone customer sipped coffee. “We’ve lowered the prices of juice, but it doesn’t seem to be making much of a difference.” Opposition lawmakers and many in the public are calling for the resignation of President Dilma Rousseff, whose popularity has sunk to a record low. The senate and lower house presidents are being investigated in an alleged kickback scheme that funneled money from state-run Petrobras, the world’s most indebted oil company, to political parties in the biggest corruption scandal in history.

On top of that, inflation is above the central bank’s target and unemployment is at a five-year high. Moody’s Investors Service said in a report Monday the economy will contract about 2% in 2015. Brazil’s real is the worst-performing major currency in the world this year. The crisis is reminiscent of the 1990s, when clerks were hired to re-sticker prices at grocery stores throughout the day because of hyperinflation. For others, it is a new and frightening experience. “Younger generations haven’t lived through any volatility,” said Fernando Perlatto, a professor of sociology at the federal university of Juiz de Fora. “That contributes to uncertainty. People are cutting costs, not getting married, and such. At the university, we’re not booking any conferences, trips or academic events.”

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A view from the right.

Immigration – Issue of the Century (Patrick J. Buchanan)

“Trump’s immigration proposals are as dangerous as they are stunning,” railed amnesty activist Frank Sharry. “Trump … promises to rescind protections for Dreamers and deport them. He wants to redefine the constitutional definition of U.S. citizenship as codified by the 14th Amendment. He plans to impose a moratorium on legal immigration.” While Sharry is a bit hysterical, he is not entirely wrong. For the six-page policy paper, to secure America’s border and send back aliens here illegally, released by Trump last weekend, is the toughest, most comprehensive, stunning immigration proposal of the election cycle. The Trump folks were aided by people around Sen. Jeff Sessions who says Trump’s plan “reestablishes the principle that America’s immigration laws should serve the interests of its own citizens.”

The issue is joined, the battle lines are drawn, and the GOP will debate and may decide which way America shall go. And the basic issues — how to secure our borders, whether to repatriate the millions here illegally, whether to declare a moratorium on immigration into the USA — are part of a greater question. Will the West endure, or disappear by the century’s end as another lost civilization? Mass immigration, if it continues, will be more decisive in deciding the fate of the West than Islamist terrorism. For the world is invading the West. A wild exaggeration? Consider. Monday’s Washington Post had a front-page story on an “escalating rash of violent attacks against refugees,” in Germany, including arson attacks on refugee centers and physical assaults.

Burled in the story was an astonishing statistic. Germany, which took in 174,000 asylum seekers last year, is on schedule to take in 500,000 this year. Yet Germany is smaller than Montana. How long can a geographically limited and crowded German nation, already experiencing ugly racial conflict, take in half a million Third World people every year without tearing itself apart, and changing the character of the nation forever? Do we think the riots and racial wars will stop if more come? And these refugees, asylum seekers and illegal immigrants are not going to stop coming to Europe. For they are being driven across the Med by wars in Libya, Syria, Iraq, Afghanistan and Yemen, by the horrific conditions in Eritrea, Ethiopia, Somalia and Sudan, by the Islamist terrorism of the Mideast and the abject poverty of the sub-Sahara.

According to the U.N., Africa had 1.1 billion people by 2013, will double that to 2.4 billion by 2050, and double that to 4.2 billion by 2100. How many of these billions dream of coming to Europe? When and why will they stop coming? How many can Europe absorb without going bankrupt and changing the continent forever? Does Europe have the toughness to seal its borders and send back the intruders? Or is Europe so morally paralyzed it has become what Jean Raspail mocked in “The Camp of the Saints”? The blazing issue in Britain and France is the thousands of Arab and African asylum seekers clustered about Calais to traverse the Eurotunnel to Dover. The Brits are on fire. Millions want out of the EU. They want to remain who they are.

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The ugly side of the response.

Hungary Deploys ‘Border Hunters’ to Keep Illegal Immigrants Out (WSJ)

Hungary’s government said Tuesday it will deploy police units of “border hunters” at its frontier with Serbia to keep illegal immigrants out of the country amid a flood of refugees from the Middle East and North Africa. The head of the prime minister’s office said several thousand police will be placed along Hungary’s 175-kilometer border with non-European Union member Serbia, where most of the migrants enter the country. Hungary “is under siege from human traffickers,” Janos Lazar told a press briefing, adding that the police “will defend this stretch of our borders with force.” The government will also tighten punishments for illegal border crossing and human trafficking, steps aimed at “defending the country,” he said.

“[Migrants’] demands to be let in to then take advantage of the EU’s asylum system are on the rise, aggressiveness is increasing. Police have seen that on several occasions,” Mr. Lazar added. The majority of the migrants, whom the government labels as illegal immigrants, are refugees from war-torn Afghanistan, Syria and Iraq, according to human-rights groups. Hungary has registered some 120,000 asylum requests so far this year, an increase of almost 200% from last year. This year’s total could reach 300,000, the country said last week. “Hungary is joining Italy and Greece as the member states most exposed, on the front line” of migration, Dimitris Avramopoulos, EU commissioner in charge of migration, said Friday.

Last week, Hungary requested €8 million from the European Commission in emergency assistance to expand its capacities to house migrants. Brussels will treat the request without delay, Mr. Avramopoulos said. With an estimated 4,500 migrants housed in its overflowing immigration camps, Hungary is a transit country for the vast majority of the migrants. Once in Hungary—and thus within the EU’s Schengen zone where internal borders aren’t guarded—the migrants typically travel on to countries such as Germany and Sweden. Hungary is now building a double fence on its border with Serbia to reduce the number of migrants crossing the border through woods and meadows.

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Europe is in desperate need of leadership on the issue, but there ain’t none.

Europe Struggles To Respond As Migrants Numbers Rise Threefold (Reuters)

More than three times as many migrants were tracked entering the European Union by irregular means last month than a year ago, official data showed on Tuesday, many of them landing on Greek islands after fleeing conflict in Syria. While the increase recorded by the European Union’s border control agency Frontex may be partly due to better monitoring, it highlighted the scale of a crisis that has led to more than 2,000 deaths this year as desperate migrants take to rickety boats. Italian police said they had arrested eight suspected human traffickers that they said had reportedly forced migrants to stay in the hold of a fishing boat in the Mediterranean as 49 of them suffocated on engine fumes.

Some of those traffickers were accused of kicking the heads of the migrants when they tried to climb out of the hold as the air became unbreathable, prosecutor Michelangelo Patane told a news conference in Catania, Sicily. The dead migrants were discovered last weekend, packed into a fishing boat also carrying 312 others trying to cross the Mediterranean to Italy from North Africa. It was the third mass fatality in the Mediterranean this month: last week, up to 50 migrants were unaccounted for when their rubber dinghy sank, a few days after some 200 were presumed dead when their boat capsized off Libya.

Greece appealed to its European Union partners to come up with a comprehensive strategy to deal with what new data showed were 21,000 refugees landed on Greek shores last week alone. A spokesman for the United Nations refugee agency UNHCR in Geneva said the European Union should help Greece but that Athens, which is struggling with a debt crisis, also needed to show ‘much more leadership’ on the issue. Greek officials said they needed better coordination within the European Union. “This problem cannot be solved by imposing stringent legal processes in Greece, and, certainly, not by overturning the boats,” said government spokeswoman Olga Gerovassili. Nor could it be addressed by building fences, she said.

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Merkel’s inaction now leads to her being completely overwhelmed. That’s her fault, her failure.

Germany May Receive Up To 750,000 Asylum Seekers This Year (Reuters)

Germany expects up to 750,000 people to seek asylum this year, a business daily cited government sources as saying, up from a previous estimate of 450,000, as some cities say they already cannot cope and hostility towards migrants surges in some areas. The influx has driven the issue of asylum seekers high up Germany’s political agenda. Chancellor Angela Merkel has tried to address fears among some voters that migrants will eat up taxpayers’ money and take their jobs. The number of attacks on refugee shelters has soared this year. The interior ministry declined to comment on the figures reported in the Handelsblatt but is set to issue its latest predictions this week. Its previous estimate for asylum applications in 2015 was already double those recorded in 2014.

Germany is the biggest recipient of asylum seekers in the European Union, which has been overwhelmed by refugees fleeing war and poverty in countries such as Syria, Iraq and Eritrea. There is also a flood of asylum seekers from Balkan countries. Almost half of the refugees who came to Germany in the first half of the year came from southeast Europe. Along with a shortage of refugee lodgings in cities including Berlin, Munich and Hamburg, Germany also struggles to process applications, which can take over a year. Merkel has long said this must be accelerated.

On Tuesday, the finance ministry seconded 50 customs officials to the National Office for Migration and Refugees for six months to get through the backlog. After Germany, Sweden is the next most generous recipient of asylum seekers in Europe. In 2014, it recorded 81,200 application and anti-immigration sentiment is on the rise.

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Mar 272015
 
 March 27, 2015  Posted by at 8:09 am Finance Tagged with: , , , , , , , , ,  4 Responses »


Wyland Stanley Transparent Car, General Motors exhibit, San Francisco 1940

For Most American Families, Wealth Has Vanished (Yahoo!)
Fed Officials Say Rate Hike Plan Intact Despite Weak US Data (Reuters)
China Stocks May Be In Serious Bubble (MarketWatch)
You’re Playing Liar’s Poker at the Wall Street Casino (Paul B. Farrell)
European Central Bank QE Is Masking Eurozone Struggles (MM)
No, Greece Is NOT The Most Unhelpful Country Ever, IMF Says (MarketWatch)
Greek Bank Deposits Plunge to 10-Year Low (Bloomberg)
Charting Greece’s Draining Coffers (Bloomberg)
Bank of Japan Under Pressure As Inflation Stalls (CNBC)
Saudi Battle For Yemen Exposes Fragility Of Global Oil Supply (AEP)
Putin Plays Wildcard as Ukraine Bond Restructuring Talks Begin (Bloomberg)
Spain Urges EU to Remove Barriers to Banking Takeovers (Bloomberg)
Deutsche Bank Wins German Backing to Be More Like Goldman (Bloomberg)
Asylum Claims Up 45%, ‘Highest Level For 22 Years’ (BBC)
California’s Epic Drought: One Year of Water Left (Ellen Brown)
It’s The End Of March And 99.85% Of California Is Abnormally Dry Already (ZH)
What Is Dark Matter Made Of? Galaxy Cluster Collisions Offer Clues (CSM)
Antarctic Ice Shelf Thinning Speeds Up (BBC)

And nothing else matters one bit.

For Most American Families, Wealth Has Vanished (Yahoo!)

If you re a typical family, you re considerably poorer than you used to be. No wonder the recovery feels like a recession. A new study published by the Russell Sage foundation helps explain why many families feel like they re falling behind: They actually are. The study, which measures the average wealth of U.S. households by income level, reveals a startling decline in wealth nationwide. The median household in 2013 had a net worth of just $56,335 – 43% lower than the median wealth level right before the recession began in 2007, and 36% lower than a decade ago. There are very few signs of significant recovery from the losses in wealth suffered by American families during the Great Recession, the study concludes.

Not surprisingly, lower-income households have lost a larger portion of their wealth than those with higher incomes. Wealth generally comes from two types of assets: financial holdings and real estate. Financial assets have more than recovered ground lost during the recession, thanks largely to a stock-market rally now in its sixth year. The S&P 500 index, for instance, has hit several new record highs this year and is up more than 25% from the peak it reached in 2007. Home values, however, are still about 18% below the peak reached in 2006, according to the S&P/Case-Shiller index. Since wealthier households tend to hold more financial assets, they ve benefited the most form the stock-market recovery, which itself has been assisted by the Federal Reserve s super-easy monetary policy.

Fed policy has been intended to help typical homeowners and buyers too, by pushing long-term interest rates unusually low and, in theory, goosing demand for housing. But a housing recovery is taking much longer to play out than the reflation of financial assets. That’s part of the reason the top 10% of households have held onto more of their wealth than the other 90% during the past 10 years.

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Wall Street insists.

Fed Officials Say Rate Hike Plan Intact Despite Weak US Data (Reuters)

The Federal Reserve should remain on track to raise interest rates later this year despite the U.S. economy’s weak start to the year and a stock market sell-off this week, two Fed officials said on Thursday. In separate events in Frankfurt and Detroit, St. Louis Fed President James Bullard and Atlanta Fed President Dennis Lockhart said U.S. monetary policy might need to be adjusted in light of the economy’s steady improvement since the 2007-2009 financial crisis. “Now may be a good time to begin normalizing U.S. monetary policy so that it is set appropriately for an improving economy over the next two years,” Bullard said at a conference in the German financial hub.

The comments came amid a spate of weak U.S. economic data that prompted major analyst firms to scale down their growth this week. Fed policymakers also lowered their growth forecasts at last week’s policy-setting meeting. Investors have followed suit, sending shares on Wall Street down for four consecutive trading sessions. The challenge now, Lockhart said, is to sort out whether recent weakness in exports, manufacturing and capital investment indicate the start of an economic slowdown or other temporary factors such as the soaring value of the U.S. dollar. Lockhart said he is confident for now that the weakness is “transitory,” and still regards it as highly likely that the Fed will raise rates at either its June, July or September meetings.

“We’re still on a solid track … The economy is throwing off some mixed signals at the moment and I think that is going to be passing or transitory,” Lockhart said in an interview with CNBC from a Detroit investment conference. The conflicting signals are partly familiar – seasonal softness that often accompanies severe winter weather – and partly uncharted. The Fed, for example, now finds itself moving in a divergent direction from other major global central banks, planning a rate hike at a time when Europe and Japan are still flooding markets with liquidity, and other central banks are cutting rates. That has driven the value of the dollar steadily higher, and Lockhart said he, for one, was caught off guard by how much that currency move has apparently impacted U.S. exports and manufacturing..

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You think?

China Stocks May Be In Serious Bubble (MarketWatch)

Some say that when the average “mom-and-pop” retail investors get back into the stock market, it could be time to get out. But what about when even teenagers start buying? China has entered a new stock frenzy, like something out of America in the Roaring 20s or the dottiest days of the dot-com bubble, with trading volumes continuing to push to new record highs. On Wednesday, combined trading on the Shanghai and Shenzhen markets hit 1.24 trillion yuan ($198 billion), the seventh straight session in which turnover surpassed the 1 trillion yuan mark. By comparison, the New York Stock Exchange typically saw $40 billion-$50 billion a day in trading during the first two months of this year.

The Shanghai Composite Index is hovering near its seven-year closing high of 3,691, hit on Tuesday when the index completed a 10-session winning streak. For the year so far, the benchmark is up 13.8%, making it the best-performing major East Asian stock index of 2015 to date, though it still has a way to go to match 2014’s 53% surge. The lure of flush times on the Shanghai market is sweeping in unlikely investors by the hundreds of thousands. This week, both the China Securities Daily and the Beijing Morning Post had dueling reports about recent college graduates and, yes, teenagers buying shares.

Typically these young investors speculate with money given to them by their parents, according to a Great Wall Securities broker quoted in the Beijing Morning Post story. Yet another report, this time by the Beijing News newspaper, relates that at the Beijing trading halls of China Securities Co., “even the cleaning lady” has opened an account to play the market. The data appear to agree with the anecdotes: Within the last week alone, 1.14 million stock account were opened in China, the biggest such surge since June 2007, according to China Securities Depository & Clearing Corp.

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“..17 of the absolutely “stupidest statements” made by Wall Street’s best and brightest..

You’re Playing Liar’s Poker at the Wall Street Casino (Paul B. Farrell)

Yes, you are playing liar’s poker at the Wall Street casino. So how do know Wall Street’s lying? You need this foolproof test. My friends from the anonymous programs use this test all the time. And it really works: “How can you tell when alcoholics and addicts are lying? Their lips are moving!” Same test fits Wall Street, they’re lying when their lips are moving. We have four years of proof and 17 examples. Why’s this test important? The SEC chairwoman recently announced plans to “implement a uniform fiduciary duty for broker-dealers and investment advisers where the standard is to act in the best interest of the investors.” Something Jack Bogle, Vanguard’s founder, has been unable to get government to pass for over 50 years: a fiduciary rule to put the investor ahead of Wall Street insiders. Maybe now he’ll get his wish!

So if you remember nothing else today, here’s your big takeaway: Never trust Wall Street bulls, they’re lying to you over 93% of the time. Behavioral-science research tells us bankers, traders and other market insiders are misleading us, manipulating us the vast majority of the time in their securities reports, PR, ads, speeches, sales material, in their predictions on television, cable shows and when quoted in newspapers and magazines. “Read Bull! 144 Stupid Statements from the Market’s Fallen Prophets,” hit America’s book stores near the end of a 30-month recession a decade ago, after the market wiped out over $8 trillion of the retirement money for 95 million Main Street Americans. The Dow peaked at 11,722 in January 2000, didn’t bottom for 32 months, in October 2002 at 7,286, over 40% down.

We picked 17 of the absolutely “stupidest statements” made by Wall Street’s best and brightest to illustrate their tendency to lie, manipulate, mislead and steal from investors by hook or by crook, using hype, happy talk and all kinds of BS. And it’s guaranteed to happen again in 2015-2016, igniting another market and economic collapse like 2008, which is why the new SEC fiduciary rule would save billions for Main Street in the next round of liar’s poker. Remember, this time is never different, the names change but the BS stays the same, repeating before’ and after every market cycle, never stops, wiping out trillions of our money.

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They’re faking it. Everybody is.

European Central Bank QE Is Masking Eurozone Struggles (MM)

The ECB QE (quantitative easing) regime is officially in full swing. ECB data released last Friday indicated as much. The sovereign bond-buying program began March 9. And in less than two weeks, Eurozone central banks had already purchased €26.3 billion worth of these bonds. At the same time, economic indicators seem to point toward a recovery. Markit’s Purchasing Managers’ Index data released yesterday (Tuesday) revealed Eurozone businesses are at their most optimistic in four years. The EURO STOXX 50 Index – the leading blue-chip index for the Eurozone – is up 21% in 2015. And what’s more, it’s at nearly seven-year highs.

Even the beleaguered euro has stepped off a bit from the precipice of euro-dollar parity . This morning, it was trading at $1.0967. This is after falling to $1.0484 on March 15. This positivity in Eurozone markets all seems unwarranted. The Greek debt crisis , perhaps the biggest problem facing the Eurozone right now, doesn’t have a solution. And Eurozone QE was never built to address it. Eurozone QE is a “confidence trick,” Financial Times columnist Wolfgang Münchau wrote on Sunday. Positive economic data came as a result of falling oil prices , which provided a windfall to the Eurozone, the world’s largest net importer of oil and gas. And those benefits are easily wiped away by any surge in oil prices.

It’s hard to actually be bullish on the Eurozone even with economic data providing a thin veneer of Eurozone confidence. The situation in Greece is worse and more contentious than it has ever been. And QE, a policy aimed at bringing on a recovery, is hardly what it’s cracked up to be. The benefits of Eurozone QE are illusory. This surge in Eurozone optimism is built on a false premise that a largely impotent policy will be the saving grace for a struggling Eurozone. But a closer look at how Eurozone QE works should shatter all those illusions…

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Bloomberg made that one up.

No, Greece Is NOT The Most Unhelpful Country Ever, IMF Says (MarketWatch)

The IMF on Thursday denied a report that officials view Greece as the most unhelpful country the organization had ever dealt with in its 70-year history. “There is no basis in fact for that contention. No such remark was made,” said IMF spokesman William Murray at a news conference. Bloomberg had reported on March 18 that IMF officials had told their euro-area colleagues that Greece stands out as its worst client ever. “I wish they had checked with us before that story was published,” Murray said. IMF managing director Christine Lagarde had a “constructive” conversation Wednesday with Greece’s prime minister Alexis Tsipras, Murray said.

“They had a constructive conversation that focused on next steps in taking forward the policy discussions related to the IMF’s continued support of Greece’s reform program,” Murray said. Greece is locked in talks with the IMF and European creditors on a deal on economic reforms that would unlock €7.2 billion in aid. Greece needs the funding as it faces several major debt repayments in early April. On Wednesday, Greece’s central bank Governor Yannis Stournaras said in London that further debt relief was needed to boost economic growth. Stournaras said exiting the single currency union wasn’t an option for the Hellenic Republic.

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“..give Greece a bit of leeway to announce its reform proposals, give it some easy wins that it can implement in the next week or two.”

Greek Bank Deposits Plunge to 10-Year Low (Bloomberg)

Greek bank deposits plunged to their lowest level in 10 years in February as a political standoff between the government in Athens and the country’s creditors raised the prospect of a possible euro exit. The deposits of households and businesses fell 5% in February to €140.5 billion, their lowest level since March 2005, according to Bank of Greece data released on Thursday. Greeks have pulled about €23.8 billion from banking system in the past three months, 15% of the total deposit base. Greek lenders are depending on Emergency Liquidity Assistance controlled by the European Central Bank to stay afloat as depositors flee.

The country’s creditors have given Prime Minister Alexis Tsipras, elected in January on a platform to end austerity, a Monday deadline to present enough details of a new economic plan to convince them to release more bailout funds. “What we’re likely to see is over the course of the next few weeks is still the drip-feed of liquidity,” said Janet Henry, chief European economist at HSBC Holdings Plc in London, in a Bloomberg TV interview. “We could get more of the ELA, that’s essential to keep the banking system afloat; they could give Greece a bit of leeway to announce its reform proposals, give it some easy wins that it can implement in the next week or two.”

The ECB Governing Council on Wednesday made more than €1 billions of ELA available to Greek lenders, its latest move to defer a financial meltdown. That raised the limit to just over €71 billion. Bank of Greece governor Yannis Stournaras, who is also an ECB Governing Council member, acknowledged at a speech in London on Wednesday that the crisis has unsettled the banking system, saying that there has been “some outflow of deposits due to uncertainty.” While officials including Stournaras and Finance Minister Yanis Varoufakis said bank system deposits stabilized after a Feb. 20 agreement that extended the country’s loan accord to the end of June, outflows picked up again last week, when about 1.5 billion euros left the system.

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Getting serious.

Charting Greece’s Draining Coffers (Bloomberg)

When Dutch Finance Minister Jeroen Dijsselbloem raised the possibility that Greece might need to impose capital controls in a radio interview last week, it seemed like a crazy indiscretion. Why would a senior member of the euro establishment effectively tell people “Hey, we’re considering locking your money inside the country, so you might want to get your euros out while you still can,” and risk accelerating outflows from the country’s already enfeebled banking system? And when the European Central bank decided yesterday to grant more than €1 billion of extra funds to Greece’s banks, it was hard to divine the motivation for the altruism. Was it a carrot to incentivize the government to get serious about meeting the demands of its creditors? Or was it an emergency infusion, acknowledging that Greece is fast running out of money as well as time? The following chart, based on data just released by the Bank of Greece, hints strongly at the latter explanation:

So the Greek banking system had just a bit more than 140 billion euros at the end of February. That’s down almost 15% since the end of November, suggesting bags of capital are fleeing the country as fast as their little legs can carry them. And while extrapolation is an imperfect science, taking the trend from November and running it to the end of this month suggests there could be as little as €133 billion left at the current pace of withdrawals, which would be the lowest in more than a decade. So the reason Dijsselbloem is talking about capital controls may be because the authorities are mulling last-resort, worst-case scenarios as the banking system bleeds out. And the reason the ECB has suddenly become more accommodative might not be a gesture of friendship to Greek Finance Minister Yanis Varoufakis; it might be because its lender-of-last-resort duties are compelling it to act. Today’s figures, though, suggest Greek depositors are voting with their bank balances on the increasing risk of Grexit.

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Inevitable when you don’t understand what inflation is.

Bank of Japan Under Pressure As Inflation Stalls (CNBC)

Japan’s consumer inflation eased in February for a seventh straight month increasing expectations that the Bank of Japan (BOJ) will have to undertake further stimulus measures to achieve its price target. The consumer price index (CPI) rose 2.0% in February from the year-ago period, government data showed on Friday, compared with Reuters’ forecast for a rise of 2.1% and down from a 2.2% rise in January. Excluding the effects of the consumption sales tax hike in April, the nationwide consumer price index was flat in February after increasing 0.2% in January. That marks the first time since May 2013 that it stopped rising. “I think this will keep the pressure on the Bank of Japan to keep their foot on the accelerator,” Joe Zidle, portfolio strategist at Richard Bernstein Advisors, told CNBC.

“You’ve had this split between the BOJ and the government over quantitative and qualitative easing and I think this is going to force the to keep the spigots open.” “This is an economy thats showing data point after data point that its too weak to stand on its own,” he added. Many analysts believe the trend will continue. “The Tokyo CPI result suggests that the nationwide core CPI will probably remain flat yoy in March. However, electricity and gas charges are expected to start declining from April onwards, putting larger downward pressures on the core CPI inflation rate going forward,” it said in a note.

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“..Yemen is very difficult terrain, as the British learned in the Aden crisis..”

Saudi Battle For Yemen Exposes Fragility Of Global Oil Supply (AEP)

The long-simmering struggle between Saudi Arabia and Iran for Mid-East supremacy has escalated to a dangerous new level as the two sides fight for control of Yemen, reminding markets that the epicentre of global oil supply remains a powder keg. Brent oil prices spiked 6pc to $58 a barrel after a Saudi-led coalition of ten Sunni Muslim states mobilized 150,000 troops and launched air strikes against the Iranian-backed Houthi militias in Yemen, prompting a furious riposte from Tehran. Analysts expect crude prices to command a new “geo-political premium” as it becomes clear that Saudi Arabia has lost control over the Yemen peninsular and faces a failed state on its 1,800 km southern border, where Al Qaeda can operate with near impunity.

Over 3.8m barrels a day (b/d) pass through the 18-mile Bab el-Mandeb Strait off Yemen, one of the world’s key choke points for crude oil supply. While there is little likelihood of disruption to tanker traffic, Saudi Arabia is increasingly threatened by Shiite or Jihadi enemies of different kinds. Shiite Houthi rebels have already seized Yemen’s capital, Sanaa, and pose a potential contagion risk for aggrieved Shia minorities across the Saudi border in the kingdom’s Southwest pocket, never an area friendly to the ruling Wahhabi dynasty in Riyadh. The Houthis are well-armed with rocket-propelled grenades and surface-to-air missiles that were either caputured or came from Iran. They have been trained by the Lebanese Hezbollah. “I don’t think air strikes are going to do the job, and it is not clear whether Saudi Arabia is really willing to put boots on the ground,” said Alastair Newton, head of political risk at Nomura and a former intelligence planner for the first Gulf War.

“Nor do I have much confidence in the ability of the Saudis to wage a successful campaign against the Houthis, despite their massive superiority on paper. Yemen is very difficult terrain, as the British learned in the Aden crisis,” he said. The Saudis face an impossible dilemma. The harder they hit the Houthis, the greater the danger of a power vacuum that can only benefit Al Qaeda and Islamic State groupings that already control central Yemen. They are among the most lethal of the various Al Qaeda franchises. A cell from that area was responsible for the Charlie Hebdo attack in Paris. The last 120-strong contingent of US military advisers has been evacuated from the country, while Yemen’s own security apparatus is disintegrating. It is now much harder for the US to coordinate drone strikes or harass Al Qaeda strongholds.

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Nothing wild about it.

Putin Plays Wildcard as Ukraine Bond Restructuring Talks Begin (Bloomberg)

As Ukraine begins bond-restructuring talks, it finds itself face-to-face with a familiar foe: Russia. President Vladimir Putin, who the U.S. and its allies accuse of sending troops and weapons into Ukraine to back a separatist uprising, bought $3 billion of Ukrainian bonds in late 2013. The cash was meant to support an ally, then-President Yanukovych. While his government fell just two months later, Russia was left with the securities. Now, those holdings take on an added importance as Putin’s stance on the debt talks could affect the terms that all other bondholders get in the restructuring. Russia, which is Ukraine’s second-biggest bondholder, has maintained that it won’t take part in any restructuring deal. Here are the three most likely tacks – as seen by money managers and analysts – that Putin’s government could pursue.

Ukraine, after gaining a lifeline from the IMF, included Russia’s bond among the 29 securities and enterprise loans it seeks to renegotiate with creditors before June. Finance Minister Natalie Jaresko has promised not to give any creditor special treatment. The revamp will include a reduction in the coupon, an extension in maturities as well as a cut in the face value, she said. Russian Deputy Finance Minister Sergey Storchak said March 17 that the nation isn’t taking part in the debt negotiations because it’s an “official” creditor, not a private bondholder. If the Kremlin maintains this view, it would be “negative” for private bondholders as “other investors will be more tempted to hold out as well,” according to Marco Ruijer at ING. He predicts a 45% chance of a hold out, while Michael Ganske at Rogge in London says it’s 70%.

There is little precedence of sovereigns and private bondholders taking part in the same talks, given that a nation’s debt considerations include a “foreign-policy dimension,” according to Matthias Goldmann at the Max Planck Institute in Heidelberg, Germany. Ukraine and Russia may need to find an “appropriate forum,” such as the Paris Club, for separate negotiations, he said. Holding out can lead to two outcomes: Russia gets paid back in full after the notes mature in December, or Ukraine defaults. The former option is politically unacceptable in Kiev, according to Tim Ash, chief emerging-market economist at Standard Bank, while the latter would likely start litigation and delay the borrower’s return to foreign capital markets, which Jaresko expects in 2017. “Russia will be holdouts, to try and force a messy restructuring,” Ash said by e-mail on March 19.

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Worst idea ever: make Spain’s biggest bank grow bigger. Who’s going to bail them out?

Spain Urges EU to Remove Barriers to Banking Takeovers (Bloomberg)

Spain, home of the euro area’s largest bank, is pushing the EUto remove obstacles to cross-border mergers of retail lenders. The European Commission should stop national regulators using discretionary powers to hamper tie-ups that strengthen the financial links between euro member states, Alvaro Nadal, chief economic adviser to Prime Minister Mariano Rajoy, said in an interview this week. “One of the problems with monetary union is the lack of risk sharing across the system,” Nadal said. “Imagine if half of Spanish mortgages had been provided by German banks, the crisis would have been very different.” Europe’s retail banking industry should follow the path of the telecommunications industry which has seen a wave of consolidation since EU action facilitated deals, Nadal said.

That would make the currency bloc’s financial system more resilient to shocks like the real-estate collapse that forced Spain to seek a banking-system bailout in 2012. Nadal said he wants to see measures to promote cross-border bank mergers included in the plans to strengthen the euro financial system being drawn up by the so-called four presidents – the heads of the EU, the commission, the ECB and the finance ministers’ group. Spain still has to sell its majority stake in Bankia, a lender with more than €230 billion of assets, which was bailed out with European funds in 2012. Bankia has cleaned up its books selling non-performing real estate assets to Spain’s bad bank and received more than €22 billion of state aid.

While European banking rules are already harmonized in general terms, national regulators still have discretion in how they apply those rules, said Ricardo Wehrhahn, a Madrid-based managing partner at Intral Strategy Execution, a banking and business consultant.
“Within the margins of the law a regulator can make your life harder,” said Wehrhahn, who has analyzed possible targets in Spain for German lenders. “The French, German and Italian banking markets are particularly difficult to penetrate.” Banco Santander, the euro region’s largest bank by market value, has submitted one of seven non-binding offers for Portugal’s state-owned Novo Banco.

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What a great plan! Why didn’t I think of that? The more squids the merrier.

Deutsche Bank Wins German Backing to Be More Like Goldman (Bloomberg)

Deutsche Bank is winning support from German politicians for a plan to transform the country’s biggest bank into a company more like Goldman Sachs. That would be the result of an option the firm is weighing as it seeks to bolster capital levels and profitability, according to a person with knowledge of the matter, who asked to remain anonymous because the talks are confidential. Exiting retail banking to focus on global fund management and investment banking would cut fewer jobs and deliver the quickest boost to returns among three scenarios under review, said the person. Deutsche Bank co-Chief Executive Officers Anshu Jain and Juergen Fitschen are revamping their strategy after the stock fell 24% last year, the most among the top investment banks.

At stake for Germany, the world’s third-biggest exporter, is maintaining a competitive advantage by having a domestic corporate and investment bank with global reach that can offer local companies access to capital markets. “Deutsche Bank is Germany’s only global player in banking,” Michael Fuchs, the deputy parliamentary leader of Chancellor Angela Merkel’s Christian Democratic Union said by phone from Berlin. “If they decide to restructure their business, we should support them.” The lender would still shrink its investment bank, which is Europe’s largest, in all three scenarios it is considering, according to one of the people. The bank may pare its interest-rate trading business and the prime finance activities that cater to hedge funds, the person said.

The company said on Friday that it would present the results of its strategy review in the second quarter. Politicians might have an interest in Deutsche Bank’s plan because Germany is its single biggest market, making up 34% of the bank’s 31.9 billion euros ($35.1 billion) of revenue last year and accounting for 46% of its 98,138 staff at the end of December, company filings show. If Deutsche Bank has concluded that it’s “economically” better to sell its consumer unit, “we have to accept this,” said Ingrid Arndt-Brauer, chairwoman of the parliamentary finance committee and a member of Merkel’s Social Democratic Party coalition partners.

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So what are we going to do?

Asylum Claims Up 45%, ‘Highest Level For 22 Years’ (BBC)

The number of refugees seeking asylum in developed countries rose by almost half last year to the highest level for 22 years, a UN report says. The UN refugee agency said an estimated 866,000 asylum seekers lodged claims in 2014, a 45% rise on the year before and the highest figure since the start of the war in Bosnia. It said the increase had been driven by the conflicts in Syria and Iraq. Germany received the most applications at 173,000 – 30% of claims in the EU. It was followed by the US, Turkey, Sweden and Italy as the countries with the most claims. Between them, the top five receiving countries accounted for 60% of all new asylum bids among the 44 included in the report. The surge is linked to the spiralling conflicts in Syria and Iraq, which have created “the worst humanitarian crisis of our era,” UNHCR spokeswoman Melissa Fleming said.

She urged European countries to open their doors, and respond as generously to the current situation as they did during the Balkan wars in the 1990s. “We need countries to step up to the plate,” AFP news agency quoted her as saying. The UNHCR figures do not include the millions of Syrians who have been taken in by countries such as Lebanon and Jordan. Syrians accounted for the most applications for asylum in 2014 – at nearly 150,000 – more than double the 2013 figure of 56,300. More than 215,000 people are estimated to have been killed since the conflict in Syria started in 2011. Iraqis came in second with 68,700 asylum requests, up from 37,300 the year before. Afghans formed the third largest group, followed by citizens of Serbia and Kosovo, and Eritreans, the UNHCR said.

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Tom Joad just turned around in his car..

California’s Epic Drought: One Year of Water Left (Ellen Brown)

Wars over California’s limited water supply have been going on for at least a century. Water wars have been the subject of some vintage movies, including the 1958 hit The Big Country starring Gregory Peck, Clint Eastwood’s 1985 Pale Rider, 1995’s Waterworld with Kevin Costner, and the 2005 film Batman Begins. Most acclaimed was the 1975 Academy Award winner Chinatown with Jack Nicholson and Faye Dunaway, involving a plot between a corrupt Los Angeles politician and land speculators to fabricate the 1937 drought in order to force farmers to sell their land at low prices. The plot was rooted in historical fact, reflecting battles between Owens Valley farmers and Los Angeles urbanites over water rights.

Today the water wars continue, on a larger scale with new players. It’s no longer just the farmers against the ranchers or the urbanites. It’s the people against the new “water barons” – Goldman Sachs, JPMorgan Chase, Monsanto, the Bush family, and their ilk – who are buying up water all over the world at an unprecedented pace. At a news conference on March 19, 2015, California Senate President Pro Tem Kevin de Leon warned, “There is no greater crisis facing our state today than our lack of water.” Jay Famiglietti, a scientist with NASA’s Jet Propulsion Laboratory in La Cañada Flintridge, California, wrote in the Los Angeles Times on March 12th:

Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain.

Maps indicate that the areas of California hardest hit by the mega-drought are those that grow a large%age of America’s food. California supplies 50% of the nation’s food and more organic food than any other state. Western Growers estimates that last year 500,000 acres of farmland were left unplanted, an amount that could increase by 40% this year. The trade group pegs farm job losses at 17,000 last year and more in 2015. Farmers with contracts from the Central Valley Project, a large federal irrigation system, will receive no water for the second consecutive year, according to preliminary forecasts. Cities and industries will get 25% of their full contract allocation, to ensure sufficient water for human health and safety. Besides shortages, there is the problem of toxic waste dumped into water supplies by oil company fracking. Economists estimate the cost of the drought in 2014 at $2.2 billion.

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And his grave…

It’s The End Of March And 99.85% Of California Is Abnormally Dry Already (ZH)

With NASA scientists warning about California only having one year of water left, it appears The Kardashians and March Madness continue to distract Americans from the ugly looming reality of water shortages. With summer around the corner, the US Drought Minitoring service reports today that a stunning 99.85% of California is “abnormally dry,” and 98.11% of the state is in drought conditions leaving over 37 million people in harm’s way. As we concluded previously: Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain. In short, we have no paddle to navigate this crisis. Several steps need be taken right now.

First, immediate mandatory water rationing should be authorized across all of the state’s water sectors, from domestic and municipal through agricultural and industrial. The Metropolitan Water District of Southern California is already considering water rationing by the summer unless conditions improve. There is no need for the rest of the state to hesitate. The public is ready. A recent Field Poll showed that 94% of Californians surveyed believe that the drought is serious, and that one-third support mandatory rationing.

Second, the implementation of the Sustainable Groundwater Management Act of 2014 should be accelerated. The law requires the formation of numerous, regional groundwater sustainability agencies by 2017. Then each agency must adopt a plan by 2022 and “achieve sustainability” 20 years after that. At that pace, it will be nearly 30 years before we even know what is working. By then, there may be no groundwater left to sustain.

Third, the state needs a task force of thought leaders that starts, right now, brainstorming to lay the groundwork for long-term water management strategies. Although several state task forces have been formed in response to the drought, none is focused on solving the long-term needs of a drought-prone, perennially water-stressed California.

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NOT a mirror version of the visible universe.

What Is Dark Matter Made Of? Galaxy Cluster Collisions Offer Clues (CSM)

Dark matter may not be part of a “dark sector” of particles that mirrors regular matter, as some theories suggest, say scientists studying collisions of galaxy clusters. When clusters of galaxies collide, the hot gas that fills the space between the stars in those galaxies also collides and splatters in all directions with a motion akin to splashes of water. Dark matter makes up about 90% of the matter in galaxy clusters: Does it splatter like water as well? New research suggests that no, dark matter does not splatter when clusters of galaxies collide, and this finding limits the kinds of particles that can make up dark matter. Specifically, the authors of the new research say it is unlikely that dark matter is part of an entire “dark sector” — a mirror version of the visible universe.

Our galaxy contains hundreds of billions of stars, and there are hundreds of billions of galaxies in the observable universe. There’s also a lot of gas and dust between the stars and the galaxies. But all of those stars, galaxies, gas and dust make up only about 10 to 15% of the matter in the universe. The other 85 to 90% is dark matter. Scientists don’t know what dark matter is made of or where it comes from, only that it doesn’t appear to reflect or radiate light. It does, however, exert a gravitational pull on the regular matter around it. David Harvey, a postdoctoral researcher at the Swiss Federal Institute of Technology Lausanne, is one of many scientists currently trying to figure out what dark matter is made of.

There are lots of ways to go about this, and Harvey decided to see what happens when dark matter collides with itself. To do this, Harvey and his colleagues at the University of Edinburgh, where Harvey did his PhD work, looked at collisions among entire clusters of galaxies, where as much as 90% of the mass involved in the collision is dark matter, according to a statement from the Swiss Federal Institute of Technology Lausanne. “[Galaxy cluster mergers] are incredibly messy,” Harvey said. “You’ve got [the stars], the highest densities of dark matter and hot gas all swirling together.”

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“Many of Antarctica’s ice shelves are huge. The one protruding into the Ross Sea is the size of France.” “A number of these ice shelves are holding back 1m to 3m of sea level rise..”

Antarctic Ice Shelf Thinning Speeds Up (BBC)

Scientists have their best view yet of the status of Antarctica’s floating ice shelves and they find them to be thinning at an accelerating rate. Fernando Paolo and colleagues used 18 years of data from European radar satellites to compile their assessment. In the first half of that period, the total losses from these tongues of ice that jut out from the continent amounted to 25 cubic km per year. But by the second half, this had jumped to 310 cubic km per annum. “For the decade before 2003, ice-shelf volume for all Antarctica did not change much,” said Mr Paolo from the Scripps Institution of Oceanography in San Diego, US. “Since then, volume loss has been significant. The western ice shelves have been persistently thinning for two decades, and earlier gains in the eastern ice shelves ceased in the most recent decade,” he told BBC News.

The satellite research is published in Science Magazine. It is a step up from previous studies, which provided only short snapshots of behaviour. Here, the team has combined the data from three successive orbiting altimeter missions operated by the European Space Agency (Esa). The findings demonstrate the value of continuous, long-term, cross-calibrated time series of information. Many of Antarctica’s ice shelves are huge. The one protruding into the Ross Sea is the size of France. They form where glacier ice running off the continent protrudes across water. At a certain point, the ice lifts off the seabed and floats. Eventually, as these shelves continue to push outwards, their fronts will calve, forming icebergs.

If the losses to the ocean balance the gains on land though precipitation of snows, this entirely natural process contributes nothing to sea level rise. But if thinning weakens the shelves so that land ice can flow faster towards the sea, this will kick the system out of kilter. Repeat observations now show this to be the case across much of West Antarctica. “If this thinning continues at the rates we report, some of the ice shelves in West Antarctica that we’ve observed will disappear by the end of this century,” said Scripps co-author Helen Amanda Fricker. “A number of these ice shelves are holding back 1m to 3m of sea level rise in the grounded ice. And that means that ultimately this ice will be delivered into the oceans and we will see global sea-level rise on that order.”

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