Dec 062016
 
 December 6, 2016  Posted by at 10:01 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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John M. Fox Midtown Dealers Corp. and Hudson showroom, Broadway at W. 62nd Street, NY 1947


Mark Carney: World Is Facing The “First Lost Decade Since The 1860s” (BBG)
Trump Must Fire Janet Yellen – First Thing! (Stockman)
Matteo Renzi’s Resignation Temporarily ‘Frozen’ By Italian President (G.)
Italian Bank Shares Slump as Renzi Loss Adds to Uncertainty (BBG)
Italy Already Requested Monte Dei Paschi Bailout Before Referendum (R.)
Could Renzi’s Exit Lead To An Italian Bank Rescue? (G.)
How Italy Became This Century’s ‘Sick Man Of Europe’ (G.)
Standing Rock Is A Modern-Day Indian War. This Time Indians Are Winning (G.)
Trump Advisors Aim To Privatize Oil-Rich Indian Reservations (R.)
Naked Capitalism Demands Retraction, Apology Over WaPo Fake News Story (NC)
Russia Remains The Only Target Country Of NATO’s Nuclear Weapons (SC)
The Deepening Deep State (Jim Kunstler)
Eurozone Agrees Debt Relief For Greece Amid IMF Row (AFP)
Greek Home Sellers Getting Paid In Banks Abroad (Kath.)
Greek Court Rejects Extradition Of 3 Turkish Officers Accused Of Coup (AFP)

 

 

But he had nothing to do with it!

Mark Carney: World Is Facing The “First Lost Decade Since The 1860s” (BBG)

Mark Carney launched a defense of globalization and set out a manifesto for central bankers and governments to boost growth and make the world economy more equal. The Bank of England Governor said they must acknowledge that gains from trade and technology haven’t been felt by all, improve the balance of monetary and fiscal policy, and move to a more inclusive model where “everyone has a stake in globalization.” Carney’s speech in Liverpool, England, comes amid rising disquiet about the state of the world economy and political status quo that helped propel Donald Trump to victory in the U.S. presidential election and boost support for the U.K.’s exit from the European Union.

Trump isn’t right to favor more protectionist policies in response to globalization, Carney said in a television interview broadcast after his speech. The answer is to “redistribute some of the benefits of trade” and ensure that workers are able to acquire new skills. “Weak income growth has focused growing attention on its distribution,” Carney said in the speech. “Inequalities which might have been tolerated during generalized prosperity are felt more acutely when economies stagnate.” Describing the world as facing the “first lost decade since the 1860s,” the BOE governor said public support for open markets is under threat and rejecting them would be a “tragedy, but is a possibility.”

Carney also defended the central bank’s current policy stance. The BOE has faced criticism from politicians after officials took measures including cutting interest rates and expanding asset purchases in August to support the economy after Britain’s June vote to leave the EU. “Low rates are not the caprice of central bankers, but rather the consequence of powerful global forces, including debt, demographics and distribution,” he said, adding that they helped to prevent a deeper economic downturn.

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“Essentially, the United States is held to be a closed economy resembling a giant bathtub.” Stockman says the Trump team have contacted him.

Trump Must Fire Janet Yellen – First Thing! (Stockman)

The Keynesian statists at the Fed think the devastating financial busts we’ve suffered since 1987 were due to a mix of too much investor exuberance, too much deregulation, a one-time housing mania and a smattering of Wall Street greed and corruption, too. And that’s not to overlook some of the more far-fetched reasons for the two big financial meltdowns of this century. Foremost among these is the Greenspan-Bernanke fairy tale that Chinese workers making under $1 per hour were saving too much money, thereby causing low global mortgage rates and a runaway housing boom in America! Needless to say, not only are these rationalizations completely bogus; but so is the entire underlying rationale for Keynesian monetary central planning.

The claim that market capitalism is chronically and destructively unstable and that the business cycle needs constant management and stimulus by the state and its central banking branch is belied by the historical facts. Every economic setback of modern times, including the foundation events of the Great Depression — was caused by the state. The catalyst was either inflationary war finance or central bank fueled credit expansion, not the deficiencies or inherent instabilities’ of market capitalism. Nevertheless, the Fed’s model robs the millions of workers, entrepreneurs, investors and savers who comprise the ground level economy and the billions of supply-side prices for labor and capital through which they interact and ultimately generate output, income and wealth.

Instead, the Fed focuses on the macroeconomic aggregates as the key to achieving its so-called dual mandate of stable prices and maximum employment. Essentially, the United States is held to be a closed economy resembling a giant bathtub. In the pursuit of “full employment,” the central bank’s job is to keep it pumped full to the brim with “aggregate demand.” But the domestic macroeconomic aggregates of employment and inflation cannot be measured on an accurate and timely basis. Neither can they be reliably and directly influenced by the crude tools of the central bank, such as pegging the money market rate, manipulating the yield curve via QE, levitating Wall Street animal spirits via wealth-effects and various forms of open-mouth intervention such as “forward guidance.”

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The president picking favorites. Dangerous at this stage. Italy’s had technocrat ‘caretakers’ before, and that didn’t go well. But everything to keep M5S out of power, including new changes to election laws.

Matteo Renzi’s Resignation Temporarily ‘Frozen’ By Italian President (G.)

Matteo Renzi will remain in office for at least a week after Italy’s head of state asked the centre-left prime minister to “freeze” his resignation temporarily until the senate passed a 2017 budget. Renzi met Sergio Mattarella on Monday at the presidential palace – the Quirinale – in order to formally submit his resignation following a stunning defeat in a referendum on Sunday. Renzi was expected to step down immediately but his departure could now be delayed until Christmas. Mattarella signalled that he will not call snap elections in response to the referendum results, putting him on a collision course with populist and rightwing parties that want a new poll to be called right away.

The Sicilian head of state said he believed it was important for Italy’s institutions to respect “commitments and deadlines”, and that they worked hard to find solutions that were worthy of the “demands of the time”. While the president must always appear to be independent of political allegiances, his comments were taken as a clear sign that he believed the current government needed to fulfil its obligation to not only pass a budget but also make changes to an election law that has been put in flux by the referendum results. Renzi’s months-long campaign to convince Italians to vote yes and overhaul the constitution and parliament was roundly rejected by 59.1% of voters on Sunday, on a turnout of 68%.

The high interest in the plebiscite did not escape Mattarella, who said it was a “testament to a solid democracy [and] an impassioned country capable of active participation”. Mattarella’s call for “serenity” after Italy was plunged into political chaos by the vote may have assuaged worries in Europe about what Renzi’s defeat signified for Europe, Italy’s fragile banking system, and the future of the euro. Germany’s foreign minister, Frank-Walter Steinmeier, said the result was a “concern”, while finance minister Wolfgang Schäuble said Italy ought to continue on an economic path that had been adopted by Renzi. The results, however, were celebrated by French far-right candidate Marine Le Pen who said that, with the no win, Italians joined the British in turning their backs on “absurd European policies which are plunging the continent into poverty”.


Wikipedia

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Oh well, everything else went up…

Italian Bank Shares Slump as Renzi Loss Adds to Uncertainty (BBG)

UniCredit and Banca Monte dei Paschi di Siena fell along with most Italian bank shares after Prime Minister Matteo Renzi’s decision to resign added to uncertainty about their plans for shoring up their finances. Monte Paschi will decide within the next few days whether it will proceed with a planned capital increase, people with knowledge of the matter said. The underwriters, who met with the bank’s executives on Monday, are still waiting for a formal commitment from possible anchor investors, the people said, asking to not be identified because the matter is private. Potential investors are seeking more time to review the political situation after the referendum, according to the people. Italy’s political vacuum threatens to usher in a period of uncertainty that may weigh on plans to reduce a pile of bad loans estimated at €360 billion.

UniCredit and Monte Paschi are among banks looking to raise capital as part of overhauls to clean up their balance sheets and strengthen profitability. UniCredit CEO Jean Pierre Mustier said he’s not worried that market volatility will compromise a strategic plan due next week, just as Renzi prepares to step down. “The events overnight won’t change our strategy,” he said on Monday, without elaborating on the changes ahead. Mustier is trying to restore confidence in a systemically important lender after a slide in its share price eroded more than 60% of the company’s market value this year. Italy’s biggest bank was trading 2.9% lower at 5:24 p.m. in Milan, while Monte Paschi was down 4.2%, after falling as much as 7.5% earlier Monday. Italy’s biggest bank plans to raise as much as €13 billion through a combination of asset sales and a stock offering.

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Italy will have to bail out banks, but doesn’t want EU rules to force it to victimize its own citizens, who hold a huge amount of bank bonds. Maybe they should let Beppe have a go at this.

Italy Already Requested Monte Dei Paschi Bailout Before Referendum (R.)

Italy is discussing with the European Commission the terms of a state bailout of ailing bank Monte dei Paschi that has already been requested and could be launched next week if needed, Italian daily Corriere della Sera reported on Friday. Italy’s third-largest bank needs to raise €5 billion by the end of the year to plug a capital shortfall identified by ECB stress tests or face the risk of being wound down. Quoting sources with knowledge of the matter, Corriere said that Italy had already filed a request to launch a public recapitalization of Monte dei Paschi as early as next week. The newspaper reported that the Commission was willing to limit the burden on shareholders and subordinated bondholders and it was being discussed to what extent retail investors who held subordinated bonds could be spared.

The bank’s finance chief Francesco Mele said this week that the Commission was expected to agree that only shareholders and junior bondholders share the bank’s losses before Monte dei Paschi is given any state aid. New EU rules on state aid to banks require investors to take a hit before lenders tap public money, but a lighter version of the rules can apply in cases such as Monte dei Paschi’s. Sources told Reuters last week that authorities would apply EU rules with flexibility with regard to a Monte dei Paschi bailout to avoid damage to the entire Italian banking system. A debt-to-equity swap aimed at reducing the size of a share sale ends on Friday, with Monte dei Paschi planning to launch its share issue after Italy’s referendum on constitutional reform this Sunday.

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Yup, Draghi.

Could Renzi’s Exit Lead To An Italian Bank Rescue? (G.)

Investors’ ability to look on the bright side on political turmoil is remarkable. In the case of Italy, the departure of Matteo Renzi, the market-friendly centre-left prime minister, was followed quickly by the thought that the crisis in the country’s banking system may, counterintuitively, become easier to address. That wasn’t last week’s theory, of course. Back then, Renzi’s survival was seen as critical to encouraging private sector investors to cough up billions of euros of new capital to refinance the likes of Banca Monte dei Paschi di Siena and UniCredit. This week’s silver lining theory holds that a political vacuum isn’t so bad if it prods the ECBand the eurozone authorities to take a flexible approach to Italy’s banking mess.

Ireland’s finance minister, Michael Noonan, captured the new mood: “The president of the ECB, Mario Draghi, is Italian and I can’t envisage a situation in which the ECB under Mario Draghi will let the Italian banks get into difficulty.” He’s probably right. It seems quite possible that, if MPS struggles to get its required €5bn (£4.2bn) from big private sector investors such as Qatar’s sovereign wealth fund, the bank could be nationalised with ways found to compensate ordinary savers who hold bonds that would be wiped out. A wipeout of senior bondholders is meant to be an essential requirement of state bailouts in the eurozone these days. It causes problems in Italy because so many bondholders are retail savers.

But the eurozone’s capacity to bend its own rules is legendary: compensation for some bondholders, even if that is supposed to be a no-no, might be deemed a price worth paying after Renzi’s exit. Yet would that really be a cause for celebration? Only if the health of the Italian banking system is addressed once and for all. But it seems far more likely that a weak Italian government and reluctant eurozone authorities will serve up only half a solution – one big enough to get through the current crisis but insufficient to allow a proper cleansing of the bad loans in the system, which are estimated to stand at €360bn.

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Italy has a lot of small enterprises, often family owned. That doesn’t fit today’s globalization model (not competitive enough). But globalization is over anyway. The country had better save what’s left of its business model, because it’s ideal for a post-centralized world.

How Italy Became This Century’s ‘Sick Man Of Europe’ (G.)

On New Year’s Day in 2002, Italians gathered in Rome to throw their lire into the Trevi fountain. There were celebrations as Italians took possession of the new euro notes and coins that became legal tender as the clocks struck midnight. But hopes that the advent of the single currency would provide a fresh start for Italy’s economy were misplaced. The growth performance of the eurozone as a whole has been poor, but Italy’s has been dismal. Greece and Spain at least had booms before their painful busts; Germany and France have managed to claw back the ground lost in the deep recession of 2008-09. But national output per head in Italy is only 4% higher than it was 15 years ago. The economy is still smaller than it was in 2008.

Unemployment is at 11.6%, labour market participation is low, and its birthrate in 2014 was the lowest since the modern Italian state was founded in 1861. If there was a contest for the unwanted title of the sick man of Europe in the 21st century, Italy would walk it. The eurozone’s third biggest economy has one central problem: the goods and services it produces are more expensive than those of its rivals. This lack of competitiveness means that it has suffered the biggest drop in export market share of any developed country. There are three reasons for this. Firstly, Italy’s manufacturing sector has traditionally been dominated by small companies, many of them family-owned. These businesses have been reluctant to invest, poor at innovation, and were slow to take advantage of the the new information technology when it came on stream in the 1990s.

Productivity has increased less rapidly than in Germany or France. Secondly, Italy has tended to specialise in low-cost manufactured goods, a segment of the global economy that has been dominated by China since it gained membership of the World Trade Organisation in 2001. Italy’s competitiveness problem is not new. Since the second world war, it has tended to have higher costs and higher inflation than rival countries. But up until it joined the euro, Italy was able to restore competitiveness by devaluing the lire, which made exports cheaper. With that option no longer available, Matteo Renzi has been trying a different approach: structural reforms of Italy’s labour market.

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A bit overdone this, but not entirely.

Standing Rock Is A Modern-Day Indian War. This Time Indians Are Winning (G.)

As Indigenous peoples faced off against armed police and tanks near the Standing Rock Sioux reservation in Dakota, theirs wasn’t just a battle over a pipeline. It was a battle over a story that could define the future of America. The Obama administration’s decision yesterday to refuse the Dakota Access pipeline permission to complete its construction has now shaken up that story. Its old version was that Indigenous peoples have always been in the way of progress, their interests a nuisance or threat, their treaties a discardable artifact. In that story, the American heroes forged on these high plains of the west were never the Indians: they were the gold-diggers or gamblers, the cowboys or cavalry.

But over the past months, it became impossible to watch peaceful Indigenous people and supporters attacked by snarling dogs, maced, and shot with rubber bullets and water cannons in freezing conditions, and still see in them a threat. It was impossible to look upon these young Indigenous men and women, in jingle dresses or on horseback, and not observe the courage that America desperately needs. It was impossible to listen to the cry of their slogan and not hear a rallying vision for all of us: Water is Life. Along the snowy banks of the Missouri river, a new story is being painfully birthed. It tells us that frontiers must at some point close. That endless taking must become care-taking.

And that Indigenous rights, cast aside for too long, are a key to protecting land and water and preventing climate chaos. America is waking up to new heroes. This is not high-minded romanticism. It is hard-bitten reality. All over the world, there are massive pools of fossil fuels—and the infrastructure to rip and ship it—concentrated in the traditional territories of Indigenous peoples. This rush for extreme energy on their lands was never a new crisis for them—it was only the latest stage in a very old colonial pillage.

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Seems ridiculous, but he has support from various tribes and leaders.

Trump Advisors Aim To Privatize Oil-Rich Indian Reservations (R.)

Native American reservations cover just 2% of the United States, but they may contain about a fifth of the nation’s oil and gas, along with vast coal reserves. Now, a group of advisors to President-elect Donald Trump on Native American issues wants to free those resources from what they call a suffocating federal bureaucracy that holds title to 56 million acres of tribal lands, two chairmen of the coalition told Reuters in exclusive interviews. The group proposes to put those lands into private ownership – a politically explosive idea that could upend more than century of policy designed to preserve Indian tribes on U.S.-owned reservations, which are governed by tribal leaders as sovereign nations.

The tribes have rights to use the land, but they do not own it. They can drill it and reap the profits, but only under regulations that are far more burdensome than those applied to private property. “We should take tribal land away from public treatment,” said Markwayne Mullin, a Republican U.S. Representative from Oklahoma and a Cherokee tribe member who is co-chairing Trump’s Native American Affairs Coalition. “As long as we can do it without unintended consequences, I think we will have broad support around Indian country.” [..] The plan dovetails with Trump’s larger aim of slashing regulation to boost energy production. It could deeply divide Native American leaders, who hold a range of opinions on the proper balance between development and conservation.

The proposed path to deregulated drilling – privatizing reservations – could prove even more divisive. Many Native Americans view such efforts as a violation of tribal self-determination and culture. “Our spiritual leaders are opposed to the privatization of our lands, which means the commoditization of the nature, water, air we hold sacred,” said Tom Goldtooth, a member of both the Navajo and the Dakota tribes who runs the Indigenous Environmental Network. “Privatization has been the goal since colonization – to strip Native Nations of their sovereignty.” Reservations governed by the U.S. Bureau of Indian Affairs are intended in part to keep Native American lands off the private real estate market, preventing sales to non-Indians.

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Go Yves!

Naked Capitalism Demands Retraction, Apology Over WaPo Fake News Story (NC)

As the lawyers like to say, res ipsa loquitur. Please tweet and circulate this letter widely. You will notice that our attorney Jim Moody is a seasoned litigator who has won cases before the Supreme Court. He has considerable experience in First Amendment and defamation actions. Past high profile representations include Westomoreland v. CBS and defending Linda Tripp. I also hope, particularly for those of you who don’t regularly visit Naked Capitalism, that you’ll check out our related pieces that give more color to how the fact the Washington Post was taken for a ride by inept propagandists, particularly our introduction to our spoof PropOrNot.org site, which uses the PropOrNot project as an example of sorely deficient propaganda and shows where it went wrong, or the humor site itself. Be sure not to miss its FAQ.

We have another post today that describes how the few things that are verifiable on the PropOrNot site don’t pan out, as in the organization is not simply a group of inept propagandists but also appears to deal solely in fabrications. If the site is flagrantly false with respect to things that can be checked, why pray tell did the Washington Post and its fellow useful idiots in the mainstream media validate and amplify its message? Strong claims demand strong proofs, yet the Post appeared content to give a megaphone to people who make stuff up with abandon. No wonder the members of PropOrNot hide as much as they can about what they are up to; more transparency would expose their work to be a tissue of lies.

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NATO expands in multiple dimensions.

Russia Remains The Only Target Country Of NATO’s Nuclear Weapons (SC)

For many years before the 2016 Warsaw summit, NATO had been deploying aircraft all round Europe that were capable of delivering nuclear weapons against Russia. The only difference in recent times is that NATO, as recorded by Arms Control in June 2016, «is beefing up its nuclear posture. Polish F-16s participated for the first time on the sidelines of a NATO nuclear strike exercise at the end of 2014. As a clear signal to Russian President Vladimir Putin, four B-52 bombers flew a nuclear strike mission over the North Pole and the North Sea in a bomber exercise in April 2015. Although these planes did not have nuclear weapons on board, they were equipped to carry 80 nuclear air-launched cruise missiles».

It goes further than that, because NATO’s most recent nuclear-associated deployments to the Baltic have involved aircraft from Belgium’s 10th Tactical Wing which is based at Kleine Brogel Air Base and flies US-supplied F-16 nuclear-capable strike aircraft. NATO reported that four of them are currently conducting missions from Ämari Air Base in Estonia, in order «to guard the Baltic skies against unauthorised overflights» and that their duties included «intercepting Russian aircraft flying in international airspace at the Baltic borders». According to NATO, the Mission of the 10th Tactical Wing is «to generate air power effects in the full operational spectrum by putting into action the best combat ready people and equipment to execute or support both conventional and nuclear operations in a joint, national or multinational environment, anytime and anywhere, in the most proficient, safe and efficient manner».

So it sends four of 10 Wing’s nuclear-capable F-16s, flown by nuclear-delivery trained pilots to Estonia to guard the Baltic skies. In Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia the Alliance has established «NATO Force Integration Units» which are advanced military headquarters whose Mission is «to improve cooperation and coordination between NATO and national forces, and prepare and support exercises and any deployments needed». The relentless expansion of US-NATO forces right up to Russia’s borders continues apace, with formation of a «new standing Joint Logistic Support Group Headquarters, to support deployed forces».

NATO is on a war footing, and has made it clear that «nuclear weapons are a core component of the Alliance’s overall capabilities». The Belgian F-16 deployments, deliberately and provocatively in a most sensitive area on Russia’s borders, together with creation of advanced military control organisations in eight countries, have been authorised and greeted with approval by western governments whose citizens have little understanding that the west’s policy of confrontation is increasing tension day by day. Russia has no intention of invading any of the Baltic nations, or, indeed, any other country. It has no interest whatever in becoming engaged in conflict that could result only in vast expenditure, no territorial gain of any value, and destruction of much-valued trade and other commercial arrangements.

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“..these newspapers and their handmaidens on TV, were far less concerned as to whether the leaked information was true or not..”

The Deepening Deep State (Jim Kunstler)

Pretty obviously, the struggle between mainstream news and Web news climaxed over the election, with the mainstream overwhelmingly pimping for Hillary, and then having a nervous breakdown when she lost. Desperate to explain the loss, the two leading old-line newspapers, The New York Times and The Washington Post, ran with the Russia-Hacks-Election story — because only Satanic intervention could explain the fall of Ms. It’s-My-Turn / I’m-With-Her. Thus, the story went, Russia hacked the Democratic National Committee (DNC), gave the hacked emails to Wikileaks, and sabotaged not only Hillary herself but the livelihoods of every myrmidon in the American Deep State termite mound, an unforgivable act.

Also interestingly, these newspapers and their handmaidens on TV, were far less concerned as to whether the leaked information was true or not — e.g. the Clinton Foundation donors’ influence-peddling around arms deals made in the State Department; the DNC’s campaign to undermine Bernie Sanders in the primaries; DNC temporary chair (and CNN employee) Donna Brazille conveying debate questions to HRC; the content of HRC’s quarter-million-dollar speeches to Wall Street banks. All of that turned out to be true, of course. Then, a few weeks after the election, the US House of Representatives passed H.R. 6393, the Intelligence Authorization Act for Fiscal Year 2017. Blogger Ronald Thomas West reports:

“Section 501 calls for the government to “counter active measures by Russia to exert covert influence … carried out in coordination with, or at the behest of, political leaders or the security services of the Russian Federation and the role of the Russian Federation has been hidden or not acknowledged publicly.”

The measure has not been passed by the Senate or signed into law yet, and the holiday recess may prevent that. But it is easy to see how it would empower the Deep State to shut down whichever websites they happened to not like. My reference to the Deep State might even imply to some readers that I’m infected by the paranoia virus. But I’m simply talking about the massive “security” and surveillance matrix that has unquestionably expanded since the 9/11 airplane attacks, creating a gigantic NSA superstructure above and beyond the Central Intelligence Agency, the Department of Defense’s DIA, and the hoary old FBI.

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They will continue to demand a full hand for every finger given. A road to nowhere for Greece.

Eurozone Agrees Debt Relief For Greece Amid IMF Row (AFP)

Eurozone finance ministers on Monday approved new debt relief measures to relieve Greece’s colossal debt mountain in the wake of its huge €86 billion bailout, but at levels far short of those demanded by the IMF. “The Eurogroup endorsed today the full set of short-term measures” including extending the repayment period and an adjustment to interest rates, the eurozone’s 19 finance ministers said in a statement. The ministers accorded Athens the small measures to reduce Greece’s debt as a reward for completing the latest round of reforms demanded in the country’s massive bailout programme – its third since 2010. “We will start implementing them in the next weeks,” said Klaus Regling, the head of the European Stability Mechanism, the eurozone’s bailout fund.

However the ministers refused to officially sign off on the bailout’s second review as expected, telling Athens that there still remained a few open questions on Greece’s reform efforts. The talks were marred by a row with the IMF, as Europe and the fund remain as far apart as ever on the level of need for debt relief measures. This is a crucial demand for the fund to back the bailout programme in which for now it plays only a technical role. The hardline stance on debt relief by the ministers, led by Germany’s powerful Wolfgang Schaeuble, comes as key elections approach next year in Germany and the Netherlands, where bailout fatigue is running rife with voters.

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Capital flight in thinly veiled disguise.

Greek Home Sellers Getting Paid In Banks Abroad (Kath.)

The bulk of transactions concerning Greek real estate acquired by foreign nationals are conducted outside the domestic banking system, making it even harder to get a clear idea of the situation in the Greek residential properties market, particularly as regards holiday homes. Estate agents who mainly work with foreign buyers say that the majority of sellers in agreed transactions ask for the money to be deposited in banks abroad. Sellers are even prepared to travel abroad themselves, with contracts in hand, in order to open a bank account.

“After the imposition of the capital controls [at end-June 2015], the cases of sellers requesting that money be deposited abroad have multiplied. Of course such transactions are entirely legitimate and taxed in Greece, but the revenues remain in other countries,” says Yiannis Ploumis, general director at the Ploumis-Sotiropoulos estate agency, which specializes in the luxury property market. That way, the funds paid by foreign property buyers do not enter the Greek credit system or the local economy in general. This trend concerns virtually the entire construction sector, as well as private owners, especially those selling houses of significant value, as transactions of €50,000-100,000 hardly ever lead sellers to open a new bank account abroad.

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More on this today.

Greek Court Rejects Extradition Of 3 Turkish Officers Accused Of Coup (AFP)

A Greek court on Monday rejected the extradition of three military officers demanded by Turkey over their alleged involvement in July’s failed coup, a judicial source said. The decision outraged Ankara, which has arrested tens of thousands of people as part of a wide-ranging crackdown since the attempted putsch. “Greece is in the NATO alliance with Turkey and is a NATO ally. Our expectation is that the Greek government make every effort to return” those individuals to Turkey, Defence Minister Fikri Isik said. The Greek court determined that the three men – out of a total eight officers seeking asylum in Greece – faced threats to their personal safety if returned to Turkey.

It also deemed that Turkish authorities have not provided sufficient evidence tying them to the coup attempt against President Recep Tayyip Erdogan, the source said. The court is expected to decide the fate of the other five officers on Tuesday. Turkey may still appeal the case, and any final decision to extradite rests with the Greek minister of justice. The two Turkish commanders, four captains and two sergeants requested asylum in Greece after landing a military helicopter in the northern city of Alexandroupoli shortly after the attempted government takeover in mid-July. The officers are currently appealing against a Greek refusal to grant them asylum in September.

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Nov 202016
 
 November 20, 2016  Posted by at 10:15 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Wynand Stanley Cadillac touring car at Yosemite in snow 1919


Peak & Decline of International Reserves: Massive Asset Deflation Ahead (SRSR)
“Developed Countries’ Currencies Solely Driven By Politics” (CNBC)
How A Universal Basic Income Would Transform Society (Agnos)
End London’s Role as a Clearing-House for Dirty Money (G.)
Europe’s Leaders To Force Britain Into Hard Brexit (O.)
Italy’s Crisis Turns into a Multi-Headed Hydra (DQ)
Italian Banks ‘Not Necessarily Bankrupt’ But Awfully Close (NYT)
‘Political Amateurs Are Conquering The World’ – Beppe Grillo (EN)
Bruegel Institute Chief: 4th Bailout Seems Inevitable for Greece (GR)
Slovenia Adds Water To Constitution As Fundamental Right For All (AFP)
EU Ministers At Odds Over Immigration, No Compromise In Sight (R.)
Pentagon and Intelligence Chiefs Urge Obama To Remove NSA Chief (WaPo)
Obama Claims He Cannot Pardon Snowden but He Knows That’s Not True (TD)

 

 

Causation and correlation of energy and economics are not nearly as clear as implied here, but the trends are interesting.

Peak & Decline of International Reserves: Massive Asset Deflation Ahead (SRSR)

The world is sitting at the edge of a massive deflationary cliff. Even though Central Banks are desperately trying to keep the world’s financial assets from plunging down into the great depression below, signs suggest they are losing the battle. One critical sign is the peak and decline of International Reserves. Hugo Salinas Price has been keeping an eye on International Reserves for quite some time. In his recent article, A Reversal In The Trend Of International Reserves, he stated the following:

International Reserves peaked on August 1, 2014, at $12.032 Trillion dollars, and as of October 28, 2016 they stood at $11.066 Trillion dollars. International Reserves stood at about $10 Trillion in 2011, but the rate of growth slacked off; the weekly increases in Reserves (which Bloomberg used to publish every Friday) stalled and became smaller, week by week. As mid-2014 came around, the increases were quite small. It was clear that the trend was for ever-smaller increases, and that could only mean that finally there would be no increase, which would be immediately followed by decreases in the total of International Reserves held by Central Banks. That is exactly what took place.

Hugo Salinas Price explains in the article, “that the increases of International Reserves take place when the Reserve Currency issuing countries effect payments to the rest of the world.” Basically, countries such as the United States that run trade deficits, exchange fiat money or Treasuries for goods from other countries. This shows up as an increase in International Reserves. Now, what is important to understand about the chart above is the timing of the PEAK & DECLINE of International Reserves. I had an email exchange with Mr. Salinas on what I believe was the leading factor in why the International Reserves peaked and declined. When I went back and looked at a five-year price chart of a barrel of oil (West Texas), I found a very interesting coincidence:

The price of a barrel of West Texas Crude fell below $100 starting at the beginning of August, 2014…. TO THE DATE. Even though the oil price had traded between $85-$100 over the past three years, it averaged over $95. However, by the end of 2014, it had fallen by more than half. This had a profound impact on International Reserves as the low oil price gutted the energy-commodity-goods producing countries. These are the countries that hold the majority of International Reserves. So, as the price of oil continued to stay below $50 a barrel, these countries had to sell Bonds and acquire cash to fund their own domestic account deficits. Thus, the peak and decline of International Reserves occurred right at the same time, the peak and decline of high oil prices. THIS IS NO COINCIDENCE.

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Free markets still exist in name though…

“Developed Countries’ Currencies Solely Driven By Politics” (CNBC)

The G10 currency market is driven solely by political events, one strategist told CNBC Friday. Dominic Bunning, FX Strategist at HSBC said that whereas a range of events had impacted the performance of G10 currency pairs, now it is only politics. “In G10, everything is driven by politics. We used to think about economics and cyclical stories and structural stories and balance of payments etc but now all we care about is politics,” Bunning said. He explained that if you have a strong political view then you make trading decisions on the basis of that. “If you think the euro zone is going to break up then by all means sell the euro,” Bunning said, while warning that he doesn’t have a strong view on euro.

On sterling however, Bunning said the weakness is likely to continue. “We still think there is a strong weakness in sterling even though it is relatively lower because the political outlook in the UK is very challenging.” The G10 currencies are the U.S. dollar, the euro, the pound, the yen, the Swedish krona, the Norwegian krone, the Australian dollar, the New Zealand dollar, the Swiss franc and the Canadian dollar. A number of these currencies have seen a lot of volatility since the start of the year owing to political uncertainties in their respective countries or on a global level. The biggest events this year have been the U.K.’s vote to leave the European Union and the U.S. presidential elections.

While sterling is down more than 16% since the Brexit vote on June 23, the euro has been on its worst losing streak since the currency arrived in 1999. The dollar, meanwhile, has been seeing some strength, rising to a 14-year high against a basket of currencies on the growing perception that the economic policies of U.S. President-elect Donald Trump will push up consumer prices. While traders are growing more bullish on the dollar, HSBC’s Bunning warned that it is not great for emerging market currencies. “You need to be selective in terms of your currency choices. I don’t think it’s a dollar bull run against everything but I do think if you look at the outlook for emerging market currencies, particularly the high-yield currencies at the moment, it is very hard to have a positive currency view.”

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Plenty of lofty ideals and ideas out there, but UBI, if it does at all, will happen only out of necessity.

How A Universal Basic Income Would Transform Society (Agnos)

No child’s dream is to make lots of money. We certainly aren’t born with any innate need for money itself. But at some point in our lives, we are introduced to money and the need to earn it. For many, it comes at a time when we are just beginning to learn about the world and what excites us. We start to open the doors to all of life’s possibilities, when the adult in the room says, “It’s really nice that you want to feed people in need, but what are you going to do to earn a living?” “You mean I can’t actually do what I really want to do?” we wonder. With a universal basic income (UBI) – where the government replaces all other forms of monetary assistance with a yearly stipend given to every adult of say, $20,000 per year – this would all change.

For the first time in human history, people would be able to make their childhood wishes a reality, instead of being forced to work in jobs they are aren’t passionate about just to survive. Today, humanity has the ability to create a world of sustainable abundance where everyone has access to everything they need and much of what they desire. But this requires a shift in long held societal views. Changing the view that money is a reward for hard work and private property is an extension of the self will be difficult. A shift in mindset is needed to see everyone as inherently worthy, rather than in terms of their ability to produce. For this reason, it is important to understand the philosophical justification for a UBI, as it reveals some of the deep underlying flaws of our capitalistic economy and the way it views human nature. Given these flaws, how we fund a UBI will go a long way toward the effectiveness of the shift in mindset from an age of ownership to an age of access.

Let us stop and imagine what we might do if we no longer had to work in order to meet our basic needs. Presently, we are all burdened with the stress that comes with knowing that failure to earn a living could result in social isolation. Imagine the psychological shift in knowing that no matter what happened, you would always have a roof over your head and food to eat without having to give away your precious time and energy. How would not having to work to survive change your day to day life? What would you do instead? A UBI has the potential to unleash unimaginable amounts of human time, energy, creativity, and passion that has the potential to radically transform society. Instead of everyone working to survive, people would have the means to pursue their own dreams, and to spend more quality time with their family, friends, and community.

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The Heart of Darkness.

End London’s Role as a Clearing-House for Dirty Money (G.)

The National Crime Agency says up to £90bn is laundered through the UK each year, while an estimated £120bn worth of UK property is owned by offshore shell companies. Some 75% of properties whose owners are under investigation for corruption made use of offshore corporate secrecy to hide their identities. And according to the director of the National Crime Agency, “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.” Those assets are far too often being extracted from developing nations desperately in need of tax revenues. A century on from Heart of Darkness, the Democratic Republic of the Congo still ranks near the bottom of the UN Human Development Index, with one in seven children dead before the age of five.

And, as in Conrad’s time, London’s imperial connections are helping to facilitate the exploitation of this asset-rich nation. Diamond and mineral wealth is being extracted by political elites, funnelled via London to old remnants of empire in the overseas territories, then repatriated via Kensington townhouses back to the UK. Our financial, accountancy and property agents are the beneficiaries, the people of the DRC and househunters of London the losers. [..] We are told that much of London’s success is because of its unimpeachable legal system and absence of corruption. But that is no good if, under the banner of the rule of law, we are also aiding and abetting exploitation. In Surrey mansions and Mayfair sit the lost wealth, the never-built hospitals and unopened schools of too many developing nations.

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“.. the only way to deal with Brexit is hard Brexit. Otherwise we would be seen to be giving in to a country that is leaving. That would be fatal.”

Europe’s Leaders To Force Britain Into Hard Brexit (O.)

European leaders have come to a 27-nation consensus that a “hard Brexit” is likely to be the only way to see off future populist insurgencies, which could lead to the break-up of the European Union. The hardening line in EU capitals comes as Nigel Farage warns European leaders that Marine Le Pen, leader of the Front National, could deliver a political sensation bigger than Brexit and win France’s presidential election next spring – a result that would mean it was “game over” for 60 years of EU integration. According to senior officials at the highest levels of European governments, allowing Britain favourable terms of exit could represent an existential danger to the EU, since it would encourage similar demands from other countries with significant Eurosceptic movements.

One top EU diplomat told the Observer: “If you British are not prepared to compromise on free movement, the only way to deal with Brexit is hard Brexit. Otherwise we would be seen to be giving in to a country that is leaving. That would be fatal.” The latest intervention by Farage will only serve to fuel fears in Europe that anti-EU movements have acquired a dangerous momentum in countries such as France and the Netherlands, following the precedent set by the Brexit vote. Ukip’s interim leader, who predicted both the vote for Brexit and Donald Trump’s US victory, said that while Le Pen was still more likely to be runner-up to an establishment candidate next May, she now had to be taken seriously as a potential head of state. “She will clearly win through to the second round. And after what has happened elsewhere, only a fool would say she would have no chance of winning overall. France is a deeply, deeply unhappy country. If she were to win, it would be game over for the EU.”

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“It’s a banking crisis, an economic crisis, a debt crisis, and a political crisis all rolled into one..”

Italy’s Crisis Turns into a Multi-Headed Hydra (DQ)

Bank stocks have surged just about everywhere since Trump’s election, with one exception: Italy. In the last month only one large Italian bank has seen its shares rise, and that’s the 500-year old bank at the center of Italy’s banking crisis, Monte dei Paschi di Siena, whose nearly worthless shares jumped to €0.24. Shares of Italy’s other large banks have suffered heavy losses. Over the past week alone, shares of Italy’s largest bank, Unicredit, plunged 15%, as did the shares of Banca Popular and UBI Banca. Shares of Italy’s second largest bank, Intesa Sanpaolo, fell just under 10%. The recent losses compound what’s been a miserable year for Italy’s banking stocks. The best performing stock is the investment bank Mediobanca, which is down a mere 24% for 2016. During the same period, Unicredit has shed over 60%, UBI Banca 65%, Banco Popolare 80%, and Monte dei Paschi 85%.

It’s not just banks’ shares that are flashing all the wrong signals. UniCredit’s five-year credit default swap surged to 221.2 basis points on Friday, meaning it now costs €221,200 to insure €10 million of UniCredit’s debt against default over five years. As with all major crises, Italy’s current predicament is a multi-headed hydra. It’s a banking crisis, an economic crisis, a debt crisis, and a political crisis all rolled into one, and all coming to a head at the same time. Italy’s economy has been in reverse ever since it joined the euro 17 years ago. Since 2007, its GDP has shrunk by a staggering 10%. In the meantime its public debt has continued to grow, reaching 135% of GDP today, the highest level of any Eurozone country with the exception of Greece. And now the yield on Italy’s 10-year bond is on the rise, hitting 2.09% on Friday in a NIRP world, its highest point in over 13 months.

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If Renzi loses the referendum next month, how much longer can this can be kicked?

Italian Banks ‘Not Necessarily Bankrupt’ But Awfully Close (NYT)

Victor Massiah has grown weary of talk that the Italian banking system is so threadbare and stuffed with terrible loans that it threatens Europe with another financial crisis. The mansion that serves as local headquarters for the bank he runs, UBI Banca, one of Italy’s largest lenders, does not feel like a place on the verge of running out of money. An inlaid marble fireplace sits in a conference room beneath wooden beams worthy of a castle. A statue of the Greek goddess Athena stands triumphantly over a staircase. “As you can see,” he says, sweeping a hand across the scene, “we’re not necessarily bankrupt.” Among policy makers alert for signs of the next financial disaster, Italy’s mountain of uncollectable bank debt is a subject discussed in tones ordinarily reserved for piles of plutonium.

Its banks seem at once too big to fail and eminently capable of doing so, menacing the global economy. For years, Italian lenders have muddled through, hoping time would cure their afflictions. But Italy’s economy has been terminally weak, not growing at all over a recent 13-year stretch. Bad loans have festered. Good loans have deteriorated. Italy’s problems are Europe’s problems. Nearly one-fifth of all loans in the Italian banking system are classified as troubled, a toll worth €360 billion, at the end of last year, according to the International Monetary Fund. That represents roughly 40% of all the bad loans within the countries sharing the euro. In recent weeks, the world’s focus has shifted to Germany’s largest lender, Deutsche Bank, on fears that it could be forced to seek a rescue.

But if Deutsche has become the crisis of the moment, Italy is the perpetual threat that could, at any moment, present the world with an unpleasant surprise potent enough to send legions of officials descending on Rome to try to contain the damage. The Italian government has sought to spend more money to spur the economy. But European leaders, led by Germany, have enforced rules limiting budget deficits. And Italian banks have held tight to cash and are reluctant to lend, starving an already anemic economy of capital. All of which leaves Italy and Europe, and to some extent the global economy, with a formidable conundrum. Europe may never regain economic vigor so long as Italy’s banks are a slow-motion emergency. But Italy’s banks cannot get healthy without growth. And Italy’s economy can’t grow without healthy banks.

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One of the few thinking men left in Europe.

> ‘Political Amateurs Are Conquering The World’ – Beppe Grillo (EN)

euronews “Beppe Grillo, our meeting takes place at a time that, without undue exaggeration, can be labelled ‘historic’. That’s to say, the election of Donald Trump to the presidency of the United States. What’s your take on that?” Beppe Grillo, Leader of the Five Star Movement “It’s an extraordinary turning point. This corn cob – we can also call Trump that in a nice way – doesn’t have particularly outstanding qualities. He was such a target for the media, with such terrifying accusations of sexism and racism, as well as being harassed by the establishment – such as the New York Times – but, in the end, he won. “That is a symbol of the tragedy and the apocalypse of traditional information. The television and newspapers are always late and they relay old information.

They no longer anticipate anything and they’re only just understanding that idiots, the disadvantaged, those who are marginalised – and there are millions of them – use alternative media, such as the Internet, which passes under the radar of television, a medium people no longer use. “With Trump, exactly the same thing has happened as with my Five Star Movement, which was born of the Internet: the media were taken aback and asked us where we were before. We gathered millions of people in public squares and they marvelled. We became the biggest movement in Italy and journalists and philosophers continued to say that we were benefitting from people’s dissatisfaction. We’ll get into government and they’ll ask themselves how we did it.”

euronews “There is a gap between giving populist speeches and governing a nation.” Beppe Grillo “We want to govern, but we don’t want to simply change the power by replacing it with our own. We want a change within civilisation, a change of world vision. “We’re talking about dematerialised industry, an end to working for money, the start of working for other payment, a universal citizens revenue. If our society is founded on work, what will happen if work disappears? What will we do with millions of people in flux? We have to organise and manage all that.”

euronews “Do you think appealing to people’s emotions is enough to get elected? Is that a political project?” Beppe Grillo “This information never ceases to make the rounds: you don’t have a political project, you’re not capable, you’re imbeciles, amateurs… “And yet, the amateurs are the ones conquering the world and I’m rejoicing in it because the professionals are the ones who have reduced the world to this state. Hillary Clinton, Obama and all the rest have destroyed democracy and their international policies. “If that’s the case, it signifies that the experts, economists and intellectuals have completely misunderstood everything, especially if the situation is the way it is. If the EU is what we have today, it means the European dream has evaporated. Brexit and Trump are signs of a huge change. If we manage to understand that, we’ll also get to face it.”

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Europe’s MO. Keep squeezing.

Bruegel Institute Chief: 4th Bailout Seems Inevitable for Greece (GR)

Bruegel Institute Chief Zsolt Darvas said that there are two possible solutions for Greece’s debt problems following 2018. One is huge debt restructuring or a fourth bailout program for the country. Speaking with Greek daily Ta Nea, the Hungarian economist said that even if Greece has the expected development for 2017-2018, debt will still be at a high rate. He does not believe that Greece will be able to borrow from the markets at a reasonable rate under the current circumstances. Darvas expects to see some form of debt restructuring within a time framework to bond maturation, along with a lowering or freezing of interest rates. He said that this per se may still not be enough for Greece to avoid a fourth bailout program.

Regarding investments, Darvas said that the height of Greece’s debt is not helping draw investors. Another problem is the excessive bureaucracy. The OECD indexes also show Greece’s weaknesses. When asked about U.S. President Barack Obama’s support for debt relief for Greece, Darvas said that he fears that Obama cannot influence European decisions regarding Greece. In the past, there were no results when he or other members of the government called for debt relief. He considers this unlikely to change. He does not believe that there will be any decision regarding debt relief until after the German elections.

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Every country, every society, should make protection of basic needs their number one priority. They are indeed ‘not a market commodity’.

Slovenia Adds Water To Constitution As Fundamental Right For All (AFP)

Slovenia has amended its constitution to make access to drinkable water a fundamental right for all citizens and stop it being commercialised. With 64 votes in favour and none against, the 90-seat parliament added an article to the EU country’s constitution saying “everyone has the right to drinkable water”. The centre-right opposition Slovenian Democratic party (SDS) abstained from the vote saying the amendment was not necessary and only aimed at increasing public support. Slovenia is a mountainous, water-rich country with more than half its territory covered by forest.

“Water resources represent a public good that is managed by the state. Water resources are primary and durably used to supply citizens with potable water and households with water and, in this sense, are not a market commodity,” the article reads. The centre-left prime minister, Miro Cerar, had urged lawmakers to pass the bill saying the country of two million people should “protect water – the 21st century’s liquid gold – at the highest legal level”. “Slovenian water has very good quality and, because of its value, in the future it will certainly be the target of foreign countries and international corporations’ appetites. “As it will gradually become a more valuable commodity in the future, pressure over it will increase and we must not give in,” Cerar said.

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Only Greece and Italy need worry about this now. The rest can sit pretty. It’ll cost them the EU though.

EU Ministers At Odds Over Immigration, No Compromise In Sight (R.)

European Union interior ministers were at odds on Friday over how to handle immigration, with heated discussions between states who want more burden sharing and those who oppose any kind of obligatory relocation. “We are looking for compromises but at the moment they are not there,” said Thomas De Maiziere of Germany, which last year took in about 900,000 migrants and refugees. The ministers disagreed over a proposal by the EU’s current chair Slovakia on reforming the bloc’s asylum system, which collapsed last year as 1.3 million refugees and migrants from the Middle East and Africa reached Europe and member states quarrelled over how to handle the influx.

Overall, the arrivals have decreased from last year but they continue unabated in Italy and tens of thousands of people are still stuck in Greece and Italy, sometimes in dire conditions. Despite agreeing last year to relocate 160,000 people from Italy and Greece, eastern European countries, including Slovakia, Poland and Hungary, have refused to take any in. “We cannot pretend that the quotas as we know them now are working,” said Robert Kalinak of Slovakia. “The 160,000 is only a very small part of the million that came to Europe last year and we only relocated less than 10,000 people. Even those who were for this system were not successful. We want to come up with a system that would be effective.”

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The mess below the surface.

Pentagon and Intelligence Chiefs Urge Obama To Remove NSA Chief (WaPo)

The heads of the Pentagon and the nation’s intelligence community have recommended to President Obama that the director of the National Security Agency, Adm. Michael S. Rogers, be removed. The recommendation, delivered to the White House last month, was made by Defense Secretary Ashton B. Carter and Director of National Intelligence James R. Clapper Jr., according to several U.S. officials familiar with the matter. Action has been delayed, some administration officials said, because relieving Rogers of his duties is tied to another controversial recommendation: to create separate chains of command at the NSA and the military’s cyberwarfare unit, a recommendation by Clapper and Carter that has been stalled because of other issues.

The news comes as Rogers is being considered by President-elect Donald Trump to be his nominee for director of national intelligence to replace Clapper as the official who oversees all 17 U.S. intelligence agencies. In a move apparently unprecedented for a military officer, Rogers, without notifying superiors, traveled to New York to meet with Trump on Thursday at Trump Tower. That caused consternation at senior levels of the administration, according to the officials, who spoke on the condition of anonymity to discuss internal personnel matters. [..] Carter has concerns with Rogers’s performance, officials said. The driving force for Clapper, meanwhile, was the separation of leadership roles at the NSA and U.S. Cyber Command, and his stance that the NSA should be headed by a civilian.

[..] Rogers, 57, took the helm of the NSA and Cyber Command in April 2014 in the wake of revelations by a former intelligence contractor of broad surveillance activities that shook public confidence in the agency. The contractor, Edward Snowden, had secretly downloaded vast amounts of digital documents that he shared with a handful of journalists. His disclosures prompted debate over the proper scale of surveillance and led to some reforms. But they also were a black eye for an agency that prides itself on having the most skilled hackers and cybersecurity professionals in government. Rogers was charged with making sure another insider breach never happened again. Instead, in the past year and a half, officials have discovered two major compromises of sensitive hacking tools by personnel working at the NSA’s premier hacking unit: the Tailored Access Operations. One involved a Booz Allen Hamilton contractor, Harold T. Martin III, who is accused of carrying out the largest theft of classified government material.

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Even if he would pardon Snowden, Manning, Assange, what would their lives look like?

Obama Claims He Cannot Pardon Snowden but He Knows That’s Not True (TD)

In a big interview with the German media outlet Der Spiegel, President Obama was asked about his interest in pardoning Ed Snowden in response to the big campaign to get him pardoned. Obama’s response was that he could not, since Snowden has not been convicted yet: ARD/SPIEGEL : Are you going to pardon Edward Snowden? Obama:” I can’t pardon somebody who hasn’t gone before a court and presented themselves, so that’s not something that I would comment on at this point. I think that Mr. Snowden raised some legitimate concerns. How he did it was something that did not follow the procedures and practices of our intelligence community. If everybody took the approach that I make my own decisions about these issues, then it would be very hard to have an organized government or any kind of national security system.

At the point at which Mr. Snowden wants to present himself before the legal authorities and make his arguments or have his lawyers make his arguments, then I think those issues come into play. Until that time, what I’ve tried to suggest – both to the American people, but also to the world – is that we do have to balance this issue of privacy and security. Those who pretend that there’s no balance that has to be struck and think we can take a 100-percent absolutist approach to protecting privacy don’t recognize that governments are going to be under an enormous burden to prevent the kinds of terrorist acts that not only harm individuals, but also can distort our society and our politics in very dangerous ways. And those who think that security is the only thing and don’t care about privacy also have it wrong.”

This is simply incorrect – as is known to anyone who remembers the fact that Gerald Ford pardoned Richard Nixon before he had been indicted. And it appears that the President knows this. Because, as the Pardon Snowden campaign points out, Obama pardoned three Iranian Americans who had not yet stood trial. That happened this year. So for him to say it’s impossible to pardon someone who hasn’t gone before the court is simply, factually, historically wrong. And there’s a Supreme Court ruling that makes this abundantly clear. 150 years ago, in the ruling on Ex Parte Garland, the Supreme Court stated: “The power of pardon conferred by the Constitution upon the President is unlimited except in cases of impeachment. It extends to every offence known to the law, and may be exercised at any time after its commission, either before legal proceedings are taken or during their pendency, or after conviction and judgment. The power is not subject to legislative control.”

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‘Old’ media write their own death warrant.

The Real Fake News List (Liberty Report)

We’ve seen the make-shift “fake news” list created by a leftist feminist professor. Well, another fake news list has been revealed and this one holds a lot more water. This list contains the culprits who told us that Iraq had weapons of mass destruction and lied us into multiple bogus wars. These are the news sources that told us “if you like your doctor, you can keep your doctor.” They told us that Hillary Clinton had a 98% chance of winning the election. They tell us in a never-ending loop that “The economy is in great shape!” This is the real Fake News List (and it’s sourced):

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Sep 302016
 
 September 30, 2016  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 30 2016
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NPC Auto races, Rockville Fair, Montgomery County, Maryland 1923


Deutsche Bank Shares Fall Below €10 First Time Ever; Commerzbank Down 6% (CNBC)
Gundlach: The Market Will Keep Pushing Deutsche Lower Till It’s Bailed Out (ZH)
Deutsche Bank Hedge Fund Clients Reduce Derivatives Exposure (BBG)
Fines, Withdrawals, Job Cuts. It Was an Ugly Day for Global Banks (BBG)
U.S. Stocks Retreat as Deutsche Bank Woes Hit Financial Shares (BBG)
Germany Under Pressure To Show It’s Ready To Rescue Deutsche Bank (CNBC)
Deutsche Bank Exposes Europe’s Capital Shortfall (BBG)
Commerzbank To Axe Nearly 10,000 Jobs (R.)
ING, Largest Dutch Lender, To Announce Thousands Of Job Cuts (BBG)
China Factories Limp Along, Japan Inflation Goes Backwards (R.)
‘This Is Just The Start’: China’s Passion For Foreign Property (G.)
More Wealth, More Jobs, Just Not for Everyone (NYT)
Trump Isn’t All Wrong About The Fed (WSJ)
Society Goes Through Painful, Cathartic Change – Dave Collum (CR)
Iceland’s Pirates Head For Power On Wave Of Public Anger (R.)
Erdogan Disputes 1923 Treaty Of Lausanne, Athens Responds (Kath.)

 

 

How can Merkel NOT bail out/bail in Deutsche over the weekend?

Deutsche Bank Shares Fall Below €10 First Time Ever; Commerzbank Down 6% (CNBC)

Shares of Deutsche Bank fell 7% at the start of the European trading session Friday, amid capital concerns following a proposed settlement by the U.S. Department of Justice and a report that some hedge funds were reducing their exposure to the embattled bank. The German lender’s stock has been on wild ride in recent weeks and dipped below 10 euros a share on Friday morning, a new record low for its European-listed shares. By 9.30 a.m. London time the stock had pared some losses to trade around 5.7% lower. The German DAX was down 1.7% and the banking sector as a whole in Europe was down 3%.

Rival German lender Commerzbank saw its shares fall 6.5% after announcing job cuts on Thursday and a plan to cut its dividend. Other European lenders like Unicredit, Barclays and Credit Agricole also saw hefty losses as the session progressed. The cost of insuring Deutsche Bank’s debt against default jumped by 21 basis points on Friday, according to data from Markit, and trading in Deutsche Bank’s so-called “CoCo” bonds – widely-watched contingent convertible bonds – set a new record low, according to Dow Jones. These bonds are converted into equity once a specified event has occurred (if the bank were to undergo a precautionary recapitalization, for instance).

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Vigilantes wake up.

Gundlach: The Market Will Keep Pushing Deutsche Lower Till It’s Bailed Out (ZH)

With stunned investors reliving memories of the 2008 crisis as Deutsche Bank, a bank that is half the size of its host, Germany, seemingly on the precipice, and with Angela Merkel vowing as recently as this weekend not to bailout the bank, the market felt paralyzed: should it BTFD as it always has every time in the past 7 years, or should it wait for more clarity from the bailouters-in-chief before allocating capital to another riskless transaction, which may well be the next Lehman brothers. Not helping matters was Jeffrey Gundlach, who as part of his weekly chat with Reuters’ Jennifer Ablan said that should tread lightly carefully when trading Deutsche Bank shares because a government bailout is not out of the question. The problem is how does one get to it. “I would just stay away.

It’s un-analyzable,” Gundlach said about Deutsche Bank shares and debt. “It’s too binary.” Gundlach said investors who are betting against shares in Deutsche Bank might find it futile. Maybe, but not if they cover their shorts before the max pain point, something which the market – where equity/CDS pair trades now allow a “go for default” strategy – will actively seek out. “The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be.” What happens then? “One day, Deutsche Bank shares will go up 40%. And it will be the day the government bails them out. That jump will happen in a minute,” Gundlach said. “It is about an event which is completely out of your control.”

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Trigger?

Deutsche Bank Hedge Fund Clients Reduce Derivatives Exposure (BBG)

Amid mounting concern about Deutsche Bank’s ability to withstand pending legal penalties, about 10 hedge funds that do business with the German lender have moved to reduce their financial exposure. The shares slumped. The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have moved part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person familiar with the situation who declined to be identified talking about confidential client matters.

Deutsche Bank’s New York-listed shares fell 6.7% to a record low of $11.48 on Thursday. “In any given week, we experience ebbs and inflows,” said Barry Bausano, the bank’s chairman of hedge funds. “And this week is no different; it goes on all the time.” He declined to comment on net flows. While the vast majority of Deutsche Bank’s more than 200 derivatives-clearing clients have made no changes, the hedge funds’ move highlights concern among some counterparties about doing business with Europe’s largest investment bank. Deutsche Bank’s stock and debt have been under pressure after the U.S. Justice Department this month requested $14 billion to settle an investigation into residential mortgage-backed securities. The bank has said it expects to negotiate that lower, as other Wall Street banks have.

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“The 38-company Bloomberg Europe Banks and Financial Services Index has tumbled 24% this year..”

Fines, Withdrawals, Job Cuts. It Was an Ugly Day for Global Banks (BBG)

Even before the opening bell in New York, Thursday looked like a grim day for some of the giants of global banking. But few expected the barrage of bad news that soon hit on both sides of the Atlantic – a rat-a-tat-tat of job cuts, scandal and financial worry that sent bank shares tumbling and left many investors wondering just where or when the pain would end. It began in Germany, where long-struggling Commerzbank unveiled yet another plan to regain its footing, this time by cutting one in five of its employees. In Washington, came still more blistering attacks on John Stumpf, whose grip atop embattled Wells Fargo, the largest U.S. mortgage lender, remains tenuous amid the uproar over a scandal involving unauthorized accounts.

And then, back in Germany, came the bombshell: revelations that some hedge funds were moving to reduce their financial exposure to Deutsche Bank, now the biggest worry in global finance. Before Stumpf left the U.S. House chambers after more than four hours of grilling, news broke his bank would be hit with more penalties after improperly repossessing cars owned by U.S. soldiers. “While each has unique challenges, the overwhelming thing that has happened to the banks is they’re forgetting their purpose, while complexity is increasing opportunity for errors,” said Jon Lukomnik at the Investor Responsibility Research Center Institute in New York.

Eight years after the financial crisis, the global banking industry is groping for a way forward. Global regulators have sought to make banks look more like boring utilities, but that road has proven steep. Emboldened by an international populist groundswell, they continue to dole out fines and penalties, and firms are scrambling for ways to make money as trading volumes decline and capital requirements become more stringent. The 38-company Bloomberg Europe Banks and Financial Services Index has tumbled 24% this year, while the KBW Bank Index of 24 U.S. lenders has slid 4.6%, led by Wells Fargo’s 18% decline.

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Brewing.

U.S. Stocks Retreat as Deutsche Bank Woes Hit Financial Shares (BBG)

U.S. stocks fell as banks retreated amid growing concern that Deutsche Bank’s woes will spread to the global financial sector. Health-care shares sank on speculation tighter regulations will crimp profits. Financial shares erased gains and tumbled 1.5% after a Bloomberg News report that signaled growing concern among some Deutsche Bank clients roiled markets. A number of funds that clear derivatives trades with Deutsche withdrew some excess cash and positions held at the lender, according to an internal bank document seen by Bloomberg. Johnson & Johnson and Pfizer fell more than 1.7%, pacing declines among drug companies. The S&P 500 Index slid 0.9% to 2,151.13 at 4 p.m. in New York, after falling as low as 2,145, the level that marked the bottom of a selloff on Monday.

The Dow Jones Industrial Average declined 195.79 points, or 1.1%, to 18,143.45, and the Nasdaq Composite Index lost 0.9%. About 7.7 billion shares traded hands on U.S. exchanges, 17% more than the three-month average. “There’s some problems in the financial industry now,” Brian Frank at Frank Capital said. “There’s no fear and no volatility in the stock market so something like Deutsche Bank could make people say, maybe we shouldn’t be trading at such high valuations. It doesn’t make it easier for U.S. banks, especially with what’s going on with Wells Fargo.” The S&P 500 trades at 18.4 times forecast earnings, the highest since 2002. The main U.S. equity benchmark slipped below its average price during the past 50 days on Thursday, while erasing its climb for the month. Stocks fluctuated earlier amid a gain in energy shares sparked by the first output-reduction decision by OPEC in eight years.

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Make or break for Merkel’s career?!

Germany Under Pressure To Show It’s Ready To Rescue Deutsche Bank (CNBC)

German officials could be about to find themselves in an uncomfortable position: Being called on to show they’re ready to rescue a bank in a part of the world where such operations are considered taboo. Deutsche Bank came under intensified market fire Thursday, the latest salvo being a Bloomberg report that a small number of hedge funds are trimming their sails at the German bank. [..] Shares tumbled more than 7% in mid-afternoon trading. The plunge took the broader market down as well. Consequently, market talk intensified that it’s becoming time for the German government step in and assure investors that it will be at the ready to stabilize both Deutsche and the broader system — much along the lines of what U.S. officials had to do during the 2008 financial crisis.

“They’re going to probably have to say that they would be willing to put funds into the bank,” said banking analyst Christopher Whalen at Kroll Bond Rating. “It’s exactly like what (former Treasury Secretary Henry) Paulson did with Citi … It’s a very analogous situation. Hopefully, the German government will take a page from that particular book and look at how the U.S. responded.” In a statement, Deutsche Bank pointed out that it is financially stable: “Our trading clients are amongst the world’s most sophisticated investors. We are confident that the vast majority of them have a full understanding of our stable financial position, the current macro-economic environment, the litigation process in the U.S. and the progress we are making with our strategy”

As Citigroup teetered in late-2008 and early-2009, Paulson’s Treasury stepped in with two cash injections to keep the financial contagion from spreading after Lehman Brothers failed on Sept. 15, 2008. The highly unpopular bailouts kept Citi afloat as fear spread about further implosions in the financial system. However, the European corporate culture is different, particularly when it comes to banking. Bailouts are considered anathema, and German officials in recent days have signaled an unwillingness to step in. “The Germans have to stop talking about this publicly unless they say, ‘Yep, we got ’em, there is no issue here,'” Whalen said. “The concern is that the statements they did make were not helpful.”

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Delusional: “From 2009 through 2015, Deutsche Bank paid out about €5 billion in dividends, a significant chunk of the €19 billion in equity it raised. ”

Deutsche Bank Exposes Europe’s Capital Shortfall (BBG)

Less than a decade after the financial crisis, Deutsche Bank is in trouble again, with investors speculating about whether the German government will have to rescue one of the world’s largest financial institutions. The sad thing is how easily this predicament could have been avoided. This time around, Deutsche Bank isn’t dealing with an unforeseen market meltdown or sovereign-debt crisis. Rather, the proximate cause of distress is the U.S. Justice Department’s threat to fine the firm $14 billion for decade-old transgressions involving U.S. mortgage-backed securities – more than double what the bank has set aside to cover such legal costs. Concerns about capital adequacy have sent the stock price to record lows, and the German government says it won’t provide a financial safety net.

The episode illustrates Europe’s failure to learn an important lesson from the last crisis: The largest banks must have plenty of loss-absorbing equity capital, so that even after suffering a hit, their balance sheets are strong. Otherwise, governments risk finding themselves choosing between a taxpayer-backed rescue and the potentially devastating repercussions of letting a systemically important financial institution go bust. Instead of using the post-crisis years to build up irreproachable equity capital buffers, however, European banks have given back hundreds of billions of euros to shareholders in the form of dividends and share repurchases. From 2009 through 2015, Deutsche Bank paid out about €5 billion in dividends, a significant chunk of the 19 billion in equity it raised.

Today it is among the most thinly capitalized banks in Europe, with tangible equity amounting to less than 3% of assets – an astonishingly thin layer. Even if Germany genuinely wanted to let Deutsche Bank fail, it couldn’t credibly threaten to do so. The institution is arguably Europe’s most systemically risky, with assets amounting to more than half of Germany’s total annual gross domestic product. Making an example of Deutsche Bank could lead to a devastating contagion. [..] The euro region desperately needs better-capitalized banks, not only to avoid disaster but to help heal its faltering economy. If the near-death experience of one of the world’s largest institutions can’t spur European officials to action, it’s hard to imagine what could.

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It’s not just Deutsche…

Commerzbank To Axe Nearly 10,000 Jobs (R.)

Commerzbank is to cut nearly 10,000 jobs and suspend its dividend as part of a wide-ranging restructuring plan. Germany’s second biggest lender after Deutsche Bank said on Thursday it expected restructuring costs of €1.1bn as it combined business operations and cut costs to offset the impact of low loan demand and negative ECB interest rates amid a shift to digital banking. The revamp will come at a heavy cost for staff as Commerzbank slashes 9,600 of its 45,000 full-time positions – almost one in five jobs. The move is a more drastic reduction than at Deutsche Bank, which is axing about 10% of staff but suggests deeper cuts may be needed.

Commerzbank plans to merge its business with medium-sized German firms with its corporate and markets operations, while also scaling back trading activities in investment banking. That move is expected to prompt a writedown of about €700m in the third quarter, leading to a quarterly net loss. Commerzbank expects to turn a small net profit in full-year 2016, down from €1.1bn last year. The bank will concentrate on two customer segments in future: private and small business customers and corporate clients, with the restructuring expected to lift net return on tangible equity to at least 6% by the end of 2020 from 4.2% last year. Commerzbank aims to add 2,300 jobs in areas where business was growing, which would ease the net reduction to 7,300.

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…and it’s not just German banks either.

ING, Largest Dutch Lender, To Announce Thousands Of Job Cuts (BBG)

ING, the largest Netherlands lender, will announce thousands of job cuts at its investor day on Monday, Dutch newspaper Het Financieele Dagblad reported Friday, citing unidentified people with knowledge of the matter. The reorganization will result in more central management and may generate billions of euros in savings, the paper said. The bank employs about 52,000 people, according to its website. ING sees opportunities in Belgium, the Netherlands, Germany and Poland, Het Financieele Dagblad said. The lender has doubts about its presence in Turkey, where it lacks scale, according to the report. CEO Ralph Hamers has transformed ING into a bank focused on Europe and is seeking to expand lending to consumers and companies outside its home market as record-low interest rates and regulatory demands to bolster capital threaten to erode profit.

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How to lose all credibility in just a few words: “”Given the modest acceleration in growth that we forecast and the many downside risks around these forecasts, it seems overly optimistic to suggest that the global economy has reached “escape velocity”,” said Barclays economist David Fernandez.”

China Factories Limp Along, Japan Inflation Goes Backwards (R.)

China’s factory sector struggled to gain speed in September while Japanese inflation went backwards in August despite the best efforts of policymakers, underscoring the limits of stimulus in reviving world growth. Friday’s unflattering figures bookmarked a week in which the IMF warned it would likely downgrade forecasts for the U.S. economy, and the World Trade Organization slashed its outlook for global trade flows. That was unwelcome news for markets spooked by troubles at Deutsche Bank, whose U.S. shares took a hammering on reports some hedge funds had reduced financial exposure to Germany’s largest lender. The bank said the “vast majority” of its clients remained supportive, but the situation still drew comparisons to the 2008 failure of Lehman and the resulting global financial crisis.

There was at least some evidence that China, the world’s second largest economy, had stabilized, if only because of a burst of government spending and a red-hot housing market. The Caixin measure of manufacturing activity (PMI) edged up a tenth of a%age point to 50.1, led by output and new orders. While the move was marginal, it was only the second time the index had reached positive territory since February 2015. The U.S. economy also looked to have bounced back in the third quarter, while a string of data showed Europe weathered Britain’s Brexit vote better than many had feared. All of which encouraged Barclays to nudge up its 2017 call for global growth to 3.5%, from an expected 3.1% this year. Yet a true lift-off still seems remote.

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Getting all giddy about foreigners buying up your country is something I’ll never understand. But it’s not going to happen either. This is simple forward projecting with blinders.

‘This Is Just The Start’: China’s Passion For Foreign Property (G.)

[..] many real-estate agents and property experts in east Asia believe a new wave of investment is just getting under way, as mainland investors develop a taste for international real estate, including postcodes up and down the UK. “Our thesis – and this is supported by quite a lot of evidence – is that in many ways the international Chinese investment journey is probably just starting,” says Charles Pittar, CEO of Juwai.com, a website that aims to pair mainland buyers with property developers in places such as Australia, the US and the UK. Pittar’s company, which lists 2.5 million properties and calls itself China’s largest international real-estate website, estimates that in 2014, Chinese outbound investment into residential and commercial property was more than $50bn.

“I guess the key is: what is it going to become?” Pittar says. “Our view is that … it could be growing to somewhere around $200bn [annually] over the next 10 years.” And Britain, despite its decision to leave the EU, is expected to be one of the key focuses, he adds. “The UK market, particularly post-Brexit, is really picking up.” Pittar traces mainland China’s hunger for overseas property back to the turn of the century, just before China’s entry into the World Trade Organisation signalled the latest phase of its integration into the global economy. But the outflow of money has gathered pace over the past decade, and is set to grow further as middle-class investors from second- and third-tier cities get in on the game.

“It’s a big market now, but it is likely to be anywhere from two to four times the size in 10 years’ time,” Pittar says. “The exciting thing about China is that there are 168 cities with more than a million people. So this is just such a huge market.”

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Curious. A good strong damning piece on globalization, but the NYT dare not draw the inevitable conclusions. They leave that to Trump, presumably.

More Wealth, More Jobs, but Not for Everyone (NYT)

When Dan Simmons started working at the mill 38 years ago, talk centered on how to make steel. These days, he spends his days at a job for which he feels little prepared — de facto social worker. Mr. Simmons is the president of the Steelworkers Local 1899, which represents 1,250 workers at the Granite City plant. On a recent morning, only about 375 of his people are employed. He sits at his desk inside the brick union hall, greeting laid-off workers who arrive seeking help. One man wants guidance scanning online job listings. Another has hit a snag with his unemployment benefits. A night earlier, Mr. Simmons took a call on his cellphone from the niece of a high school classmate, a laid-off millworker. He had shot himself to death, leaving behind two children.

Trade Adjustment Assistance, a government program started in 1962 and expanded significantly a dozen years later, is supposed to support workers whose jobs are casualties of overseas competition. The program pays for job training. But Mr. Simmons rolls his eyes at mention of the program. Training has almost become a joke. Skills often do not translate from old jobs to new. Many workers just draw a check while they attend training and then remain jobless. A 2012 assessment of the program prepared for the Labor Department found that four years after completing training, only 37% of those employed were working in their targeted industries. Many of those enrolled had lower incomes than those who simply signed up for unemployment benefits and looked for other work.

European workers have fared better. In wealthy countries like Germany, the Netherlands, Sweden and Denmark, unemployment benefits, housing subsidies and government-provided health care are far more generous than in the United States. In the five years after a job loss, an American family of four that is eligible for housing assistance receives average benefits equal to 25% of the unemployed person’s previous wages, according to data from the OECD. For a similar family in the Netherlands, benefits reach 70%. Yet in Europe, too, the impacts of trade have been uneven, in part because of the quirks of the EU. Trade deals are cut by Brussels, setting the terms for the 28 member nations. Social programs are left to national governments. “You’re pursuing trade and liberalization agreements at the EU level, and then leaving to the individual member countries how to deal with the damage,” said Andrew Lang at the LSE.

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“..the S&P 500 index has gained 699 points since January 2008, and 422 of those points came on the 70 Fed announcement days. The average gain on announcement days was 0.49%, or roughly 50 times higher than the average gain of 0.01% on other days.”

Trump Isn’t All Wrong About The Fed (WSJ)

The press spends a lot of energy tracking the many errors in Donald Trump’s loose talk, and during Monday’s presidential debate Hillary Clinton expressed hope that fact checkers were “turning up the volume” on her rival. But when it comes to the Federal Reserve, Mr. Trump isn’t all wrong. In a looping debate rant, Mr. Trump argued that an increasingly “political” Fed is holding interest rates low to help Democrats in November, driving up a “big, fat, ugly bubble” that will pop when the central bank raises rates. This riff has some truth to it. Leave the conspiracy theory aside and look at the facts: Since the Fed began aggressive monetary easing in 2008, my calculations show that nearly 60% of stock market gains have come on those days, once every six weeks, that the Federal Open Market Committee announces its policy decisions.

Put another way, the S&P 500 index has gained 699 points since January 2008, and 422 of those points came on the 70 Fed announcement days. The average gain on announcement days was 0.49%, or roughly 50 times higher than the average gain of 0.01% on other days. This is a sign of dysfunction. The stock market should be a barometer of the economy, but in practice it has become a barometer of Fed policy. My research, dating to 1960, shows that this stock-market partying on Fed announcement days is a relatively new and increasingly powerful feature of the economy. Fed policy proclamations had little influence on the stock market before 1980. Between 1980 and 2007, returns on Fed announcement days averaged 0.24%, about half as much as during the current easing cycle.

The effect of Fed announcements rose sharply after 2008 when the Fed launched the early rounds of QE, its bond purchases intended to inject money into the economy. It might seem that the market effect of the Fed’s easy-money policies has dissipated in the past couple of years. The S&P 500 has been moving sideways since 2014, when the central bank announced it would wind down its QE program. But this is an illusion. Stock prices have held steady even though corporate earnings have been falling since 2014. Valuations—the ratio of price to earnings—continue to rise. With investors searching for yield in the low interest-rate world created by the Fed, the valuations of stocks that pay high dividends are particularly stretched. The markets are as dependent on the Fed as ever.

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Interview with Automatic Earth reader Collum: “We should have hung a few in the town square, but instead the Obama Department of Justice punished shareholders and savers.”

Society Goes Through Painful, Cathartic Change – Dave Collum (CR)

I was non-political throughout college and much of my adult life, focusing on chemistry and family. It is probably only in the last 15 years that I’ve started hiking up my pants and bitching about the government. Now I am relatively outspoken because I sense existential risk in the American Experiment. We have an interventionist central bank—a global cartel of interconnected central banks actually—that is determined to use untested (read: flawed) models to try to repair an economy that was hurt by their policies and would fix itself if the Fed would just get out of the way. I think these guys are what Nassim Taleb calls I-Y-I (intellectual-yet-idiot). They will continue with their experiments until the system finally breaks in earnest. They will blame the unforeseeable circumstances.

The social contract on the home front is faltering badly. When the system started to fail in ’09, we stitched up a putrid wound without cleansing it. We needed reform of a highly flawed banking system corrupted by poor incentives. In the 1930s, the Pecora Commission rounded up scoundrels (including the head of the New York Stock Exchange) and threw them in prison. We should have hung a few in the town square, but instead the Obama Department of Justice punished shareholders and savers. A scandal at Wells Fargo emerging just this week, for example, led to a token fine while leaving some wondering if Wells Fargo is too corrupt to exist in its current form. It is not the government’s job to break up these institutions, nor should it save them.

We have stirred up a mess in the Middle East that seems to be washing up on our shores. (This weekend there were a half dozen attacks that appeared highly correlated to all but those in the politicized press.) Our policy in Syria is incomprehensible. The refugee crisis in Europe is our doing, and it is spreading. Fear of Trump seems odd given that the current neocons in liberal garb are stunningly militaristic. I think they are war crimes. Meanwhile, these I-Y-I’s insist on poking Putin in the eye with a stick as part of a policy that appears to be designed to take us to the brink of far greater armed conflict. People are now mad, and it shows in the chaotic election. We are guaranteed to elect a president that half the populace finds repugnant. It’s hard to imagine that the post-election temperament will improve. Change is in the air.

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Anything ‘traditional’ in politics is now suspect.

Iceland’s Pirates Head For Power On Wave Of Public Anger (R.)

A party that hangs a skull-and-crossbones flag at its HQ, and promises to clean up corruption, grant asylum to Edward Snowden and accept the bitcoin virtual currency, could be on course to form the next Icelandic government. The Pirate Party has found a formula that has eluded many anti-establishment groups across Europe. It has tempered polarizing policies like looser copyright enforcement rules and drug decriminalization with pledges of economic stability that have won confidence among voters. This has allowed it to ride a wave of public anger at perceived corruption among the political elite – the biggest election issue in a country where a 2008 banking collapse hit thousands of savers and government figures have been mired in an offshore tax furor following the Panama Papers leaks.

[..] Opinion polls show support for the party running at over 20%, slightly ahead of the Independence Party, which shares power with the Progressive Party. The left-leaning party is part of a global anti-establishment typified by Britain’s vote to leave the European Union. But their platform is far removed from the anti-immigration policies of UKIP, France’s National Front and Germany’s AfD, or the anti-austerity of Greece’s Syriza. Iceland’s gross income per capita was almost $50,000 in 2015, according to the World Bank, well above the $34,435 EU average – though still 20% below a 2007 peak. Immigration levels are low compared with many other European countries. Helped by a tourism boom, economic growth this year is expected to hit 4.3% and the latest data shows a seasonally adjusted unemployment rate of 3.1%.

There appears little appetite among the public or any party leader for economic radicalism. The Pirate Party has not set out detailed plans, but has made clear that it would not deviate far from current policies in the next government term. “We will not be doing any dramatic things in this regard, we will carry on with the lifting of capital control. We are not going to make any dramatic changes in the financial sector,” said Jonsdottir. There is little sign of business or investor panic. “Regarding the economic stability, looking at the long term, they can’t do any worse than what has been done so far,” said Jon Sigurdsson, CEO of prosthetics maker Ossur, one of Iceland’s biggest companies, referring to the banking crisis.

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I’ve said it before, his overconfidence will get him. He now wants to redraw Turkey’s borders. And not just with Greece. Turkey’s borders with Syria hold a mich bigger prize.

Erdogan Disputes 1923 Treaty Of Lausanne, Athens Responds (Kath.)

Turkish President Recep Tayyip Erdogan caused displeasure in Athens on Thursday by indicating that Ankara “gave away” Aegean islands to Greece under the Treaty of Lausanne in 1923, the pact that defined the borders of modern Turkey following the collapse of the Ottoman Empire. In a speech to regional officials in Ankara, Erdogan appeared to express his regret for the border decisions imposed by the pact. “Some tried to deceive us by presenting Lausanne as victory,” he said. “In Lausanne, we gave away the islands that you could shout across to,” he said, referring to Greek islands located in the Aegean Sea close to the Turkish coastline. Reacting to Erdogan’s comments, a Greek Foreign Ministry source remarked that “everyone should respect the Treaty of Lausanne,” noting that it is “a reality in the civilized world which no one, including Ankara, can ignore.”

The same source indicated that the Turkish leader’s comments were likely geared for domestic consumption. While making clear his displeasure with the Treaty of Lausanne, Erdogan indicated during his speech that those who attempted a coup against Turkey in July would have imposed a far worse state of affairs. “If this coup had succeeded, they would have given us a treaty that would have made us long for Sevres,” he said, referring to the pact that preceded the Treaty of Lausanne in 1920, abolishing the Ottoman Empire. “We are still struggling about what the continental shelf will be, and what will be in the air and the land. The reason for this is those who sat at the table for that treaty. Those who sat there did not do [us] justice, and we are reaping those troubles right now,” he said..

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Aug 122016
 
 August 12, 2016  Posted by at 10:17 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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G. G. Bain At Casino, Belmar, Sunday, NJ 1910


Private Lenders Increase the Risk of a Global Debt Crisis (TeleSur)
US Homeownership Dips to Lowest Rate Since 1960 (RCM)
The Next Huge American Housing Bailout Could Be Coming (TAM)
China’s Stimulus Efforts Show ‘Malinvestment Is Still Hard at Work’ (BBG)
The UK Is the New Engine of Bond-Market Distortion (WSJ)
A Really Vicious Circle Is Threatening UK Pension Pots (BBG)
IMF to ECB: Forget Negative Rates, Or You’ll Do More Harm Than Good (MW)
Global Shipping Giant Moller-Maersk Reports 90% Fall In Net Profit (CNBC/R.)

 

 

Warning against vulture funds. Then again, isn’t the IMF one of them too?

Private Lenders Increase the Risk of a Global Debt Crisis (TeleSur)

Private creditors have replaced the public sector as lead borrower to developing countries, which has contributed to a new borrowing and lending boom. Private financial institutions are responsible for prompting a potential “new wave” of debt crises among developing nations, according to a new report carried out by European Think Tank Eurodad. Public debt in developing countries is increasingly being borrowed from private lenders, which the authors argue has meant that an increasing portion of credit is not effectively monitored or regulated. “Private borrowers, in particular private corporations, have used this regulation gap to throw a big borrowing party, a debt party, and thus have contributed disproportionately to the external debt burden that developing countries carry now,” the report warned.

As part of its findings, the authors of the report concluded that, “while relative debt burdens decreased between 2000 and 2010, these trends have reversed in 2011. Since then debt is on an upward path, also when measured in relative terms.” Developing countries total external debt burden reached US$5.4 trillion in 2014 and over half of this amount is now owed by private debtors, according to data from the report titled,“The Evolving Nature of Developing Country Debt and Solutions for Change.” The study attributed the recent increase in private creditors to the heavy public borrowing that took place during the 1980’s and 1990’s, which prompted sharper restrictions on public lending institutions such as the International Monetary Fund.

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Remember affordable housing?

US Homeownership Dips to Lowest Rate Since 1960 (RCM)

The US homeownership rate, as recently reported by the Census Bureau, dropped to 62.9% in the second quarter of 2016, a rate about equal to the rate of 61.9% reported over a half century ago for 1960. This stagnation compares unfavorably to 1900 to 1960 when the non-farm homeownership rate increased from 36.5% to 61%.-a period encompassing rampant urbanization, immigration, and population growth. For example, the non-farm population quadrupled from about 42 million to 166 million, yet the non-farm homeownership rate increased by 67%. Except for the interruption caused by the Great Depression, the rate of increase was moderate to strong throughout the period.

How can this be? Isn’t there an alphabet soup of federal agencies-FHA, HUD, FNMA, FHLMC, GNMA, RHS, FHLBs-all with the goal of increasing homeownership by making it more “affordable”? Don’t these agencies fund or insure countless trillions of dollars in home loan lending–most with very liberal loan terms? Could it be the federal government massive liberalization of mortgage terms creates demand pressure leading to higher prices? Could it be federal, state, and local governments’ implement land use policies that constrain supply and drive prices up even further? Could it be government housing policies have made homeownership less, not more affordable or accessible?

The answer is an unequivocal yes. Since the mid-1950, liberalized federal lending policies have fueled a massive and dangerous increase in leverage-one that continues to this day. For example, in 1954 FHA loans had an average loan term of 22 years vs. 29.5 years today, an average loan-to-value of 80% vs. 97.5%, average housing debt-to-income ratio of 15% vs. 28%. Only the average borrowing cost in 1954 of 4.5% is the same as it is today. The result is today’s FHA borrower can purchase a home selling for twice as much as one with the underwriting standards in place in 1954-but without a dollar’s increase in income!

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It’s all a big rip-off. Get the government out of housing once and for all.

The Next Huge American Housing Bailout Could Be Coming (TAM)

The failures of government intervention in the economy have made headlines yet again. Recent stress tests by the Federal Housing Finance Agency found something sinister brewing under the surface at notorious mortgage giants Fannie Mae and Freddie Mac. The results show that these puppet companies could need up to a $126 billion bailout if the economy continues to deteriorate. That’s right — the two companies that were taken over by the government and that sucked $187 billion from the treasury could be entitled to more taxpayer money. The toxic home loans bought during the last crisis coupled with a lack of liquidity have suddenly become serious risk factors.

The so-called “recovery” that has been trumpeted for years by countless politicians and economists is falling apart in plain view. The media will do just about anything to assure the public that this is all isolated and overblown, but the canary in the coal mine has just dropped dead. The tests ran a scenario eerily similar to warnings we’ve heard about what the economic future might hold: “The global market shock involves large and immediate changes in asset prices, interest rates, and spreads caused by general market dislocation and uncertainty in the global economy.” In the throes of the 2008 crisis, the government took many unprecedented actions, but one of the most notable was seizing control of the two largest mortgage loan holders in the country.

Since then, Fannie Mae and Freddie Mac have been converted from subsidized private organizations into some of the biggest government-sponsored enterprises ever created. These institutions have been used to prop up the entire real estate market by purchasing trillions of dollars in home loans from other banks to keep prices elevated. Without Fannie and Freddie, the supply of houses on the market would have far exceeded the number of buyers. This glut in supply and low demand would have forced sellers to lower prices until a deal was made. Instead, these wards of the state were able to buy up properties at artificially high prices using government-issued blank checks, allowing for the manipulation of home values back up to desired levels.

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Debt at work.

China’s Stimulus Efforts Show ‘Malinvestment Is Still Hard at Work’ (BBG)

It was supposed to be different this time. Ahead of looming fiscal stimulus from China, analysts were quick to emphasize that this would be a leaner, smarter government spending program. There would be a new method of financing to try to keep the debt burdens for local governments from becoming too onerous. And, above all, it would be targeted to avoid exacerbating the excess capacity that’s abundant in many industries. While the scale of the expenditures certainly pales in comparison to those that followed the Great Recession, the story remains the same. A Morgan Stanley team, led by Chief China Economist Robin Xing, noted that fixed-asset investment growth among state-owned enterprises (or SOEs) has accelerated across the board in 2016, with the exception of mining.

This same trend also holds for investment in services sectors, Xing observed. These data suggest that stimulus efforts have not been as targeted as proponents hoped, belie the narrative of rotation of growth from credit-driven infrastructure projects to activity linked to domestic demand, and raise the specter of further malinvestment in the world’s second largest economy. “We know a) in real terms rebalancing isn’t advancing as much as the government protests citing nominal data and b) the restimulation this last year of investment via credit and fiscal policies will certainly have slowed it down further,” writes George Magnus, senior economic adviser at UBS. “Capital accumulation isn’t all or always wrong but if it’s largely debt financed and SOE provided, I’d say that malinvestment is still hard at work.”

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Lest we forget: There is no market. There is only distortion.

The UK Is the New Engine of Bond-Market Distortion (WSJ)

Britain has taken over from Japan as the world’s wildest bond market, raising new questions about the distortions being caused by central banks. The soaring price (and so plunging yield) of the 30-year gilt means it has now returned the same 31% over the past 12 months as the Japanese 30-year note, even as some of the excess in long-dated Japanese bonds falls away. The race into gilts partly anticipated and was accelerated by the Bank of England’s resumption of bond purchases this week, part of a package of monetary easing designed to offset damage to the economy from June’s Brexit vote. Lower gilt yields are in turn contributing to demand for global bonds, helping keep U.S. Treasury yields depressed even as other market moves suggest a revival of hopes for growth and inflation.

This again raises a long-running problem for investors. Should they regard low yields as a sign of how grim a future is in store for the world economy? Or are central banks distorting the signal so much through bond purchases that yields no longer carry much information about the economy? The rally in gilts has been extraordinary, with the yield on the U.K.’s longest-dated bond, the 2068 maturity, almost halving from 2% on the day of the referendum to 1.06% on Thursday. The price of the bond is up 53% this year, the sort of gains usually produced by risky stocks, not rock-solid government paper.

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Consolation: it happens everywhere.

A Really Vicious Circle Is Threatening UK Pension Pots (BBG)

As the Bank of England seeks to ease Brexit angst by injecting money into the U.K. economy, pension managers and insurers are finding themselves caught up in a vicious circle. Britain’s new quantitative-easing program, combined with monetary easing around the world, is crushing yields, leaving these long-term investors ever more desperate to hold on to their 20-, 30- and 50-year bonds to meet return targets and liabilities. That forces protagonists like the BOE, which is buying 60 billion pounds ($78 billion) of government debt over six months, to bid higher prices – driving yields down even further.

This may explain the crunch this week, when the central bank failed to find enough investors to sell it longer-maturity gilts, the part of the debt market dominated by pensions and insurers. While the revival of QE is intended to reduce the risk of a Brexit-fueled slump, the shortfall raises the question of whether debt purchases with newly created money are becoming part of the problem as well as the solution. “We recognize the Bank’s concern and the need to protect the economy,” said Helen Forrest Hall, defined-benefit policy lead at the Pensions and Lifetime Savings Association in London. “But the challenge we have is that the QE programs do have an impact on pension funds’ liabilities.”

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Yeah, can’t risk bank profits, can we?

IMF to ECB: Forget Negative Rates, Or You’ll Do More Harm Than Good (MW)

Economists at the IMF are urging the ECB to stop yanking interest rates further into negative territory, warning it will take a toll on the region’s already struggling banks and reduce lending to businesses and households. In a blog post on the IMF website, economists Andy Jobst and Huidan Lin say any additional cuts that would push rates further below zero will encounter diminishing returns and threaten, at this point, to do more harm than good. “Further policy rate cuts could bring into focus the potential trade-off between effective monetary transmission and bank profitability. Lower bank profitability and equity prices could pressure banks with slender capital buffers to reduce lending, especially those with high levels of troubled loans,” the analysts said on the blog.

“The prospect of prolonged low policy rates has clouded the earnings outlook for most banks, suggesting that the benefits from a negative interest rate policy might diminish over time,” they said. The warning comes as expectations are rising the central bank will announce fresh stimulus at its September meeting to offset the negative impact on the eurozone from the U.K.’s Brexit vote on June 23. At its July meeting, ECB boss Mario Draghi stopped short of pledging more measures, saying the policy makers will reassess in September when it will have fresh economic forecasts that factor in the impact of the U.K.’s referendum on ending its EU membership.

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New normal: Profit falls 90%, shares up 5.3%.

Global Shipping Giant Moller-Maersk Reports 90% Fall In Net Profit (CNBC/R.)

Moller-Maersk kept its downbeat 2016 profit forecast on Friday as the Danish shipping and oil giant reported net profit way under expectations as it struggles to cope with a shipping recession and tough oil markets. The Danish shipping and oil group said net profit fell to $101 million in April-June, lagging a forecast of $196 million. It was also around 90% lower than the $1.069 billion reported for the same period last year. The company maintained its outlook for an underlying profit for the full year significantly below last years $3.1 billion. Shares of the group were up 5.3% Friday morning.

Trond Westlie, chief financial officer of Maersk Group, told CNBC on Friday that the shipping industry faced turbulent times as a result of the “very difficult” oil market and decline in freight rates. “When we look at the overall market and when we look at supply and demand and the growth in the world, we still think it’s going to be low-growth and volatile.” “For us, like always, we have a view on a couple of weeks or a four weeks’ indication on where the market is going but after that it’s very opaque for us as well.”

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Aug 022016
 
 August 2, 2016  Posted by at 9:10 am Finance Tagged with: , , , , , , ,  2 Responses »
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Lewis Wickes Hine ‘Hot dogs’ for fans waiting for gates to open at Ebbets Field 1920


Asia Stocks Fall as Japan Awaits Stimulus (BBG)
Japanese Bonds Are Plunging, Australia’s Surge To Record (BBG)
China Debt Situation Gets Worse And Other EMs Start To Struggle (VW)
China Set For Special Drawing Rights Bond Issues (SCMP)
China Regulator Shutters 10,000 Funds (R.)
Student-Loan Defaulters in a Standoff With Federal Government (WSJ)
The State Of Europe’s Banks Is Far From Steady (CNBC)
UniCredit Shares Fall Sharply After European Bank Stress Tests (G.)
UK PM May Revives Industrial Policy Killed Off By Thatcher 30 Years Ago (R.)
Home Ownership In England At Lowest Level In 30 Years (G.)
South Korea Halts Sale of 80 Volkswagen Models Over Emissions Scandal (AFP)
Aid Workers Try To Convert Muslim Refugees At Greek Camp (G.)
New Greek Bailout Finds IMF In A Political Bind (AFP)
Let the Games Begin! (Jim Kunstler)

 

 

With the BOJ running out of playing field, what goood can Abe do?

Asia Stocks Fall as Japan Awaits Stimulus (BBG)

Asian stocks fell for the first time in seven days, retreating from an almost one-year high, as Japanese shares slid ahead of the announcement of a $274 billion stimulus package and a slump in oil weighed on energy and commodity companies. The MSCI Asia Pacific Index dropped 0.4% to 136.85 as of 9:03 a.m. in Tokyo after closing Monday at the highest since Aug. 17. Material and industrial shares led losses on the regional gauge, while energy producers also retreated, after crude sank into a bear market and sank below $40 a barrel for the first time since April on Monday. Japan’s Topix index lost 0.8% as investors weighed earnings and the government was poised to give details on steps to bolster an economy threatened by a strengthening yen and weak consumer spending.

Asian equities have extended their July rally, which was the best month since March, on the prospect of more global stimulus. The regional gauge has now shrugged off the fallout of Britain’s vote to leave the European Union and is up 3.7% for the year. Still, oil’s fall of more than 20% from its June high is muddying the waters and raising concerns about the recovery of the global economy. Crude’s decline “will probably weigh on sentiment a little bit and we may see some risk-off moves associated with that,” James Woods, a strategist at Rivkin Securities in Sydney, said by phone. “We’ll have an update from Shinzo Abe in Japan today, just running through the measures of the 28 trillion yen stimulus package. It’s really what’s going to dictate risk sentiment today.”

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Yikes.

Japanese Bonds Are Plunging, Australia’s Surge To Record (BBG)

Japanese bonds are plunging. Australia’s surged to a record. Blame it all on central banks. Benchmark sovereign notes in Japan headed for their biggest loss in three years on speculation the central bank will amend its unprecedented debt-purchase plan as soon as September. Australian yields tumbled to levels never seen before as the Reserve Bank cut interest rates in response to inflation running below its target. The divergence highlights the potency central banks have over their bond markets, even when analysts are questioning the limits of monetary policy. The Reserve Bank of Australia, with a benchmark of 1.5%, still has room to cut. PIMCO said the Bank of Japan – which is buying 80 trillion yen ($780 billion) a year of bonds and uses negative interest rates – has pushed policy as far as it can.

“The financial markets are being driven by what the central banks are doing,” said Roger Bridges at Nikko Asset Management in Sydney. “The central bank here has room to cut if necessary. In Japan, the policy options are deemed to be running out.” [..] Japanese policy makers fueled speculation they’re running out of options when they finished a meeting last week and opted against extending their two main tools, the bond purchases and negative interest rates, even as the inflation rate falls further below zero. They also announced a review of the effectiveness of the central bank’s policies. “We have probably seen the low of the yield of the super long JGBs,” Tomoya Masanao, Pimco’s head of portfolio management in Japan, wrote. “The BOJ hit its limit,” he wrote in a report on the company’s website last week.

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Let’s see the NPLs in the shadow system.

China Debt Situation Gets Worse And Other EMs Start To Struggle (VW)

One article this month pretty much summed up the overbuilding issue in China. In aggregate, Chinese cities are planning for 3.4 billion people in 2030. That’s three times the existing population and forecast population growth is minimal. Peak urbanisation may have arrived for China, the substantial slowdown in wage inflation is a strong indicator that the demand for labour is flat at best. This aligns with recent reports of a substantial increase in the unemployment rate. The city of Tieling is one example of what happens when a construction and manufacturing bubble pops. Remember that local governments earn most of their revenues from property development activities, which would fall flat if urbanisation stops.

A collapse in revenue would make debt servicing problematic, which is particularly concerning as local governments have seen an enormous increase in their debt issuance in 2015 and 2016. This includes continuing to build coal fired power plants when the existing plants are running at low capacity. Local governments are blocking lenders from withdrawing credit in order to protect jobs at zombie companies. 7.5% of companies in China are believed to be economically unviable, with medium and large state owned entities the worst.

Last month I wrote about the first non-performing loan securitisations in China and it looks like this process is ramping up. The Agricultural Bank of China is planning to sell a US$1.6b securitisation of non-performing loans which includes the underlying loans being marked down to 29% of face value. The other big way that banks are planning to clean up their loan books is debt to equity swaps, which are expected to start soon. There’s plenty to worry about with peer to peer lending and a crackdown is coming for wealth management products. In order to reduce fraud in these areas executives are being given tours of prisons, as a reminder of what might happen to them when investors lose money.

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I talked about this yesterday in Why Should The IMF Care About Its Credibility? I don’t see it becoming a major issue any time soon, if at all.

China Set For Special Drawing Rights Bond Issues (SCMP)

China might take another big step forward this month in its long-term aim to forge an IMF money system into the world’s dominant currency. Mainland media group Caixin reported that the World Bank planned to issue bonds denominated in Special Drawing Rights in China as early as the end of this month. It said policy bank China Development Bank was also planning an SDR bond issue. The SDR is a unit of money created by the IMF and defined by a weighted average of various convertible currencies. Market traders questioned the real purpose of such bonds, saying the SDR had little use in investment and trade. China has long had an obsession with the IMF’s SDR and wants to reduce the global reliance on the US dollar.

The IMF agreed last November to add the yuan to its SDR basket of currencies and offered the weighting as the third-biggest in the group, which Beijing saw as a triumph in its push for the yuan to have greater global influence. But the yuan later came under heavy depreciation pressure amid massive capital outflows, raising doubts about its credibility as a global currency. Beijing then began to publish its foreign exchange reserves, overseas investment and payments denominated in SDR. Central bank governor Zhou Xiaochuan said in April that the People’s Bank of China was studying the feasibility of issuing SDR bonds in China. If the World Bank issue went ahead, it would be one month before the yuan was formally included in the currency basket.

Bank of China researcher Zhao Xueqing said the timing was proper because the IMF was looking for ways to expand the use of the monetary unit. However, one Shanghai-based trader at a major bank said the issue would be more symbolic than meaningful. “It’s more like China wanting to show it has a big role in the global financial market”, she said. “But who will buy them? How will they be priced and transacted? … Even yuan-denominated bonds issued by foreign institutions are not actively traded.” An in-house economist at a Shenzhen-based domestic bank said:“I doubt there is any meaningful use to the issuing of such bonds. If such bonds were worth investing in, why hasn’t there been any active issues or transactions in much more mature countries before?”

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China’s financial world is still Wild East. Lots of abuse and losses for grandma’s.

China Regulator Shutters 10,000 Funds (R.)

China’s funds regulator said on Monday it has canceled the licenses of over 10,000 funds, amid a crackdown on the country’s poorly regulated fund management sector, which has been dogged by runaway managers and misappropriation of investments. The move comes after the hedge fund industry was thrown into disarray earlier this year as managers rushed to comply with stringent new rules. “Some funds registered in reality had no intention of getting into the business,” the Asset Management Association of China (AMAC) said. “Some engaged in illegal fundraising for illegal and criminal activities under the guise of funds, cheating the public,” the note added. New rules introduced by AMAC that took effect in July require fund managers to fully disclose their investment risks, review the identities of investors, and set up special accounts to manage capital.

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Something will have to give. The numbers are getting out of hand.

Student-Loan Defaulters in a Standoff With Federal Government (WSJ)

The letters keep coming, as do the emails. They head, unopened, straight into Jason Osborne’s trash and deleted folder. The U.S. government desperately wants Mr. Osborne and his wife to start repaying their combined $46,500 in federal student debt. But they are among the more than seven million Americans in default on their loans, many of them effectively in a standoff with the government. These borrowers have gone at least a year without making a payment—ignoring hundreds of phone calls, emails, text messages and letters from federally hired debt collectors. Borrowers in long-term default represent about 16% of the roughly 43 million Americans with student debt, now totaling $1.3 trillion across the U.S., and their numbers have continued to climb despite the expanding labor market.

Their failure to repay—in many cases due to low wages or unemployment, in other cases due to outright protest at what borrowers see as an unfair system—threatens to leave taxpayers on the hook for $125 billion, the total amount they owe. The Osbornes say they are the victims of a for-profit school that made false promises and a predatory lender—the government. “Do you think I’m going to give them one penny I’m making to pay back the loan for a job I’m never going to hold?” said Mr. Osborne, 45, who studied to be a health-care worker but can’t find a job as one. The rising number of borrowers in default weakens the economy as underwater homeowners did after the housing crash: by damaged credit, an inability to spend and save for the future, and a lack of resources to move to better jobs.

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“..the 34 listed banks in the latest stress tests results have lost on average 33% of their book value since the last stress tests were done less than two years ago..”

The State Of Europe’s Banks Is Far From Steady (CNBC)

Bank investors rejoice! The European Banking Authority declares stress tests should no longer be about pushing fresh capital into the system, as they were five years ago, or drilling down in to asset quality, as in 2014. Nope. The good news is that we are now in a world where “steady-state monitoring” is what’s needed. So will this “steady state’ policy pronouncement provide the confidence and assurance investors need? I hate to say it but I’m not convinced. Even if the stock prices overall bounce a bit this week, the banking sector did not get off to a good start Monday. I fear the market will continue to apply their own version of stress tests and find both the banks – and the regulators for that matter -lacking.

I asked European Central Bank President Mario Draghi at the last policy meeting if investors were over-exaggerating the risks. His response was cautious but positive. ”I don’t want to underplay the situation, to say it’s not a solvency problem, it’s a profitability problem doesn’t mean that one underplays but figure wise, we see from a solvency viewpoint, our banks are better off than years ago but our banks do have profitability issues, especially those with a high share of NPLs (non-performing loans), but not only those with high share of NPLs, some of it has to do with weak growth performance of the past few years. Draghi added that he was pretty confident that “strong supervision, robust regulation and better communication by supervisory authorities will still improve the situation and the perception in the rest of the world’s eyes.”

Call me cynical but I’m not sure the EBA’s “steady state” monitoring communication is quite what investors are looking for. Especially when you have a panel of respected academics including ZEW’s Sascha Steffen suggesting this month that European banks need €900 billion ($1 trillion) of fresh capital to convince investors they are robust. Who knows? But just compare that to the €280 billion the EBA says has been pumped in since 2011. Plus the report’s authors also point out that the 34 listed banks in the latest stress tests results have lost on average 33% of their book value since the last stress tests were done less than two years ago. A clear sign in my mind that the market still had significant concerns about the health of bank balance sheets and their ability to make profits.

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Can Renzi bail out his biggest banks too, like he trying to do with Monte Passchi?

UniCredit Shares Fall Sharply After European Bank Stress Tests (G.)

Italy’s biggest bank, UniCredit, has borne the brunt of lingering anxiety about the country’s banking sector, seeing its shares fall sharply following the EU-wide banking health checks. The 9.4% drop in UniCredit shares, which were being closely monitored by the Italian Borse on Monday amid heavy trading, followed Friday’s publication of stress tests on 51 banks across the EU. In the European Banking Authority tests, UniCredit recorded a capital ratio of more than 7% after the stress test applied a hypothetical shock to global growth, interest rates and currencies. Although well above the legal minimumof 4.5%, it left Unicredit as one of the five weakest out of the 51 banks tested.

The deterioration in its capital ratio was not on the scale of Banca Monte dei Paschi di Siena (MPS) – Italy’s third largest bank – which announced a rescue package on Friday aimed at funding at least €5bn worth of capital, after the stress test showed that its entire capital base would be wiped out under the adverse scenario. MPS was the worst-performing bank of any bank tested. Shares in MPS, regarded as the world’s oldest bank, were among the few to rally after the stress test results as its rescue operation appeared to alleviate pressure on the Italian government to intervene. Even so, questions remained about how easily MPS could find investors willing to stump up €5bn when its existing stock market value was less than €1bn.

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In itself, not a bad idea. Just don’t push it all towards exports. Make your own stuff. It’s the way of the future.

UK PM May Revives Industrial Policy Killed Off By Thatcher 30 Years Ago (R.)

Prime Minister Theresa May will on Tuesday outline her bid to reshape the British economy for a post-Brexit world, reviving the once unfashionable concept of industrial policy 30 years after Margaret Thatcher killed it off. May will chair the first meeting of the “Cabinet Committee on Economy and Industrial Strategy” in her Downing Street Offices, bringing together the heads of 11 other ministries to set out her vision for a state-boosted industrial renaissance. “If we are to take advantages of the opportunities presented by Brexit, we need to have our whole economy firing,” May said ahead of the meeting in a statement released by her office. “We also need a plan to drive growth up and down the country – from rural areas to our great cities.”

After a referendum campaign that revealed dissatisfaction in many of Britain’s struggling post-industrial regions, May is pitching a plan to reunite the country by raising the prospects of those who she casts as “hard-working people”. The June 23 vote to leave the EU has raised serious questions about the future of the world’s fifth largest economy, with some surveys indicating a recession, a hit to consumer confidence and a possible fall in investment. “We need a proper industrial strategy that focuses on improving productivity, rewarding hard-working people with higher wages and creating more opportunities for young people so that, whatever their background, they go as far as their talents will take them,” May said ahead of the meeting.

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This is the kind of pain that takes a long time to heal. But how predictable would you like it? “According to Nationwide, the UK average had risen to £196,930 in February – a 60% increase in 13 years.”

Home Ownership In England At Lowest Level In 30 Years (G.)

Home ownership in England has fallen to its lowest level in 30 years as the growing gap between earnings and property prices has created a housing crisis that extends beyond London to cities including Manchester. The struggle to get on the housing ladder is not just a feature of the London property market, according to a new report by the Resolution Foundation thinktank, with Greater Manchester seeing as big a slump in ownership since its peak in the early 2000s as parts of the capital, and cities in Yorkshire and the West Midlands also seeing sharp drops. Home ownership across England reached a peak in April 2003, when 71% of households owned their home, either outright or with a mortgage, but by February this year the figure had fallen to 64%, the Resolution Foundation said.

The figure is the lowest since 1986, when home ownership levels were on the way up, with a housing market boom fuelled by the deregulation of the mortgage industry and the introduction of the right-to-buy policy for council homes by Margaret Thatcher’s Conservative government. The Resolution Foundation’s analysis highlights the scale of the job faced by the prime minister, Theresa May, who has pledged to tackle the housing deficit. May warned last month that unless the issue was dealt with “young people will find it even harder to afford their own home. The divide between those who inherit wealth and those who don’t will become more pronounced. And more and more of the country’s money will go into expensive housing.”

The report, based on analysis of the latest Labour Force Survey, showed that in early 2016 only 58% of households in Greater Manchester were homeowners, compared with a peak of 72% in 2003. In outer London, the peak in ownership came earlier, in 2000, but the fall was also from 72% then to 58% in February. The West Midlands and Yorkshire have also seen double-digit drops, driven by declines in Sheffield and Leeds.

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VW had already suspended sales July 25. BTW: 80 different models?!

South Korea Halts Sale of 80 Volkswagen Models Over Emissions Scandal (AFP)

South Korea is suspending sales of 80 Volkswagen models as part of a widening investigation into the German carmaker’s emissions cheating scandal. The environment ministry said most of the models had been showcased for sale until recently, and added that the problem vehicles had fabricated documents for emissions and noise-level tests. “As of August 2 we have revoked the certification of 83,000 vehicles of 80 models,” said a ministry statement. In July South Korean prosecutors arrested an executive of Volkswagen’s South Korean unit as part of their investigations.

The world’s second-largest automaker faces legal action in several countries after it admitted to faking US emissions tests on some of its diesel-engined vehicles. In November 2015 Seoul ordered Volkswagen Korea to recall more than 125,000 diesel-powered cars sold in South Korea and fined the firm 14.1bn won ($12.3m). Foreign carmakers, especially German brands like Volkswagen, have steadily expanded their presence in South Korea’s auto market, long dominated by the local giant Hyundai and its affiliate Kia. Sales of foreign cars account for about 15% of total auto sales, compared with 10% in 2012. Around 70% of foreign auto sales in South Korea are diesel-engined vehicles.

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One of many things that are going wrong in Greece vis a vis refugees.

Aid Workers Try To Convert Muslim Refugees At Greek Camp (G.)

Christians working in Greece’s most notorious asylum detention centre have tried to convert some of the Muslim detainees, who have been held under the terms of the EU-Turkey migration deal. On at least two occasions in recent months, aid workers have distributed conversion forms inside copies of Arabic versions of the St John’s gospel to people held at the Moria detention camp on Lesbos. The forms, seen by the Guardian, invite asylum seekers to sign a statement declaring the following: “I know I’m a sinner … I ask Jesus to forgive my sins and grant me eternal life. My desire is to love and obey his word.” Muslim asylum seekers who received the booklet said they found the aid workers’ intervention insensitive.

“It’s a big problem because a lot of the people are Muslim and they have a problem with changing their religion,” said Mohamed, a detainee from Damascus. “They were trying this during Ramadan, the holiest Muslim month.” A second Syrian, Ahmed, said: “We like all religions, but if you are a Christian, and I give you a Qur’an, how would you feel?” Detainees alleged that the forms were distributed by at least two representatives of Euro Relief, a Greek charity that became the largest aid group active in Moria after other aid organisations pulled out in protest against the EU-Turkey deal. The camp is overseen by the Greek migration ministry, but aid groups perform most of the day-to-day management.

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As I wrote yesterday in Why Should The IMF Care About Its Credibility?, the IMF has a credibility problem. Multiple, in fact.

New Greek Bailout Finds IMF In A Political Bind (AFP)

The IMF can scarcely ignore Europe. Its members together hold the largest voting bloc on the Executive Board, the body which approves bailouts. The United States is still the single-largest member. The result is a complex equation for the Fund, which has pledged to make a decision before the end of the year. If it bails Greece out again, some will surely see Europes hand pulling the strings. But if it abstains, the Fund may appear to suggest the bailout is doomed to fail. “That’s the conundrum they face,” Peter Doyle, a former official in the IMF’s European Department, told AFP. ”If they go along they look like they’re caving in; if they reject, it means that they could potentially be raising new big alarms.” With its nerves already frayed by Brexit, Europe can still hardly afford a new, large-scale Greek crisis.

This latest dilemma could still offer the IMF a means of proclaiming its independence from the member countries. “Theres a need for them to rebuild their credibility,” Desmond Lachman, a former European Department official, told AFP. “By staying out of Greece, they could tell the rest of the world ‘weve realized that we were politically used.’” Doyle does not believe the IMF can be truly independent, saying the United States and Europe will still call the shots. ”That’s only what matters and that has always been the case,” said Doyle, who left the Fund in 2012. At the center of the drama and after six years of recession, Greece has seized on the latest controversy to make its views known. “The IMF has been neither useful nor needed in Europe,” said Olga Gerovassili, a government spokeswoman.

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“And so the great disaster movie of 2016 commences: Godzilla Versus Rodan the Flying Reptile.”

Let the Games Begin! (Jim Kunstler)

The distraction du jour is whether Trump has become an agent of Russia. Notice that this line of intel comes direct from the neo-con central agitprop desk. This unofficial US War Party representing the amalgamated war industries has been busy demonizing Russia throughout the current presidential term. Not all Americans are so easily gulled, though. Those who know history understand, for instance, that the Crimea has been a province of Russia almost continually for hundreds of years — except the brief interval when the ur-Ukrainian Soviet leader, Nikita Khrushchev one drunken evening gave it away to the then-Soviet region of Ukraine in a fit of sentimentality, assuming it would remain a virtual property of Greater Russia forever.

Notice, too, that since Russia annexed it in 2014 (being the site of its only warm water port and major naval stations) not even the US neo-con war party has been able to make a credible case for fighting over it. Instead, they’ve resorted to name-calling: Putin the “thug,” Putin the “worst political gangster in the world.” This is exactly the brand of foreign policy that Hillary will bring to the Oval Office. Not that Donald Trump offers a coherent alternative. The reasonable suspicion persists that he doesn’t know his ass from a hole in the ground vis-à-vis how the affairs of the world actually work. For him it’s all same as tough-talking the sheet-rocker’s union. Then, of course, Trump had to immediately step in dog-shit by bad-mouthing the mother of an American army hero who-just-happened-to-be of the Mohammedan persuasion.

Trump for practical purposes is a child and a reasonable case is not hard to make for denying him presidential power. And so the great disaster movie of 2016 commences: Godzilla Versus Rodan the Flying Reptile. Which one will survive to completely destroy the sclerotic remains of our nation? The good news is that voters are moving to the Third and Fourth party nominees, Gary Johnson (Libertarian) and Jill Stein (Green) in droves, herds, flocks, porpoise pods, and stampedes. Perhaps both of these relatively sane candidates will show enough polling strength to make it into the Great Debates. Won’t that be fun?

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Jul 282016
 
 July 28, 2016  Posted by at 8:11 am Finance Tagged with: , , , , , , , , , ,  6 Responses »
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Marion Post Wolcott Main Street. Sheridan, Wyoming 1941


Beijing’s Property Sales Surge 65% In 2015 (R.)
How a Chinese Highway Became a Boulevard of Broken Dreams (WSJ)
China Shadow Banking Assets Grew 30% In 2015 (R.)
An Auction House Learns the Art of Shadow Banking (BBG)
Japan’s Real Problem Is Too Much Debt (720G)
Can the World Deal With a New Bank Crisis? (Satyajit Das)
Wolfgang Schäuble Bails Out Spain, Portugal (Pol.)
Households on the Hook for Italy’s Next Bailout (BBG)
Buying Longer Bonds Holds Danger (WSJ)
Trump Draws Ire After Urging Russia To Find ‘Missing’ Clinton Emails (R.)
In Clash Of Billionaires, Bloomberg Calls Trump White House Race ‘A Con’ (R.)
IRS Launches Investigation Of Clinton Foundation (DC)
Turkey Shuts Down 45 Newspapers, 16 TV Stations (AP)
Taxes On Apple’s Offshore Assets Would Cover Most Of US Education Budget (MW)
The Slot Machine in Your Pocket (Spiegel)

 

 

Government blows bubble. Rinse and repeat.

Beijing’s Property Sales Surge 65% In 2015 (R.)

Property sales in Beijing rose 64.8% in 2015, boosted by more favorable housing policies, according to a real estate white paper released by the city’s government. Increased government stimulus sparked a sharp reversal in the market after sales volumes fell 30% in 2014, the white paper said. The benchmark interest rate for housing loans also dropped to its lower level in almost a decade, after several interest rate cuts, the paper noted. “The country’s housing credit and tax policies have been at their most favorable levels in recent years,” the paper said.

The number of newly-built commercial homes and existing stock sold in Beijing increased 26% and 90.7% respectively year-on-year in 2015, according to the paper published by Beijing Municipal Commission of Housing and Urban-Rural Development. China reported slightly stronger-than-expected economic growth in the second quarter as the housing boom and a government infrastructure building spree boosted demand for materials from cement to steel. But recent data has also indicated that property investment growth is cooling. Some of the country’s biggest cities have had to impose curbs on property purchases as sharp price rises raise fears of possible asset bubbles.

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This bubble is popping, though.

How a Chinese Highway Became a Boulevard of Broken Dreams (WSJ)

A highway project here that is four years behind schedule and hundreds of millions of dollars over budget helps explain why Beijing s effort to raise infrastructure spending is an increasingly ineffective way to boost the economy. When construction on the Chang An Expressway began in 2008 it seemed a sure bet. Its private partners stood to collect decades of lucrative toll revenue. The economy and the environment would benefit by slashing three hours off a four-hour trip. But the project, in central Hunan province, has been beset by financial problems, resident protests and a corruption probe, issues that also have hindered hundreds of other projects in China.

Such setbacks are hurting Beijing s efforts to halt a decline in economic growth that is rippling across the globe and threatening political stability at home. China also is drawing less benefit from the infrastructure projects it completes. After a 15-year period in which the country built thousands of roads, airports, bridges and buildings, the economic benefit of adding even more is decidedly less valuable. Local governments’ heavy debt loads from prior stimulus efforts are further obstructing China’s efforts to stimulate the economy with infrastructure spending. More of their borrowed money is going to pay back previous loans. Many of these projects lose money, adding still more debt.

The upshot: China needed twice as much investment per unit of growth in 2015 as it did in 2010, official data show. This hasn’t stopped Beijing from doubling down on infrastructure spending as exports, manufacturing and other growth engines sputter. The government plans to spend $749 billion on transport projects over the next three years, compared with $171 billion worth built last year.

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Crackdown? Only in name. China is addicted to the shadows.

China Shadow Banking Assets Grew 30% In 2015 (R.)

Shadow banking activity in China has expanded further and now accounts for nearly a third of the total banking sector assets, raising financial risks in the world’s second-largest economy, rating agency Moody’s Investor Service said on Wednesday. Shadow banking assets in China increased by 30% last year, reaching almost 54 trillion yuan (6.17 trillion pounds), according to Moody’s estimates. That is equivalent to about 78% of China’s total economic output and 27.6% of its banking assets. In 2011, shadow banking products accounted for 17.2% of total banking assets, and the share grew to 24.3% in 2014. China’s crackdown on risky practices in the thinly regulated shadow banking system has taken on fresh urgency amid a growing number of corporate defaults, and as policymakers appear worried about the risks of relying on too much debt-fuelled stimulus.

Despite this, shadow banking’s share in bank loans and total bank assets has expanded rapidly, as sectors and firms reeling from overcapacity and poor credit profiles turn to other sources of funding, and investors hunt for higher yields. “The rise in overall leverage and further expansion of shadow banking activity are pushing up financial risks,” said the Moody’s report, adding the growth highlights “spillover risks” to the financial system due to its interconnectedness. Years of breakneck growth for China’s top insurers have been partly fuelled by a splurge on shadow banking-linked products that could punch multi-billion-dollar holes in their balance sheets, a Reuters analysis showed.

Mid-tier Chinese banks are also increasingly using complex instruments to make new loans and restructure existing loans that are then shown as low-risk investments on balance sheets, masking the scale and risks of the slowing economy. The takeover tussle embroiling top Chinese developer China Vanke has also showed how local banks are increasingly exposed to highly volatile domestic stock markets through shadow lending products. “The increasing size of the shadow banking system means that during a disorderly contraction, banks could have difficulty replacing shadow banking credit, leaving borrowers who rely on such financing at risk of a credit crunch,” Moody’s said.

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Shadow banking comes in many different guises.

An Auction House Learns the Art of Shadow Banking (BBG)

A year before he got caught up in a U.S. money-laundering investigation, Malaysian financier Jho Low was looking to borrow more than $100 million without having to answer all the nosy know-your-customer questions required by U.S. banks such as JPMorgan Chase. “Prefer the boutique banks that can move fast vs the large ones like JPM,” Low wrote on March 13, 2014, to an employee of a private art dealership that had sold him a painting by Claude Monet for $35 million a few months earlier. The lender “can take all the art no problems,” he wrote the next day. “All in Geneva free port. Speed is the most important and one with a fairly quick and relaxed kyc process.”

Low got his money a month later, not from a bank but from Sotheby’s, an auction house that isn’t subject to the same money-laundering scrutiny by regulators. He pledged 17 works of art, valued between $191.6 million and $258.3 million, to secure a $107 million loan, according to a U.S. Justice Department complaint filed July 20 in an effort to seize more than $1 billion of assets allegedly siphoned from a Malaysian state fund. As prices for art skyrocketed, Sotheby’s and other firms have become shadow banks, making millions of dollars of legal loans outside the regulated financial system and raising concerns that such financing could facilitate money laundering. Sotheby’s tripled lending to $682 million over the four years ended in 2015.

Last year it almost doubled, to $1 billion, a revolving credit facility provided by banks including JPMorgan and HSBC that it can use to make loans. “One way to launder is to use art as a security for a loan,” said David Hall, who spent 10 years as a special prosecutor for the Federal Bureau of Investigation’s Art Crime Team and is now a partner at law firm Wiggin & Dana. Hall, who wouldn’t comment about Sotheby’s or the Low case, said the aim is to use ill-gotten funds to purchase assets that can be used as collateral for a loan. “The level of scrutiny you’ll receive from a bank is much higher than you will receive from an auction house.”

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It’s everybody’s real problem, but even more so for Japan.

Japan’s Real Problem Is Too Much Debt (720G)

The Japanese economy has been the poster child for economic malaise and bad fortune for so long that even the most radical policy responses no longer garner much attention. In fact, recent policy actions intended to weaken the Yen have resulted in significant appreciation of the yen against the currencies of Japan’s major trade partners, further crippling economic activity. The frustration of an appreciating currency coupled with deflation and zero economic growth has produced signs that what Japan has in store for the world falls squarely in to the category of “you ain’t seen nothin’ yet.” Assuming new fiscal and monetary policies will be similar to those enacted in the past is a big risk that should be contemplated by investors.

The Japanese economy has been fighting weak growth and deflationary forces for over 25 years. Japan’s equity market and real estate bubbles burst in the first week of 1990, presaging deflation and stagnant economic growth ever since. Despite countless monetary and fiscal efforts to combat these economic ailments, nothing seems to work. Any economist worth his salt has multiple reasons for the depth and breadth of these issues but very few get to the heart of the problem. The typical analysis suggests that weak growth in Japan is primarily being caused by weak demand. Over the last 25 years, insufficient demand, or a lack of consumption, has been addressed by increasingly incentivizing the population and the government to consume more by taking on additional debt.

That incentive is produced via lower interest rates. If demand really is the problem, however, then some version of these policies should have worked, but to date they have not. If the real problem, however, is too much debt, which at 255% of Japan’s GDP seems a reasonable assumption to us, then the misdiagnoses and resulting ill-designed policy response leads to even slower growth, more persistent deflationary pressures and exacerbates the original problem.

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Not much choice.

Can the World Deal With a New Bank Crisis? (Satyajit Das)

As Europe braces for the release of its bank stress tests on Friday, the world could be on the verge of another banking crisis. The signs are obvious to all. The World Bank estimates the ratio of non-performing loans to total gross loans in 2015 reached 4.3%. Before the 2009 global financial crisis, they stood at 4.2%. If anything, the problem is starker now than then: There are more than $3 trillion in stressed loan assets worldwide, compared to the roughly $1 trillion of U.S. subprime loans that triggered the 2009 crisis. European banks are saddled with $1.3 trillion in non-performing loans, nearly $400 billion of them in Italy. The IMF estimates that risky loans in China also total $1.3 trillion, although private forecasts are higher. India’s stressed loans top $150 billion.

Once again, banks in the US, Canada, UK, several European countries, Asia, Australia and New Zealand are heavily exposed to property markets, which are overvalued by historical measures. In addition, banks have significant exposure to the troubled resource sector: Lending to the energy sector alone totals around $3 trillion globally. Borrowers are struggling to service that debt in an environment of falling commodity prices, weak growth, overcapacity, rising borrowing costs and (in some cases) a weaker currency. To make matters worse, the world’s limp recovery since 2009 is intensifying loan stresses. In advanced economies, low growth and disinflation or deflation is making it harder for companies to pay off what they owe. Many European firms are suffering from a lack of global competitiveness, exacerbated by the effects of the single currency.

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Greece should sue him over this.

Wolfgang Schäuble Bails Out Spain, Portugal (Pol.)

Ahead of Wednesday’s meeting of the EU’s 27 commissioners, Spain and Portugal looked to be headed for the eurozone’s version of politically embarrassing fiscal purgatory. There was no question that the Iberian duo’s budget deficits were in blatant breach of the single currency zone’s rules. Momentum was growing for the Commission to impose, for the first time ever, a fine totaling in the millions of euros. Even Jean-Claude Juncker, the Commission chief, had seemingly changed his previously skeptical views on sanctions, pushing his colleagues in recent weeks to enforce the rules and shore up Brussels’ credibility on eurozone governance. Then salvation arrived from an unlikely source: Wolfgang Schäuble.

The German finance minister, curmudgeonly fiscal hawk and scourge of spendthrift southern Europeans, broke with public type in a concerted, last-minute campaign to stop the sanctions, according to people familiar with his actions. Over the past weeks and days, Schäuble worked the phones and used personal encounters, pressing commissioners on the fence, mostly from his own center-right political block, to cancel the threatened fine. The behind-the-scenes intervention was driven by political considerations particular to this moment that trumped Schäuble’s long-standing demands for the eurozone nations to keep their budgets in order and abide by commonly agreed rules.

[..] As the consensus grew against a fine, Juncker urged the participants to make clear to the outside world why Brussels ducked, once again, imposing sanctions on rule breakers. “We must not be more Catholic than the Pope, but please make it known that the Pope wanted a fine of zero,” Juncker said, speaking in French at the closed-door meeting, according to a source in the room.

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And now Schäuble can save Italy too.

Households on the Hook for Italy’s Next Bailout (BBG)

While the stability of Italy’s banks has been a front-burner issue for policy makers since the first tremors of the global financial crisis, the result of stress tests on Friday could usher in the final stage of solving their predicament. Retail investors own almost half of the most vulnerable securities, a legacy of banks using their customers as a piggy bank for cheap funding. UniCredit declined to comment on Imperatore’s recollection. The bank’s subordinated bonds available to retail investors trade close to par, indicating investors don’t expect to suffer losses. The bank is considering raising as much as €5 billion from shareholders and selling its entire stake in Poland’s Bank Pekao to raise capital, people familiar with the matter said on Wednesday.

At the zenith of the financial crisis, between July 2007 and June 2009, 80% of Italian banks’ bonds were sold to retail investors, according to regulator Consob. Through savers, banks funded themselves at a similar cost to the Italian government, whereas they gave professional money managers an extra%age point in debt interest, the 2010 report found. The channel of selling junior bonds to savers has virtually shut this year. So far in 2016, only one Italian bank, Mediobanca, has sold subordinated debt with an initial investment designed to attract small-scale investors – selling €200 million of junior bonds with a minimum denomination of €1,000. In the same period last year 10 banks sold €1.4 billion of notes with the same minimum subscription size.

Still, Italian savers held €31 billion of subordinated bank bonds as of October, more than double the €13 billion in the hands of foreign investors, according to the Bank of Italy. That translates to about €1,260 of the junior bank debt for every household in Italy. Banca Monte dei Paschi di Siena, which has more than €27 billion of toxic loans on its books and needs to be recapitalized, has about €5 billion of junior debt.

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“..if yields merely rise back to where they started the year, it would be catastrophic for those who have chased longer duration. The 30-year Treasury would lose 14% of its value, while Japan’s 40-year would lose a quarter of its value..”

Buying Longer Bonds Holds Danger (WSJ)

Investors in Japan’s 40-year bond have lost 24 years of coupon income in just three weeks as the rush into long-dated safe government paper went into sharp reverse. At one level, the 10% fall in the price of the longest-dated Japanese government bond is just a correction after this year’s extraordinary rally, which delivered returns of more than 50% before the pullback. At another, it highlights something dangerous at work in today’s markets: the scale of the risks investors are willing to take as they try to avoid anything that depends on economic growth. Japan’s bond selloff was worse than other markets’, as investors prepared for next week’s ¥28 trillion ($268 billion) spending and tax-cut package and a possible further Bank of Japan stimulus this Friday.

U.S., U.K. and German bond prices have also dropped since early July, though by less, as global demand weakened for long-duration assets. The demand for safe assets with a long duration—a proxy for how long it takes an investor to get his money back—was mirrored in stocks and corporate bonds. Rather than search out the highest-yielding assets, investors looked for those with secure yield, even if it was lower. So this year, triple-A-rated corporate bonds have outperformed double-A or single-A bonds, according to Barclays data. The same applied for junk bonds, with the higher ratings outperforming lower ones. (An exception was bonds close to or already in default, which were mainly energy companies and so were boosted by the rising oil price.)

[..] if yields merely rise back to where they started the year, it would be catastrophic for those who have chased longer duration. The 30-year Treasury would lose 14% of its value, while Japan’s 40-year would lose a quarter of its value, equal to 63 years of coupons. Has the long-run economic outlook really changed so much since January?

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Excuse me? That post is already taken: “..The Clinton campaign shot back that Trump was posing a possible national security threat..”

Trump Draws Ire After Urging Russia To Find ‘Missing’ Clinton Emails (R.)

Republican Donald Trump on Wednesday invited Russia to dig up tens of thousands of “missing” emails from Hillary Clinton’s time at the U.S. State Department, vexing intelligence experts and prompting Democrats to accuse him of urging foreigners to spy on Americans. “Russia, if you’re listening, I hope you’re able to find the 30,000 emails that are missing,” Trump, the Republican presidential nominee, told reporters. Trump made the remark at a testy news conference at his Doral golf resort in Florida that allowed him to steal some of the limelight from the Philadelphia convention where Clinton on Thursday will accept the Democratic presidential nomination for the Nov. 8 election.

The Clinton campaign shot back that Trump was posing a possible national security threat by encouraging a foreign power to conduct espionage in the United States. Some intelligence experts said the comments raised questions about Trump’s judgment. A spokesman for Trump, Jason Miller, tried to tamp down the storm of protest, saying Trump did not urge Russia to hack Clinton’s emails. Trump said on Twitter that if anyone had Clinton’s emails, “perhaps they should share them with the FBI!” The criticism of Trump’s comments reverberated at the Democratic National Convention where speakers brought up the episode to try to intensify Democratic support for Clinton, who is running neck and neck with Trump in the polls.

“Donald Trump today once again took Russia’s side. He asked the Russians to interfere in American politics,” longtime Clinton supporter and former CIA Director Leon Panetta said. “Donald Trump … is asking one of our adversaries to engage in hacking or intelligence efforts against the United States of America to affect the election.” Another speaker, retired U.S. Rear Admiral John Hutson, said of Trump: “This morning, he personally invited Russia to hack us. That’s not law and order, that’s criminal intent.”

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You ain’t helping, Mikey…

In Clash Of Billionaires, Bloomberg Calls Trump White House Race ‘A Con’ (R.)

New York media mogul Michael Bloomberg assailed fellow billionaire Donald Trump on Wednesday, calling his U.S. presidential race a “con” and ripping into his history of bankruptcies and lawsuits. “Trump says he wants to run the nation like he’s running his business? God help us,” Bloomberg told the Democratic National Convention in Philadelphia to roaring applause. “I’m a New Yorker and I know a con when I see one.” Formerly a Republican and now an independent, Bloomberg was for the most part greeted warmly by the audience in the Wells Fargo Center arena where he threw his support behind the Democrats’ presidential nominee, Hillary Clinton.

The owner of the Bloomberg media empire and a former New York City mayor, Bloomberg was an odd choice for a speaker at the Democratic conclave, where many party progressives have railed against the influence of billionaires in politics. “Let me thank all of you for welcoming an outsider here, to deliver what will be an unconventional convention speech,” he said when he took the stage, eliciting cheers. “I am not here as a member of any party. I am here for one reason: to explain why I believe it is imperative that we elect Hillary Clinton as the next president of the United States.” Bloomberg had considered running for the White House as an independent this year but dropped the idea in March, saying it could increase the chances Trump would win.

Bloomberg has known Trump casually for years and twice appeared on Trump’s reality TV show “The Apprentice.” But since Trump entered the race for president in June 2015, Bloomberg has taken issue with him, lashing out at his policies and fiery rhetoric, especially his call to ban Muslims from entering the country and his promise to wall off the Mexican border and deport millions of undocumented foreigners.

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If they can get the FBI to stop, what good would the IRS be?

IRS Launches Investigation Of Clinton Foundation (DC)

IRS Commissioner John Koskinen referred congressional charges of corrupt Clinton Foundation “pay-to-play” activities to his tax agency’s exempt operations office for investigation, The Daily Caller News Foundation has learned. The request to investigate the Bill, Hillary and Chelsea Clinton Foundation on charges of “public corruption” was made in a July 15 letter by 64 House Republicans to the IRS, FBI and Federal Trade Commission (FTC). They charged the foundation is “lawless.” The initiative is being led by Rep. Marsha Blackburn, a Tennessee Republican who serves as the vice chairwoman of the House Committee on Energy and Commerce, which oversees FTC. The FTC regulates public charities alongside the IRS.

The lawmakers charged the Clinton Foundation is a “lawless ‘pay-to-play’ enterprise that has been operating under a cloak of philanthropy for years and should be investigated.” Koskinen’s July 22 reply came only a week after the House Republicans contacted the tax agency. It arrived to their offices Monday, the first opening day of the Democratic National Convention in Philadelphia. “We have forwarded the information you have submitted to our Exempt Organizations Program in Dallas,” Koskinen told the Republicans. The Exempt Organization Program is the division of the IRS that regulates the operations of public foundations and charities.

It’s the same division that was led by former IRS official Lois Lerner when hundreds of conservative, evangelical and tea party non-profit applicants were illegally targeted and harassed by tax officials. Blackburn told TheDCNF she believes the IRS has a double standard because, “they would go after conservative groups and religious groups and organizations, but they wouldn’t be looking at the Clinton Foundation for years. It was as if they choose who they are going to audit and question. It’s not right.” Blackburn said she and her colleagues will “continue to push” for answers on the Clinton Foundation’s governing policies, including its insular board of directors. She said they also will examine conflicts of interest and “follow the money trail.”

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No schools, no papers, no TV. How does that country run?

Turkey Shuts Down 45 Newspapers, 16 TV Stations (AP)

Turkey’s state run news agency says close to 1,700 officers have been formally discharged from the military following the country’s failed coup. Anadolu Agency also says the government has decided to close down dozens of media organizations, including 45 newspapers and 16 television stations. The government says a U.S.-based Muslim cleric is behind the failed uprising by a faction within the military that led to some 290 deaths on July 15. Thousands have been detained for suspected links to the coup, including Calgary’s Davud Hanci, an imam for the Correctional Service Canada and the Alberta correctional services who went to Turkey with his family on July 7 to visit his ailing father.

Hanci was detained and accused of working for U.S.-based cleric Fethullah Gulen, who Turkey alleges orchestrated the failed July 15 military coup. Gulen has repeatedly denied the claims. Hanci’s friends and family say he is innocent and they fear for his safety. Tens of thousands in Turkey have also been purged from state institutions. Earlier, authorities issued warrants for the detention of 47 former executives or senior journalists of Turkey’s Zaman newspaper for alleged links to Gulen. Such detentions have raised concerns that people could be targeted simply for criticizing the government. The media watchdog Reporters Without Borders condemned Turkey’s purges of journalists, saying they have assumed “increasingly alarming proportions.”

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“Apple and its massive $181.1 billion overseas stash, a $70 billion increase from the prior year.”

Taxes On Apple’s Offshore Assets Would Cover Most Of US Education Budget (MW)

The amount of money stashed overseas by U.S. multinationals has exploded in recent years, doubling between 2008 and 2014 to more than $2 trillion. For some perspective on the numbers, cost-estimating website HowMuch.net crunched the most recent data and created a telling interactive chart. Topping the list: Apple and its massive $181.1 billion overseas stash, a $70 billion increase from the prior year.

That total corresponds to $59.2 billion in deferred taxes, which is enough to cover more than two-thirds of the federal budget for education, training and employment, according to the 2014 numbers compiled by Citizens for Tax Justice last October. Elsewhere, General Electric’s taxes could take care of almost 5% of our Social Security costs, while taxes from Microsoft had it kept its money in the U.S., could have covered a fifth of all federal spending on veteran’s benefits. According to estimates, the prevalence of offshore tax havens causes the U.S. to lose out on $90 billion in federal income taxes each year. That’s no small chunk.

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“The average person checks their phone 150 times a day. Why do we do this? Are we making 150 conscious choices?”

The Slot Machine in Your Pocket (Spiegel)

When we get sucked into our smartphones or distracted, we think it’s just an accident and our responsibility. But it’s not. It’s also because smartphones and apps hijack our innate psychological biases and vulnerabilities. I learned about our minds’ vulnerabilities when I was a magician. Magicians start by looking for blind spots, vulnerabilities and biases of people’s minds, so they can influence what people do without them even realizing it. Once you know how to push people’s buttons, you can play them like a piano. And this is exactly what technology does to your mind. App designers play your psychological vulnerabilities in the race to grab your attention. I want to show you how they do it, and offer hope that we have an opportunity to demand a different future from technology companies.

If you’re an app, how do you keep people hooked? Turn yourself into a slot machine. The average person checks their phone 150 times a day. Why do we do this? Are we making 150 conscious choices? One major reason why is the number one psychological ingredient in slot machines: intermittent variable rewards. If you want to maximize addictiveness, all tech designers need to do is link a user’s action (like pulling a lever) with a variable reward. You pull a lever and immediately receive either an enticing reward (a match, a prize!) or nothing. Addictiveness is maximized when the rate of reward is most variable.

Does this effect really work on people? Yes. Slot machines make more money in the United States than baseball, movies, and theme parks combined. Relative to other kinds of gambling, people get “problematically involved” with slot machines three to four times faster according to New York University professor Natasha Dow Schüll, author of “Addiction by Design.”

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Jul 112016
 
 July 11, 2016  Posted by at 8:24 am Finance Tagged with: , , , , , , , , ,  7 Responses »
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G.G. Bain Auto polo, somewhere in New York 1912


Will Merkel Hand Over The Keys To The Helicopter? (Napier)
Black Hole of Negative Rates Is Dragging Down Yields Everywhere (WSJ)
70% Of German Bonds Are No Longer Eligible For ECB Purchases (ZH)
Wall Street Monkeyshines – Look Ma, No Hands! (David Stockman)
China Pension Readies $300 Billion Warchest for Stock Market (BBG)
Massive Stockpile Means Oil Rebound Is Over: Barclays (CNBC)
Japan PM Abe To ‘Accelerate Abenomics’ After Huge Election Win (BBG)
Deutsche Bank Chief Economist Calls For €150 Billion Bailout Of EU Banks (ZH)
Bank Born Out of Black Death Struggles to Survive (BBG)
Australia First-Home Buyers Hit Lowest Level In A Decade (Domain)
The Great New Zealand Housing Down-Trou (Hickey)
The Media Against Jeremy Corbyn (Jacobin)
How the Corporate Food Industry Destroys Democracy (Hartmann)
10 Years (Or Less): Orwell’s Vision Coming True (SHTF)

 

 

Either Draghi gets to fly the chopper, or the EU falls to bits. Wait, it’ll do that anyway. So why give him the keys?

Will Merkel Hand Over The Keys To The Helicopter? (Napier)

Now only one question matters for global investors – Wo ist der Hubschrauber? (Where is the helicopter?). The decline of European commercial bank share-prices before Brexit made it clear that a monetary reflation of Europe was failing. The collapse in these same share-prices post-Brexit means that even the politicians now realise that the ECB acting alone cannot stabilize the European economy. Indeed, given the evident political strains in the European Union, saving the economy from recession is now key to saving the European political union project itself. So, will Mrs Merkel abolish fiscal austerity across Europe and permit each of the states of the European political union expand their debt mountains at the same time that the ECB is buying that debt?

Are the keys to der Hubschrauber to be handed over? To save the European political union Germany must now confront its greatest fear and enfranchise the political union’s central bank to conduct outright monetary financing of all its constituent governments. Investors need to remain very cautious indeed as it is in no way clear that Mrs Merkel will hand over the keys to der Hubschruaber. Should she do so, however, major changes in investment allocation are necessary as helicopter money will be raining from the skies in Japan, the Eurozone, the UK and even in the USA if President Clinton also wins the House and the Senate.

This form of reflation will likely work and in due course work too much. Few things are binary in investment, but this huge decision to be taken in Berlin is the biggest binary event for investors this analyst has yet come across. The repercussions will reverberate throughout this century. This analyst would like to present you with a firm forecast as to the possibility of ‘helicopter money’ coming to the European political union. However, it is too close to call. Even if that assertion is correct, this is truly dire news for financial markets.

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What? “..the global yield grab is raising questions about whether rates can prove reliable economic indicators.” That’s an actual question?

Black Hole of Negative Rates Is Dragging Down Yields Everywhere (WSJ)

The free fall in yields on developed-world government debt is dragging down rates on global bonds broadly, from sovereign debt in Taiwan and Lithuania to corporate bonds in the U.S., as investors fan out further in search of income. The ever-widening rush for yield could create problems if interest rates snap back, which would cause losses on investors’ low-yielding portfolios, or if credit quality falls. And the global yield grab is raising questions about whether rates can prove reliable economic indicators. Yields in the U.S., Europe and Japan have been plummeting as investors pile into government debt in the face of tepid growth, low inflation and high uncertainty, and as central banks cut rates into negative territory in many countries.

Even Friday, despite a strong U.S. jobs report that helped send the S&P 500 to nearly a record, yields on the 10-year Treasury note ultimately declined to a record close of 1.366% as investors took advantage of a brief rise in yields on the report’s headlines to buy more bonds. Yields move in the opposite direction of price. As yields keep falling in these haven markets, investors are looking for income elsewhere, creating a black hole that is sucking down rates in ever longer maturities, emerging markets and riskier corporate debt. “What we are seeing is a mechanical yield grab taking place in global bonds,” said Jack Kelly at Standard Life Investments. “The pace of that yield grab accelerates as more bond markets move into negative yields and investors search for a smaller pool of substitutes.”

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Self-fulfilling perversity.

70% Of German Bonds Are No Longer Eligible For ECB Purchases (ZH)

Back in April of 2015, we warned that the biggest risk facing the ECB is running out of eligible securities which the central bank can monetize. Draghi’s recent launch of the CSPP, in which the ECB has been buying not only investment grade but also junk bonds, is an indirect confirmation of that. A direct one comes courtesy of a Bloomberg calculation according to which following a seventh straight week of gains in German bunds, the yields on securities of all maturities has plunged to unprecedented lows, which has left about $801 billion of debt out of the statutory reach of the ECB. As noted earlier, there is now $13 trillion of global negative-yielding debt. That compares with $11 trillion before the Brexit vote.

The surge in sovereign debt since Britain’s vote to exit the European Union last month has pushed yields on about 70% of the securities in the $1.1-trillion Bloomberg Germany Sovereign Bond Index below the ECB’s -0.4% deposit rate, making them ineligible for the institution’s quantitative-easing program. For the euro area as a whole, the total rises to almost $2 trillion. As Bloomberg adds, following a rush for safety and a scramble for capital appreciation ahead of more ECB debt purchases, the yield on German 10-year bunds to a record-low, and those on securities due in up to 15 years below zero, even though – paradoxically – the rush to buy these bonds has made them no longer eligible for direct ECB purchases as they now have a yield lower than the ECB’s deposit rate threshold.

Or rather, they are ineligible for the time being. As a result, the rally has boosted the same concerns we warned about for the first time in the summer of 2014, namely that the ECB’s Public Sector Purchase Programme could run into scarcity problems well before its completion date of March 2017, prompting speculation policy makers may tweak their plan.

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“..the economic gods created market-based price discovery for a reason. It was to insure that in the great arena of financial market supply and demand, the forces of fear and greed would contend on a level playing field..”

Wall Street Monkeyshines – Look Ma, No Hands! (David Stockman)

The boys and girls on Wall Street are now riding their bikes with no hands and eyes wide shut. That’s the only way to explain Friday’s lunatic buying spree in response to another jobs report that proves exactly nothing about an allegedly resurgent economy. When the S&P 500 first hit 2130 back in May 2015, reported LTM earnings were $99.25 per share, and that was already down 6.4% from the cyclical high of $106 per share in September 2014. Thus, stocks were being valued at a nosebleed 21.5X in the face of falling earnings. During the four quarters since then, reported LTM earnings have slumped by a further 12.3% to $87 per share. So that brings the “cap rate” to 24.5X earnings that have shrunk by 18% over the last six quarters. Wee!

You have to use the parenthetical because the casino is not capitalizing anything rational. It’s just drifting higher in daredevil fashion until something big and nasty stops it. That something would be global deflation and US recession. Both are racing down the pike at accelerating speed. Needless to say, when these lethal economic forces finally hit home, the puppy pile-up on Wall Street is going to be one bloody mess. But that’s the price you pay when you have destroyed honest price discovery entirely, and have transformed the money and capital markets into robo-machine driven venues of rank speculation. Janet Yellen and the other 100 clowns who run the world’s central banks, of course, have no clue as to the financial doomsday machine they have enabled. Indeed, they apparently think efficient pricing and allocation of capital doesn’t matter.

After all, their entire modus operandi is to peg the price of money, bonds and the yield curve sharply below market-clearing levels – so that households and business will borrow and spend more than otherwise. Likewise, they aim to goose stock prices to ever higher levels. That’s so the top 10% and the top 1%, who own the preponderant share of equities, will feel the wealth(effects) and then spend-up and invest-up a storm. But the economic gods created market-based price discovery for a reason. It was to insure that in the great arena of financial market supply and demand, the forces of fear and greed would contend on a level playing field. Short-sellers and contrarians heading south were to intercept the lemmings of greed heading north before they reached the edge of the cliff. Now there is nothing but cliff.

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The idea is that simply because pensions buy stocks, these will go up in ‘value’. Yeah, that should work.. For a week.

China Pension Readies $300 Billion Warchest for Stock Market (BBG)

China’s pension funds are about to become stock investors. The country’s local retirement savings managers, which have about 2 trillion yuan ($300 billion) for investment, are handing over some of their cash to the National Council for Social Security Fund, which will oversee their investments in securities including equities. The organization will start deploying the cash in the second half, according to China International Capital and CIMB Securities. Chinese policy makers announced the change last year in a bid to boost yields for a pension system that has long suffered low returns by limiting its investments to deposits and government bonds.

For the nation’s equity markets – which are dominated by retail investors and among the world’s worst performers this year – the state fund’s presence is even more valuable than its cash, said Hao Hong, chief China strategist at Bocom International Holdings. The NCSSF has “such a good reputation in being a value investor that if they take the lead, the signaling effect is actually quite strong,” said Hong, who had predicted the start and peak of China’s equity boom last year. “It’s almost like Warren Buffett saying he is buying a stock.” The NCSSF, which oversees 1.5 trillion yuan in reserves for China’s social security system, has returned an average 8.8% a year since 2000, the Securities Daily reported earlier this year, citing official data. The larger pension system, on the other hand, has been locally managed and made just 2.3% annually through 2014, the newspaper said.

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Is someone overestimating demand perhaps?

Massive Stockpile Means Oil Rebound Is Over: Barclays (CNBC)

A massive global stockpile of oil could mean trouble ahead for the global crude market, according to Barclays. Crude oil prices dropped to a two month low on Thursday, after the Energy Information Administration reported a smaller-than-expected decrease in oil stockpiles. That may be a canary in the coalmine, a top energy market watcher explained. “For the last 6 quarters there’s been this discrepancy between global supply and global demand,” Michael Cohen, head of energy commodities research at Barclays, said last week on CNBC’s “Futures Now.” Cohen said Barclays is bearish on oil for the next six to eight months, because the current stockpile could increase in an economic downturn, likely to drive prices lower.

In the summer months, increased travel often increases the demand for gasoline, and drags up crude oil by default. Yet once that season ends, inventory levels may continue to rise. Looking at a chart of the expected crude oil supply compared with the current amount, Cohen said the disconnect is staggering. The chart accounts for oil supply from the 38 countries in the Organization for Economic Cooperation and Development (OECD), which includes the U.S., U.K., France, Germany and Canada, among others. During the recent financial crisis, crude production overhang was 138 million barrels. Now, the overhang is twice that, at 383 million barrels among the OECD, Cohen said.

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Given what a disaster Abenomics is, one wonders: how inept can Japan’s opposition be? Abe wins a two-thirds majority?! Can also change the constitution so Japan can go back to war.

Japan PM Abe To ‘Accelerate Abenomics’ After Huge Election Win (BBG)

Japanese Prime Minister Shinzo Abe’s conservative coalition scored a convincing upper house election win, putting it on course for a two-thirds majority that would allow Abe to press ahead with plans to revise the country’s pacifist constitution. The Liberal Democratic Party secured 56 of the 121 seats in contention, public broadcaster NHK said, while junior coalition partner Komeito had 14. Alongside others who support Abe’s view on constitutional revision, plus uncontested seats, the prime minister is set for a super majority, it said. The results raise questions over whether Abe will switch his focus to altering the postwar U.S.-imposed constitution, a potentially time-consuming process that could expend his political capital and distract the government from its economic program.

Abe vowed during the campaign to focus on policies aimed at expanding the size of the economy to 600 trillion yen ($6 trillion) from 500 trillion yen. “If Prime Minister Abe’s coalition scores a hot, two-thirds majority on Sunday, it might be tempted to pass constitutional changes, draining political capital away from urgently needed economic reforms,” Frederic Neumann at HSBC in Hong Kong, wrote in an e-mailed note before the election. Tokyo shares headed for their biggest gain in almost three months after the upper house election result and as jobs data eased concerns over the U.S. economy. The Topix index added 2.8% to 1,243.93 at 9:43 a.m. in Tokyo.

“Abe said he’ll continue to put together his economic policy package, so that optimism is going to continue to support Japanese shares,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Center. Abe’s coalition, which previously held 136 of the 242 seats in the chamber, fended off a challenge from opposition parties that had sought to unify the anti-government vote by avoiding running candidates against one another in many districts. “I think this means I am being told to accelerate Abenomics, so I want to respond to the expectations of the people,” Abe told TBS television after early results were announced.

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But EU demands bail-ins these days?

Deutsche Bank Chief Economist Calls For €150 Billion Bailout Of EU Banks (ZH)

The cards have been tipped, and it appears Italy’s Prime Minister may have been right. In the aftermath of Brexit, much of the investing public’s attention has turned to Italian banks which are in desperate need of a bailout as a result of €360 billion in bad loans growing worse by the day (and not a bail-in, as European regulations mandate, as that would lead to an immediate bank run) to avoid a freeze and/or collapse of Italy’s banking sector. This has pushed stock prices – and default risk – on Italian banks to record levels. So far Italy’s bailout requests have mostly fallen on deaf ears, as Germany’s political leaders have resisted Renzi’s recurring pleas for a taxpayer funded rescue.

However, as we have alleged, and as the Italian Prime Minister admitted last week, the core risk for Europe is not just the Italian banking sector but the biggest bank of all in Europe: Deutsche Bank. Recall last Thursday, when Matteo Renzi said other European banks had much bigger problems than their Italian counterparts. “If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred,” Renzi said. He was, of course, referring to the tens of trillions of derivatives on Deutsche Bank’s books. Today, we got the most definitive confirmation yet that the noose is tightening not only around Italy, but Germany itself [..], when none other than David Folkerts-Landau, the chief economist of Deutsche Bank, has called for a multi-billion dollar bailout for European banks.

Speaking to Germany’s Welt am Sonntag, the economist said European institutions should get fresh capital for a recapitalization following a similar bailout in the US. What he didn’t say is that the US bailout took place nearly a decade ago, in the meantime Europe’s financial sector was supposed to be fixed courtesy of “prudent” fiscal and monetary policy. It wasn’t. As Landau says the US helped its banks with $475 billion dollars, and such a program is now needed in Europe, especially for Italian banks. In other words, just because the US did it, now it’s Europe’s turn to ask for more of the same.

“In Europe, the bailout does not need to be so large. A €150 billion program should be enough to help European banks recapitalize,” said David Folkerts-Landau. He adds that the decline in bank stocks is only the symptom of a much larger problem, namely a fatal combination of low growth, high debt and a “dangerous” deflation. “Europe is seriously ill and needs to address very quickly the existing problems, or face an accident,” said the chief economist.

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Good read. “It’s the inevitable consequence of medieval governance falling prey to the fangs of Wall Street..”

Bank Born Out of Black Death Struggles to Survive (BBG)

Siena, the medieval city renowned for its Palio horse races, is home to the world’s oldest bank. Within its aging walls lies a distinctly 21st-century tale of devastation wrought by local politicians and global financiers. Banca Monte dei Paschi di Siena, Italy’s third-largest lender, is struggling to survive as it seeks to repay a second bailout or face nationalization. Its downfall proved a boon to global investment banks. They offered merger and investment advice to executives beholden to politicians that helped wipe out 93 percent of Monte Paschi’s value. Then they sold it complex derivatives that hid, even worsened the losses. Efforts to rescue the 541-year-old lender have cost Italian taxpayers €4.1 billion.

The investment banks, including Merrill Lynch, JPMorgan and Deutsche Bank, earned more than $200 million in fees from 2008 through 2011, filings and deal memos show. “These international banks come to exploit, and Italy is vulnerable,” said former Senator Elio Lannutti, who heads Adusbef, a consumer group for Italian bank customers. “On one side, there’s the local incompetence, and on the other side the bad faith of the international investment banks.” Franco Debenedetti, a former CEO of Olivetti, was even blunter. “It’s the inevitable consequence of medieval governance falling prey to the fangs of Wall Street,” said Debenedetti, now chairman of Italy’s Bruno Leoni Institute, a pro-free-market research group in Turin.

[..] ..the heritage of a bank with 2,300 branches and 28,500 employees that traces its origins to combating excessive loan rates. Siena officials founded Monte Paschi in 1472, after the Black Death wiped out more than half the city’s population. They modeled it on the pawnshops Franciscan monks had set up to counter usury. As it grew, the lender helped fuel the Renaissance in Tuscany that pulled Europe from the Middle Ages.

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Well, they did it. Congrats! Young people can’t afford to live in their own communities any more. Is there a govenment responsibility here somewhere?

Australia First-Home Buyers Hit Lowest Level In A Decade (Domain)

First-home buyers are now at their lowest levels in more than a decade, data released on Monday shows. As a proportion of all home buyers, first-home buyers dropped to 13.9% in May, according to housing finance data released by the Australian Bureau of Statistics. Down from 14.4% in April, this latest result is the lowest since 2004. At that time, the proportion fell to a record low 12.8% as grants for first-home buyers came to an end. For first-home buyers to make a significant return prices would have to fall, BIS Shrapnel senior manager of residential Angie Zigomanis said. “A drop in prices of some sort is needed, but we’ll also need a reduction in expectations in terms of what [first-home buyers] are looking for,” Mr Zigomanis said.

“At some point they have to come back, in theory … but for now the market is tough.” And a slowdown might be on the cards. While month-to-month figures can be volatile, overall lending figures are slowing from the frenzied levels of 2015, HSBC chief economist Paul Bloxham said. “We’re seeing a pullback in [housing finance] that has been going on since late last year, which is consistent with the idea that the housing market is set to cool,” he said. “[It’s a result of] tighter prudential settings and is also a sign that the exuberance has come out of the market … there was concern that strong activity from investors was overheating the market.”

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Same in Kiwiland: “The leader of the Government is more worried about the short-term fates of leveraged-up speculators and developers than the long-term fate of Generation Rent.”

The Great New Zealand Housing Down-Trou (Hickey)

Former Reserve Bank Chairman Arthur Grimes essentially undressed our politicians in front of us this week when he challenged them to embrace a 40% fall in Auckland house prices. He exposed them as emperors without clothes. “What I do is whenever I find a politician who says they want affordable housing, I ask them a very simple question: ‘How much do you want house prices to fall by overall?’ “And not one of them has been able to answer that very simple question,” Grimes said this week. He was talking about the extraordinary response to his suggestion 150,000 houses be built in six years to push Auckland prices down. Prime Minister John Key’s response was immediate – and betrayed where he stands on the issue of using a supply shock to make housing affordable.

It was “crazy”, would leave people in the market with huge losses and put pressure on developers. So there we have it. The leader of the Government is more worried about the short-term fates of leveraged-up speculators and developers than the long-term fate of Generation Rent. Despite years of saying the only way to improve housing affordability is to increase supply, his position is any increase in supply that hurts the investors who have bought in the past couple of years is out of the question. The Prime Minister who boasts his Government is aspirational had this to say about going for a really big response to the challenge: “Where you’d get 150,000 homes from overnight, I don’t know.”

Key said he hoped house-price inflation could be slowed by the Government’s measures, with the implication affordability would somehow creep up on everyone with wage increases. The Treasury forecasts wages will rise by an average of 2.2% over the next six years. It also forecasts house prices will rise by an average of 5.7% over the same period. The Government’s own forecasts show this magical affordability catch-up is not going to happen – and is expected to get much worse. Auckland houses cost nearly 10 times household income. That’s double what it was in the early 2000s and almost double the rest of the country. The accepted model for affordability around the world is closer to three times income.

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British media are anti-journalism.

The Media Against Jeremy Corbyn (Jacobin)

The British media has never had much time for Jeremy Corbyn. Within a week of his election as Labour Party leader in September, it was engaging in a campaign the Media Reform Coalition characterized as an attempt to “systematically undermine” his position. In an avalanche of negative coverage 60% of all articles which appeared in the mainstream press about Corbyn were negative with only 13% positive. The newsroom, ostensibly the objective arm of the media, had an even worse record: 62% negative with only 9% positive. This sustained attack had itself followed a month of wildly misleading headlines about Corbyn and his policies in these same outlets. Concerns about sexual assaults on public transport were construed as campaigning for women-only trains.

Advocacy for Keynesian fiscal and monetary policies was presented as a plan to “turn Britain into Zimbabwe.” An appeal to reconsider the foreign policy approach of the last decade was presented as an association with Putin’s Russia. In the months which followed the attacks continued. Particularly egregious examples, such as the criticism of Corbyn for refusing to “bow deeply enough” while paying his respects on Remembrance Day, stick in the memory. But it is the insidious rather than the ridiculous which best characterizes the British media’s approach to Corbyn. One example of this occurred in January when it was revealed that the BBC’s political editor Laura Kuenssberg had coordinated the resignation of a member of Corbyn’s shadow cabinet so that it would occur live on television. Planned for minutes before Corbyn was due to engage in Prime Minister’s Questions, it was a transparent attempt to inflict the maximum damage possible to his leadership.

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“..political bribes aren’t free speech and corporations aren’t persons.”

How the Corporate Food Industry Destroys Democracy (Hartmann)

On July 1, Vermont implemented a law requiring disclosure labels on all food products that contain genetically engineered ingredients, also known as genetically modified organisms or GMOs. Wenonah Hauter, executive director of Food and Water Watch, hailed the law as “the first law enacted in the US that would provide clear labels identifying food made with genetically engineered ingredients. Indeed, stores across the country are already stocking food with clear on-package labels thanks to the Vermont law, because it’s much easier for a company to provide GMO labels on all of the products in its supply chain than just the ones going to one state.”

What that means is that the Vermont labeling law is changing the landscape of our grocery stores, and making it easier than ever to know which products contain GMOs. And less than a week later after that law went into effect, it is under attack. Monsanto and its bought-and-paid-for toadies in Congress are pushing legislation to override Vermont’s law. Democrats who oppose this effort call the Stabenow/Roberts legislation the “Deny Americans the Right to Know” Act, or DARK Act. This isn’t the first time that a DARK Act has been brought forward in the Senate, and one version of the bill was already shot down earlier this year. The most recent version of the bill was brought forward by Michigan Democratic Sen. Debbie Stabenow and Kansas Republican Sen. Pat Roberts, both recipients of substantial contributions from Big Agriculture.

Stabenow has received more than $600,000 in campaign contributions since 2011 from the Crop Production and Basic Processing Industry, and Pat Roberts has received more than $600,000 from the Agricultural Services and Products industry. When Senator Stabenow unveiled the industry-friendly legislation, she boasted that, “For the first time ever, consumers will have a national, mandatory label for food products that contain genetically modified ingredients.” Which sounds great, and it would be great, if it were true. But the fact is, the DARK Act would set up a system of voluntary labeling that would overturn Vermont’s labeling law and replace it with a law that’s riddled with so many loopholes and exemptions that it would only apply to very few products, and there’s no enforcement mechanism and no penalties or consequences of any kind for defying the bill.

[..] If our democracy actually worked, this bill never would have seen the light of day, because people overwhelmingly want to know what’s in their food and support GMO labeling. But our democracy doesn’t work, because our lawmakers are bought and paid for by special interests like Monsanto. If we want our lawmakers to pass popular laws that actually work, we need to get money out of politics, we need to overturn Citizens United and we need to amend the Constitution to make it clear that political bribes aren’t free speech and corporations aren’t persons.

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” It’s not the independence of Britain from Europe, but the independence of Europe from the USA.”

10 Years (Or Less): Orwell’s Vision Coming True (SHTF)

In the wake of all of the Brexit vote, a chilling blurb made headlines and it went largely unnoticed and uncommented upon. The line was couched within comments made by Boris Titov, an economic policy maker for Russia’s Kremlin. Actually all of the following merits attention, but one line stands out. The source for this excerpt is a Facebook post by Titov. Here it is: “…it seems it has happened — UK out!!! In my opinion, the most important long-term consequence of all this is that the exit will take Europe away from the anglo-saxons, meaning from the USA. It’s not the independence of Britain from Europe, but the independence of Europe from the USA. And it’s not long until a united Eurasia — about 10 years.”

This is a very revealing post to show how unfavorably the past 50 years of post-World War II American imperialism has been viewed. The tipping point, as mentioned in a previous article was the outright 180º that George H.W. Bush pulled on Mikhail Gorbachev: the promise of NATO membership upon reunification of the two Germany’s and the dissolution of the Soviet Union, and then not fulfilling that promise.

The American corporate interests inserted themselves, as the communist government shattered, leaving in its wake oligarchs, the Russian mafia, and a “Wild West” environment within Russia proper and the ex-SSR’s, the former Soviet satellite nations. A tremendous amount of chaos occurred for a decade that was both enabled and further fostered by the United States. The perception in Russia even before the Soviet Union came into being was that Russians were in an economic war with Great Britain, and the United States was looked upon as an “extension” of Britain: a country with language, law, and cultural parallels,especially in terms of expansion.

As of the past several years, the United States has been encroaching upon Russian territory and economic interests. That encroachment has intensified into a U.S.-created “Cold War Resurrection” stance with the bolstering of NATO forces in the Baltic states. The U.S. is virtually thumbing its nose at Russia with the distribution of the “anti-ballistic missile systems” emplaced in places such as Moldova. As Putin pointed out, it takes not even a sneeze and a couple of hours to convert those platforms into use for Tomahawks with nuclear capability. The Russians did not exercise “en passant” with such an opener, and are placing missiles of their own to face the U.S. assets.

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Jul 042016
 
 July 4, 2016  Posted by at 8:23 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Walker Evans “Sidewalk scene in Selma, Alabama.” 1935


China Bank Bailout Calls Go Mainstream (BBG)
Deutsche: Probability Of US Recession Surges To 60% (ZH)
Druckenmiller, Soros, Spitznagel, Gross Warn Of Crisis (VW)
Oil Rally Threatened as Gasoline Supply Surge Swamps US Demand (BBG)
Brexit Is a Lehman Moment for European Banks (BBG)
Angela Merkel ‘To Oust Juncker’ As Europe Splits Deepen Over Brexit (Tel.)
Germany’s Schäuble Urges Post-Brexit Push to Curb EU Commission (BBG)
French Economy Minister Macron Claims Euro-Clearing Business for Paris (BBG)
Where Have Those Nice Britons Gone? (G.)
Brexit Voters Are Not Thick, Not Racist: Just Poor (Spec.)
German Arms Exports Almost Doubled In 2015 (R.)
Kaczynski May Divert Polish Pension Cash to State Projects (BBG)
Europe Puts Greece On Ebay (G.)
How To Fix A Broken Auckland? Crash Home Prices By 40% (Grimes)

 

 

“Non-performing loans jumped by more than 40% in the 12 months ended March to 1.4 trillion yuan ($210 billion)..” “..CLSA estimating NPLs were probably closer to 11.4 trillion yuan at the end of last year..” That would be well over $2 trillion….

China Bank Bailout Calls Go Mainstream (BBG)

Predictions of a Chinese banking system bailout are going mainstream. What was once the fringe view of permabears and short sellers is now increasingly being adopted by economists at some of the world’s biggest banks and brokerages. Nine of 15 respondents in a Bloomberg survey at the end of last month, including Standard Chartered and Commonwealth Bank of Australia, predicted a government-funded recapitalization will take place within two years. Among those who provided estimates of the cost, a majority said it will exceed $500 billion. While a bailout of that size would be a far cry from the $10 trillion forecast of U.S. hedge fund manager Kyle Bass in February, the responses reflect widespread concern that Chinese lenders will struggle to cope as bad loans surge.

Even as some analysts said a state recapitalization would put the banking system on a stronger footing, 80% of respondents predicted news of a rescue would weigh on Chinese markets – dragging down bank stocks and the yuan while pushing up government borrowing costs and credit risk. “A recapitalization will happen after the Chinese government comes clean with the true nonperforming loan figure,” said Kevin Lai at Daiwa Capital Markets. “That will require a lot of money creation.” [..] Chinese lenders are grappling with a growing mountain of bad debt after flooding the financial system with cheap credit for years to prop up economic growth.

Non-performing loans jumped by more than 40% in the 12 months ended March to 1.4 trillion yuan ($210 billion), or 1.75% of the total, according to government data. The figures are widely believed to understate the true scale of the problem, with CLSA estimating NPLs were probably closer to 11.4 trillion yuan at the end of last year.

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Reading the yield curve.

Deutsche: Probability Of US Recession Surges To 60% (ZH)

Over the weekend, following the latest collapse in long-term yields to new all time lows, Deutsche Bank looked at what implied recession odds are if one once-again adjust for Fed intervention. What it found, in the words of Deutsche Bank’s Dominic Konstam, is “worrisome.” From Deutsche Bank:

Since the UK referendum the US yield curve has flattened to new post-crisis lows. The 3m10y spread is now 115 bps compared to 210 bps at the start of the year, and the 2y10y spread is just 85 bps versus 120 bps on January 1. This relentless flattening of the curve is worrisome. Given the historical tendency of a very flat or inverted yield curve to precede a US recession, the odds of the next economic downturn are rising. In our probit model, the probability of a recession within the next 12 months has jumped to 60%, the highest it’s been since August 2008.

The model adjusts the 3m10y spread by the historically low level of short rates and it suggests that on an adjusted basis the curve has already appeared to be inverted for some time. The yield curve had successfully signaled the last two recessions when the model output rose above 70%. If 10y yields rally to 1.00% and the 3m rate is unchanged, the implied recession probability from our model will reach that number. At current market levels, the market is just 40 bps from that distinct possibility.

In other words, while the Fed is terrified of killing the recovery by “tightening” financial conditions, all that will take for the next recession to arrive is for the Fed and its central bank peers to ease just that much more to send the long end 40 bps lower, something which as we reported yesterday may happen even sooner than expected, now that pension funds are ready to throw in the towel and start buying 10Y and 30Y Tsys with wreckless (sic) abandon.

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“One of the best indicators showing how healthy is the economy is the velocity of circulation of money.”

Druckenmiller, Soros, Spitznagel, Gross Warn Of Crisis (VW)

Brexit referendum pushed financial markets into turmoil. Even if this is only the beginning of tough times the main reason behind this is definitely not the result of the UK referendum. What we see today is merely a result of financial markets being disconnected from the real condition of the global economy. The red flags signalling overpriced markets (especially in the case of the US) now are raised not only from statistical data but also from experienced investors having a good forecasting record.

From the start, I would like to focus on aforementioned statistical data. They can give us clear picture of the US economy and what happened after previous crisis until now. The financial situation of the US is crucial because it is the American stock exchange that delivers 44% of the global capitalisation of financial markets. American financial sector is responsible for setting trends and today those trends are pointing south. Developing markets are falling right behind the trendsetter. One of the best indicators showing how healthy is the economy is the velocity of circulation of money. The better the economy, the more money people and other participants of the economy spend – this increases money circulation.

At first glance, you can see that after 2008-09 crisis situation worsened. During official ‘post-crisis recovery’ velocity was slightly above 1.7 while during the first quarter of 20016 it fell below 1.5 (for comparison – before the crisis it around 2.0). The above chart is not the only data point. Low money velocity means also less consumption – this is visible in higher inventory-to-sales ratio. Below you can see a record of it. Today this indicator is above the Lehman level. What is more, it soon can match the levels of the worst phase of the 2008 meltdown. This clearly shows how American society is getting poorer.

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Low prices, but falling demand.

Oil Rally Threatened as Gasoline Supply Surge Swamps US Demand (BBG)

American drivers’ seemingly insatiable thirst for gasoline is running into a flood of supply. Refineries across the nation are operating full-out and imports are pouring into the East Coast, boosting gasoline supplies to a record. At the same time, consumption has turned out to be less robust than thought. That’s weighed on prices, threatening to stem oil’s rebound from a 12-year low. “Earlier this year there was a lot of hope that gasoline would lead crude higher,” said John Kilduff, partner at Again Capital, a New York hedge fund focused on energy. “That’s not turned out to be the case and gasoline will soon be a weight on the market.”

The Energy Information Administration said in a monthly report on June 30 that demand in April was 9.21 million barrels a day, down from 9.49 million seen in weekly data. “The monthly data for April raises doubts about the idea that we have reliably robust gasoline demand to support the entire complex,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. Gasoline stockpiles along the East Coast, which includes New York Harbor, the delivery point for U.S. futures contracts, surged to a record 72.5 million barrels in week ended June 24, EIA data show. Imports to the region jumped to a six-year seasonal high. Production climbed to a record in the previous week, as refiners typically run harder in the second quarter to meet summer peak driving season.

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“When the biggest bank in Europe’s biggest economy, with annual revenue of about €37 billion, is worth about the same as Snapchat – a messaging app that generated just $59 million of revenue last year – you know something’s wrong.”

Italy’s efforts at aiding its banks risk leading to a big problem with Germany, but Brexit makes the latter hesitant. But it can’t give in, it would set a precedent the EU can’t handle. So is Italy the next Greece?

Brexit Is a Lehman Moment for European Banks (BBG)

European banks are undergoing a real-life stress test in the wake of Britain’s vote to leave the European Union. Their share prices were already down 20% this year; since the referendum result was announced, they’ve doubled that decline. If the rot isn’t stopped soon, Europe will have found a novel solution to the too-big-to-fail problem — by allowing its banks to shrink until they’re too small to be fit for purpose. The answer is found in the adage never let a good crisis go to waste. The current situation should be both a motivation and an excuse to do what Europe failed to do after the 2008 collapse of Lehman Brothers brought the financial world to its knees: fix its banking system. Here’s a snapshot of this year’s drop in value of some of the region’s biggest institutions:

Deutsche Bank, which once had pretensions to be Europe’s contender on the global investment banking stage, is now worth just €17 billion. When the biggest bank in Europe’s biggest economy, with annual revenue of about €37 billion, is worth about the same as Snapchat – a messaging app that generated just $59 million of revenue last year – you know something’s wrong. No wonder the billionaire investor George Soros was betting against Deutsche Bank shares this month. Greece has recapitalized its banks three times, to almost no effect. Piraeus Bank, for example, is worth less than €1.5 billion, down from €4 billion in December after the last cash injection, and as much as €40 billion just two years ago.

UniCredit, Italy’s biggest bank, has suffered particularly badly this year. It has a market capitalization of just €12 billion, dwarfed by its non-performing loans worth €51 billion. Italian banks as a whole have non-performing debts worth €198 billion, a total that’s been rising ever since the financial crisis and is illustrative of Europe’s failure to tackle its banking problems. Add in so-called “sofferenze,” Italian for doubtful loans, and the total value of Italian debt at risk of non-payment rises to about €360 billion. That explains why Italy has seized upon Brexit to justify trying to shovel €40 billion of state aid into its banking system, much to the annoyance of Germany, which views the move as contravening rules on state aid.

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The end of the ever closer union.

Angela Merkel ‘To Oust Juncker’ As Europe Splits Deepen Over Brexit (Tel.)

Angela Merkel could move to oust Europe’s federalist chief Jean-Claude Juncker ‘within the next year’, a Germany government minister has said, in a sign of deepening European divisions over how to respond to Britain’s Brexit vote. The German chancellor’s frustration with the European Commission chief came as Europe split over whether to use the Brexit negotiations as a trigger to deepen European integration or take a more pragmatic approach to Britain as it heads for the exit door. “The pressure on him [Juncker] to resign will only become greater and Chancellor Merkel will eventually have to deal with this next year,” an unnamed German minister told The Sunday Times, adding that Berlin had been furious with Mr Juncker “gloating” over the UK referendum result.

Mr Juncker’s constant and unabashed calls for “more Europe”, as well as his reported drinking problem has led to several of Europe other dissenting members – including Poland, Hungary and the Czech Republic – to lay some of the blame for Brexit at his door. Since the June 23 vote both the Czech and Polish foreign ministers have called publicly for Mr Juncker to resign – moves that one senior EU official dismissed last week as “predictable”. However, the rumblings from Berlin now represent a much more serious threat to Mr Juncker’s tenure. The split also offers a glimmer of hope for British negotiators who are preparing for fractious EU-UK divorce talks and are desperate to avoid a repeat of February’s failed negotiations which – controlled as they were by Mr Juncker and the Commission – left David Cameron without enough ‘wins’ to avoid Brexit.

“Everyone is determined that this negotiation is handled in the European Council – i.e. between the 27 heads of government – and not by the Commission, the eurocrats and the EU ‘theologians’ in Brussels,” a senior UK source told The Telegraph. In a signal that battle has partly already been won, Mrs Merkel pointedly met with French and Italian leaders in Berlin last week, excluding Mr Juncker from the conversation. The Commission has also declined to fight the Council for the role of “chief negotiator”. British strategists hope that creating a much broader negotiation that includes the UK’s role in keeping Europe geopolitically relevant through its deep Nato ties, defence contributions and links to Washington, they can avoid a narrow tit-for-tat negotiation on trade where the UK has only very limited leverage.

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The problem with the end of the ever closer union is who will then decide. And that can only be Germany. The quintessential EU conundrum is unsolvable.

Germany’s Schäuble Urges Post-Brexit Push to Curb EU Commission (BBG)

Finance Minister Wolfgang Schaeuble signaled that Germany wants national governments to set the pace for future cooperation within the European Union, saying in a newspaper interview that they should sidestep the European Commission in Brussels if needed. Schaeuble’s comments to Welt am Sonntag outline the emerging response by Chancellor Angela Merkel’s government to the U.K. referendum on June 23 to leave the EU. It signals a looming clash with advocates of EU integration such as European Commission President Jean-Claude Juncker. EU countries must seek to reach agreements even if not all of the 27 non-U.K. members want to participate and should circumvent the commission, the EU’s executive arm, if it isn’t willing to cooperate, the newspaper quoted Schaeuble as saying.

“Now is the time for pragmatism,” Schaeuble told the newspaper. “If not all 27 want to pull together from the beginning, then we’ll just start with a few. If the Commission isn’t along, then we’ll take matters into our own hands and solve problems between governments.” Schaeuble expressed frustration that EU officials in Brussels took too long to respond to the refugee crisis last year. Many people’s dissatisfaction with the EU is because rules weren’t respected, including by the European Commission in its response to the sovereign-debt crisis, he was quoted as saying. The U.K. and the EU have a shared interest in starting exit talks quickly to limit the fallout and because “market pressure” may rise the longer it takes, Schaeuble told the newspaper.

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Another sociopath striving for power.

French Economy Minister Macron Claims Euro-Clearing Business for Paris (BBG)

Scruples be damned. The dust has barely settled on the June 23 British vote to take the U.K. out of the European Union, and the French Economy Minister Emmanuel Macron is claiming the euro-clearing business for Paris. Speaking Sunday in a Bloomberg interview, Macron laid out why the French capital is a contender for the business as other euro-area cities from Frankfurt to Dublin gear up for a battle for transactions currently done in London, Europe’s largest financial center. German officials have said Paris is dreaming if it thinks it can beat out Frankfurt, the home of the ECB and Deutsche Boerse’s Eurex operations. “On clearing, we will have a full discussion on a series of issues,” the 38-year-old French minister said.

“We have many more players now in Paris than in Frankfurt, and a much deeper market place.” London’s role in clearing trades in the $493 trillion derivatives market has returned as an issue since Britain voted to exit the 28-nation bloc. EU courts blocked a previous ECB effort to bring clearing under its regulatory control by shifting it to a euro-area country. But that was before the Brexit vote. While echoing President Francois Hollande’s insistence last week that euro-clearing won’t remain in London, Macron went further, saying that Paris may be the best place to move the process.

ECB Executive Board member Benoit Coeure warned his French compatriots to cool down on the prospect, insisting that London’s status as the biggest executor of euro financial transactions will depend on the kind of separation agreement the U.K. negotiates with the remaining 27 countries in the EU. “It is premature to have this type of discussion,” he said in Aix-en-Provence Saturday. “Everything will depend on the legal framework. This landscape, will it change? It depends on the relationship between the U.K. and the single market. Right now, we have no idea.” Separately, Macron also said he doesn’t rule out running for president next year, even though he insisted it was too early to declare.

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Hi hi. “The rest of the EU wanted to be able to restrain eastern Europeans for another seven years. Most of us did. You kept true to your word and did not.”

Where Have Those Nice Britons Gone? (G.)

Who are you and what have you done with those Britons I used to know and like so much? Have you no idea how disruptive uncertainty is for our countries, for business? Forgive me, of course you do – it’s you British who taught us that. The single market, for heaven’s sake, the EU’s largest and most formidably lucrative business venture, was very much down to you. It was your Lord Cockfield who worked out a plan, and if your then prime minister Margaret Thatcher had not used all her force to push it through in the face of reluctant protectionists on the continent, it might never had happened. Trade is your thing, after all and here it was: full freedom of movement for capital, goods, services and people. Yes, for people, including for eastern Europeans, not long after the Berlin Wall came down.

That happened because you British insisted on uniting the whole of Europe, the sooner, the better, while the French, the Italians and others all held back for as long as they could. They were so worried that the eastern European workers would come storming in their millions to the west, taking our jobs, pushing our wages down. But you insisted. Openness, inclusiveness, freedom – we have come to associate that with you. And you have, or had, such a way with words. You’re so gifted at persuasion, winning us over with your thoroughly prepared and elegant arguments. In the end, all agreed to do the enlargement your way. Except for the instant freedom of movement for all. The rest of the EU wanted to be able to restrain eastern Europeans for another seven years. Most of us did. You kept true to your word and did not.

You also have such a way with people. Your politicians are well schooled in parliament, aspiring to hold their own in any heated debate with their opponents. For decades, you have applied the brakes in the EU and watered down proposals to suit you. (Thanks by the way. You have never been an easy partner but the less-than-perfect compromise that is the EU has been improved by your hard work in Brussels.) And your Foreign Office comes better prepared than anyone else with numbers and facts, closely following what is going on in other countries, and sometimes managing diplomatic acrobatics that stun others into a deal. How on earth did Thatcher talk the others into giving one of the richest countries billions of pounds’ worth of a rebate to its EU fee? Permanently!

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Amen.

Brexit Voters Are Not Thick, Not Racist: Just Poor (Spec.)

The most striking thing about Britain’s break with the EU is this: it’s the poor wot done it. Council-estate dwellers, Sun readers, people who didn’t get good GCSE results (which is primarily an indicator of class, not stupidity): they rose up, they tramped to the polling station, and they said no to the EU. It was like a second peasants’ revolt, though no pitchforks this time. The statistics are extraordinary. The well-to-do voted Remain, the down-at-heel demanded to Leave. The Brexiteer/Remainer divide splits almost perfectly, and beautifully, along class lines. Of local authorities that have a high number of manufacturing jobs, a whopping 86% voted Leave. Of those bits of Britain with low manufacturing, only 42% did so.

Of local authorities with average house prices of less than £282,000, 79% voted Leave; where house prices are above that figure, just 28% did so. Of the 240 local authorities that have low education levels — i.e. more than a quarter of adults do not have five A to Cs at GCSE — 83% voted Leave. Then there’s pay, the basic gauge of one’s place in the pecking order: 77% of local authorities in which lots of people earn a low wage (of less than £23,000) voted Leave, compared with only 35% of areas with decent pay packets. It’s this stark: if you do physical labour, live in a modest home and have never darkened the door of a university, you’re far more likely to have said ‘screw you’ to the EU than the bloke in the leafier neighbouring borough who has a nicer existence.

Of course there are discrepancies. The 16 local authorities in Scotland that have high manufacturing levels voted Remain rather than Leave. But for the most part, class was the deciding factor in the vote. This, for me, is the most breathtaking fact: of the 50 areas of Britain that have the highest number of people in social classes D and E – semi-skilled and unskilled workers and unemployed people – only 3 voted Remain. Three. That means 47 very poor areas, in unison, said no to the thing the establishment insisted they should say yes to. Let’s make no bones about this: Britain’s poor and workless have risen up. And in doing so they didn’t just give the EU and its British backers the bloodiest of bloody noses. They also brought crashing down the Blairite myth of a post-class, Third Way Blighty, where the old ideological divide between rich and poor did not exist, since we were all supposed to be ‘stakeholders’ in society.

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Amoral.

German Arms Exports Almost Doubled In 2015 (R.)

German arms exports almost doubled last year to their highest level since the beginning of this century, a German newspaper said on Sunday, citing a report from the Economy Ministry that is due to be presented to the cabinet on Wednesday. Newspaper Welt am Sonntag said the value of individual approvals granted for exporting arms was €7.86 billion last year compared with €3.97 billion worth of arms exports in 2014. It said the Economy Ministry had pointed to special factors that boosted arms exports such as the approval of four tanker aircraft for Britain worth €1.1 billion.

It also pointed to the approval of battle tanks and tank howitzers along with munitions and accompanying vehicles worth €1.6 billion for Qatar – a controversial deal that the report said was approved in 2013 by the previous government. In February German Economy Minister Sigmar Gabriel said preliminary figures showed that Germany had given approval for around €7.5 billion worth of arms shipments in 2015. The Federal Office for Economics and Export Control (Bafa), a subsidiary of the economy ministry, is responsible for licensing arms export deals and Gabriel had promised to take a much more cautious approach to licensing arms exports, especially with regard to the Middle East. Germany is one of the world’s main arms exporters to EU and NATO countries and has been cutting its sales of light weapons outside those states.

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This happens everywhere: pensions being moved into risky and/or politically driven ‘assets’. That will be the end of pensions.

Kaczynski May Divert Polish Pension Cash to State Projects (BBG)

Poland is considering diverting funds from the country’s $35 billion pension industry and piling them into government-backed projects, ruling party leader Jaroslaw Kaczynski said. Poland’s privately run pension funds, set up in 1999 to provide long-term financing for the nation’s companies and make Warsaw into a regional capital hub, own a fifth of the shares traded on the Warsaw stock exchange. The proposed shift of money from the funds could help the eight-month-old government fulfill its election promises, including higher social benefits, cheap housing as well as state-backed investments into industries ranging from ship building to the production of coal and electric buses.

“We must think what to do with the money in the pension funds, there are already proposals,” Kaczynski, who was reappointed as head of the Law & Justice party on Saturday, said at the party’s congress. “That money is now losing its value,” while it could be the “basis for new, important investments, that will help build strong economic policy and support millions of Polish households.” Kaczynski said his party seeks to implement a new “economic order,” one based on redistributing wealth and rejection of free-market reforms. The Law & Justice government imposed the European Union’s highest levies on banks, rolled out unprecedented child benefits and is in a stand-off with the EU over democratic standards, which triggered the country’s first-ever credit rating downgrade and spooked investors.

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From May 30. Just loved the Simpsons’ image.

Europe Puts Greece On Ebay (G.)

In Greece today, government power comes with few trappings. Unable to tap capital markets and dependent wholly on international aid, the debt-stricken country’s senior officials are acrobats in a tightrope act. They are placating creditors, whose demands at times seem insatiable, and citizens, whose shock is never far away. Few know this better than Stergios Pitsiorlas, the head of Greece’s privatisation agency. The agency’s asset portfolio – readily available online – goes some way to explaining why. A catalogue of beaches, islands, boutique hotels, golf courses, Olympic venues and historic properties in Plaka on the slopes beneath the ancient Acropolis, it could be a shopping list for the scenery in a movie – rather than a list of possessions that Athens is under immense pressure to offload.

In the coming months, the list will grow as the contours of a “super fund” – established to expedite the sale of ailing utilities and state-owned properties – take shape. The fund, the product of last week’s agreement to disburse an extra €10.3bn (£7bn) in bailout loans in return for further reforms, takes the divestment of state holdings to new heights. More than 71,000 pieces of public property will be transferred to the umbrella entity in what will amount to the biggest privatisation programme on the continent of Europe in modern times. Seven years into Greece’s seemingly unstoppable financial crisis, lenders are not taking any chances. The EU and IMF, which to date have poured more than €250bn into Greece in the form of three bailouts, have demanded that the organisation operates for 99 years.

Greeks have reacted with anger and derision, viewing the fund as the lowest point in the country’s epic struggle to remain anchored to the eurozone. For many, it is the ultimate depredation, another dent to their dignity at a time of unprecedented unemployment, poverty and suffering. If this is the way, they say, then only the Acropolis will retain a patina of Greekness about it. “There is nothing we are not giving up,” splutters Maria Ethymiou, a small business owner encapsulating the mood. “The Germans are going to take everything. I hear that even beaches are up for sale. Is this the Europe that we want? Is this the united Europe of our dreams?”

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Absolutely right and horribly mistaken at the same time. Arthur Grimes is former chief economist of the Reserve Bank.

How To Fix A Broken Auckland? Crash Home Prices By 40% (Grimes)

In March 2016, the REINZ Auckland median house price reached $820,000. Four years previously, it was $495,000 – that’s a 66% increase in 4 years. What’s more alarming is that in 2012, many people considered that house prices were already getting of reach for most people. That was particularly the case for young people and low income earners. That extraordinary increase – coupled with the already high level in 2012 – was behind my call to a recent Auckland Conversations event that policy-makers should strive to cause a 40% collapse in house prices to bring the median back to around $500,000.

My call for policies to drive a house price collapse is driven by my personal value judgement that it’s great for young families and families on lower incomes, to be able to afford to buy a house if they wish to do so. My concern is not for older, richer families, couples or individuals who already own their own (highly appreciated) house. Others may have a different value judgement to mine – but rarely do they make such a judgement explicit. Or, they may argue that such a collapse would cause financial instability given banks’ loans to mortgage-holders. Luckily, New Zealand’s banks are well-capitalised and stress tests have shown that they can survive a large fall in house prices – mostly because the bulk of their loans pertain to older mortgages with plenty of equity behind them.

For those who share my wish to bring house prices back to a level at which ordinary people can afford, what is to be done? One possibility is to try and stem the demand. Many Aucklanders seem to want their city to remain something like a rural town. In world terms, however, Auckland is a smallish city; while in Australasian terms, it is a mid-sized city sitting between Adelaide and Perth in size, and well behind the big three (Sydney, Melbourne, Brisbane). If New Zealand is to have one city of moderate size where head offices, R&D facilities and other wealth-generating activities reside, Auckland needs to be that city. To curb its growth is tantamount to saying that development should take place in Australia, not here. I favour Auckland being competitive in attracting high-value activities at least within the Australasian context. So I am not in favour of curbing Auckland’s growth.

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May 242016
 
 May 24, 2016  Posted by at 9:40 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle May 24 2016
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Lewis Hine A heavy load for an old woman. Lafayette Street below Astor Place, NYC 1912


‘Massive Bailout’ Needed in Debt-Saddled China: Charlene Chu (BBG)
SOE Debt Could Easily Overwhelm China’s Banking System (Abc.au)
China Takes Back Control Over Yuan (WSJ)
Negative Rates Prompt Japan Banks to Opt Out Via Derivatives (BBG)
Iron Ore Price Falls 27% In Past Month (BI)
Deutsche Bank Ratings Cut by Moody’s (BBG)
Greece Is Never Going To Grow Its Way Out Of Debt (Coppola)
Austerity Means Privatizing Everything We Own (G.)
US Court Opens Door Over Libor Claims (FT)
Italy Helps Rescue 2,600 Migrants From Sea In 24 Hours (R.)
Greece Starts Clearing Makeshift Refugee Camp On Border (R.)

Selling vehicles to vehicles: “The WMPs [wealth management product] used to be predominantly sold to the public, but now they’re increasingly being sold to banks and other WMPs.”

‘Massive Bailout’ Needed in Debt-Saddled China: Charlene Chu (BBG)

Charlene Chu, a banking analyst who made her name warning of the risks from China’s credit binge, said a bailout in the trillions of dollars is needed to tackle the bad-debt burden dragging down the nation’s economy. Speaking eight days after a Communist Party newspaper highlighted dangers from the build-up of debt, Chu, a partner at Autonomous Research, said she was yet to be convinced the government is serious about deleveraging and eliminating industry overcapacity. She also argued that lenders’ off-balance-sheet portfolios of wealth-management products are the biggest immediate threat to the nation’s financial system, with similarities to Western bank exposures in 2008 that helped to trigger a global meltdown.

The former Fitch Ratings analyst uses a top-down approach to calculating China’s bad-debt levels as the credit to GDP ratio worsens, requiring more credit to generate each unit of GDP. She’s on the bearish side of the debate about the outlook for China and has sounded warnings since the nation’s credit binge began in 2008. “China’s debt problems are large and severe, but in some respects a slow burn. Over the near term, we think the biggest risk is banks’ WMP [wealth management product] portfolios. The stock of Chinese banks’ off-balance-sheet WMPs grew 73% last year. There is nothing in the Chinese economy that supports a 73% growth rate of anything at the moment.

Regardless of all of the headlines and announcements about the authorities cracking down on WMPs, they have done very little, really, and issuance continues to accelerate. “We call off-balance-sheet WMPs a hidden second balance sheet because that’s really what it is – it’s a hidden pool of liabilities and assets. In this way, it’s similar to the Special Investment Vehicles and conduits that the Western banks had in 2008, which nobody paid attention to until everything fell apart and they had to be incorporated on-balance-sheet. “The mid-tier lenders is where these second balance sheets are very large. China Merchants Bank is a good example. Their second balance sheet is close to 40% of their on-balance-sheet liabilities. Enormous.”

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“Although contributing to less than one-third of economic output and employment, SOEs take up nearly half of bank lending..”

SOE Debt Could Easily Overwhelm China’s Banking System (Abc.au)

Chinese banks are looking down the barrel of a staggering RMB 8 trillion – or $1.7 trillion – worth of losses according to the French investment bank Societe Generale. Put another way, 60% of capital in China’s banks is at risk as authorities start the delicate and dangerous process of reining in the debt-bloated and unprofitable state-owned enterprise (SOE) sector. Disturbingly though, debt is not only not shrinking, it is accelerating, making the eventual reckoning far worse. China’s overall non-financial debt grew by 15.2% in 2015 to RMB 167 trillion ($35 trillion) or almost 250% of GDP. That is up from 230% of GDP the year before and the 130% it was eight years ago before the global financial crisis hit.

The problem is largely centred on China’s 150,000 or so SOEs, which suck-up an entirely disproportionate amount of the nation’s capital. “Although contributing to less than one-third of economic output and employment, SOEs take up nearly half of bank lending (RMB 37 trillion) and more than 80% of corporate bond financing (RMB 9.5 trillion),” Societe Generale found. “While the inefficiency of SOEs is gradually dragging down economic growth, recognising even a small share of SOEs’ non-performing debt would easily overwhelm the financial system.” Despite their moribund financial performance, the SOEs still enjoy a considerable advantage in access to funding through the banking system than the private sector.

“To put things into perspective, a quarter of SOEs’ loans and bonds are equivalent to the entire capital base of commercial banks plus their loan-loss reserves, equivalent to 23% of GDP,” Societe Generale’s China economist Wei Yao said. On the bank’s figures, if just 3% of loans to SOEs sour, commercial banks’ non-performing loans would double.

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Wanting to control the yuan exchange rate is a threat to reserves.

China Takes Back Control Over Yuan (WSJ)

Behind closed doors in March, some of China’s most prominent economists and bankers bluntly asked the People’s Bank of China to stop fighting the financial markets and let the value of the nation’s currency fall. They got nowhere. “The primary task is to maintain stability,” said one central-bank official, according to previously undisclosed minutes of the meeting reviewed by The Wall Street Journal. The meeting left little doubt China’s top leaders have lost interest in a major policy shift announced in a surprise move just nine months ago. In August 2015, the PBOC said it would make the yuan’s value more market-based, an important step in liberalizing the world’s second-largest economy.

In reality, though, the yuan’s daily exchange rate is now back under tight government control, according to meeting minutes that detail private deliberations and interviews with Chinese officials and advisers who spoke with The Wall Street Journal about the country’s currency policy. On Jan. 4, the central bank behind closed doors ditched the market-based mechanism, according to people close to the PBOC. The central bank hasn’t announced the reversal, but officials have essentially returned to the old way of adjusting the yuan’s daily value higher or lower based on whatever suits Beijing best. The flip-flop is a sign of policy makers’ deepening wariness about how much money is fleeing China, a problem driven by its slowing economy.

For now, at least, officials believe the benefits of freeing the yuan are outnumbered by the number of threats. Re-emphasizing the yuan’s stability would also bring a sigh of relief to trading partners who worried a weaker currency would boost Chinese exports at the expense of those produced elsewhere. Freeing the yuan, the biggest overhaul of China’s currency policy in a decade, was meant to empower consumers and help invigorate the economy. The negative reaction, from financial markets world-wide and Chinese who sped their efforts to take money out of the country, was so jarring that the top leadership, headed by President Xi Jinping, began to have second thoughts.

At a heavily guarded conclave of senior Communist Party officials in December, Mr. Xi called China’s markets and regulatory system “immature” and said “the majority” of party officials hadn’t done enough to guide the economy toward more sustainable growth, according to people who attended the meeting. To the central bank, there was only one possible interpretation: Step on the brakes.

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Turns out, it can still get worse.

Negative Rates Prompt Japan Banks to Opt Out Via Derivatives (BBG)

Japanese banks reluctant to pay for the privilege of lending are opting out by using derivatives. The options set a floor on rates used to determine interest on loans, and the holder will be paid if the rates fall below that level, according to Aozora Bank and Tokyo Star Bank. The benchmark three-month Tokyo interbank offered rate has plunged to a record low of 6 basis points since the Bank of Japan announced it would start charging fees on some lenders’ reserves in January. Options with floors at zero% or minus rates have been traded recently, according to Aozora Bank. “There’s a need to hedge against money-losing lending that could happen if the Tibor falls to negative levels,” said Tetsuji Matsuka, the head of the ALM planning treasury department at Tokyo Star Bank.

“We think demand will increase” for such products, he said. Japanese banks are getting hurt as the negative-rate policy compresses their lending margins, with the top-three firms including Mitsubishi UFJ Financial forecasting this month that net income will fall a combined 5.2% in the year started April 1. The BOJ’s radical stimulus has already dragged yields on more than 70% of Japanese government bonds to below zero, meaning that investors will have to effectively pay a fee to hold such debt to maturity. In the yen London interbank offered rate market, where some rates are already below zero, options have been traded with floors as low as minus 1%, according to Nobuyuki Takahashi, the general manager of the derivatives sales division at Aozora Bank.

The three-month yen Libor was at minus 0.02% on Friday. Companies that borrow at floating rates may also be able to use floor options to ensure that interest-rate swaps they use to hedge against rising rates don’t end up costing them due to negative rates, Takahashi said. Actual trades of such derivatives are still not that common because the contracts are expensive to buy now, he said. “It will be hard to price these options unless we get more liquidity,” said Tateo Komatsu, a deputy general manager of global markets at Sumitomo Mitsui Trust Bank Ltd. “It will take time for the market to get used to minus rates.”

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Roller coaster in a casino.

Iron Ore Price Falls 27% In Past Month (BI)

The iron ore price is imploding. Following the ugly lead provided by Chinese futures on Monday, the spot iron ore price followed suit, suffering one of the largest declines seen in years. According to Metal Bulletin, the spot price for benchmark 62% fines fell by 6.69%, or $3.67, to $51.22 a tonne, leaving it down 27.3% from the multi-year peak of $70.46 a tonne struck on April 21. The decline was the third-largest in percentage terms in the past two years, and left the price at the lowest level seen since March 3 this year. The losses in physical and futures markets followed news that Chinese iron ore port inventories swelled to over 100 million tonnes last week, leaving them at the highest level seen since March last year.

That followed the revelation that Chinese crude steel output contracted in April after hitting a record high in March, declining marginally according to figures released by the China Iron and Steel Association (CISA). Given the increasing correlated relationship between the two, it’s also clear that an unwind of speculative positioning in Chinese iron ore futures is also impacting prices in the physical iron ore market. After watching prices in many bulk commodity futures rally more than 50% in less than two months, regulators at both the Dalian Commodities Exchange and Shanghai Futures Exchange introduced measures in recent weeks to discourage excessive levels of speculation in these markets.

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Slow death?!

Deutsche Bank Ratings Cut by Moody’s (BBG)

Deutsche Bank had its credit rating cut by Moody’s Investors Service, which said the German lender faces mounting challenges in carrying out its turnaround. The bank’s senior unsecured debt rating was lowered to Baa2 from Baa1, Moody’s said Monday in a statement. That left the grade two levels above junk. The firm’s long-term deposit rating fell to A3 from A2. “Deutsche Bank’s performance over the last several quarters has been weak, and substantial operating headwinds, including continuing low interest rates and macroeconomic uncertainty, will challenge the firm,” Moody’s said in the statement. CEO John Cryan’s planned overhaul of the bank, laid out in October, ran into an industrywide slump in trading and investment banking, as well as interest rates that have gone from low to negative in parts of Europe and Asia.

Net income fell 61% in the first quarter, leaving the company at risk of a second straight annual loss this year as it tries to resolve legal cases. Results so far and the challenges ahead, including a chance of further slumps in retail and market-linked businesses, will probably force Deutsche Bank to balance restructuring costs with the need to amass capital for stiffened regulatory requirements, Moody’s wrote. “The plan they’re trying to execute is a good plan for the bondholder in the long run, but they face some pretty challenging headwinds when you look at the current operating environment,” Peter Nerby, a senior vice president at Moody’s, said in a phone interview. “They’re working on it, but it’s tougher than it was.”

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“A whole generation will have been consigned to the scrapheap.”

Greece Is Never Going To Grow Its Way Out Of Debt (Coppola)

The IMF has just released its latest Debt Sustainability Analysis (DSA) for Greece. It makes grim reading. Greece is never going to grow its way out of debt. And the 3.5% primary surplus to which the Syriza government seems hell-bent upon committing is frankly unbelievable: the IMF thinks sustaining even 1.5% would be a stretch. Banks will need another €10bn (on top of the €43bn the Greek government has already borrowed to bail them out). Asset sales are a lost cause, mainly because the banks – which were a large proportion of the assets up for sale – won’t be worth anything for the foreseeable future. Like it or not, debt relief will be necessary. If there is no debt relief, by 2060 debt service will soar to an impossible 60% of government spending. Of course, Greece would default long before that – but that would make the situation in Greece even worse.

None of this is news. The IMF has been saying for nearly a year now that Greece will need debt relief. This latest DSA is designed to shock the Europeans into giving it serious consideration. It is not surprising, therefore, that the debt sustainability projections are significantly worse than in previous DSAs. No doubt the European creditors will disagree with them, the Syriza government will side with the Europeans because the only alternative is Grexit, and the European Commission will claim there is “progress” when all that is really happening is that a very battered can is being kicked once again. But buried in the IMF’s report are some very unpleasant numbers indeed – the IMF’s projections for population and employment out to 2060. And I think the world should know about them. Here is what the IMF has to say about the outlook for Greek unemployment:

Demographic projections suggest that working age population will decline by about 10 percentage points by 2060. At the same time, Greece will continue to struggle with high unemployment rates for decades to come. Its current unemployment rate is around 25%, the highest in the OECD, and after seven years of recession, its structural component is estimated at around 20%. Consequently, it will take significant time for unemployment to come down. Staff expects it to reach 18% by 2022, 12% by 2040, and 6% only by 2060. So even if the Greek economy returns to growth and its creditors agree to debt relief, it will take 44 years to reduce Greek unemployment to something approaching normal. For Greece’s young people currently out of work, that is all of their working life. A whole generation will have been consigned to the scrapheap.

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Think Britain is bad? Try Greece.

Austerity Means Privatizing Everything We Own (G.)

Almost everyone who gives the matter serious thought agrees that George Osborne and David Cameron want to reshape Britain. The spending cuts, the upending of the NHS, even this month’s near-miss over the BBC: signs lie everywhere of how this will be a decade, maybe more, of massive change. Yet even now it is little understood just how far Britain might shift – and in which direction. Take austerity, the word that will define this government. Even its most astute critics commit two basic errors. The first is to assume that it boils down to spending cuts and tax rises. The second is to believe that all this is meant to reduce how much the country is borrowing. What such commonplaces do is reduce austerity to a technical, reversible project.

Were it really so simple all we would need to do is turn the spending taps back on and wash away all traces of Osbornomics. Austerity is far bigger than that: it is a project irreversibly to transfer wealth from the poorest to the richest. It’s doing the job very nicely: while the typical British worker is still earning less after inflation than he or she was before the banking crash, the number of UK-based billionaires has nearly quadrupled since 2009. Even while he slashes benefits, Osborne is deep into a programme to hand over much of what is still owned by the British public to the wealthiest. Privatisation is the multibillion-pound centrepiece of Osborne’s austerity – yet it rarely gets a mention from either politicians or press. The Queen mentioned it in her speech last week, but the headline writers ignored it.

And if you don’t know that this Thursday is the closing date for consultation on the sale of the Land Registry, our public record of who owns what property, that’s hardly your fault – I haven’t spotted it in the papers, either. But without getting rid of prize assets, Osborne’s austerity programme falls apart. At a time when tax revenues are more weak stream than healthy flood, those sales bring much-needed cash into the Treasury and make his sums add up. The independent Office for Budget Responsibility has ruled that the only reason the chancellor met his debts target last year was because he flogged off our public assets. And what a fire sale that was, with everything from our last remaining stake in the Royal Mail to shares in Eurostar shoved out the door in the biggest wave of privatisations of any year in British history.

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And maybe sometime in the next century something will be done. But they’re all still too big to fail.

US Court Opens Door Over Libor Claims (FT)

A US appeals court has opened the door for more claims against the big banks for rigging benchmark interest rates, by overturning a three-year-old ruling which threw out a host of private antitrust-related lawsuits. Monday’s decision by the 2nd US Circuit Court of Appeals in Manhattan could be a setback for the likes of Bank of America, JPMorgan Chase and Citigroup, which had hoped that most of the wave of post-crisis litigation was behind them. The decision reverses a lower court decision from 2013, in which US District Judge Naomi Reice Buchwald dismissed claims on the grounds that the plaintiffs had failed to plead antitrust injury.

The lawsuits had accused 16 major banks of collusion in manipulating the London interbank offered rate, or Libor, which approximates the average rate at which a select group of banks can borrow money. Beginning in 2007, the plaintiffs argued, the banks engaged in a horizontal price-fixing conspiracy, with each submitting an artificially low cost of borrowing US dollars in order to drive Libor down. At the time of her rejection, Judge Buchwald reasoned that the Libor-setting process was co-operative rather than competitive, and so any attempt to depress the rate did not cause investors to suffer anti-competitive harm. At best, she said, investors had a fraud claim based on misrepresentation.

But the appeals court on Monday disagreed and sent the case back to the lower court for further proceedings. A three-judge panel found that price-fixing was an antitrust violation in itself, and therefore needed no separate plea of harm. “The crucial allegation is that the banks circumvented the Libor-setting rules, and that joint process thus turned into collusion,” the panel said. The private suits are separate from the criminal and civil probes into Libor rigging, which have ensnared banks and traders around the world and drawn about $9bn so far in penalties.

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Do we even still notice?

Italy Helps Rescue 2,600 Migrants From Sea In 24 Hours (R.)

Italian vessels have helped rescue more than 2,600 migrants from boats trying to reach Europe from North Africa in the last 24 hours, the coastguard said on Monday, indicating that numbers are rising as the weather warms up. Some 2,000 migrants were rescued off the Libyan coast from 14 rubber dinghies and one larger boat in salvage operations by the Italian navy and coastguard, the medical charity Medecins Sans Frontieres and an Irish navy vessel, the coastguard said. Another 636 migrants were rescued from two boats in Maltese waters, in operations involving Maltese and Italian vessels, it said. It gave no information about the nationalities of those saved. More than 31,000 migrants have reached Italy by boat so far this year, slightly fewer than in the same period of 2015.

Humanitarian organizations say the sea route between Libya and Italy is now the main route for asylum seekers heading for Europe, after an EU deal on migrants with Turkey dramatically slowed the flow of people reaching Greece. Officials fear the numbers trying to make the crossing to southern Italy will increase as conditions improve in warmer weather. More than 1.2 million Arab, African and Asian migrants fleeing war and poverty have streamed into the European Union since the start of last year. Most of those trying to reach Italy leave the coast of lawless Libya on rickety fishing boats or rubber dinghies, heading for the Italian island of Lampedusa, which is close to Tunisia, or toward Sicily.

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Peaceful until now.

Greece Starts Clearing Makeshift Refugee Camp On Border (R.)

Greek police started moving migrants and refugees out of a sprawling tent camp on the sealed northern border with Macedonia on Tuesday where thousands have been stranded for months trying to get into western Europe. Reuters witnesses saw several bus loads of migrants leaving the makeshift camp of Idomeni early on Tuesday morning, with about another dozen buses lined up. It appeared to be mainly families who were on the move. Greek authorities said they planned to move individuals gradually to state-supervised facilities further south in an operation expected to last several days. “The evacuation is progressing without any problem,” said Giorgos Kyritsis, a government spokesman for the migrant crisis.

A Reuters witness on the Macedonian side of the border said there was a heavy police presence in the area but no problems were reported as people with young children packed up huge bags with their belongings. Media on the Greek side of the border were kept at a distance and a group of people dressed as clowns waved balloon hearts and animals as the buses drove past. “Those who pack their belongings will leave, because we want this issue over with. Ideally by the end of the week. We haven’t put a strict deadline on it, but more or less that is what we estimate,” Kyritsis told Reuters. At the latest tally, 8,199 people were camped at Idomeni after a cascade of border shutdowns throughout the Balkans in February barred migrants and refugees from central and northern Europe. More than 12,000 lived in the camp at one point.

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May 052016
 
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Lewis Wickes Hine Boys working in Phoenix American Cob Pipe Factory 1910


FX Market Truce Looks Increasingly Fragile (BBG)
The ‘Ostrich Approach’ Ignores Real Global and National Debt Figures (SM)
Easy Money Isn’t the Answer for Japan (BBG)
Japan’s Coma Economy Is A Preview For The World (GS)
Eurozone Retail Sales Fall More Than Expected In March (R.)
Kyle Bass Sees 30% To 40% Losses On Chinese Investments (BBG)
Hong Kong Cracks Down On Fake Trade Invoices From China (R.)
Regulators Want to Slow Runs on Derivatives (BBG)
Brexit, Like Grexit, Is Not About Economics (WSJ)
Even ‘Small Crisis’ Enough To Tear EU Apart, Moody’s Warns (Tel.)
Let The TTIP Die If It Threatens Parliamentary Democracy (AEP)
Turkey In Political Freefall As Erdogan Grabs More Power, PM To Resign (MEE)
Study: Bailouts Went To Banks, Only 5% To Greeks (Hand.)
The Terrible News From Fort McMurray, And The Hope That Remains (G&M)
‘Omega Block’ Behind Searing Heat Inflaming Fort McMurray Wildfire (WaPo)
UN Envoy Warns of New Wave of 400,000 Refugees From Syria (WSJ)

A truce that never stood a chance. Some may have believed in it, though.

Foreign-Exchange Market Truce Looks Increasingly Fragile (BBG)

The foreign exchange market is notorious for overshooting. A currency that starts moving in a particular direction as economic fundamentals change will often end up at a rate that can’t be justified by the data. So trying to nudge the matrix of currency values is akin to policy makers attempting to steer a Ouija board pointer – which is exactly what seems to have happened since their February Group of 20 meeting in Shanghai produced a tacit truce in the currency war. Suspicions that finance ministers had agreed in February to stop talking their currencies down seemed confirmed by the dollar’s decline of more than 6% from its Jan. 20 peak.

China’s recent moves to boost the yuan’s reference rate to its highest levels this year also backed the impression of a suspension of hostilities. But while U.S. manufacturers worried that a too-strong dollar would threaten their exports and profits, the recent reversal, and gains for the euro and the yen, pose bigger risks to the struggling economies of Europe, and Japan. The euro, for example, pierced $1.16 on Tuesday, reaching its highest level since August:

The yen, meanwhile, has breached 106 to the dollar, down from as weak as 122 in January:

Those are the kinds of moves that make central banks uncomfortable – especially when, like the ECB and the BOJ, they’re already struggling to avert deflation. Australia’s surprise decision to cut interest rates overnight, driving its currency lower against all 31 of its major trading peers, is a sign that skirmishes might be breaking out again. Marcus Ashworth, a strategist at Haitong Securities in London, said in a research note: The rumor mill has been incessant (despite official denials) that the so-called Shanghai G-20 accord to pacify markets and quell unrest between the members has actually served to make international relations as toxic as they have been for many years.

The Shanghai deal was to stop the negative feedback loop and thereby prevent a sharp devaluation of the yuan; however, it was meant to curtail the rise of the dollar, not sharply reverse it. [..] It’s clear the Treasury doesn’t want the dollar to resume its ascent. But it’s also clear that trying to steer the currency market into stasis has failed, and that the inflation outlooks in both the euro zone and Japan are deteriorating. The environment looks ripe for hostilities to break out again, providing yet another reason to be pessimistic about the prospects for a global economic recovery.

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Much more in the article.

The ‘Ostrich Approach’ Ignores Real Global and National Debt Figures (SM)

According to Hoisington and Hunt, the ratio of nonfinancial debt-to-GDP rose to 248.6% at the end of 2015, higher than the previous record of 245.5% set in 2009 and well above the average of 167.5% since this figure started to be tracked in 1952. They also point out that since 2000 it has taken $3.30 of debt to generate $1.00 of GDP compared with $1.70 in the 45 years prior to 2000. This points to the fact that a greater proportion of new debt is devoted to unproductive uses. Debt drains away vital resources from economic growth. Fighting a debt crisis with more debt is doomed to failure, yet that is not only what global central banks did during the crisis but long after markets stabilized (though the crisis never truly ended, just slowed). This was an epic policy failure that continues today.

U.S. government debt is growing to unsustainable levels. Gross debt (excluding off-balance sheet items) reached $18.9 trillion at the end of 2015, equal to 104% of GDP (considerably higher than the 63-year average of 55.2%). Government debt increased by $780.7 billion in 2015, or $230 billion more than the nominal or dollar rise in GDP. This actual debt increase is considerably larger than the budget deficit of $478 billion reported by the government because many spending items were shifted off-budget. Readers should remember this the next time The WSJ editorial page trumpets that the deficit dropped significantly from the four consecutive years of $1 trillion+ deficits between 2009 and 2012. And these figures don’t even touch upon the $60 trillion of unfunded liabilities (calculated on a net present value basis) for Social Security and other entitlement programs.

Globally, the debt picture is more disturbing. Total public and private debt/GDP is 350% in China, 370% in the U.S., 457% in Europe and 615% in Japan, respectively. Those numbers should speak for themselves.

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It isn’t the answer for anyone, certainly not today when everyone’s debts are through the roof.

Easy Money Isn’t the Answer for Japan (BBG)

Strolling through Tokyo on a Sunday afternoon, it’s hard to tell Japan’s economy is a mess. Deflation has returned, while growth hasn’t. But Shibuya Crossing remains as packed with diners, bag-toting shoppers and gawking tourists as ever. Nearby, a line of more than 50 people stretches outside a restaurant selling overpriced burgers. Lost decades be damned! Japan had the good fortune to have become wealthy before entering its years of stagnation. Some Japanese are now suffering in an economy that’s endured four recessions in eight years; the poverty rate has reached 16%, its highest level on record. But for many, especially in big cities such as Tokyo, life hasn’t so much deteriorated as frozen in time. GDP per capita, on a nominal basis, is little different now than in 1992.

And though the quality of many jobs has waned due to the increase of temporary work, joblessness remains a rarity. The unemployment rate is an enviable 3.2%. The Shibuya crowds raise serious and uncomfortable questions about the direction of Tokyo’s economic policy. Even as some analysts urge the Bank of Japan to double down on its monetary easing program and the government to ramp up its own spending in an effort to boost inflation, there’s a good argument to be made that the approach of Japan’s policymakers has been dead wrong, and for a very long time. The thrust of Japanese policies since the bursting of its gargantuan asset-price bubble in the early 1990s has been to spur growth with lots and lots of cash, whether from the government or the BOJ.

Since 2013, Prime Minister Shinzo Abe has dramatically pumped up that strategy – running large budget deficits, delaying taxes and encouraging the BOJ to print money on an ever grander scale. Arguably, however, Japan’s main focus should be to preserve the wealth it’s already accumulated. With a population that’s aging and shrinking, Japan can get richer on a per capita basis even if GDP remains perfectly flat. In that sense, deflation – long considered the scourge of Japan’s economy – is actually a boon: Falling prices raise the future value of savings, helping the elderly and others on fixed incomes. In constant terms, Japan’s GDP per capita is 17% higher than in 1992, thanks to deflation.

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“When you fly to Australia, you land in 2000, to China you land in 2016, Japan you land in 1989.”

Japan’s Coma Economy Is A Preview For The World (GS)

The 1980s were the apex of Japanese culture and economic might. Back then, Japan’s economy was growing so fast, it was thought they would overtake the US. But that all came to a screeching halt. Truth is, Japan’s meteoric rise was fueled by an epic lending bubble. Similar to the Roaring 20s in America. And when the bubble popped, the government launched massive and misguided measures that set Japan back decades. Their economy hasn’t expanded since. They are stuck in the 1980s. There’s been no growth for 30 years. And as you’ll hear about this in this special bonus video, the United States could be going down the same path. Imagine, if we are stuck in the 2000s for the next couple decades. How will you ever be able to retire?

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Deflation.

Eurozone Retail Sales Fall More Than Expected In March (R.)

Euro zone retail sales fell more than expected in March against February as consumers cut purchases of food, drinks and tobacco, the EU’s statistics office said on Wednesday. Retail sales, a proxy for household spending, decreased 0.5% in March month-on-month in the 19-country currency union, Eurostat said. Economists polled by Reuters had forecast a much smaller decrease of 0.1%. Yearly figures were also lower than expected, with sales up 2.1%, below market forecasts of a 2.5% rise. The fall in March sales was partly offset by an upward revision of data for February.

Eurostat said on Wednesday that in February sales rose 0.3% on a monthly basis and 2.7% year-on-year. It had previously estimated an increase of 0.2% monthly and 2.4% yearly. On a monthly basis, retail sales of food, drinks and tobacco products dropped 1.3% in March, the biggest fall among all the categories. Sales of non-food products, excluding automotive fuels, went down 0.5% month-on-month. Purchases of fuel for cars also dropped 0.4% on a monthly basis. Among the largest euro zone economies, Germany posted a 1.1% monthly drop of retail sales and France recorded a decrease of 0.7%. In Spain, sales increased 0.4% on a monthly basis in March.

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Conservative.

Kyle Bass Sees 30% To 40% Losses On Chinese Investments (BBG)

Kyle Bass, founder of Hayman Capital Management, said investors wouldn’t be investing in China if they realized how vulnerable its banking system is. “Common sense will tell you that they are going to have a loss cycle,” he said at the Milken Institute Global Conference in Beverly Hills, California, on Wednesday. “So if you think about how precarious that system is, you wouldn’t be allocating money to China.” Bass, a hedge fund manager famed for betting against U.S. subprime mortgages, is predicting losses for China’s banks and raising money to start a dedicated fund for bets in the nation. Bass said investors putting money in Asia should ask if they can handle 30 to 40% writedowns in Chinese investments.

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Or so we’re supposed to think.

Hong Kong Cracks Down On Fake Trade Invoices From China (R.)

Hong Kong is conducting a multi-pronged customs, shipping and financial sector crackdown against so-called fake trade invoicing that allows billions of dollars of capital to leave China illegally. Hong Kong’s central bank told Reuters it has beefed up its scrutiny of banks’ trade financing operations, while customs officials are doing more random checks on shipments crossing border posts and conducting raids on warehouses to ensure the authenticity of goods, senior officials working in shipping, logistics and banking said. The head of a logistics company said surprise customs inspections at Hong Kong border posts had doubled. The sources[..] said the increased efforts began this year and reflected concerns about billions of dollars in illicit cash authorities suspect are being channeled through Hong Kong following a stock market crash in China last year.

“Examinations and investigations reflect one of the strongest trends we are seeing now in the financial sector,” said Urszula McCormack, a partner at law firm King & Wood Mallesons, which helped co-author a report published by The Hong Kong Association of Banks in February that highlighted shipping as a sector where fake invoicing can thrive. “(Hong Kong) regulators are now in enforcement mode.” China has become increasingly concerned about capital outflows since the middle of last year when Chinese rushed to get money offshore for safekeeping or to invest following the stock market slump and unexpected yuan devaluation. Hong Kong is the most popular route, analysts say, because of its proximity to China.

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Until counterparties start raising their voices?!

Regulators Want to Slow Runs on Derivatives (BBG)

Nobody quite knows what it means for a bank to be “too big to fail,” so the regulators in charge of solving the problem have an understandable focus on tidiness. A bank that fails tidily, sensibly, in neat little compartments, probably won’t do much damage to anyone else. A bank whose failure is sprawling and incomprehensible might well turn out to be catastrophic. So the preferred mechanism for winding up a possibly too-big-to-fail bank these days is largely about compartmentalization. You put all of the important, messy stuff into subsidiaries – put the deposits in a bank subsidiary, the repurchase agreements and derivatives in a broker-dealer subsidiary, etc. – and put those subsidiaries under a “clean” bank holding company with a fairly large amount of capital and long-term debt.

Then if things go horribly wrong, the holding company’s shareholders and bondholders are the ones who lose money, shielding the people who have messier and more systemic claims on the subsidiaries. The regulators swoop in and recapitalize the holding company, or just sell the subsidiaries to other, healthier banks, in any case without ever interrupting service at the systemic subsidiaries. All the bad stuff happens at the holding company, all the important stuff happens at the subsidiaries, and you try to avoid mixing the two. Then all you have to do is make sure that the holding company has enough equity and long-term debt to shield the subsidiaries against any plausible bad outcome. But to make this work you really need to keep things in their boxes. Derivatives have a tendency to want to jump out of their boxes.

In particular, if bad things are happening at a large and systemically important bank holding company, there isn’t a lot of reason for the bank’s derivatives counterparties and repo creditors to stick around. Repo is meant to be a super-safe place to park your money overnight; if it looks like a repo counterparty might default, then you look for a different counterparty. And derivatives are just supposed to work: If Bank A owes you money under an interest-rate swap, and you owe Bank B money under an offsetting swap, and Bank A defaults, then all of a sudden you have an unanticipated unhedged risk. So if your derivatives or repo counterparty gets in trouble, you bail immediately to protect yourself. (Also there is always the possibility of making a lot of money on the unwind.) But while this is individually rational, it is systemically bad. As Janet Yellen put it yesterday:

“The crisis underscored that when a large financial institution gets into trouble, its failure can destabilize other firms. This is because large banking organizations are connected with each other by the business they do together and through the contracts that result from that business. Indeed, in the 21st century, a run on a failing banking organization may begin with the mass cancellation of the derivatives and repo contracts that govern the everyday course of financial transactions. When these contracts, known collectively as Qualified Financial Contracts or QFCs, unravel all at once at a failed large banking organization, an orderly resolution of the bank may become far more difficult, sparking asset firesales that may consume many firms.”

So yesterday U.S. banking regulators proposed new rules to prevent that from happening. The rules basically say that a bank subsidiary’s derivatives and repo contracts can’t be cancelled for 48 hours after the bank’s holding company files for bankruptcy or otherwise enters resolution proceedings. This gives the regulators two days to swoop in and conduct the neat resolution of the bank before its derivatives spill out everywhere and create a mess.

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Not only about economics. But if the economy were growing like crazy, the Brexit risk would be much more subdued.

Brexit, Like Grexit, Is Not About Economics (WSJ)

Britain’s flirtation with leaving the European Union is as puzzling as Greece’s stubborn desire to stay. After all, Britain’s economy has done quite well inside the bloc while Greece’s has been decimated. What explains both sentiments is that the European project has always been about more than economics. It also seeks “an ever closer union among the peoples of Europe,” as the Treaty of Rome, its founding charter, declared in 1957. “Closer union” with Europe deeply appeals to Greeks, whose own state has failed them so badly. But it repels many Britons, whose state works just fine and who want no part of a European political union. For them, the quagmire of the euro, which Britain hasn’t adopted, is a cautionary tale of what such a union could bring.

How they decide between the economic benefits and political risks of staying could determine whether Britain votes to leave the EU in a June 23 referendum. Greece joined the European Economic Community, the EU’s predecessor, in 1981, in search of shelter from foreign invaders, domestic coups, and its own dysfunctional government. Economics actually argued against membership: EEC technocrats said Greece wasn’t ready, but were overruled by political leaders worried about geopolitical instability on the Continent’s southern flank. The same logic brought Greece into the euro in 2001 when its debts and deficits should have disqualified it. Greece’s underdeveloped, overprotected economy was poorly prepared for life inside the EU.

A study led by Nauro Campos of Brunel University concluded only Greece was poorer in 2008 for having joined the EU; Britain, they reckon, was 24% richer. Eurozone membership initially brought down Greek interest rates and unleashed a borrowing binge but resulted in crisis and a six-year depression. Yet Greeks still don’t want to give up the euro. “Anglo Saxons think the euro is only an economic and financial project,” said Yannis Stournaras, governor of the Greek central bank, in an interview. “It’s political as well. It’s a means to an identity. We feel safer in the euro.” British considerations were just the opposite. A Conservative government took Britain into the EEC in 1973 largely for its trade benefits, a decision voters overwhelmingly approved in a 1975 referendum.

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You don’t say.

Even ‘Small Crisis’ Enough To Tear EU Apart, Moody’s Warns (Tel.)

Fresh turmoil in the EU risks triggering the disintegration of the entire bloc, according to Moody’s. In a stark warning, the rating agency said the “painful adjustment” faced by some countries in the eurozone meant the collapse of the single currency area and wider EU was believed by some to be a question of “when” not “if”. Moody’s said that even a “small crisis” threatened to set off an uncontrollable chain of events that would “threaten the sustainability” of the EU and its institutions. The rating agency praised the “significant political progress” made since the crisis in putting the foundations in place for a banking union and creating a eurozone rescue fund. However, it said endless austerity demands in return for bail-outs had fuelled deep resentment across the region, especially in countries weighed down by sky-high unemployment.

“Significant vulnerabilities” facing the bloc such as a British exit from the EU also remained, which would fuel support for “anti-establishment and anti-EU parties elsewhere”, it warned in a report. Colin Ellis, Moody’s chief credit officer for Europe, said a British exit could spark an “existential moment” for the bloc. “Even if the EU survives its current challenges largely unscathed, even a ‘small’ future crisis could threaten the sustainability of current institutional frameworks, if it coincided with negative public sentiment and populist political developments,” the report said. “This can create the impression that the question is when the system breaks, rather than if.”

It came as Mervyn King, the former governor of the Bank of England, warned that the eurozone faced four “unpalatable choices” as policymakers struggle to lift the bloc out of its economic malaise. Lord King said the single currency area would have to choose between an economic “depression” in the south, higher inflation in northern states like Germany, permanent fiscal transfers or a “change of composition of the euro area”. However, he told an audience in Frankfurt that there was “a limit to the economic pain that can be imposed in pursuit of a federal Europe without risking a political reaction. “There are no empires in Europe any more and our leaders would do well not to try to recreate one.”

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Ambrose votes Brexit?!

Let The TTIP Die If It Threatens Parliamentary Democracy (AEP)

Unloved, untimely, and unnecessary, the putative free trade pact between Europe and America is dying a slow death. The Dutch people have amassed 100,000 signatures calling for a referendum on this Transatlantic Trade and Investment Partnership, or TTIP. The number is likely to soar after Greenpeace leaked 248 pages of negotiation papers over the weekend. The documents do not exactly show a “race to the bottom in environmental, consumer protection and public health standards” – as Greenpeace alleges – but they do raise red flags over who sets our laws and who holds the whip hand over our eviscerated parliaments. Dutch voters have already rebuked Brussels once this year, throwing out an association agreement with Ukraine in what was really a protest against the wider conduct of European affairs by an EU priesthood that long ago lost touch with economic and political reality.

French president François Hollande cannot hide from that reality. Faced with approval ratings of 13pc in the latest TNS-Sofres poll, a TTIP mutiny within his own Socialist Party, and electoral annihilation in 2017, he is retreating. “We don’t want unbridled free trade. We will never accept that basic principles are threatened,” he said. In Germany, just 17pc now back the project, and barely half even accept that free trade itself a “good thing”, an astonishing turn for a mercantilist country that has geared its industrial system to exports. The criticisms have struck home. The Dutch, Germans, and French, have come to suspect that TTIP is a secretive stitch-up by corporate lawyers, yet another backroom deal that allows the owners of capital to game the international system at the expense of common people.

Weighty principles are at stake. The Greenpeace documents show that the EU’s ‘precautionary principle’ is omitted from the texts, while the rival “risk based” doctrine of the US earns a frequent mention. Clearly, the two approaches are fundamentally incompatible. It is a heresy in our liberal age – a sin against Davos orthodoxies – to question to the premises of free trade, but this tissue rejection of the TTIP project in Europe may be a blessing in disguise. You can push societies too far. [..] The European Commission’s Spring forecast this week has an eye-opening section on the rise of inequality. Without succumbing to the fallacy of ‘post hoc, propter hoc’, it is an inescapable fact that the pauperisation of Europe’s blue collar classes corresponds exactly with the advent of globalisation.

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Let’s sign another set of deals with them.

Turkey In Political Freefall As Erdogan Grabs More Power, PM To Resign (MEE)

News that Turkish Prime Minister Ahmet Davutoglu, after meeting President Recep Tayyip Erdogan, is to announce the holding of a party congress on Thursday, effectively signifying his resignation, has sent shockwaves through the country. The value of the Turkish Lira dropped from 2.79 to the dollar earlier in the day to 2.94. Davutoglu is expected to make the announcement at 1100am local time. After 14 years in power, the ruling Justice and Development Party (AKP) may be coming apart at the seams. But far more threatening than the unravelling of a political party are fears about the direction in which the country is headed. Both domestic and international critics have for years pointed to the growing authoritarianism and strong-man tactics employed by Erdogan. The fact that he can so easily dismiss the prime minister, a man he rapidly promoted through the ranks, is sending shivers down the spines of many.

“This is a palace coup,” said Yusuf Kanli, a veteran commentator on Turkish politics. “The president wanted the prime minister to step down and that’s it. Now we will have a party convention in May or early June,” Kanli told Middle East Eye. Rumours of tensions within the party have been rife for almost a year, but not even the AKP’s worst enemies had imagined a split could occur on such a scale. Unconfirmed reports suggest the AKP will convene a party congress within 60 days and that Davutoglu will not stand as a candidate. “Events today show that the AKP will move to consolidate Erdogan’s aspirations of becoming a super president. Whether they will succeed remains to be seen. These are very fine political calculations,” Kanli said. The party congress elects the party chairman, who automatically becomes their choice for prime minister.

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Now confirmed by another study.

Study: Bailouts Went To Banks, Only 5% To Greeks (Hand.)

After six years of ongoing bailouts amounting to more than €220 billion, or $253 billion in loans, Greece just cannot get out of crisis mode. It is tempting to blame those who refused to reform the country’s pensions and labor markets for the latest calamity. But a study by the European School of Management and Technology, a copy of which Handelsblatt has obtained exclusively, gives another perspective. The aid programs were badly designed by Greece’s lenders, the ECB, the EU and the IMF. Their priority, the report says, was to save not the Greek people, but its banks and private creditors. This accusation has been around for a long time. But now, for the first time, the Berlin-based ESMT has compiled a detailed calculation over 24 pages.

Their economists looked at every individual loan instalment and examined where the money from the first two aid packages, amounting to €215.9 billion, actually went. Researchers found that only €9.7 billion, or less than 5% of the total, ended up in the Greek state budget, where it could benefit citizens directly. The rest was used to service old debts and interest payments. The report comes as the EU and the Greek government prepare to hold negotiations about further debt relief. E.U. Economics Commissioner Pierre Moscovici said he hoped all sides could reach an agreement at a special meeting of the Eurogroup of euro-zone finance ministers next Monday. Extensions of credit repayment periods, deferments and freezing interest rates are all being discussed. This “debt relief light” would not affect private investors – just the loans from Europeans.

At the moment, German Chancellor Angela Merkel and her colleagues are not inclined to listen to the Greek prime minister, Alexis Tsipras, as he asks for a new multi-billion euro aid package. It is easy to understand why. The chancellor must feel she has seen it all before. She has experienced many near state bankruptcies since early 2010 when she put together the first bailout for Greece. But Jörg Rocholl, president of the European School of Management and Technology said that his institute’s research shows that the biggest problem lies with the way the bailout packages were designed in the first place. “The aid packages served primarily to rescue European banks,” he said. For example, €86.9 billion were used to pay off old debts, €52.3 billion went on interest payments and €37.3 billion were used to recapitalize Greek banks.

Of course, the servicing of debts and interest payments is a major source of expenditure in any state budget – so the Greek state did benefit from it indirectly, as it had also spent the loan money beforehand. But the new calculations do throw doubts on whether the aid programs were sensibly constructed: The loans were used to service debt, although Greece has been de facto bankrupt since 2010.

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Apart form the obvious human tragedy, I don’t know why, but nobody talks about this being the end of the tar sands industry. That’s a real possibility, though. Nearly all workers live in the town. And so oil prices are up a bit for the moment.

The Terrible News From Fort McMurray, And The Hope That Remains (G&M)

On Monday, residents of Fort McMurray watched anxiously as wildfires burned southwest of the northern Alberta city. Fort Mac’s streets are carved out of the boreal forest at the spot where the Clearwater River flows into the Athabasca. Backyards in the residential neighbourhoods in the west and northwest run up against walls of pine and spruce. Forest fire is always a threat, but on Monday the smoke and flames appeared to be far enough away to allow for hope that the city was safe. On Tuesday, the worst happened. The winds came up and the wildfires flanked the city. The two oldest residential developments, Abasands and Beacon Hill, have been decimated. Thickwood, Timberlea and Parsons Creek, the newest and by far the largest residential developments, where there are modern schools and shopping malls and a beautiful ravine park, were on the verge of being overrun by the flames.

The destruction by fire of an entire Canadian city of more than 80,000 people is suddenly a possibility. Fort McMurray is a remarkable place. People from across Canada and the world have built lives there. In grocery stores, you’ll find halal meats displayed alongside cod tongues. Muslim and Christian children mix easily at the new Roman Catholic high school. Fort Mac is often maligned as a transient, wild west town and a symbol of oil extraction at all costs, but it is in fact a tolerant, diverse and progressive city – a very Canadian boomtown. Not perfect, but doing its best to be a durable home for oil sands workers in spite of the capriciousness of oil prices, the isolation and the long winters.

The focus now is on the logistics of caring for 89,000 evacuees – a staggering challenge. Government officials at all levels and in all provinces, along with private industry and the many native bands around Fort McMurray, are offering aid. Residents are safe and, miraculously, no one has been reported killed or injured. But many, or even perhaps all, may not have homes to return to.

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Temperature anomalies keep spreading.

‘Omega Block’ Behind Searing Heat Inflaming Fort McMurray Wildfire (WaPo)

Unseasonably hot weather in Alberta, Canada, is fueling the worst wildfire disaster in the country’s history. An extreme weather pattern, known as an omega block, is the source of the heat. An omega block is essentially a stoppage in the atmosphere’s flow in which a sprawling area of high pressure forms. This clog impedes the typical west-to-east progress of storms. The jet stream, along which storms track, is forced to flow around the blockage. At the heart of the block in Canadian’s western provinces, the air is sinking and much warmer than normal. Such a clog can persist for days until the atmosphere’s flow is able to break it down and flush it out.

Centers of storminess form on both sides of the block, and the resulting jet stream configuration takes on the likeness of the Greek letter omega. In this case, cool and unsettled weather is affecting the eastern Pacific Ocean and eastern North America, including much of the U.S. East Coast. As the Fort McMurray wildfire rapidly spread Tuesday, temperatures surged to 90 degrees (32 Celsius), shattering the daily record of 82 degrees set May 3, 1945. Dozens of other locations in Alberta also had record high temperatures. More records are likely to fall today. Temperatures are forecast to climb well into the 80s today at Fort McMurray, about 30 degrees warmer than normal. The average high is in the upper 50s.

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This is very far from over.

UN Envoy Warns of New Wave of 400,000 Refugees From Syria (WSJ)

A top United Nations official warned of a new tide of refugees from Syria if world powers didn’t succeed in calming an outbreak of hostilities in and around the northern Syrian city of Aleppo. Staffan de Mistura, the U.N.’s special envoy for Syria, said after meeting with European diplomats and Syrian opposition officials Wednesday that the priority in moving forward with a peace process for Syria was to stop the fighting around what was once Syria’s most populous city. “The alternative is truly quite catastrophic,” Mr. de Mistura said. “We could see 400,000 people moving toward the Turkish border.” The talks in Berlin centered on ways to return to talks in Geneva on Syria’s political future. The opposition’s High Negotiations Committee, headed by Riad Hijab, pulled out of those talks on April 18 as a cessation of hostilities agreed to in February disintegrated.

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