Jan 032018
 
 January 3, 2018  Posted by at 10:51 am Finance Tagged with: , , , , , , , ,  


GordonParks Untitled, Paris, France 1951

 

UPDATE: There is a problem with our Paypal widget/account that makes donating hard for some people. What happens is that for some a message pops up that says “This recipient does not accept payments denominated in USD”. This is nonsense, we do.

We have no idea how many people have simply given up on donating, but we can suggest a workaround (works like a charm):

Through Paypal.com, you can simply donate to an email address. In our case that is recedinghorizons *at* gmail *com*. Use that, and your donations will arrive where they belong. Sorry for the inconvenience.

The Automatic Earth and its readers have been supporting refugees and homeless in Greece since June 2015. It has been an at times difficult and at all times expensive endeavor. Not at least because the problems do not just not get solved, they actually get worse. Because the people of Greece and the refugees that land on their shores increasingly find themselves pawns in political games.

Therefore, even if the generosity of our readership has been nothing short of miraculous, we must continue to humbly ask you for more support. Because our work is not done. Our latest essay on this is here: The Automatic Earth for Athens Fund – Christmas and 2018 . It contains links to all 14 previous articles on the situation.

Here’s how you can help:

 

 

For donations to Konstantinos and O Allos Anthropos, the Automatic Earth has a Paypal widget on our front page, top left hand corner. On our Sales and Donations page, there is an address to send money orders and checks if you don’t like Paypal. Our Bitcoin address is 1HYLLUR2JFs24X1zTS4XbNJidGo2XNHiTT. For other forms of payment, drop us a line at Contact • at • TheAutomaticEarth • com.

To tell donations for Kostantinos apart from those for the Automatic Earth (which badly needs them too!), any amounts that come in ending in either $0.99 or $0.37, will go to O Allos Anthropos.

 

Please give generously.

 

 

Financial Markets Are No Longer A Mechanism For Price Discovery (Guinn)
Stocks Start 2018 On Positive Note But Investor Confidence Keeps Falling (BBG)
Baltic Dry Index Plunges Most In 2 Years (ZH)
The Next Financial Crisis Will Be Worse Than the Last One (Nomi Prins)
China’s Small Banks Dumped on Signs of More Policy Pain in 2018 (BBG)
Brits Spend 5 Times More Of Their Pay On Rail Fares Than EU Commuters (Mirror)
US Blocks MoneyGram Sale To China’s Ant Financial (R.)
Australia Property Market Is Repeating US Mortgage Mistakes (AFR)
Bankers Work Around The Clock To Iron Out EU Finance Reforms (R.)
Welcome to 2018 – We Are All Connected (Krieger)
Athens To Propose Transfer Of Migrants To Ankara (K.)

 

 

Thsis is what people tend to forget. Things look normal. But the more normal they look, the more risk there is.

Financial Markets Are No Longer A Mechanism For Price Discovery (Guinn)

This Time It’s Different. It’s not different because people really got it right this time (in ways they missed every other time) about some new technology that’s going to Change The World! Electric cars, cryptocurrency, AI and automation, these may all be fabulous things, and they may well prove to be game-changers for productivity and returns on capital down the line, but if you think any of those things explain current valuations, you’re nuts. You’re also wrong. It’s different because financial markets are no longer a mechanism for price discovery and the pricing of risk of capital allocation decisions. Markets have been made into a utility. More to the point, they have been made into a political utility, a tool for ensuring wealth and stability of our political structures.

The easing tools we dabbled in to stabilize prior business cycles were brought to bear instead as tools for propping up and expanding financial asset prices. Beyond the direct marginal price impact of the easing itself, central bankers tailored communications policies to create Pavlovian responses to every narrative. Our President tweets about the policy implications when the S&P 500 hits new highs, for God’s sake. This isn’t a secret, y’all. The singular intent of every central banker in the world is to keep the prices of financial assets from going down, and the singular intent of every government that puts those central bankers in power is to ensure that they do so, in order to retain social stability.

Sure, there’s a dual mandate. But the mandates aren’t employment and price stability. They’re (1) expanding financial asset prices and (2) effectively marketing the idea of corresponding wealth effects to the public. Markets have also rapidly become a social utility, an inextricable part of every contract between governments and the governed. Underfunded pensions and undersized boomer 401(k) accounts mean that ownership of risky assets is not a choice driven by diversification or relative return expectations, but by the fact that it is the only asset they can buy that has any potential of meeting the returns they would need to be adequately funded.

Let’s say that you are running a state pension plan that is 65% funded. Your legislature is telling you that no help is coming from the state budget. You and every member of your agency will be fired if you even suggest cutting benefits, if you even have that authority. Your consultant or internal staff just did their new mean reversion-based capital markets return projections, and higher valuations mean projected returns on everything are lower. What’s worse, your funded status assumes returns that are higher than anything on their sheet. You are being presented with a Hobson’s Choice — behind Door #1, you get fired, and behind Door #2, you lever up your stock exposure with an increased private equity allocation. This a brutal position to be in.

Read more …

While you were sleeping.

Stocks Start 2018 On Positive Note But Investor Confidence Keeps Falling (BBG)

Stocks kicked off 2018 on a positive note, as U.S. equities led the MSCI All-Country World Index to its best start since 2013. To the bears, every move higher only serves to underscore a growing divergence between stocks and sentiment. State Street Global Markets’ index of institutional investor confidence, which differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, fell for a fifth straight month in December, the firm said last week. What’s jarring is how the measure has fallen as the MSCI index of stocks has soared, after largely moving in line with the benchmark in the first half of 2017.

The latest reading of 94.8 puts State Street’s the index further below 100, which is “neutral,” or where investors are neither increasing nor decreasing their long-term allocations to risky assets. By region, sentiment fell in both North America and Asia, but rose strongly in Europe in what State Street said is a sign that that European-based investors are becoming less concerned that political risks could derail the strong economic performance in that region.

Read more …

Our old friend the Baltic has a say as well.

Baltic Dry Index Plunges Most In 2 Years (ZH)

The last six months have seen an almost unprecedented surge in world macro-economic data upside-beats as the so-called ‘global coordinated growth’ narrative surprised more dismal economists. Until recently, The Baltic Dry shipping index had confirmed that narrative… But The Baltic Dry Index has dropped for 8 straight days, tumbling over 21% – the biggest drop since Jan 2015…

While there is seasonality in the index, this is a notable decoupling… (as Bloomberg notes, peak season typically boosts trade volume and pricing, benefiting liners. The industry’s slack capacity remains a drag on rate increases.) But in a longer-term context, the decoupling between global trade volumes and the Baltic Dry Index is vast…

As the overbuilding of vessels in previous credit-fueled bubblicious malinvestment booms continues to ripple through markets still.

Read more …

Good risk overview by Nomi.

The Next Financial Crisis Will Be Worse Than the Last One (Nomi Prins)

If you look at the stock and asset markets, as Donald Trump tends to do (and as Barack Obama did, too), you’d think all is fine with the world. The Dow Jones Industrial Average rose about 24% this year. The Dow Jones U.S. Real Estate Index rose 6.20%. The price of one Bitcoin rose about 1,646%. On the flip side of that euphoria however, is the fact that the median wage rose just 2.4% and has remained effectively stagnant relative to inflation.

And although the unemployment rate fell to a 17-year low of 4.1%, the labor force participation rate dropped to 62.7%, its lowest level in nearly four decades—particularly difficult for new entrants to the workforce, such as students graduating under a $1.3 trillion pile of unrepayable or very challenging student loan debt. (Not to worry though: Goldman Sachs is on that, promoting a way to profit from this debt by stuffing it into other assets and selling those off to investors, a la shades of the subprime mortgage crisis.)

Those of us living in the actual world without billionaire family pedigrees possess a healthy dose of skepticism over the “Make America Great Again” sect that believes Trump has transformed America “hugely,” for record-setting markets don’t imply economic stability, nor do 40% corporate tax cuts translate into 40% wage growth. We can march forward into 2018 carrying that knowledge with us.

Read more …

Can consolidation save the system?

China’s Small Banks Dumped on Signs of More Policy Pain in 2018 (BBG)

China’s smaller banks started the New Year with a double whammy from regulators and investors, and more pain may be looming. Bank of Tianjin tumbled by as much as 12% in the first two trading days, the biggest two-day decline since its Hong Kong listing in March 2016, after rallying at the end of last year. Bank of Jinzhou, Bank of Qingdao, and Huishang Bank fell by more than 3%. In contrast, bigger rivals have rallied. A policy announcement on Friday highlighted China’s tough stance toward smaller banks, which are already a target of government efforts to reduce leverage in the financial system. The People’s Bank of China said it will set up a mechanism for lowering banks’ reserve requirements as needed during the Lunar New Year festival next month, letting national lenders use as much as 2 %age points of reserves to meet liquidity needs for 30 days. The small banks, which are often the most cash-strapped, were excluded.

“This shows regulators are unrelenting in deleveraging efforts,” said Richard Cao at Guotai Junan Securities. Small banks seeking liquidity will have to borrow from bigger banks at higher costs, he added. China’s smaller banks have borne the brunt of a deleveraging campaign since April last year which has pushed up their borrowing costs, weakened profit growth and increased solvency risks, Natixis said in a December report. Funding for smaller banks “has clearly worsened” because they lack large deposit bases, said Alicia Garcia Herrero, the firm’s chief economist for Asia Pacific. The extensive branch networks of larger lenders lure deposits that act as a buffer as policy makers push ahead with deleveraging. Regulators ramped up financial supervision last year, targeting excessive interbank lending as well as the shadow financing that has helped some smaller lenders expand aggressively.

Read more …

it’s still Thatcher time in Britain. Never went away. She’s supposed to have said: A man who, beyond the age of 26, finds himself on a bus can count himself as a failure.

Brits Spend 5 Times More Of Their Pay On Rail Fares Than EU Commuters (Mirror)

Millions of British commuters are having a miserable morning as rail fares go up by 3.4%. The eye-watering above inflation hike is the biggest for five years. So just wait until you compare it to what some commutes cost on the continent. New research by the Trades Union Congress (TUC) shows Brits spend up to five times as much of their salary than some of their counterparts in Europe. An average worker travelling from Chelmsford, Essex, to central London will have to pay 13% of their salary for a £381 monthly season ticket, the TUC said. That compares with 2% for similar-length commute in France (£66), 3% in Italy (£65), 4% in Germany (£118) and 5% in Spain (£108) and Belgium (£144). Season tickets will increase a third faster than wages in 2018, the TUC warned.

TUC general secretary Frances O’Grady said: “Many commuters will look with envy to their continental cousins, who enjoy reasonably priced journeys to work.” Mick Cash, general secretary of the Rail, Maritime and Transport union, added: “While the British passenger is being pumped for cash, the same private companies are axing safety-critical staff and security on our trains and stations. “It’s a national scandal that private profit comes before public safety on our rail network. “Even worse, with 75% of Britain’s railways in overseas hands, it is the British people who are subsidising state-run rail operations across the continent. The Department for Transport today insisted 97% fares go back to the railways and will help fund the biggest modernisation since Victorian times, including Thameslink, Crossrail and the Great North Rail project.

Read more …

Too close to banking.

US Blocks MoneyGram Sale To China’s Ant Financial (R.)

A U.S. government panel rejected Ant Financial’s acquisition of U.S. money transfer company MoneyGram International over national security concerns, the companies said on Tuesday, the most high-profile Chinese deal to be torpedoed under the administration of U.S. President Donald Trump. The $1.2 billion deal’s collapse represents a blow for Jack Ma, the executive chairman of Chinese internet conglomerate Alibaba Group, who owns Ant Financial together with Alibaba executives. He was looking to expand Ant Financial’s footprint amid fierce domestic competition from Chinese rival Tencent’s WeChat payment platform.

Ma, a Chinese citizen who appears frequently with leaders from the highest echelons of the Communist Party, had promised Trump in a meeting a year ago that he would create 1 million U.S. jobs. MoneyGram shares were down 8.5% at $12.06 in after-market trading. The companies decided to terminate their deal after the Committee on Foreign Investment in the United States (CFIUS) rejected their proposals to mitigate concerns over the safety of data that can be used to identify U.S. citizens, according to sources familiar with the confidential discussions. “Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that CFIUS will not approve this merger,” MoneyGram Chief Executive Alex Holmes said in a statement.

Read more …

Really? It’s hard to say if there’s a bubble?

Australia Property Market Is Repeating US Mortgage Mistakes (AFR)

For all the endless discussion of housing prices in Australia, it is very hard to tell if there is a bubble. Sydney price-to-income ratios are the second highest in the world—above London and New York—but hey, Sydney is a great place to live. Supply is constrained by zoning laws, two national parks, a mountain range, and an ocean. Yet demand continues to grow, so prices tend to rise. I don’t know if there’s a bubble in the Australian housing market, but there are some very troubling markers that suggest impudent borrowing and lending. Just the sort of things that preceded the US housing implosion nearly a decade ago. And I worry that bankers, borrowers, and regulators seem not to have learned the lessons of that very painful piece of economic history.

First, the markers. Australia lenders will let you borrow a lot compared to your income. If one adjusts for tax and exchange rates and uses an online mortgage calculator, it is easy to see than a major Australian bank will lend about 25% more for the same income level compared with what a major US bank will now lend. Not only can one borrow a lot, the structure of the loans is often very risk. A staggering 35.4% of home loans in Australia are interest only, according to recent APRA figures. That has dropped from above 40% thanks to APRA’s recent 30% cap on the amount of new loans that can be interest only. Don’t forget that a key trigger of the US housing meltdown was when five-year adjustable rate mortgages could not be refinanced, and borrowers faced steep upticks every quarter in their interest rates.

Interest-only loans in Australia typically have a five-year horizon and to date have often been refinanced. If this stops then repayments will soar, adding to mortgage stress, delinquencies, and eventually foreclosures. So-called “liar loans”, where borrowers provide inaccurate information about their income, assets, or expenses to lenders seem both prevalent and on the rise. A UBS survey in late 2017 found that approximately 30% of home loans, or $500 billion worth could be affected.

Read more …

Oh well, the idea I guess is commendable.

Bankers Work Around The Clock To Iron Out EU Finance Reforms (R.)

Bankers will work through the night to iron out last-minute hitches before Wednesday’s launch of a major change to European Union financial markets that aims to apply lessons from the financial crisis nearly a decade ago. The new rules are already a year late due to their complexity, with regulators having to issue 11th-hour guidance to banks and financial firms to avoid freezing up trades as well as calming nerves of those not yet fully compliant. The new regime shines a spotlight on the innards of stock, bond, commodity and derivatives markets by forcing banks, asset managers and traders to report detailed information on trillions of euros in transactions. Banks and trading firms have spent millions of euros getting ready for the big day.

A report from Expand, part of the Boston Consulting Group and IHS Markit, has estimated that top global banks and asset managers will have spent £1.5bn ($2.1bn) this year to comply with the rules. Royal Bank of Scotland’s NatWest Markets has conducted a “soft launch”. From 2 January to 4 January, some of its staff will work through the night. “Day one will hopefully go smoothly and we are as ready as we can be,” Giovanni Mazzocchi, head of macro distribution in Europe for Barclays, said. “There are a few overnighters going on to make sure everything will work on the day.”

Credit rating agency Standard & Poor’s said there would likely be more losers than winners from the changes. The aim is to boost transparency and strengthen investor protection to avoid some of the problems of the 2007-2009 financial crisis. Stock, bond, derivatives, commodity and other trades must all be reported to a repository, giving regulators a trove of data to track trades and try to spot bubbles early after failing to see the last crisis coming. When the rules go live on Wednesday, fund managers and others must for the first time fill in a transaction report with up to 65 bits of data within 15 minutes of a trade – or risk being fined.

Read more …

I wish I could share Mike Krieger’s optimist visions of internet and social media. I can’t. I see them divide people at least as much as bringing them together.

Welcome to 2018 – We Are All Connected (Krieger)

Over the course of 2017, I spent a lot of time detailing where we stand as a species and where I think we’re going. To summarize, I think the positive impact of the internet and social media on humanity is still very much in its infancy. The more connected we become to one another across the planet, the more we’ll realize we have far more in common with one another than we do with the sociopathic oligarchs and politicians in charge of our respective nation-states.

Much of the 20th century was defined by unimaginable human conflict and terror, unleashed upon the public by crazed elites and rulers who were able to successfully manipulate large populations. The key to preventing a repeat of this sort of thing in the 21st century is billions of human beings across the planet communicating and sharing friendship with one another to the point we can no longer be tricked in killing each other. We need to learn to see “the other” in ourselves and voluntarily collaborate with our fellow humans on the challenges that face us in order to bring our species to the next level. This isn’t just a pipe-dream or insane utopian ramblings, I think it’s entirely possible.

[..] When I think about 2018 and beyond, I see a species in the early stages of a historic transformation. We are moving away from hierarchies and into networks. Away from centralization and into decentralization. From the unconscious to the conscious. That said, the old system isn’t gone just yet. It remains a dangerous zombie, and its benefactors will fight to keep their schemes alive. The years ahead will be characterized by increased tension between the old and the new. What comes next is up to us. Never forget that we are all connected. That you have tremendous power to impact the world based on your everyday thoughts and actions. Understand that we don’t have to live this way. Fill your heart with love, not hate. Stay true to your higher nature. If enough of us do this, the future is unimaginably bright.

Read more …

As Berlin and Brussels deck it out with Erdogan, they force Greece to consider an approach.

Athens To Propose Transfer Of Migrants To Ankara (K.)

In a bid to reduce overcrowding at migrant reception centers on the Aegean islands, the government is to propose to Turkey that asylum seekers who are not high on the list of eligibility for protection be transferred to camps on the mainland and subsequently to Turkey, Kathimerini understands. “We are asking that we be allowed to conduct returns either directly from the islands or from the mainland in the context of the EU-Turkey joint statement,” a government official told Kathimerini, referring to a deal between Brussels and Ankara signed in March 2016 aimed at curbing migrant smuggling across the Aegean. According to sources, Turkish government officials have indicated that Ankara will respond to Greece’s request in the first half of January.

During a landmark visit to Greece last month, the first by a Turkish head of state in 65 years, President Recep Tayyip Erdogan and Greek Prime Minister Alexis Tsipras agreed to cooperate more closely in tackling the refugee crisis. According to sources, Erdogan accepted Tsipras’s request that Turkey take back migrants from the Greek mainland as well as the islands. It remains unclear, however, whether officials in Brussels approve of the deal. Tsipras’s government is keen to ease pressure on reception centers by jumpstarting the return of migrants to Turkey, a process that has largely halted as new arrivals often lodge applications for asylum. By ensuring that those being returned are not refugees from war zones such as Syria, authorities believe they will overcome the objections of some within leftist SYRIZA who have taken a tough stance against returns to Turkey.

Read more …

To make a prairie it takes a clover and one bee,
One clover, and a bee.
And revery.
The revery alone will do,
If bees are few.

– “To make a prairie”, Emily Dickinson

Dec 172015
 
 December 17, 2015  Posted by at 9:31 am Finance Tagged with: , , , , , ,  


Unknown Fed Ponders Interest Rates 1917

Fed Raises Interest Rates, Citing Ongoing US Recovery (Reuters)
Fed Removes Reverse Repo Cap to Ensure Control Over Rates (BBG)
Fed May Have To Drain $1 Trillion In Liquidity To Push Rates 25 bps Higher (ZH)
Fed Leaves China Only Tough Choices (BBG)
The Fed By The Numbers – And Why They Are Wrong (Steve Keen)
Baltic Dry Index Plunges to Fresh Record Low Amid China Steel Slump (BBG)
This Junk Bond Derivative Index Is Saying Something Scary About Defaults (BBG)
$100 Billion Evaporates as World’s Worst Oil Major Plunges 90% (BBG)
EU Anti-Fraud Arm Investigating Loans to VW to Develop Cleaner Engines (BBG)
Austria Started the Collapse in Great Depression. Will It Do so Again? (MA)
US Humiliation Is Complete: Assad Can Stay (AP)
IMF Recognizes Ukraine’s Contested $3 Billion Debt To Russia As Sovereign (RT)
Earth’s Warmest November On Record By ‘Incredible’ Margin (WaPo)
Even If The Global Warming Scare Were A Hoax, We Would Still Need It (AEP)
159,792 Reasons for EU’s Flummoxed Refugee Policy (BBG)
World Bank, UN Urge Sea Change In Handling Of Syrian Refugees Crisis (Guardian)
Dozens Of Refugees Missing After Boat Sinks Off Lesvos, 2 Confirmed Dead (AP)

A recovery built on ZIRP is not real.

Fed Raises Interest Rates, Citing Ongoing US Recovery (Reuters)

The Federal Reserve hiked interest rates for the first time in nearly a decade on Wednesday, signalling faith that the U.S. economy had largely overcome the wounds of the 2007-2009 financial crisis. The U.S. central bank’s policy-setting committee raised the range of its benchmark interest rate by a quarter of a%age point to between 0.25% and 0.50%, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs. “With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate,” Fed Chair Janet Yellen said in a press conference after the rate decision was announced. “The economic recovery has clearly come a long way.”

The Fed’s policy statement noted the “considerable improvement” in the U.S. labour market, where the unemployment rate has fallen to 5%, and said policymakers are “reasonably confident” inflation will rise over the medium term to the Fed’s 2% objective. The central bank made clear the rate hike was a tentative beginning to a “gradual” tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target. “The process is likely to proceed gradually,” Yellen said, a hint that further hikes will be slow in coming. She added that policymakers were hoping for a slow rise in rates but one that will keep the Fed ahead of the curve as the economic recovery continues. “To keep the economy moving along the growth path it is on … we would like to avoid a situation where we have left so much (monetary) accommodation in place for so long we have to tighten abruptly.”

Read more …

The winners once again are money market mutual funds and broker-dealers. They profit whatever happens.

Fed Removes Reverse Repo Cap to Ensure Control Over Rates (BBG)

The Federal Reserve removed the daily limit on aggregate borrowings through its overnight reverse repurchase facility, previously set at $300 billion, in a step designed to make sure the benchmark interest rate stays inside its new target range. The size of the facility will be “limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day,” the Fed said in a statement on Wednesday in Washington. The move came in conjunction with the Federal Open Market Committee’s decision to increase the target range for the federal funds rate by a quarter percentage point to 0.25% to 0.5%.

The Fed increased the interest it pays on overnight reverse repos to 0.25% from 0.05% to put a floor at the lower end of the range. It also raised the interest it pays on excess reserves held at the Fed to 0.5% from 0.25% to mark the upper end of the range. Fed reverse repos are conducted with money market mutual funds and broker-dealers and serve to drain excess liquidity from money markets. If investors offered to lend the Fed more money than the Fed was willing to borrow, the central bank wouldn’t be able to keep interest rates in its new target range. This happened in September 2014 on the final day of the quarter, driving rates below the Fed’s target range.

Read more …

This is big in the background: “..by the time short term rates hit 1%, the Fed may have soaked up as much $4 trillion in liquidity.”

Fed May Have To Drain $1 Trillion In Liquidity To Push Rates 25 bps Higher (ZH)

Two weeks ago, we cited repo-market expert E.D. Skyrm who calculated that moving general collateral higher by 25bps would require the Fed draining up to $800 billion in liquidity: “In 2013 on my website, I calculated that QE2 moved Repo rates, on average, 2.7 basis points for every $100B in QE. So, one very rough estimate moved GC 8 basis points and the other 2.7 basis points per hundred billion. In order to move GC 25 basis points higher, in a very rough estimate, the Fed needs to drain between $310B and $800B in liquidity.” That may be conservative. According to Citigroup’s latest estimate, the liquidity drain could be substantially greater. Here is the take of Jabaz Mathai

There will be a separate document from the NY Fed with details around the operational aspects of the liftoff. Of primary interest will be the size of the overnight reverse repo facility that the Fed will put in place to pull short rates higher. We don’t think it will be unlimited, but a size large enough that will keep short rates from falling below the 25bp floor – and the size could be as high as $1tn.

Putting this liquidity drain in context, the entire QE2 injected “only” $600 billion in liquidity in the span of many months, suggesting that as of tomorrow, the Fed may drain as much as 166% of its entire second quantitative easing operation overnight. Whether that liquidity is inert and can be easily released by banks, and more importantly, non-banks without resulting in any additional risk tremors is the first $640 billion question that the Fed is facing. The second, third and fourth? Assuming a linear relationship and another 3 rate hikes until the end of 2014, this means that by the time short term rates hit 1%, the Fed may have soaked up as much $4 trillion in liquidity. Here one thing is certain: a $1 trillion drain may not have a material impact when starting from a $2.6 trillion excess reserve base. $4 trillion, however, will leave a mark (the Fed’s entire balance sheet is $4.5 trillion) especially once the market starts to discount just how the rate hike plumbing takes place.

Read more …

All of it true, except that it has nothing to do with the Fed.

Fed Leaves China Only Tough Choices (BBG)

No one will blink if the Fed raises U.S. interest rates 50 basis points today, signaling an end to the cheap-money era. The U.S. central bank has telegraphed its move for months and while pockets of lingering weakness will spur some Fed watchers to challenge the decision, there’s little reason to believe such a small move will nudge the world’s biggest economy back into recession. A relatively easy decision for the Fed, however, is making life much harder for policymakers on the other side of the world. The People’s Bank of China has recently been burning through its $3.4 trillion stash of foreign-exchange reserves, spending nearly $100 billion a month to prop up the value of the yuan. Higher U.S. interest rates and a stronger dollar are sure to spur further capital outflows, especially given continued worries about the Chinese economy.

Chinese leaders seem willing to accept some mild depreciation while preparing for full liberalization of the yuan; in the future, the currency’s value may be determined against a basket of 13 currencies including the euro and yen, which would increase downward pressures. If the PBOC were to pull back now, however, the currency’s gentle glide could quickly turn into a nosedive. Given the dollar’s strength against emerging market currencies, a true free float could spark a devaluation of more than 30%. In that event, China would have few weapons at its disposal. In November, the yuan joined the IMF’s elite club of reserve currencies – a victory of great symbolic importance to Chinese leaders. If they imposed capital controls to halt the yuan’s downward slide, they’d suffer massive embarrassment, not to mention hard questions about their economic management skills.

China has little option but to continue muddling through, then, allowing the yuan to decline in value while working to moderate its pace. This certainly counts as currency “manipulation” in the eyes of Donald Trump and other presidential candidates. In this case, though, China isn’t defying the market so much as attempting to cushion market-driven dislocations. The dilemma highlights an uncomfortable truth: Unlike the Fed, whose rate hike is a classic low-risk decision, Chinese leaders today face only high-risk policy choices. And the best they can hope for in return is a degree of stability, not the go-go growth of earlier decades.

Previously, when China’s debt levels were low and the government was running large surpluses, investment opportunities were plentiful. Now credit is stretched. Fixed-asset overinvestment has left a capacity glut. Migration to cities is slowing, even as the working-age population has begun to decline. There are no more easy reforms. The changes China needs to implement – to stimulate competition, increase productivity, allocate capital more efficiently and spur innovation – all require wrenching sacrifices.

Read more …

More debt is needed to achieve what the Fed wants, but paradoxically it will now get more expensive.

The Fed By The Numbers – And Why They Are Wrong (Steve Keen)

2,3,4,5. Those are the 4 numbers you need to know to understand how The Fed thinks. Driven by its underlying model of the economy, The Fed thinks that the inflation rate should be 2%, the growth rate should be 3%, the Fed Funds Rate should be 4%, and the unemployment rate should be 5%. Then the economy is in what mainstream economists call “Equilibrium”, with all the key variables at their “Natural Rate”. Of course, it’s been some time since the economy has served up a set of numbers anything like that, but eight years after the economic crisis began, it’s sort of delivered on at least two of them: the unemployment rate is now spot on 5%, and the GDP growth rate is about 2.5%. Inflation remains the bugbear for The Fed (“why won’t it return to 2%?”), but today they are likely to bite the bullet and give the one variable they can control—the Federal Funds Rate—a slight nudge from its rock-bottom level of 0.25% up to 0.5%.

This is still a long way from The Fed’s 4% sweet spot, but after eight long years of near-zero, it is the first step—or so The Fed thinks—in a gradual return to “Equilibrium”. If only. The Fed will probably hike rates 2 to 4 more times—maybe even get the rate back to 1%—and then suddenly find that the economy “unexpectedly” takes a turn for the worse, and be forced to start cutting rates again. This is because there are at least two more numbers that need to be factored in to get an adequate handle on the economy: 142 and 6—the level and the rate of change of private debt. Several other numbers matter too—the current account and the government deficit for starters—but private debt is the most significant omitted variable in The Fed’s toy model of the economy.

These two numbers (shown in Figure 2) explain why the US economy is growing now, and also why it won’t keep growing for long—especially if The Fed embarks on a period of rate hiking. The economy is growing now because private credit is expanding at about 6% of GDP per year. This is a long way below the unsustainable rate of 15% per year that it hit just before the crisis began, but it’s enough to boost the economy a bit—and inflate asset markets a lot, since assets are what 90% plus of the borrowed money is actually spent on in the first instance. Unfortunately, that 6% rate of growth in GDP terms means that private debt is growing faster than nominal GDP—so the private debt to GDP ratio is rising once more (see Figure 3). And that can’t be sustained, because private debt is still very close to the levels that led to the last crisis. A growth rate at or below the growth rate of nominal GDP is sustainable. But a growth rate above that is not.

The dilemma this poses for The Fed—a dilemma about which it is blissfully unaware—is that a sustained growth rate of credit faster than GDP is needed to generate the magic numbers on which it is placing its current wager in favor of higher interest rates.

Read more …

China steel output is falling too fast for even exports to keep up.

Baltic Dry Index Plunges to Fresh Record Low Amid China Steel Slump (BBG)

The shipping industry’s most-watched measure of rates for hauling commodities plunged to a fresh record amid a persisting glut of ships and speculation weakening Chinese steel output could translate into declining imports of iron ore to make the alloy. The Baltic Dry Index fell 4.7% to 484 points, the lowest in Baltic Exchange data starting in January 1985. Rates for three of the four ship types tracked by the exchange retreated. China, which makes about half the world’s steel, is on track for the biggest drop in output for more than two decades, according to data compiled by Bloomberg Intelligence. Owners are reeling as China’s combined seaborne imports of iron ore and coal – commodities that helped fuel a manufacturing boom – record the first annual declines in at least a decade.

While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for rates, after analysts’ predictions at the end of 2014 for a rebound proved wrong. “It doesn’t help that Chinese steel production is about to see the most dramatic decline to the lowest in 20 years,” said Herman Hildan, a shipping-equity analyst at Clarksons Platou Securities in Oslo. “Demand growth is collapsing.” Rates for Capesize ships fell by between 13% and 15%, the Baltic Exchange’s figures showed. The ships are so-called because they can’t get through the locks of the Panama Canal and must instead sail through around South Africa or South America. Smaller Panamaxes, which can navigate the waterway, advanced 0.3% to $3,285 a day.

The two other vessel types that the Baltic Exchange monitors both declined. Owners are contending with a fleet whose capacity more than doubled over the past decade. At the end of last year, shipping analysts forecast rates for Capesize-class vessels would jump by about a third in 2015. By the start of this month, they were expecting a decline of about that magnitude.

Read more …

“..high-yield spreads are currently pricing in a 2008-like market selloff over the next five years.”

This Junk Bond Derivative Index Is Saying Something Scary About Defaults (BBG)

Here is the Markit CDX North America High Yield Index.

Here is the Markit CDX North America High Yield Index on drugs defaults.

Any questions? Probably. Citigroup analysts led by Anindya Basu point out that spreads on the CDX HY, as the index is known, are currently pricing in an expected loss of 21.2%, which translates into something like 22 defaults over the next five years if one assumes zero recovery for investors. That is a pretty big number once you consider that a total of 41 CDX HY constituents have defaulted since the index really began trading in 2005, equating to about 3.72 defaults per year. A big chunk of those defaults (17) occurred in 2009 in the aftermath of the financial crisis. What to make of it all? Actual recoveries during corporate default cycles tend to be higher than the worst-case scenario of 0%. In fact, they average somewhere in the 26% range, which would imply 29 defaults over the next five years instead of 41.

So what? you might say. The CDX HY includes but one default cycle, and those types of analyses tend to underestimate the peril of tail risk scenarios (hello, subprime crisis). Citi has an answer for that, too. Using spreads from the cash bond market going back to 1991, they forecast the default rate over the next 12 months to be something more like 5% to 5.5%. (For comparison, the rating agency Moody’s is currently forecasting a 3.77% default rate.) “CDX HY spread levels are pricing in about a 21% loss over a five-year period, whereas the highest we have ever seen over a five-year period is 14.2%, and that included 2009,” Basu said in an interview. “Of course, the spread level includes a spread risk premium over and above the ‘pure default’ risk. Even from that perspective, we believe the risk being priced in is too much.” In fact, Citi says “high-yield spreads are currently pricing in a 2008-like market selloff over the next five years.”

Read more …

A lot more attention needs to be paid to ‘evaporating money’. Which is really just virtual wealth disappearing.

$100 Billion Evaporates as World’s Worst Oil Major Plunges 90% (BBG)

Colombia is nursing paper losses of more than $100 billion after its oil boom fell short of expectations, wiping out 90% of the value of what was once Latin America’s biggest company. From being the world’s fifth-most valuable oil producer at its zenith in 2012, worth more than BP, state-controlled Ecopetrol now ranks 38th. Its market capitalization has fallen to $14.5 billion, down from its peak of $136.7 billion. “They just haven’t found oil, it’s as simple as that,” Rupert Stebbings, the managing director of equity sales at Bancolombia SA, said from Medellin. “The whole oil sector got massively over-bought, and people assumed that one day they’d hit an absolute gusher.”

As the army wrested back territory from Marxist guerrillas over the last decade and a half, opening up more land for exploration, the outlook was bright for the oil sector in Colombia, which borders Venezuela, the nation with the world’s largest reserves. Ecopetrol’s share price soared to “irrational levels” as investors bet on surging output that then failed to materialize, Stebbings said. With shares in the oil producer still high, the government opted in 2013 to sell a stake in electricity producer Isagen SA rather than Ecopetrol. Finance Minister Mauricio Cardenas, who sits on the board of Ecopetrol, said in an August 2013 interview that the government didn’t want to sell a further stake in the company because its growth prospects were better than Isagen’s. Since then, Isagen shares have risen 4.2%, while Ecopetrol’s have fallen 74%.

The Isagen stake sale has yet to take place due to a series of legal challenges. Over the past year, Ecopetrol shares are down 55% in dollar terms, the worst performance among global oil drillers with a market capitalization over $10 billion. The company’s original 2015 production target of 1 million barrels of oil equivalent was changed to 760,000 barrels. Ecopetrol’s growth in oil production since 2006 is among the world’s best, with a 24% success rate in exploration in 2014, the company said. The Kronos-1 and Orca-1 discoveries in the Colombian Caribbean “opened a new exploration frontier,” it said. Despite some bright spots, including the gas discoveries, exploration budget cuts along with already-meager reserves are worrying, said Corredores Davivienda equity analyst Francisco Chaves.

Read more …

A story far from over. Even if VW apparently has gotten the go-ahead for its ‘fix-it’ proposal.

EU Anti-Fraud Arm Investigating Loans to VW to Develop Cleaner Engines (BBG)

The European Union’s anti-fraud office OLAF is investigating loans Volkswagen received from the European Investment Bank to produce cleaner engines. The authorities picked up the issue after EIB chief Werner Hoyer said in October the lender was looking into the loans itself in light of the emissions scandal. The credits were granted to Volkswagen to help fund the development of cleaner engines. “The fact that OLAF is examining the matter does not mean that the persons or entities involved have committed an irregularity,” the authority said in an e-mailed statement Wednesday. “OLAF fully respects the presumption of innocence and the rights of defense of the persons and entities concerned by an investigation.”

The probe adds to the long list of investigations the company is facing in the wake of its disclosure in September that it cheated on pollution trials with its diesel cars. The carmaker installed software in some 11 million vehicles worldwide which lowered the level of nitrogen oxides emitted when it detected the car was being tested. VW hasn’t been informed of the probe and is “astonished that the authority goes public with this information without informing those subject to the issue,” company spokesman Eric Felber said in an e-mailed statement. VW has been talking to the EIB, the EU’s development bank, on the issue for months and has disclosed how the money was used, he said. Brussels-based OLAF is responsible for investigating fraud, corruption and evasion of taxes, duties and levies that contribute to the EU’s budget.

Read more …

“Austrian banks are typically banks engaged in RELATIONSHIP banking rather than TRANSACTIONAL. Therefore, they rely on customer deposits short-term and lend long-term.”

Austria Started the Collapse in Great Depression. Will It Do so Again? (MA)

In 1931, the sovereign debt crisis and banking system collapse began in Austria with the failure of Credit Anstalt, which was partly owned by the Rothschilds. The bank was forced to absorb another bank and a secret loan was created in London off the books to hide the insolvency to do the merger for political purposes. When that failed to be enough, the whole scam was exposed and a CONTAGION spread as people wondered what government had manipulated behind the curtain. Now the IMF has come out and stated that Austria’s banks need to increase their capital buffers urgently. The capital buffers in Austria are thin and cannot withstand a crisis. Furthermore, the banks are still active in politically and economically risky countries, which is typically carried out to increase profits.

In reality, the IMF led to the loans granted by the banks in Swiss francs, which caused many borrowers to lose 30% when the peg broke. In some Eastern European countries, the potential losses by a state arranged forced conversion of Swiss franc into local currencies could be massive. This is being done because the borrowers now owe 30% more than what they borrowed due to currency risk. This situation will not magically evaporate for they are private loans. The Austrian banks are typically banks engaged in RELATIONSHIP banking rather than TRANSACTIONAL. Therefore, they rely on customer deposits short-term and lend long-term. These are not big investment banks as in New York. They have lost a fortune because of the Swiss/euro peg collapse.

The three major banks are Erste Group, Raiffeisen Bank International (RBI), and UniCredit subsidiary Bank Austria. These are the biggest lenders in Eastern Europe as a whole who have gotten caught up in the currency nightmare. The RBI has recently announced their withdrawal from certain markets following a serious currency related loss that the bank has written in the past year for the first time. Bank Austria checked the sale of its branch business. This coming banking crisis is all currency related. It is, of course, thanks to Brussels and their irresponsible design of the euro. Politics and economics do not go together.

They will blame the bankers, but they will never blame government. Hence, this is why we can no longer afford career politicians for they will NEVER accept responsibility for screwing up the economy for political gain. The Clintons are responsible for removing ALL restriction from the Great Depression upon the banks. They then eliminated the right to declare bankruptcy on student loans. Yet, the press will NEVER ask Hillary anything about that or the fact that her biggest contributors are the banks in NYC.

Read more …

The headline is Tyler Durden’s take. I second it.

US Humiliation Is Complete: Assad Can Stay (AP)

U.S. Secretary of State John Kerry on Tuesday accepted Russia’s long-standing demand that President Bashar Assad’s future be determined by his own people, as Washington and Moscow edged toward putting aside years of disagreement over how to end Syria’s civil war. “The United States and our partners are not seeking so-called regime change,” Kerry told reporters in the Russian capital after meeting President Vladimir Putin. A major international conference on Syria would take place later this week in New York, Kerry announced. Kerry reiterated the U.S. position that Assad, accused by the West of massive human rights violations and chemical weapons attacks, won’t be able to steer Syria out of more than four years of conflict.

But after a day of discussions with Assad’s key international backer, Kerry said the focus now is “not on our differences about what can or cannot be done immediately about Assad.” Rather, it is on facilitating a peace process in which “Syrians will be making decisions for the future of Syria.” Kerry’s declarations crystallized the evolution in U.S. policy on Assad over the last several months, as the Islamic State group’s growing influence in the Middle East has taken priority. President Barack Obama first called on Assad to leave power in the summer of 2011, with “Assad must go” being a consistent rallying cry. Later, American officials allowed that he wouldn’t have to resign on “Day One” of a transition. Now, no one can say when Assad might step down.

Russia, by contrast, has remained consistent in its view that no foreign government could demand Assad’s departure and that Syrians would have to negotiate matters of leadership among themselves. Since late September, it has been bombing terrorist and rebel targets in Syria as part of what the West says is an effort to prop up Assad’s government. [..] The two countries also have split on Ukraine since Russia’s annexation of the Crimea region last year and its ongoing, though diminished, support for separatist rebels in the east of the country. The U.S. has pressed severe economic sanctions against Russia in response and has insisted that Moscow’s actions have left it isolated. That wasn’t the case on Tuesday.

“We don’t seek to isolate Russia as a matter of policy, no,” Kerry said. The sooner Russia implements a February cease-fire that calls for withdrawal of Russian forces and materiel and a release of all prisoners, he said, the sooner that “sanctions can be rolled back.” The world is better off when Russia and the U.S. work together, he added, calling Obama and Putin’s current cooperation a “sign of maturity.” “There is no policy of the United States, per se, to isolate Russia,” Kerry stressed.

Read more …

IMF seems ready to pay Russia after all.

IMF Recognizes Ukraine’s Contested $3 Billion Debt To Russia As Sovereign (RT)

The executive board of the IMF has recognized Ukraine’s $3 billion debt to Russia as official and sovereign – a status Kiev has been attempting to contest. Russia is to sue Ukraine if it fails to pay by the December 20 deadline. “In the case of the Eurobond, the Russian authorities have represented that this claim is official. The information available regarding the history of the claim supports this representation,” the IMF said in a statement. Russia asked the IMF for clarification on this issue after Kiev attempted to proclaim the debt was commercial and refused to accept Moscow’s terms for the debt’s restructuring. The December 2013 deal, which envisaged Moscow buying $15 billion worth of Ukrainian Eurobonds ($3 billion in the first tranche), was officially struck between Ukraine’s then-head of state President Viktor Yanukovich and President Vladimir Putin.

In spite of this fact, some Ukrainian and US officials have been making statements contesting the status of the deal. The sovereign status of the debt means Ukraine may have to declare default as early as December 20, when the deadline expires – unless Kiev responds to Moscow’s restructuring plan. The IMF’s decision automatically came into effect on Wednesday evening, as no objections to treating the debt as sovereign had been voiced, TASS reported. Putin had earlier ordered that a lawsuit be filed against Ukraine if it failed to pay its debt within a 10-day grace period following the deadline. Russian Prime Minister Dmitry Medvedev said last Wednesday that he didn’t believe Kiev was going to pay. “I have a feeling that they [Ukraine] will not return anything [to us] because they are crooks,” Medvedev said. “They refuse to return the money and our Western partners not only render us no help, they are actually hindering our efforts.”

Meanwhile, the IMF decided on Tuesday to change its strict policy prohibiting the fund from lending “to countries that are not making a good-faith effort to eliminate their arrears with creditors.” The decision was criticized by Moscow, as it will apparently allow the IMF to continue doing business as usual with Kiev even if it fails to pay its sovereign debt to Russia. “We are concerned that changing this policy in the context of Ukraine’s politically charged restructuring may raise questions as to the impartiality of an institution that plays a critical role in addressing international financial stability,” Russian Finance Minister Anton Siluanov wrote in a Financial Times opinion piece.

Read more …

“..the Arctic, where temperatures were running anywhere from 4 to 10 degrees Celsius (7 to 18 degrees Fahrenheit) above average.”

Earth’s Warmest November On Record By ‘Incredible’ Margin (WaPo)

Last month was the warmest November on record by an incredible margin, according to NASA measurements. The global average temperature for the month was 1.05 degrees Celsius, or about 1.9 degrees Fahrenheit, warmer than the 1951 to 1980 average. It’s also the second month in a row that Earth’s temperature exceeded 1 degree Celsius above average. It was just in October that our planet first exceeded the 1-degree benchmark in NASA’s records, dating to 1880. Prior to that, the largest anomaly was 0.97 degrees Celsius in January 2007. The recent measurements become even more significant in light of the recent Paris accord, in which 196 countries boldly agreed to limit the planet’s warming to “well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degree Celsius.”

The extraordinary warmth of October and November helped push this year well-past the 1-degree benchmark. We have known that 2015 is all but certain to be the warmest year on record, though we did not know by how much it would be. Given the November report, 2015 will eclipse last year as the warmest year on record by a huge margin. The Japan Meteorological Agency, which tracks the increasing global temperature, also concluded that last month was the warmest November on record since 1890, relative to the period from 1981 to 2010. El Niño played a large role in November’s — and the year’s — exceptional warmth. El Niño is an event marked by abnormally warm ocean temperatures in the equatorial Pacific.

The extent of the warm water is huge this year, stretching from the west coast of South America to past the international dateline, which divides the Pacific Ocean. As of November, temperatures in parts of this vast region were running as much as 4 degrees Celsius, or about 7 degrees Fahrenheit, above normal. But the Pacific Ocean wasn’t the warmest region of the globe in November — much of the warmth measured by NASA emanated from the Arctic, where temperatures were running anywhere from 4 to 10 degrees Celsius (7 to 18 degrees Fahrenheit) above average.

Read more …

Ambrose sees climate change as a profit opportunity. That will never work. It will bring more problems than it solves. But in a world ruled by money even disaster looks like an opportunity.

Even If The Global Warming Scare Were A Hoax, We Would Still Need It (AEP)

Chinese scientists have published two alarming reports in a matter of weeks. Both conclude that the Himalayan glaciers and the Tibetan permafrost are succumbing to catastrophic climate change, threatening the water systems of the Yellow River, the Yangtze and the Mekong. The Tibetan plateau is the world’s “third pole”, the biggest reservoir of fresh water outside the Arctic and Antarctica. The area is warming at twice the global pace, making it the epicentre of global climate risk. One report was by the Chinese Academy of Sciences. The other was a 900-page door-stopper from the science ministry, called the “Third National Assessment Report on Climate Change”. The latter is the official line of the Communist Party. It states that China has already warmed by 0.9-1.5 degrees over the past century – higher than the global average – and may warm by a further five degrees by 2100, with effects that would overwhelm the coastal cities of Shanghai, Tianjin and Guangzhou.

The message is that China faces a civilizational threat. Whether or not you accept the hypothesis of man-made global warming is irrelevant. The Chinese Academy and the Politburo do accept it. So does President Xi Jinping, who spent his Cultural Revolution carting coal in the mining region of Shaanxi. This political fact is tectonic for the global fossil industry and the economics of energy. Until last Saturday, it was an article of faith among Western climate sceptics and some in the fossil industry that China would never sign up to the COP21 accord in Paris or accept the “ratchet” of five-year reviews. They have since fallen back to a second argument, claiming that the deal is meaningless because China will not sacrifice coal-driven growth to please the West, and without China the accord unravels since it now emits as much CO2 as the US and Europe combined.

This political judgment was perhaps plausible three or four years ago in the dying days of the Hu Jintao era. Today it is clutching at straws. Eight of the world’s biggest solar companies are Chinese. So is the second biggest wind power group, GoldWind. China invested $90bn in renewable energy last year and is already the superpower of low-carbon industries. It installed more solar in the first quarter than currently exists in France. The Chinese plan to build six to eight nuclear plants every year, reaching 110 by 2030. They intend to lever this into worldwide nuclear dominance, as we glimpsed from the Hinkley Point saga. Home-grown energy is central to Xi Jinping’s drive for strategic security. China’s leaders know what happened to Japan under Roosevelt’s energy embargo in the late 1930s, and they don’t trust the sea lanes for supplies of coal and liquefied natural gas. Nor do they relish reliance on Russian gas.

Isabel Hilton from China Dialogue says the energy shift has reached a point where Beijing has a vested commercial interest in holding the world to the Paris deal. “The Chinese think they can dominate low-carbon technologies,” she said.

Read more …

No, Bloomberg and EC, people fleeing warzones are not illegal immigrants. What’s illegal is calling them that.

159,792 Reasons for EU’s Flummoxed Refugee Policy (BBG)

Wanted: 159,792 beds, $2.4 billion, and incalculable amounts of political will. The bunks are for refugees, with the European Union having found new homes for a mere 208 out of a promised 160,000; the money is for humanitarian aid, with $3.7 billion delivered out of a pledged $6.1 billion; the political shortfalls will be on view at an EU summit in Brussels on Thursday. The refugee tide has strained Europe more than the debt crisis, overwhelming impoverished Greece, elevating the “immigrants out” slogan to official policy in much of eastern Europe, stoking the far right in the west, and allowing a growing cast of demagogues to equate the mostly Muslim refugees with Islamic State terrorists who killed 130 in a Paris rampage in November. As in the debt crisis, a reluctant Germany is the safety net.

The U.K. is sowing further disquiet as it pursues its own agenda of renegotiating the terms of its membership in the 28-nation bloc. “We have a difficult political landscape, which isn’t very conducive to putting decisions like refugee relocation into practice,” said Yves Pascouau, head of migration policy at the European Policy Centre in Brussels. New proposals such as the setup of a European Border and Coast Guard will come up at the two-day summit, but the focus is mainly on getting national leaders and EU bodies to do what they’ve pledged to do since migration shot to the top of the agenda early this year. “We need to speed up on all fronts,” EU President Donald Tusk said in a pre-summit letter to the leaders. The European Commission estimates that 1.5 million people crossed into Europe illegally between January and November, more than ever before.

Read more …

Nothing about “stop the bombing”?!

World Bank, UN Urge Sea Change In Handling Of Syrian Refugees Crisis (Guardian)

The World Bank and the UN refugee agency have called for a “paradigm shift” in the way the world responds to refugee crises such as the Syrian emergency, warning that the current approach is nearsighted, unsustainable and is consigning hundreds of thousands of exiled people to poverty. A new joint report from the bank and the UNHCR claims that 90% of the 1.7 million Syrian refugees registered in Jordan and Lebanon are living in poverty, according to local estimates. The majority of them are women and children. The refugees hosted in the two countries are particularly vulnerable as they cannot work formally and tend to be younger, less educated and have larger households.

The vast majority live in informal settlements rather than refugee camps, have few legal rights, and struggle to get access to public services because of the strains the unprecedented demand has put on the infrastructures of host countries. Although the report notes that current refugee assistance initiatives – such as the UNHCR cash assistance programme and the World Food Programme (WFP) voucher scheme – are “very effective”, it says that they are not a solution in themselves. “These programmes are not sustainable and cannot foster a transition from dependence to self-reliance,” say the study’s authors. “They rely entirely on voluntary contributions and, when funding declines, fewer of the most vulnerable refugees are able to benefit.

Moreover, social protection on its own does not foster a transition to work and self-reliance if access to labour markets is not available.” If refugees are to escape poverty, adds the report, they need to be economically integrated into local communities rather than merely offered short-term assistance.

Read more …

It just keeps getting worse.

Dozens Of Refugees Missing After Boat Sinks Off Lesvos, 2 Confirmed Dead (AP)

Greek and European border authorities have launched a search and rescue operation in the eastern Aegean Sea after reports that a boat carrying dozens of migrants sank off the island of Lesvos leaving two dead. The Greek coastguard says a helicopter, patrol boats and fishing boats are combing an area north of Lesvos for survivors, but no reliable information is yet available on how many people were on the boat and if anybody drowned. Boats from the European Frontex border agency were assisting. Greek state ERT TV said two people have been reported dead from Wednesday’s incident, and about 70 have been rescued.

Read more …

Eat a live frog first thing in the morning, and nothing worse will happen to you the rest of the day.
– Mark Twain

Dec 112015
 
 December 11, 2015  Posted by at 9:40 am Finance Tagged with: , , , , , , ,  


John Vachon Billie Holiday at the Newport Jazz Festival Jul 1954

Warning: Half Of Oil Junk Bonds Could Default (CNN)
Junk Fund’s Demise Fuels Concern Over Bond Rout (WSJ)
Kinder Morgan – Poster Boy For Bubble Finance (Stockman)
Oil Producers Offset Fall In Prices By Raising Output (Reuters)
Zombies Appear In US Oilfields As Crude Plumbs New Lows (Reuters)
What Went Wrong in Oil-Price Forecasts? (WSJ)
China Has Officially Joined the Currency Wars (ET)
China Yuan Falls To Lowest Since August 2011 Versus Dollar (CNBC)
Let’s Just Hope Shipping Isn’t Telling the Real Story of China (BBG)
How to Break the Wall Street to Washington Merry-Go-Round (DaCosta)
Give Me Only Good News! (Grantham)
First Government Plane Carrying Refugees Arrives in Canada (AP)
Greece Struggles With Creditors To Keep Bad Loans From ‘Vultures’ (Reuters)
EU To Sue Greece, Italy, Croatia Over Migrants (AP)
Stranded Migrants Relocated in Athens Arena, Many Disperse (GR)
Behind Angela Merkel’s Open Door for Migrants (WSJ)
Four More Bodies Found In Aegean After Boat Sinks (AP)
EU Plans Border Force To Police External Frontiers (FT)

“It’s so bad that a key Bloomberg index of commodity prices is now sitting at its lowest level since 1999.”

Warning: Half Of Oil Junk Bonds Could Default (CNN)

Energy companies that loaded up on debt during the oil boom are likely to have trouble paying back those loans. Oil prices have collapsed over 65% since the middle of last year to below $37 a barrel this week and there’s no recovery in sight. It’s fueling financial turmoil on Wall Street with Standard & Poor’s Ratings Service recently warning that a stunning 50% of energy junk bonds are “distressed,” meaning they are at risk of default. Overall, about $180 billion of debt is distressed. It’s the highest level since the end of the Great Recession and much of it is in energy companies. “The wave of energy defaults looming in the wings could make for some very bumpy roads ahead in 2016,” Bespoke Investment Group wrote in a recent report.

The firm described the junk bond market environment as “pretty terrible” lately. That’s a dramatic change from recent go-go years, when the shale oil boom along with cheap borrowing costs allowed energy companies to take on loads of debt to fund expensive drilling operations. U.S. oil production skyrocketed, creating a gigantic supply glut that is currently pushing prices lower and hurting the ability of many energy companies to repay their debt. “The tide may be turning. Excess leverage during the good years has dented credit profiles,” analysts at research firm Markit wrote in a report published on Wednesday. Of course, it’s not just oil companies under financial duress. S&P said a whopping 72% of the bonds in the metals, mining and steel industry are now distressed.

That makes sense given the fact that prices for raw materials like copper, iron ore, aluminum and platinum have recently plummeted to crisis levels. It’s so bad that a key Bloomberg index of commodity prices is now sitting at its lowest level since 1999. No matter the sector, these financially stressed companies will be forced to cut costs by selling off assets and laying off workers. Corporate defaults are already on the rise. S&P said defaults recently topped 100 on the year, the first time that’s happened since 2009. Almost one-third of 2015’s defaults have come from oil, gas or energy companies. S&P warns the high level of distressed bonds is an indicator that more defaults are coming. The firm said being classified as “distressed” reflects an “increased need for capital and is typically a precursor to more defaults.”

At a time when oil and natural gas prices are super low, there’s more bad financial news for these companies – a change in the interest rate environment. The U.S. Federal Reserve is expected to raise interest rates next week for the first time in nearly a decade, a move that will likely hurt demand for risky assets.

Read more …

““Currently, though, the ability to sell a large position is especially poor…”

Junk Fund’s Demise Fuels Concern Over Bond Rout (WSJ)

A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the monthslong junk-bond plunge that has swept Wall Street. The decision by Third Avenue Management means investors in the $789 million Third Avenue Focused Credit Fund may not receive all their money back for months, if not more. Third Avenue said poor bond-market trading conditions made it almost impossible to raise sufficient cash to meet redemption demands from investors without resorting to fire sales of assets.

Securities attorneys said Third Avenue’s decision to wind down the mutual fund without giving investors all their cash back could have significant repercussions for both the company and the mutual-fund industry, which for decades has thrived by promising to allow investors to take a long-term view of the markets while retaining the right to cash out shares at any time. While hedge-funds have occasionally prevented investors from taking out their money, such a move is uncommon for a mutual fund. The move is also a sign of how much the market for corporate debt is deteriorating following a long boom. Since the financial crisis, investors have sought higher-returning assets, and companies raised funds for business investment as well as for mergers, acquisitions and share buybacks.

High-yield bond assets at U.S. mutual funds hit $305 billion in June 2014, according to Morningstar data, triple their level in 2009. But investors have pulled money lately. Outflows in November were $3.3 billion, the most since June, according to Morningstar data. The yield spread between junk-rated debt and U.S. Treasurys narrowed to a multiyear low in mid-2014, reflecting investors’ confidence in companies’ business prospects. But spreads have since risen, reflecting lower prices, as the energy bust intensified questions about junk-rated companies’ ability to repay debts. All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk.

“Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low,” said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. “Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap.”

Read more …

“In fact, it was just a momo stock on a borrowing spree.”

Kinder Morgan – Poster Boy For Bubble Finance (Stockman)

The graph below belongs in the “what were they thinking category”. After Tuesday’s dividend massacre, it’s plain as day that Kinder Morgan (KMI) wasn’t the greatest thing since sliced bread after all. That is, a “growth” business paying rich dividends out of rock solid profit margins and flourishing cash flow. In fact, it was just a momo stock on a borrowing spree. During the 27 quarters since the beginning of 2009, the consolidated entities which comprise KMI generated $20.8 billion of operating cash flow, but spent $24.3 billion on CapEx and acquisitions. So the “growth” side of the house ended-up in the red by $3.5 billion. Presumably that’s because it was “investing” for long haul value gains.

But wait. It also had to finance those juicy dividends, and there was a reassuring answer for that, too. The payout was held to be ultra safe owing to KMI’s business model as strictly a toll gate operator in the oil and gas midstream, harvesting risk-free fees from gathering systems, transportation pipelines and gas processing plants. Accordingly, even when its stock price was riding high north of $40 per share, the yield was 5%. So over the last 27 quarters KMI paid out $17.3 billion in dividends from cash it didn’t have. It borrowed the difference, of course, swelling its net debt load from $14 billion at the end of 2009 to $44 billion at present. And that’s exactly the modus operandi of our entire present regime of Bubble Finance. Kinder Morgan is the poster boy.

Read more …

No other options.

Oil Producers Offset Fall In Prices By Raising Output (Reuters)

The first response of commodity producers to a drop in prices is normally to increase production – ensuring price falls become deeper and more prolonged. Producers attempt to make up in volume what they have lost in prices. But what might be rational for one is disastrous collectively. Cuba’s top trade negotiator warned a conference as long ago as 1946: “We know from experience that sometimes a reduction in prices not only does not bring a reduction in production, but as a matter of fact stimulates production, because farmers try to make up by a larger volume in production the decrease in income resulting from the fall in prices.” He was speaking about sugar, but the same response has been true for other commodities, including petroleum.

In 2015, most oil producers have responded to the slump in prices by raising output, ensuring the market remains flooded and postponing the anticipated rebalancing of supply and demand. Russia, Saudi Arabia and Iraq have all increased production in 2015. Iran hopes to follow in 2016 once sanctions are lifted. Combined output from nine of the world’s largest oil and gas companies rose by 8% in the first nine months of 2015. Output from U.S. waters in the Gulf of Mexico was almost 19% higher in September 2015 than the same month a year earlier, according to the U.S. Energy Information Administration. Oil companies have said the Gulf of Mexico remains an attractive prospect even at low prices and they intend to continue increasing production there.

Even in the major shale-producing areas of the United States, production is not falling as fast as had been predicted. Companies have sought to maintain production volumes even as they slash costs. North Dakota’s oil output is down only 5% from the peak and has been surprisingly stable in recent months. Bakken producers even accelerated output and sales in October ahead of an OPEC meeting they feared would result in even lower prices, the state’s chief regulator told reporters on Dec. 9. In Texas, output from the Permian Basin, one of the oldest oil-producing areas in the country with particularly attractive geology, is still increasing.

Read more …

Walking dead pay interest from cannibalizing own assets.

Zombies Appear In US Oilfields As Crude Plumbs New Lows (Reuters)

Drained by a 17-month crude rout, some U.S. shale oil companies are merely hanging on for life as oil prices lurch further away from levels that allow them to profitably drill new wells and bring in enough cash to keep them in business. The slump has created dozens of oil and gas “zombies,” a term lawyers and restructuring advisers use to describe companies that have just enough money to pay interest on mountains of debt, but not enough to drill enough new wells to replace older ones that are drying out. Though there is no single definition of a zombie, most investors and analysts consulted by Reuters say they tend to have exceptionally high debt loads and face the prospect of shrinking oil reserves.

About two dozen oil and gas companies whose debt Moody’s rates toward the bottom of its junk bond scale broadly fit that description. Investors and analysts mentioned SandRidge Energy, Comstock Resources, and Goodrich Petroleum as some of that group’s more prominent members. To stay alive, zombie companies have curbed costly drilling and are using revenue from existing production to pay interest and other expenses in a process some describe as “slow-motion liquidation.” Bankruptcies and defaults loom because the cutbacks in new drilling have been so deep that many companies risk getting caught in a vicious circle of shrinking oil reserves, falling revenue and declining access to credit, experts say.

As long as oil prices stay below the estimated break-even level of $50 a barrel, the zombie group is set to grow. In fact, so many oil companies are struggling that “zombies” are the topic of a keynote address at a big energy conference in Houston on Thursday. Thomas Califano, vice chair of the restructuring practice at the law firm DLA Piper, said banks that have loosened loan terms to avoid defaults might be just allowing companies to postpone “their day of reckoning.” “They can just be zombies. They can pay their interest, there’s no growth and they are cannibalizing their assets,” he said.

Read more …

What went wrong is who was trusted to do the forecasting.

What Went Wrong in Oil-Price Forecasts? (WSJ)

This was supposed to be the year oil prices turned around. Ten banks surveyed by The Wall Street Journal in March predicted that U.S. crude would average $50 a barrel or better in the fourth quarter. December 2015 futures contracts were selling for $63.82 a year ago. Instead, oil is on one of its longest price routs in history, and it shows no sign of ending. Oil hasn’t settled above $50 in the U.S. since July. And in a reminder that energy busts often start out looking bad and then get even worse, analysts are rapidly ratcheting down their forecasts for 2016, and oil companies and investors are bracing for another year of pain. How did market watchers get this so wrong? Analysts say they forgot the lesson that supply-driven downturns can last a long time.

“We haven’t seen a lot of the supply-driven oil-price declines in recent history,” said Miranda Davis at Quintium Advisors. “I don’t think the world was prepared for that.” Unlike the demand-driven price drop in 2009, which markets partly rebounded from within months, this downturn could last for years, she added. OPEC surprised markets by increasing its output this year instead of cutting it. In fact, the group said Thursday that it pumped more oil in November than in any month in the past three years. Meanwhile, producers in the U.S. and Russia proved much more resilient than expected. U.S. production started falling in April but remains near multidecade highs. Canada, Russia, China and Norway all are expected to post annual production gains this year, according to the U.S. government’s EIA.

Oil prices fell again Thursday, with futures in the U.S. falling 40 cents to $36.76, and global benchmark Brent futures falling 38 cents to $39.73. Both contracts have lost nearly one-third of their value this year. The energy industry now is facing the possibility that oil prices in 2016 could be even lower, on average, than in 2015—a suggestion unthinkable even six months ago.

Read more …

The IMF was the enabler.

China Has Officially Joined the Currency Wars (ET)

The only thing China had to wait for was the official inclusion into the IMF’s reserve currency basket. Now it can devalue its currency as it pleases—and it may not even have a choice. “A devaluation could be as much as 20% against the U.S. dollar because in real effective exchange rate terms the yuan is about 15% overvalued at the moment,” says Diana Choyleva, chief economist at Lombard Street Research. The Chinese currency has gained 15% against other major currencies since the middle of last year, according to an analysis by Westpac Strategy Group. On cue, China set the yuan at 6.414 to the U.S. dollar on Wednesday, Dec. 9, its weakest level since August 2011 and down 3.4% since the mini-devaluation in August.

Choyleva thinks the IMF inclusion may have even prevented a sharper one-off devaluation. “They would not be so keen to be a responsible citizen,” she says and expects further gradual devaluation. Macquarie analysts also believe Beijing now likely won’t “risk their credibility by devaluing the yuan sharply after that.” But while there is clarity as to how (gradual) and how much (15–20%) China will devalue, there is still confusion as to why they have to do it. Market observers usually cite exports as the major reason for a cheaper currency. In theory, prices for Chinese goods would become cheaper on international markets so volumes would pick up. In practice, this rarely works, as imports become more expensive, as China is a big importer too.

In addition, trade just doesn’t contribute that much to the Chinese economy anymore. “They were at the peak which was just a few years ago. Their net exports were 8% of GDP. Now it’s just a couple of% of GDP,” says Richard Vague, author of “The Next Economic Disaster.” Exports make up even less of GDP growth. Consumption and investment make up most of Chinese GDP growth. [..] It’s the combination of low growth and easy money that puts pressure on the currency. Because the regime created a debt bubble of epic proportions and investors now realize they won’t get the promised returns, capital is flowing out of the country at a record pace. Until the imbalances are fixed and China takes its losses, and stops the easy money policies, outflows will continue and the regime will face continued pressure to devalue.

Read more …

It ain’t done yet.

China Yuan Falls To Lowest Since August 2011 Versus Dollar (CNBC)

China’s yuan dropped to its lowest level against the dollar in over four years Friday, as the central bank steadily guides the currency lower amid an economic slowdown and hefty capital outflows. The yuan, or renminbi as it’s also known, fell to 6.4550 against the dollar, its lowest level since August 2011. Earlier Friday, the People’s Bank of China (PBOC) had set the mid-point for the yuan at a new four and a half year low of 6.4358, down 0.2% from Thursday’s fixing. China’s central bank lets the yuan spot rate rise or fall a maximum of 2% against the dollar relative to the official fixing rate. Nomura’s Craig Chan said the moves are in line with policymakers’ repeatedly stated ultimate goal of a more market-determined exchange rate.

“There really isn’t much perceived intervention in the markets,” he said at a press conference Friday. Chan believes that the reason the yuan is being allowed to decline now, when the market mechanism shift was officially made in August was due to concerns over whether some debtors would struggle with external debt if the currency declined. In the intervening months, PBOC data has indicated substantial hedging activity and concern over external debt has subsided somewhat, he said. Even with the declines, “our view is the currency is still over valued. They want to move closer to fair value, which we perceive to be around 6.80,” for the dollar-yuan pair, Chan said. Nomura expects the currency pair will hit that level by the end of 2016.

Read more …

Add China’s raw material exports and the graph gets real ugly.

Let’s Just Hope Shipping Isn’t Telling the Real Story of China (BBG)

Investors betting that China’s near-insatiable appetite for industrial raw materials will drive global economic growth may want to skip the shipping news. For the first time in at least a decade, combined seaborne imports of iron ore and coal – commodities that helped fuel a manufacturing boom in the world’s second-largest economy – are down from a year earlier. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for shippers, after analysts’ predictions at the end of 2014 for a rebound proved wrong. The world has surpluses of everything from corn to crude oil, and commodity prices are heading for their biggest annual loss since the financial crisis.

With China’s economy expanding at the slowest pace since 1990 demand has ebbed from one of the biggest importers. The Baltic Dry Index of shipping rates for bulk materials fell to an all-time low last month, turning those who watch the industry increasingly bearish. “For dry bulk, China has gone completely belly up,” said Erik Nikolai Stavseth at Arctic Securities in Oslo, talking about ships that haul everything from coal to iron ore to grain. “Present Chinese demand is insufficient to service dry-bulk production, which is driving down rates and subsequently asset values as they follow each other.” China produces about half the world’s steel. The metal is made from iron ore in furnaces fueled by coal, which also is used to run power plants.

While domestic mines supply both raw materials, it isn’t enough, so the country must buy from overseas. As the economy surged over the past decade, imports of iron ore tripled, and coal purchases rose almost four-fold since 2008, government data show. The country accounts for two in every three iron-ore cargoes in the world, and is the largest importer of soybeans and rice. But this year, demand has slowed. Combined seaborne imports of iron ore and coal will drop 4.8% to 1.097 billion metric tons, the first decline since at least 2003, according to data from Clarkson Plc, the biggest shipbroker. A year ago, Clarkson was anticipating a 5.5% increase for 2015. The broker expects growth to increase just 0.04% next year.

Read more …

Take away the political power.

How to Break the Wall Street to Washington Merry-Go-Round (DaCosta)

The revolving door that allows regulators to slide quickly into the same sector they oversee and vice versa is a common pattern across industries. It seems to spin with particular vigor, however, when it comes to Wall Street and financial overseers in Washington. The revolving door has not merely led to the impression of conflict, eroding public trust in an already troubled and meltdown-prone financial system and the institutions in charge of regulating it; it has also coincided with ethical scandals and even alleged crimes that have affected the credibility of many of the world’s leading central banks, including the Federal Reserve. It’s also a door that keeps on spinning. But it doesn’t have to: Simple reforms could prevent its most pernicious incarnations.

Lack of public trust in the Fed’s aggressive monetary easing may already have curtailed additional action to support the economy and arguably lessened the benefits of low rates and asset purchases for the economic outlook. That’s because consumers and investors were left thinking the central bank would pull back stimulus as soon as it possibly could. Indeed, many observers have erroneously come to equate the Fed’s monetary policies, which are aimed at the economy as a whole, with bank bailouts, which are direct cash injections to specific institutions.

The latest tour de porte came on Dec. 7, when the bond fund giant Pimco announced not one but three salient appointments of former leading government figures — former Federal Reserve Chairman Ben Bernanke, ex-European Central Bank President Jean-Claude Trichet, and Gordon Brown, former U.K. prime minister and, earlier in his career, its finance minister for a decade. Before that, on Nov. 10, the Federal Reserve Bank of Minneapolis appointed Neel Kashkari, a former Goldman Sachs banker, to be its new president. It was the third consecutive top Federal Reserve appointment to come from Goldman Sachs.

Kashkari’s story is, in many ways, typical. He has already taken a couple of spins through the revolving door. He first came into the public eye in late 2008, at the age of 35. Then-Goldman Sachs CEO Hank Paulson had been tapped by George W. Bush to become treasury secretary as the financial crisis deepened, and Paulson brought Kashkari, then a young confidant at Goldman, to work with him. Kashkari was appointed to manage the $700 billion taxpayer bailout of the nation’s largest banks. Given that role, he certainly possesses some experience in economic policy management. But the ease with which he has flowed back and forth between public and private jobs is disheartening.

Read more …

Finance and limits to growth. Never discussed. Long article, great graphs.

Give Me Only Good News! (Grantham)

It takes little experience in the investment business to realize that investors prefer good news. As a bear in the bull market of 1999 I was banned from an institution’s building as being “dangerously persuasive and totally wrong!” The investment industry also has a great incentive to encourage this optimistic bias, for little money would be made if the market ticked slowly upwards. Five steps forward and two back are far more profitable. Similarly, we environmentalists were shocked to realize how profoundly the general public preferred to believe good news on our climate, even if it meant disregarding the National Academies of the world. The fossil fuel industry, not surprisingly, encouraged this positive attitude. They had billions of dollars to protect.

If the realistic information were to be widely believed, most of their assets would be stranded. When dealing with realistic limits to growth it is also obvious how reluctant everyone is to accept the natural mathematical limits: There simply cannot be compound growth in a finite world. A modest 1% growth compounded for the 3,000 years of Ancient Egypt’s population would have multiplied its economic output by nine trillion times! Yet, the improbability of feeding ten billion or so global inhabitants in 50 years is shrugged off with ease. And the entire economic and political system appears eager to encourage optimism on resources for it is completely wedded to the virtues of quantitative growth forever.

Hard realities in these three fields are inconvenient for vested interests and because the day of reckoning can always be seen as “later,” politicians can always find a way to postpone necessary actions, as can we all: “Because markets are efficient, these high prices must be reflecting the remarkable potential of the internet”; “the U.S. housing market largely reflects a strong U.S. economy”; “the climate has always changed”; “how could mere mortals change something as immense as the weather”; “we have nearly infinite resources, it is only a question of price”; “the infinite capacity of the human brain will always solve our problems.”

Having realized the seriousness of this bias over the last few decades, I have noticed how hard it is to effectively pass on a warning for the same reason: No one wants to hear this bad news. So a while ago I came up with a list of propositions that are widely accepted by an educated business audience. They are widely accepted but totally wrong. It is my attempt to bring home how extreme is our preference for good news over accurate news. When you have run through this list you may be a little more aware of how dangerous our wishful thinking can be in investing and in the much more important fields of resource (especially food) limitations and the potentially life-threatening risks of climate damage. Wishful thinking and denial of unpleasant facts are simply not survival characteristics.

Read more …

Canada turned on a dime when Justin was elected.

First Government Plane Carrying Refugees Arrives in Canada (AP)

The first Canadian government plane carrying Syrian refugees arrived in Toronto late Thursday where they were greeted by Prime Minister Justin Trudeau, who is pushing forward with his pledge to resettle 25,000 Syrian refugees by the end of February. The arrival of the military flight carrying 163 refugees stands in stark contrast to the U.S., which plans to take in 10,000 Syrian refugees over the next year and where Republican presidential candidate Donald Trump caused a worldwide uproar with a proposal to temporarily block Muslims from entering the U.S. The flight arrived just before midnight carrying the first of two large groups of Syrian refugees to arrive in the country by government aircraft.

Trudeau greeted the first two families to come through processing. The first family was a man, woman and 16-month-old girl. The second family was a man, woman, and three daughters, two of whom are twins. Trudeau and Ontario’s premier welcomed them to Canada and gave them winter coats. Both families said they were happy to be here. “This is a wonderful night, where we get to show not just a planeload of new Canadians what Canada is all about, we get to show the world how to open our hearts and welcome in people who are fleeing extraordinarily difficult situations,” Trudeau said earlier to staff and volunteers who were waiting to process the refugees.

All 10 of Canada’s provincial premiers support taking in the refugees and members of the opposition, including the Conservative party, attended the welcoming late Thursday. Trudeau was also joined by the ministers of immigration, health and defense, as well as Ontario Premier Kathleen Wynne and Toronto Mayor John Tory.[..] “They step off the plane as refugees, but they walk out of this terminal as permanent residents of Canada with social insurance numbers, with health cards and with an opportunity to become full Canadians,” Trudeau said. “This is something that we are able to do in this country because we define a Canadian not by a skin color or a language or a religion or a background, but by a shared set of values, aspirations, hopes and dreams that not just Canadians but people around the world share.”

Read more …

They seek to force them into the hands of vulture funds? Wow!

Greece Struggles With Creditors To Keep Bad Loans From ‘Vultures’ (Reuters)

Greece is aiming for a deal with international lenders on Friday on the next set of reforms to unlock additional aid, but differences remain over how to handle banks’ bad loans. Athens is struggling to keep non-performing loans to small business and consumers out of the clutches of so-called vulture funds that buy loan books of distressed debt at a discount and try to recover the money. Prime Minister Alexis Tsipras’ government started a new round of talks with euro zone institutions and the IMF this week on the bad loans, as well as splitting off the country’s power grid operator from dominant electricity utility PPC and making state sector wages dependent on performance.

After successfully completing the recapitalization of its four systemic banks and qualifying for €2 billion in bailout loans last month, Athens must enact this second set of reforms to qualify for €1 billion by the end of the month. Athens aims to pass the law by Dec. 18, parliament officials said. “Our effort is to conclude talks on Friday,” said a government official who participated in the talks with the heads of the EU/IMF mission at a central Athens hotel. “The main hurdle is non-performing loans. Our side is trying to exempt mortgages and small business and consumer loans from being transferred to private funds.” Talks were expected to drag on until late on Thursday and also cover the structure of a new privatization fund which Germany and other creditors insisted on to pay down debt.

Another government official said there was convergence on public sector wages and an energy ministry official said Athens was also likely to reach agreement on the power grid operator. Separately, the government submitted to the creditors an initial draft of a tough pension reform seen as the biggest political hurdle in the coming months for Tsipras’s leftist-led coalition, with just a three-seat parliamentary majority. The reform must be adopted in January prior to the first bailout review. After five years of austerity including 12 pension cuts, the government plans to increase social security contributions instead of slashing main pensions again. But the lenders have signaled reluctance, saying it could further damage employment. Greece has pledged to cut spending on pensions by 1% of GDP or €1.8 billion next year. It says it can cover most of this amount from a recent retirement age increase but still needs to find €600 million.

Read more …

Sorry, but it was Merkel who suspended the Dublin Regulation in August. She can’t very well hope to switch it on and off as she pleases. This is just harassment.

EU To Sue Greece, Italy, Croatia Over Migrants (AP)

The European Union has started legal action against Greece, Italy and Croatia for failing to correctly register migrants. Tens of thousands of migrants have arrived in those countries over the last few months but less than half of them have been registered by national authorities. Greece has only fingerprinted around 121,000 of the almost half a million people who arrived there between July 20 and Nov. 30 this year, according to the European Commission. The Commission warned the three countries about the shortfalls two months ago, but said Thursday that these “concerns have not been effectively addressed.” The EUs executive arm said it sent formal letters of notice to the three, the first formal step in infringement proceedings.

Read more …

Moving to no man’s land.

Stranded Migrants Relocated in Athens Arena, Many Disperse (GR)

Greek authorities finished transferring about 2,300 migrants from the Greece-FYROM border to a former Olympic sports arena early Thursday morning. Greek police used 45 buses to transfer a total of 2,300 migrants, mostly from Morocco, Iran and Soudan, from the Greece-Former Yugoslav Republic of Macedonia border. The migrants do not qualify for refugee status and they were denied entry to FYROM, as a transit point to western Europe. Thirty-four buses transferred most of the migrants to the former taekwondo Olympic arena, while 11 buses took a number of them to the former ice hockey Olympic arena. However, many of them dispersed and disappeared from the hospitality premises as soon as they arrived. Non government organizations and the Red Cross were there to accommodate the migrants as the living conditions are not ideal.

Deputy Migration Minister Yiannis Mouzalas spoke to reporters and said that on December 17 the migrants will be transferred elsewhere but it hasn’t been decided where yet. Regarding the conditions inside the arena, the deputy said that until yesterday these people were hungry and sleeping on the ground. Now they have an enclosed place to stay with meals and bathroom facilities provided. Mouzalas said that the migrants have 30 days to petition for asylum or return to their homelands. Otherwise, they will be deported. The taekwondo arena is guarded by the police and there is no access to reporters. The migrants, in general, do not want to stay in Athens or Greece. Now that the FYROM border is closed, some of them told reporters that they will try to cross to western Europe through Albania and then Croatia. They said there are traffickers who can accommodate those who want to reach the destination of their choice.

Read more …

“The Germans think they’re the Americans of Europe.”

Behind Angela Merkel’s Open Door for Migrants (WSJ)

Angela Merkel had just returned to her apartment here after meeting critics of her policy of welcoming Middle East refugees, when aides phoned her with news of terrorist attacks in Paris. The German chancellor’s open door for people fleeing war in Syria, Iraq and elsewhere had already weakened her once-unassailable popularity. She knew, says a person familiar with her thinking, that immigration opponents in Germany and Europe would want to link the Islamist terrorist threat with refugees trekking to Europe and would demand a clampdown on the mainly Muslim migrants. Ms. Merkel’s response: to double down on her migrant policy. She emphatically reiterated her refugee-friendly stance, amping up the moral rhetoric that is infuriating many supporters and politicians of her conservative party. “We live based on shared humanity, on charity,” she told Germans the next morning.

“We believe in…every individual’s right to pursue happiness,” she said, “and in tolerance.” Catching the terrorists is Europe’s duty “also to the innocent refugees who are fleeing from war and terror,” she said at a world leaders’ summit in Turkey that weekend. Ms. Merkel’s insistence that Europe can absorb potentially millions of new residents is vexing her country and continent. Germans are questioning her judgment and her grip on power. Some other European countries bridle at Germany’s leadership, raising fears the crisis could cripple the European Union. Germany seeks to impose “moral imperialism,” says a senior official from Hungary, one of the EU countries critical of Ms. Merkel’s course. “The Germans think they’re the Americans of Europe.” The backlash against Ms. Merkel’s pro-refugee policy has become the biggest-yet test of her political skills and of Germany’s leadership in Europe.

Read more …

Many more today. A father lost his wife and 7 children. Saw another Tweet talking about 35 people from one boat.

Four More Bodies Found In Aegean After Boat Sinks (AP)

Greek authorities have located four more bodies off the eastern Aegean Sea islet of Farmakonissi, a day after a boat carrying migrants sank there, drowning 12 people and leaving 12 more missing. The coast guard says the bodies of two men, a woman and a baby were located Thursday in the sea off Farmakonissi. It was not yet clear whether they were among those missing from Wednesday’s accident, in which a wooden boat carrying about 50 people sank. A further 26 people who had been on the boat were rescued.

Read more …

The madness intensifies. This is not what people want in Europe. But they get it anyway. Hence Marine Le Pen.

EU Plans Border Force To Police External Frontiers (FT)

Brussels is to propose the creation of a standing European border force that could take control of the bloc s external frontiers – even if a government objected. The move would arguably represent the biggest transfer of sovereignty since the creation of the single currency. Against the backdrop of a crisis that has seen 1.2m migrants reach Europe this year, the European Commission will unveil plans next week to replace the Frontex border agency with a permanent border force and coastguard – deployed with the final say of the commission, according to EU officials and documents seen by the Financial Times. The blueprint represents a last-ditch attempt to save the Schengen passport-free travel zone, by introducing the kind of common border policing repeatedly demanded by Paris and Berlin.

Britain and Ireland have opt-outs from EU migration policy, and would not be obliged to take part in the scheme. European leaders have discussed a common border force for more than 15 years, but always struggled to overcome deep-seated objections to yielding national powers to monitor or enforce borders one of the core functions of a sovereign state. Greece, for instance, only recently agreed to accept EU offers to send border teams, after months of wrangling over their remit. Systemic weaknesses in the Schengen Area agreement were laid bare by this year s massive influx of migrants, many of them unregistered, into the EU through Greece and Italy. Concerns came to a head after last month s terrorist attacks in Paris, when it transpired that at least some of the assailants came to Europe from Syria via Greece.

One of the most contentious elements of the regulation would hand the commission the power to authorise a deployment to a frontier, on the recommendation of the management board of the newly formed European Border and Coast Guard. This would also apply to non-EU members of Schengen, such as Norway. Although member states would be consulted, they would not have the power to veto a deployment unilaterally. Dimitris Avramopoulos, who is responsible for EU migration policy, said: The refugee crisis has shown the limitations of the current EU border agency, Frontex, to effectively address and remedy the situation created by the pressure on Europe’s external borders.

Read more …