Mar 162018
 
 March 16, 2018  Posted by at 10:18 am Finance Tagged with: , , , , , , , , , , , ,  


Pablo Picasso Women of Algiers (after Delacroix) 1955

 

The British Government’s Russia Nerve Agent Claims Are Bullshit (Nafeez Ahmed)
UK Claims Questioned About Source Of Salisbury Novichok (G.)
Buying Stocks Now Is Betting On Buybacks (F.)
Has Europe Really Recovered From Its 2008 Financial Meltdown? (Steve Keen)
UK Household Debt Levels Close To 2008 Peak (Ind.)
UK Economy In Grip Of Most Feeble Recovery On Modern Record – IFS (Ind.)
More Than 600,000 Britons Sought Help From Debt Charity Last Year (G.)
European Commission Rebuked Over Ex-Chief Barroso’s Goldman Sachs Job (G.)
Japan PM Shinzo Abe’s Cronyism Scandal Worsens (G.)
Greece’s Jobless Rate Jumps To 21.2% In Fourth Quarter (K.)
EU Provides Financial Support For Turkey Amid Ethnic Cleansing (ANF)
The Oxfam Scandal: There Is No Reward For Honest Charities (Crack)
Bali Switches Off Internet Services For 24 Hours For New Year ‘Reflection’ (G.)

 

 

Yesterday was a travel day, hence no post. I’m back in Greece for talks about the Automatic Earth for Athens project.

 

 

Nafeez takes no prisoners. There must be a strong counter narrative to the UK government’s attempt to deflect attention from its dismal performance by conjuring up a common enemy for all Britons. Either show proof or hold your tongue.

The British Government’s Russia Nerve Agent Claims Are Bullshit (Nafeez Ahmed)

[..] far from offering a clear-cut evidence-trail to Vladimir Putin’s chemical warfare labs, the use of Novichok in the nerve gas attack on UK soil points to a wider set of potential suspects, of which Russia is in fact the least likely. Yet a concerted effort is being made to turn facts on their head. No clearer sign of this can be found than in the statement by Ambassador Peter Wilson, UK Permanent Representative to the Organisation for the Prohibition of Chemical Weapons (OPCW), in which he claimed that Russia has “failed for many years” to fully disclose its chemical weapons programme.

Wilson was parroting a claim made a year earlier by the US State Department that Russia had not made a complete declaration of its chemical weapons stockpile: “The United States cannot certify that Russia has met its obligations under the Convention.” Yet these claims are contradicted by the OPCW itself, which in September 2017 declared that the independent global agency had rigorously verified the completed destruction of Russia’s entire chemical weapons programme, including of course its nerve agent production capabilities. [..] The OPCW’s press statement confirmed that:

“The remainder of Russia’s chemical weapons arsenal has been destroyed at the Kizner Chemical Weapons Destruction Facility in the Udmurt Republic. Kizner was the last operating facility of seven chemical weapons destruction facilities in Russia. The six other facilities (Kambarka, Gorny, Maradykovsky, Leonidovka, Pochep and Shchuchye) completed work and were closed between 2005 and 2015.” [..] According to Craig Murray, former US Ambassador to Uzbekistan and prior to that a longtime career diplomat in the UK Foreign Office who worked across Africa, Eastern Europe, and Central Asia, the British government itself has advanced capabilities in Novichok:

“The ‘novochok’ group of nerve agents – a very loose term simply for a collection of new nerve agents the Soviet Union were developing fifty years ago – will almost certainly have been analysed and reproduced by Porton Down. That is entirely what Porton Down is there for. It used to make chemical and biological weapons as weapons, and today it still does make them in small quantities in order to research defences and antidotes. After the fall of the Soviet Union Russian chemists made a lot of information available on these nerve agents. And one country which has always manufactured very similar persistent nerve agents is Israel. ”

[..] A secret British intelligence unit is actively arranging ‘honey trap’ propaganda operations to incriminate ‘adversaries’

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People are subject to abuse for questioning the official story. At least Corbyn has the decency to ask for evidence.

UK Claims Questioned About Source Of Salisbury Novichok (G.)

It was a historic moment largely ignored at the time by most of the world’s media and might have remained so but for the attack in Salisbury. At a ceremony last November at the headquarters of the world body responsible for the elimination of chemical weapons in The Hague, a plaque was unveiled to commemorate the destruction of the last of Russia’s stockpiles. Gen Ahmet Üzümcü, the director general of the Organisation for the Prohibition of Chemical Weapons (OPCW), which works closely with the UN, was fulsome in his praise. “This is a major achievement,” he said. The 192-member body had seemingly overseen and verified the destruction of Russia’s entire stock of chemical weapons, all 39,967 metric tons.

The question now is whether all of Russia’s chemical weapons were destroyed and accounted for. Theresa May – having identified the nerve agent used in the Salisbury attack as novichok, developed in Russia – told the Commons on Wednesday that Russia had offered no explanation as to why it had “an undeclared chemical weapons programme in contravention of international law”. Jeremy Corbyn introduced a sceptical note, questioning whether there was any evidence as to the location of its production. The exchanges provoked a debate echoing the one that preceded the 2003 invasion of Iraq over whether UN weapons inspectors had overseen the destruction of all the weapons of mass destruction in the country or whether Saddam Hussein had retained secret hidden caches.

[..] The former British ambassador to Uzbekistan, Craig Murray, who visited the site at Nukus, said it had been dismantled with US help. He is among those advocating scepticism about the UK placing blame on Russia. In a blog post, he wrote: “The same people who assured you Saddam Hussein had WMDs now assure you Russian ‘novichok’ nerve agents are being wielded by Vladimir Putin to attack people on British soil.” [..] Murray, in a phone interview, is undeterred, determined to challenge the government line, in spite of having been subjected to a level of abuse on social media he had not experienced before. “There is no evidence it was Russia. I am not ruling out that it could be Russia, though I don’t see the motive. I want to see where the evidence lies,” Murray said. “Anyone who expresses scepticism is seen as an enemy of the state.”

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Casino.

Buying Stocks Now Is Betting On Buybacks (F.)

It is no secret that a large portion of the rally in equities over the last few years, and especially the rebound from the lows of early February, has been bolstered by the record amounts of capital sitting in the coffers of American corporations which, has naturally found its way into the stock market. This cash had three main sources. First, corporations built a large precautionary hoard of cash in the aftermath of the financial crisis to prevent being buffeted by credit markets, choosing to recycle their income into savings rather than spending. Some of this cash is now being unleashed. Second, the extremely low level of yields and spreads in the corporate bond markets allows the issuance of longer term bonds to willing yield-starved bond buyers and take in even more cash.

And finally, the tax reform unlocked foreign cash that came flowing back into the U.S. – a good fraction of which has gone into the stock market. This trifecta of positives (for the stock market) has created a systematic bid whenever markets correct downwards. The big question for investors is whether we can count on the buybacks to continue to provide the support on dips as the economic cycle matures. The question really is whether “Buying the Dip” is the same as “Buying the Buyback.” Just like the yield of a bond is the income that an investor receives from cash, the most important component of the yield on a stock is the dividend that the investor receives as the company pays out cash dividends.

The total yield from holding a stock is the sum of the dividend yield and the “buyback” yield. The buyback yield is simply the capital returned to investors divided by the market value of the stock. To compare the relative yield value of stocks and bonds, then, we should compare the yield on bonds and the total yield on stocks. What has been a direct consequence of the large buying of bonds by central banks until recently is that investors have been buying stocks for their total yield since this yield has been much higher than the comparable bond yields. One could also argue that investors have been buying bonds for capital appreciation, not yield. Otherwise why would one hold negatively yielding securities in Europe? Bonds for capital gains, equities for yield – very interesting!

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Household debt. That’s the focal point.

Has Europe Really Recovered From Its 2008 Financial Meltdown? (Steve Keen)

There’s no doubt that Europe is recovering, and those factors have been part of it. But so is another element which economists, especially Krugman himself, continue to ignore: credit. Not only Europe’s crisis, but America’s and the UK’s as well in 2008, was due to a collapse in credit-based demand. In fact, Europe is back largely because credit is back: European (and American and British) consumers and firms are borrowing once again and unleashing that borrowed money into their economies, boosting demand and lowering unemployment. This means the recovery can continue only so long as households and firms can keep getting into debt. Yet, given private debt levels are still high when compared to GDP, it won’t be long before the national credit cards are maxed out again. Then the borrowing will stop, and the recovery will run out of steam.

So why aren’t economists warning of this dark lining in the silver cloud of economic recovery? It’s because they don’t think that credit matters, and they ignore it when making forecasts about where the economy is likely to go. Their logic is that credit simply transfers spending power from one person to another, so changes in the level of private debt only affect the economy if the borrower has substantially different spending patterns to the lender. To use Krugman’s own language here, rising private debt will only affect demand if the borrowers are “impatient people” who spend a lot, while the lenders are “patient people” who spend very little. This implies that large changes in private debt should have only small effects on the macroeconomy.

I could get all theoretical here and prove why this belief is false, but it’s rather easy to show what the biologist Thomas Huxley once described as “no sadder sight in the world,” which is “to see a beautiful theory killed by a brutal fact.” If the theory that credit doesn’t matter were true, then credit and unemployment would be unrelated to each other. But they are! Here’s a killing of this beautiful theory by a brutal fact that’s worthy of a Game of Thrones beheading: Ladies and gentlemen, I give you the relationship between credit (the annual change in private debt, measured as a percentage of GDP) and unemployment in Spain, between 1990 and July 2017 (the latest quarter for which there is data on debt from the Bank of International Settlements).

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You can see the wall ahead that hey’re about to crash into.

UK Household Debt Levels Close To 2008 Peak (Ind.)

Worrying numbers of householders may be “in too deep” with their borrowing, a city regulator boss has told a credit conference. Jonathan Davidson, executive director of supervision for retail and authorisations at the Financial Conduct Authority (FCA), said credit levels were close to a peak seen in 2008. He said the FCA would take action against firms whose businesses were based on people being unable to clear their debts. More can be done to pre-empt future harm to customers, he said, warning: “There are a significant number of households that are in so deep that the slightest sign of rough weather could see them in over their heads.” He said it was “far from certain” that some customers who could just manage to afford loans now would be able to do so in future.

Mr Davidson told the audience: “A business model that is predicated on selling products to customers who can’t afford to repay them is not acceptable. “We will take action against firms who run their businesses this way.” He said that while most borrowers could still comfortably afford their credit, the industry should “think strategically about the issues facing your customers”, adding that this was “the right thing to do, not only for your customers, but for the future of your businesses”. Mr Davidson said the consumer credit sector, which comprises nearly 40,000 firms registered with the FCA, was part of everyday life, serving around 39 million people, whether it was to help finance a car, a big purchase or to make ends meet towards the end of the month.

He said some arrears and default rates, while still low, were on the rise, begging the question: “If we’re seeing this pattern now, what would happen if there was an economic downturn?” Speaking at the Credit Summit in London, Mr Davidson said: “Total credit lending to individuals is currently very close to its September 2008 peak.

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What QE has brought us. This is a global phenomenon revealed stronger and sooner in Britain because of, but not caused by, Brexit.

UK Economy In Grip Of Most Feeble Recovery On Modern Record – IFS (Ind.)

The UK has been living through the most feeble and protracted economic recovery in modern British history, leaving people on course to be almost £9,000 worse off on average by 2022-23 relative to the pre-crisis trend, according to calculations by the Institute for Fiscal Studies. In its analysis of the Government’s Spring Statement on Tuesday, which contained no new tax or spending measures, the think tank took a longer term perspective on the performance of the UK economy in the decade since the UK economy first sank into recession in 2008. It has long been noted that the UK’s recovery from that slump has been the slowest since the Great Depression in the 1930s.

But, analysing historic data on UK GDP per capita, the IFS showed on Wednesday that it has been weaker even than what followed the agonising slump of the early 1920s. In that era output per person fell by 10%, as global industrial overcapacity in the wake of the First World War ravaged once mighty UK firms, resulting in mass unemployment. The UK recession after the global financial crisis was shallower, with GDP per capita falling by around 7% as banks failed and global trade fell off a cliff. Yet a decade after the 1920-21 recession UK output per person was more than 10% higher than before the crisis. Today it is only around 3% higher than it was in 2008-09. “The history matters,” said Paul Johnson, the IFS’s director.

“It matters in part because we should never stop reminding ourselves just what an astonishing decade we have just lived through and continue to live through.” The UK has avoided the mass unemployment that scarred the 1920s and indeed employment has grown strongly since 2010, but the chronic weakness of UK GDP and productivity growth since 2008 is the reason why average real wages are still below where they were a decade ago – and are not set to return to their peak until well into the next decade. The IFS also produced calculations showing that if the pre-crisis trend of GDP per capita growth had continued national income per person would today be £5,900 higher this year. By 2022-23, on current official projections, the financial hit per person will grow to £8,600.

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Third world here we come.

More Than 600,000 Britons Sought Help From Debt Charity Last Year (G.)

More than 600,000 people in financial difficulties last year sought help from the debt charity StepChange, including disproportionate numbers of single parents and those in rental accommodation. The charity said 619,946 new clients contacted it for debt advice last year – 3.5% more than in 2016, and 22% more than four years earlier. There has been a notable increase in recent years in the number of young people seeking debt advice: about one in seven new clients was under 25, and nearly two-thirds were under 40. Most people (80%) contacting the charity were tenants, even though only a third of UK households rent. More than a fifth (21.5%) of new clients, though only 6% of UK households are single-parent families.

The average couple with children owed £16,834 last year, while single parents had unsecured debts of £10,033. Unemployment was the most common reason why people were in financial difficulty, cited by 18.7%, followed by injury or illness (16.4%) and lack of budgeting (14.3%). About two-fifths of people have fallen behind on at least one of their priority household bills when they contact the charity, typically on council tax. Borrowing on credit cards remains the most common debt, with more than two-thirds of new clients having accumulated credit card debts. Other borrowings included store cards, overdrafts, personal loans, doorstep and payday loans.

[..] Phil Andrew, the chief executive of StepChange, said: “It is both striking and shocking that last year about one in every 100 UK adults contacted StepChange alone for debt advice. “Our clients show that the debt problem is far from solved. With the prospect of higher interest rates ahead, it would be a mistake to take too much reassurance from the gradual improvement in the wider economy.”

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This is Brussels. Simple as that. The next crony case is already known in the person of Selmayr. More on that soon. There are a few decent people in Brussels, but they don’t have much time left.

European Commission Rebuked Over Ex-Chief Barroso’s Goldman Sachs Job (G.)

An EU watchdog has rebuked the European commission for failing to prevent potential lobbying by a former president who took a job at Goldman Sachs. In a stinging report, Emily O’Reilly, the European ombudsman who acts as the EU’s public administration watchdog, said the commission had committed “maladministration” by not taking any decision after an ethics inquiry into its former president, José Manuel Barroso. O’Reilly called on the commission to refer Barroso’s appointment to its internal ethics committee, while raising questions about the independence of that body. “Ex-commissioners have a right to post-office employment, but as former public servants they must also ensure that their actions do not undermine citizens’ trust in the EU,” said O’Reilly, Ireland’s former national ombudsman.

She said Barroso’s new post had “generated serious public disquiet”, which should have raised commission concerns about whether he had complied with the “duty of discretion” incumbent on all former officeholders under EU treaties. “Much of the recent negative sentiment around this issue could have been avoided if the commission had at the time taken a formal decision on Mr Barroso’s employment with Goldman Sachs. Such a decision could at least have required the former president to refrain from lobbying the commission on behalf of the bank,” she said.

[..] Barroso, a former Portuguese prime minister, led the commission for a decade until 2014. He took a job at Goldman Sachs in July 2016, after an 18-month cooling-off period during which ex-officials are required to notify the commission of any new jobs and are banned from lobbying. His decision to become a Brexit adviser at the bank triggered an avalanche of criticism, especially as Goldman Sachs had come under fire for its alleged role in the Greek debt crisis that dominated Barroso’s final years in Brussels. More than 150,000 people signed an EU staff petition calling for Barroso to lose his EU pension..

The commission has been set a deadline of 6 June 2018 to make a formal response to the ombudsman. Responding to the report, which followed a one-year investigation, the commission’s chief spokesman said: “The former president joined his current employer after the then applicable cooling-off period of 18 months. “The commission drew a political conclusion from the situation that we inherited by extending this cooling-off period for former presidents from 18 months to three years.”

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Abe had better leave while he can.

Japan PM Shinzo Abe’s Cronyism Scandal Worsens (G.)

A cronyism scandal engulfing the Japanese government has taken a dark turn, with reports that a finance official left a note before his suicide saying that he was forced to rewrite crucial records. The finance ministry admitted this week that it had altered 14 documents surrounding the sale of public land at an 85% discount to a nationalistic school operator with links to prime minister Shinzo Abe’s wife Akie. The revisions, made early last year, included removing references to Abe and the first lady before the records were provided to parliamentarians investigating suspicions of influence-peddling. An official from the local finance bureau that oversaw the transaction was found dead at his home in Kobe last week.

Now it has been revealed the man, aged in his 50s, left a detailed suicide note stating he was worried he might be forced to take all the blame. He said his superiors had told him to change the background section of the official documents surrounding the Osaka land sale because they were supposedly too specific, according to public broadcaster NHK. He reportedly made it clear that he did not act alone but in line with finance ministry instructions. His family described him as an honourable man who “hated to do anything unfair”. He had told relatives in August last year that he was “worn out both mentally and physically” and his “common sense has been destroyed”. “I hope everything will be revealed. I don’t want his death to be wasted,” said a family member…

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How to spell recovery.

Greece’s Jobless Rate Jumps To 21.2% In Fourth Quarter (K.)

Greece’s jobless rate rose by a full %age point to 21.2% in October-to-December from 20.2% in the third quarter, data from the country’s statistics service ELSTAT showed on Thursday. About 71.8% of Greece’s 1.006 million jobless are long-term unemployed, meaning they have been out of work for at least 12 months, the figures showed. Greece’s highest unemployment rate was recorded in the first quarter of 2014, when joblessness hit 27.8%. Athens has already published monthly unemployment figures through December, which differ from quarterly data because they are based on different samples and are seasonally adjusted. Quarterly figures are not seasonally adjusted. Greece’s economy grew for a fourth straight quarter in October-December, driven by stronger investment spending, but the pace was slower than in the previous quarter.

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That EU-Turkey refugee deal looks darker by the minute. Dirty politics.

EU Provides Financial Support For Turkey Amid Ethnic Cleansing (ANF)

The European Commission gave a green light to a second financial aid package for Turkey on the grounds of Syrian refugees. The 3 billion euros allocated for Turkey will be given in the scope of the controversial refugee deal. Several human rights organizations protested the renewed financial aid package for Turkey, arguing that it is not humanitarian as Turkey has openly used refugees as a means of blackmail against the European Union. Turkey had received another 3 billion euros of financial aid before. The European Commission defended that this second package will be granted to Turkey to provide convenience for the refugees.

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No, really, it’s an industry.

The Oxfam Scandal: There Is No Reward For Honest Charities (Crack)

Abuse thrives under two conditions: when victims are afraid to speak out, and when those in power do not listen. Oxfam have been condemned for not listening to demands that they do more to address sexual violence before the Haiti scandal hit the headlines. However, the net of blame needs to be cast wider than NGOs. Those at the top of the aid chain – donor governments – did not listen to warnings of wrongdoing. Donors do not have a good record of being proactive when presented with evidence of abuse. It has emerged that the Dutch Foreign Ministry was given an internal Oxfam report in 2012 detailing the use of prostitutes by staff in Haiti. No action appears to have been taken.

The Swedish International Development Cooperation Agency (SIDA), was told by one of its own officials in 2008 that Roland van Hauwermeiren, the former Oxfam employee at the centre of the Haiti allegations, left another NGO following an investigation into sexual misconduct. Rather than take action, SIDA awarded more than £500k to Oxfam in Chad, where Van Hauwermeiren was county director. In the UK, the Department for International Development (DFID) and the Charity Commission were told by Oxfam in 2011 that staff had been sacked for sexual misconduct, with assurances that no beneficiaries were involved. Priti Patel, former international development secretary, claims that she raised the issue of sexual violence with DFID officials, only for it to be “dismissed as only a problem with UN peacekeepers”.

My research into NGO regulation has led me to ask: do government donors create the impression that they will only fund organisations with glowing track records? NGOs that receive aid money are expected to complete detailed reports that assess measurable outcomes. I have interviewed several senior managers in leading NGOs who described how the pressure to demonstrate value for money drives a tick-box culture where all the incentives are to make the reports as positive as possible. Respondents felt there was very little tolerance for charities that make mistakes.

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There are still a few smart people left.

Bali Switches Off Internet Services For 24 Hours For New Year ‘Reflection’ (G.)

Internet services on Bali will go dark this Saturday, with providers switching off mobile services for 24 hours to mark the Indonesian island’s annual day of silence. Nyepi, or New Year according to the ancient Balinese calendar, is a sacred day of reflection on the Hindu-majority island. Even the international airport shuts down. This year authorities have called on telecommunications companies to unplug – a request Bali says firms have promised to honour. “It was agreed that internet on mobile phones will be cut. All operators have agreed,” Nyoman Sujaya, from the Bali communications ministry, told tirto.id. The plan, based on an appeal put forward by Balinese civil and religious groups, was announced following a meeting at the ministry in Jakarta.

This is the first time internet services will be shut down in Bali for Nyepi, after the same request was denied last year. However, wifi connection will still be available at hotels and for strategic services such as security, aviation, hospitals and disaster agencies. Phone and SMS services will be operational, but the Indonesian Internet Service Provider Association is reviewing whether wifi at private residences will be temporarily cut. Indonesia is one of the most connected nations on earth, with more than 132 million internet users. Balinese governor Made Pastika said it would not hurt to refrain from using the internet for one day. “If the internet is disconnected, people will not die,” he joked to reporters. “I will turn off my gadgets during Nyepi.”

Read more …

Sep 072016
 
 September 7, 2016  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , , ,  


Harris&Ewing “Congressional Union for Woman Suffrage” 1916

Why More QE Won’t Work: Debt Is Cheap But Equity Is Expensive (BBG)
ECB Set To Extend QE Well Into Next Year As It Fights Deflation (CNBC)
Could the ECB Start Buying Stocks? (WSJ)
Now Companies Are Getting Paid to Borrow (WSJ)
Message to the Fed: We’re not in Kansas Anymore (Farmer)
China Grabs Bigger Slice Of Shrinking Global Trade Pie (BBG)
Why China Isn’t a Financial Center (Balding)
Time to Worry: Stocks and Bonds Are Moving Together (WSJ)
First Factories, Now Services Signal Cracks in US Economy (BBG)
New Zealand Tops World House Price Increase (G.)
EU Ethics Watchdog Intervenes Over Former EC Chief Barroso’s Goldman Job (G.)
How Snowden Escaped (NaPo)
Greece Overhauls Refugee Center Planning As Islands Appeal For Help (Kath.)
UK Immigration Minister Confirms Work To Start On £1.9 Million Calais Wall (G.)
Nearly Half Of All Refugees Are Now Children (G.)

 

 

Pretending you can save an economy by buying already overpriced stocks is absolute lunacy.

Why More QE Won’t Work: Debt Is Cheap But Equity Is Expensive (BBG)

As central banks in Europe and Japan gear up to further expand quantitative-easing policies, market participants have issued a flurry of stark warnings about the potentially-negative unintended consequences, from the hit to pension funds to the risk of fueling market bubbles. But the more-prosaic prognostication — that further easing simply won’t stimulate slowing economies by reviving enfeebled corporate investment — may be the hardest-hitting retort from the perspective of central banks in the U.K., euro-area and Japan. While a clutch of reasons for moribund business investment in advanced economies have been advanced, central banks would do well to wake up to another typically over-looked cause, according to a new report from Citigroup.

Corporate investment faces a financing hurdle as the weighted-average cost of capital for companies (known as WACC) remains elevated thanks to the stubbornly high cost of equity, Hans Lorenzen, Citi credit analyst, said in a report published this week. The report pleads with central banks to forgo further asset purchases, citing diminishing returns from such stimulus programs and their questionable efficacy more generally. Corporates aren’t feeling the financing benefits offered by the global fall in real long-term interest rates thanks to a historically-high equity risk premium — which, in simple terms, is the excess return the stock market is expected to earn over a perceived risk-free rate, Lorenzen said.

Although companies typically aren’t dependent on equity issuance to fund investment programs – relying instead on fixed-income markets – the equity risk premium is an important factor influencing investment decisions made by company boards. The higher the cost of equity, the higher the theoretical overall cost of capital for corporates. In other words, investments that don’t on paper appear to make returns materially greater than the company’s WACC will face financing challenges.

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Only thing is, we know it’s useless-at least for what it purports to be aimed at.

ECB Set To Extend QE Well Into Next Year As It Fights Deflation (CNBC)

The ECB is expected to extend its trillion-euro bond-buying program beyond March 2017 and announce to expand the universe of eligibile bonds as part of its seemingly never-ending struggle to kickstart the euro zone’s economy. The central bank and its President Mario Draghi has been trying to push inflation back to its goal of below but close to 2 percent with a plethora of measures and instruments ranging from negative deposit rates to spur lending, a QE program that has been buying €80 billion ($89 billion) in bonds every month and interest rates close to zero – but without a breakthrough success. Analysts believe the ECB’s governing council has its work cut out when it meets to decide on monetary policy Thursday.

The headline rate of inflation remained unchanged at 0.2% in August. Core, or underlying inflation, which excludes energy, goods, alcohol and tobacco, fell from 0.9% in July to 0.8%, according to Eurostat. The eurozone economy slowed slightly in August as Germany’s services sector faltered, according to surveys of purchasing managers, expanding at the weakest pace in 19 months. Amid the factors for the cooling of the economy is the UK’s decision to leave the EU which may have dampened the currency area’s modest recovery. “We think the ECB will expand the duration of its QE programme from March 2017 currently to September 2017,” Nick Kounis at ABN Amro writes. “The ECB will most likely also need to announce changes to its QE programme to increase the universe of eligible assets as it will not be able to meet even its current targets under the current structure.”

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It could, but it’s the worst thing it could do.

Could the ECB Start Buying Stocks? (WSJ)

Central banks have become some of the biggest investors in bond markets. Now some in the financial markets think stocks should benefit more from their largess. Some economists say the ECB, which meets Thursday to decide if it should expand its current bond-buying program, should invest in equities. The reason: It is running out of bonds to buy. A move by the ECB into equities would have big implications for Europe’s stock markets, which have been rocked by a series of shocks this year, from volatility in China to Britain’s vote to leave the EU. The prospect of billions of euros flowing into equities could prop up prices, much as ECB bond purchases have done for debt securities. The signaling effect from the ECB’s unlimited money-printing power may also limit downturns in equities.

Stock purchases don’t appear to be on the near-term agenda. But ECB officials haven’t ruled them out, and the idea could gain steam if they continue to undershoot their 2% inflation target. Some central banks already invest in equities. Switzerland’s central bank has accumulated over $100 billion worth of stocks, including large holdings in blue-chip U.S. companies such as Apple and Coca-Cola. If the ECB decides to raise its stimulus by extending its current bond program, as many analysts expect, fresh questions will be raised about how it will continue to find enough bonds to buy. The bank is already purchasing €80 billion a month of corporate and public-sector bonds to reduce interest rates across the eurozone. Its holdings of public-sector debt reached €1 trillion last week, the ECB said Monday.

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The ECB is keeping sick companies alive, destroying price discovery in the process.

Now Companies Are Getting Paid to Borrow (WSJ)

Investors are now paying for the privilege of lending their money to companies, a fresh sign of how aggressive central-bank policy is upending conventional patterns in finance. German consumer-products company Henkel AG and French drugmaker Sanofi each sold no-interest bonds at a premium to their face value Tuesday. That means investors are paying more for the bonds than they will get back when the bonds mature in the next few years. A number of governments already have been able to issue bonds at negative yields this year. But it is a rare feat for companies, which also ask investors to bear credit risk.

Yields on corporate debt have plunged in recent months as investors have pushed up prices in the scramble for returns. Roughly €706 billion of eurozone investment-grade corporate bonds traded at negative yields as of Sept. 5, or over 30% of the entire market, according to trading platform Tradeweb, up from roughly 5% of the market in early January. [..] Tuesday’s deals, however, are among just a handful of corporate offerings that have actually been sold at negative yields. They include offerings of euro-denominated bonds earlier this year by units of British oil giant BP and German auto maker BMW, according to Dealogic. Germany’s state rail operator, Deutsche Bahn, also has issued euro-denominated bonds at negative yields.

The ECB launched its corporate bond-buying program in early June and had bought over €20 billion of corporate bonds as of Sep. 2. Most of its purchases came in secondary markets, where investors buy and sell already issued bonds. The central bank meets Thursday and will decide if it should expand its current bond-buying program. The purchases have helped set off a burst of issuance following the traditional summer lull in local capital markets. Last month was the busiest August on record for new issuance of euro-denominated, investment grade corporate debt, according to Dealogic.

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Kansas is all they know.

Message to the Fed: We’re not in Kansas Anymore (Farmer)

There is a lasting and stable connection in data between changes in the interest rate and changes in the unemployment rate. Past data suggest that if the Fed were to raise the interest rate at its next meeting, unemployment would increase and output growth would slow. It is fear of that outcome that causes central bank doves to be reluctant to raise the interest rate. But although an interest rate increase has preceded a slowdown by approximately three months in past data, there is a connection at longer horizons between inflation and the T-bill rate. That connection, sometimes called the Fisher relationship after the American economist Irving Fisher, arises from the fact that, risk-adjusted, T-bills and equities should pay the same rate of return.

The one-year real return on a T-bill is the difference between the interest rate and the expected one-year inflation rate. The one-year real return on holding the S&P 500 is the gain you can expect to make from buying the market today and selling it one year later. Economic theory suggests that the gap between those two expected returns arises from the fact that equities are riskier than T-bills, and importantly, the gap cannot be too big. Therein lies the policy maker’s conundrum. To hit an inflation target of 2%, the T-bill rate must be 2% higher than the underlying risk adjusted real rate: policy makers call this rate r*. There is some evidence that r* is currently very low currently, possibly zero or even negative. But if the Fed were to raise the policy rate to 2% at the next meeting, they are terrified that they might trigger a recession.

Let’s examine that argument. The fact that a rate rise caused a slowdown in past data does not mean that a rate rise will cause a slowdown in future data. This time really is different. It is different because in 2008 the Fed expanded its policy options. Before 2008 the interest rate set by the Fed was the Federal Funds Rate (FFR). That is the overnight rate at which commercial banks can borrow or lend to each other. Before 2008, there was a large and active Fed funds market used by commercial banks to meet reserve requirements. Commercial banks are required to hold roughly 10% of their balance sheets in the form of reserves. In the past, because reserves did not pay interest, banks kept them to a minimum. Excess reserves for much of the post-war period were essentially zero. Firms and households hold cash because they need liquid assets to facilitate trade. But cash is costly to hold because a firm must forgo investment opportunities. In the parlance of economic theory, we say that the FFR is the opportunity cost of holding money.

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Trade wars and currency wars a-coming.

China Grabs Bigger Slice Of Shrinking Global Trade Pie (BBG)

China is eating up a larger chunk of the world’s shrinking trade pie. Brushing off rising wages, a shrinking workforce and intensifying competition from lower cost nations from Vietnam to Mexico, China’s global export share climbed to 14.6% last year from 12.9% a year earlier. That’s the highest proportion of world exports ever in IMF data going back to 1980. Yet even as its export share climbs globally, manufacturing’s slice of China’s economy is waning as services and consumption emerge as the new growth drivers. For the global economy, a slide in China’s exports this year isn’t proving any respite as an even sharper slump in its imports erodes a pillar of demand.

Those trends are likely to be replicated in August data due Thursday. Exports are estimated to fall 4% from a year earlier and imports are seen dropping 5.4%, leaving a trade surplus of $58.85 billion, according to a survey of economists by Bloomberg News as of late Tuesday. While China’s advantage in low-end manufacturing has been seized upon by Donald Trump’s populist campaign for the U.S. presidency, the shift into higher value-added products from robots to computers is also pitting China against developed-market competitors from South Korea to Germany. A weaker yuan risks exacerbating global trade tensions, which became a hot button issue at the G-20 meeting in Hangzhou over cheap steel shipments.

“All the talk we have heard over the last few years about China losing its global competitive advantage is nonsense,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. “This will all further fuel increasing trade tensions as already evident in the U.K. with the Brexit vote and in the U.S. with the support for Trump’s populist protectionist platform.”

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Many voices proclaim that China’s foray into SDRs will lead to the end of the USD. Balding sees it differently. SDRs signal China’s weaknesses.

Why China Isn’t a Financial Center (Balding)

Amid all the buzz about China’s hosting the G-20 summit in Hangzhou – all the accords, arguments and alleged snubs – another symbolically significant event was largely obscured. Last week, the World Bank issued bonds denominated in Special Drawing Rights, or SDRs, in China’s interbank market. Beginning in October, the yuan will be included in the basket of currencies used to set the SDRs’ value. To China, this symbolizes its status as a rising power. I’d argue that it instead symbolizes why China is struggling to become a global financial center. Beijing conceived of SDRs as something of a compromise. It would like the global monetary system to be less reliant on the U.S. dollar and more favorable toward its own currency.

Yet it continues to impose capital controls, which limit the yuan’s usage overseas, and it doesn’t want to let the yuan’s value float freely, which would be a prerequisite to its becoming a true reserve currency. China saw SDRs as a way to split the difference, to create a competitor to the dollar and maintain a fixed exchange rate at the same time. The problem is that there’s almost no conceivable reason to use them. SDRs were created as a synthetic reserve asset by the IMF decades ago, under the Bretton Woods system. No country uses them for normal business, and no government is likely to issue bonds denominated in them except for political reasons, as the World Bank is doing. Companies won’t use them either. If a firm wants to borrow to build a plant in Japan, it will issue a bond in yen so it can repay in yen.

If its customers are global, surely an ambitious investment bank would be willing to build a customized currency portfolio index that would match its needs. Rather than using the SDR’s weighting of currencies, the company could sell a bond in a synthetic index of anything: a 25% split between dollars, euros, yen and reals, say. No customer pays in SDRs; why bind yourself to repaying debts in them? The reason China is pushing SDRs is that it hopes to gain the prestige of a global currency without facing the financial pressure to let the yuan float freely or to loosen capital controls. It wants the benefits of global leadership, in other words, but would prefer to avoid the drawbacks. This is precisely the attitude that’s hindering China’s rise as a global financial center.

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Distortion is all we have left.

Time to Worry: Stocks and Bonds Are Moving Together (WSJ)

Wall Street traders and fund managers returning from the summer break are likely to focus on the obvious: a series of central-bank meetings in coming weeks and the imminent U.S. election. They also should be paying close attention to some unusual behavior in the market, where the changing relationship between bonds and stocks may be a sign of trouble ahead. A generation of traders have grown up with the idea that stock prices and bond yields tend to rise and fall together, as what is good for stocks is bad for bonds (pushing the price down and yield up), and vice versa. This summer, the relationship seems to have broken down in the U.S. Share prices and bond yields moved in the same direction in just 11 of the past 30 trading days, close to the lowest since the start of 2007.

This is far from unprecedented. But since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy. It has tended to coincide with times of deep discontent in markets, notably the 2013 “taper tantrum,” when bond yields briefly surged after Federal Reserve officials signaled they would soon end stimulus, and last year’s brief bubble in German bunds. The simplest explanation is that expectations of interest rates being lower for longer—some central bankers have suggested lower forever—pushes the price of everything up, and yields down.

When the focus is on the discount rate used to value all assets, bond and stock prices rise and fall together, creating the inverse relationship between bond yields and shares. Such a focus on monetary policy isn’t healthy. It leaves markets more exposed to sudden shocks, both from changes in policy and from an economy to which less attention is being paid. “It’s a somewhat mercurial thing, but there are big shifts [in correlations], and being on the right side of those big shifts is important,” said Philip Saunders at Investec Asset Management. “You do see some brutal price action at these correlation inflection points.”

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What? We have enough waiters?

First Factories, Now Services Signal Cracks in US Economy (BBG)

Some cracks could be starting to appear in the picture of an otherwise resilient U.S. economy. An abrupt drop in the Institute for Supply Management’s services gauge on Tuesday to a six-year low is the latest in a string of unexpectedly weak data for August. Other less-than-stellar figures include an ISM factory survey showing a contraction in manufacturing; a cooling of hiring; automobile sales falling short of forecasts; and an index of consumer sentiment at a four-month low. While there is hardly any evidence that growth is falling off a cliff, the run of disappointing figures make it tougher to argue that the underlying momentum of the world’s largest economy is holding up.

It also potentially complicates the task of Federal Reserve policy makers, who are debating whether to raise interest rates as soon as this month; traders’ bets on a September move faded further after the report on service industries, which make up almost 90% of the economy. “The latest set of ISM numbers is shockingly weak,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “It certainly gives the doves at the Fed more ammunition. It makes the Fed’s conversation at the September meeting that much more contentious.” The ISM’s non-manufacturing index slumped to 51.4, the lowest since February 2010, from 55.5 in July, the Tempe, Arizona-based group reported. The figure was lower than the most pessimistic projection in a Bloomberg survey.

The ISM measures of orders and business activity skidded by the most since 2008, when the U.S. was in a recession. Readings above 50 indicate expansion. Stocks fell, bonds climbed and the dollar weakened against most of its major peers after the data were released.

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AKA New Zealand has world’s biggest housing bubble.

New Zealand Tops World House Price Increase (G.)

New Zealand has the world’s most frenetic property market, with prices in Auckland now outstripping London, and possibly dashing the hopes of British buyers hoping to escape Brexit. In a global ranking of house price growth by estate agents Knight Frank, New Zealand was second to Turkey, but once the impact of inflation was stripped out it came top with 11% annual growth. Canada was the only other country to see price growth of 10% or more over the past year. It also recorded the fastest price rises of any country over the past three months. Meanwhile once white-hot property markets in the far east are cooling fast. Taiwan saw price falls of 9.4% over the past year, putting it at the bottom of Knight Frank’s ranking. Hong Kong and Singapore have also seen significant reductions in house prices.

Auckland is at the centre of an extraordinary property boom, with separate data revealing that the city’s average house price last month hit NZ$1m (£550,000) for the first time. The country’s QV house price index found that the typical Auckland home was valued at NZ$1,013,632 in August, an increase of 15.9% over the year. That’s just under £560,000 and higher than the average London property price of £472,384 according to data. Spiralling prices – up NZ$20,000 a month over the past quarter – and the falling pound are likely to deter Britons hoping to emigrate.

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After the fact.

EU Ethics Watchdog Intervenes Over Former EC Chief Barroso’s Goldman Job (G.)

The EU’s ethics watchdog is to look into the former European commission president José Manuel Barroso’s new job with Goldman Sachs, which includes advising the investment bank and its clients on Brexit. In a letter to Barroso’s successor, Jean-Claude Juncker, the EU ombudsman, Emily O’Reilly, said Barroso’s appointment as non-executive chairman of Goldman raised widespread concerns. She cited “understandable international attention given the importance of his former role and the global power, influence, and history of the bank with which he is now connected”. Her intervention comes after EU staff launched a petition calling on EU institutions to take “strong exemplary measures” against Barroso including the loss of his pension while he works for Goldman.

The petition now has more than 120,000 signatures. O’Reilly told Juncker that public unease will be exacerbated by the fact that Barroso is to advise Goldman Sachs on Britain’s exit from the EU. She warned of the danger of a breach of ethics in his interaction with former colleagues, including the EU’s chief Brexit negotiator, Michel Barnier, a former special adviser to Barroso. O’Reilly said new guidance was needed to ensure that EU staff were “not affected by any possible failure on Mr Barroso’s part to comply with his duty to act with integrity”. Barroso joined Goldman less than two years after leaving office at the European commission, but after the 18-month cooling-off period stipulated by European rules.

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Great story from an unlikely source, Canada’s right-wing National Post.

How Snowden Escaped (NaPo)

Edward Snowden, a former U.S. intelligence contractor, became the most wanted fugitive in the world after leaking a cache of classified documents to the media detailing extensive cyber spying networks by the U.S. government on its own citizens and governments around the world. To escape the long arm of American justice, the man responsible for the largest national security breach in U.S. history retained a Canadian lawyer in Hong Kong who hatched a plan that included a visit to the UN sub-office where the North Carolina native applied for refugee status to avoid extradition to the U.S.

Fearing the media would surround and follow Snowden — making it easier for the Hong Kong authorities to arrest the one-time CIA analyst on behalf of the U.S. — his lawyers made him virtually disappear for two weeks from June 10 to June 23, 2013, before he emerged on an Aeroflot airplane bound for Moscow, where he remains stranded today in self-imposed exile. “That morning, I had minutes to figure out how to get him to the UN, away from the media, and out of harm’s way with the weight of the U.S. government bearing down on him. I did what I had to do, and could do, to help him,” Robert Tibbo, the whistleblower’s lead lawyer in Hong Kong told the Post in a wide-ranging interview, the first detailing the chaotic days of Snowden’s escape three years ago. “They wanted the data and they wanted to shut him down. Our greatest fear was that Ed would be found.”

The covert scheme to dodge U.S. attempts to arrest Snowden could have been ripped from the pages of a spy thriller. The fugitive was disguised in a dark hat and glasses and transported by car at night by two lawyers to safe houses on the crowded and impoverished fringes of Hong Kong. Snowden hunkered down in small, cluttered, dingy rooms where as many as four people shared less than 150 square feet. Batteries were removed from cellphones when they gathered, burner phones were used to place calls, SIM cards were exchanged and sophisticated computer encryption was used to communicate when face-to-face meetings were not possible. Snowden rarely ventured out, and only at night where he could easily be lost among the many other asylum seekers. “Nobody would dream that a man of such high profile would be placed among the most reviled people in Hong Kong,” recalled Tibbo, a Canadian-born and educated barrister who has practiced law for 15 years. “We put him in a place where no one would look.”

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It is criminal that Europe doesn’t reach out to help. But we still do. Click here and Please Help The Automatic Earth Help The Poorest Greeks And Refugees! This works! No governments, no NGOs. Thats means no overhead, no salaries, just help.

Greece Overhauls Refugee Center Planning As Islands Appeal For Help (Kath.)

Government officials on Tuesday determined which reception centers for migrants across the country are to close and where new, improved facilities are to open but did not determine a time-frame, even as authorities on the Aegean islands warn of dangerously cramped and tense conditions in local camps. More than 12,500 migrants are currently living in reception centers on five Aegean islands – Lesvos, Chios, Kos, Leros and Samos – and hundreds more are arriving every day from neighboring Turkey. Spyros Galinos, the mayor of Lesvos, which is hosting 5,484 migrants, wrote to Alternate Migration Policy Minister Yiannis Mouzalas on Tuesday to express his concern about the “extremely dangerous conditions” on the island.

He asked the minister for the immediate transfer of migrants from Lesvos to other facilities on the mainland “to avert far worse developments.” However, decongesting facilities on the islands is part of the government’s broader overhaul of a network of reception centers spread across the country. An aide close to Mouzalas determined on Tuesday which camps in northern Greece will close and which will be improved but did not say when this would happen. Among the facilities that are to close are those in Sindos and Oraiokastro, near Thessaloniki, and in Nea Kavala, near Kilkis. Reception centers in Diavata and Vassilika, also in northern Greece, are to be upgraded.

A new reception center for minors is to start operating at the Amygdaleza facility, north of the capital, next Monday. Meanwhile, sources said on Tuesday that child refugees will start attending Greek schools at the end of this month. The 22,000 child refugees currently in Greece will be inducted into the school system in groups. Those aged between 4 and 7 will attend kindergartens to be set up within migrant reception centers. Children aged 7 to 15 will join classes at public schools near the reception centers where they are staying. And unaccompanied minors aged 14 to 18 will be able to join vocational training classes if they so desire.

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A tangible monument to incompetence and spectacular failure.

UK Immigration Minister Confirms Work To Start On £1.9 Million Calais Wall (G.)

Work is about to begin on “a big, new wall” in Calais as the latest attempt to prevent refugees and migrants jumping aboard lorries heading for the Channel port, the UK’s immigration minister has confirmed. Robert Goodwill told MPs on Tuesday that the four-metre high wall was part of a £17m package of joint Anglo-French security measures to tighten precautions at the port. “People are still getting through,” he said. “We have done the fences. Now we are doing the wall,” the new immigration minister told the Commons home affairs committee. Building on the 1km-long wall along the ferry port’s main dual-carriageway approach road, known as the Rocade, is due to start this month.

The £1.9m wall will be built in two sections on either side of the road to protect lorries and other vehicles from migrants who have used rocks, shopping trolleys and even tree trunks to try to stop vehicles before climbing aboard. It will be made of smooth concrete in an attempt to make it more difficult to scale, with plants and flowers on one side to reduce its visual impact on the local area. It is due to be completed by the end of the year. The plan has already attracted criticism from local residents who have started calling it “the great wall of Calais”.

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What do you call a world that refuses to protect its children?

Nearly Half Of All Refugees Are Now Children (G.)

Children now make up more than half of the world’s refugees, according to a Unicef report, despite the fact they account for less than a third of the global population. Just two countries – Syria and Afghanistan – comprise half of all child refugees under protection by the United Nations High Commissioner for Refugees (UNHCR), while roughly three-quarters of the world’s child refugees come from just 10 countries. New and on-going global conflicts over the last five years have forced the number of child refugees to jump by 75% to 8 million, the report warns, putting these children at high risk of human smuggling, trafficking and other forms of abuse.

The Unicef report – which pulls together the latest global data regarding migration and analyses the effect it has on children – shows that globally some 50 million children have either migrated to another country or been forcibly displaced internally; of these, 28 million have been forced to flee by conflict. It also calls on the international community for urgent action to protect child migrants; end detention for children seeking refugee status or migrating; keep families together; and provide much-needed education and health services for children migrants. “Though many communities and people around the world have welcomed refugee and migrant children, xenophobia, discrimination, and exclusion pose serious threats to their lives and futures,” said Unicef’s executive director, Anthony Lake.

“But if young refugees are accepted and protected today, if they have the chance to learn and grow, and to develop their potential, they can be a source of stability and economic progress.”

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Jul 122016
 
 July 12, 2016  Posted by at 8:30 am Finance Tagged with: , , , , , , , , ,  


NPC L.E. White Coal Co. yards, Washington 1922

Asian Shares Rally As Wall Street Strikes New Record High (R.)
Abe Orders New Stimulus Package To Water ‘Seeds Of Growth’ (R.)
Japan Turns Again to Bernanke, as Fruits of Abenomics Wither (BBG)
Bernanke’s Black Helicopters Of Money (David Stockman)
The Trillions Spent By Central Banks Has Been A Dud: BofA (MW)
Ground Zero of China’s Slowdown Leaves Locals Looking for Exit (BBG)
HSBC Avoided US Money Laundering Charges Because Of ‘Market Risk’ Fears (BBC)
Brexit Seen Biting Profit for Years at US Banks (BBG)
Italy ‘Facing 20 Years Of Economic Woe’: IMF (BBC)
Dutch Bonds Just Did Something That We Haven’t Seen In 499 Years (BI)
Citibank To Close Key Venezuela Payment Account: Maduro (AFP)
European Commission Under Fire Over Barroso’s Goldman Sachs Job (EuO)
Oligarchs of the Treasure Islands (MWest)
Trump Wins -Even If He Loses- (Nomi Prins)

 

 

Everyone’s betting on the helicopter arriving soon.

Asian Shares Rally As Wall Street Strikes New Record High (R.)

Asian stocks rose to a 2-1/2-month peak on Tuesday, a day after Wall Street shares hit a record high thanks to a combination of upbeat U.S. data and expectations of more stimulus from global policymakers. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6% to hit its highest level since late April. Japan’s Nikkei jumped 2.5% as investors bet the country’s government may inject $100 billion in fiscal spending to boost the economy, possibly financed by the central bank’s money-printing, a policy mix that is often dubbed “helicopter money”. European shares are seen opening flat to slightly lower, with spread-betters expecting Britain’s FTSE 100 and Germany’s DAX to fall 0.1% and France’s CAC 40 to be flat.

On Wall Street, the S&P 500 index on Monday broke a new record high, its first in more than a year, extending its gain after Friday’s bumper job figures reduced worries about slowdown in employment. The benchmark closed at a record 2,137.16, overtaking the previous high of 2,130.82 hit on May 21, 2015. Globally low interest rates from central bank stimulus in both Japan and Europe are supporting risk assets. Bond yields in the U.S., Japan, Germany, France and the U.K all hit record lows last week as investors bet on more stimulus following the Brexit shock.

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Follow the strong leader no matter what he says or does. A culture fraught with danger.

Abe Orders New Stimulus Package To Water ‘Seeds Of Growth’ (R.)

Japanese Prime Minister Shinzo Abe ordered a new round of fiscal stimulus spending after a crushing election victory over the weekend as evidence mounted the corporate sector is floundering due to weak demand. Abe did not give details on the size of the package, but Japanese stocks jumped nearly 4 percent and the yen weakened over perceptions a landslide victory in upper house elections now gives him a free hand to draft economic policy. An unexpected decline in machinery orders shows the economy needs something to overcome consistently weak corporate investment. Economists worry, however, that Abe’s focus on public works spending will not tackle the structural issues around a declining population and workforce.

More public works also increases pressure on the Bank of Japan to keep interest rates low and the yen weak to make sure stimulus spending will gain traction. The government was ready to spend more than 10 trillion yen ($100 billion), ruling party sources told Reuters before the election. “We are going to make bold investment into seeds of future growth,” Abe told a news conference on Monday at the headquarters for his ruling Liberal Democratic Party (LDP). [..] Abe said he wanted to strengthen agriculture exports from rural areas and improve infrastructure, such as trains and ports, to welcome more tourists and cruise ships from overseas. “We have promised through this election campaign that we will sell the world the agricultural products and tourism resources each region is proud of,” he said.

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Abe has no more ideas.

Japan Turns Again to Bernanke, as Fruits of Abenomics Wither (BBG)

Less than three weeks before the Bank of Japan’s next scheduled policy meeting, Governor Haruhiko Kuroda met with former Federal Reserve Chairman Ben S. Bernanke over lunch on Monday. The BOJ issued no statement on the substance of the talks, which come as the central bank confronts a fresh strengthening in the yen this year that risks undermining inflation and weakening the appetite for investment and wage increases. Prime Minister Shinzo Abe will meet Bernanke at 3 p.m. local time on Tuesday, according to Abe’s office. For Bernanke, offering views on Japan’s challenges and policy options would be nothing new. He delivered a famous 2003 speech calling for greater cooperation between monetary and fiscal policy makers to defeat deflation and spur the economy.

In the room during Bernanke’s meetings with Japanese officials 13 years ago in Tokyo: Abe and Kuroda, who a decade hence unleashed an unprecedented stimulus to revive Japan. Now, that project is increasingly at risk with inflation moving away from the BOJ’s target, and GDP growth far from Abe’s goals. Bernanke’s 2003 visit, when he was a Federal Reserve Board member, and his message at the time is still discussed by BOJ officials. Japan has a tradition of seeking the advice of overseas experts, something that’s been taken to a new level under Abe, who consulted with Nobel laureates Paul Krugman and Joseph Stiglitz prior to his decision in June to delay a sales-tax hike. Unlike with this week’s Bernanke visit, the meetings with Krugman and Stiglitz were well-publicized.

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Stockman uses strange definitions of inflation and deflation. Nobody should use CPI.

Bernanke’s Black Helicopters Of Money (David Stockman)

Ben Bernanke is one of the most dangerous men walking the planet. In this age of central bank domination of economic life he is surely the pied piper of monetary ruin. At least since 2002 he has been talking about “helicopter money” as if a notion which is pure economic quackery actually had some legitimate basis. But strip away the pseudo scientific jargon, and it amounts to monetization of the public debt—–the very oldest form of something for nothing economics. Back then, of course, Ben’s jabbering about helicopter money was taken to be some sort of theoretical metaphor about the ultimate powers of central bankers, and especially their ability to forestall the boogey-man of “deflation”.

Indeed, Bernanke was held to be a leading economic scholar of the Great Depression and a disciple of Milton Friedman’s claim that Fed stringency during 1930-1932 had caused it. This is complete poppycock, as I demonstrated in The Great Deformation, but it did give an air of plausibility and even conservative pedigree to a truly stupid and dangerous idea. Right about then, in fact, Bernanke grandly promised during a speech at Friedman’s 90th birthday party that today’s enlightened central bankers – led by himself – would never let it happen again. Presumably Bernanke was speaking of the 25% deflation of the general price level after 1929.

The latter is always good for a big scare among modern audiences because no one seems to remember that the deflation of the 1930’s was nothing more than the partial liquidation of the 100%-300% inflation of the general price level during the Great War. In any event, Bernanke was tilting at windmills when he implied that the collapse of the US wartime and Roaring Twenties boom had anything to do with the conditions of 2002. Even the claim that Japan was suffering from severe deflation at the time was manifestly false. In fact, during the final stages of Japan great export and credit boom, the domestic price level had risen substantially, increasing by nearly 70% between 1976 and 1993. It then simply flattened-out – and appropriately so – after the great credit, real estate and stock market bubble collapse of 1990-1992.

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And this is the end result of QE et al.

The Trillions Spent By Central Banks Has Been A Dud: BofA (MW)

Toasts all around? U.S. stocks charged into record territory on Monday after Friday’s jobs report helped restore confidence in the U.S. economic recovery. But not so fast. The solid data mask a worrisome reality — despite the trillions collectively spent by central banks to breathe life into their economies since the 2008 financial crisis, authorities have been largely shooting blanks, according to Bank of America Merrill Lynch. The S&P 500 climbed to an intraday high of 2,143 Monday, passing the previous intraday record of 2,134.72 set on May 21, 2015. Stocks gained in part because the U.S. economy added 287,000 new jobs last month, far better than the gain of 170,000 projected by economists in a MarketWatch survey.

Yet the same report revealed that the labor participation rate—a metric to measure those who are employed or actively searching for jobs—is hovering at a 38-year low of 62.7%. A weak labor participation rate is an indication that an increasing number of people are leaving the labor force either through retirement or because they’re discouraged by not finding employment. It is also a sign that job growth isn’t tracking as robustly as it should considering that the U.S. economy expanded to $18 trillion in 2015 from $2.4 trillion in 1978. What’s more, the official unemployment rate edged up to 4.9% in June from 4.7% in May as more people entered the labor force looking for jobs. This headline number, however, excludes millions of part-time workers who would really rather work full time, as well as those who have become too discouraged to look for work, period. If this broader group was accounted for, the actual jobless rate would be closer to 10%.

It all suggests that the labor market, and by extension the economy, may not be as healthy as it should be given the prolonged period of accommodative monetary policy in the U.S. and elsewhere. It’s against this backdrop that a team led by Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, demonstrated how ineffective they believe central banks’ collective quantitative easing has been. Central banks around the world have cut interest rates a combined 659 times since Lehman Brothers filed for bankruptcy on Sept. 15, 2008, resulting in negative rates in many major economies, according to Hartnett. “Incited by the belief that every single interest rate in the world is heading to zero, the mountain of cash on the sidelines has induced fresh ‘irrational upside’ in government and corporate bonds,” said the strategist, in a note.

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A picture of the real China.

Ground Zero of China’s Slowdown Leaves Locals Looking for Exit (BBG)

Tea-shop manager Zhang Yue is so desperate about her home city of Tieling’s future that she’s borrowed about five times her annual income to buy a work visa to leave for Japan – an economy that’s flat-lined for a generation. “Two years ago, everything was fine and I bought whatever I wanted,” said Zhang, 29, whose husband’s wages have since halved and her own have stalled. “Then, suddenly, the slump started. The economy went straight down. It’s in free fall.” The home to about 3 million people in the northeast rust-belt province of Liaoning is ground zero in China’s slowdown – the worst-performing city in the worst-performing province. Ads offering work visas abroad are peppered across hoardings, and billboards offer loans for people in “urgent need.”

Shuttered car-parts factories flank the highway to the high-speed train station. In the center, a closed wedding-photograph studio has a notice in the window that reads: “Owner is going overseas. Shop for sale.” Tieling is among the places hardest hit by a slowdown across the nation of 1.4 billion people triggered in recent years by a commodity-price slump, housing correction and campaign to rein in wasteful investment. The city has seen a triple whammy from the three dynamics, which left the local economy contracting 6.2% last year – compared with national growth of near 7%. Fixed-asset investment in Tieling – largely property and infrastructure investment – plummeted 39%, steel output plunged 89%, industrial output dropped 18% and coal production was down almost 8%.

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Keep this up and tar and feathers are your part.

HSBC Avoided US Money Laundering Charges Because Of ‘Market Risk’ Fears (BBC)

US officials refused to prosecute HSBC for money laundering in 2012 because of concerns within the Department of Justice that it would cause a “global financial disaster”, a report says. A US Congressional report revealed UK officials, including Chancellor George Osborne, added to pressure by warning the US it could lead to market turmoil. The report alleges the UK “hampered” the probe and “influenced” the outcome. HSBC was accused of letting drug cartels use US banks to launder funds. The bank, which has its headquarters in London, paid a $1.92bn settlement but did not face criminal charges . No top officials at HSBC faced any charges. The report says: “George Osborne, the UK’s chief financial minister, intervened in the HSBC matter by sending a letter to Federal Reserve Chairman Ben Bernanke… to express the UK’s concerns regarding US enforcement actions against British banks.”

The letter said that prosecuting HSBC could have “very serious implications for financial and economic stability, particularly in Europe and Asia”. Justice Department spokesman Peter Carr said a series of factors were considered when deciding how to resolve a case, including whether there may be “adverse consequences for innocent third parties, such as employees, customers, investors, pension holders and the public”. The report also accuses former US Attorney General Eric Holder of misleading Congress about the decision. The report says Mr Holder ignored the recommendations of more junior staff to prosecute HSBC because of the bank’s “systemic importance” to the financial markets.

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Nonsensical article. If any of this were valid, US banks were so weak pre-Brexit, lower profits were cast in stone no matter what.

Brexit Seen Biting Profit for Years at US Banks (BBG)

When U.S. banks post second-quarter results in days, it’ll boil down to this: Bonus cuts are coming for just about everyone this year, says Wall Street recruiter Richard Lipstein. “If you are break-even, it’s an achievement.” That’s the picture taking shape as analysts trim estimates for the quarter and overhaul long-term projections for banks’ main businesses after the U.K.’s vote to leave the European Union. Starting this week, JPMorgan Chase, Citigroup and Goldman Sachs probably will say they saw a quick bump in trading after the June 23 referendum, but that deals are stalling and years of pain lie ahead. Combined net income at the six biggest U.S. banks is estimated to fall 18% in the second quarter from a year earlier, according to analysts surveyed by Bloomberg.

Fred Cannon, global research director at Keefe, Bruyette & Woods, said many analysts are just starting to rework projections for future periods to account for Brexit’s fallout, such as the prolonging of low interest rates. “We went from lower for longer into what seems like lower forever,” he said. That will erode interest from lending. Market turmoil and economic drags linked to Brexit will hurt investment banking revenue as companies reconsider acquisitions and selling new securities. And that’s after trading units suffered their worst first quarter since 2009.

For the full year, analysts predict combined earnings at the six U.S. banks – which also include Bank of America, Wells Fargo and Morgan Stanley – will drop 14%. It may only partially recover in 2017, the estimates show. The projections for both years tumbled after markets swung earlier this year, and then slipped further after the U.K. vote as analysts began updating research. “Up until June 24, everybody thought the second quarter was building a nice recovery, and now you have to question that,” said Chris Kotowski, a bank analyst at Oppenheimer & Co., referencing the day ballots were tallied. “I’m more cautious than I was.”

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As long as the country stays in the eurozone, yes.

Italy ‘Facing 20 Years Of Economic Woe’: IMF (BBC)

The IMF has warned that Italy faces two decades of stagnant economic growth. Its latest report on the country puts growth this year at under 1%, down from its previous 1.1% estimate, and forecasts growth in 2017 of about 1% – down from a 1.25% estimate. The IMF says Italy will not reach pre-crisis levels until 2025, by which time its neighbours will have economies 20-25% above 2008 levels. Italy is the third largest eurozone country. It has 11% unemployment and a banking sector in crisis, with government debt second only to that of Greece. The country’s banks are under pressure because the long-standing poor economic performance has depressed tax revenue and increased the chances of businesses getting into difficulty and being unable to maintain their loan payments.

Italian banks are weighed down by massive bad debts, and may need a significant injection of funds. The IMF says any recovery is likely to be prolonged and subject to risks. Among those risks are the UK’s withdrawal from the European Union, which it said last week had prompted it to downgrade its forecasts for growth for the entire eurozone. Other problem areas include “the refugee surge, and headwinds from the slowdown in global trade”.

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Just in case it wasn’t clear yet just how crazy our times are.

Dutch Bonds Just Did Something That We Haven’t Seen In 499 Years (BI)

Dutch 10-year government bond yields dropped below zero for the first time ever on Monday, making them the latest to join the negative yield club. The Netherlands’ 10-year dipped by 0.08 %age points to as low as -0.007%. It has fallen by about 30 basis points since the June Brexit vote. There’s roughly $13 trillion of global negative-yielding debt now, according to data from Bank of America Merrill Lynch, cited by the Wall Street Journal on Sunday. By comparison, there was about $11 trillion ahead of the UK’s vote on EU referendum.

When a bond is negative yielding, it means investors get less back when the debt is due than what they pay for it today. The Dutch bond yields are the lowest the country has ever seen. Amazingly, there’s nearly half a millennium of records to compare that against, as record keeping began in 1517. As a historical reference point, that’s the same year that Martin Luther published his 95 Theses. You can see the history of the Dutch 10-year going back to 1517 in the chart below, which was shared by Deutsche Bank’s Jim Reid in his Monday note to clients.

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America wants revenge.

Citibank To Close Key Venezuela Payment Account: Maduro (AFP)

Citibank plans to close the account Venezuela uses to make international payments, President Nicolas Maduro said Monday, accusing the US-based bank of a “financial blockade.” “Citibank, with no warning or communication, says that it is going to close the Central Bank and Bank Of Venezuela account. That is what you call a financial blockade,” the embattled president said in televised remarks. He said the move amounted to an “inquisition” by US President Barack Obama’s administration. Maduro said his South American nation, a major oil producer, uses the account to make payments “within 24 hours, to other accounts in the United States and worldwide.” Maduro’s socialist government has often claimed that US interests and local business elites were trying to blockade his state-led economy and prevent Venezuela’s access to international credit.

“Do you think they are going to stop us by putting in place a financial blockade? No, ladies and gentlemen, nobody stops Venezuela! With Citibank or without it, we are moving forward. With Kimberly or without, we are moving.” Venezuela’s government said just hours earlier that it would take over operations at facilities where US consumer goods giant Kimberly-Clark recently shut down, citing unworkable economic conditions. The American company announced on Saturday it would cease production, saying that it was impossible to get enough hard currency to buy raw materials, and that inflation was surging. “We are going to sign, at the workers’ request… to authorize immediate occupation of the workplace known as Kimberly-Clark de Venezuela… by its workers,” Labor Minister Oswaldo Vera said at the facility’s plant in the central city of Maracay.

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Look, they just don’t care. That’s what Britain has a unique oppottunity to step away from. It doesn’t mean there’s no corruption in Britain, but inside the EU it would be guaranteed. Note: it’s quite an achievement to get France’s socialists and Marine le Pen on the same page. But Barroso gets it done. AND he’ll remain eligible for his (very rich) EU benefits and pension …

European Commission Under Fire Over Barroso’s Goldman Sachs Job (EuO)

[..] “Barroso’s decision … is morally and politically deplorable”, said Gianni Pittella, leader of the Socialist and Democrats group in the European Parliament. “After 10 years of mediocre governance of the EU, now the former EU Commission president will serve those who aim to undermine our rules and values,” he added. The Brussels-based lobby watchdog, Corporate Europe Observatory’s (CEO), said the commission’s line – that Barroso acted within the rules – was “pathetic”. “Major loopholes exist in both the rules and the way in which they are implemented … there should be a mandatory cooling-off period of at least five years for former commission presidents regarding direct and indirect corporate lobbying activities,” the NGO’s Nina Holland said. She noted that nine of Barroso’s former commissioners had gone to work for big business after their terms ended in 2014.

Meanwhile, the timing of Barroso’s move could hardly have been worse for the commission. Eurosceptic movements around Europe have long accused EU officials of trampling on ordinary people’s welfare to serve the interests of elites in developments that came to a head in the Brexit vote. France’s far-right Marine Le Pen tweeted that the Barrose move was “not a surprise for people who know that the EU does not serve people but high finance”. French socialist MEPs called on Goldman Sachs to let him go. In a statement on Monday they called the appointment “outrageous and shameful”. They said that he breached the EU treaty and should be stripped of his EU benefits and pension.

They cited article 245 of the EU treaty, which says that commissioners should respect the “obligations arising therefrom and in particular their duty to behave with integrity and discretion as regards the acceptance, after they have ceased to hold office, of certain appointments or benefits.” Barroso led the commission through the tumultuous years of the euro crisis and related bailouts. Under his tenure, the EU set up financial rescue funds to help troubled countries and their banks, but at the cost of severe austerity in Greece, Ireland and Portugal. Goldman Sachs was one of the US investment banks at the heart of the 2008 financial crisis that triggered the events when lenders traded failing mortgages as parts of complex financial instruments.

Earlier this year, the Wall Street firm agreed to a civil settlement of up to $5 billion with federal prosecutors and regulators to resolve claims resulting from the marketing and selling of faulty mortgage securities to investors. Goldman Sachs also helped Greece to hide part of its deficit in the early 2000s, by using so called currency swaps. But the currency trades end up doubling the Greek deficit and leading to the edge of ruin. Barroso himself had been a student leader in an underground Maoist group during his university years. The 60 year-old served as prime minister of Portugal between 2002 and 2004 before heading the EU’s executive for 10 years.

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Accountants, unaccountable.

Oligarchs of the Treasure Islands (MWest)

The “Big Four” global accounting firms – PwC, Deloitte, KPMG and Ernst & Young – are the masterminds of multinational tax avoidance, the architects of tax schemes which cost governments and their taxpayers more than $US1 trillion a year. Although presenting as “the guardians of commerce” they are unregulated and unaccountable; they have infiltrated governments at every level and should be broken up. This is the view of George Rozvany, Australia’s most published expert on transfer pricing, which is one of the principal ways large corporations pursue cross-border tax avoidance. Rozvany stepped down last year as head of tax in Australia for the world’s biggest insurance company, Allianz. Formerly, he was an insider at Ernst & Young, PwC and Arthur Andersen.

“The Big Four have, under a Rasputin-like cloak of illusion strayed from their original and critical role of verifying the accuracy of financial accounts for all stakeholders, to be “accountants of fortune” merely representing the accounting position for multinationals and developing aggressive international tax avoidance practices,” he told michaelwest.com.au. Rozvany is writing a series of books on corporate tax ethics. “This is not a victimless crime,” he says. “While Western governments have been cutting back their aid to the most underprivileged in society, from the homeless to orphaned children in Africa, multinational companies have been diverting ever larger profits into tax havens”.

“The global community must also recognise the links between aggressive taxation behaviour, money laundering, corruption, organised crime and terrorism, of which the Brussels bombings and 9/11 are chilling reminders. This, unquestionably, is the financial sewer of humanity where the purpose for such money, no matter how malevolent, is simply hidden until used”, Rozvany says. [..] “Their signage adorns the skyline in every major city in the world. They have meticulously manicured their public image. They are spectacularly profitable but beyond the law. They are trusted but not trustworthy. They have become too big, too big to fail, so they must be broken up. Break up is hardly radical. It has been done in many industries including banking, oil and communications”.

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He’ll get stronger in the face of adversity.

Trump Wins -Even If He Loses- (Nomi Prins)

Once upon a time not so long ago, making America great again involved a bankroll untainted by the Republican political establishment and its billionaire backers. There would, The Donald swore, be no favors to repay after he was elected, no one to tell him what to do or how to do it just because they had chipped in a few million bucks. But for a man who prides himself on executing only “the best” of deals (trust him) this election has become too expensive to leave to self-reliance. One thing is guaranteed: Donald Trump will not pony up a few hundred million dollars from his own stash. As a result, despite claims that he would never do so, he’s finally taken a Super PAC or two on board and is now pursuing more financial aid even from people who don’t like him.

Robert Mercer and his daughter Rebekah, erstwhile influential billionaire backers of Ted Cruz, have, for instance, decided to turn their Make America Number 1 Super PAC into an anti-Hillary source of funds – this evidently at the encouragement of Ivanka Trump. In the big money context of post-Citizens United presidential politics, however, these are modest developments indeed (particularly compared to Hillary’s campaign). To grasp what Trump has failed to do when it comes to funding his presidential run, note that the Our Principles Super PAC, supported in part by Chicago Cubs owners Marlene Ricketts and her husband, billionaire T.D. Ameritrade founder J.

Joe Ricketts, has already raised more than $18.4 million for anti-Trump TV ads, meetings, and fundraising activities. (On the other hand, their son, Pete, Republican Governor of Nebraska, has given stump speeches supporting Trump.) To put this in context, that $18.4 million is more than the approximately $17 million that all of Trump’s individual supporters, the “little people,” have contributed to his campaign.

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