Nov 192017
 
 November 19, 2017  Posted by at 10:04 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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Wyland Stanley Pontiac coupe at San Francisco Palace of Fine Arts 1935

 

A Fiscal Disappointment – Tax Bill (Lebowitz)
Mt. Gox’s Bitcoin Customers Could Lose Again (R.)
The Coming Economic Downturn In Canada (MN)
How a Half-Educated Tech Elite Delivered Us Into Chaos (Naughton)
Europe Turns On Facebook, Google For Digital Tax Revamp (AFP)
When Unpaid Student Loan Bills Mean You Can No Longer Work (NYT)
Subways May Be the Latest Casualty of China’s Crackdown on Debt (BBG)
Upsurge In Big Earthquakes Predicted For 2018 As Earth Rotation Slows (G.)
Will Puerto Ricans Return Home After Hurricane María? (Conv.)
600 African Migrants Rescued Near Spain (AFP)
First Child Refugee From Greek Camps Comes To UK (G.)
Lesvos Authorities Going On Strike Over Rising Migrant Population (K.)
Over 50,000 Yemeni Children Expected To Die By The End Of 2017 (Ind.)

 

 

This is about much more than the Tax bill. It’s about how much growth you get per dollar in debt added. That is crucial.

A Fiscal Disappointment – Tax Bill (Lebowitz)

The Committee For A Responsible Budget penned after the passage of the tax bill: “The House approved debt-financed tax cuts based on predictions of magical economic growth that defy history and all credible analyses. Tax reform should grow the economy and not add to the debt. Unfortunately, lawmakers are assuming faster economic growth will pay for that debt increase when there is no evidence it will cover more than a fraction of the tax bill’s costs. The last time Congress added 10-figures worth of tax cuts to the debt in 2001, it blew a hole in the budget and helped erase our surpluses — despite claims that economic growth would cover the cost.The growth fairy did not appear then, and it would be unwise to assume she will this time around.” Read that again. Despite claiming to be “fiscally conservative,” what is so amazing is that Republicans are considering doing this when debt is at the highest level in history and climbing.

When the “Reagan” tax cuts of were passed, debt was less than 50% of GDP, inflation and interest rates were high and falling, and the economy was just recovering from back to back recessions. When the “Bush” tax cuts were passed, debt to GDP was only slightly higher than under Reagan but despite the tax cuts, the economy slid into a recession compounded by the “dot.com” bust. Currently, debt is 104% of GDP — higher than any time in history, the economy has been in a 9-year expansion at the lowest rate of growth on record, and interest rates and inflation are low with the Fed hiking rates and reducing monetary support. The situation currently is much more like Bush versus Reagan. Lastly, despite the continuing “talking points” that “tax cuts” spur economic growth and will pay for themselves over time….there is no evidence to support that claim.

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A curious tale.

Mt. Gox’s Bitcoin Customers Could Lose Again (R.)

When Mt. Gox, the world’s largest bitcoin trading exchange, collapsed in early 2014, more than 24,000 customers around the world lost access to hundreds of millions of dollars’ worth of cryptocurrency and cash. More than three years later, with the price of bitcoin skyrocketing to more than $7,000, not a single customer has recouped a single cent, crypto or otherwise. It’s not clear when they will. The failed exchange has become stuck in a morass of litigation – a Russian doll of bankruptcies in Japan and New Zealand, four in all, plus lawsuits in the United States and competing claims from creditors. And although the Mt. Gox bankruptcy trustee recovered digital currency now worth more than $1.6 billion, under Japanese law the exchange’s customers likely will recover only a fraction of that.

Kim Nilsson, a Swedish software developer who had more than a dozen bitcoins at Mt. Gox, isn’t optimistic of a payout soon. “It’s a legal twilight zone,” he says. “I wouldn’t be surprised if it took several years more.” There are few better examples of the dangers of investing in cryptocurrencies than Mt. Gox. As Reuters reported in September, cryptocurrency exchanges – where digital coins are bought, sold and stored – are largely unregulated and have become magnets for fraud and deception. At least 10 of them have closed, often after thefts, leaving customers without their funds. In all, more than 980,000 bitcoins have been stolen from exchanges since 2011 – two-thirds of those from Mt. Gox. Today, all of the stolen coins would be worth more than $6 billion, Reuters has calculated.

Mt. Gox is one of the few collapsed exchanges that ended up in bankruptcy court; some just vanished. But the problem for Mt. Gox’s thousands of creditors is that under Japanese bankruptcy law, their claims were valued at the market price of bitcoin in April 2014 just before the Tokyo District Court ordered the exchange be liquidated. At that time, one bitcoin was worth $483. On the basis of the April 2014 value, the claims ultimately approved were fixed at 45.6 billion Japanese yen, currently about $400 million. Based on the current price of bitcoin, Mt. Gox’s bankruptcy trustee is sitting on enough cash to repay creditors whose claims have been approved more than three times that amount, according to Reuters’ calculation. But that likely won’t happen, according to two Japanese bankruptcy attorneys.

In Japan, by law any funds left over in a bankrupt company’s estate after creditors have been paid go to shareholders. Mt. Gox is 88% owned by a Japanese company called Tibanne. And Mark Karpeles, a 32-year-old French software engineer and Mt. Gox’s former chief executive, owns 100% of Tibanne. Karpeles is currently on trial in Tokyo, accused of embezzling money from Mt. Gox and manipulating its data, as well as breach of trust. He has pleaded not guilty to the charges, some of which carry sentences of up to 10 years. He served nearly a year in jail following his arrest in August 2015.[..] In a three-hour interview, Karpeles told Reuters he doesn’t want the money. The main reason: He expects he would be inundated with lawsuits. He says he already is facing about a half dozen. “I don’t want to be the beneficiary of this,” he said. “I don’t really need money. I work, I get by.”

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Bubbles all around.

The Coming Economic Downturn In Canada (MN)

Given its natural resource-based economy, Canada is a boom and bust kind of place. This year, the country has enjoyed a significant boom. Thanks to a government stimulus program, rising corporate capital expenditures and consumer spending, Canada’s GDP growth has been nothing short of spectacular in 2017. According to Statistics Canada, the latest reading for year-over-year GDP growth is a healthy 3.5% (as of August 2017). While this is stronger than all major developed countries, growth is decelerating from its most recent peak in May 2017 (when GDP growth was an astounding 4.7%). A visual overview of historical GDP growth is shown below for reference:

Following the crude oil bust in the second quarter of 2014, Canadian growth rates cratered. While the country avoided a technical recession, the economic outlook was poor until early 2016. After crude oil returned to a bull market in the first quarter of 2016, the fortunes of the country turned. Given limited growth in 2015, the economy had no problem delivering 2%+ year-over-year growth rates in 2016. As a substantial stimulus program ramped up government spending in 2017, growth rates have continued to accelerate this year. While Canada has delivered exceptional growth in the last two years, the future outlook is much more challenging.

Beyond the issue of base effects (mathematically, year-over-year GDP growth will be much tougher next year), key sectors including the oil & gas industry and Canadian real estate look ripe for a downturn. As WTI crude strengthens beyond $55, crude oil is clearly in a bull market today. Looking at figures from the International Energy Agency, global demand growth continues to run ahead of supply growth. Thus the ongoing bull market is supported by fundamentals. Thanks to the impact of hurricanes and infrastructure bottlenecks in 2017, US shale hasn’t entirely fulfilled its role as the global ‘swing producer’ this year. The dynamics of supply growth versus demand growth are shown below:

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It’s a good thing this is getting addressed. It may well be too late though.

How a Half-Educated Tech Elite Delivered Us Into Chaos (Naughton)

One of the biggest puzzles about our current predicament with fake news and the weaponisation of social media is why the folks who built this technology are so taken aback by what has happened. Exhibit A is the founder of Facebook, Mark Zuckerberg, whose political education I recently chronicled. But he’s not alone. In fact I’d say he is quite representative of many of the biggest movers and shakers in the tech world. We have a burgeoning genre of “OMG, what have we done?” angst coming from former Facebook and Google employees who have begun to realise that the cool stuff they worked on might have had, well, antisocial consequences.

Put simply, what Google and Facebook have built is a pair of amazingly sophisticated, computer-driven engines for extracting users’ personal information and data trails, refining them for sale to advertisers in high-speed data-trading auctions that are entirely unregulated and opaque to everyone except the companies themselves. The purpose of this infrastructure was to enable companies to target people with carefully customised commercial messages and, as far as we know, they are pretty good at that. (Though some advertisers are beginning to wonder if these systems are quite as good as Google and Facebook claim.) And in doing this, Zuckerberg, Google co-founders Larry Page and Sergey Brin and co wrote themselves licences to print money and build insanely profitable companies.

It never seems to have occurred to them that their advertising engines could also be used to deliver precisely targeted ideological and political messages to voters. Hence the obvious question: how could such smart people be so stupid? The cynical answer is they knew about the potential dark side all along and didn’t care, because to acknowledge it might have undermined the aforementioned licences to print money. Which is another way of saying that most tech leaders are sociopaths. Personally I think that’s unlikely, although among their number are some very peculiar characters: one thinks, for example, of Paypal co-founder Peter Thiel – Trump’s favourite techie; and Travis Kalanick, the founder of Uber. So what else could explain the astonishing naivety of the tech crowd? My hunch is it has something to do with their educational backgrounds.

Take the Google co-founders. Sergey Brin studied mathematics and computer science. His partner, Larry Page, studied engineering and computer science. Zuckerberg dropped out of Harvard, where he was studying psychology and computer science, but seems to have been more interested in the latter. Now mathematics, engineering and computer science are wonderful disciplines – intellectually demanding and fulfilling. And they are economically vital for any advanced society. But mastering them teaches students very little about society or history – or indeed about human nature. As a consequence, the new masters of our universe are people who are essentially only half-educated. They have had no exposure to the humanities or the social sciences, the academic disciplines that aim to provide some understanding of how society works, of history and of the roles that beliefs, philosophies, laws, norms, religion and customs play in the evolution of human culture.

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It’s as much about the companies as it is about Europe’s own tax havens. The latter should be easier to tackle.

Europe Turns On Facebook, Google For Digital Tax Revamp (AFP)

They have revolutionised the way we live, but are US tech giants the new robber barons of the 21st century, banking billions in profit while short-changing the public by paying only a pittance in tax? With public coffers still strained years after the worst of the debt crisis, EU leaders have agreed to tackle the question, spurred on by French President Emmanuel Macron who has slammed the likes of Google, Facebook and Apple as the “freeloaders of the modern world”. As recently as March, five of the world’s top 10 valued companies were Silicon Valley behemoths: Apple, Google’s Alphabet, Microsoft, Amazon and Facebook. (Germany’s SAP was Europe’s biggest and 56th on the global list). But tax rules today are designed for yesterday’s economy when US multinationals -such as General Motors, IBM or McDonald’s- entered countries loudly, with new factories, jobs and more taxes for the taking.

These firms had what tax specialists call “permanent establishment”, when companies showed a clear physical presence measured and taxed through tangible, real world assets. But today in most EU nations, the US tech titans exist almost exclusively in the virtual world, their services piped through apps to smart phones and tablets from designers and data servers oceans away. Ghost-like, Silicon Valley has turned Europe’s economies upside down, but often with just a skeleton staff and some office space in markets with millions of users or customers. According to EU law, to operate across Europe, multinationals have almost total liberty to choose a home country of their choosing. Not surprisingly, they choose small, low tax nations such as Ireland, the Netherlands or Luxembourg. Thus, it is through Ireland that Facebook draws its wealth from millions of accounts across Europe.

There are 33 million accounts in France and 31 million in Germany, according to recent data. While users enjoy the platform, Facebook tracks likes, comments and page views and sells the data to companies who then target consumers. But unlike the economy of old, Facebook sells its data to French companies not from France but from a great, nation-less elsewhere, with no phone number, address or physical “presence” for a customer who probably cares little. It is in states like Ireland, whose official tax rate of 12.5% is the lowest in Europe, that the giants have parked their EU headquarters and book profits from revenues made across the bloc. Indeed, actual revenues from advertising are minimal in France and Germany, but at Facebook HQ Ireland they grew to 7.9 billion euros, even though the vast majority does not come from the tiny EU island-nation of a mere 2.5 million users.

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A crazy world.

When Unpaid Student Loan Bills Mean You Can No Longer Work (NYT)

Fall behind on your student loan payments, lose your job. Few people realize that the loans they take out to pay for their education could eventually derail their careers. But in 19 states, government agencies can seize state-issued professional licenses from residents who default on their educational debts. Another state, South Dakota, suspends driver’s licenses, making it nearly impossible for people to get to work. As debt levels rise, creditors are taking increasingly tough actions to chase people who fall behind on student loans. Going after professional licenses stands out as especially punitive. Firefighters, nurses, teachers, lawyers, massage therapists, barbers, psychologists and real estate brokers have all had their credentials suspended or revoked.

Determining the number of people who have lost their licenses is impossible because many state agencies and licensing boards don’t track the information. Public records requests by The New York Times identified at least 8,700 cases in which licenses were taken away or put at risk of suspension in recent years, although that tally almost certainly understates the true number. [..] With student debt levels soaring — the loans are now the largest source of household debt outside of mortgages — so are defaults. Lenders have always pursued delinquent borrowers: by filing lawsuits, garnishing their wages, putting liens on their property and seizing tax refunds. Blocking licenses is a more aggressive weapon, and states are using it on behalf of themselves and the federal government.

Proponents of the little-known state licensing laws say they are in taxpayers’ interest. Many student loans are backed by guarantees by the state or federal government, which foot the bills if borrowers default. Faced with losing their licenses, the reasoning goes, debtors will find the money. But critics from both parties say the laws shove some borrowers off a financial cliff.

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Politicians everywhere dream of big and grandiose projects.

Subways May Be the Latest Casualty of China’s Crackdown on Debt (BBG)

China’s frenzied construction of subway systems in cities all over the country may be easing, amid reports funding has been pulled for some projects as Beijing pushes to rein in debt levels. The National Development and Reform Commission, China’s top economic planning body, is revising a 2003 policy on subway development, Caixin reported on Saturday. The NDRC wants to “raise the bar” for approving local rail projects amid growing concern over a debt-driven infrastructure boom, the financial magazine said, citing sources that it didn’t identify. Population levels, as well as the economy and fiscal conditions of Chinese cities seeking permission for subway projects will be more closely scrutinized, Caixin said. Subway construction is a constant presence in China’s cities, with streets torn up to build the capacity needed to transport the swelling ranks of urban commuters.

Beijing alone has been testing three lines: a driverless subway, a maglev train, and a tram to be launched in the city’s western suburbs at the end of the year, the official Xinhua News Agency reported in September. But investment in the sector appears to be tapering off, just as China’s leaders make reining in financial risks a top priority. Fixed-asset investment in rail transportation has slowed almost to a standstill in 2017, increasing just 0.4% in January-October from a year earlier, statistics bureau data show. That’s down from 3.5% growth in the first four months of the year. Private rail transport investment – which makes up a tiny share of an industry that’s dominated by state-backed enterprises – slumped 58.6% January-October from a year earlier.

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Rotation slowing by a millisecond per day.

Upsurge In Big Earthquakes Predicted For 2018 As Earth Rotation Slows (G.)

Scientists have warned there could be a big increase in numbers of devastating earthquakes around the world next year. They believe variations in the speed of Earth’s rotation could trigger intense seismic activity, particularly in heavily populated tropical regions. Although such fluctuations in rotation are small – changing the length of the day by a millisecond – they could still be implicated in the release of vast amounts of underground energy, it is argued. The link between Earth’s rotation and seismic activity was highlighted last month in a paper by Roger Bilham of the University of Colorado in Boulder and Rebecca Bendick of the University of Montana in Missoula presented at the annual meeting of the Geological Society of America.

“The correlation between Earth’s rotation and earthquake activity is strong and suggests there is going to be an increase in numbers of intense earthquakes next year,” Bilham told the Observer last week. In their study, Bilham and Bendick looked at earthquakes of magnitude 7 and greater that had occurred since 1900. “Major earthquakes have been well recorded for more than a century and that gives us a good record to study,” said Bilham. They found five periods when there had been significantly higher numbers of large earthquakes compared with other times. “In these periods, there were between 25 to 30 intense earthquakes a year,” said Bilham. “The rest of the time the average figure was around 15 major earthquakes a year.”

The researchers searched to find correlations between these periods of intense seismic activity and other factors and discovered that when Earth’s rotation decreased slightly it was followed by periods of increased numbers of intense earthquakes. “The rotation of the Earth does change slightly – by a millisecond a day sometimes – and that can be measured very accurately by atomic clocks,” said Bilham. Bilham and Bendick found that there had been periods of around five years when Earth’s rotation slowed by such an amount several times over the past century and a half. Crucially, these periods were followed by periods when the numbers of intense earthquakes increased. “It is straightforward,” said Bilham. “The Earth is offering us a five-year heads-up on future earthquakes.”

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Many will not.

Will Puerto Ricans Return Home After Hurricane María? (Conv.)

Even before this year’s devastating hurricane season, the team of demographers I work with at Penn State and the Puerto Rico Institute of Statistics had predicted that the population of Puerto Rico would decline over the next few decades. Have Hurricanes Irma and María accelerated this trend? Slowing population decline is central to the economic recovery plan drafted by the Puerto Rican government in March of this year. If migration off the island accelerates, it is likely that the government of Puerto Rico will face even greater challenges in meeting that plan’s milestones. Preliminary data from the Puerto Rican Diaspora Study, which I recently concluded, can help shed light on how many Puerto Ricans who have fled the island might return home – and how many are gone for good.

In the two months since María made landfall, Puerto Ricans have left the island in even higher numbers than before. Recent commercial flight passenger data indicate that between Sept. 20, the day Hurricane María made landfall, and Nov. 7, approximately 100,000 people left Puerto Rico. That number exceeds the 89,000 people who left island during all of 2015 and increases by the day. Lack of access to power, drinking water and health care are pushing people out. Recent forecasts of migration out of Puerto Rico from the Center for Puerto Rican Studies at CUNY suggest that, because of Hurricane María, the island may lose up to 470,335 residents, or 14% of its current population, by 2020. This would represent a doubling of migration off the island compared to previous years.

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3,000 died this year.

600 African Migrants Rescued Near Spain (AFP)

Around 600 African migrants were rescued off the coast of Spain in 24 hours, a sea rescue patrol said Saturday. The Guardia Civil and Salvamento Maritimo rescue service added that operations to recover further migrants were still under way. Spain is the third busiest gateway for migrants arriving in Europe, but far behind Italy and Greece. However, the number of people arriving by sea in Spain has nearly tripled over the last year to 17,687. Many Africans undertaking the long route to Europe are choosing to avoid crossing danger-ridden Libya to get to Italy along the so-called central Mediterranean route, and choosing instead to get there via Morocco and Spain.

On Saturday, most of the migrants arrived in the south-eastern region of Murcia, where 431 people aboard 41 makeshift boats were discovered. Patrols found more than 110 people in the Alboran Sea, between Morocco and Spain’s Andalusian coast. Operations were also conducted in the Strait of Gibraltar, recovering 48 people on four makeshift boats. The rescues were carried out by the Navy, the Guardia Civil police and Salvamento Maritimo. According to the International Organization for Migration (IOM) close to 160,000 people have made the dangerous crossing to Europe this year and almost 3,000 more died or went missing while trying.

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An irreversibly harmed child who has been waiting for a year for Britain to fulfill an already made pledge.

First Child Refugee From Greek Camps Comes To UK (G.)

More than a year after the UK government pledged to transfer hundreds of child refugees from Greece, the first unaccompanied minor from the country will arrive in London this week. However the 15-year-old Syrian is described by experts as profoundly traumatised because of the delay and has recently attempted to take his own life. Fourteen months have elapsed since the boy was first identified by the Home Office as especially vulnerable and eligible for immediate transfer. It has also emerged that Hammersmith and Fulham council in west London told the Home Office a year ago that it had a place for the teenager, but officials did not act on the offer – a decision that charities say has caused “irreversible damage” to the child, who has lost contact with his family in Syria.

Giannoula Kefala, the council’s principal social worker, said: “From my perspective, the impasse and likely irreversible harm already caused to this extremely vulnerable child is unbearably disturbing.” Kefala said that last December she informed the Home Office of her intention to travel to Greece to assess the boy. “It is absolutely clear from my visit that the long delay has caused this child terrible harm, and that it has been apparent for a long time that the available resources in Greece cannot cater for this child’s needs. Recent hospital records make clear that the ongoing uncertainty is having a devastating impact.” The teenager is currently on heavy psychiatric medication, which worries his doctor but which is believed to be necessary to prevent a fatal outcome.

Until last Monday the youngster was being detained in a police cell with no access to medical professionals, and forced to sleep on a mattress on the floor. On 22 October, police said the boy, after repeated self-harming, had made a suicide attempt and was at “imminent risk of killing himself”. Kefala said she was concerned the boy could die.

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They live in summer tents. It’s been pouring with rain for days. The UNHCR has many rolls of plastic sheeting just lying around.

Lesvos Authorities Going On Strike Over Rising Migrant Population (K.)

With reception centers for migrants on the Aegean islands reaching breaking point, local authorities on Lesvos go on strike on Monday to draw attention to the problem. The island’s mayor, Spyros Galinos, called the general strike last week, noting that the rising migrant population “has fueled insecurity among citizens.” Authorities on Lesvos want the government to move migrants from seriously overcrowded facilities on the islands to the mainland. Around 16,000 migrants have been relocated to the mainland since October last year, but more transfers are needed as dozens continue to reach the islands daily even as the pace of returns to Turkey remains slow. Concerns are also growing about hundreds of migrants living in tents around the reception centers amid worsening weather conditions. The Interior Ministry has said that measures to deal with the winter months will be implemented in phases through the end of December.

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Please stop.

Over 50,000 Yemeni Children Expected To Die By The End Of 2017 (Ind.)

More than 50,000 children in Yemen are expected to die by the end of the year as a result of disease and starvation caused by the stalemated war in the country, Save the Children has warned. Seven million people are on the brink of famine in the country, which is in the grips of the largest cholera outbreak in modern history. An estimated 130 Yemeni children are dying every day and an estimated 400,000 children will need treatment for acute malnutrition this year, the charity said. “These deaths are as senseless as they are preventable,” said Tamer Kirolos, Save the Children’s country director for Yemen. “They mean more than a hundred mothers grieving for the death of a child, day after day.”

Eighteen-month-old Nadhira from the Bani Qais district of Hajja, northern Yemen, is suffering from severe acute malnutrition and respiratory diseases. Her mother saved the family’s income for three days to afford to take her to Hajja city for treatment, but her condition deteriorated once again after they were left unable to afford the medicine. “I worry about my family’s food and medicine when they get sick. I want my daughter to live: she’s my biggest concern now. I wish my daughter recovers from her sickness soon,” her mother Shaika said.

The charity has warned the death toll as a result of starvation and disease could be even higher, as the calculations were made before Saudi Arabia tightened a blockade on rebel-held parts of the country in response to a missile fired from rebel territory towards Riyadh international airport this month. The blockade has closed the major entry ports of Hodeidah and Saleef, as well as the airport in the capital Sanaa, which has severely hindered the access of food and aid.

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Nov 172017
 
 November 17, 2017  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Arthur Rothstein Night view, downtown section. Dallas, Texas 1942

 

America’s Racial Wealth Gap Is Staggering – And Government-Created (BI)
Australia’s Private Debt Juggernaut Rolls On (LFE)
John Malone says Amazon is a ‘Death Star’ (CNBC)
Einhorn Says Issues That Caused the Crisis Are Not Solved (BBG)
Corporate Zombies Are Threatening The Eurozone Economy (ZH)
Wall St. Bankers Secretly Used Chat Rooms To Rig Treasury Bond Trades (NYP)
Electricity Consumed To Mine Bitcoin Rose 43% Since October (BBG)
Saudi Arabia Offers Arrested Royals A Deal: Your Freedom For Lots Of Cash (ZH)
Fed Insiders Seek Radical Policy Review as Powell Era Dawns (BBG)
200,000 Gallons of Oil Spill From Keystone Pipeline (Atl.)
Greek Taxpayers Have Paid Dearly For €720 Million ‘Social Dividend’ (K.)
EU Handling Of Greek Bailouts “Generally Weak”, Say Its Own Auditors (R.)
James Hansen Calls For Wave Of Climate Lawsuits (G.)

 

 

Don’t think a lot of people were aware of this.

America’s Racial Wealth Gap Is Staggering – And Government-Created (BI)

The term “public housing” is generally associated with poor, disaffected US minorities — but it turns out its origins were very much white and middle-class. Explicitly racist housing policies at the federal, state and local levels, first during the Great Depression and then after World War II, helped deepen and exacerbate a wealth gap between the races that has accelerated over the decades. Those policies also led to a sharp rise in racial segregation across many US cities, according to Richard Rothstein, a research associate of the Economic Policy Institute and author of “The Color of Law: A Forgotten History of How our Government Segregated America.”

“There was a systematic pattern that we’ve forgotten by which every metropolitan area in this country has been segregated not by the accident of personal choices or economic differences but by very explicit federal, state and local policy designed to create a segregated landscape everywhere we look,” Rothstein said during his keynote speech at a recent conference sponsored by the Federal Reserve Bank of Minneapolis. The Fed is putting increasing efforts into community development as the unemployment rate falls to historically low levels, forcing policymakers to face more intractable social issues that are not always directly amenable to monetary or even fiscal policy. America’s racial wealth gap today is almost hard to fathom:

Black families on average hold a paltry 10% of the wealth owned by the average white family, a level of inequality that eclipses anything seen in other rich nations. Rothstein argues that a big part of that gap comes from discriminatory housing policies that allowed whites to build gains from homeownership while blacks were forced to rent. Here’s what the data look like, according to the Urban Institute:

Rothstein argued that the roots of inequality in housing wealth were very much racial and completely intentional, not the result of self-segregation by choice. “Housing was built on a segregated basis, very often creating segregation in communities that hadn’t known it before or at least where it wasn’t nearly as intense as it later became,” he said. President Harry Truman proposed a massive expansion of the public housing program in 1949 in order to house returning veterans, Rothstein said. The 1949 Housing Act was passed “as a segregated program, and the government used that act to continue to segregate all its housing programs for the next ten years.”

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This is about Australia, but take a look at debt service ratio’s in countries like Denmark and the Netherlands. And then just for fun compare them to the US, Italy.

Australia’s Private Debt Juggernaut Rolls On (LFE)

In the post-GFC era, more attention has been given to private credit (debt) whereas previously, almost all commentary focused upon public debt. The ruptures caused by the global financial crisis (GFC) is strongly responsible for this shift in perspective, including the research by heterodox economists. Fortunately, the mass media in Australia have done a fairly good job at bringing attention to private debt even though they are, ironically, staunch cheerleaders of inflated land prices. As is now commonly recognised, Australia’s household sector is heavily indebted. The household debt to GDP ratio is the second-highest globally at 122%, has the second-equal highest household sector debt service ratio (DSR), and the fifth-highest debt to income ratio. In absolute terms, household debt amounts to $2.1 trillion dollars; the vast majority consists of mortgage debt with a small remainder of personal debt.

The household debt to income ratio is 172%, which is below the commonly-cited RBA ratio which registers at 190%. This is due to the different measure of debt used (the numerator). The Bank of International Settlements (BIS) only considers debt instruments in line with the UN SNA (System of National Accounts), whereas the RBA uses all household liabilities from the ABS Financial National Accounts. This is neither correct nor incorrect, just different. In compiling its debt database, the BIS must adhere to international standards.

The debt service ratio is an estimate of both aggregate principal and interest payments, using household income, debt and the average interest rate (FISIM-adjusted) variables as inputs. The BIS notes the DSR demonstrates a strongly negative correlation between household consumption and debt, for obvious reasons.

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“Amazon is a ‘Death Star’ moving in ‘striking range of every industry on the planet'”.

John Malone says Amazon is a ‘Death Star’ (CNBC)

Liberty Media Chairman John Malone believes Amazon will dominate the future and is the only company that has a chance to beat Netflix. Netflix CEO Reed Hastings “has been successful in throwing hail Mary passes and then growing into them. And I think he is going to continue doing that. He’s got a great service. He’s disintermediating the studio industry by going directly to the talent,” Malone said in an exclusive interview with CNBC’s David Faber Thursday at the Liberty Media annual investor meeting. “The only outfit right now that has a chance of overtaking them would be Amazon.” The investor noted the cable industry missed its opportunity to compete with Netflix in the past and said “it’s way too late” now. He added that in today’s media world Netflix has the lead position due to its size and subscriber base.

The internet “makes scale even more important in the media business, where scale always was important. It’s all about scale,” he said. Netflix was “the first wave. And I think Jeff [Bezos] is gonna be the most disruptive. As [his] Death Star moves into striking range of every industry on the planet.” He explained that Amazon’s business dominance is growing stronger. Malone said any company that sells products to consumers is at risk of being crushed by the e-commerce giant. “If you’re in the B2C business, if you’re selling anything to any consumer anywhere on the planet, you gotta believe that Amazon is gonna have a look at that opportunity to commoditize you to use scale to serve the public,” he said. Bezos is “reducing cost to the consumer and providing great convenience … You just got to take your hat off and envy what he has built.”

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And that should raise a lot more fear than it does at present.

Einhorn Says Issues That Caused the Crisis Are Not Solved (BBG)

Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved. “Have we learned our lesson? It depends what the lesson was,” Einhorn, the co-founder of New York-based Greenlight Capital, said at the Oxford Union in England on Wednesday. Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market “could have been dealt with differently.” And in the “so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.”

“If you took all of the obvious problems from the financial crisis, we kind of solved none of them,” Einhorn said to a packed room at Oxford University’s 194-year-old debating society. Instead, the world “went the bailout route.” “We sweep as much under the rug as we can and move on as quickly as we can,” he said. [..] Briefly touching the rise of computer-driven strategies in the financial industry, the billionaire said machines were usually good at spotting short-term trading patterns, something Greenlight isn’t focused on. “Our goal here is to find things that are widely misunderstood by a large margin. So we are not really competing with that kind of technology, because I don’t think we would beat them.”

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Central bankers who create zombies, and then warn about the danger of .. zombies. In other words, nothing out of the ordinary.

Corporate Zombies Are Threatening The Eurozone Economy (ZH)

The recovery in Eurozone growth has become part of the synchronised global growth narrative that most investors are relying on to deliver further gains in equities as we head into 2018. However, the “Zombification” of a chunk of the Eurozone’s corporate sector is not only a major unaddressed structural problem, but it’s getting worse, especially in…you guessed it…Italy and Spain. According to the WSJ.

The Bank for International Settlements, the Basel-based central bank for central banks, defines a zombie as any firm which is at least 10 years old, publicly traded and has interest expenses that exceed the company’s earnings before interest and taxes. Other organizations use different criteria. About 10% of the companies in six eurozone countries, including France, Germany, Italy and Spain are zombies, according to the central bank’s latest data. The percentage is up sharply from 5.5% in 2007. In Italy and Spain, the percentage of zombie companies has tripled since 2007, the OECD estimated in January. Italy’s zombies employed about 10% of all workers and gobbled up nearly 20% of all the capital invested in 2013, the latest year for which figures are available.

The WSJ explains how the ECB’s negative interest rate policy and corporate bond buying are keeping a chunk of the corporate sector, especially in southern Europe on life support. In some cases, even the life support of low rates and debt restructuring is not preventing further deterioration in their metrics. These are the true “Zombie” companies who will probably never come back from being “undead”, i.e. technically dead but still animate. Belatedly, there is some realisation of the risks.

Economists and central bankers say zombies undercut prices charged by healthier competitors, create artificial barriers to entry and prevent the flushing out of weak companies and bad loans that typically happens after downturns. Now that the European economy is in growth mode, those zombies and their related debt problems could become a drag on the entire continent. “The zombification of the corporate sector and banks (is) a risk for future living standards,” Klaas Knot, a European Central Bank governor and the head of the Dutch central bank, said in an interview. In some ways, zombie firms are an unintended side effect of years of easy money from the ECB, which rolled out aggressive stimulus policies, including negative interest rates, to support lending and growth. Those policies have been sharply criticized in some richer eurozone countries for making it easier for banks to keep struggling corporate borrowers alive.

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Jail time.

Wall St. Bankers Secretly Used Chat Rooms To Rig Treasury Bond Trades (NYP)

Wall Street banks secretly shared client information in online chat rooms in order to rig auctions for the $14 trillion US Treasurys market, according to an explosive lawsuit filed in Manhattan federal court on Wednesday. The move wrongly fattened the banks’ profits and picked profits from clients, the suit claims. The new accusations, leveled by several pension funds and wealthy individual investors, are contained in an expanded class-action suit originally filed in July 2015 — and include an unusual twist: Some of the evidence came from confidential informants and one of the banks sued in the earlier action. That bank is now cooperating with the plaintiffs in the massive civil action, and is providing an in-depth look into how Wall Street allegedly conspired to rig Treasury bond trades.

The revised lawsuit expands on details on how the banks conspired to set Treasury bond prices — like moves to manipulate the price of the bonds higher on days when there was a lot of demand, and vice versa, court papers claim. The banks worked their scam for years until The Post first reported in June 2015 of the existence of a government investigation into the alleged actions, the updated lawsuit claims. The funds, representing retirees and public workers, also claim the banks conspired to rig the secondary Treasury markets beginning in the 1990s through tightly controlled electronic platforms that inhibited more competitive trading — a new allegation that wasn’t in the original suit but mirrors similar complaints filed against banks in other markets, like stock loans.

The amended suit tightens its focus on a select number of banks, naming Goldman Sachs, Morgan Stanley, the Royal Bank of Scotland, BNP Paribas, and UBS, among others, as the firms behind the rigging, which they allege occurred from Jan. 1, 2007 to mid-2015. Last year, the judge presiding over the class-action suit had questioned whether the claims were strong enough to proceed. The funds continue to allege the banks mined their own customers’ bids for Treasury bonds to get a bigger share of the auction, and sell the bonds for more profit. Probes on the auction practices are being conducted by the Justice Department, the Securities and Exchange Commission and other federal, state and overseas regulators, sources said. No regulator has accused any bank of wrongdoing.

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It will keep rising. No hydro project will stop that.

Electricity Consumed To Mine Bitcoin Rose 43% Since October (BBG)

A green-energy startup says it can solve bitcoin’s surging electricity consumption without boosting pollution, an issue threatening to halt the meteoric rise of the virtual currency. Austria’s HydroMiner GmbH raised $2.8 million after closing its first initial coin offering on Wednesday, according to its website. The cash will be used to install high-powered computers at hydropower plants, where the company says it can mine new digital currencies at a cheaper cost and with lower environmental impacts. “A lot of people are worried about the high energy consumption of cryptocurrencies,” said Nadine Damblon, the co-founder and chief executive officer of HydroMiner in Vienna. “It’s a huge factor.”

The electricity needed by the global network of computers running the blockchain technology behind bitcoin has risen more than two-fifths since the beginning of October, to about 28 terawatt-hours a year, according to the Digiconomist website. That’s more power than all of Nigeria’s 186 million people consume each year. Much of the electricity feeding bitcoin projects is coming from generators fed by fossil fuels. Even as bitcoin approaches $8,000, the price required for mining to be marginally profitable may reach a jaw-dropping $300,000 to $1.5 million by 2022, according to Christopher Chapman at Citigroup. He based his estimate on current growth rates for mining and the electricity consumed by computers doing the work. At that pace, the power consumption implied by bitcoin’s growth may eventually match what Japan uses.

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My piece from November 8: How Broke is the House of Saud? Sounds like an extremely volatile situation. Taking all those billions away from the rich will not be appreciated. MBS is playing with fire.

Saudi Arabia Offers Arrested Royals A Deal: Your Freedom For Lots Of Cash (ZH)

Saudi Arabia just introduced a 70% wealth tax. It did so in a most original way… As we noted shortly after the Crown Prince’s purge of potential rivals within Saudi Arabia’s sprawling ruling family, while the dozens of arrests were made under the pretext of an “anti-corruption crackdown”, Mohammed bin Salman’s ulterior motive was something else entirely: Replenishing the Kingdom’s depleted foreign reserves, which have been hammered for the past three years by low oil prices, with some estimating that the current purge could potentially bring in up to $800 billion in proceeds. Furthermore, the geopolitical turmoil unleashed by the unprecedented crackdown helped push oil prices higher, creating an ancillary benefit for both the kingdom’s rulers and the upcoming IPO of Aramco.

And, in the latest confirmation that the crackdown was all about cash, the Financial Times reports today that the Saudi government has offered the new occupants of the Riyadh Ritz-Carlton a way out…. and it’s going to cost them: In some cases, as much as 70% of their net worth. “Saudi authorities are negotiating settlements with princes and businessmen held over allegations of corruption, offering deals for the detainees to pay for their freedom, people briefed on the discussions say. In some cases the government is seeking to appropriate as much as 70% of suspects’ wealth, two of the people said, in a bid to channel hundreds of billions of dollars into depleted state coffers. The arrangements, which have already seen some assets and funds handed over to the state, provide an insight into the strategy behind Crown Prince Mohammed bin Salman’s dramatic corruption purge.”

[..] Some of the suspects, most of whom have been rounded up at the Ritz-Carlton hotel in Riyadh since last week, are keen to secure their release by signing over cash and corporate assets, the FT’s sources say. “They are making settlements with most of those in the Ritz,” said one adviser. “Cough up the cash and you will go home.” One multi-billionaire businessman held at the Ritz-Carlton has been told to hand over 70% of his wealth to the state as a punishment for decades of involvement in allegedly corrupt business transactions. He wants to pay, but has yet to work out the details of transferring those assets to the Saudi state.”

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Just look at the nonsense spouted: “The move formalized a policy they’d been following in practice for several years, and it was backed by careful logic: 2% is high enough to ensure that workers continue to get raises and to give the Fed some cushion against deflation.” It did none of that.

Fed Insiders Seek Radical Policy Review as Powell Era Dawns (BBG)

Federal Reserve officials are pushing for a potentially radical revamp of the playbook for guiding U.S. monetary policy, hoping to seize a moment of economic calm and leadership change to prepare for the next storm. While the country is enjoying its third-longest expansion on record, inflation and interest rates are still low, meaning the central bank has little room to ease policy in a downturn before hitting zero again. With Jerome Powell nominated to take over as Fed chairman in February, influential officials including San Francisco Fed chief John Williams and the Chicago Fed’s Charles Evans have taken the lead in calling for reconsidering policy maker’s 2% inflation target. “It’s a good time given the shift in leadership,” Atlanta Fed President Raphael Bostic told reporters on Tuesday in Montgomery, Alabama.

“The new guy comes in and they are able to really think about, how should this work, how do I think this should work, and is it compatible with where we’ve been and where we are trying to get to?” The Fed in 2012 officially settled on 2% inflation as an explicit target for the price stability half of its dual mandate from Congress. The other goal is maximum sustainable employment. The move formalized a policy they’d been following in practice for several years, and it was backed by careful logic: 2% is high enough to ensure that workers continue to get raises and to give the Fed some cushion against deflation. Other advanced economies aim for a similar level. Yet Fed officials have been urging the policy-setting Federal Open Market Committee to revisit that approach.

“I do think that’s a very important thing that we should all be starting to think about, to prepare ourselves and evaluating,” Cleveland Fed President Loretta Mester told a monetary policy conference at the Cato Institute Thursday in Washington. “The Bank of Canada rethinks its framework every five years. It seems to me that’s not a bad thing.”

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This is not Keystone XL, but it’s terribly scary.

200,000 Gallons of Oil Spill From Keystone Pipeline (Atl.)

The Keystone pipeline was temporarily shut down on Thursday, after leaking about 210,000 gallons of oil into Marshall County, South Dakota*, during an early-morning spill. TransCanada, the company which operates the pipeline, said it noticed a loss of pressure in Keystone at about 5:45 a.m. According to a company statement, workers had “completely isolated” the section and “activated emergency procedures” within 15 minutes. Brian Walsh, a state environmental scientist, told the local station KSFY that TransCanada informed the South Dakota Department of Environment and Natural Resources about the spill by 10:30 a.m. TransCanada estimates that the pipeline leaked about 5,000 barrels of oil at the site, Walsh said. A barrel holds 42 U.S. gallons of crude oil.

The Keystone pipeline is nearly 3,000 miles long and links oil fields in Alberta, Canada, to the large crude-trading hubs in Patoka, Illinois, and Cushing, Oklahoma. It was completed in 2010. The entirety of its northern span—which travels through North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Missouri, and Illinois—would stay closed until the leak was fixed, the company said. TransCanada said it was still operating the pipeline’s southern span, which connects Oklahoma to export terminals along the Gulf Coast. The pipeline’s better-known sister project—the Keystone XL pipeline—was proposed in 2008 as a shortcut and enlargement of the Keystone pipeline.

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A country being crushed by creative accounting.

Greek Taxpayers Have Paid Dearly For €720 Million ‘Social Dividend’ (K.)

It took 2.7 billion euros in new taxes and pension cuts for the government to beat the primary surplus target by 1.9 billion euros this year. In total, 6.2 million taxpayers were forced to pay an average of 410 euros each for the government to distribute an average handout of 180 euros branded the “social dividend” to fewer taxpayers (almost 4 million). The relevant bill that was tabled in Parliament on Tuesday does not specify how the handout will be distributed. Cripplingly high taxes and social security contributions, combined with a freeze on investments, gave the prime minister the chance to issue a nominal social dividend of 1.4 billion euros, which actually amounts to 720 million for low-income people – as the rest goes toward covering government obligations.

For this surplus primary surplus to be attained, the government did the following:
– Hiked solidarity levy rates, mainly for annual incomes in excess of 30,000 euros.
– Lowered the tax-free limit for pensioners and salary workers.
– Raised taxation on oil, gasoline, coffee and tobacco. The latest data show that increasing the special consumption taxes on beer and on coffee has fetched 140 million and 40 million euros respectively.
– Hiked value-added tax rates to the effect that 62.4% of goods and services are now in the top VAT bracket (24%), compared to 33.6% up until last year.
– Slashed the heating oil allowance by about 50%.
– Cut pensions and almost abolished the allowance for low-pension retirees (EKAS).
– Raised the retirement age and social security contributions.

Also the erroneous estimate of Single Social Security Entity (EFKA) revenues turned its deficit of 1 billion euros into a 200-million-euro surplus.

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“Creditors initially estimated that Greece would return to growth in 2012”

But so what? They just raise the burden on Greeks a bit more each time they screw up.

EU Handling Of Greek Bailouts “Generally Weak”, Say Its Own Auditors (R.)

The European Union’s handling of three bailout programs for Greece during the eurozone’s financial crisis had several weaknesses and was only partly successful, European auditors said on Thursday. EU and international creditors have channeled over €350 billion ($412.1 billion) of financial aid to Greece since 2010 to prevent the country’s default and reduce contagion to the rest of the eurozone. To get the funds, Athens had to embark on sweeping structural reforms and unpopular belt-tightening measures. The programs “promoted reform and avoided default by Greece, but the country’s ability to finance itself fully on the financial markets remains a challenge,” the European Court of Auditors (ECA) said in a report on the Greek bailouts. The ECA is responsible for assessing EU finances.

Last year, it said the Commission’s management of the bailouts for Ireland, Portugal, Hungary, Latvia and Romania was “generally weak.” The third Greek program is still ongoing as Athens completes agreed reforms. The €86 billion bailout ends in August, and Greece is by then expected to have fully regained access to market funding. The ECA report, which focused on the work of the European Commission, said the programs “only helped Greece to recover to a limited extent.” The ECB, which together with eurozone states and the IMF contributed to the programs, was not assessed because it declined to provide data, questioning the auditors’ mandate to ask for it, ECA said. The auditors found “weaknesses” in the design of the Greek programs. “Some key measures were not sufficiently justified,” the report said. The ECA stressed that a large chunk of the €45 billion pumped into the banking system may never be recovered.

“For other (measures), the Commission did not comprehensively consider Greece’s implementation capacity in the design process and thus did not adapt the scope and timing accordingly,” it said. In a written reply included in the ECA report, the Commission said that “the design and implementation of crucial reforms took place in the wider context of the prevailing difficult economic situation as well as severe instability in the financial markets.” The Greek bailouts were carried out during the worst financial and economic crisis since the World War II. The Commission also stressed that the application of the programs was complicated by the political crisis that struck Greece during the bailouts, causing the collapse of governments. The Commission concluded that, despite the complex circumstances, the key objectives of the programs were achieved by averting Greece’s default and ensuring financial stability in the eurozone.

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“The judiciary is the branch of government in the US and other countries that is relatively free of bribery. And bribery is exactly what is going on..”

James Hansen Calls For Wave Of Climate Lawsuits (G.)

One of the fathers of climate science is calling for a wave of lawsuits against governments and fossil fuel companies that are delaying action on what he describes as the growing, mortal threat of global warming. Former Nasa scientist James Hansen says the litigate-to-mitigate campaign is needed alongside political mobilisation because judges are less likely than politicians to be in the pocket of oil, coal and gas companies. “The judiciary is the branch of government in the US and other countries that is relatively free of bribery. And bribery is exactly what is going on,” he told the Guardian on the sidelines of the UN climate talks in Bonn. Without Hansen and his fellow Nasa researchers who raised the alarm about the effect of carbon emissions on global temperatures in the 1980s, it is possible that none of the thousands of delegates from almost 200 countries would be here.

But after three decades, he has been largely pushed to the fringes. Organisers have declined his request to speak directly to the delegates about what he sees as a threat that is still massively underestimated. Instead he spreads his message through press conferences and interviews, where he cuts a distinctive figure as an old testament-style prophet in an Indiana Jones hat. He does not mince his words. The international process of the Paris accord, he says, is “eyewash” because it fails to put a higher price on carbon. National legislation, he feels, is almost certainly doomed to fail because governments are too beholden to powerful lobbyists. Even supposedly pioneering states like California, which have a carbon cap-and-trade system, are making things worse, he said, because “half-arsed, half-baked plans only delay a solution.”

For Hansen, the key is to make the 100 big “carbon majors” – corporations like ExxonMobil, BP and Shell that are, by one account, responsible for more than 70% of emissions – pay for the transition to cleaner energy and greater forests. Until governments make them do so by introducing carbon fees or taxes, he says, the best way to hold them to account and generate funds is to sue them for the damage they are doing to the climate, those affected and future generations. Hansen is putting his words into action. He is involved in a 2015 lawsuit against the US federal government, brought by his granddaughter and 20 others under the age of 21. They argue the government’s failure to curb CO2 emissions has violated the youngest generation’s constitutional rights to life, liberty, and property.

[..] Hansen believes Donald Trump’s actions to reverse environmental protections and withdraw from the Paris accord may be a blessing in disguise because the government will now find it harder to persuade judges that it is acting in the public interest. “Trump’s policy may backfire on him,” he said. “In the greater scheme of things, it might just make it easier to win our lawsuit.”

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Nov 132017
 
 November 13, 2017  Posted by at 9:42 am Finance Tagged with: , , , , , , , , , ,  6 Responses »
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Mark Twain in Nikola Tesla’s lab 1894

 

John Hussman Forecasts A Decade Of Stock Losses (BI)
One In Five American Households Have ‘Zero Or Negative’ Wealth (MW)
Top Tech Stocks’ $1.7 Trillion Gain Eclipses Canada’s Economy (BBG)
Bitcoin Plunges 29% From Record High (BBG)
The End Of “The End Of History” (Luongo)
Warnings From the “China Beige Book” (Rickards)
UK Government Tensions Rise After Leak Of ‘Orwellian’ Memo Sent To May (G.)
More Than A Third Of UK Home Sellers Cut Asking Price (G.)
Fossil Fuel Burning Set To Hit Record High In 2017 (G.)
The Decisions Behind Monsanto’s Weed-Killer Crisis (R.)
Weed-Killer Prompts Angry Divide Among US Farmers (AFP)
Millions On Brink Of Famine In Yemen As Saudi Arabia Tightens Blockade (G.)

 

 

Big fall, big rise and an even bigger fall.

John Hussman Forecasts A Decade Of Stock Losses (BI)

As the equity bull market has climbed into rarefied air, investors have continuously come up with new ways to rationalize the rally. Right now, they like to cite earnings growth, which has expanded for several quarters after a prolonged rough patch. They also frequently mention interest rates that, despite hawkish signals from central banks, have remained low, supplying the market with a seemingly endless supply of cheap money. On the other side of the spectrum, John Hussman, the president of the Hussman Investment Trust and a former economics professor, thinks that the investment community is unwisely ignoring the most stretched valuations in history on the heels of a nearly 300% bull market run. Ever the outspoken bear, Hussman says investors are being willfully ignorant, which has stocks at risk of a drop that could reach 63% and send the market spiraling into a full decade of negative returns.

It wouldn’t be the first time in history this has happened. But Hussman thinks this crash will be different, because the reasons for market instability are “purely psychological” this time around, according to a recent blog post. At the root of Hussman’s pessimistic market view are stock valuations that look historically stretched by a handful of measures. According to his preferred valuation metric — the ratio of non-financial market cap to corporate gross value-added (Market Cap/GVA) — stocks are more expensive than they were in 1929 and 2000, periods that immediately preceded major market selloffs. “US equity market valuations at the most offensive levels in history,” he wrote in his November monthly note. “We expect that more extreme valuations will only be met by more severe losses.”

Those losses won’t just include the 63% plunge referenced above – it’ll also be accompanied by a longer 10 to 12 year period over which the S&P 500 will fall, says Hussman. He cites the chart below, which shows how closely 12-year expected returns for the benchmark have historically tracked Market Cap/GVA, which is shown in inverted fashion. Note that the expected trajectory for Market Cap/GVA shows the S&P 500 veering into negative territory. The psychology behind the market’s willingness to accept lofty stock valuations stems from the flawed rationale that prices are justified by low interest rates, says Hussman. To him, the US economy is growing too slowly for this to be true, and that any belief to the contrary gives people false confidence.

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While other reports say some 70% live paycheck to paycheck. Which one is true? At least it should be clear that the US is not doing well at all.

One In Five American Households Have ‘Zero Or Negative’ Wealth (MW)

Millions of Americans are living on the edge. One in five households has zero or negative wealth, according to a report released this week by the Institute for Policy Studies, a progressive think tank based in Washington, D.C. What’s more, an even greater share of African-American (30%) and Latino (27%) households are “underwater” financially. The combined impact of $1 trillion in credit-card debt, $1.4 trillion in student loan debt, and stagnant wages are taking a toll. U.S. homes have regained value since the Great Recession, but many households have not. “Millions of American families struggle with zero or negative wealth, meaning they owe more than they own,” the report found. “This means that they have nothing to fall back on if an unexpected expense comes up like a broken down car or illness.” And inequality could get worse through new tax cuts for the wealthy.

President Trump’s tax proposals won’t give America’s middle class the reprieve they need to grow their wealth and recover from the financial crash, said Josh Hoxie, who heads up the Project on Opportunity and Taxation at the Institute for Policy Studies. A recent analysis by the Joint Committee on Taxation concluded that taxes would decline for all income groups, with the biggest percentage-point decline for millionaires. After-tax income would rise by nearly 7% for households earning over $1 million per year, compared to less than 2% for those earning between $50,001 and $1 million, as MarketWatch recently reported. And less than 1% for those earning less than $50,000, according to Ernie Tedeschi, an economist at Evercore IS investment banking advisory firm who worked in the Treasury Department under President Obama.

Looking at private income, such as earnings and dividends, and government benefits like Social Security, the income of families near the top increased roughly 90% from 1963 to 2016, while the income of families at the bottom rose less than 10%, according to a separate report released last month by the Urban Institute, a nonprofit policy group based in Washington, D.C., while most other groups have been left behind. And that gap between rich and poor is only going to get worse, Hoxie said. The wealthiest 25 individuals in the U.S., including co-founder Bill Gates, Amazon CEO Jeff Bezos and Facebook CEO Mark Zuckerberg, own $1 trillion in combined assets. These 25 — a group equivalent to the active roster of a major league baseball team — hold more wealth than the bottom 56% of the U.S. population.

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Completely nuts.

Top Tech Stocks’ $1.7 Trillion Gain Eclipses Canada’s Economy (BBG)

Between the FAANG quintet and China’s rivaling BAT companies, gains in the world’s top technology shares are nearing a whopping $1.7 trillion in market value this year. That’s more than Canada’s entire economy, and exceeds the worth of Germany’s biggest 30 companies put together. The eight tech giants – Facebook, Amazon, Apple, Netflix and Google parent Alphabet, as well as their Asian peers Baidu, Alibaba and Tencent – have amassed as much money in 2017 as PIMCO, one of the world’s biggest fund managers, has done in about 46 years. While the stocks have seen a meteoric rise this year, their combined market value came off highs last week amid a global selloff in which the year’s high flyers had a bigger retreat. A recent breakdown in the correlation between high-yield bonds and the tech-heavy Nasdaq 100 Index suggests the slide in junk may spread further.

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Confidence.

Bitcoin Plunges 29% From Record High (BBG)

Bitcoin plunged as the cancellation of a technology upgrade prompted some users to switch out of the cryptocurrency, spooking speculators who had profited from a more than 800% surge this year. The cryptocurrency has dropped 9.5% since late Friday, extending its slide from last week’s record to as much as 29%, according to data compiled by Coinmarketcap.com and Bloomberg. Bitcoin cash, a rival that split from the original bitcoin in August, has jumped nearly 40% since Friday. Bitcoin cash is gaining popularity because of its larger block size, a characteristic that makes transactions cheaper and faster than the original. When a faction of the cryptocurrency community canceled plans to increase bitcoin’s block size on Wednesday – a move that would have created another offshoot – some supporters of bigger blocks rallied around bitcoin cash.

The resulting volatility has been extreme even by bitcoin’s wild standards and comes amid growing interest in cryptocurrencies among regulators, banks and fund managers. While skeptics have called bitcoin’s rapid advance a bubble, it has become too big for many on Wall Street to ignore. Even after shrinking by as much as $38 billion since Wednesday, bitcoin boasts a market value of $101 billion. Supporters of bitcoin’s technology upgrade “are now switching support to bitcoin cash,” said Mike Kayamori, head of Tokyo-based Quoine, the world’s second most-active bitcoin exchange over the past day. “There’s a panic about what’s happening. People shouldn’t panic. Just hold on to both coins until we see how it plays out.”

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A different view from most.

The End Of “The End Of History” (Luongo)

The path to draining the swamp is a circuitous one but, in my mind, it’s hard to argue where things are headed. They are not headed towards confrontation with Iran but actually the opposite. The most rabidly anti-Iranian segment of the Saudi Royal house is impoverished and imprisoned. CNN will be sold and go out of business to allow for the Time-Warner/AT&T merger. Jeff Zucker is out. Add another scalp to Steve Bannon’s belt along with Harvey Weinstein, Kevin Spacey and so many to come. Will the vestiges of the neoconservative establishment in the U.S. and Israel continue to sabre-rattle and try to undermine what is happening? Yes.

They’ve been doing that since the day Trump was elected just over a year ago, but it hasn’t stopped the momentum. Why? Because Putin was on the job outmaneuvering them at every turn. Trump made a deal with the neocons back in August to cede them control of foreign policy and, in effect, outsourced cleaning up the Middle East to Putin. But, predictably they also didn’t follow through with their end of the bargain. Trump learned, like Putin did, the John McCain’s of the world don’t keep to their deals. They are ‘not agreement capable.’ And, as such, since the last failure to repeal Obamacare Trump has gone after every pillar of support these people had. It will end with Hillary Clinton’s indictment. But in the meantime it will look like the world is on the brink of world war.

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“Xi is ready to undertake reform of the financial system, which means shutting down insolvent companies and banks.”

Warnings From the “China Beige Book” (Rickards)

The China Beige Book, CBB, says that China had been covering up and smoothing over problems related to weak growth and excessive debt in order to provide a calm face to the world in advance of the National Congress of the Communist Party of China, which took place last month. CBB also makes it clear that the much-touted “rebalancing” of the Chinese economy away from investment and manufacturing toward consumption and spending has not occurred. Instead China has doubled down on excess capacity in coal, steel and manufacturing and has continued its policy of wasteful investment fueled with unpayable debt. It’s become obvious that the first cracks are starting to appear in China’s Great Wall of Debt. The Chinese debt binge of the past 10 years is a well-known story.

Chinese corporations have incurred dollar-denominated debts in the hundreds of billions of dollars, most of which are unpayable without subsidies from Beijing. China’s debt-to-equity ratio is over 300%, far worse than America’s (which is also dangerously high) and comparable to that of Japan and other all-star debtors. China’s trillion-dollar wealth management product (WMP) market is basically a Ponzi scheme. New WMPs are used to redeem maturing WMPs, while most of the market is simply rolled over because the underlying real estate and infrastructure projects cannot possibly repay their debts. A lot of corporate lending is simply one company lending to another, which in turns lends to another, giving the outward appearance of every company holding good assets, but in which none of the companies can actually pay its creditors.

It’s an accounting game with no real money behind it and no chance of repayment. All of this is well-known. What is not known is when it will end. When will confidence be lost in such a way that the entire debt house of cards crumbles? When will a geopolitical shock or natural disaster trigger a loss of confidence that ignites a financial panic? There was little prospect of this in the past year because President Xi Jinping was keeping a lid on trouble before the recently concluded National Congress of the Communist Party of China. With the congress behind him, Xi is ready to undertake reform of the financial system, which means shutting down insolvent companies and banks. Now the first bankruptcies have begun to appear.

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None of these people give one hoot about their country. They care about themselves only.

UK Government Tensions Rise After Leak Of ‘Orwellian’ Memo Sent To May (G.)

The tensions in Theresa May’s government intensified on Sunday night ahead of this week’s vital votes on the Brexit bill, as ministers accused Boris Johnson and Michael Gove of sending an “Orwellian” set of secret demands to No 10. As an increasingly weakened prime minister faces the possibility of parliamentary defeats on the bill, government colleagues have said they are aghast at the language used by the foreign secretary and the environment secretary in a joint private letter. The leaked letter – a remarkable show of unity from two ministers who infamously fell out during last year’s leadership campaign – appeared to be designed to push May decisively towards a hard Brexit and limit the influence of former remainers. It complained of “insufficient energy” on Brexit in some parts of the government and insisted any transition period must end in June 2021 – a veiled attack on the chancellor, Philip Hammond.

They urged the prime minister to ensure members of her top team fall behind their Brexit plans by “clarifying their minds” and called for them to “internalise the logic”. But the leak drew a bitter response from supporters of a soft Brexit, who suggested that May would now be forced to either discipline the pair or further weaken her position, which has already been tested by the recent resignations of Priti Patel and Michael Fallon and continuing pressure on Johnson and Damian Green. One cabinet minister told the Guardian: “It is not surprising that they [Gove and Johnson] would express their view. But what is surprising is that they would write this down and use this kind of language in a letter to the prime minister. “Some have described it as Orwellian, and it is. It is not helpful when people try and press their views in untransparent way.”

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It’s just starting. London falling.

More Than A Third Of UK Home Sellers Cut Asking Price (G.)

More than a third of home owners trying to sell their house have been forced to reduce their asking price, with the number of price cuts at their highest level since 2012, according to Rightmove. Traditionally house sellers are often forced to cut asking prices in the pre-Christmas period but this year the nation appears to be holding a collective autumn sale, said the property website. Rightmove, which claims to list 90% of the houses being sold in the UK, said 37% of current sellers had dropped their asking price, with a typical 0.8% or £2,392 price reduction. It also warned that those who recently put their property on the market were being too optimistic by not discounting by more. The mass price cut will be seen as further evidence that the market has slowed dramatically, particularly in London where prices have been falling.

Last week the Royal Institution of Chartered Surveyors said the overall UK property market had stalled. Rics also warned that it expected the market to remain subdued in the coming months as sales stay flat or fall in most regions. Rightmove director, Miles Shipside, said the slowdown in the housing market, the recent interest rate rise and the prediction that further rises were on the horizon suggested bigger reductions in house prices in the near future. “Given that the market has been price-sensitive for a while and a five-year high proportion of sellers are slashing their prices, some sellers and their agents are over-pricing. These sellers may well be asking themselves if they could have saved some time and stress by pricing a lot more conservatively at the start.”

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As you’re being pleasantly entertained with that dumb Paris agreement.

Fossil Fuel Burning Set To Hit Record High In 2017 (G.)

The burning of fossil fuels around the world is set to hit a record high in 2017, climate scientists have warned, following three years of flat growth that raised hopes that a peak in global emissions had been reached. The expected jump in the carbon emissions that drive global warming is a “giant leap backwards for humankind”, according to some scientists. However, other experts said they were not alarmed, saying fluctuations in emissions are to be expected and that big polluters such as China are acting to cut emissions. Global emissions need to reach their peak by 2020 and then start falling quickly in order to have a realistic chance of keeping global warming below the 2C danger limit, according to leading scientists. Whether the anticipated increase in CO2 emissions in 2017 is just a blip that is followed by a falling trend, or is the start of a worrying upward trend, remains to be seen.

Much will depend on the fast implementation of the global climate deal sealed in Paris in 2015 and this is the focus of the UN summit of the world’s countries in Bonn, Germany this week. The nations must make significant progress in turning the aspirations of the Paris deal into reality, as the action pledged to date would see at least 3C of warming and increasing extreme weather impacts around the world. The 12th annual Global Carbon Budget report published on Monday is produced by 76 of the world’s leading emissions experts from 57 research institutions and estimates that global carbon emissions from fossil fuels will have risen by 2% by the end of 2017, a significant rise.

“Global CO2 emissions appear to be going up strongly once again after a three-year stable period. This is very disappointing,” said Prof Corinne Le Quéré, director of the Tyndall Centre for Climate Change Research at the UK’s University of East Anglia and who led the new research. “The urgency for reducing emissions means they should really be already decreasing now.” “There was a big push to sign the Paris agreement on climate change but there is a feeling that not very much has happened since, a bit of slackening,” she said. “What happens after 2017 is very open and depends on how much effort countries are going to make. It is time to take really seriously the implementation of the Paris agreement.” She said the hurricanes and floods seen in 2017 were “a window into the future”.

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Farmers are using dicamba because they get it on their crops anyway from the neighbors. There’s not much time left to stop Monsanto from effectively owning all our food.

The Decisions Behind Monsanto’s Weed-Killer Crisis (R.)

In early 2016, agri-business giant Monsanto faced a decision that would prove pivotal in what since has become a sprawling herbicide crisis, with millions of acres of crops damaged. Monsanto had readied new genetically modified soybeans seeds. They were engineered for use with a powerful new weed-killer that contained a chemical called dicamba but aimed to control the substance’s main shortcoming: a tendency to drift into neighboring farmers’ fields and kill vegetation. The company had to choose whether to immediately start selling the seeds or wait for the U.S. Environmental Protection Agency (EPA) to sign off on the safety of the companion herbicide. The firm stood to lose a lot of money by waiting.

Because Monsanto had bred the dicamba-resistant trait into its entire stock of soybeans, the only alternative would have been “to not sell a single soybean in the United States” that year, Monsanto Vice President of Global Strategy Scott Partridge told Reuters in an interview. Betting on a quick approval, Monsanto sold the seeds, and farmers planted a million acres of the genetically modified soybeans in 2016. But the EPA’s deliberations on the weed-killer dragged on for another 11 months because of concerns about dicamba’s historical drift problems. That delay left farmers who bought the seeds with no matching herbicide and three bad alternatives: Hire workers to pull weeds; use the less-effective herbicide glyphosate; or illegally spray an older version of dicamba at the risk of damage to nearby farms.

The resulting rash of illegal spraying that year damaged 42,000 acres of crops in Missouri, among the hardest hit areas, as well as swaths of crops in nine other states, according to an August 2016 advisory from the U.S. Environmental Protection Agency. The damage this year has covered 3.6 million acres in 25 states, according to Kevin Bradley, a University of Missouri weed scientist who has tracked dicamba damage reports and produced estimates cited by the EPA. The episode highlights a hole in a U.S regulatory system that has separate agencies approving genetically modified seeds and their matching herbicides.

Monsanto has blamed farmers for the illegal spraying and argued it could not have foreseen that the disjointed approval process would set off a crop-damage crisis. But a Reuters review of regulatory records and interviews with crop scientists shows that Monsanto was repeatedly warned by crop scientists, starting as far back as 2011, of the dangers of releasing a dicamba-resistant seed without an accompanying herbicide designed to reduce drift to nearby farms.

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“Farmers need it desperately,” said Perry Galloway. “If I get dicamba on (my products), I can’t sell anything,” responded Shawn Peebles.”

Weed-Killer Prompts Angry Divide Among US Farmers (AFP)

When it comes to the herbicide dicamba, farmers in the southern state of Arkansas are not lacking for strong opinions. “Farmers need it desperately,” said Perry Galloway. “If I get dicamba on (my products), I can’t sell anything,” responded Shawn Peebles. The two men know each other well, living just miles apart in the towns of Gregory and Augusta, in a corner of the state where cotton and soybean fields reach to the horizon and homes are often miles from the nearest neighbor. But they disagree profoundly on the use of dicamba. Last year the agro-chemical giant Monsanto began selling soy and cotton seeds genetically modified to tolerate the herbicide. The chemical product has been used to great effect against a weed that plagues the region, Palmer amaranth, or pigweed – especially since it became resistant to another herbicide, glyphosate, which has become highly controversial in Europe over its effects on human health.

The problem with dicamba is that it vaporizes easily and is carried by the wind, often spreading to nearby farm fields – with varying effects. Facing a surge in complaints, authorities in Arkansas early this summer imposed an urgent ban on the product’s sale. The state is now poised to ban its use between April 16 and October 31, covering the period after plants have emerged from the soil and when climatic conditions favor dicamba’s dispersal.

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This is who we are. This is caused by people we support, that we call our friends.

Millions On Brink Of Famine In Yemen As Saudi Arabia Tightens Blockade (G.)

Abdulaziz al-Husseinya lies skeletal and appears lifeless in a hospital in Yemen’s western port city of Hodeidah. At the age of nine, he weighs less than one and a half stone, and is one of hundreds of thousands of children in the country suffering from acute malnutrition. Seven million people are on on the brink of famine in war-torn Yemen, which was already in the grip of the world’s worst cholera outbreak when coalition forces led by Saudi Arabia tightened its blockade on the country last week, stemming vital aid flows. Al-Thawra hospital, where Abdulaziz is being treated, is reeling under the pressure of more than two years of conflict between the Saudi-led coalition and Iranian-allied Houthi rebels. Its corridors are packed, with patients now coming from five surrounding governorates to wait elbow-to-elbow for treatment.

Less than 45% of the country’s medical facilities are still operating – most have closed due to fighting or a lack of funds, or have been bombed by coalition airstrikes. As a result, Al-Thawra is treating some 2,500 people a day, compared to 700 before the conflict escalated in March 2015. [..] Aid agencies are now warning that Yemen’s already catastrophic humanitarian crisis could soon become a “nightmare scenario” if Saudi Arabia does not ease the blockade of the country’s land, sea and air ports – a move that the kingdom insists is necessary after Houthi rebels fired a ballistic missile towards Riyadh’s international airport this month. United Nations humanitarian flights have been cancelled for the past week and the International Committee of the Red Cross (ICRC), along with Médecins Sans Frontières (MSF), have been prevented from flying vital medical assistance into the country.

More than 20 million Yemenis – over 70% of the population – are in need of humanitarian assistance that is being blocked. Following international pressure, the major ports of Aden and Mukalla were reopened last week for commercial traffic and food supplies, along with land border crossings to neighbouring Oman and Saudi Arabia, but humanitarian aid and aid agency workers remained barred from entering the country on Sunday. UN aid chief Mark Lowcock has said if the restrictions remain, Yemen will face “the largest famine the world has seen for many decades, with millions of victims”.

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Nov 122017
 
 November 12, 2017  Posted by at 9:47 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Fifth Avenue at 25th Street. New York City 1905

 

“Bitcoin Cash” Quadruples in 2 Days. Bitcoin Crashes by $35 Billion (WS)
Podesta Group “Will Not Exist At The End Of The Year” (ZH)
Global Banks, City of London Raise “Disorderly Brexit” Alarm (DQ)
Forty UK Conservative Lawmakers Ready To Oust PM May (R.)
Theresa May Faces Defeat By MPs Demanding Vote On Final Brexit Deal (G.)
Sack Boris Johnson For Shaming Our Nation, Jeremy Corbyn Tells PM (G.)
German War Reparations ‘Matter Of Honor’ For Poland (R.)
750,000 Protesters Flood Barcelona Demanding Release Of Catalan Leaders (R.)
EU Has Become A ‘Caricature’ Of Its Founding Values – Puidgemont (RT)
Trafficking Laws ‘Target Refugee Aid Workers In EU’ (G.)
Greece’s Middle Incomes Go Under The Knife (K.)

 

 

Safe to say that Wolf Richter is not a big fan.

“Bitcoin Cash” Quadruples in 2 Days. Bitcoin Crashes by $35 Billion (WS)

I’m writing this Saturday night, Pacific Time, and cryptos never rest. By Sunday morning, “Bitcoin Cash” might have soared another $1,000 or crashed by $1,000; and bitcoin might have soared or crashed by another $1,500. Neither would surprise me, the way these things are going. One thing for sure, you’re not watching grass grow. Bitcoin Cash, which was split from bitcoin in August, began surging from $630 on Thursday mid-day Pacific Time. Within 24 hours, it jumped 50% (or by $320) to $950. It then lost steam. But in the wee hours of Saturday morning, it fired up again and soared another $450 to $1,400 by late morning. It then fell off, but Saturday night, it returned to form and spiked to $2,448 at the moment, nearly quadrupling in two days. Here is what the move looks like in US dollars in a seven-day chart (via WorldCoinIndex):

Its market valuation jumped by $30 billion over the two days, from $10.6 billion to $41 billion. I mean why even bother with the stock market. Bitcoin went the opposite way. It plunged from a peak of $7,771 on November 8 mid-morning to $5,519 at this moment, losing $2,252 or 29% in three days. It’s now back where it first had been in late October. Its market valuation plunged by $35 billion from $127 billion to $92 billion. $35 billion is starting to add up, so to speak (via WorldCoinIndex):

Bitcoin ran into an entanglement on November 8, when developers called off a planned software upgrade, SegWit2x. The upgrade was supposed to have improved transactions speeds. This was blamed for the plunge that started on Wednesday. Then the fun focused on Bitcoin Cash. By Friday, as Bitcoin Cash had soared 50% while bitcoin was crashing, it was blamed on traders that were switching from chasing after bitcoin to chasing after Bitcoin Cash. At the time, Joshua Raymond, a director at the foreign-exchange and CFD broker XTB, told Business Insider: “The delay to Segwit2x has damaged confidence amongst bitcoin investors concerning the much-needed resolution to speed up bitcoin’s slow processing speed.

“Everyone was hoping the Segwit2x would address this but unfortunately, the delay due to a lack of consensus on the mechanics has affected confidence. Confidence on transaction speed in Bitcoin has deteriorated significantly in recent months. As Bitcoin Cash enjoys much faster transaction speeds, we have started to see a recycling of positions out of Bitcoin into Bitcoin Cash as a consequence.” Just don’t call cryptos an investment or asset or asset class or currency. While they could be used as currency, in reality, these kinds of violent moves make their use as currency way too risky and nonsensical. What’s left? The blockchain technology, which underpins these cryptos, is free and open source. Currently a lot of smart brains are trying to figure out how to put the technology to work in all kinds of industries.

Some of them will likely succeed. I’m looking forward to the moment when there is a way of transferring money around the world that is universal, convenient, cheap, fast, not subject to violent fluctuations, and 100% reliable. But that moment isn’t here yet, and neither bitcoin nor Bitcoin Cash will have anything to do with it. Instead of being usable currencies, cryptos – CoinMarketCap lists nearly 1,300 of them, with many of them already worthless – are a form of online betting based on a new technology, and they’re subject to different dynamics than classic online betting, but not regulated or forbidden by governments, unlike classic online betting.

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“..both sides of the swamp should probably control themselves in any premature celebrations as this appears to be far from over..”

Podesta Group “Will Not Exist At The End Of The Year” (ZH)

Just three weeks after we reported that special counsel Mueller was targeting lobbying firm Podesta Group. and just two weeks after Tony Podesta resigned from his position at the firm he founded, The Hill reports that Kimberley Fritts, the Podesta Group’s chief executive, told employees on Thursday that the firm would not exist at the end of the year and that they would likely not be paid through the end of November, sources told CNN. Fritts announced her resignation from the top Washington lobbying group after Podesta left the company amid ties to indictments filed in the Russia investigation. Fritts is beginning work on launching a new firm. Her last day at the company Friday created new uncertainty for the Podesta Group after the departure of Podesta on Oct. 30.

Multiple employees who spoke to The Hill said the mood at the firm was mostly optimistic, though they said many of the firm’s dozens of employees could be in limbo as Fritts sets up the new firm and brings Podesta Group talent and clients with her. As a reminder, Mueller is now investigating whether the Podesta Group properly identified to U.S. authorities its foreign work on behalf of a Ukrainian advocacy group in Europe, CNN reported. An NBC report found that the Podesta Group was one of several firms working on Paul Manafort’s public relations campaign for European Centre for a Modern Ukraine, which the Podesta Group claims it thought was a nonpartisan think tank, something which this site reported first last August. And here is one reason why we suspect more than a few on the left are now concerned…

It goes without saying, that Podesta’s brother, John, is arguably one of the top figure in Democratic politics, serving most recently as chief of staff in the Bill Clinton White House and also as the chairman of Hillary Clinton’s 2016 presidential campaign. What happens next to Tony (and perhaps his brother John) is to be determined, but one thing is clear: both sides of the swamp should probably control themselves in any premature celebrations as this appears to be far from over.

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“..the Brexit vote has presented rival European nations and the ECB with a golden opportunity to undermine the UK’s domination of Europe’s financial industry. They won’t let it go to waste.”

Global Banks, City of London Raise “Disorderly Brexit” Alarm (DQ)

For the City of London Corporation, the prospect of a messy Brexit is even more terrifying than it is for many of the global banks it hosts within its coveted Square Mile. The Bank of England has warned that up to 75,000 jobs could be lost in the financial sector following Britain’s departure from the European Union. But it’s not just jobs that are on the line; so, too, is the Square Mile’s role as the world’s most important financial center, not to mention the backbone of the UK economy. In recent months the European Commission and the European Central Bank have redoubled their efforts to compel financial institutions to move at least some of their operations onto the continent. “I have a very clear message to both smaller and larger banks: the clock is ticking,” said Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB.

“No one knows how Brexit will play out, and that’s why all affected banks should prepare themselves with a hard Brexit in mind.” Some banks are already taking action. Goldman has set aside the top eight floors of a 37-story block under construction in Frankfurt which is expected to be ready for occupation in the third quarter of 2019. Just a few months before that, construction work on the bank’s new £350m European headquarters in central London should be completed. Ten days ago, Goldman Sachs CEO Lloyd Blankfein, posted a tweet of an aerial shot of the half-finished construction in London, with the words “expecting/hoping to fill it up, but so much outside our control.” As the head of an organization with alumni at the very top of both the Bank of England and the ECB as well as tentacles that reach out to just about every corner of the old continent, Blankfein is clearly selling Goldman short, if you’ll excuse the pun.

Goldman’s not the only major bank hedging its bets. On Tuesday Germany’s struggling behemoth, Deutsche Bank, announced that it had signed an agreement to occupy at least 469,000 square feet at a site under construction in the City of London. The move comes despite a warning in April that thousands of Deutsche Bank’s UK staff may have to relocate after Brexit. To that end, Deutsche has begun work on a Frankfurt booking center that would take up some of the slack if the German lender was forced to turn its London branch into a subsidiary when Britain leaves the EU.

Most banks would prefer the status quo to continue, with the lion’s share of their operations remaining in London, which already has the physical infrastructure, legal apparatus and friendly political and regulatory culture needed to support the full gamut of global financial services. But the Brexit vote has presented rival European nations and the ECB with a golden opportunity to undermine the UK’s domination of Europe’s financial industry. They won’t let it go to waste.

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It truly is Monty Python by now.

Forty UK Conservative Lawmakers Ready To Oust PM May (R.)

Forty members of parliament from Prime Minister Theresa May’s Conservative Party have agreed to sign a letter of no-confidence in her, the Sunday Times newspaper reported. That is eight short of the number needed to trigger a party leadership contest, the mechanism through which May could be forced from office and replaced by another Conservative. May has been struggling to maintain her authority over her party since a snap election on June 8 which she called thinking she would win by a wide margin but instead resulted in her losing her parliamentary majority. Divided over how to extricate Britain from the European Union and hit by multiple scandals involving ministers, May’s government has failed to assert control over a chaotic political situation that is weakening London’s hand in Brexit talks.

An earlier attempt to unseat May in the wake of her disastrous speech at the annual party conference fizzled out, but many Conservatives remain unhappy with the prime minister’s performance and talk of a leadership contest has not gone away. May has lost two cabinet ministers in as many weeks: Michael Fallon stepped down as defense secretary after becoming implicated in a wider scandal about sexual misconduct in parliament, while Priti Patel resigned as aid minister after she was found to have had secret meetings with top Israeli officials.

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So there’s those who just want her gone, and then there’s the ones who look for a reason.

Theresa May Faces Defeat By MPs Demanding Vote On Final Brexit Deal (G.)

Theresa May faces a devastating Commons defeat over Brexit within weeks if she continues to deny parliament a meaningful vote on the final deal with the EU, Tory and Labour MPs have warned. With the withdrawal bill returning to the Commons on Tuesday, a cross-party group who oppose a hard Brexit and are co-operating on tactics say they believe they have the numbers to defeat the government if they are denied such a vote. While the critical amendments and closest votes are not expected to be taken until next month, Tories who oppose a hard Brexit insist there is no softening of their position and that they are biding their time ready to strike before Christmas. Some Tories say they are even more determined to insist on parliament’s right to veto a bad or no deal because the prime minister appears not to have responded to any of their concerns over recent weeks.

Instead, in what was seen by many as a provocative move, she announced last week that the government had tabled its own amendment that would commit the UK to formally leaving on 29 March 2019, whatever the outcome of negotiations and even if there were no deal. Meanwhile, a secret memo to May written by Boris Johnson and Michael Gove dictating terms for a hard Brexit has emerged. In blunt terms, the pair tell the prime minister to “underline her resolve” to achieve a total break with Brussels, and name 30 June 2021 as the fixed end of Britain’s transition period after leaving the EU in March 2019. The missive will undoubtedly lead critics to say the prime minister is being held hostage by the leading Brexiters. A Commons defeat for May over Brexit, at a time when her government is reeling from the loss of two cabinet ministers in six days – and may lose more – would raise further questions over her ability to survive as prime minister.

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She better be quick then, or she won’t have the job anymore.

Sack Boris Johnson For Shaming Our Nation, Jeremy Corbyn Tells PM (G.)

jeremy Corbyn has fired an extraordinary broadside against Boris Johnson, calling for him to be sacked immediately as foreign secretary for “undermining our country” and “putting our citizens at risk”. The blistering attack – and demand that Theresa May fire him – was delivered exclusively in a statement to the Observer on Saturday night, as pressure mounted on Johnson over his diplomatic blunder in the case of Nazanin Zaghari-Ratcliffe, the British mother imprisoned in Iran. The Labour leader cites a litany of undiplomatic and ill-chosen statements from Johnson since his appointment by May as foreign secretary in July last year. Corbyn accuses him of having a “colonial throwback take on the world”, and of repeatedly “letting our country down”.

It is the mishandling of the “heartbreaking” case of Zaghari-Ratcliffe that persuaded Corbyn to call for his dismissal. His statement ends: “We’ve put up with Johnson embarrassing and undermining our country with his incompetence and colonial throwback views and putting our citizens at risk for long enough. It’s time for him to go.” The intervention places both May and Johnson under renewed pressure after 10 days in which the prime minister has been forced to dismiss defence secretary Sir Michael Fallon for inappropriate behaviour towards women, and the international development secretary, Priti Patel, for conducting a freelance aid policy in the Middle East without informing No 10 or the Foreign Office.

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Get in line.

German War Reparations ‘Matter Of Honor’ For Poland (R.)

Demanding reparations from Germany for its actions in Poland during World War Two is a matter of honor for Warsaw, Jaroslaw Kaczynski, the leader of Polish ruling Law and Justice (PiS) party, said on Saturday. The issue of reparations, revived by Poland’s eurosceptic PiS after decades of improving relations with Germany, could escalate tensions between the two European Union members. In September Polish parliamentary legal experts ruled that Warsaw has the right to demand reparations from Germany, although Poland’s foreign minister indicated that no immediate claim would be made. “The French were paid, Jews were paid, many other nations were paid for the losses they suffered during World War Two. Poles were not,” Kaczynski said.

“It is not only about material funds. It is about our status, our honor … And this is not theater. This is our demand, a totally serious demand,” added Kaczynski, Poland’s de facto leader. The PiS government, deeply distrustful of Germany, has raised calls for wartime compensation in recent months but Foreign Minister Witold Waszczykowski has said further analysis was needed before any claims were lodged. Six million Poles, including three million Polish Jews, were killed during the war, and the capital Warsaw was razed to the ground in 1944 after a failed uprising in which 200,000 civilians died.

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They’ll have to do a lot more demonstrating.

750,000 Protesters Flood Barcelona Demanding Release Of Catalan Leaders (R.)

Hundreds of thousands of Catalan independence supporters clogged one of Barcelona’s main avenues on Saturday to demand the release of separatist leaders held in prison for their roles in the region’s banned drive to split from Spain. Wearing yellow ribbons on their lapels to signify support, they filled the length of the Avenue Marina that runs from the beach to Barcelona’s iconic Sagrada Familia church, while the jailed leaders’ families made speeches. Catalonia’s two main grassroots independence groups called the march, under the slogan “Freedom for the political prisoners,” after their leaders were remanded in custody on charges of sedition last month. The protest is seen as a test of how the independence movement’s support has fared since the Catalan government declared independence on Oct. 27, prompting Spanish Prime Minister Mariano Rajoy to fire its members, dissolve the regional parliament and call new elections for December.

An opinion poll this week showed that pro-independence parties would win the largest share of the vote, though a majority was not assured and question marks remain over ousted regional head Carles Puigdemont’s leadership of the separatist cause. “Look at all the people here,” said 63-year-old Pep Morales. “The independence movement is still going strong.” Barcelona police said about 750,000 people had attended, many from across Catalonia. The protesters carried photos with the faces of those in prison, waved the red-and-yellow striped Catalan independence flag and shone lights from their phones. The Spanish High Court has jailed eight former Catalan government members, along with the leaders of the Catalan National Assembly (ANC) and Omnium Cultural, while investigations continue.

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That’s true in many ways.

EU Has Become A ‘Caricature’ Of Its Founding Values – Puidgemont (RT)

Sacked Catalan leader Carles Puigdemont has lashed out against the European Union (EU) over its response to the Catalan crisis, in which Brussels sided with Madrid in suppressing the independence drive of the region. Puigdemont criticized the EU as a “caricature of what Europe is and of what we want Europe to be,” claiming, there is “no will to help solve the politics of the conflict.” Catalonia staged a regional independence referendum on October 1, amid a massive crackdown by police on voters in which nearly 900 people were injured. Following the ‘yes’ vote, Barcelona attempted to initiate dialogue with the central government, hoping the EU would step in and act as mediator to help defuse tensions.

Leaders of European nations, as well as the EU’s main institutions, sided with the Spanish Prime Minister Mariano Rajoy instead, and refused to recognize Catalonia’s self-determination call, referring to the crisis as an internal Spanish matter. The former Catalan leader sees it as a betrayal of the fundamental “values that took us to constitute Europe.” Puigdemont believes the EU leadership, which he said comprises “four or five governments,” are “probably not the most appropriate to lead the EU.” “What will the EU become in hands of this people?” the former Catalan leader asked, pointing out that he does not want the EU’s leadership to “confuse” traditional European values with “their political and economic interests.”

Just this week, European Commission President Jean-Claude Juncker called on all member nations to fight against separatist tendencies in Europe, apparently in reference to Scotland, Lombardy, Venice and other regions throughout the continent which have expressed strong self-determination ambitions. “Nationalisms are a poison that prevent Europe from working together,” Juncker said Thursday in the Spanish city of Salamanca. “We cannot stay with our arms crossed because it is time for us to do what needs to be done. I say ‘no’ to any form of separatism that weakens Europe and further widens the existing fissures.” [..] “To be treated like a criminal, like a drug-trafficker, like a paedophile, like a serial killer, I think this is abuse,” the Catalan leader lamented. “This isn’t politics, this is using the courts to do politics.”

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The shame of the EU keeps getting bigger and deeper.

Trafficking Laws ‘Target Refugee Aid Workers In EU’ (G.)

Aid workers are being targeted throughout Europe as countries including the UK use laws aimed at traffickers and smugglers to discourage humanitarian activity, a study claims. A six-month investigation by the London-based Institute of Race Relations documented the prosecutions of 45 individual “humanitarian actors” under anti-smuggling or immigration laws in 26 separate actions over the past two years. Examples include a 25-year-old British volunteer with a refugee support group, who last January sought to bring an Albanian mother and two children to the UK in the boot of her car so they could join their husband and father. She was sentenced in March to 14 months in jail, although the sentence was suspended to take into account her “misguided humanitarianism”.

UK law does not distinguish between humanitarian and commercial motives in such prosecutions, but does take such factors into account in sentencing. In Switzerland, a 43-year-old woman known to refugees as Mother Teresa for her work in providing food for those stranded on the Italian side of the border, was sentenced in September to a fine and a suspended 80-day jail term for helping unaccompanied children into the country. In France, British volunteers helping refugees in Calais have frequently been harassed by the authorities. In October 2015, former British soldier Rob Lawrie was arrested at the border for hiding a four-year-old Afghan child in his van in response to her father’s pleas to take her to relatives in Leeds. Lawrie, from West Yorkshire, avoided jail after a French court found him guilty of the lesser charge of endangerment rather than assisting illegal entry.

And in March this year three French and British volunteers with charity Roya Citoyenne were arrested for distributing food to migrants. The 68-page IRR report chronicles a culture of criminalisation in which volunteers for charities and aid groups, attempting to fill the gaps in state provision, are targeted for providing food, shelter and clean water to migrants in informal encampments or on streets. The EU’s border force, Frontex, has accused aid groups including Médecins Sans Frontières of co-operating with migrant traffickers in the Mediterranean. The report criticises senior Frontex officials for “attempts to bully and delegitimise” NGO search and rescue missions in the Mediterranean by accusing aid groups of working with smugglers and encouraging trafficking. The IRR’s vice-chair, Frances Webber, said: “Across the continent, criminal laws designed to target organised smuggling gangs and profiteers are distorted and stretched to fit an anti-refugee, anti-humanitarian agenda, and in the process criminalise decency itself.”

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Disposable income down by 50%. Taxes and social security up 96.8%. The Troika is taxing Greece to death. On purpose. It’ll be a tourist destination only. And a refugee camp.

Greece’s Middle Incomes Go Under The Knife (K.)

The disposable income of Greece’s average earners has been slashed by more than 50% due to overtaxation in recent years, according to the latest data examined by Kathimerini, which also paints a grim picture for the coming years. What’s more, the reduction of the income tax threshold is expected to further impact the disposable income of households. Brussels expects Greece’s primary surplus to beat its target of 3.5% of GDP again next year, rising to 3.9%, and then to 3.7% in 2019. However, the primary surpluses Greece has posted in the last two years are largely due to exorbitant taxes rather the result of growth. Moreover, while the European Commission’s statistics point to a disproportionate increase in taxation in Greece, at a time when the economy was shrinking, the country’s industrialists and political opposition say overtaxation has led to more tax evasion and the failure of the tax system.

Those hardest hit have been freelance professionals, who since 2009 have been subjected to unprecedented raids by the tax office, and more recently by social insurance contribution hikes, resulting in the gradual exhaustion of their income. And high taxes, including property taxes, are the reason why both freelancers and self-employed professionals submitted incomes last year that were 20% lower than their actual earnings. A telling example of overtaxation concerns freelance professionals who own a car and an apartment and earn 50,000 euros a year: In 2009 they had to pay 16,333 euros of their annual income to the tax office and their social security fund, leaving them with a net income of 33,667 euros. Five years later, their clear income dropped by a further 4,344 euros to 29,323.

The situation today is even more dire as the same self-employed professional making 50,000 euros must pay 32,151 euros in taxes and contributions, leaving them with a disposable income of 17,849. Taxes and social security contributions have rocketed by 96.8% since 2009, while compared to 2014 they have risen by 55.5%.

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Nov 032017
 
 November 3, 2017  Posted by at 8:59 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Edward S. Curtis Tipi in the snow 1908

 

Social Security Can Never Run Out Of Money – Just Ask Alan Greenspan (BI)
Inside Hillary Clinton’s Secret Takeover of the DNC (Donna Brazile)
Jay Powell – A Quiet Leader (DDMB)
Why Would Anyone Want The Fed Job? (Crudele)
The Borrower Is The Slave To The Lender (Lance Roberts)
US Manufacturing Worker Productivity Crashes Most In 8 Years (ZH)
Bitcoin Is the ‘Very Definition’ of a Bubble – Credit Suisse CEO (BBG)
One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week (MBV)
The Hidden Danger Bulls Are Missing (Rickards)
As Credit Booms, Citi Says Synthetic CDOs May Reach $100 Billion (BBG)
China Issues Guidelines On Overseas Investment Amid Crackdown On Deals (R.)
US Spends $250 Million Per Day For The War On Terror (TeleS)
Barcelona Council Says Catalan Government Legitimate, Independence Is Not (CN)
Kim Dotcom Wins Settlement From New Zeland Police Over 2012 Dawn Raid (NZH)
Monsanto Halts Launch Of Chemical After Farmers Complain Of Rashes (R.)

 

 

“The United States can pay any debt it has because it can always print money to do that, so there is zero probability of default.”

Social Security Can Never Run Out Of Money – Just Ask Alan Greenspan (BI)

I asked Kelton why, given her counterintuitive argument that deficits don’t really matter, Americans should take her word for it. Her reply: Don’t. Instead, listen to what Alan Greenspan, the prominent Republican former Federal Reserve chairman who is a purported deficit hawk, had to say on the matter. In March 2005, he was pressed by a young congressman named Paul Ryan about the need for privatizing Social Security because of the prospect of a looming “entitlements crisis.” Greenspan replied rather bitingly that there was no such thing or even a remote possibility. “I wouldn’t say that the pay-as-you-go benefits are insecure in the sense that there’s nothing to prevent the federal government to create as much money as it wants and pays it to somebody,” Greenspan told an incredulous Ryan. “The question is how do you set up a system that assures that the real assets are created which those benefits are employed to purchase.

So it’s not a question of security — it’s a question of the structure of the financial system.” That’s what Democrats should be saying, rather than regurgitating the old Republican rouse — which even the GOP is willing to abandon when it’s convenient — about a looming government debt crisis that never comes. “Instead of repeating talking points that reinforce the idea that Social Security is somehow financially unsustainable, Democrats should play Greenspan’s remarks on a loop. They should call attention to what Greenspan said — under oath — about the program’s long-term sustainability,” Kelton said. “Instead of accepting the premise that Social Security is in trouble, Democrats should accept Greenspan’s challenge — put forward an agenda that will do more to promote future growth than anything the Republicans are offering.”

The financial crisis was instructive on this count. Many critics of both the federal government’s fiscal stimulus and the Federal Reserve’s bond purchases worried that the country was getting so deep into debt that one of two things was bound to happen: a crisis in the Treasury market or a bout of runaway inflation. Nine years into the recovery, Treasury yields remain near historic lows and inflation is not only contained but remains worryingly low. That last point is key: It’s not that folks like Kelton and Baker believe there is no risk to government spending. They simply argue that the only risks are the misallocation of resources and inflation — not some amorphous “debt crisis” or default of the sort some politicians and market analysts have shouted about.

Unlike Greece, which actually did default on its debt because of a lack of control over its own currency, the US could default only by choice. Trump flirted with that choice once as a candidate — but quickly backed away from the threat after he realized the catastrophic market and economic consequences such a debacle would have. In August 2011, after the US’s credit rating was downgraded for the fist time following a prolonged impasse over the US debt ceiling, Greenspan was asked during a “Meet the Press” interview about the issue of “unfunded liabilities” and “entitlements.” His response again spoke volumes: “The United States can pay any debt it has because it can always print money to do that, so there is zero probability of default.”

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Quite a reversal. Brazile was fired from CNN a year ago when it was discovered she fed the Clinton campaign debate questions. Still, what a mess. Will they clean it up or try to ignore?

Inside Hillary Clinton’s Secret Takeover of the DNC (Donna Brazile)

When I got back from a vacation in Martha’s Vineyard I at last found the document that described it all: the Joint Fund-Raising Agreement between the DNC, the Hillary Victory Fund, and Hillary for America. The agreement—signed by Amy Dacey, the former CEO of the DNC, and Robby Mook with a copy to Marc Elias—specified that in exchange for raising money and investing in the DNC, Hillary would control the party’s finances, strategy, and all the money raised. Her campaign had the right of refusal of who would be the party communications director, and it would make final decisions on all the other staff. The DNC also was required to consult with the campaign about all other staffing, budgeting, data, analytics, and mailings. I had been wondering why it was that I couldn’t write a press release without passing it by Brooklyn. Well, here was the answer.

When the party chooses the nominee, the custom is that the candidate’s team starts to exercise more control over the party. If the party has an incumbent candidate, as was the case with Clinton in 1996 or Obama in 2012, this kind of arrangement is seamless because the party already is under the control of the president. When you have an open contest without an incumbent and competitive primaries, the party comes under the candidate’s control only after the nominee is certain. When I was manager of Gore’s campaign in 2000, we started inserting our people into the DNC in June. This victory fund agreement, however, had been signed in August 2015, just four months after Hillary announced her candidacy and nearly a year before she officially had the nomination.

I had tried to search out any other evidence of internal corruption that would show that the DNC was rigging the system to throw the primary to Hillary, but I could not find any in party affairs or among the staff. I had gone department by department, investigating individual conduct for evidence of skewed decisions, and I was happy to see that I had found none. Then I found this agreement. The funding arrangement with HFA and the victory fund agreement was not illegal, but it sure looked unethical. If the fight had been fair, one campaign would not have control of the party before the voters had decided which one they wanted to lead. This was not a criminal act, but as I saw it, it compromised the party’s integrity.

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We’ll go with Danielle DiMartino Booth for now. Powell’s no PhD, and not a Yellen clone. But he’s been at the Fed for 5 years already, which doesn’t make him an obvious agent for change.

Jay Powell – A Quiet Leader (DDMB)

The sheer breadth of Powell’s experience is refreshing compared to what we’ve had for the past 30 years. Powell has a deep understanding of the law and politics. He worked in the Treasury Department under Nicholas Brady and was confirmed as Undersecretary of the Treasury under George H.W. Bush. His background in politics and the experience he has had at the Fed thus far have prepared him well for his role as liaison to Congress and the White House. Powell’s experience as an investment banker was critical in his carrying out the investigation and sanctioning of Salomon Brothers. Understanding the entirely different type of politics that exists in big banks will bode well for his capacity to regulate the banks. This attribute especially will dilute the power traditionally exerted by the NY Fed in recent years, a District that has a long history of conflicts of interest vis-à-vis the banks it regulates.

A stronger regulator as Fed chair in the years leading up to the financial crisis. At the Carlyle Group, Powell founded and ran the Industrial Group within the Buyout Fund. A separate missing characteristic among Fed leaders for the past 30 years has been a woeful lack of understanding as to how Fed policy effects corporations and the decisions CEOs and CFOs make driven by Fed policy, the most obvious of which has been debt-financed share buybacks at the expense of capital expenditures. Some in the media have questioned Powell’s being the wealthiest individual at the Fed. That is an extremely strong attribute. In his work between 2010 and 2012 at a bipartisan think tank, Powell worked for a salary of $1 per year to carry out his mission to raise the debt ceiling. His wealth affords him the luxury of having no preset agenda. His history of working for his country to its best end exemplifies that he is at the Fed because he truly believes he is doing a greater good in servicing his country.

Powell’s work on Too Big to Fail banks also speaks to his ability to be independent and objective in his approach to regulating big banks with deep-pocketed lobbyists who hold huge sway over politicians. If he is willing to go up against the biggest banks, he will hopefully prove to be a leader cast in the mold of William McChesney Martin, the longest serving Fed Chairman famous for testifying to Congress that it was the Fed’s job to take away the punch bowl just as the party gets going. [..] His experience in the financial markets suggests he will be less apt to keep rates too low for too long as has been the case with his three predecessors. Powell was not in favor of the third round of QE, but voted for its nevertheless. This is his biggest black eye and why market participants perceive him to be as dovish as they do.

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Savings and pensions need higher rates, fast. But…

Why Would Anyone Want The Fed Job? (Crudele)

No matter who is appointed, the next Fed chairman has a problem. Right now, the economy is looking healthy. The stock market is booming. Consumer confidence is high. Home prices are soaring. And some economic indicators seem to say, “Happy days are here again.” Just Wednesday, for instance, the Atlanta Federal Reserve raised its forecast for economic growth in the fourth quarter to a booming 4.5% annual rate. The nation’s gross domestic product, the standard for measuring economic growth, rose at a healthy 3% annual rate in the third quarter. That 3% figure was puzzling because hurricanes should have stunted growth, which means that number might be revised downward once better-quality statistics come in.

Or it could mean that growth is darn good, despite the weather. Nevertheless, the 4.5% estimate for the fourth quarter — on top of the 3% growth in the July to September quarter — is going to force whoever ends up running the Fed to seriously consider raising interest rates faster than usual. But that’s where it gets tricky. Once rates increase, the economy could slow because borrowing costs will rise for both consumers and companies. When the cost of borrowing money increases, people and companies tend to cut back on spending. But there’s another possible twist that could complicate the job of the next Fed boss even more. The relatively impressive growth in the third-quarter GDP and the even better performance in the fourth quarter could turn out to be another fake-out.

The GDP, for instance, rose by a 4.6% annual rate in the second quarter of 2014 and by a 5.2% rate in the third quarter of that year, only to collapse back to subpar growth in the next eight quarters. Also, the New York Fed, which is more influential, doesn’t agree with the Atlanta Fed. It had current GDP at closer to 3%. With all that’s going on, why would anyone want the Fed job?

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When anyone tells you the economy has recovered, show them any of these graphs.

The Borrower Is The Slave To The Lender (Lance Roberts)

Despite the bullish economic optics, the reality for the majority of Americans is they simply have not yet recovered from the financial crisis. As the chart below shows, while savings spiked during the financial crisis, the rising cost of living for the bottom 80% has outpaced the median level of “disposable income” for that same group. As a consequence, the inability to “save” has continued.

I discussed previously the problem of rising debt. Beginning in 1990, the gap between the “standard of living” and real disposable incomes went negative with the resultant “gap” filled through the use of debt. However, since the financial crisis, this has no longer been the case. I modified the previous chart with the savings rate which tells the same story, as the cost of living began outpacing incomes the difference came from savings, and a continuous increase in debt. Again, despite the temporary uptick in the savings rate following the financial crisis, the real cost of living continues to erode the middle class.

You can see the erosion of the savings rate more clearly when you look at the rate of Personal Consumption Expenditure (PCE) growth as compared to debt growth. As spending and debt accelerated, the savings rate declined. More importantly, in 2000 the growth rate of debt sharply accelerated above PCE growth. This debt-fueled consumption, however, has not led to stronger rates of economic growth.

Debt is a negative thing for the borrower. It has been known to be such a thing even in biblical times as quoted in Proverbs 22:7: “The borrower is the slave to the lender.” Debt acts as a “cancer” on an individual’s wealth as it siphons potential savings from income as those funds are diverted to debt service. Rising levels of debt means rising levels of debt service which reduces actual disposable personal incomes that could be saved or reinvested back into the economy. The mirage of consumer wealth has been a function of surging debt levels. “Wealth” is not borrowed but “saved” and as shown in the chart below, this is a lesson that too few individuals have learned. The reality is that since “savings” are the cornerstone of economic growth longer-term, as savings provide for productive investment and lending, it should be of NO surprise that, as shown in the next chart, there is a very high correlation between the savings rate, GDP, and PCE.

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What happens when you don’t make stuff anymore.

US Manufacturing Worker Productivity Crashes Most In 8 Years (ZH)

US worker productivity rose at 3.0% QoQ in Q3 – the best since 2014.

Unit labor costs rose at 0.5% annualized rate in Q3 (est. 0.4%) following 0.3% pace in Q2. Output rose at a 3.8% rate following 3.9%. Hours worked rose at a 0.8% pace after 2.4%. The latest figure compares with a 1.2% average over the period spanning 2007 to 2016. Weak productivity helps explain why companies are reluctant to raise workers’ wages, even as profit margins have improved. However, among manufacturers, productivity crashed 5% QoQ – the biggest drop since Q1 2009, when the economy was in recession – after rising 3.4% in Q2. Let’s hope that is storm-related.

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Insert your opinion here: “From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble,..”

Bitcoin Is the ‘Very Definition’ of a Bubble – Credit Suisse CEO (BBG)

The speculation around bitcoin is the “very definition of a bubble,” Credit Suisse CEO Tidjane Thiam said as the currency exceeded $7,000 for the first time. “From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble,” he said at a news conference in Zurich Thursday. He added that in the history of finance, such speculation has “rarely led to a happy end.” The digital currency got new impetus this week after CME, the world’s largest exchange owner, said it plans to introduce bitcoin futures by the end of the year, citing pent-up demand from clients. That pushes bitcoin closer to the mainstream by making it easier to trade without the hassles of owning bitcoin directly. Other bankers are also sounding warnings about the currency.

JPMorgan Chase CEO Jamie Dimon has called bitcoin “a fraud” that will eventually blow up. UBS Chairman Axel Weber said last month that bitcoin has no “intrinsic value” because it’s not secured by underlying assets. Bankers also are steering clear of bitcoin for fear that criminals could use its anonymity to hide their activities, Thiam said. “Most banks in the current state of regulation have little or no appetite to get involved in a currency which has such anti-money laundering challenges,” he said. While bitcoin remains a no-go with the industry, banks are racing to develop blockchain, the technology underpinning the currency. Thiam said blockchain may have many applications in banking. Credit Suisse is among more than 100 banks are working within the R3, a consortium created to find ways to use blockchain as to track money transfers and other transactions.

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It’s by design, and that remains worrisome.

One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week (MBV)

Bitcoin’s incredible price run to break over $6,000 this year has sent its overall electricity consumption soaring, as people worldwide bring more energy-hungry computers online to mine the digital currency. An index from cryptocurrency analyst Alex de Vries, aka Digiconomist, estimates that with prices the way they are now, it would be profitable for Bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles to “mine” more Bitcoins. That’s about as much as Nigeria, a country of 186 million people, uses in a year. This averages out to a shocking 215 kilowatt-hours (KWh) of juice used by miners for each Bitcoin transaction (there are currently about 300,000 transactions per day).

Since the average American household consumes 901 KWh per month, each Bitcoin transfer represents enough energy to run a comfortable house, and everything in it, for nearly a week. On a larger scale, De Vries’ index shows that bitcoin miners worldwide could be using enough electricity to at any given time to power about 2.26 million American homes. Expressing Bitcoin’s energy use on a per-transaction basis is a useful abstraction. Bitcoin uses x energy in total, and this energy verifies/secures roughly 300k transactions per day. So this measure shows the value we get for all that electricity, since the verified transaction (and our confidence in it) is ultimately the end product. Since 2015, Bitcoin’s electricity consumption has been very high compared to conventional digital payment methods. This is because the dollar price of Bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it.

As the price rises, miners add more computing power to chase new Bitcoins and transaction fees. It’s impossible to know exactly how much electricity the Bitcoin network uses. But we can run a quick calculation of the minimum energy Bitcoin could be using, assuming that all miners are running the most efficient hardware with no efficiency losses due to waste heat. To do this, we’ll use a simple methodology laid out in previous coverage on Motherboard. This would give us a constant total mining draw of just over one gigawatt. That means that, at a minimum, worldwide Bitcoin mining could power the daily needs of 821,940 average American homes. Put another way, global Bitcoin mining represents a minimum of 77KWh of energy consumed per Bitcoin transaction.

Even as an unrealistic lower boundary, this figure is high: As senior economist Teunis Brosens from Dutch bank ING wrote, it’s enough to power his own home in the Netherlands for nearly two weeks. As goes the Bitcoin price, so goes its electricity consumption, and therefore its overall carbon emissions. I asked de Vries whether it was possible for Bitcoin to scale its way out of this problem. “Blockchain is inefficient tech by design, as we create trust by building a system based on distrust. If you only trust yourself and a set of rules (the software), then you have to validate everything that happens against these rules yourself. That is the life of a blockchain node,” he said via direct message.

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“Earnings are likely to fall short of expectations, which can lead to a correction. Once that happens, multiples can shrink as well. Soon you’re in a full-scale bear market with stock prices down 20% or more.”

The Hidden Danger Bulls Are Missing (Rickards)

Bull markets in stocks seem unstoppable right up until the moment they stop. Then comes a rapid crash-and-burn phase. Is there ever any warning that a collapse is about to happen? Of course there is. Analysts warn about it all the time and provide mountains of data and historical evidence to back up their analysis. The problem is that everyone ignores them! You can talk about the dangers represented by CAPE ratios, margin levels, computerized trading, persistent low volatility and complacency all you want, but nothing seems to slow down this bull market. Yet there is one thing that can stop a bull market in its tracks, and that’s corporate earnings. The simplest form of stock market valuation is to project earnings, apply a multiple and, voilà, you have a valuation. Multiples are already near record highs, so there’s not much room for expansion there.

The only variable left is projected earnings and that’s where Wall Street analysts are having a field day ramping up stock prices. Earnings did grow significantly in 2017 on a year-over-year basis, but that’s mainly because earnings were weak in 2016, so the year-over-year growth was relatively easy. Now comes the hard part. How do you expand earnings again in 2018 when 2017 was such a strong year? Wall Street just uses a simple extrapolation and says next year will be like this year, only better! But there is every reason to doubt that extrapolation. This is from a recent Bloomberg article:

“Ominously, Weekly Leading Index growth turned down early this year and is now at a 79-week low. Such cyclical downturns have historically telegraphed [growth-rate cycle] GRC downturns. That shows very clearly that economic growth is about as good as it gets and that a fresh growth slowdown may be on the way… ” “Over time, we find that stock price corrections — big and small — have historically clustered around GRC downturns. In other words, the risk of corrections rises around economic slowdowns… Today, there are rising rates, with quantitative tightening about to begin. This will take place during an economic slowdown, implying a likely downswing in corporate profit growth, delivering a proverbial one-two punch.”

Earnings are likely to fall short of expectations, which can lead to a correction. Once that happens, multiples can shrink as well. Soon you’re in a full-scale bear market with stock prices down 20% or more. That’s without even considering a war with North Korea and all of the dangers others have already mentioned. This may be your last clear chance to lighten up on listed equity exposure before the bubble bursts.

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Complex derivatives. What do they make you remember?

As Credit Booms, Citi Says Synthetic CDOs May Reach $100 Billion (BBG)

The comeback in complex credit derivatives blamed for exacerbating the global financial crisis is picking up pace. That’s according to new research this week from Citigroup, one of the biggest arrangers of so-called synthetic collateralized debt obligations. Sales of the products may jump to as much as $100 billion this year from about $20 billion in 2015, Citigroup analysts wrote in an Oct. 31 report. While investors suffered billions of dollars in losses on similar bets a decade ago, the leverage offered by synthetic CDOs is luring back buyers in an era of low yields and dwindling volatility. “It would seem as if the low spread-low vol environment, similar to back in 2006-2007 (when investors couldn’t get enough of levered synthetic tranches) has revived some interest in portfolio credit risk,” Citigroup analysts led by Aritra Banerjee wrote.

“Investors may not have necessarily wanted to add leverage, but, simply put, they have had to, given the lack of alternatives.” While post-crisis deals are typically tied to corporate credit as opposed to the mortgage debt that helped spur the credit crunch, the return of synthetic CDOs is likely to generate unease among investors who worry that markets are too frothy. The controversial product’s resurgence coincides with a boom in other types of credit wagers, including options on credit derivative indexes and exchange-traded funds that provide quick and easy access to a broad swath of credit. There are some key differences in today’s synthetic CDOs versus the pre-crisis vintage. Citigroup said it has created over 50 “full capital structure” deals in recent years, which vary from the single-tranche bespoke deals that dominated before and just after the crunch.

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“China’s non-financial outbound direct investment (ODI) fell 41.9% in January-September from a year earlier to $78.03 billion. For September alone, it plummeted 42.5% on-year to $9.31 billion..”

China Issues Guidelines On Overseas Investment Amid Crackdown On Deals (R.)

After years of rapid growth, China’s outbound investment has slumped so far in 2017 as authorities crack down on “irrational” overseas deals which are suspected of being used to bypass capital controls and move money offshore, pressuring the yuan currency. The draft regulations, released to the public to solicit feedback until Dec. 3, aim to improve oversight, safeguard national security and increase support, according to a post on the website of the National Development and Reform Commission (NDRC). Some administrative hurdles, such as a rule requiring that Chinese companies investing over $300 million overseas seek approval from the state planner, would be reduced or removed under the new rules, the post said.

At the same time, the new rules would also increase oversight on investments by overseas subsidiaries of Chinese companies, as well as for investments in sensitive sectors and countries, it said. Sensitive projects listed in the rules include those in countries that are at war, that do not have diplomatic ties with China or where investment is restricted by China’s commitments to international treaties, resolutions or requirements. Media organizations, weapons manufacturing, companies involved in multi-national water resources exploitation or those that China’s national macro policies restrict investment in were listed as sensitive sectors. A full list of sensitive areas would be released by the state planner in future, it said.

Punishments for companies that use dishonest measures to invest overseas, engage in unfair competition or damage national security will be increased, the rules said. The statement said that the new draft builds on previous regulations released in 2014. China’s non-financial outbound direct investment (ODI) fell 41.9% in January-September from a year earlier to $78.03 billion. For September alone, it plummeted 42.5% on-year to $9.31 billion, according to Reuters calculations.

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As Americans live paycheck to paycheck. Problem is, both parties support this lunacy.

US Spends $250 Million Per Day For The War On Terror (TeleS)

The Department of Defense’s “cost of war” report suggests that the U.S. has spent $250 million per day for the past 16 years on ‘defense.’ According to a newly published United States Department of Defense (DoD) “cost of war” report, U.S. taxpayers have shelled out $1.46 trillion for war since September 11, 2001, when the War on Terror began. This amounts to around $250 million per day. The report was published by the Federation of American Scientists Secrecy News blog and covers the period of September 11, 2001 to mid-2017. As the report notes, nearly $1.3 trillion of the total cost spent on the Iraq and Afghanistan wars alone. On top of this, continuing operations in Afghanistan and the U.S.-led air campaign in Iraq and Syria has totalled $120 billion.

U.S. President Donald Trump promised to rebuild America’s military which he sees as less extravagant than it ever has been. “Our active-duty armed forces have shrunk from 2 million in 1991 to about 1.3 million today,” he said in a speech. “The Navy has shrunk from over 500 ships to 272 ships during this same period of time. The Air Force is about one-third smaller than 1991. Pilots flying B-52s in combat missions today. These planes are older than virtually everybody in this room.” Part of Trump’s plan to ‘rebuild’ the U.S.’ military is to make sure that the military is “funded beautifully.” The Trump administration has proposed a $603 billion defense budget, which well exceeds the cap of $549 billion, and would require the U.S. Congress to make spending cuts in other areas.

In July, the House of Representatives approved $696.5 billion in defense spending, which includes a base budget of $621.5 billion and $75 billion in ‘Overseas Contingency Operations dollars’, commonly referred to as ‘war money’. Conversely, the Senate passed a $640 billion base defense budget with a $60 billion allocation for war money. Both versions of the budget well exceed the Trump administration’s proposal, making this defense budget, by far, the largest defense budget in U.S. history. While the U.S.’ current and proposed military spending is massive, the DoD’s “cost of war” report did not take into account other collateral costs of war, including veteran’s benefits and other related costs.

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Will Belgium extradite Puidgemont? 8 of his ministers are already in jail.

Barcelona Council Says Catalan Government Legitimate, Independence Is Not (CN)

Barcelona City Council has declared that the government dismissed by Spain after the application of Article 155 is “legitimate,” although it does not recognize Catalonia as an official republic. After meeting on Thursday, the council approved the proposal put forth by pro-independence party Esquerra Republicana (ERC) to “recognize the government that emerged from the polls on September 27 as the legitimate government of Catalonia,” with votes in favour from Barcelona en Comú (BeC), ERC, PDeCAt, and the anti-capitalist party CUP. Votes against came from the Socialists (PSC), the Catalan People’s Party (PP), and Ciutadans (Cs).

CUP also proposed a motion to “recognize the proclamation of the Catalan Republic approved by the Parliament of Catalonia on October 27.” Although this motion received support from ERC, PDeCAT, and the CUP, it received more votes against from BeC, Cs, PSC, and PP. Alfred Bosch, president of ERC warned that “the fact that the Catalan government has been dismissed, and its powers passed on to the Spanish government, will have an effect on Barcelona.” Barcelona’s mayor, Ada Colau, received criticism from CUP representative María José Lecha, who said the mayor cannot be “neutral or equidistant” in the face of the judicial persecution of the October 1 referendum, and that she must side either with “the oppressor or the oppressed.”

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What a story this still is.

Kim Dotcom Wins Settlement From New Zeland Police Over 2012 Dawn Raid (NZH)

Kim Dotcom and his former wife Mona have accepted a confidential settlement from the police over the raid which saw him arrested, saying he did so to protect their children and because the Government “recently changed for the better”. He said that their previous desire to see accountability had been trumped by wanting to “do what was best for our children” by bringing an end to the court case. The settlement came after a damages claim was filed with the High Court over what was considered an “unreasonable” use of force when the anti-terrorism Special Tactics Group raided his $30 million mansion in January 2012. The raid was part of a worldwide FBI operation to take down Dotcom’s Megaupload file-sharing website which was claimed to be at the centre of a massive criminal copyright operation.

Dotcom and three others were arrested and await extradition to the United States on charges which could land them in prison for decades. The NZ Herald has learned earlier settlements were reached between police and others arrested, including Bram van der Kolk and Mathias Ortmann. It was believed their settlements were six-figure sums and it is likely Dotcom would seek more as the main target in the raid. He was also the focus of risk assessments used to justify the use of the anti-terrorism squad which carried out a helicopter assault at dawn. Those assessments included photographs of Dotcom carrying shotguns – pictures taken while clay pigeon shooting – and descriptions of him as violent despite a lack of evidence to support the claim.

The court challenge also questioned “visual surveillance” which had not been authorised by the court. Evidence has emerged in court hearings of police watching the Dotcom Mansion from neighbouring properties, and scouting the mansion interior with a hidden camera carried on to the property by a local police officer on a goodwill meeting the day before the raid.

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Ban it. Ban the whole industry. We cannot afford this to continue. Let’s feed ourselves without poisoning ourselves in the process.

Monsanto Halts Launch Of Chemical After Farmers Complain Of Rashes (R.)

Monsanto put on hold the launch of a chemical designed to be applied to crop seeds on Wednesday following reports it causes rashes on people, in the latest instance of complaints about a company product that was approved by U.S. environmental regulators. Monsanto froze plans for commercial sales of the product called NemaStrike, which can protect corn, soybeans and cotton from worms that reduce yields. The company said it conducted three years of field tests across the United States in preparation for a full launch and that more than 400 people used it this year as part of a trial. The delayed launch of what Monsanto calls a blockbuster product is another setback for the company, which is already battling to keep a new version of a herbicide on the market in the face of complaints that it damaged millions of acres of crops this summer.

“There have been limited cases of skin irritation, including rashes, that appear to be associated with the handling and application of this seed treatment product,” Brian Naber, U.S. commercial operations lead for Monsanto, said in a letter to customers about NemaStrike. Some users who suffered problems may not have followed instructions to wear protective equipment, such as gloves, company spokeswoman Christi Dixon said. The company expected NemaStrike to launch across up to 8 million U.S. crop acres in fiscal year 2018, Chief Executive Hugh Grant said on a conference call last month. The product was “priced at a premium that reflects its consistent yield protection” against worms known as nematodes, he said.

The U.S. Environmental Protection Agency (EPA) did extensive evaluations of the product before approving it for use, according to Monsanto, which has described NemaStrike as “blockbuster technology.” [..] “The technology is effective and can be used safely when following label instructions,” Monsanto said. The EPA last year approved use of Monsanto’s new version of a weed killer using a chemical known as dicamba on crops during the summer growing season.Problems have also emerged with the herbicide since the agency’s approval. Farmers have complained it evaporates and drifts from where it is applied, causing damage to crops that cannot resist it.

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Oct 162017
 
 October 16, 2017  Posted by at 8:55 am Finance Tagged with: , , , , , , , ,  9 Responses »
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Marc Riboud Street seen from inside antique dealer’s shop, Beijing 1965

 

US Equities “At Most Offensive Level Of Overvaluation In History” (BI)
Yellen Doubles Down: “Valuations Are At High Levels Historically” (ZH)
Goldman Sachs: 88% Chance We’re Heading Into A Bear Market (BI)
The Mystery Of Weak Wage Growth (BI)
China Factory Prices Jump As Government Reduces Capacity (BBG)
China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)
Interest-only Loans Are A Huge Problem For The Australian Economy (Holden)
Revised Figures Reveal UK Is £490 Billion Poorer Than Previously Thought (FL)
How To Weather Brexit: Focus Less On Trade, More On Investment (Pettifor)
UK Financial Regulator Warns Of Growing Debt Among Young People (BBC)
How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders (Ellen Brown)
Catalan Leader Fails To Spell Out Independence Stance, Calls For Talks (R.)
Electricity Required For Single Bitcoin Trade Could Power Home For A Month (BI)
New Quantum Atomic Clock May Finally Reveal Nature of Dark Matter (USci)
Ai Weiwei On Art, Exile And Refugee Film ‘Human Flow’ (AFP)

 

 

John Hussman correcting Buffett.

US Equities “At Most Offensive Level Of Overvaluation In History” (BI)

Billionaire investor Warren Buffett made a lot of people feel better about historically stretched stock prices earlier this month. Speaking in an interview with CNBC on October 3, the chairman and CEO of Berkshire Hathaway said, “Valuations make sense with interest rates where they are.” The investment community breathed a sigh of relief. After all, Buffett is arguably the most successful stock investor in world history. An all-clear from him surely gives a green light for adding more equity exposure, right? Wrong, says John Hussman, the president of the Hussman Investment Trust and a former economics professor. In his mind, Buffett only gets half of the equation right. While Hussman acknowledges that low lending rates do, by nature, improve future cash flows, he argues that they must also be accompanied by strong growth — something that he notes the US is not currently enjoying.

To Hussman, the simple idea that “lower interest rates justify higher valuations” is one that gives people false confidence. “It’s an incomplete sentence ,” Hussman wrote in a recent blog post. “Unfortunately, the convenience of investing-by-slogan, rather than carefully thinking about finance and examining evidence, is currently leading investors into what is likely to be one of the worst disasters in the history of the U.S. stock market.” Hussman calculates that stock valuations are stretched 175% above their historic norms, and predicts the S&P 500 will see negative total returns over the next 10 to 12 years. Along the way, the benchmark index will experience an interim loss of more than 60%, he estimates. As touched on above, at the core of Hussman’s bearish argument is a lack of economic growth. He specifically points to slowing expansion in the US labor force, as shown by this chart:

“Put simply, if interest rates are low because growth rates are also low, no valuation premium is ‘justified,'” Hussman wrote. “The long-term rate of return on the security will be low anyway without any valuation premium at all. This observation has enormous implications for current U.S. stock market prospects.” So where does that leave the market at this very moment? In the very near term, Hussman’s neutral, citing the continued speculative impulses of investors. Still, he stresses that traders should be hedging and using other safety nets to protect against potential downside, which he says could materialize quickly. To say he’s less than warm and fuzzy about the stock market is an understatement. And when discussing price levels, he doesn’t exactly pull any punches, saying US equities are now “at the most offensive level of overvaluation in history” — even worse than in 1929 and 2000.

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People like Yellen focus on one activity: explain away the consequences of their blindly taken actions. They grope in the dark.

Yellen Doubles Down: “Valuations Are At High Levels Historically” (ZH)

On the heels of San Franciso Fed Governor John Williams’ warning that The Fed “doesn’t want there to be excesses in financial markets… ” Janet Yellen has reiterated her concerns that markets are a bit toppy… Market valuations “are at high level in historical terms” when assessed on metrics akin to price-earnings ratios, warned Fed Chair Janet Yellen in response to a question on an IMF panel in Washington, but was careful to add that “overall financial stability risks in the U.S. remain moderate.” “Prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment,” she said. “Broader financial stability risks depend on more than just asset prices and it may also be important just why asset valuations are high. So one factor that clearly comes into play is an environment of low interest rates and central bankers like many market participants have been adjusting our notions of what” interest rates are likely to be in the longer term.

So – to sum up – The Fed doesn’t want excesses… Yellen thinks stock valuations are stretched… but don’t worry coz rates are low (although we are dedicated to raising them) and financial stability (despite record high corporate leverage and record low spreads) is not a problem. Well… The market has almost never been this expensive… As Peter Boockvar warns: “Almost there. S&P 500 price to sales ratio is just 4% from March 2000 peak.”

Additionally, Draghi and Kuroda were also said they saw little evidence of frothiness in markets. Others in Washington were less sanguine… The market “feels as benign in 2017 as it felt in 2006,” said Jes Staley, the chief executive of Barclays Plc, referencing the eve of the crisis. Yellen also added in a subtle jab at Trump that while prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment… “It is a source of uncertainty,” Yellen says of fiscal policy changes, “we’ve taken,” as many households have, “a kind of wait-and-see attitude.” Of course, The Fed head being worried about stock valuations is a nothing-burger for the mainstream. Since Janet Yellen’s first warning in July 2014: “Equity market valuations appear stretched”

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So there.

Goldman Sachs: 88% Chance We’re Heading Into A Bear Market (BI)

Goldman Sachs has circulated a fascinating but scary research note to clients suggesting that the probability of stocks entering a bear market in the next 24 months currently stands at about 88%, based on the history of previous bear markets. The note is titled “Bear Necessities. Should we worry now?” It is an exhaustive, 87-page dive through macroeconomic data and stock market activity going all the way back to the early 20th Century. It was written in September by London-based Chief Global Equity Strategist Peter Oppenheimer, and European strategists Sharon Bell and Lilia Iehle Peytavin. Most of their data focus on the US S&P 500 index of stocks – the largest and most-followed of the share indices globally. The S&P is currently the second largest and longest bull run in history.

The index is also relatively expensive, the Goldman trio says. The aggregate valuation of the S&P 500 is now in its 88th percentile, as measured since 1976, according to Goldman’s calculations. The median stock is in the 99th percentile. The trio calculated a risk index based on the Shiller price-earnings ratio (the price of S&P 500 stocks divided by the average of 10 years of earnings, adjusted for inflation), the US ISM manufacturing index, unemployment (very low), the bond yield curve, and core inflation. The resultant “GS Bear Market Indicator” is currently flashing at 67%. The indicator typically hits highs right before a bear market in US stocks appears:

Historically, when the indicator is at 67%, there is an 88% chance of stocks falling into a bear market in two years’ time, the Goldman analysts say:

However, the chance of a bear growling into view in the near-term remains low — just 35%. Bear markets are triggered in three different ways, Oppenheimer et al argue: “Cyclical” bear markets are trigged by rising interest rates and recessions; “Event-driven” bears come from negative economic shocks like war or emerging market crises; “Structural” bears come from financial bubbles. Depending on your point of view, all three of those triggers are hovering on the horizon: The Fed and the Bank of England are both signalling interest rates will rise; US President Trump is threatening military action in North Korea; and plenty of people think the low-interest rate environment of the last 10 years has inflated asset bubbles in stocks, real estate and property in Europe, and private equity tech startup valuations.

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Those for whom this is a mystery are not fit for their jobs. If you export millions of jobs to Asia, take workers’ negotiating powers away and push them into crappy jobs with no benefits, only one outcome is possible.

The Mystery Of Weak Wage Growth (BI)

Many economists say they can’t figure out why US wage growth remains so meager nine years into the economic expansion, especially given a decline in the unemployment rate to a historically low 4.4%. A new study from the IMF might help them out. It finds that shifts in the labor market toward less stable, temporary or contract jobs, including odd hours and often no health insurance, likely play a substantial role in preventing wages from rising. That’s because job uncertainty makes it harder for workers to bargain for higher wages, giving employers a strong upper hand in any salary negotiation. The trend is happening not just in the United States but also in other rich economies, the Fund says. “Labor market developments in advanced economies point to a possible disconnect between unemployment and wages,” IMF staffers write in their latest World Economic Outlook report.

“Subdued nominal wage growth has occurred in a context of a higher rate of involuntary part-time employment, an increased share of temporary employment contracts, and a reduction in hours per worker,” the report adds. That’s not the only factor. The Great Recession of 2007 to 2009, which was a global phenomenon, set labor markets back years, and suppressed wages sharply as unemployment surged, peaking at 10% in the United States. The IMF suggests the policy reaction to that global downturn was underwhelming, particularly when it came to fiscal policies, which were restrictive both in the United States and Europe.

“Whereas in many economies headline unemployment is approaching ratios seen before the Great Recession, or has even dipped below those levels, nominal wage growth rates continue to grow at a distinctly slower pace,” the Fund said. “For some economies, this may reflect policy measures to slow wage growth and improve competitiveness in the aftermath of the global financial crisis and euro area sovereign debt crisis.” [..] “To the extent that declining unemployment rates partly reflect workers forced into part-time jobs, increases in such types of employment may overstate the tightening of the labor market,” the IMF said.

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It’s all for the Party Congress: close industries so air is cleaner, and let scarcity push producer prices higher. But wait till consumers feel those higher prices. It’s just, that is AFTER the Congress.

China Factory Prices Jump As Government Reduces Capacity (BBG)

China’s factory prices jumped more than estimated, as domestic demand remained resilient and the government continued to reduce excess industrial capacity. Consumer price gains matched projections. • The producer price index rose 6.9% in September from a year earlier. • The manufacturing PPI sub-index climbed 7.3%, the most in nine years • The consumer price index climbed 1.6%, versus a prior reading of 1.8%, the statistics bureau said Monday. Aggressive cuts to capacity in industries like steel and cement, coupled with resilient demand, have contributed to factory inflation that’s lasted longer than economists expected. The drive to cut pollution and boost firms’ efficiency will probably continue as the Communist Party begins its 19th Congress this week.

“The economy has pretty strong momentum now, monetary policy remained loose ahead of the 19th Party Congress, and the environmental cleanup has cut the supply of commodities,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong and the lone forecaster in Bloomberg’s survey to correctly predict the PPI reading. “But this is not sustainable. Deleveraging will be moving up on the agenda after the congress.” “Strong PPI shows that economic momentum is pretty robust in the second half,” said Liu Xuezhi, an analyst at Bank of Communications in Shanghai. “It was widely expected that factory-gate inflation could slow in the second half, but apparently it’s still quite resilient, which may lead to a more positive outlook.”

“China’s manufacturing industry, upstream in particular, continues to see decent demand,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking in Hong Kong. “This PPI figure foretells a decent growth number to be out later this week. We see GDP of 6.8% at the moment but should be prepared for an upside risk.”

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I don’t normally post 3-week-old articles, but this one (h/t Tyler) is just too good. The Chinese never borrowed much, but now they borrow more than anyone. Scary: “..a person without a flat has no future in Shenzhen.” It’ll keep the economy going until it doesn’t.

China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)

Young Chinese like Eli Mai, a sales manager in Guangzhou, and Wendy Wang, an executive in Shenzhen, are borrowing as much money as possible to buy boomtown flats even though they cannot afford the repayments. Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s. Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years. City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop.

At the same time, property inflation has seen the real purchasing power of their money rapidly diminish. “Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said. “Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.” The rush of millions young middle-class Chinese like Mai into the property market has created a hysteria that eerily resembles the housing crisis that struck the United States a decade ago. Thanks to the easy credit that has spurred the housing boom, many young Chinese have abandoned the frugal traditions of earlier generations and now lead a lifestyle beyond their financial means.

The build-up of household and other debt in China has also sparked widespread concern about the health of the world’s second largest economy. The Chinese leadership headed by President Xi Jinping has taken a note of the problem and launched an unprecedented campaign in the second half of last year to curb home price rises in major cities by raising down payment requirements, disqualifying some buyers and squeezing the bank credit available for home buyers. The campaign is still deepening, with five more cities introducing rules last weekend that will freeze some property deals.

[..] Government policies are also protecting the interests of homeowners. City governments have squeezed land supply to keep land prices high and made secondary market trading less attractive, with new home buyers left to compete for a few new developments. Meanwhile, there is no property tax, which encourages homeowners to hold on to appreciating property assets. The result has been skyrocketing housing prices in Shenzhen, Beijing and Shanghai, where property prices can match those in Hong Kong or London. The lesson was that “if you don’t buy a flat today, you will never be able to afford it”, Wang, 29, said. [..] “The debts are huge to me,” Wang said. “But a person without a flat has no future in Shenzhen.”

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Half of one banker’s loan books are interest-only. Most are 40%. That is an insane amount of principal that is not being paid off.

Interest-only Loans Are A Huge Problem For The Australian Economy (Holden)

I’m not normally a fan of parliament hauling private sector executives before them and asking thorny questions. But when the Australian House of Representatives did so this week with the big banks it was both useful and instructive. And, to be perfectly frank, terrifying. Let’s start with Westpac CEO Brian Hartzer. First, he confirmed the little-known but startling fact that half of his A$400 billion home loan book consists of interest-only mortgages. Yep, half. Of A$400 billion. At one bank. Oh, and ANZ, CBA and NAB are all nearly at 40% interest-only. Hartzer went on to make the banal statement: “we don’t lend to people who can’t pay it back. It doesn’t make sense for us to do so.” So did it make sense for all those American mortgage lenders to lend to people on adjustable rates, teaser rates, low-doc loans, no-doc loans etc. before the global financial crisis?

Of course not. The point is that banks are not some benevolent, unitary actor taking care of their own money. There are top managers like Harzter acting on behalf of shareholders. Those top managers delegate authority to lower-level managers, who are given incentives to write lots of mortgages. And, as we know, the incentives of those who make the loans are not necessarily aligned with those of the shareholders. Those folks may well want to make loans to people who can’t pay them back as long as they get a big payday in the short term. ANZ CEO Shayne Elliot repeated Hartzer’s mantra, saying: “It’s not in our interest to lend money to people who can’t afford to repay.” Recall, this is the man who on ABC’s Four Corners said that home loans weren’t risky because they were all uncorrelated risks (the chances that one loan defaults does not affect the chances of others defaulting).

That is a comment that is either staggeringly stupid or completely disingenuous. Messers Harzter and Elliot must take us all for suckers. They have made a huge amount of interest-only loans, at historically low interest rates, to buyers in a frothy housing market, who spend a large chunk of their income on interest payments. This certainly looks troubling. It may not be US sub-prime, but it could be ugly. Very ugly. To put it in context, there appears to be in the neighbourhood of A$1 trillion of interest-only loans on the books of Australian banks. I say “appears to be” because reporting requirements are so lax it’s hard to know for sure, except when CEOs cough up the ball, like this week. The big lesson of the US mortgage meltdown is that the risks on these mortgages are all correlated. If a few people aren’t paying back an interest-only loan, that is a fair predictor that others won’t pay back their loans either.

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From a “gated” Ambrose Evans-Pritchard article. Troubles grow fast.

Revised Figures Reveal UK Is £490 Billion Poorer Than Previously Thought (FL)

“Global banks and international bond strategists have been left stunned by revised ONS figures showing that Britain is £490bn poorer than had been assumed and no longer has any reserve of net foreign assets, depriving the country of its safety margin as Brexit talks reach a crucial juncture. A massive write-down in the UK balance of payments data shows that Britain’s stock of wealth – the net international investment position – has collapsed from a surplus of £469bn to a net deficit of £22bn. This transforms the outlook for sterling and the gilts markets. “Half a trillion pounds has gone missing. This is equivalent to 25pc of GDP,” said Mark Capleton, UK rates strategist at Bank of America. Making matters worse, foreign direct investment (FDI) by companies is plummeting. It fell from a £120bn surplus in the first half 2016 to a £25bn deficit over the same period of this year.”

The news comes on top of the OBR confessing to a miscalculation of their own last week in UK productivity potential. Not good news for the UK or pound so let’s see if it plays out as the session progresses.

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Too late? Won’t happen under Tories.

How To Weather Brexit: Focus Less On Trade, More On Investment (Pettifor)

“Strong and stable” seems of a world so far, far away. Yesterday’s Daily Mail headline “PM slaps treacherous Chancellor down” portrays a government in political chaos. Thanks to open, unresolved intra-Brexiteer warfare, ministers are unable to agree the basics of how to exit the European Union. This state of uncertainty intensifies just as the risks to British jobs and living standards are becoming starker and more potent. Ironically, just as we teeter towards the cliff, ONS data reveals that exports of goods to the EU grew over the last three months, while those to the rest of world fell back, a fact not devoid of dark humour. Yet while ministers appear obsessed by trade, net trade comprises only a small part of UK GDP. Surely, through the coming period of Brexit chaos, government priority must be to “take back control” and maintain and support the domestic economy.

This means a commitment to support not only investment technically defined as “capital” but also public investment in the health, education, and training of the British people. In that way, Britain will have some chance of weathering the storm. George Magnus highlighted the OBR’s acceptance that UK productivity growth is likely to stay much lower than previously assumed. This leads to the inevitable conclusion that—on present course—the ever-weaker economy will lead this government to continue to slash public revenues. Yet even this gloomy OBR data underestimates the dangers. For the OBR has not yet factored in the far greater damage that will flow from a chaotic, unplanned Brexit in less than 18 months.

[..] Investment in the UK has since 2007 been in the 14 – 18% range as a share of GDP. In 2016, the figure was 17%. France, by contrast, has annual investment of between 22 – 24% of GDP, and Germany around 19 – 21%. The UK in 2016 slumped to 116th place out of 141 countries in terms of capital investment as a percentage of GDP. In the EU, only Greece, Portugal, Lithuania and Cyprus were below us. Low levels of investment by the “timid mouse” that is the private sector is directly a function of low levels of aggregate demand. Firms can’t see future customers coming through the door, and are made timid by volatile financial conditions and political uncertainty. Weak demand and financial instability are exacerbated by low levels of public investment.

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More UK misery: “We should not think this is reckless borrowing, this is directed at essential living costs.”

UK Financial Regulator Warns Of Growing Debt Among Young People (BBC)

The chief executive of the Financial Conduct Authority has warned of a “pronounced” build up of debt among young people. In an interview with the BBC, Andrew Bailey said the young were having to borrow for basic living costs. The regulator also said he “did not like” some high cost lending schemes. He said consumers, and institutions that lend to them, should be aware that interest rates may rise in the future and that credit should be “affordable”. Action was being taken to curb long term credit card debt and high cost pay-day loans, Mr Bailey said. The regulator is also looking and charges in the rent-to-own sector which can leave people paying high levels of interest for buying white goods such as washing machines, he added.

“There is a pronounced build up of indebtedness amongst the younger age group,” Mr Bailey said. “We should not think this is reckless borrowing, this is directed at essential living costs. It is not credit in the classic sense, it is [about] the affordability of basic living in many cases.” [..] “There are particular concentrations [of debt] in society, and those concentrations are particularly exposed to some of the forms and practices of high cost debt which we are currently looking at very closely because there are things in there that we don’t like,” Mr Bailey said. “There has been a clear shift in the generational pattern of wealth and income, and that translates into a greater indebtedness at a younger age. “That reflects lower levels of real income, lower levels of asset ownership. There are quite different generational experiences,” he said.

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Haven’t seen anything from Ellen in a while. This makes a ton of sense. But Puerto Rico’s not the only place that needs it.

How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders (Ellen Brown)

DWiping out Puerto Rico’s debt, they warned, could undermine confidence in the municipal bond market, causing bond interest rates to rise, imposing an additional burden on already-struggling states and municipalities across the country. True, but the president was just pointing out the obvious. As economist Michael Hudson says, “Debts that can’t be paid won’t be paid.” Puerto Rico is bankrupt, its economy destroyed. In fact it is currently in bankruptcy proceedings with its creditors. Which suggests its time for some more out-of-the-box thinking . . . . In July 2016, a solution to this conundrum was suggested by the notorious Goldman Sachs itself, when mom and pop investors holding the bonds of bankrupt Italian banks were in jeopardy. Imposing losses on retail bondholders had proven to be politically toxic, after one man committed suicide.

Some other solution had to be found. Italy’s non-performing loans (NPLs) then stood at 210bn, at a time when the ECB was buying 120bn per year of outstanding Italian government bonds as part of its QE program. The July 2016 Financial Times quoted Goldman’s Francesco Garzarelli, who said, “by the time QE is over – not sooner than end 2017, on our baseline scenario – around a fifth of Italy’s public debt will be sitting on the Bank of Italy’s balance sheet.” His solution: rather than buying Italian government bonds in its quantitative easing program, the ECB could simply buy the insolvent banks’ NPLs. Bringing the entire net stock of bad loans onto the government’s balance sheet, he said, would be equivalent to just nine months’ worth of Italian government bond purchases by the ECB.

Puerto Rico’s debt is only $73 billion, one third the Italian debt. The Fed has stopped its quantitative easing program, but in its last round (called “QE3”), it was buying $85 billion per month in securities. At that rate, it would have to fire up the digital printing presses for only one additional month to rescue the suffering Puerto Ricans without hurting bondholders at all. It could then just leave the bonds on its books, declaring a moratorium at least until Puerto Rico got back on its feet, and better yet, indefinitely. Shifting the debt burden of bankrupt institutions onto the books of the central bank is not a new or radical idea. UK Prof. Richard Werner, who invented the term “quantitative easing” when he was advising the Japanese in the 1990s, says there is ample precedent for it. In 2012, he proposed a similar solution to the European banking crisis, citing three successful historical examples.

One was in Britain in 1914, when the British banking sector collapsed after the government declared war on Germany. This was not a good time for a banking crisis, so the Bank of England simply bought the banks’ NPLs. “There was no credit crunch,” wrote Werner, “and no recession. The problem was solved at zero cost to the tax payer.” For a second example, he cited the Japanese banking crisis of 1945. The banks had totally collapsed, with NPLs that amounted to virtually 100% of their assets: But in 1945 the Bank of Japan had no interest in creating a banking crisis and a credit crunch recession. Instead it wanted to ensure that bank credit would flow again, delivering economic growth. So the Bank of Japan bought the non-performing assets from the banks – not at market value (close to zero), but significantly above market value.

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Set for confrontation. Combine with Brexit and Austria’s push to the right, and you get an EU with crumbling foundations.

Catalan Leader Fails To Spell Out Independence Stance, Calls For Talks (R.)

Catalan leader Carles Puigdemont failed to clarify on Monday whether he had declared Catalonia’s independence from Spain last week, paving the way for the central government to take control of the region and rule it directly. The wealthy region’s threatened to break away following a referendum in Oct. 1 that Spain’s Constitutional Court said was illegal. That plunged the country into its worst political crisis since an attempted military coup in 1981. Puigdemont made a symbolic declaration of independence on Tuesday, but suspended it seconds later and called for negotiations with Madrid on the region’s future. Spain’s Prime Minister Mariano Rajoy gave him until Monday 10:00 a.m. (0800 GMT) to clarify his position, and until Thursday to change his mind if he insisted on a split – and said Madrid would suspend Catalonia’s autonomy if he chose independence.

Rajoy had said Puigdemont should answer the formal requirement with a simple “Yes” or “No” and that any ambiguous response would be considered a confirmation that a declaration of independence had been made. Puigdemont did not directly answer the question in his letter to Rajoy, made public by local Catalan media. The Catalan leader said instead that the two should meet as soon as possible to open a dialogue over the next two months. “Our offer for dialogue is sincere and honest. During the next two months, our main objective is to have this dialogue and that all international, Spanish and Catalan institutions and personalities that have expressed the willingness to open a way for dialogue can explore it,” Puigdemont said in the letter.

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And this will go up as the blockchain grows.

Electricity Required For Single Bitcoin Trade Could Power Home For A Month (BI)

Bitcoin transactions use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to a paper from Dutch bank ING. Bitcoin trades use a lot of electricity as a means to make verifying trades expensive, therefore making fraudulent transactions costly and deterring those who would seek to misuse the currency. “By making sure that verifying transactions is a costly business, the integrity of the network can be preserved as long as benevolent nodes control a majority of computing power,” wrote ING senior economist Teunis Brosens. “Together, they will dominate the verification (mining) process. To make the verification (mining) costly, the verification algorithm requires a lot of processing power and thus electricity.”

Comparing the amount of energy used for a bitcoin transaction to running his home in the Netherlands, Brosens says: “This number needs some context. 200kWh is enough to run over 200 washing cycles. In fact, it’s enough to run my entire home over four weeks, which consumes about 45 kWh per week costing €39 of electricity (at current Dutch consumer prices).” Not only does Bitcoin use a vast amount of electricity to complete transactions, it uses an almost exponentially larger amount than more traditional forms of electronic payment. “Bitcoin’s energy costs stand in stark contrast to payment systems that have the luxury of working with trusted counterparties. E.g. Visa takes about 0.01kWh (10Wh) per transaction which is 20000 times less energy,” Brosens notes, pointing to the chart below:

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3-dimensional quantum clocks. Much of our electronic infrastructure already relies on atomic clocks.

New Quantum Atomic Clock May Finally Reveal Nature of Dark Matter (USci)

Physicists have created a quantum atomic clock that uses a new design to achieve unprecedented levels of accuracy and stability. Its broad range of potential applications could even stretch to research into dark matter. Scientists at the University of Colorado Boulder’s JILA (formerly the Joint Institute for Laboratory Astrophysics) have developed an incredibly precise quantum atomic clock based on a new three-dimensional design. The project has set a new record for quality factor, a metric used to gauge the precision of measurements. The clock packs atoms of strontium into a cube, achieving 1,000 times the density of prior one-dimensional clocks. The design marks the first time that scientists have been able to successfully utilize a so-called “quantum gas” for this purpose.

Previously, each atom in an atomic clock was treated as a separate particle, and so interactions between atoms could cause inaccuracies in the measurements taken. The “quantum many-body system” used in this project instead organizes atoms in a pattern, which forces them to avoid one another, no matter how many are introduced to the apparatus. A state of matter known as a degenerate Fermi gas — which refers to a gas comprised of Fermi particles — allows for all of the atoms to be quantized. [..] It’s been suggested that monitoring minor inconsistencies in the ticking of an atomic clock might offer insight into the presence of pockets of dark matter. Previous research has shown that a network of atomic clocks, or even a single highly-sensitive system, might register a change in the frequency of vibrating atoms or laser light in the clock if it passed through a dark matter field.

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Ai himself grew up in miserable conditions due to Mao.

Ai Weiwei On Art, Exile And Refugee Film ‘Human Flow’ (AFP)

In the most tender moments of “Human Flow,” Ai Weiwei’s epic documentary on the worldwide migrant crisis, he is seen hugging, cooking with and cutting the hair of refugees. An ordinary filmmaker might be accused of getting too close to his subject but, as far as the Chinese dissident and internationally renowned artist is concerned, he is the subject. “When I look at people being pushed away from their home because of war, because of all kinds of problems, because of environmental problems, famine, I don’t just have sympathy for them,” he tells AFP. “I do feel that they are part of me and I am part of them, even with very different social status.”

[..] “Human Flow,” his powerful expression of solidarity with refugees around the world, demonstrates the staggering scale of the refugee crisis and its profoundly personal human impact. Captured over a year in 23 countries, it follows a chain of human stories that stretches from Bangladesh and Afghanistan to Europe, Kenya and the US-Mexico border. Ai travels from teeming refugee camps to barbed-wire borders, witnessing refugees’ desperation and disillusionment as well as hope and courage. “I’m so far away from their culture, their religion or whatever the background. But with a human being, you look at him, you know what kind of person he is,” says Ai.

“I have this natural understanding about human beings. So I try to grab them with this kind of approach, a very intimate approach. They can touch me, cut my hair. I can cut their hair. I can cook in their camp.” “Human Flow” is far from Ai’s first work on the refugee crisis. Just last week he scattered over 300 outdoor works across New York as part of a new illustration of his empathy for refugees worldwide. Ai dismisses a common criticism that his work has little artistic merit and that he is more of a campaigner, telling AFP “a good artist should be an activist and a good activist should have the quality of an artist.”

Read more …

Oct 062017
 
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Jean Renoir Les Grands Boulevards 1875

 

China’s Economic Boom Is About To Be Cut Short By Peak Oil (Ahmed)
A Volatility Trap Is Inflating Market Bubbles (BBG)
China Is In ‘Lock-down’ Ahead Of Its Most Important Meeting In Years (CNBC)
Bitcoin’s Rise Happened in Shadows of Finance. Now Banks Want In (BBG)
HSBC Traders Used Code Words to Trigger Front-Running (BBG)
US Rounds On Britain Over Food Quotas As Post-Brexit Trade Woes Deepen (Pol.)
Few Tears Are Being Shed In Quebec Over The Energy East Pipeline’s Demise (BBG)
Onshore Fracking To Begin In UK ‘Within Weeks’ (Ind.)
Catalan Separatists Squeezed Further as Spain Tightens Its Grip (BBG)
Apple Gave Uber ‘Unprecedented’ Access To Secret iPhone Backdoor (BI)
Tropical Storm Nate Kills 22 In Central America, Heads For US (R.)
Pesticides That Pose Threat To Humans And Bees Found In Honey (Ind.)
Tiny Pacific Island Nation Of Niue Creates Huge Marine Sanctuary (AFP)

 

 

From China’s government.

China’s Economic Boom Is About To Be Cut Short By Peak Oil (Ahmed)

A new scientific study led by the China University of Petroleum in Beijing, funded by the Chinese government, concludes that China is about to experience a peak in its total oil production as early as next year. Without finding an alternative source of ‘new abundant energy resources’ , the study warns, the 2018 peak in China’s combined conventional and unconventional oil will undermine continuing economic growth and ‘challenge the sustainable development of Chinese society’. This also has major implications for the prospect of a 2018 oil squeeze – as China scales its domestic oil peak, rising demand will impact world oil markets in a way most forecasters aren’t anticipating, contributing to a potential supply squeeze. That could happen in 2018 proper, or in the early years that follow.

There are various scenarios that follow from here – China could: shift to reducing its massive demand for energy, a tall order in itself given population growth projections and rising consumption; accelerate a renewable energy transition; or militarise the South China Sea for more deepwater oil and gas. Right now, China appears to be incoherently pursuing all three strategies, with varying rates of success. But one thing is clear – China’s decisions on how it addresses its coming post-peak future will impact regional and global political and energy security for the foreseeable future. The study was published on 19 September by Springer’s peer-reviewed Petroleum Science journal, which is supported by China’s three major oil corporations, the China National Petroleum Corporation (CNPC), China Petroleum Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC).

Since 1978, China has experienced an average annual economic growth rate of 9.8%, and is now the world’s second largest economy after the United States. The new study points out, however, that this economic growth has been enabled by “high energy consumption.” In the same period of meteoric economic growth, China’s total energy consumption has grown on average by 5.8% annually, mostly from fossil fuels. In 2014, oil, gas and coal accounted for fully 90% of China’s total energy consumption, with the remainder supplied from renewable energy sources. After 2018, however, China’s oil production is predicted to begin declining, and the widening supply-demand gap could endanger both China’s energy security and continued economic growth.

Read more …

“Zombie companies that would otherwise fail continue to be in business, refinancing at near-zero interest rates in bond markets.”

A Volatility Trap Is Inflating Market Bubbles (BBG)

A number of markets show not only elevated valuations, but also irrational behavior on the part of investors, including a suspension of traditional valuation models, an increase in trading volumes or “flipping” in the hopes of quick gains, and financial engineering. Potential bubbles can be found in emerging-market debt, technology stocks, U.S. high yield bonds, some sovereign debt, cryptocurrencies, properties — even art and collectibles. It is becoming clearer to economists and central bankers that even though we may be experiencing a long phase of growth, stretching the cycle with monetary stimulus inspired by crisis-era toolkits may be bringing several collateral effects. These include not only asset bubbles, but also a worsening of wealth inequality and a misallocation of resources.

Persistent low interest rates in the past have helped to roll forward an increasing amount of private and public debt to future generations, but this is no longer working. Economic fundamentals are different from the post-war period. Technology is deflationary. Demographics are no longer a tailwind, as there are fewer young people able to carry a higher debt burden in the future. The generation of so-called millennials is the first that will likely be poorer than their parents in the post-war period. Productivity is low as the economy suffers from hysteresis: a financial boom-bust cycle that can leave large swathes of the workforce out of the job market. The longer the debt cycle, the longer companies and workers develop business and skills in leverage-heavy sectors (e.g. finance, real estate, energy), the deeper the scars when the bust comes.

Often the misallocation is so large that low rates are necessary to keep people in their jobs: Zombie companies that would otherwise fail continue to be in business, refinancing at near-zero interest rates in bond markets.

Read more …

Xi will need drastic measures to tackle the debt disaster. But it may well be too late already.

China Is In ‘Lock-down’ Ahead Of Its Most Important Meeting In Years (CNBC)

Although the Chinese will head back to work and school on Monday, their country is expected to remain in a holding pattern ahead of a pivotal Communist Party Congress set to start later this month. “Commentators and markets rightly assume that the authorities are consumed by this transition and that all other policy matters are on the back-burner or in lock-down until after the Congress,” Freya Beamish, Pantheon Macroeconomics’ chief Asia economist, wrote in a recent note. The once-in-five-years meeting will usher in leadership changes that are likely to see incumbent President Xi Jinping extend his term and consolidate power. The coming years of Xi rule will be critical for the world’s second-largest economy as it grapples with the fallout from three decades of unbridled growth.

As Xi — the most powerful Chinese leader in decades — embarks on a new era, the meeting will review “faulty” outcomes from the economic reforms and review if China needs a new direction, said independent economist, Andy Xie. China undertook a series of market reforms in the last three decades that propelled the Communist country to the spot of the world’s second largest economy. Market watchers, however, are concerned about the nation’s debt-fueled growth, industrial overcapacity and capital outflows that may potentially spur a global economic crisis. The Communist Party has been working to steer outbound merger and acquisition activities over the last year, but major initiatives have slowed ahead of the Congress. That push is likely to pick up again in the fourth quarter, said Chunshek Chan, Dealogic’s global M&A research head.

No matter the macroeconomic concerns, the only thing on Beijing’s mind at this time is consolidating power in the country, Xie said: “It’s much more important now to strengthen the control of the Communist Party than anything else.” “The key is to have the Communist Party as a coherent organization to control everything in the society — that seems to be the case. The people at the top worry about the stability. Stability is always number one in China,” added Xie.

Read more …

“What are they going to do if bitcoin drops for a given client and they’ve given that client a ton of leverage on margin, and that client only has assets in bitcoin?”

Bitcoin’s Rise Happened in Shadows of Finance. Now Banks Want In (BBG)

At first, bitcoin was a way to make payments without banks. Now, with more than $100 billion stashed in digital currencies, banks are debating whether and how to get in on the action. Goldman Sachs CEO Lloyd Blankfein tweeted Tuesday that his firm is examining the cryptocurrency. Other global investment banks are looking into facilitating trades of bitcoin and other cryptocurrencies, according to industry consultants. Bitcoin has surged more than 300 percent this year, drawing the attention of hedge funds and wealthy individuals. “They’re clearly receiving interest from their clients, both from retail investors and on the institutional side,” said Axel Pierron, managing director of bank consultant Opimas. “It’s highly volatile, it’s highly illiquid when you need to trade large volumes, so they see the opportunity for a new asset class which would require the capability of a broker-dealer.”

But bitcoin presents Wall Street with a conundrum: How do banks that are required by law to prevent money-laundering handle a currency that’s not issued by a government and that keeps its users anonymous? The debate has played out in the open recently, with JPMorgan CEO Jamie Dimon and BlackRock CEO Larry Fink saying that bitcoin was mostly used by criminals, while Morgan Stanley chief James Gorman took a more measured stance, saying it was “more than just a fad.” On Wednesday, UBS Chairman Axel Weber, a former president of Germany’s central bank, said he was skeptical about bitcoin’s future because “it’s not secured by underlying assets.” There’s even tension within some banks. On the same day Dimon trashed bitcoin, calling it a “fraud,” his firm’s private bank hosted a panel stocked with cryptocurrency investors.

Handling bitcoin would invite scrutiny from every major U.S. regulator, according to Joshua Satten, director of emerging technologies at Sapient Consulting. “From the perspective of the U.S. Treasury, do you classify it as an asset class or a currency?” Satten said. “If banks are starting to manage and hold bitcoin for their clients, you would have the OCC and the FDIC looking at how they classify the assets on their balance sheet and how they state the assets for the portfolio of a client.” And banks need to avoid antagonizing governments that are increasingly concerned about this area. For instance, China is cracking down by shutting cryptocurrency exchanges. Then there’s the risk that stems from its high volatility and lack of correlation to other major assets. “What are they going to do if bitcoin drops for a given client and they’ve given that client a ton of leverage on margin, and that client only has assets in bitcoin?” Satten said.

Read more …

Greed.

HSBC Traders Used Code Words to Trigger Front-Running (BBG)

A group of HSBC currency traders in London and New York feverishly jumped ahead of a $3.5 billion client order after they were tipped off using the code words “my watch is off,” a U.S. prosecutor told a federal judge. The buying frenzy was launched after Mark Johnson, HSBC’s former global head of foreign exchange who the bank chose to lead the transaction, alerted the traders via phone call that was recorded, the prosecutor said Thursday in Brooklyn, New York. Johnson is on trial for fraud. After the trial recessed for the day, prosecutor Carol Sipperly told U.S. District Judge Nicholas Garaufis that the government wants the jury to hear the recordings on Friday, in which Johnson can be heard tipping off a trader in Hong Kong, a signal that she said eventually reached others on both sides of the Atlantic.

Prosecutors say Johnson and Stuart Scott, the bank’s former head of currency trading in Europe, along with these other traders, bought pounds before the transaction, collectively making the bank $8 million in illicit profit. Sipperly said the call involved Johnson, who was in New York that day, speaking to Scott who was in London, just before the Dec. 7, 2011, transaction for its client, Cairn Energy. “We actually have Mark Johnson telling Stuart Scott ‘Tell Ed my watch will be off,’” she said. “We have communications where the word ‘watch’ is used, and then within seconds, 20 seconds of ‘my watch is off,’ we have all that trading that’s been described. The word is instrumental in getting the information to the traders when it comes to their early front-running trades.”

Read more …

Things are getting messy.

US Rounds On Britain Over Food Quotas As Post-Brexit Trade Woes Deepen (Pol.)

The U.S. and other international trade heavyweights have dashed Prime Minister Theresa May’s hopes of a smooth Brexit by rejecting one of her core plans for reintegrating into global trade networks. Washington’s slap-down of Britain is the second big trade reality check for May in less than a fortnight. Only last week, the U.K.’s increasingly fragile position in trade disputes was exposed by the country’s inability to prevent new, ultra-high tariffs from the U.S. that could hit thousands of jobs in a plane factory in Northern Ireland. In a fast-developing second trade spat, Washington has teamed up with Brazil, Argentina, Canada, New Zealand, Uruguay and Thailand to reject Britain’s proposed import arrangements for crucial agricultural goods such as meat, sugar and grains after Brexit.

The fact that the U.K.’s opponents include the U.S., Canada and New Zealand is a significant setback because Britain is trying to style its former colonies as natural strategic and commercial allies after it has quit the EU. Since August, Britain and the EU have repeatedly insisted that they had reached an agreement on the terms under which Britain would buy in food from around the world after Brexit. Brussels currently negotiates all these quotas and tariffs on behalf of Britain and the 27 other EU countries jointly, but London will need to take independent control of these policies from March 2019. That creates a dilemma over how to divide up the EU’s current quota arrangements with other countries — agreed at the World Trade Organization — between the U.K. and the remaining 27. These tariff-rate quotas allow countries outside the EU to export certain goods into the bloc with reduced duties, but only up to a maximum limit.

The argument from Britain and the EU is that the rest of the world will be “no worse off” after Brexit — a key legal defense in trade disputes — if the EU’s quotas are simply reduced, and Britain takes a share of them. British Trade Minister Liam Fox told POLITICO in an interview that Britain had agreed to take a portion of the EU’s quotas based on the U.K.’s average consumption over the last three years. America and the six other big food exporters, however, wrote an unusually sharply worded letter of complaint dated September 26 to the U.K. and EU representatives at the World Trade Organization over the terms of such an arrangement. “We cannot accept such an agreement,” reads the letter, seen by POLITICO. The seven countries dispute the legal defense that the proposed post-Brexit arrangement would leave them “no worse off.”

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Transporting oil across thousands of miles just so you can sell it to Europe. Insane.

Few Tears Are Being Shed In Quebec Over The Energy East Pipeline’s Demise (BBG)

TransCanada had applied to build Energy East three years ago, seeking to open access for Western Canadian oil producers to the Atlantic Ocean for exports to Europe. It faced intense opposition in Quebec, where Premier Philippe Couillard said the C$15.7 billion ($12.5 billion) line posed a significant risk to its freshwater resources. Quebec has long required that TransCanada meet seven conditions before allowing construction of the pipeline. Among other demands, Quebec insisted that the project be subject to an environmental assessment and that TransCanada must guarantee an emergency plan in case of a spill, consult with communities including aboriginal groups along the route and ensure the project doesn’t reduce the province’s gas supply. Last month, TransCanada asked Canadian regulators for a 30-day suspension on its applications for the Energy East and Eastern Mainline projects, adding to doubt about the future of two major pipelines that the nation’s energy producers had hoped for.

The latest delay meant the writing was on the wall, Quebec Energy and Natural Resources Minister Pierre Arcand said Thursday. “We’re not the promoters of the project. The promoter made a commercial decision,” Arcand told reporters at the provincial legislature. “When they decided to suspend the project about one month ago, I thought we were inevitably going to go toward this decision.” Energy East “was supposed to cross more than 700 bodies of water,” Quebec Environment Minister David Heurtel said separately in Quebec City. “This is a project that raised a lot of questions. We were still in the process of getting answers to our questions” from the company, he said. TransCanada’s decision “is great news,” Jean-Francois Lisée, head of the separatist Parti Quebecois, the official opposition in the provincial legislature, said in Quebec City. “Quebec’s territorial integrity is no longer threatened.”

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Feels like the Middle Ages.

Onshore Fracking To Begin In UK ‘Within Weeks’ (Ind.)

Fracking for shale gas will begin in the UK within weeks, the company undertaking it for the first time has announced. Third Energy said it plans to complete five fracks in North Yorkshire before the end of 2017. The controversial technique involves injecting liquid into underground rock at high pressures in order to create cracks that release trapped gas. This is then collected and used to generate electricity. Fracking has been vocally opposed by environmental campaigners but permits to use the technique have been approved by government ministers. Alan Linn, Third Energy’s technical director, said the final sign-off needed for fracking to begin was ‘imminent’.

Read more …

Vote count to be published today?!

Catalan Separatists Squeezed Further as Spain Tightens Its Grip (BBG)

Spanish Prime Minister Mariano Rajoy convenes his cabinet on Friday as the financial and political squeeze on the separatist government in Catalonia tightens. After a week of political drama that rocked financial markets, Rajoy will meet with his ministers in Madrid as events 600 kilometers (370 miles) to the northeast in the Catalan capital Barcelona threaten to spiral still further out of control. The region’s president, Carles Puigdemont, risks economic damage and European isolation if he pushes ahead with plans to declare Catalan independence based on a referendum that breached Spain’s constitution. CaixaBank, the symbol of the region’s financial strength, may follow Banc Sabadell in abandoning Catalonia when its board meets Friday.

For his part, Rajoy and his minority government will be loathe to risk a repeat of Sunday’s scenes of police beating peaceful voters that drew international condemnation and inflamed the separatist cause. With options to quell an increasingly bitter constitutional dispute fast running out, events may come to a head on Monday. That’s when Puigdemont had sought to evaluate the result of the independence vote at a session of the regional parliament – until it was suspended by the Spanish Constitutional Court. That means Rajoy may again have to send in the police to enforce a court ruling, and Puigdemont must decide if he’s ready to again defy the law. “There will be some formula for the Catalan Parliament to convene and hold its meeting as planned,” Jordi Sanchez, who heads the most powerful group among the separatists, known as the Catalan National Assembly, said in an interview in Barcelona. “There will be a plenary session.”

As anti-independence organizers plan rallies for this weekend in Madrid and in Barcelona, Catalan separatist are seeking to avoid an immediate declaration of independence. There’s a divide in the movement’s leadership, with most leaders keen to delay that leap into the unknown to create more time for a negotiated settlement, according to two people familiar with their plans. Puigdemont’s mainstream separatist group is concerned that a move toward independence would send the economy into a tailspin, the people said. But following Sunday’s illegal referendum on secession – which the regional government said won the support of 90%t of 2.3 million voters – hardliners from the anarchist party CUP are demanding a quick break with Spain.

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What a surprise. Apple is an Uber investor.

Apple Gave Uber ‘Unprecedented’ Access To Secret iPhone Backdoor (BI)

Uber’s iPhone app has a secret backdoor to powerful Apple features, allowing the ride-hailing service to potentially record a user’s screen and access other personal information without their knowledge. The existence of Uber’s access to special iPhone functions is not disclosed in any consumer-facing information included with Uber’s app, despite giving the company direct access to features so powerful that Apple almost always keeps them off limits to outside companies. Although there is no evidence that Uber used this access to take advantage of the iPhone features, the revelation of the app’s access to privileged Apple code raises important questions for a company already under investigation for a variety of controversial business practices.

Uber told Business Insider the code was not currently being used and was essentially a vestige from an earlier version of its Apple Watch app, but it set off alarm bells among experts. “Granting such a sensitive entitlement to a third-party is unprecedented as far as I can tell, no other app developers have been able to convince Apple to grant them entitlements they’ve needed to let their apps utilize certain privileged system functionality,” Will Strafach, a security researcher who discovered the situation, told Business Insider. [..] Apple became an Uber investor through its investment in Chinese ride-hailing company Didi Chuxing. In 2016, Didi merged with Uber’s Chinese subsidiary.

Read more …

It ain’t over.

Tropical Storm Nate Kills 22 In Central America, Heads For US (R.)

Tropical Storm Nate has killed at least 22 people in Central America as it battered the region with heavy rain while heading toward Mexico’s Caribbean resorts and the US Gulf Coast where it could strike as a hurricane this weekend. Several offshore oil rigs in the Gulf of Mexico were evacuated and others had shut production ahead of the storm. In Nicaragua, at least 11 people died, seven others were reported missing and thousands had to evacuate homes because of flooding, according to the country’s vice president, Rosario Murillo. Emergency officials in Costa Rica reported that at least eight people were had been killed, including two children. Another 17 people were missing, while more than 7,000 had to take refuge from Nate in shelters.

Two youths also drowned in Honduras due to the sudden swell in a river, while a man was killed in a mud slide in El Salvador and another person was missing, emergency services said. “Sometimes we think we think we can cross a river and the hardest thing to understand is that we must wait,” Nicaragua’s Murillo told state radio, warning people to avoid dangerous waters. “It’s better to be late than not to get there at all.“ Costa Rica’s government declared a state of emergency, closing schools and all other non-essential services. Highways in the country were closed due to mud slides and power outages were also reported in parts of country, where more than 3,500 police were deployed. The National Hurricane Centre said Nate could produce as much as 51 cm (20 inches) in some areas of Nicaragua, where schools were also closed. Nate is predicted to strengthen into a Category 1 hurricane by the time it hits the US Gulf Coast on Sunday, NHC spokesman Dennis Feltgen said.

Read more …

Slow motion mass suicide.

Pesticides That Pose Threat To Humans And Bees Found In Honey (Ind.)

Three-quarters of the honey produced around the world contains nerve agent pesticides that can harm bees and pose a potential health hazard to humans, a study has shown. Scientists who tested 198 honey samples from every continent except Antarctica discovered that 75% were laced with at least one of the neonicotinoid chemicals. More than two-fifths contained two or more varieties of the pesticides and 10% held residues from four or five. Environmental campaigners responded by demanding a “complete and permanent” ban preventing any further use of neonicotinoids on farm crops in Europe. Experts called the findings “alarming”, “sobering” and a “serious environmental concern” while stressing that the pesticide residue levels found in honey generally fell well below the safe limits for human consumption.

However, one leading British scientist warned that it was impossible to predict what the long term effects of consuming honey containing tiny amounts of the chemicals might be. Dave Goulson, Professor of Biology at the University of Sussex, said: “Beyond doubt … anyone regularly eating honey is likely to be getting a small dose of mixed neurotoxins. “In terms of acute toxicity, this certainly won’t kill them and is unlikely to do measurable harm. What we don’t know is whether there are long-term, chronic effects from life-time exposure to a cocktail of these and other pesticides in our honey and most other foods.”

[..] The new research published in the journal Science could not have come at a more sensitive time in Europe. EC policymakers are right now discussing whether to make the ban permanent and more wide ranging. A total ban would have a huge impact on cereal growers in the UK. For the study, an international team of European researchers tested almost 200 honey samples from around the world for residues left by five different neonicotinoids. [..] While in most cases the levels were well below the EU safety limits for human consumption, there were exceptions. Honey from both Germany and Poland exceeded maximum residue levels (MRLs) for combined neonicotinoids while samples from Japan reached 45% of the limits.

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“This commitment is not a sacrifice, it is an investment in the certainty and stability of our children’s future..”

“..the palm-dotted island’s name in the local language means “Behold, the Coconut”..

Tiny Pacific Island Nation Of Niue Creates Huge Marine Sanctuary (AFP)

The tiny Pacific island nation of Niue on Friday announced the creation of a huge marine sanctuary, saying it wanted to stop overfishing and preserve the environment for future generations. While Niue’s landmass is only 260 square kilometres (100 square miles), its remote location about 2,400 kilometres northeast of New Zealand means it lays claim to vast tracts of ocean. The government said that 40% of its exclusive economic zone, about 127,000 square kilometres representing an area roughly the size of Greece, would be set aside for the marine sanctuary. Premier Toke Talagi said his government wanted to stop the depletion of fish stocks and give the ocean space to heal to protect the environment for the next generation.

“This commitment is not a sacrifice, it is an investment in the certainty and stability of our children’s future,” he said. “We simply cannot be the generation of leaders who have taken more than they have given to this planet and left behind a debt that our children cannot pay.” Known locally as “The Rock”, Niue was settled by Polynesian seafarers more than 1,000 years ago and the palm-dotted island’s name in the local language means “behold, the coconut”. The British explorer captain James Cook tried to land there three times in 1774 but was deterred by fearsome warriors, eventually giving up to set sail for more welcoming shores and naming Niue “Savage Island”.

Read more …

Sep 292017
 
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Pablo Picasso Weeping woman 1937

 

US Inequality Near Historic Highs, Wages Stagnant (BI)
UBS Indentifies 8 Cities With Biggest Housing Bubbles (ZH)
Chinese Money Is Still Leaking Into the World’s Housing Markets (BBG)
China’s Bitcoin Market Alive And Well As Traders Defy Crackdown (R.)
China Orders North Korean Companies Active In The Country To Shut Down (BBG)
The Closing Of The Catalan Polling Stations (EI)
French Vineyards Robbed Of Seven Tonnes Of Grapes (AFP)
Schäuble Leaves But Schäuble-ism Lives On (Varoufakis)
Over Half Of All Greek Enterprises Are In The Red (K.)
Surge In Migration To Greece Fuels Misery In Refugee Camps (G.)
China’s Love of Meat Is Driving Global Antibiotic Usage (BBG)
Tropical Forests Don’t Absorb Carbon. They Emit As Much As All US Transit (Q.)

 

 

Economy out of balance.

US Inequality Near Historic Highs, Wages Stagnant (BI)

There is a reason so many Americans feel the economy’s recovery from the Great Recession has not benefited them: It hasn’t. An expansion that began, believe it or not, more than seven years ago has extended a longer-run trend of wage stagnation for the average US worker, despite a sharp drop in the official unemployment rate to 4.4% from an October 2009 peak of 10%. No wonder the recovery seems so lopsided, particularly given economic inequality levels not seen since before the Great Depression. A new report from the Hamilton Project, an economic-policy initiative of the Brookings Institution in Washington, offers a range of startling figures and charts that paints a rather dramatic picture of US economic disparities. “The U.S. economy has experienced long-term real wage stagnation and a persistent lack of economic progress for many workers,” wrote Jay Shambaugh, a White House economist under President Barack Obama who now heads the Hamilton Project.

After adjusting for inflation, wages are just 10% higher in 2017 than they were in 1973, amounting to real annual wage growth of just below 0.2% a year, the report says. [..] One big source of the problem: Starting around the 1970s, US productivity growth began rising much more rapidly than workers’ compensation — meaning the share of growth was accumulating increasingly in corporate profits at the expense of pay. The report attributes this both to the increasing role of technology in the workplace but also to a loss of bargaining power brought on by anti-union labor policies and other wage-suppressing measures. “Changes in worker bargaining power, competition within and across industries, and globalization can all influence the share of output workers receive,” the report said.

Read more …

What happened to Auckland?

UBS Indentifies 8 Cities With Biggest Housing Bubbles (ZH)

Two years ago, when UBS looked at the world’s most expensive housing markets, it found that London and Hong Kong were the only two areas exposed to bubble risk. What a difference just a couple of years makes, because in the latest report by UBS wealth Management, which compiles the bank’s Global Real Estate Bubble Index, it found that eight of the world’s largest cities are now subject to a massive speculative housing bubble. And while perpetually low mortgage rates are clearly to blame for the rapid ascent of home prices, Chinese money laundering operations clearly seem to also be playing a role as their favorite markets of Vancouver, Toronto and Sydney all made this year’s list. Bubble risk seems greatest in Toronto, where it has increased significantly in the last year.

Stockholm, Munich, Vancouver, Sydney, London and Hong Kong all remain in risk territory, with Amsterdam joining this group after being overvalued last year. Valuations are stretched in Paris, San Francisco, Los Angeles, Zurich, Frankfurt, Tokyo and Geneva as well. In contrast, property markets in Boston, Singapore, New York and Milan seem fairly valued, while Chicago remains undervalued, just as it was last year. Price bubbles are a regularly recurring phenomenon in property markets. The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts. But recurring patterns of property market excesses are observable in the historical data. Typical signs include a decoupling of prices from local incomes and rents, and distortions of the real economy, such as excessive lending and construction activity. The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns.

As UBS points out, artificially low interest rates in Europe, for example, have kept mortgage payments below their 10-year average despite real prices surging 30% since 2007. Falling mortgage rates over the last decade have made buying a home vastly more attractive, which increased average willingness to pay for home ownership. In European cities, for example, the annual usage costs for apartments (mortgage interest payments and amortization) are still below their 10-year average, despite real prices escalating 30% since 2007. In Canada and Australia, too, a large part of the negative impact of higher purchase prices on affordability was cushioned by low mortgage rates.

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Xi must watch his reserves.

Chinese Money Is Still Leaking Into the World’s Housing Markets (BBG)

Tighter capital controls have done little to dent the appetite of Chinese buyers who already helped drive prices higher across the globe. While definitive data are hard to come by, real estate brokers including Knight Frank LLP, Savills Plc and domestic firm Shiju report rising purchases of overseas property this year. What’s changed is that the curbs have prompted buyers to look for cheaper homes in smaller cities, making down payments more manageable. Part of the reason for the unhindered overseas purchases could be that authorities have already succeeded in stemming capital outflows after cracking down on the most acquisitive companies. That eases the need to enforce limits on individuals, a more difficult and costly process, said Steven Zhang at Morgan Stanley Huaxin. “It’s a question of cost and benefit,” Zhang said.

Since the start of 2017, Chinese applying for their $50,000-a-year foreign-exchange quotas must sign pledges that the money won’t be used for real estate. Violators face a range of potential sanctions. [..] The impact of the increased currency scrutiny has been on the size rather than the quantity of deals. At real estate portal Juwai.com, the average price of overseas properties Chinese buyers inquired about dropped to just over $292,000 this year from more than $356,000 in 2016. Some buyers are eschewing pricey hubs like New York for less-expensive areas such as Florida and Texas, according to Eric Lam, chief executive of Shiju, the overseas broker unit of Shenzhen World Union Properties. They’re typically spending up to 3 million yuan ($450,000) for U.S. homes, and as much as 2 million yuan for U.K. properties, prices that make for manageable down payments using exchange quotas, Lam said.

Jones Lang LaSalle said it was mainly selling U.K. homes, often below $500,000, and Cushman & Wakefield also highlighted surging Chinese demand for British property after the pound weakened following the Brexit vote. [..] The undimmed appetite suggests Chinese money could continue to put upward pressure on prices, a trend that’s stoked concern among locals in cities from Vancouver to Sydney. Chinese buyers, mainly from the mainland but also from Taiwan and Hong Kong, spent a record $31.7 billion on U.S. residential properties in the year through March 31, remaining the biggest foreign force in the market.

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The crackdown doesn’t come into effect until October.

China’s Bitcoin Market Alive And Well As Traders Defy Crackdown (R.)

Weeks after Beijing banned fundraising through token launches and ordered some bitcoin exchanges to shut, casting a chill over the cryptocurrency industry, traders say that the market is far from dead. While several exchanges have announced that they will close by the end of this month, traders have now moved to buy and sell bitcoin directly with each other on peer-to-peer marketplaces and messenger apps. Industry insiders say some overseas-based initial coin offerings (ICOs) are still being marketed. Although the crackdown has dissuaded large swathes of less-experienced investors from participating in the trade, market participants point to the limits Chinese regulators ultimately face in controlling the industry, where many users are anonymous and difficult to track.

In the short-run, the crackdown has also created an arbitrage opportunity for investors, with the price of bitcoin in China now trading at a discount to overseas exchanges. “They can’t set rules to stop me from investing in what I want to invest in. They say you are protecting me, but as long as I think this is good, they have no way to intervene,” said a Chinese bitcoin investor named Victor, who declined to give his full name citing current sensitivities. [..] “The fact that bitcoin is still being traded is an indication that China isn’t looking to eliminate them, but reposition things in a way to have better control over them,” said Marshall Swatt, the founder of New York-based Coinsetter, a bitcoin exchange acquired by larger peer San Francisco-based Kraken in 2016.

Other Chinese cryptocurrency players said traders were also moving away from using Tencent’s WeChat app, to encrypted messenger app Telegram to avoid regulatory scrutiny. Some said they were still seeing overseas-based ICOs being marketed in China. The Sept. 4 shutdown of ICOs stipulated that Chinese citizens were not allowed to invest in ICOs. Overseas ICOs have been returning money on a voluntary basis.

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That’s going to hurt.

China Orders North Korean Companies Active In The Country To Shut Down (BBG)

China ordered North Korean companies active in the country to shut down as it seeks to implement United Nations’ sanctions against the hermetic regime. Joint ventures between Chinese firms and North Korean entities and individuals will also have to close, according to a statement on the website of China’s Ministry of Commerce Thursday. Companies are required to cease business within 120 days of Sept. 12 – the day after the UN passed new sanctions aimed at punishing North Korea for its latest missile and nuclear tests. Non-profit and non-commercial public utility and infrastructure projects are not subject to the order, the ministry said. The move comes ahead of U.S. Secretary of State Rex Tillerson’s visit to China at the weekend. North Korea is among topics to be discussed with senior Chinese leaders, along with President Donald Trump’s planned trip to the region and trade and investment issues, the State Department said in a statement on Wednesday.

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Please keep the peace.

The Closing Of The Catalan Polling Stations (EI)

As we reported yesterday, the Catalan head prosecutor has instructed the regional police, the Mossos d’Esquadra, to seal the designated polling stations for Sunday’s independence referendum by Friday. This may not be easy. The radical left separatist party CUP is calling for the seals to be broken, and there will be attempts to organise sit-ins at the polling stations before the police comes to seal them, which would force the police to clear the sit-in. As we noted yesterday they are about 2,700 polling stations in a Catalan election, which stretches the police’s ability to cover them all simultaneously. The Mossos have responded officially that they will act proportionately, and that there is a risk that sealing the polling places may lead to public unrest. In addition, they are demanding a court order – not just an instruction from the prosecutor – to seal the polling stations.

The Catalan government says that the police is there to guarantee order so that people can exercise their right to vote, while the Spanish government says the police is there to prevent illegal acts from being carried out. The Catalan premier has convened the region’s public safety board, which includes representatives of the Spanish interior minister who will be in attendance. The interior minister had previously set up security coordination meetings for all the Spanish and Catalan police forces, which the Mossos resent as they result in putting them under command of the national police. We have also reported that Mariano Rajoy will miss tomorrow’s informal EU summit in Tallinn, which starts today with a dinner, ostensibly on account of the Catalan referendum. The referendum is scheduled for Sunday. We wonder whether Mariano Rajoy feels he needs to be in Spain on the Friday just in case unrest breaks out.

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Sounds like a lot. The French are serious about wine.

French Vineyards Robbed Of Seven Tonnes Of Grapes (AFP)

At least seven tonnes of grapes have been stolen in the dead of night from vineyards in France’s prime winegrowing region of Bordeaux, following a disastrous yield blamed on poor weather, police say. Three vineyards have had grapes and even whole vines stolen since mid-September, police said on Wednesday. They said about six and a half tonnes of grapes disappeared from a vineyard in Genissac near the world-famous Saint Emilion region, adding that the theft was clearly committed by professional vintners. Between 600 and 700kg (1,300 and 1,500lb) of grapes were stolen from a vineyard in Pomerol, which produces top quality reds. Thieves also uprooted 500 vines from a vineyard in nearby Montagne, police said.

A fourth grape robbery took place in Lalande-de-Pomerol, according to a local press report. Thieves making away with grapes is not a new phenomenon but it has surged this year apparently because of a very low yield. “There’s a great temptation to help oneself from [the vineyard] next door,” an industry expert told AFP on condition of anonymity. France faces its poorest wine harvest since 1945 after an unusually mild March and frosty April, experts said last month, although a hot summer promises to deliver top vintages. The agriculture ministry said output was expected to total 37.2m hectolitres (983m US gallons), 18% less than 2016 and 17% below the average over the past five years.

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Merkel already sold off Greece to please her bankers. Now she’s planning to make things worse in order to cement a coalition.

Schäuble Leaves But Schäuble-ism Lives On (Varoufakis)

Wolfgang Schäuble may have left the finance ministry but his policy for turning the eurozone into an iron cage of austerity, that is the very antithesis of a democratic federation, lives on. What is remarkable about Dr Schäuble’s tenure was how he invested heavily in maintaining the fragility of the monetary union, rather than eradicating it in order to render the eurozone macro-economically sustainable and resilient. Why did Dr Schäuble aim at maintaining the eurozone’s fragility? Why was he, in this context, ever so keen to maintain the threat of Grexit? The simple answer is: Because a state of permanent fragility was instrumental to his strategy for using the threat of expulsion from the euro (or even of Germany’s withdrawal from it) to discipline the deficit countries – chiefly France.

Deep in Dr Schäuble’ thinking there was the belief that, as a federation is infeasible, the euro is a glorified fixed exchange rate regime. And the only way of maintaining discipline within such a regime was to keep alive the threat of expulsion or exit. But to keep that threat alive, the eurozone could not be allowed to develop the instruments and institutions that would stop it from being fragile. Thus, the eurozone’s permanent fragility was, from Dr Schäuble’s perspective an end-in-itself, rather than a failure. The Free Democratic Party’s ascension will see to it that Wolfgang Schäuble’s departure will not alter the policy of doing whatever it takes to prevent the eurozone‘s evolution into a sustainable macroeconomy.

The FDP’s sole promise to its voters was to prevent any of Emmanuel Macron’s plans, for some federation-lite, from being agreed to, and for pursuing Grexit. Even worse, whereas Wolfgang Schäuble understood that austerity plus new loans were catastrophic for countries like Greece (but insisted on them as part of his campaign to discipline France and Italy), his FDP successors at the finance ministry will probably be less ‘enlightened’ believing that the ‘tough medicine’ is fit for purpose. And so the never ending crisis of Europe’s social economy, that feeds the xenophobic political monsters, continues.

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Waterboarding. And worse. Do this to an economy, and it will fail outright. That, then, must be what Berlin is aiming for.

Over Half Of All Greek Enterprises Are In The Red (K.)

At least 56% of small and medium-sized enterprises (SMEs) are now in debt due to low liquidity and high borrowing, a combination that forbids them from meeting their short-term obligations. Only a fraction have a chance of having their debt restructured, which means that sooner or later they will follow the fate of many of their peers and be forced to shut down. This is the main conclusion of a Piraeus Bank analysis after a sample of 7,896 companies were assessed using its Enterprise Rating System (ERS). Given that over 97% of enterprises in Greece are SMEs, the risk both to them and the economy in general is clear, with an impact on state revenues, employment and bank provisions.

The ERS assessment resulted in four categories of enterprises based on liquidity, solvency, degree of leverage and debt servicing. Just 8.6% of all companies have made it into the A category. They are the healthiest businesses, with high cash flows, even though two-thirds face problems with their earnings. Category B accounts for 35.7% of companies, which display satisfactory performance; however, it should be observed that the obligations of these businesses exceed their assets by 1.2 times. The largest category is C, with two-fifths of all companies, or 40.4%; they are enterprises which have not yet reached the brink as they have some chances at becoming sustainable, but indicate a low degree of debt servicing, finding themselves in the red.

Finally there is category D, which hosts 15.4% of all companies. The vast majority (82.5%) has a substantial problem in terms of sustainability; not only do they have a negative operating profit rate, averaging at -9.1%, but they are also loss-making. The average company in this category has borrowing that is three-and-a-half times its assets and 25 times its earnings before interest, tax, depreciation and amortization (EBITDA).

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Lesvos Solidarity on Twitter: “Section C in #moria now houses around 200 unaccompanied minors, incl pregnant girls. They are unattended after 17.00.”

Surge In Migration To Greece Fuels Misery In Refugee Camps (G.)

Greece is experiencing a dramatic rise in the number of refugees and migrants entering the country, exacerbating already deplorable living conditions on island camps. The number of people arriving, across land and sea borders, has more than doubled since the beginning of the summer. Authorities estimate arrivals are now at their highest level since March 2016, with over 200 men, women and children being registered every day. “It is dramatic and it is the most vulnerable of the vulnerable coming in,” said Elias Pavlopoulos, who heads Médecins sans Frontières in Greece. “There are whole families fleeing war zones in Syria and Iraq. In the last few months our clinics have seen more people who have suffered violence, who are victims of rape, who have been tortured, than ever before.”

Despite a pledge by EU member states in September 2015 to relocate 160,000 asylum seekers – including 106,000 from Greece and Italy – a mere 29,000 have been moved to other European countries so far. With the 28-nation bloc failing to meet the deadline set out in its own plan, mass demonstrations are expected in capitals across Europe this weekend. Refugees and migrants have been arriving in Greece not only on rickety boats from Turkey but by foot across the frontier between the two countries. On Wednesday, police announced 37 refugees – including 19 children – from Iraq, Syria, Eritrea and Afghanistan, had been dumped by smugglers on the national highway outside Thessaloniki.

Human rights groups are increasingly likening the situation to 2015, when, at the height of the migrant crisis that engulfed Europe, Greece saw close to a million people enter the country on onward journeys that often took them to Germany. “We’re living the days of 2015,” said Pantelis Dimitriou from Iliaktida, a local NGO on Lesbos operating accommodation and support centres for the newly arrived. “The flows have become huge. From around 50 to 60 in early July they are now at more than 200 every day. Maybe it is the German elections, maybe it is about Turkey’s [worsening] relations with the EU, or maybe this is the last push before winter, but something is going on.” More worrying is the number of minors making the often treacherous journey to get to Greece. In a statement this week, Save the Children said around 40% of the new arrivals were under the age of 18. Over 1,500 unaccompanied minors are currently on waiting lists in Greece to be housed in child shelters.

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We need a global ban on using antibiotics on farms. But the industry is very powerful.

China’s Love of Meat Is Driving Global Antibiotic Usage (BBG)

Growing global demand for animal protein is good news for the pharmaceutical industry, but a worry for public health. Food animals will consume 200,235 tons of antimicrobial medicines by 2030, 53% more than they were getting in 2013, according to a study published Thursday in the journal Science. China, already the world’s largest consumer of veterinary antimicrobials, is forecast to lead the charge, with a 59% jump. That bodes badly for the efficacy of these infection-fighting medications. The study’s authors linked the quantity of drugs used on farms with the emergence of foodborne bacteria, like Campylobacter and Salmonella harboring antibiotic-resistance genes. Limiting daily meat intake worldwide to the equivalent of one standard fast-food burger per person could reduce global consumption of antimicrobials in food animals by 66%, the researchers said.

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It was fun while it lasted?!

Tropical Forests Don’t Absorb Carbon. They Emit As Much As All US Transit (Q.)

Since humans began to worry about having put too much carbon in the atmosphere, we’ve considered tropical forests an important “carbon sink.” Their fast growth rate, dense vegetation, and rich soils sucked more carbon out of the atmosphere then they produced. In other words, tropical forests were a natural greenhouse-gas vacuum. Except now, just when the world most needs them to be, they’re not. At some point, it turns out, deforestation, drought, and other forest-disturbing factors tipped the scales, making tropical forests a net producer of carbon rather than a sink, according to a new study published Sept. 28 in the journal Science. Each year, instead of absorbing carbon, these degraded forests are a source of more carbon (roughly 425 teragrams of carbon per year) than an entire year’s worth of US transportation emissions.

Scientists at Woods Hole Research Center and Boston University spent two and a half years trekking to tropical forests in 22 countries, measuring trees’ thickness and recording their growth rate, which is a big factor in how much carbon a forest is absorbing. They then paired their field data with laser remote-sensing data and 12 years of satellite data from NASA’s MODIS satellites. The researcher’s combined approach allowed them to figure out not just losses from dramatic deforestation, but also the harder-to-calculate losses from less obvious factors, like selective logging and small-scale farming. Previous studies have looked at large-scale deforestation in the tropics as a source of carbon, and more recent papers have pointed towards the subtler forms of degradation as a likely underestimated source.

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Sep 182017
 
 September 18, 2017  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Pablo Picasso The old fisherman 1895

 

Muted Inflation A Trillion-Dollar Puzzle – BIS (R.)
Global Debt Underreported By $14 Trillion – BIS (ZH)
World’s Central Banks Can’t Ignore the Bitcoin Boom – BIS (BBG)
Dogecoin Creator On Cryptocurrencies: “Very Bubble. Much Scam. So Avoid.” (NYT)
The Future Of Cryptocurrency Is Not As It Seems (Eric Peters)
China’s $40 Trillion Banking System: “Largest Imbalances I’ve Ever Seen” (ZH)
Stockman: Trump’s Now ‘Blowing Kisses to Janet Yellen’
Spain’s Prosecutor Warns Over Catalonia Referendum As Leaflets Seized (R.)
After Single Payer Failed, Vermont Embarks On Big Health Care Experiment (WP)
Greek Government Told To Begin Online Auctions Or Face A Bank Bail-In (K.)
In Greece, Full-Time Work Is Not The Norm It Once Was (K.)
Hurricane Maria Heading For Caribbean (AFP)

 

 

Debt is the answer. They want you to think they don’t know that.

Muted Inflation A Trillion-Dollar Puzzle – BIS (R.)

The conundrum of stubbornly low inflation despite a pick-up in global growth and continued monetary stimulus is a “trillion dollar” question, the umbrella body for the world’s leading central banks said on Sunday. The Bank for International Settlements (BIS) said in its latest quarterly report that cheap borrowing rates and the rare simultaneous expansion of advanced and developing economies are driving financial markets higher, with signs of “exuberance” starting to re-emerge. U.S. corporate debt is much higher than before the financial crisis and a drop in the premiums investors demand for riskier lending has boosted sales of so-called covenant-lite bonds offering high yields. The BIS said this raises a question over the potential for another crisis if there is a significant rise in interest rates.

The body has called for a gradual return to higher rates, though central banks are being tentative because of persisting low inflation. “It feels like ‘Waiting for Godot’,” said Claudio Borio, the head of the monetary and economic department of the BIS, referring to a play in which the main characters wait for someone who never arrives. But the BIS says no one has yet worked out why inflation has remained so subdued while economies have approached or surpassed estimates of full employment and central banks have provided unprecedented stimulus. “This is the trillion-dollar question that will define the global economy’s path in the years ahead and determine, in all probability, the future of current policy frameworks,” Borio said. “Worryingly, no one really knows the answer.”

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The BIS is surprised by lack of inflation, or does it pretend that? And it’s also surprised by swaps and forwards? Really?

Global Debt Underreported By $14 Trillion – BIS (ZH)

In its latest annual summary published at the end of June, the IIF found that total nominal global debt had risen to a new all time high of $217 trillion, or 327% of global GDP…

… largely as a result of an unprecedented increase in emerging market leverage.

While the continued growth in debt in zero interest rate world is hardly surprising, what was notable is that debt within the developed world appeared to have peaked, if not declined modestly in the latest 5 year period. However, it now appears that contrary to previous speculation of potential deleveraging among EM nations, not only was this conclusion incorrect, but that developed nations had been stealthily piling on just as much debt, only largely hidden from the public eye, in the form of swaps and forwards.

According to a just released analysts by the Bank of International Settlements, “FX swaps and forwards: missing global debt?” non-banks institutions outside the United States owe large sums of dollars off-balance sheet through instruments such as FX swaps and forwards. The BIS then calculates what balance sheets would look like if borrowing through such derivative instruments was recorded on-balance sheet, as functionally equivalent repo debt, and calculates that the total “is of a size similar to, and probably exceeding, the $10.7 trillion of on-balance sheet dollar debt”, potentially as much as $13-14 trillion.

[..] “Every day, trillions of dollars are borrowed and lent in various currencies. Many deals take place in the cash market, through loans and securities. But foreign exchange (FX) derivatives, mainly FX swaps, currency swaps and the closely related forwards, also create debt-like obligations. For the US dollar alone, contracts worth tens of trillions of dollars stand open and trillions change hands daily. And yet one cannot find these amounts on balance sheets. This debt is, in effect, missing.”

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Who says they’re ignoring it? They’re frantically looking to control it.

World’s Central Banks Can’t Ignore the Bitcoin Boom – BIS (BBG)

The world’s central banks can’t sit back and ignore the growth in cryptocurrencies as it could pose a risk to the stability of the financial system, according to the Bank for International Settlements. It said central banks will need to figure out whether to issue a digital currency and what its attributes should be, though the decision is most pressing in countries like Sweden where cash use is dwindling. Institutions need to take into account of not only privacy issues and efficiency gains in payment systems, but also economic, financial and monetary policy repercussions, the BIS said in its Quarterly Review. The analysis comes at the end of a rough week for digital currencies, with JPMorgan CEO Jamie Dimon calling bitcoin a “fraud” and China moving to crack down on domestic trading of cryptocurrencies.

But with bitcoin and others gaining in popularity as payment systems go mobile and investors pour in money, central banks are beginning to delve into them and their underlying blockchain technology, which promises to speed up clearing and settlements. At the Bank of England, Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance. To better understand the system, the Dutch central bank has created its own cryptocurrency, albeit for internal use only. U.S. officials are exploring the matter too, though in March Federal Reserve Governor Jerome Powell said there were “significant policy issues” that needed further study, including vulnerability to cyber-attack, privacy and counterfeiting.

According to the BIS, one option for central banks might be a currency available to the public, with only the central bank able to issue units that would be directly convertible with cash and reserves. There might be a greater risk of bank runs, however, and commercial lenders might face a shortage of deposits. Another question to be resolved would be the question of privacy.

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“It’s going to be like the dot-com bust, but on a much more epic scale.”

Dogecoin Creator On Cryptocurrencies: “Very Bubble. Much Scam. So Avoid.” (NYT)

Jackson Palmer no longer thinks it’s funny to imitate Doge, the internet meme about a Shiba Inu dog whose awe-struck expressions and garbled syntax (e.g. “Wow. So pizza. Much delicious.”) made him a viral sensation several years ago. But if he did, he might channel Doge to offer a few cautionary words for investors who are falling for cryptocurrency start-ups, Silicon Valley’s latest moneymaking craze: Very bubble. Much scam. So avoid. Mr. Palmer, the creator of Dogecoin, was an early fan of cryptocurrency, a form of encrypted digital money that is traded from person to person. He saw investors talking about Bitcoin, the oldest and best-known cryptocurrency, and wanted to find a way to poke fun at the hype surrounding the emerging technology. So in 2013, he built his own cryptocurrency, a satirical mash-up that combined Bitcoin with the Doge meme he’d seen on social media.

Mr. Palmer hoped to use Dogecoin to show the absurdity of wagering huge sums of money on unstable ventures. But investors didn’t get the joke and bought Dogecoin anyway, bringing its market value as high as $400 million. Along the way, the currency became a magnet for greed and attracted a group of scammers and hackers who defrauded investors, hyped fake products, and left many of the currency’s original backers empty-handed. Today, Mr. Palmer, 30, is one of the loudest voices warning that a similar fate might soon befall the entire cryptocurrency industry. “What’s happening to crypto now is what happened to Dogecoin,” Mr. Palmer told me in a recent interview. “I’m worried that this time, it’s on a much grander scale.”

[..] Mr. Palmer, a laid-back Australian who works as a product manager in the Bay Area and describes himself as “socialist leaning,” was disturbed by the commercialization of his joke currency. He had never collected Dogecoin for himself, and had resisted efforts to cash in on the currency’s success, even turning down a $500,000 investment offer from an Australian venture capital firm. [..] Mr. Palmer worries that the coming reckoning in the cryptocurrency market — and it is coming, he says confidently — will deter people from using the technology for more legitimate projects. “The bigger this bubble goes, the bigger negative connotation it’s going to have,” he said. “It’s going to be like the dot-com bust, but on a much more epic scale.”

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Peters is the CIO at One River Asset Management. “Once private markets perfect cryptocurrency technology, governments will commandeer it, killing today’s pioneers. Then with every cryptodollar, yen, euro and renminbi registered on their servers, they’ll have complete dominion over money, laundering, taxation.”

The Future Of Cryptocurrency Is Not As It Seems (Eric Peters)

“Any other thoughts on the matter?” he asked. We’d spent quite some time discussing Bitcoin, Ethereum, and copycat cryptocurrencies popping up faster than North Korean nukes. I mostly listened, he knew far more about the subject; blockchain, distributed ledgers, mining, halving, hash rates. Unlike the S&P 500 realized volatility’s collapse to 8%, these new creations are realizing at 90%. Which makes them attractive to day-traders, adrenaline junkies, who launched 100 crypto hedge funds just last month. It’s the millennial’s wild west. Like all generations, they’ve discovered a new frontier, with few rules, seedy saloons, gunfights, corpses. As our earthly unknowns disappear, we find new ones in the ether. Which is where money belongs; it’s not real, it’s an abstraction, an age-old illusion.

As a golden myth captured mankind’s imagination, we built our societies upon a rare yellow metal. For 2,500 years we fought, killed, conquered. Until governments tired of the arbitrary spending constraints imposed upon them by a scarce element. So they invented today’s fiction, a printed promise, fiat currency. Seigniorage is the difference between that currency’s market value and its cost of production – that spread is a source of vast wealth and power. And in all human history, not a single government has willingly forfeited such a thing. Nor will one ever. Only after a hyperinflationary depression, confronted with revolution, do governments sometimes relinquish their power to print (Zimbabwe most recently).

Consequently, the future of cryptocurrency is not as it seems. Once private markets perfect cryptocurrency technology, governments will commandeer it, killing today’s pioneers. Then with every cryptodollar, yen, euro and renminbi registered on their servers, they’ll have complete dominion over money, laundering, taxation. They’ll track every transaction. Imposing negative interest rates in an instant. There will be no hiding, no mattresses. And in a deflationary panic, they’ll instantaneously add an extra zero to every account, their own especially.

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“..we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.”

China’s $40 Trillion Banking System: “Largest Imbalances I’ve Ever Seen” (ZH)

KB: We’re in the such late stages of a game that is the largest global imbalance I’ve ever seen in my life. When you look at on balance sheet and off balance sheets, you look at on balance sheet in the banks, you look in the shadow banks. The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that’s using an exchange rate of call it 6.7 to the dollar, right? So it’s grown 1,000% in a decade. And we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.

RP: Where do you get the equity and liquid reserves from?

KB: Well, it’s the amount of equity in the banks of China. It’s right at about $2 trillion. So that’s kind of a stated number. The reserves is my own calculation, right? The Chinese magically have leveled their reserves out around $3 trillion, which happens to be the minimum level of IMF reserve adequacy as defined by the IMF rule.

RP: So what have they been doing now? So, they were under pressure, and then everything kind of eased off, I guess, as the dollar started weakening a bit.

KB: Yeah. Actually, they’ve done three things. Well, so four things have caused this, quote, easing off that you refer to. Three have been driven by SAFE and the PBOC, one that’s been driven by our illustrious Trump. So the first three are, number one, they essentially halted all cross-border M&A. So if you look at the parabola of M&A coming out of China from 2012 to 2016, it reached dizzying heights in 2016. In 2017, it’s like 15% of the 2016 number and no new deals being announced. Now, they’ll always be some outbound M&A that’s driven by really policy at the Communist Party level, right?

They’ll always buy copper mines in Uganda. They’ll always invest in ports in Greece. They’ll always do things that are from a strategic perspective and a policy perspective. The things that the Communist Party needs to procure resources for its people over the long-term. But when you look at the rampant M&A of money leaving China, they just put a halt to it in November of 2016. And the second thing they did was they made it impossible for multinational corporations to get their profits and or working capital out of China. And that’s something that has been a problem for a lot of the multinationals that do business in China.”

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Perma bear.

Stockman: Trump’s Now ‘Blowing Kisses to Janet Yellen’

Stockman: Trump’s ‘Done Nothing in Nine Months’ and Is Now ‘Blowing Kisses to Janet Yellen’ (Fox Business, September 15, 2017)

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EU, UN, US, nobody stands up for democracy. Revealing.

Spain’s Prosecutor Warns Over Catalonia Referendum As Leaflets Seized (R.)

Spanish authorities on Sunday pursued efforts to block an independence vote in Catalonia, seizing campaign materials as the chief prosecutor said jailing the region’s top politician could not be ruled out. The government in the northeastern region is intent on holding a referendum on October 1 that will ask voters whether they support secession from Spain, a ballot Madrid has declared illegal. In a raid on a warehouse in the province of Barcelona on Sunday, police confiscated around 1.3 million leaflets and other campaign materials promoting the vote issued by the Catalan government. The haul was the largest in a series of similar raids, the Interior Ministry said in a statement.

Spanish prosecutors, who have ordered police to investigate any efforts to promote the plebiscite, said last week that officials engaged in any preparations for it could be charged with civil disobedience, abuse of office and misuse of public funds. More than 700 Catalan mayors gathered in Barcelona on Saturday to affirm their support for it. Asked if arresting regional government head Carles Puigdemont was an option if preparations continued, Spain’s chief public prosecutor said in an interview: ”We could consider it because the principal objective is to stop the referendum going ahead. “I won’t rule out completely the option of seeking jail terms… It could happen under certain circumstances,” Jose Manuel Maza was quoted as also telling Sunday’s edition of newspaper El Mundo.

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Promising.

After Single Payer Failed, Vermont Embarks On Big Health Care Experiment (WP)

Doug Greenwood lifted his shirt to let his doctor probe his belly, scarred from past surgeries, for tender spots. Searing abdominal pain had landed Greenwood in the emergency room a few weeks earlier, and he’d come for a follow-up visit to Cold Hollow Family Practice, a big red barnlike building perched on the edge of town. After the appointment was over and his blood was drawn, Greenwood stayed for an entirely different exam: of his life. Anne-Marie Lajoie, a nurse care coordinator, began to map out Greenwood’s financial resources, responsibilities, transportation options, food resources and social supports on a sheet of paper. A different picture began to emerge of the 58-year-old male patient recovering from diverticulitis: Greenwood had moved back home, without a car or steady work, to care for his mother, who suffered from dementia. He slept in a fishing shanty in the yard, with a baby monitor to keep tabs on his mother.

This more expansive checkup is part of a pioneering effort in this New England state to keep people healthy while simplifying the typical jumble of private and public insurers that pays for health care. The underlying premise is simple: Reward doctors and hospitals financially when patients are healthy, not just when they come in sick. It’s an idea that has been percolating through the health-care system in recent years, supported by the Affordable Care Act and changes to how Medicare pays for certain kinds of care, such as hip and knee replacements. But Vermont is setting an ambitious goal of taking its alternative payment model statewide and applying it to 70% of insured state residents by 2022 which — if it works — could eventually lead to fundamental changes in how Americans pay for health care.

“You make your margin off of keeping people healthier, instead of doing more operations. This drastically changes you, from wanting to do more of a certain kind of surgery to wanting to prevent them,” said Stephen Leffler, chief population health and quality officer of the University of Vermont Health Network. Making lump sum payments, instead of paying for each X-ray or checkup, changes the financial incentives for doctors. For example, spurring the state’s largest hospital system to invest in housing. Or creating more roles like Lajoie’s, focused on diagnosing problems with housing, transportation, food and other services that affect people’s well-being.

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The Troika is in Athens to turn on the thumbscrews.

Greek Government Told To Begin Online Auctions Or Face A Bank Bail-In (K.)

The possibility that banks will need for a fresh recapitalization grows with every day the delay in the implementation of online property transactions drags on. This might lead to a deposit haircut, along with generating a major crisis in relations between the government and the country’s creditors. Creditor representatives are accusing the government of delay tactics, for party political purposes, in starting electronic auctions. This puts the sustainability of the credit system at risk as it denies them a crucial tool in efforts to tackle the problem of nonperforming loans (NPLs).

The creditors have explicitly warned Athens about the prospect of a new recapitalization and the risk of a bail-in for banks and their depositors unless the auctions proceed quickly, as their representatives told notaries and banks in Greece during the presentations of the auctions’ online platform, according to the president of the Notaries’ Association, Giorgos Rouskas. The creditors reacted strongly when told that the first online auctions would not take place before early 2018 even though during the second bailout review Athens had committed to start the auctions on September 1. The government claimed the system is in place but the law provides for a period of two months between the submission of an auction request and its realization.

Seeing that the government is again trying to renege on its commitments, the creditors put fresh pressure on Athens, which backed down and said the system may open in the coming days for banks, so that the first online auctions can take place by end-November. In an interview with Kathimerini, Rouskas stressed that “the online platform is ready and all technical tests have been completed.” The onus is therefore on the banks now, which Rouskas explains have to register the repeat auctions or any new ones in the system, being the party initiating the auctions. They will then get a date based on the new system. “We have prepared the platform. It is now up to the lender, be that a bank or a private individual, to issue a request for an online auction scheduling, which notaries are forced to follow. This has not happened yet, but I believe we are very close to its implementation,” said Rouskas.

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Why Greece will not recover. Money supply way down, money velocity way way down.

In Greece, Full-Time Work Is Not The Norm It Once Was (K.)

Official data by the Hellenic Statistical Authority point to an increase in employment by about 250,000 jobs in the last three years (from the second quarter of 2014 to this year’s Q2), but that is only part of the truth. The figures also reveal a constant decline in average salaries, an ongoing increase in the percentage of employed workers who earn less than 500 euros a month – at least one in four gets less than that amount – soaring temporary work (either due to project-specific hirings, subsidies being paid for a restricted period, or time contracts), and a rise in the rate of part-time employment.

Senior and top officials are no longer offered such handsome pay packages, the primary sector is being abandoned and any new enterprises that are being set up are mostly in the field of restaurants, hotels and retail stores. Greeks can only find jobs such as waiters, cleaners, maids or sales assistants, which as a rule are of a seasonal character and fetch a low salary. The 40-hour working week concerns ever fewer workers nowadays, and without the subsidies handed out by the Manpower Organization (OAED) and the increase in tourism flows the unemployment rate probably wouldn’t have declined at all.

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The season is far from over.

Hurricane Maria Heading For Caribbean (AFP)

Maria became a hurricane Sunday as it headed toward the storm-staggered eastern Caribbean with 75 mile (120 kilometer) per hour winds, the US National Hurricane Center said. Storm warnings and watches went up in many of the Caribbean islands still reeling from the destructive passage of Hurricane Irma earlier this month. As of 2100 GMT, Maria was a Category One hurricane, the lowest on the five point Saffir-Simpson scale, located 140 miles (225 kilometers) northeast of Barbados, the NHC said, bearing west-northwest at 15 miles (24 kilometers) an hour. “On the forecast track, the center of Maria will move across the Leeward Islands Monday night and then over the extreme northeastern Caribbean Sea on Tuesday,” it said.

Hurricane warnings were triggered for St Kitts, Nevis and Montserrat, while lesser ‘watches’ were issued for the US and British Virgin Islands where at least nine people were killed during Irma. A warning is typically issued 36 hours before the first occurrence of tropical storm-force winds while watches are issued 48 hours in advance. Tropical storm warnings were, meanwhile, issued for Martinique, Antigua and Barbuda, Saba and St Eustatius and St Lucia. Barbuda was decimated by Hurricane Irma September 5-6 when it made its first landfall in the Caribbean as a top intensity Category Five storm. The NHC said Maria could produce a “dangerous storm surge accompanied by large and destructive waves” that will raise water levels by four to six feet (1.2 to 1.8 meters) when it passes through the Leeward Islands.

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Sep 172017
 
 September 17, 2017  Posted by at 9:11 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Edward Hopper House tops 1921

 

Trade War With China Will End US Global Finance Monopoly – Jim Rogers (RT)
Pension Storm Warning (Mauldin)
S&P On The Verge Of History (ZH)
How Austerity Works (Steve Keen)
Why Bitcoin May Be Worth Only A Third Of Its Value (MW)
How Common is the Seneca Curve? (Ugo Bardi)
Greek Debt Write-Offs To Be Based On Properties (K.)
The Eurozone May Be Back On Its Feet. But Is Greece? (G.)
Chinese Capital Bans Winter Construction To Improve Air Quality (R.)
White House Denies EU Claim That It’s Shifting on Climate Deal (BBG)

 

 

“It will force the rest of the world to find an alternative to the US financial system.” They haven’t found one yet.

Trade War With China Will End US Global Finance Monopoly – Jim Rogers (RT)

RT : What is the likelihood that the US will go through with and actually impose economic sanctions on China if it does not implement the new sanctions regime against North Korea? Jim Rogers : Sanctions are sanctions. They could do sanctions which are not very important or don’t do much damage. And then they will have good public relations which says they have sanctions, but it is meaningless. I would suspect if anything, that is what they will start with. If they put sanctions on China in a big way, it brings the whole world economy down. And in the end, it hurts America more than it hurts China because it just forces China and Russia and other countries closer together. Russia and China and other countries are already trying to come up with a new financial system. If America puts sanctions on them, they would have to do it that much faster and in the end America will lose its monopoly on the financial system, which will hurt America more than anybody.

RT : What do you think, is it an empty rhetoric and saber-rattling from Donald Trump because he said “those [UN] sanctions are nothing compared to what ultimately will have to happen” without specifying what he meant by that. Do you think this is just mere bluff on the part of the US, or would it really use the ‘nuclear option’? JR : If it uses a nuclear option for sanctions, it will hurt America much more than will hurt North Korea, it will hurt America much more than it will hurt China, Russia and everybody else. It will force the rest of the world to find an alternative to the US financial system. If he does that, it is going to cause a lot of turmoil in the world financial economy and in the end it is going to hurt America more than it is going to hurt anybody else. I would give you an example, if you look at Russian agriculture right now – America put sanctions on Russian agriculture trying to hurt Russia, but it has helped Russian agriculture. Russian agriculture is booming now. In the end, America has hurt itself more than it has hurt anybody else.

RT : If that happens, what would the consequences be for the global economy? Could this end up becoming a global economic crisis? JR : We are probably going to have a global economic problem, maybe even crisis, in the next couple of years. This may be one of the things that start it. There is always something which starts a crisis. If America does something like this, this could be the thing that did it. In 1929, it started when America started a huge trade war with the rest of the world and the economists said, “please, this is a mistake,” but America did that anyway. And then we had a great collapse and The Great Depression of the 1930s.

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Pensions and hurricanes: lies and bad preparation.

Pension Storm Warning (Mauldin)

Total unfunded liabilities in state and local pensions have roughly quintupled in the last decade. You read that right – not doubled, tripled or quadrupled: quintupled. That’s nice when it happens on a slot machine, not so nice when it’s money you owe. The graph [shows] that unfunded pension liabilities for state and local governments was $2 trillion. But that assumes an average 7% compound return. What if we assume 4% compound returns? Now the admitted unfunded pension liability is $4 trillion. But what if we have a recession and the stock market goes down by the past average of more than 40%? Now you have an unfunded liability in the range of $7–8 trillion.We throw the words a trillion dollars around, not realizing how much that actually is. Combined state and local revenues for the US total around $2.6 trillion.

Following the next recession (whenever that is), the unfunded pension liabilities for state and local governments will be roughly three times the revenue they are collecting today, and that’s before a recession reduces their revenues. Can you see the taxpayer stuck between a rock and a hard place? Two immovable objects meeting? The math just doesn’t work. Pension trustees don’t face personal liability. They’re literally playing with someone else’s money. Some try very hard to be realistic and cautious. Others don’t. But even the most diligent can’t control when the next recession comes, or when the stock market will crash, leaving a gaping hole in their assets while liabilities keep right on rising. I have had meetings with trustees of various government pensions.

Many of them want to assume a more realistic discount rate, but the politicians in their state literally refuse to allow them to assume a reasonable discount rate, because owning up to reality would require them to increase their current pension funding dramatically. So they kick the can down the road. Intentionally or not, state and local officials all over the US made pension promises that future officials can’t possibly keep. Many will be out of office when the bill comes due, protected from liability by sovereign immunity. We are starting to see cities filing for bankruptcy. That small ripple will be a tsunami within 7–10 years.

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“..a market rally that goes deep into 2019..”

S&P On The Verge Of History (ZH)

U.S. stocks have risen more in the past eight years than in almost any other post-World War II time of economic growth, as defined by the National Bureau of Economic Research. The logic here is that economic expansions fuel bull markets and so it’s reasonable to measure market recoveries after a period of macro contraction ends. Using that definition, let’s review how the S&P 500 has performed during the last ten economic recoveries. To be precise, the birth of the stock market’s bull market is dated as the first day after an NBER-defined recession has ended. The market run continues through the peak. The S&P 500 Index jumped 172% from July 2009, when the current expansion started, through Wednesday. The biggest advance was about 300% and occurred from April 1991 to March 2001, when Internet-related stocks soared.

As Capital Speculator blog’s James Picerno notes, the question before the house: Will the momentum of late endure long enough to overtake the 1991-2001 record in duration and/or magnitude? If so, the bull market in the here and now has to last another 463 trading days, which translates into a market rally that goes deep into 2019. There’s just one thing wrong… Remember – the ‘market’ is not the ‘economy’… or maybe it is in the new normal?

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It really is this simple.

How Austerity Works (Steve Keen)

I provide a simple numerical explanation of how austerity works at the micro (individual person, industrial sector, or country) and the macro level (country, or group of countries in a currency union).

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A thousand different views. At least this one took some homework.

Why Bitcoin May Be Worth Only A Third Of Its Value (MW)

Dan Davies, senior research adviser at Frontline Analysts, argued there’s no point in attempting to value bitcoin as if it were just another type of security. “It’s not a security with some intrinsic value, rather it’s a currency that in the long term is governed by an exchange rate driven by trade or volume of transactions,” Davies said. The fact that a significant proportion of bitcoins is hoarded or held for investment doesn’t disqualify it from being a currency, according to Davies. But the BTC/USD BTCUSD, -3.37% exchange rate is entirely determined by speculative portfolio capital flows right now, he said, leaving it difficult to assign fair value. Viewing bitcoin as a currency makes it possible, at least in theory, to come up with a long-term exchange rate by using the quantity theory of money.

The formula is: MV = PT, where money supply multiplied by its velocity equals the price level multiplied by the transaction volume. Since both price and transaction volume is expressed in U.S. dollars, the price of bitcoin would be 1/BTCUSD, Davies said. In this case, bitcoin’s supply is fixed at 21 million and money velocity for normal currencies is usually at around 10, according to Davies. So, the long-term fundamental value of bitcoin equals the long-term value of transactions that will be carried out in bitcoin divided by 210 million (21 million bitcoins multiplied by velocity). The hardest value to plug into this formula is the transaction volume. If, for example, bitcoin was used primarily for global trade in illicit drugs, the figure would be around $120 billion, which is an estimate the U.N. used in 2014.

“I used that number a few years ago, but we would have to come up with a different estimate, as bitcoin is clearly used for things other than illicit drugs now,” Davies said. Davies declined to offer an updated number, saying he needed to do more research. But doubling that transaction volume number to $240 billion, for example, and dividing by 210 million produces a value of $1,142, around a third of the current exchange rate of $3,569. That isn’t far from an estimate that Mohamed El-Erian, chief economic adviser at Allianz Global Investors, recently suggested as a fair value for bitcoin. In an interview with CNBC, El-Erian said the fair price should be about half or a third of what it is now. El-Erian argued the currency will only survive as a peer-to-peer means of payment and governments won’t allow mass adoption.

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It’s universal.

How Common is the Seneca Curve? (Ugo Bardi)

My talk at the Summer Academy of the Club of Rome was mainly a presentation of my latest book, “The Seneca Effect” (Springer 2017). In practice, of course, a book contains many more things than you can say in a 40 minute speech. So, I tried to concentrate on the idea that the behavior I call “the Seneca Curve” is very common, even universal. Below, you can see the Seneca Curve: things go up slowly but collapse rapidly, as the Roman philosopher Seneca said first some two thousand years ago. You may have heard the old Latin motto, “Natura non facit saltus” (Nature doesn’t make jumps) meaning that things change gradually, not abruptly. It may be true in many circumstances but, in practice, it is wholly normal that Nature accumulates energy potentials (as when you inflate a balloon) and then releases them all of a sudden (as when you puncture a balloon).

There are reasons why Nature behaves in this way, but the point I made at the school was not so much about why the curve is so common but how human beings are not normally aware of it. In fact, our thought is often shaped by the idea that things will continue evolving the way they have been evolving up to a certain point. Just think about economic growth, and you’ll notice how economists expect it to continue forever. It goes without saying that the economy is one of those complex systems which are most vulnerable to the Seneca collapse. So, I tried to stress that the understanding that the Seneca Curve exists and it is common is a recent discovery. Even though Seneca had understood it by intuition already almost 2000 years ago, in its modern form it is less than a century old. It was proposed for the first time by Jay Forrester in the 1960s and it was enshrined in “The Limits to Growth” study of 1972, even though the term “Seneca Effect” was not used.

During my talk, I showed this image to evidence how our ideas on the path that complex systems follow evolved over time. You see how modern the idea of “overshoot” (and the subsequent collapse) is. Malthus just didn’t have it. Despite being often accused of catastrophism, he couldn’t envisage societal collapse; he lacked the necessary intellectual tools. He was an optimist! Today, we have this concept. We know that complex systems tend not just to decline, they tend to collapse. But this perception is totally missing in the general debate. When you mention societal collapse, there are two possible reactions. The most common one is that such a thing will never happen.

Then, if you manage to convince people that it is possible, they endeavor to do everything they can to keep the system going; whatever it takes. They don’t realize that when you exceed the carrying capacity of the system, you have to come back, one way or another. And the more you try to stay above the limit, the faster and the harsher the return will be. What you have to do is to ease the collapse, follow it, not try to stop it. Otherwise, it will be worse.

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Is that corruption I smell?

Greek Debt Write-Offs To Be Based On Properties (K.)

Only business owners with no real estate properties will qualify for a partial write-off of corporate debts in the context of the extrajudicial settlement mechanism. This criterion excludes the owner’s main residence and the production properties, i.e. the professional properties used for the entrepreneurial activity. That was the decision that the technical experts of the country’s creditors are said to have reached with representatives of Greek banks and the Independent Authority for Public Revenue, while there was also convergence on setting the criteria for debt settlement for companies owing between €20,000 and €50,000. In this latter category of debtors, which mostly comprise small enterprises, a standardized procedure will be adopted for assessing repayment capacity and the determination of the amount that the debtor will have to pay on a regular basis.

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The Greece firesale will never come anywhere near the €60 billion, but everyone keeps mentioning the number. Their entire railway system went for €45 million. Selling off an entire country is a very bad idea. Europe will find out, but too late.

The Eurozone May Be Back On Its Feet. But Is Greece? (G.)

“It is obvious. Our policies have changed radically, ” says Stergios Pitsiorlas, the deputy economy and development minister, whose airy office is visited daily by bankers, hedge-fund managers and industrialists jockeying for bargains. “Being leftwing doesn’t mean you are also a fool. It doesn’t mean, in the words of Lenin, that we are useful idiots. Let’s speak seriously. Those who complain that Greece is being sold off, that Greece will lose out, don’t know what they are talking about.” Tall, bearded and bespectacled, Pitsiorlas is the point man in Athens’s attempt to raise €60bn (£53bn) through privatisations – sales that, increasingly, have become the focus of international creditors keeping the debt-stricken country afloat. In what has been called the most ambitious sell-off in modern European history, assets ranging from public utilities and transport companies to marinas and hotels are up for grabs.

[..] Privatisations are central to completion of a new round of bailout negotiations with the EU and IMF. Greece’s third, €86bn, rescue programme is due to end next summer and Tsipras has made a clean exit from it, which would herald Athens’s return to the markets, an overarching goal. But hurdles lie ahead. On Friday, eurozone finance ministers warned that continued persecution of the country’s former statistics chief, Andreas Georgiou, could dent international confidence and derail chances of recovery. Officials also raised the prospect of fresh austerity should Greece fail to hit the primary surplus target of 3.5% – a prospect made likely by a huge shortfall in tax revenues. But in a week when the Italians finally took control of Greece’s state-owned train network (acquired by Italy’s own state operator for a paltry €45m) Pitsiorlas is optimistic.

He cites the takeover of Piraeus port by the Chinese shipping conglomerate Cosco as an example of what privatisations can bring: “They will make it the biggest port in Europe and that will boost other professions, create thousands of jobs, revitalise shipyards, which they are also looking at, pave the way to better trains, roads and logistic centres, and trigger development and growth.” In five years, he enthuses, Greece will be a very different place, cosmopolitan and vibrant. “There are rules which need to be observed but ultimately everything will be solved,” he insisted, referring to the obstacles Eldorado and others have encountered. “A miracle will happen. There will be huge change … but the state can’t do it alone, the private sector has to be involved.”

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What happens to the bricklayers et al?

Chinese Capital Bans Winter Construction To Improve Air Quality (R.)

Beijing will suspend construction of major public projects in the city this winter in an effort to improve the capital’s notorious air quality, official media said on Sunday, citing the municipal commission of housing and urban-rural development. All construction of road and water projects, as well as demolition of housing, will be banned from Nov. 15 to March 15 within the city’s six major districts and surrounding suburbs, said the Xinhua report. The period spans the four months when heating is supplied to the city’s housing and other buildings. China is in the fourth year of a “war on pollution” designed to reverse the damage done by decades of untrammelled economic growth and allay concerns that hazardous smog and widespread water and soil contamination are causing hundreds of thousands of early deaths every year.

Beijing has promised to impose tough industrial and traffic curbs across the north of the country this winter in a bid to meet key smog targets. In the capital, it is aiming to reduce airborne particles known as PM2.5 by more than a quarter from their 2012 levels and bring average concentrations down to 60 micrograms per cubic metre. Last year the city experienced near record-high smog in January and February, which the government blamed on “unfavourable weather conditions” Some ‘major livelihood projects’ such as railways, airports and affordable housing may be continued however, providing they are approved by the commission, said the report.

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Paris is an empty deal.

White House Denies EU Claim That It’s Shifting on Climate Deal (BBG)

The European Union said President Donald Trump’s administration is shifting its approach to a landmark global agreement on climate change, an assertion which was quickly denied by the White House. The U.S. signaled that it’s no longer seeking to withdraw from the pact and then renegotiate it, but rather wants to re-engage with the Paris Agreement from within, said EU’s climate chief Miguel Arias Canete. He spoke in an interview from Montreal, where the U.S., China, Canada and almost 30 other countries gathered to discuss the most-sweeping accord to date to protect the environment. “Our position on the Paris agreement has not changed. @POTUS has been clear, US withdrawing unless we get pro-America terms,” White House Press Secretary Sarah Huckabee Sanders said on Twitter.

Announcing plans to quit the pact, Trump said in June that the agreement favored other countries at the expense of U.S. workers and amounted to a “massive redistribution” of U.S. wealth. Trump’s administration last month began the formal process of exiting from the climate accord, drawing fire from allies and foes alike. EU climate commissioner Canete made the comments about a change of stance after meeting with Everett Eissenstat, deputy director of the National Economic Council and deputy assistant to the president for international economic affairs. “Now we don’t see the messages that they are withdrawing from the Paris agreement radically,” Canete said, adding that the countries at Saturday’s meeting agreed not to seek a re-negotiation of the Paris deal.

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