Apr 092018
 


Andreas Feininger Production B-17 heavy bomber 1942

 

Syria and Russia Accuse Israel Of Missile Attack On Syrian Regime Airbase (G.)
Stocks To Retest Correction Lows As Easy Money Disappears – Boockvar (CNBC)
Albert Edwards On The Next Recession: S&P Below 666 (ZH)
Bad Omen for Markets From First Signs of Yield Curve Inversion
Trump’s Trade War Threatens Central Bank ‘Put’ – Deutsche (BBG)
China Is Studying Yuan Devaluation as a Tool in Trade Spat (BBG)
YouTube Illegally Collects Data On Children – Child Protection Groups (G.)
Number Of UK Buy-to-Let Landlords Reaches Record High (Ind.)
Public Backs Fresh Referendum On ‘Final Say’ On Terms Of Brexit Deal (Ind.)
Murderers & Thieves Sold Out America – Gerald Celente (USAW)
Shell Predicted Dangers Of Fossil Fuels And Climate Change In 1980s (Ind.)
Indigenous People Are Being Displaced Again – By Gentrification (Latimore)
Fish Populations In Great Barrier Reef Collapse After Bleaching Events (Ind.)

 

 

I don’t want TAE to be about warfare, but this situation is getting so absurd it’s starting to feel dangerous. Don’t believe the narrative.

Syria and Russia Accuse Israel Of Missile Attack On Syrian Regime Airbase (G.)

Israeli war planes have bombed a Syrian regime airbase east of the city of Homs, the Russian and Syrian military have said. The Russian military said that two Israeli F-15 war planes carried out the strikes from Lebanese air space, and that Syrian air defence systems shot down five of eight missiles fired. Asked about the Russian statement, an Israeli military spokesman said he had no immediate comment. Syrian state TV reported loud explosions near the T-4 airfield in the desert east of Homs in the early hours of Monday. State TV initially reported that the attack was “most likely” American, a claim the Pentagon has denied.

Video footage on social media in Lebanon showed aircraft or missiles flying low over the country, apparently heading east towards Syria. At least 14 people, mostly Iranians or members of Iran-backed groups, were killed, the UK-based Syrian Observatory for Human Rights monitoring group said. Donald Trump warned on Sunday that the regime and its backers would pay a “high price” for the use of chemical weapons in the attack on rebel-held Douma that killed 42 people, but the Pentagon denied US forces were involved in Monday’s strikes. “However, we continue to closely watch the situation and support the ongoing diplomatic efforts to hold those who use chemical weapons, in Syria and otherwise, accountable,” a Pentagon spokesman said.

Separately, the White House put out an account of a telephone conversation between Trump and Emmanuel Macron, in which the US and French presidents “agreed to exchange information on the nature of the attacks and coordinate a strong, joint response”. Macron has said chemical weapons attacks in Syria would cross a “red line” for France and that French forces would strike if the regime was proven to have been involved. However, the French army denied responsibility for Monday’s attack.

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When the easy money goes, everything follows.

Stocks To Retest Correction Lows As Easy Money Disappears – Boockvar (CNBC)

He’s a Wall Street bear who sees more monster market moves coming — with the majority of them leaving stocks deep in the red. The Bleakley Advisory Group’s Peter Boockvar warns there’s more trouble brewing, because the era of easy money is ending, thanks to global central banks hiking borrowing costs. And as fears intensify over a trade war, Boockvar expects a solution to the tariff issue will eventually come at the expense of rising rates. “We could get that resumption of higher interest rates which would then concern the markets, and then retest the [S&P 500 Index] 2500-ish type lows,” the firm’s chief investment officer told CNBC’s “Futures Now” last week.

“We’re late cycle in the market. We’re late cycle in the economy, and you have an intensification in a tightening of monetary policy,” he said. Boockvar, a CNBC contributor, blamed the end of quantitative easing in the United States and Europe for increasing sell-off risks. “We’re a step closer to them wanting to take away negative interest rates. But there are still trillions of dollars of global bonds that have negative yielding rates,” he added. “So, it’s this rate environment that I think is becoming more of a headwind. That really is my main concern.” He doesn’t believe the situation will abate any time soon. Boockvar contended the 10-Year Treasury yield will push back toward 3 percent — preventing the S&P 500 from cracking above its Jan. 26 record high anytime soon.

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Barron’s interview with Albert Edwards via ZH, who add a little David Rosenberg intro:

Albert Edwards On The Next Recession: S&P Below 666 (ZH)

The Fed generally tightens rates until something breaks. David Rosenberg points out that since 1950 there have been 13 Fed tightening cycles, and 10 of them ended in recession (while the others have often ended in emerging market blow-ups, like the 1994 Mexican peso crisis). Surging delinquency and charge-off rates for smaller banks suggest the breaking point for the economy may come sooner than the Fed and bulls expect.

What happens to stocks during the next recession? The Federal Reserve managed to short-circuit this derating process. In 2011, when quantitative easing, or QE, really kicked in, equity re-engaged with bond yields and P/Es expanded. Like an artificial stimulant, QE inflated all asset prices away from fundamental value and from where they would otherwise have gone. We haven’t seen the lows in bond yields. In the next recession, bond yields in the U.S. will go negative and converge with those in Germany and Japan. The forward U.S. P/E bottomed at about 10.5 times in March 2009 on trough earnings. That was lower than the previous recession.

In the next recession, I would expect the P/E to bottom at about seven times, a lower low with earnings about 30% lower because of the recession. That would put the S&P lower than the 666 low of the previous crash, versus 2671 Thursday afternoon. If a recession unfolds, easy monetary policy won’t stop the market from collapsing. It will play itself out.

When will the recession hit: The Conference Board’s leading indicators look OK for now. What’s different is that problems in the real economy aren’t being reflected in the stock and bond markets. What we may see is the reverse: The stock market and parts of the credit markets collapse and cause problems in the real economy. If confidence collapses because the equity market collapses, then a recession unfolds.

Will the US be hit harder than Japan and Europe in the next bear market? It should be. Traditionally, if the U.S. goes down 20%, the German Dax, though it is cheaper, would tend to go down a little more. Maybe this time it won’t. Japan is the one market we do like now on a long-term basis, and one of the reasons is the buildup of U.S. corporate debt during these past few years. The big bubble is U.S. corporate debt. In contrast, Japan’s corporate debt is collapsing. Over half of its companies have more cash than debt. When the Fed buys U.S. Treasuries, it pulls down all yields. There has been demand for yield, so investors look at corporate bonds as an alternative. Companies have been very keen to issue them, and they have used the money to buy back stock or as a way to enrich management. This is the way QE has washed through the system here.

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“..rising expectations of a Fed policy mistake.. We could argue that mistake is 10 years old by now.

Bad Omen for Markets From First Signs of Yield Curve Inversion

The forward curve of a closely watched proxy for the Federal Reserve’s policy rate has slightly inverted, signaling investors are either pricing in a mistake from central bankers or end-of-cycle dynamics, according to JPMorgan Chase. The inversion of the one-month U.S. overnight indexed swap rate implies some expectation of a lower Fed policy rate after the first quarter of 2020, the bank’s strategists including Nikolaos Panigirtzoglou, wrote in a note Friday. “An inversion at the front end of the U.S. curve is a significant market development, not least because it occurs rather rarely,” they said. “It is also generally perceived as a bad omen for risky markets.”

The negative market signal comes as investors grapple with higher short term borrowing costs, which have risen in the U.S. to levels unseen since the financial crisis. While the strategists admit it is difficult to discern which of the two explanations for the curve inversion carries more weight, flow data suggests it is more likely to be rising expectations of a Fed policy mistake.

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No, Bloomberg, we know that China can’t dump Treasuries. The “end of Chimerica” sounds poetic though.

Trump’s Trade War Threatens Central Bank ‘Put’ – Deutsche (BBG)

A breakdown in the relationship between dollar weakness and Asian central bank intervention poses a risk to Treasuries, stocks and all risky assets, according to Deutsche Bank. Attempts by the Trump administration to clamp down on currency manipulation have limited the ability of central banks across the region to buy U.S. assets when the dollar weakens, and dampen the appreciation of their currencies, strategist Alan Ruskin write in a note Friday. These purchases have historically limited the greenback’s downside and acted as a “put” on Treasury market weakness, he wrote. Such central bank puts are usually associated with successive Federal Reserve chairs willing to support the wider market with loose monetary policy.

While such puts have been a continuous focus for investors, markets now risk overlooking other sources of central bank support that may be slipping as the U.S.’s “synergistic relationship with China,” comes to an end, according to Ruskin. “It is not a coincidence that in this recent period of dollar weakness, Treasury bonds were also soft,” he said. “Historically, foreign central banks of sizable current account surplus countries like China, Taiwan, Korea and Thailand would have been intervening.” According to the strategist, the “end of Chimerica” means American current account deficits are no longer financed to the same degree by Asian central bank reserve recycling of corresponding trade surpluses. That reduction in demand for Treasuries from foreign reserves is coming at a time when U.S. fiscal supply is set to increase dramatically, putting extra pressure on the country’s bond market.

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This is more likely. Risky for China though, but there must be plans to shore up domestic firms.

China Is Studying Yuan Devaluation as a Tool in Trade Spat (BBG)

China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in a trade spat with U.S. President Donald Trump that has roiled financial markets worldwide. Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part of the analysis looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China depreciates the yuan to offset the impact of any trade deal that curbs exports. The analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders, the people said.

The yuan erased early gains on Monday, weakening 0.1 percent to 6.3110 per dollar in onshore trading at 3:32 p.m. local time. While Trump regularly bashed China on the campaign trail for keeping its currency artificially weak, the yuan has gained about 9 percent against the greenback since he took office as China’s economic growth stabilized, the government clamped down on capital outflows and fears of a credit crisis receded. The Chinese currency touched the strongest level since August 2015 last month and has remained steady in recent weeks despite an escalation of trade tensions between the world’s two largest economies.

While a weaker yuan could help President Xi Jinping shore up China’s export industries in the event of widespread tariffs in the U.S., a devaluation comes with plenty of risks. It would make it easier for Trump to follow through on his threat to brand China a currency manipulator, make it more difficult for Chinese companies to service their mountain of offshore debt, and undermine recent efforts by the government to move toward a more market-oriented exchange rate system. It would also expose China to the risk of local financial-market volatility, something authorities have worked hard to subdue in recent years.

When China unexpectedly devalued the yuan by about 2 percent in August 2015, the move sent shock-waves through global markets. “Is it in their interest to devalue yuan? It’s probably unwise,” said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets Hong Kong Ltd. “Because if they use devaluation as a weapon, it could hurt China more than the U.S. The currency stability has helped to create a macro stability. If that’s gone, it could destabilize markets, and things would look like 2015 again.”

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No really, it’s everywhere. What they can do, they will.

YouTube Illegally Collects Data On Children – Child Protection Groups (G.)

A coalition of 23 child advocacy, consumer and privacy groups have filed a complaint with the US Federal Trade Commission alleging that Google is violating child protection laws by collecting personal data of and advertising to those aged under 13. The group, which includes the Campaign for a Commercial-Free Childhood (CCFC), the Center for Digital Democracy and 21 other organisations, alleges that despite Google claiming that YouTube is only for those aged 13 and above, it knows that children under that age use the site. The group states that Google collects personal information on children under 13 such as location, device identifiers and phone numbers and tracks them across different websites and services without first gaining parental consent as required by the US Children’s Online Privacy Protection Act (Coppa).

The coalition urges the FTC to investigate and sanction Google for its alleged violations. “For years, Google has abdicated its responsibility to kids and families by disingenuously claiming YouTube — a site rife with popular cartoons, nursery rhymes, and toy ads — is not for children under 13,” said Josh Golin, executive director of the CCFC. “Google profits immensely by delivering ads to kids and must comply with Coppa. It’s time for the FTC to hold Google accountable for its illegal data collection and advertising practices.”

The group claims that YouTube is the most popular online platform for children in the US, used by about 80% of children aged six to 12 years old. Google has a dedicated app for children called YouTube Kids that was released in 2015 and is designed to show appropriate content and ads to children. It also recently took action to hire thousands of moderators to review content on the wider YouTube after widespread criticism that it allows violent and offensive content to flourish, including disturrbing children’s content and child abuse videos.

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Bizarro housing.

Number Of UK Buy-to-Let Landlords Reaches Record High (Ind.)

The number of buy-to-let investors in the UK rose to a record high of 2.5 million in the latest tax year, new research shows. The increase of 5% on the previous year comes despite the introduction of a host of extra taxes and regulations on the sector. In recent years, the government has brought in a 3% Stamp Duty levy, new stress tests for home loans, and ended mortgage interest tax relief. The number of landlords has increased 27% in the past five years, up from 1.97 million in 2011-12, research by London-focused estate agent Ludlow Thompson found.

Landlords now own an average of 1.8 buy-to-let properties each – a figure that has risen for the fifth consecutive year. The data suggests that landlords continue to see residential property, especially in London, as a strong investment, despite signs that house price growth has stalled or even gone into reverse in some areas in the last year. Investors have seen annual returns of almost 10% since 2000, Ludlow Thompson said. Chairman Stephen Ludlow said the rising number of landlords shows the enduring appeal of investing in buy-to-let. “The long-term picture for the buy-to-let market remains strong,” he said.

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No chance of a second vote for now. But that may change yet.

Public Backs Fresh Referendum On ‘Final Say’ On Terms Of Brexit Deal (Ind.)

Support is growing for a fresh referendum on the final Brexit deal, according to a new poll showing the public back the idea for the first time. The survey found that 44% of people want a vote on the exit terms secured by Theresa May, amid continued uncertainty over the withdrawal agreement. That is a clear eight points ahead of the 36% who reject a further referendum, the research conducted for the anti-Brexit Best for Britain group showed. The group pointed to evidence that “Brexit is sharpening the British public’s minds” and called for MPs to respond to the people’s growing desire for a “final say”.

The referendum would be held on the details of the deal the prime minister must strike by the autumn – on both the planned transition period and a “framework” for a permanent trade and security relationship. Eloise Todd, Best for Britain’s chief executive, said voters should be allowed to choose between the details of the future on offer outside the EU, or staying inside the bloc. “Now there is a decisive majority in favour of a final say for the people of our country on the terms of Brexit. This poll is a turning point moment,” she said. “The only democratic way to finish this process is to make sure the people of this country – not MPs across Europe – have the final say, giving them an informed choice on the two options available to them: the deal the government brings back and our current terms.

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Celente rants are always good.

Murderers & Thieves Sold Out America – Gerald Celente (USAW)

Renowned trends researcher Gerald Celente says the trade war President Trump is starting against China must be fought for America to survive. Celente explains, “We have lost 3.5 million jobs (to China). Some 70,000 manufacturing plants have closed. Why would anybody be fighting Trump to do a reversal of us being in a merchandise trade deficit of $365 billion? Tell me any two people that would do business with each other and one side takes a huge loss and keeps taking it. . . So, why would people argue and fight and bring down the markets because Trump wants to bring back jobs and readjust a trade deficit that, by any standard, is destroying the nation?” Who’s to blame for the lopsided trade deficits destroying the middle class of America?

Look no further than the politicians and corporations buying them off. Celente charges, “They sold us out. The European companies and the American companies sold us out, and the people fighting Trump are also the big retailers because they’ve got their slave labor making their stuff over there. They bring it back here and mark up the price, and they make more money. If they have to pay our people to do that work, they have to pay them a living wage and they can’t make enough profit. That’s who is fighting us. . You go back to our top trend in 2017, and it was China was going to be the leader in AI (artificial intelligence) now and beyond, and that is exactly what happened. All the corporations have sold us out. . . .The murderers and the thieves sold out America.”

Celente thinks the odds are there will not be a financial crash in 2018 “because they are repatriating all that dough from overseas at a very low tax rate and because of the tax cuts from 35% to 21%. These are the facts. In the first three months of this year, there have been more stock buybacks and mergers and acquisitions activity than ever before in this short period of time because of all that cheap money going back into the corporations. That’s what’s keeping the markets up.”

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Shell’s political power will shield it.

Shell Predicted Dangers Of Fossil Fuels And Climate Change In 1980s (Ind.)

Oil giant Shell was aware of the consequences of climate change, and the role fossil fuels were playing in it, as far back as 1988, documents unearthed by a Dutch news organisation have revealed. They include a calculation that the oil company’s products alone were responsible for 4% of total global carbon emissions in 1984. They also predict that changes to sea levels and weather would be “larger than any that have occurred over the past 12,000 years”. As a result, the documents foresee impacts on living standards, food supplies and other major social, political and economic consequences.

In The Greenhouse Effect, a 1988 internal report by Shell scientists, the authors warned that “by the time the global warming becomes detectable it could be too late to take effective countermeasures to reduce the effects or even to stabilise the situation”. They also acknowledged that many experts predicted an increase in global temperature would be detectable by the end of the century. They went on to state that a “forward-looking approach by the energy industry is clearly desirable”, adding: “With the very long time scales involved, it would be tempting for society to wait until then before doing anything. “The potential implications for the world are, however, so large that policy options need to be considered much earlier. And the energy industry needs to consider how it should play its part.”

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Money trumps history.

Indigenous People Are Being Displaced Again – By Gentrification (Latimore)

It is symptomatic of the colonial-settler prerogative that has sought to eliminate the offensive presence of the natives from any profitable territory. In 21st-century Australia, the “dispersal” that began with European invasion continues through the gentrification of city suburbs where Indigenous identities persist. In the colonial argot of the 19th century, dispersal euphemistically described a bloody practice of massacre and forced dispossession of First Nations peoples, often performed as punishment for perceived theft, or any other form of resistance to the colonisers more generally. In the early and mid-20th century, blackfullas were forcibly coerced into government reserves most commonly known as “missions”.

The overarching intent of these “protection” policies was to ensure the dissolution of First Nations culture and traditional governance structures, pushing mob to develop from “their former primitive state to the standards of the white man”, as the Aboriginal Protection Board said in 1935. When the missions began to be disbanded after the second world war, it forced significant Indigenous migration from the bush to towns and cities, where we repopulated places like Fitzroy, Brisbane’s West End and particularly Redfern in great numbers. This 1950s policy of “assimilation” was essentially a state-sanctioned experiment to force Indigenous people to give up their beliefs and traditions as they adapted to urban life.

[..] Yet the place of blackfullas in Australia’s cities is under threat. Faced with rapid gentrification and associated rental and ownership price hikes, urban Indigenous populations continue to relocate to the outer suburbs, where cheaper housing is usually located. The trend could be viewed as a contemporary iteration of the dispersals of the past – decidedly less bloody, though equally impelled by capitalistic imperatives.

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Logic.

Fish Populations In Great Barrier Reef Collapse After Bleaching Events (Ind.)

The coral bleaching events that have devastated the Great Barrier Reef in recent years have also taken their toll on the region’s fish population, according to a new study. While rising temperatures on the reef killed nearly all the coral in some sections, the effects on the wider marine community have been less clear. Now, scientists have begun to establish the long-term effects of bleaching events on the Great Barrier Reef’s fish population. This work is essential for researchers trying to understand what will happen to coral reef ecosystems as global warming makes mass bleaching events more frequent. “The widespread impacts of heat stress on corals have been the subject of much discussion both within and outside the research community,” said PhD student Laura Richardson of the ARC Centre of Excellence for Coral Reef Studies.

“We are learning that some corals are more sensitive to heat stress than others, but reef fishes also vary in their response to these disturbances.” Ms Richardson and her collaborators studied reefs in the northern section of the Great Barrier Reef, where around two-thirds of corals were killed in the 2016 bleaching event that followed a global heatwave. The researchers found there were “winners” and “losers” among the fish species on the reef, but overall there was a significant decline in the variety of species following bleaching. Their results were published in the journal Global Change Biology. “Prior to the 2016 mass bleaching event, we observed significant variation in the number of fish species, total fish abundance and functional diversity among different fish communities,” said co-author Dr Andrew Hoey.

“Six months after the bleaching event, however, this variation was almost entirely lost.” Predictably, the scientists noted that fish with intimate associations with corals suffered severe losses. Butterflyfish, which feed on corals, faced the steepest declines. In response to the looming threat of coral bleaching, scientists have called for “radical interventions” to save the world’s reefs. Some have suggested that more than 90% of corals could die by 2050 at the current rate of global warming.

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Apr 112016
 


Dorothea Lange Butter bean vines across the porch, Negro quarter, Memphis, Tennessee 1938

US Banks’ Dismal First Quarter Spells Trouble For 2016 (Reuters)
US Faces ‘Disastrous’ $3.4 Trillion Pension Funding Hole (FT)
Abenomics Rebuked As BlackRock Joins $46 Billion Japan Pullout (BBG)
Beijing Risks ‘Sterling-Style’ Currency Crisis As Deflation Persists (AEP)
Chinese Buyers Double Their Aussie Property Investments, Again (BBG)
In BP’s Final $20 Billion Gulf Settlement, US Taxpayers Pay $15.3 Billion (F.)
British Banks’ ‘Misconduct Bill’ Has Reached Nearly $75 Billion (Reuters)
The 1% Hide Their Money Offshore – Then Use It To Corrupt Our Democracy (G.)
Hit By Panama Row, Cameron Announces New Tax Evasion Law In 2016 (Reuters)
Italy Pushes For ‘Last Resort’ Bank Rescue Fund (FT)
Austria Regulator Imposes 54% Haircut, Long Wait On Heta Bank Creditors (R.)
As Ukraine Collapses, Europeans Tire of Us Interventions (Ron Paul)
State Of Emergency Over Suicide Epidemic In Canada’s First Nations (G.)
Mass Coral Bleaching Now Affects Half Of Great Barrier Reef (G.)
Fewer Than 0.1% Of Syrians In Turkey In Line For Work Permits (G.)
Hundreds Hurt As Refugees Confront FYROM Border Police Tear Gas (AP)

When TBTF starts failing, watch your wallet.

US Banks’ Dismal First Quarter Spells Trouble For 2016 (Reuters)

It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks. Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week. Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth. Analysts forecast a 20% decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs, are expected to report the worst results in over ten years.

This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year. “What’s concerning people is they’re saying, ‘Is this going to spill over into other quarters?'” Goldman’s Richard Ramsden said in an interview. “If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium.” Investors will get some insight on Wednesday, when earnings season kicks off with JPMorgan, the country’s largest bank. That will be followed by Bank of America and Wells Fargo on Thursday, Citigroup on Friday, and Morgan Stanley and Goldman Sachs on Monday and Tuesday, respectively, in the following week.

Banks have been struggling to generate more revenue for years, while adapting to a panoply of new regulations that have raised the cost of doing business substantially. The biggest challenge has been fixed-income trading, where heavy capital requirements, new derivatives rules, and restrictions on proprietary trading have made it less profitable, leading most banks to simply shrink the business. Bank executives have already warned investors to expect major declines across other areas as well. Citigroup CFO John Gerspach said to expect trading revenue more broadly to drop 15% versus the first quarter of last year. JPMorgan’s Daniel Pinto said to expect a 25% decline in investment banking. Several bank executives have warned about declining quality of energy sector loans.

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“California, Illinois, New Jersey, Chicago and Austin, would need to put at least 20% of their revenues into their pension plans to prevent a rise in their deficits, while Nevada would have to contribute almost 40%.”

US Faces ‘Disastrous’ $3.4 Trillion Pension Funding Hole (FT)

The US public pension system has developed a $3.4tn funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies. According to academic research shared exclusively with FTfm, the collective funding shortfall of US public pension funds is three times larger than official figures showed, and is getting bigger. Devin Nunes, a US Republican congressman, said: “It has been clear for years that many cities and states are critically underfunding their pension programmes and hiding the fiscal holes with accounting tricks.” Mr Nunes, who put forward a bill to the House of Representatives last month to overhaul how public pension plans report their figures, added: “When these pension funds go insolvent, they will create problems so disastrous that the fund officials assume the federal government will have to bail them out.”

Large pension shortfalls have already played a role in driving several US cities, including Detroit in Michigan and San Bernardino in California, to file for bankruptcy. The fear is other cities will soon become insolvent due to the size of their pension deficits. Joshua Rauh, a senior fellow at the Hoover Institution, a think-tank, and professor of finance at the Stanford Graduate School of Business, who carried out the study, said: “The pension problems are threatening to consume state and local budgets in the absence of some major changes. “It is quite likely that over a five to 10-year horizon we are going to see more bankruptcies of cities where the unfunded pension liabilities will play a large role.” The Stanford study found that the states of Illinois, Arizona, Ohio and Nevada, and the cities of Chicago, Dallas, Houston and El Paso have the largest pension holes compared with their own revenues.

In order to deal with the large funding shortfall, many cities and states will have to increase their contributions to their pension funds, either by raising taxes or cutting spending on vital services. Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania, told FTfm last month that US public pension plans face “grave difficulties”. “I do believe that US cities and towns will continue to suffer, and there will be additional bankruptcies following the examples of Detroit,” she said. Currently, states and local governments contribute 7.3% of revenues to public pension plans, but this would need to increase to an average of 17.5% of revenues to stop any further rises in the funding gap, the research said. Several cities and states, including California, Illinois, New Jersey, Chicago and Austin, would need to put at least 20% of their revenues into their pension plans to prevent a rise in their deficits, while Nevada would have to contribute almost 40%.

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“A lot of people are starting to doubt Abenomics.” Very few have ever believed in it. But there was free money to be had.

Abenomics Rebuked As BlackRock Joins $46 Billion Japan Pullout (BBG)

For global equity investors and Shinzo Abe, it’s splitsville. Starting in the first days of 2016, foreign traders have been pulling out of Tokyo’s stock market for 13 straight weeks, the longest stretch since 1998. Overseas traders dumped $46 billion of shares as economic reports deteriorated, stimulus from the Bank of Japan backfired and the yen’s surge pressured exporters. The benchmark Topix index is down 17% in 2016, the world’s steepest declines behind Italy. Losing the faith of foreigners would be a blow to the Japanese prime minister – they’re the most active traders in a market Abe has held up as a litmus on his growth strategies. “Japan is back,” and “Buy my Abenomics!” he proclaimed during a visit to the New York Stock Exchange in September 2013, when shares were marching to an eight-year high.

Now about half of those gains are gone and BlackRock, the world’s largest money manager, is among firms ending bullish calls on Japan equities. “Japan has been disappointing,” said Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors, which oversees about $115 billion. He’s a long-time fan of Tokyo equities who says he’s now looking for opportunities to sell. “A lot of people are starting to doubt Abenomics.” While markets elsewhere are climbing back from a global selloff, investors in Japan see fewer reasons for optimism. Growing concern that Abenomics – the three-pronged strategy of fiscal and monetary stimulus and structural reform – is falling flat has spurred speculation the nation will slip into deflation, setting back efforts to end three decades of malaise.

Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui, fears a downward spiral. Foreigners are needed to boost the stock market, and if equities don’t rise the public will lose confidence and curb spending, as he sees it. That could send Japan back into deflation. “If foreigners don’t come back, the future of Abenomics could be jeopardized,” he said.

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“Reserves will continue to fall until we devalue. Once we get towards $2 trillion the markets will start to panic. They won’t believe that the government can control it any longer..”

Beijing Risks ‘Sterling-Style’ Currency Crisis As Deflation Persists (AEP)

A top adviser to the Chinese government has warned that Beijing risks a currency blow-up akin to Britain’s traumatic ordeal in 1992, if it continues trying to defend its exchange rate peg amid a deepening deflation crisis. Yu Hongding, a director of the Chinese Academy of Social Sciences, said China is caught in two concurrent “deflationary spirals” that are feeding on the other. A major devaluation and a blast of well-targeted fiscal stimulus will be needed to break out of the trap. “They must stop intervening on the exchange market. China needs to devalue by 15pc. They are creating conditions for speculators,” he told the Daily Telegraph, speaking at the Ambrosetti forum of global policymakers on Lake Como.

Prof Yu, a former rate-setter for the PBOC and currently a member of the national planning committee, said the government is making a serious mistake in trying to defend the yuan by burning through foreign exchange reserves, already down to $3.2 trillion from $4 trillion in mid-2014. He warned that the slowdown in capital outlows in March may prove fleeting. “Reserves will continue to fall until we devalue. Once we get towards $2 trillion the markets will start to panic. They won’t believe that the government can control it any longer,” he said. Prof Yu said Beijing had been caught off guard by the relentless slowdown over the last five years. “In 2011 we thought the economy would stabilize, and we thought the same thing in 2012, and again in 2013, and it continued to slide,” he said.

It is far from clear whether the world could handle a 15pc devaluation given the vast scale of Chinese overcapacity, or that the US Treasury and Congress would tolerate such a move. Fears of uncontrollable capital flight and a yuan devaluation were key reasons for the plunge in global equity markets earlier this year, and are clearly what prompted the US Federal Reserve to delay rate rises. The fate of China’s currency has become the most neuralgic issue in global finance. One worry is that a sharp drop in the yuan would set off a second round of ‘currency wars’ across East Asia, transmitting a deflationary shock through the international system as cheap Asian exports flooded into Western markets.

Prof Yu’s life is a remarkable story of achievement in Maoist China. He worked for ten years in a machine factory, wrestling with Marx’s Das Kapital at night before discovering western economics. He devoured Paul Samuelson’s classic text, ‘Foundations of Economic Analysis’, first in a Chinese translation and then in the original after teaching himself English, no easy feat in the Cultural Revolution. He went onto to earn a doctorate at Oxford University, and was still in England when sterling was blown out of the European Exchange Rate Mechanism in September 1992. He still recalls the exact details of the debacle, including the two desperate rate rises by the Bank of England in a single day. “The British experience is very interesting for us,” he said.

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Keeps the bubble alive until it doesn’t.

Chinese Buyers Double Their Aussie Property Investments, Again (BBG)

Chinese appetite for property in Australia shows no sign of waning after buyers doubled investment in the nation’s homes and offices for a second straight year. Spending on Australian residential and commercial real estate rose to A$24.3 billion ($18.4 billion) in the 12 months through June 2015, up from A$12.4 billion a year earlier and A$5.9 billion in 2013, according to the Foreign Investment Review Board’s annual report. All Chinese investors in a survey conducted by KPMG and the University of Sydney want to allocate more money to Australia, a separate report showed on Monday. Real estate is fueling inflows from the world’s second largest economy, which last year overtook the U.S. as Australia’s largest foreign investor.

“Overall we are seeing a strong story of Chinese investment into Australia’s broader economy which is in line with premium products, services and lifestyle-oriented themes,” Doug Ferguson, head of KPMG Australia’s Asia and International Markets and co-author of the report, said in a statement. Purchases by foreigners, many with a connection to China, helped drive an almost 55% jump in home prices across Australia’s capital cities in the past seven years as mortgage rates dropped to five-decade lows. The rising demand has triggered community concern that locals are being priced out of the property market, prompting the government to tighten scrutiny of foreign investment.

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Like so many other things these days, perfectly legal.

In BP’s Final $20 Billion Gulf Settlement, US Taxpayers Pay $15.3 Billion (F.)

Now that a judge has approved BP’s $20 billion settlement over the 2010 gulf oil spill, it is appropriate to look at the overall societal costs, as well as the bottom line to BP. And at tax time, people understandably think about their own taxes, too. The government struck a $20 billion settlement with BP, which is a big number. Yet BP should be able to deduct the vast majority, a whopping $15.3 billion, on its U.S. tax return. That means American taxpayers are contributing quite a lot to this settlement, whether they know it or not. BP can write off the natural resource damages payments, restoration, and reimbursement of government costs. Only $5.5 billion is labeled as a non-tax-deductible Clean Water Act penalty. One big critic of the deal is U.S. Public Interest Research Group, which often rails against tax deductions by corporate wrongdoers.

U.S. Public Interest Research Group has asked the Justice Department to deny tax deductions for BP and other corporate defendants. U.S. PIRG’s has a research report on settling for a lack of accountability that details the tax deductions corporations can claim for legal settlement. However, a change to the tax code may be the only way to get there. The proposed Truth in Settlements Act (S. 1898) would require agencies to report after-tax settlement values. Another bill, S. 1654, would restrict tax deductibility and require agencies to spell out the tax status of settlements. The present tax code allows businesses to deduct damages, even punitive damages. Restitution and other remedial payments are also fully deductible. Only certain fines or penalties are nondeductible. Even then, the rules are murky, and companies routinely deduct payments unless it is completely clear that they cannot.

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No bankers have been indicted, and no shareholder has taken them to court.

British Banks’ ‘Misconduct Bill’ Has Reached Nearly $75 Billion (Reuters)

Lawsuits and misconduct fines have cost Britain’s largest retail banks and customer-owned lenders almost 53 billion pounds ($74.86 billion) over the past 15 years, a new study has found. The scale of the payouts has hampered banks’ efforts to rebuild capital, restricted the amount they are able to lend and reduced dividends for investors. Britain’s banks have been hit by scandals ranging from the manipulation of foreign exchange and benchmark interest rates to the mis-selling of loan insurance and complex interest-rate hedging products. While lenders have struggled to return money to shareholders because of the charges, they have continued to pay billions of pounds in bonuses to staff, the study by the independent think-tank New City Agenda said.

“The profitability of UK retail banks has been imperilled by persistent misconduct,” said John McFall, a director of New City Agenda and former Treasury Committee chairman. “This has made every citizen poorer through our pension funds and our ownership of the bailed out banks.” The report said the mis-selling of payment protection insurance alone cost banks at least 37.3 billion pounds in Britain’s costliest consumer scandal. Lloyds had to set aside 14 billion pounds to cover misconduct between 2010 and 2014, almost twice the amount of any other British lender, the report said.

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Yup, that’s how it works.

The 1% Hide Their Money Offshore – Then Use It To Corrupt Our Democracy (G.)

Over the past 72 hours, you have seen our political establishment operating at a level of panic rarely equalled in postwar history. Britain’s prime minister has had yanked out of him some of his most intimate financial details. Complete strangers now know how much he’s inherited so far from his mum and dad, and the offshore investments from which he’s profited. Yesterday he even took the unprecedented step of revealing the taxes he’d paid over the past six years. Leaders of other parties have responded by summarily publishing their own HMRC returns. In contemporary Britain, where one’s extramarital affairs are more readily discussed in public than one’s tax affairs, this is jaw-dropping stuff. And it will not stop here.

Whatever the lazy shorthand being used by some commentators, David Cameron has not released his tax returns, but merely a summary certified by an accountants’ firm. That halfway house will hardly be enough. If Jeremy Corbyn, other senior politicians and the press keep up this level of attack, then within days more details of the prime minister’s finances will emerge. Nor will the flacks of Downing Street be able to maintain their lockdown on disclosing how many cabinet members have offshore interests: the ministers themselves will break ranks. Indeed, a few are already beginning to do so. But the risk is that all this will descend into a morass of semi-titillating detail: a string of revelations about who gave what to whom, and whether he or she then declared it to the Revenue.

The story will become about “handling” and “narrative” and individual culpability. That will be entertaining for those who like to point fingers, perplexing for those too busy to engage in the detail – and miss the wider truth revealed by the leak which forced all this into public discussion. Because at root, the Panama Papers are not about tax. They’re not even about money. What the Panama Papers really depict is the corruption of our democracy. Following on from LuxLeaks, the Panama Papers confirm that the super-rich have effectively exited the economic system the rest of us have to live in. Thirty years of runaway incomes for those at the top, and the full armoury of expensive financial sophistication, mean they no longer play by the same rules the rest of us have to follow. Tax havens are simply one reflection of that reality.

Discussion of offshore centres can get bogged down in technicalities, but the best definition I’ve found comes from expert Nicholas Shaxson who sums them up as: “You take your money elsewhere, to another country, in order to escape the rules and laws of the society in which you operate.” In so doing, you rob your own society of cash for hospitals, schools, roads… But those who exited our societies are now also exercising their voice to set the rules by which the rest of us live. The 1% are buying political influence as never before. Think of the billionaire Koch brothers, whose fortunes will shape this year’s US presidential elections. In Britain, remember the hedge fund and private equity barons, who in 2010 contributed half of all the Conservative party’s election funds – and so effectively bought the Tories their first taste of government in 18 years.

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He will have to reveal a lot more of his own finances, no matter what laws he has lying on the shelf.

Hit By Panama Row, Cameron Announces New Tax Evasion Law In 2016 (Reuters)

British Prime Minister David Cameron will say on Monday that new legislation making companies criminally liable if employees aid tax evasion will be introduced this year, as he seeks to repair the damage from a week of questions about his personal finances. Cameron published tax records on Sunday to try and defuse criticism over his handling of the fallout from the Panama Papers, in which his late father was mentioned for setting up an offshore fund. After four carefully worded statements in four days, Cameron bowed to pressure and admitted that he had benefited from selling his share in his father’s fund in 2010. He recognized on Saturday that he had mishandled the disclosure. Cameron is leading efforts to persuade British voters to stay in the EU in a June 23 referendum that the polls suggest will be tight, and the tax row has raised concerns among the “in” camp that their cause may have been damaged.

The prime minister will attempt to regain the upper hand when he appears in the House of Commons later on Monday. “This government has done more than any other to take action against corruption in all its forms, but we will go further,” Cameron will say, according to advance excerpts of his statement circulated by his Downing Street office. “That is why we will legislate this year to hold companies who fail to stop their employees facilitating tax evasion criminally liable,” he will say. The plan had already been announced by finance minister George Osborne in March 2015, but previously the commitment was to introduce the legislation by 2020, Downing Street said. The decision to speed up that particular measure is unlikely to satisfy Cameron’s many critics in opposition parties and in some campaign groups that say Britain already has the tools it needs to crack down on tax evasion but lacks the will.

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Debt restructuring is still a four letter word in Europe.

Italy Pushes For ‘Last Resort’ Bank Rescue Fund (FT)

Italy is rushing to cobble together an industry-led rescue to address mounting concerns over the solidity of a banking sector whose woes pose a risk to the wider eurozone economy. Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan. Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks, Monte dei Paschi di Siena, from contagion, according to people involved in the talks. Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. Lenders’ profitability has been hit by a crippling three-year recession.

The plan being worked on, which could be officially announced as soon as Monday evening, recalls the Sareb bad bank created in 2012 by the Spanish government to deal with financial crisis in its smaller cajas banks, say people involved. Although the details remain under discussion, it foresees the establishment of a private vehicle that will include upwards of €5bn in equity contributions – mostly from Italy’s banks, insurers and asset managers – and then a larger debt component. The fund will then mop up shares in distressed lenders. A second vehicle will seek to buy non-performing loans at market prices. “It is a backstop fund,” said one person involved in the talks. The Italian government can provide only limited financial backing because of EU state aid rules and because it is already struggling under a public debt load that amounts to 132.5% of GDP.

The bailout marks the latest and most wide-reaching attempt by Italy to shore up confidence having already sponsored the rescue of four small banks last year and passed a law intended to speed up the sale of bad loans. Both earlier measures failed to eradicate market concerns. [..] people involved in the talks question whether the plan would have the financial scope to provide a buffer of last resort for Monte dei Paschi di Siena. Italy’s third-largest bank was the worst performer in the 2014 European stress tests, with about €170bn in assets and about €50bn in bad loans. It is considered by many bankers to be the major risk to Italian financial stability and regarded as too big to fail. “Monte Paschi is the elephant in the room,” says one of Italy’s top bankers.

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Is this an attempt to let Carinthia go broke after all?

Austria Regulator Imposes 54% Haircut, Long Wait On Heta Bank Creditors (R.)

Austria’s financial markets regulator FMA on Sunday cut the nominal value of “bad bank” Heta Asset Resolution’s senior bonds by more than half, highlighting the long struggle creditors face for repayment if a settlement is not reached. The FMA, which is overseeing the wind-down of Heta, on Sunday announced measures including the bail-in, or haircut, of 54%, the extension of bonds’ maturities to 2023 and the cancellation of coupon payments as of March of last year.The announcement is the latest chapter in a standoff between the province of Carinthia and Heta’s creditors, many of which insist on repayment in full because their bonds were guaranteed by Carinthia, which could push the province into insolvency.

Carinthia guaranteed the bonds of local lender Hypo Alpe Adria before it collapsed and Heta was formed to wind it down. Carinthia says it cannot afford to fully honour the remaining guarantees, which the FMA put at €11.1 billion. Creditors are likely to sue Carinthia to recover the difference between what is paid out to them under Heta’s wind-down and their bonds’ full face value. The FMA put that difference at €6.4 billion, roughly three times the annual budget of Carinthia, a southern province of about 560,000 people that borders Italy and Slovenia and was long the stronghold of far-right politician Joerg Haider. The haircut’s size is based on the amount the FMA expects will be recovered from the sale of Heta’s assets by 2020.

It had said the estimate would be conservative to ensure that, if it is wide of the mark, there is extra revenue to be shared out. Only by the end of 2023 will it be possible to pay out all funds owed, the FMA said, partly in anticipation of many court cases, meaning creditors face a wait of seven years for their repayment of 46% of senior bonds’ face value. Carinthia offered to buy back the bonds it guaranteed, with loans from the Austrian government, for 75% of senior bonds’ face value, plus a last-minute sweetener by the Austrian government that brought the offer to around 82%. Too few creditors accepted the offer when it expired last month, and the question is now whether a compromise can be found or whether the dispute will be settled in court.

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Ron Paul doesn’t capture the entire picture, but from a US perspective he’s largely right.

As Ukraine Collapses, Europeans Tire of Us Interventions (Ron Paul)

On Sunday Ukrainian prime minister Yatsenyuk resigned, just four days after the Dutch voted against Ukraine joining the European Union. Taken together, these two events are clear signals that the US-backed coup in Ukraine has not given that country freedom and democracy. They also suggest a deeper dissatisfaction among Europeans over Washington’s addiction to interventionism. According to US and EU governments – and repeated without question by the mainstream media – the Ukrainian people stood up on their own in 2014 to throw off the chains of a corrupt government in the back pocket of Moscow and finally plant themselves in the pro-west camp. According to these people, US government personnel who handed out cookies and even took the stage in Kiev to urge the people to overthrow their government had nothing at all to do with the coup.

When Assistant Secretary of State Victoria Nuland was videotaped bragging about how the US government spent $5 billion to “promote democracy” in Ukraine, it had nothing to do with the overthrow of the Yanukovich government. When Nuland was recorded telling the US Ambassador in Kiev that Yatsenyuk is the US choice for prime minister, it was not US interference in the internal affairs of Ukraine. In fact, the neocons still consider it a “conspiracy theory” to suggest the US had anything to do with the overthrow. I have no doubt that the previous government was corrupt. Corruption is the stock-in-trade of governments. But according to Transparency International, corruption in the Ukrainian government is about the same after the US-backed coup as it was before.

So the intervention failed to improve anything, and now the US-installed government is falling apart. Is a Ukraine in chaos to be considered a Washington success story? This brings us back to the Dutch vote. The overwhelming rejection of the EU plan for Ukrainian membership demonstrates the deep level of frustration and anger in Europe over EU leadership following Washington’s interventionist foreign policy at the expense of European security and prosperity. The other EU member countries did not even dare hold popular referenda on the matter – their parliaments rubber-stamped the agreement.

Brussels backs US bombing in the Middle East and hundreds of thousands of refugees produced by the bombing overwhelm Europe. The people are told they must be taxed even more to pay for the victims of Washington’s foreign policy. Brussels backs US regime change plans for Ukraine and EU citizens are told they must bear the burden of bringing an economic basket case up to European standards. How much would it cost EU citizens to bring in Ukraine as a member? No one dares mention it. But Europeans are rightly angry with their leaders blindly following Washington and then leaving them holding the bag.

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This continues to make my half-Canadian heart bleed. It’s been going on for so long.

State Of Emergency Over Suicide Epidemic In Canada’s First Nations (G.)

A Canadian First Nation community of 2,000 people has declared a state of emergency after 11 of its members tried to take their own lives, national media reported. CTV News reported on Sunday that the remote northern community of the Attawapiskat First Nation in Ontario experienced an additional 28 suicide attempts last month. More than 100 people in the community have attempted suicide since last September, and one person died, according to CTV. The youngest was 11, the oldest 71. Charlie Angus, the local member of parliament, told the Canadian Press it was part of a “rolling nightmare” of more and more suicide attempts among young people throughout the winter. The Canadian Press said the regional First Nations government was sending a crisis response unit including social workers and mental health nurses to the community following the declaration.

The Health Canada federal agency said in a statement that it had sent two mental health counsellors as part of that unit. Attawapiskat resident Jackie Hookimaw told The Canadian Press that the epidemic started in the autumn when her 13-year-old niece Sheridan killed herself after being bullied at school. “There’s different layers of grief,” she said. “There’s normal grief, when somebody dies from illness or old age. And there’s complicated grief, where there’s severe trauma, like when somebody commits suicide.” Canadian prime minister Justin Trudeau said on Twitter: “The news from Attawapiskat is heartbreaking. We’ll continue to work to improve living conditions for all Indigenous peoples.” Another Canadian First Nation community in the western province of Manitoba appealed for federal aid last month, citing six suicides in two months and 140 suicide attempts in two weeks.

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“..three to four times worse than in 1998 or the second great bleaching in 2002.”

Mass Coral Bleaching Now Affects Half Of Great Barrier Reef (G.)

The mass coral bleaching event smashing the Great Barrier Reef has severely affected more than half its length and caused patches of bleaching in most areas, according to scientists conducting an extensive aerial survey of the damage. “The good news with my last flight is that I found 50 reefs that weren’t bleached, so that may be the southern boundary,” said Terry Hughes from James Cook University. Hughes is the head of the national coral bleaching task force, which has been conducting flights over the length of the reef, mapping bleached areas and recording the severity of the damage. Climate change and a strong El Niño have caused hundreds of kilometres of the reef to bleach, as the higher water temperatures stress the coral, and they expel their symbiotic algae.

If the bleaching is bad enough, or the temperatures remain high for long enough, the corals die, putting the future of reefs at risk. The mass bleaching on the Great Barrier Reef is part of what the US National Oceanographic and Atmospheric Administration has called the third global bleaching event – the first occurred in 1998. Initial reports suggested only the most northern and remote areas of the Great Barrier Reef were bleaching, but as aerial surveys have continued, scientists have struggled to find a southern boundary. The latest find of a stretch of unaffected reefs around Mackay was a small piece of good news, Hughes said. But he said its significane would be unclear until reefs further south were examined. “It may be a false southern boundary,” Hughes said.

The reefs around Mackay have unusually large tides, which might have pulled in cooler water and saved the coral there. [..] Two weeks ago, the Great Barrier Reef Marine Park Authority reported half the coral in the northern parts of the reef were dead. Hughes said that was consistent with reports from divers north of Port Douglas. Hughes said this was by far the worst bleaching event to have hit the Great Barrier Reef. He said it was three to four times worse than in 1998 or the second great bleaching in 2002. Last year, the Great Barrier Reef narrowly escaped being listed as “in danger” by Unesco, even though environmental groups said it clearly met the criteria. Hughes said the “outstanding universal value” of the reef was now “severely compromised”.

Ariane Wilkinson, a lawyer at Environmental Justice Australia, said the bleaching might cause Unesco to reconsider its decision. “[Unesco] weren’t scheduled to examine the reef this year but in light of the terrible bleaching it is entirely possible that they may decide to look at the reef,” she said. “If the World Heritage system is to have any value, it must address the most serious threats to the most iconic examples of world heritage,” she said. “If any site falls into this category, it is the … Great Barrier Reef.”

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Safe third country.

Fewer Than 0.1% Of Syrians In Turkey In Line For Work Permits (G.)

Fewer than 0.1% of Syrians in Turkey currently stand to gain the right to work under much-vaunted Turkish labour laws, undermining EU claims that the legislation excuses a recent decision to deport Syrian asylum-seekers back to Turkey. Turkish employers have allowed roughly 2,000 – or 0.074% – of Turkey’s 2.7 million Syrians to apply for work permits under new legislation enacted two months ago, according to government figures provided to aid workers at a meeting in late March. The number of permits granted has not yet been disclosed. More applications are expected in the coming months, but the statistic nevertheless highlights how the new law, enacted in January, does not offer blanket access to the labour market for all Syrians in Turkey.

Instead work permits can only be given to those who have the blessing of their employers, many of whom may still be unaware of the law, or unwilling to comply with it since it would require them to pay their employees the minimum wage. The figure was revealed in a speech to aid groups by the head of Turkey’s general directorate for migration management, who said he hoped the number would rise once more people became aware of the law. The news will complicate the new EU-Turkey deal to deport all asylum-seekers arriving to Greece back to Turkey, since the EU has justified the controversial agreement by claiming Turkey was a place that upheld internationally agreed obligations to refugees, including access to legal work. While Turkey is not a full signatory to the 1951 UN refugee convention, EU politicians have sometimes cited the January law as an example of how Turkey maintains the values of the convention by other means.

But in reality the law does not automatically offer most refugees a route out of the black market, several Syrians argued in interviews. Most problematically, the law requires an employer to give his employees a contract before they can apply for a permit. But this is an unattractive proposition for many employers, since they often employ Syrians precisely because they are easily exploited, said Hussam Orfahli, CEO of an Istanbul-based firm that helps Syrians apply for paperwork in Turkey. “If he wants you to have a work permit, then you can get it – but if he doesn’t, then you won’t,” said Orfahli, who has applied for permits on behalf of 60 wealthy clients, but has yet to hear whether any of them have been successful. “The minimum wage is 1,300 Turkish lira [£320] and most employers refuse to give contracts so that they can pay less, and don’t have to pay your health insurance.”

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Children injured by (8 hours of!) tear gas. Europe 2016.

Hundreds Hurt As Refugees Confront FYROM Border Police (AP)

Migrants waged running battles with Macedonian police Sunday after they were stopped from scaling the border fence with Greece near the border town of Idomeni, and aid agencies reported that hundreds of stranded travelers were injured. Macedonian police used tear gas, stun grenades, plastic bullets and a water cannon to repel the migrants, many of whom responded by throwing rocks over the fence at police. Greek police observed from their side of the frontier but did not intervene. More than 50,000 refugees and migrants have been stranded in Greece after Balkan countries closed their borders to the massive flow of refugees pouring into Europe. Around 11,000 remain camped out at the border with Macedonia, ignoring instructions from the government to move to organized shelters as they hold out hope to reach Western Europe.

Clashes continued in the afternoon as migrant groups twice tried to overwhelm Macedonian border security. The increasing use of tear gas reached families in their nearby tents in Idomeni’s makeshift camp. Many camp dwellers, chiefly women and children, fled into farm fields to escape the painful gas. Observers held out hope that evening rainfall, which began about seven hours into the clashes, would dampen hostilities. The aid agency Doctors Without Borders estimated that their medical volunteers on site treated about 300 people for various injuries. Achilleas Tzemos, deputy field coordinator of Doctors Without Borders, told the AP that the injured included about 200 experiencing breathing problems from the gas, 100 others with cuts, bruises and impact injuries from nonlethal plastic bullets.

He said six of the most seriously injured were hospitalized. The clashes began soon after an estimated 500 people gathered at the fence. Many said they were responding to Arabic language fliers distributed Saturday in the camp urging people to attempt to breach the fence Sunday morning and “go to Macedonia on foot.” A five-member migrant delegation approached Macedonian police to ask whether the border was about to open. When Macedonian police replied that this wasn’t happening, more than 100, including several children, tried to scale the fence. Greece criticized the Macedonian police response as excessive. Giorgos Kyritsis, a spokesman for the government’s special commission on refugees, said Macedonian forces had deployed an “indiscriminate use of chemicals, plastic bullets and stun grenades against vulnerable people.”

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Mar 292016
 
 March 29, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , , ,  9 Responses »


DPC Provision store. Caracas, Venezuela 1905

US Consumer Spending, Trade Data Signal Sluggish Growth (Reuters)
Still The Land Of Opportunity? (BBG)
It’s Official: The Oil Surge Was Driven By The Biggest Short-Squeeze Ever (ZH)
Barclays Warns Commodities May Slump in ‘Rush for the Exits’ (BBG)
Oil Firms Slow Exploration to Weather Low-Price Era (WSJ)
Saudi Economy Shows Deepening Signs of Strain (BBG)
Can Anything Rescue Japan From The Abyss? (Tel.)
ECB’s Gloomy Price Outlook to Be Confirmed Just as QE Expands (BBG)
Europe’s Emerging Bubbles Need Structural Reform (Sinn)
Investors Are in Denial About China Troubles (Balding)
State-Owned Steelmaker Latest Chinese Company to Miss Bond Payment (BBG)
The Credit Card Loophole That Gets Around China’s Capital Curbs (BBG)
How Con Man Used China To Launder Millions (AP)
Central Melbourne Apartment Values Fall 30% (AFR)
The Great Nausea (Jim Kunstler)
Worst Bleaching On Record For Great Barrier Reef (AFP)
Germany Wants Refugees To Integrate Or Lose Residency Rights (Reuters)
Rich Countries Resettle Barely 1% of Syrian Refugees (AFP)
Nearly 1,500 Migrants Rescued Off Libya In Past 2 Days (AFP)

Wait a minute, just a few days ago we read that consumers keep the US economy going?!

US Consumer Spending, Trade Data Signal Sluggish Growth (Reuters)

U.S. consumer spending barely rose in February and inflation retreated, suggesting the Federal Reserve could remain cautious about raising interest rates this year even as the labor market rapidly tightens. Monday’s report from the Commerce Department also showed consumer spending in January was not as strong as previously reported. That, together with other data showing a widening in the goods trade deficit in February, indicated economic growth remained sluggish in the first quarter. “It speaks to the weakening in domestic economic momentum at the start of this year, further reinforcing the Fed’s cautious monetary policy bias,” said Millan Mulraine at TD Securities in New York.

Consumer spending edged up 0.1% as households cut back on goods purchases after a downwardly revised 0.1% gain in January. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.5% in January. When adjusted for inflation, consumer spending rose 0.2%. Inflation-adjusted consumer spending for January was revised down to show it unchanged rather than the 0.4% rise that was previously reported. Given labor market strength and cheap gasoline, economists speculated that consumption had been hampered by a massive stock market sell-off at the start of the year which eroded consumer confidence. In a separate report, the Commerce Department said the advance goods trade deficit widened to $62.9 billion in February from $62.2 billion, rising for a fourth straight month as an increase in exports was offset by a gain in imports.

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You can’t run a functioning democracy in a class system.

Still The Land Of Opportunity? (BBG)

As the presidential primary season continues, much has been made of the appeal that candidates Donald Trump and Bernie Sanders hold for the angry, disaffected working class. Everyone seems to agree that this group is in trouble, and needs serious help. But which Americans exactly are part of the working class? There is no set definition. You can define class by wealth, but a young worker starting out on Wall Street and earning relatively little is hardly lower-class. You can define it by income, although that will be distorted by local differences in the cost of living, and by age (retirees have little income but usually more wealth). You also can define it by educational status. But perhaps the most important definition is in people’s minds. Gallup periodically asks people to place themselves in one of five classes – upper, upper-middle, middle, working and lower. Here are the results for the five categories:

The percentages of Americans who consider themselves working class has stayed relatively stable. But the self-identified middle class has plunged by about 10 percentage points, matched by an even larger increase in the percentage of Americans who label themselves lower class. The self-identified lower class should probably be included in the working class that gets discussed in articles about Trump and Sanders. Why do fewer Americans identify as middle class? One obvious possibility is that the middle class has been spreading out, separating into a well-to-do upper-middle and an expanding working class. The evidence shows that something like this has been happening for decades now. Here is the U.S. Gini coefficient, a broad measure of income inequality:

Income inequality has been steadily increasing since 1970, with especially big jumps in the early 1980s and early 1990s. That certainly seems likely to reduce the share of people who feel like they’re in the middle. But we don’t see a divergence – what we really see is a downward drift. Why? Perhaps slow growth has made everyone in the U.S. more pessimistic. Or perhaps inequality itself lowers everyone’s perception of their own class. People making $25,000 might compare themselves to people making $50,000, but people making $400,000 might compare themselves to people making $2 million. One development is that the difference between the working and upper-middle class incomes has widened, but the gap between the upper middle and the rich has absolutely exploded. That could be making everyone more pessimistic about where they stand in the hierarchy.

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The plunge in demand takes a long time to seep into people’s minds.

It’s Official: The Oil Surge Was Driven By The Biggest Short-Squeeze Ever (ZH)

Two months ago, just before crude dropped to 13 year lows, we warned oil traders that there is “a constant short squeeze threat” because “oil shorts are at all-time highs”, adding that “we have seen extreme short positioning building up in the oil futures market. The quantity of short positions opened is at an all-time high for Brent, and still high for WTI futures.” We also warned that “a positive surprise could happen quite sharply, as short positions are likely to be squeezed by a profit-taking move. On WTI, the in-the-money short positions are really dominating at the front end of the curve while out-of-the-money long positions are dominating at the long end of the curve: the front end of oil curve could thus be more exposed to some profit-taking.”

It was, and just a few days later, the algos took this warning to heart and, courtesy of the most recurring headline (that of a “farcical” oil production freeze) as a recurring catalyst, unleashed an historic short squeeze. Actually make that a record short squeeze. Wait, that’s impossible: surely it was more than just shorts covering and oil rose because actual longs were piling in, one could say. One would be wrong, and it is now official: as crude soared 50% since Feb. 11, Bloomberg writes, the number of bets on increased prices has barely budged. “Instead, the upward pressure on prices appears to have come from traders cashing out of bearish wagers at an unprecedented pace. The liquidation of short positions during the last seven weeks covered by data from the U.S. Commodity Futures Trading Commission was the largest on record.”

“The rally has come from shorts getting scared out of their positions, and you’re not seeing a lot of money coming in on the long side,” said John Kilduff at Again Capital, a New York hedge fund focused on energy. “It really calls into question the fortitude and staying power of the rally.” The details: “short positions on West Texas Intermediate crude, or bets that prices will fall, have dropped by 131,617 contracts since Feb. 2, the biggest liquidation in CFTC data going back a decade. To close out a bearish position, traders buy back futures and options, putting upward pressure on prices. In the same period, bullish wagers fell by 971. In the past 10 years, there have been only two other seven-week short-covering streaks, CFTC data show. The first started in September 2009 and the second in December 2012. Both were much smaller than the recent one and were accompanied by oil rallies.”

It gets better: as we showed previously, the irony is that as oil futures shorts were squeezed out, ETF longs actually declined instead of growing as absolutely nobody – except those who have to buy-in – believes this quote-unquote rally. Bloomberg notes that the rebound faltered a day after WTI prices touched a four-month high of $41.45 a barrel on March 22, tumbling 4% in New York after government data showed U.S. crude supplies surged the prior week to the highest level since 1930. Perhaps there are no more shorts left to squeeze, in which case watch out to the downside: “When energy markets get loaded to one side of the boat like that, you can have vicious reversals,” said Kilduff. And vice versa.

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The short-term consequences of highly leveraged long-term investments.

Barclays Warns Commodities May Slump in ‘Rush for the Exits’ (BBG)

Commodities including oil and copper are at risk of steep declines as recent advances aren’t fully grounded in improved fundamentals, according to Barclays, which warned that prices may tumble as investors rush for the exits. Copper may slump to the low $4,000s a metric ton, from $4,945 in London last week, while oil could fall back to the low $30s a barrel, analyst Kevin Norrish said in a note. The risk for raw materials is that investors seek to liquidate bets on gains quickly and in unison, with potentially highly negative consequences, Norrish wrote in the note entitled “Buffalo Jump,” a term that describes a cliff where Native Americans herded bison to their death. “Investors have been attracted to commodities as one of the best performing assets so far in 2016,” he said in the March 28 report.

“However, in the absence of any concerted fundamental improvements, those returns are unlikely to be repeated in the second quarter, making commodities vulnerable to a wave of investor liquidation.” Commodities are headed for a quarterly advance amid speculation that prices may now be bottoming after they slumped 11% in the final three months of 2015 and 14% in the third quarter. Oil and copper have recovered from multi-year lows seen in the January and February, and Barclays estimated net flows into commodity products totaled more than $20 billion in the two-month period in the strongest start to a year since 2011. “Given that recent price appreciation does not seem to be very well founded in improving fundamentals, and that upward trends may prove difficult to sustain, the risk is growing that any setback will result in a rush for the exits that could again lead commodity prices to overshoot to the downside,” he said.

Investors were increasingly taking short-term bets on raw materials, not the long-term buy-and-hold strategy for diversification and inflation protection that underpinned inflows in the previous decade, he said. In addition, as commodities are among the few assets that have risen in the first quarter, that may make investors keener than usual to close out bets on gains, he said. “Key commodities markets such as oil and copper already face overhangs of excess production capacity and inventories, but also now face another obstacle in the recovery process, that of positioning, which is now approaching bullish extremes,” Norrish said.

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The backdrop is overproduction.

Oil Firms Slow Exploration to Weather Low-Price Era (WSJ)

The world’s biggest oil companies are draining their petroleum reserves faster than they are replacing them—a symptom of how a deep oil-price decline is reshaping the energy industry’s priorities. In 2015, the seven biggest publicly traded Western energy companies, including Exxon Mobil and Shell, replaced just 75% of the oil and natural gas they pumped, on average, according to a Wall Street Journal analysis of company data. It was the biggest combined drop in inventory that companies have reported in at least a decade. For Exxon, 2015 marked the first time in more than two decades it didn’t fully replace production with new reserves, according to the company. It reported replacing 67% of its 2015 output.

In the past, shrinking reserves could send investors and executives into a panic over a company’s future prospects. These days, with ultralow oil prices, “it becomes less important” to replenish stockpiles, said Luca Bertelli, chief exploration officer at Italian oil producer Eni SpA. Eni has shifted spending away from high-risk, high-reward projects in favor of squeezing more out of fields that are already producing, he said. That shift shows how producers are responding to low prices by pulling back on new exploration in favor of maximizing profits. The risk is that cutting back on new projects now, when prices are low, could lead to shortages and price spikes in the future.

Historically, energy companies spent heavily in the present to find resources for the future—new wells that would replace the barrels they pump every day. When they decide they can extract the oil and gas economically, firms book those resources as proved reserves, untapped inventories to be exploited at a profit down the road. The current oil glut has forced companies to cut spending wherever they can. So they have pulled back on exploratory drilling and spending on new projects. Across the oil sector last year, companies approved just six new developments, according to Morgan Stanley researchers.

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Caught in a vicious circle.

Saudi Economy Shows Deepening Signs of Strain (BBG)

The Saudi economy is showing deepening signs of strain under the weight of cheap oil. Saudi consumers withdrew and spent less money in February, according to central bank data released on Monday. M3, one of the broadest measures of money supply, shrank for the first time since at least 2000, when Bloomberg started tracking the data. While the kingdom still has one of the world’s largest foreign-currency reserves, cuts in government spending to shore up public finances are taking a toll on the economy. Growth may slow to 1.5% this year, according to the median estimate of a Bloomberg survey, the slowest pace since at least 2009. Saudi officials have repeatedly said that the nation can weather the slump in oil prices. Cash withdrawals through ATMs fell 8% after expanding for at least the previous five months, central bank data show. Point-of-sale transactions, an indicator of consumer confidence in the economy, dropped to 15.2 billion riyals ($4.1 billion).

And while bank credit to private businesses expanded about 10%, the growth likely reflects short-term borrowing, according to Monica Malik, the chief economist at Abu Dhabi Commercial Bank. “The rise in credit doesn’t indicate business expansion,” she said. “Actually, project activity has fallen substantially. All in all, lower government spending is taking a deepening toll on economic growth, and we can see it in the data.” The government is seeking to plug a budget deficit that reached about 15% of GDP in 2015. Authorities have also raised energy prices. Malik said the contraction of money supply likely reflects the government’s withdrawal of domestic deposits and the drop in net foreign assets, which declined 38 billion riyals. The pace of the drop was the slowest since October as Brent crude prices rebounded during the month. Oil exports make up about 70% of the government’s revenue.

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What Abenomics ia all about: Leading a horse to water.

Can Anything Rescue Japan From The Abyss? (Tel.)

“Shunto” season has failed to grip Japan. The country’s annual Spring assault on wages seems to have passed with little more than a whimper this year despite being billed as one of the most anticipated economic events in Japan’s recent history. Translating as “spring wage offensive”, Shunto marks the annual Japanese ritual of wage bargaining between business groups and labour unions. This year’s negotiations have been preceded by months of feverish lobbying from prime minister Shinzo Abe who has urged the country’s business groups to raise wages and help smash Japan’s deflationary mindset once and for all. The issue has become the latest lightning rod in the country’s two decade struggle to ensure long-term economic prosperity. Higher salaries encourage consumption and are vital in raising inflation.

This in turn would help erode some part of Japan’s record 250pc of GDP debt pile. Abe’s calls have been echoed by some of the world’s most renowned economists. Olivier Blanchard, the former chief economist at the IMF and Adam Posen, a former BOE policymaker, have called for an unprecedented 10pc increase in nominal wages in 2016. In the last two years, average wages have risen by just 1pc. “What is needed is a jump-start to a wage-price spiral of the sort feared from the 1970s”, say Posen and Blanchard, who call for a “virtuous cycle” of wage growth, inflation, and lower debt to release Japan from economic stagnancy. But like so many of Tokyo’s radical attempts to extricate itself out of low growth and low inflation, the early signs show that Shunto has already fallen flat.

Car-making giant Toyota is reported to have agreed on a wage settlement which will boost its employees’ basic wages by just ¥1500 ($13) a month, despite recording bumper profits of ¥2.17 trillion ($19bn) last year. Overall, the fruits of 2016’s Shunto are set to be more meagre than those of last year. The March round of talks indicate wages hike demands from unions to be around 3.27pc this year, lower than the 3.74pc of 2015, according to analysts at UBS. This indicates the average eventual wage hike will be around 0.3pc in 2016 for the country’s 63.5m workers, down from 0.69pc agreed in 2015, calculate economists at JP Morgan. This reticence to raise wages puzzles economists. Nearly four years on from the start of the government’s Abenomics programme, Japanese companies are sitting on a record cash piles equivalent to nearly 50pc of the country’s entire GDP.

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The ignorance of the ‘experts’ is stunning.

ECB’s Gloomy Price Outlook to Be Confirmed Just as QE Expands (BBG)

As Mario Draghi prepares to ramp up debt purchases starting Friday in his biggest assault against euro-area deflation risks, he’s about to get another sense of the magnitude of the challenge. Consumer prices in the currency zone probably fell for a second month in March and the unemployment rate remained in double digits in February, economists forecast in Bloomberg surveys before data this week. Another report is expected to say economic confidence was unchanged in the 19-nation region in March. Policy makers led by the European Central Bank president are expanding monthly asset buying to €80 billion from €60 billion and introducing new measures to lift inflation that hasn’t touched their near-2% goal since 2013.

While the economy is growing, it’s not gaining momentum, and a slow decline in unemployment has failed to spur enough demand to counter falling oil costs and ignite price gains. “The data will confirm that the ECB was right to act, and also may even need to do more in the future,” said Nick Kounis at ABN Amro in Amsterdam. “Underlying inflationary pressures are extremely weak and going in the wrong direction.” Draghi said this month that negative inflation rates may be “unavoidable” in the coming months and it’s “crucial to avoid second-round effects.” That concern prompted the ECB Governing Council to cut its deposit rate on March 10 and add a new series of long-term loans to banks, which will begin in June. The expansion of quantitative easing will start April 1.

“The window of action was now, we had a weak start to the year, and we’re seeing that feeding through to the numbers,” said Anatoli Annenkov at SocGen in London. He doesn’t expect any additional major ECB action this year, as policy makers wait to see how their new actions feed through to the economy. “The key to the ECB for getting inflation back on target is that we do need to see growth really pick up, and the recovery to take it to the next level,” said James Nixon, an economist at Oxford Economics in London. “It’s really the corporate sector that’s just sitting around with its hands in its pockets.”

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Europe needs normal interest rates, not crazy experiments.

Europe’s Emerging Bubbles Need Structural Reform (Sinn)

The ECB’s latest policy moves have shocked many observers; while their goal – to prevent deflation and spur growth – is clear, the policies themselves are setting the stage for severe instability. The policies in question include setting the interest rate on the ECB’s main refinancing operations to zero; raising monthly asset purchases by €20bn to €80bn; and pushing the interest rate on money that banks deposit with the ECB further into negative territory, to -0.4%. Moreover, the ECB has launched a series of four targeted longer-term refinancing operations, which also carry negative interest rates. Banks receive up to 0.4% interest on ECB credit that they take themselves, provided they lend it out to private businesses.

These policies are, in essence, the latest in a string of attempts by the ECB to address the fallout of the collapse of the massive bubble that formed in southern Europe in the early years of the euro. This began with the announcement of the euro’s introduction at the 1995 EU Summit in Madrid, which caused interest rates to tumble. The inflationary credit bubble spurred in southern European countries by the persistence of lower interest rates undermined their competitiveness and drove asset and property prices to unsustainably high levels. When the bubble burst, the ECB tried to prevent the excessive prices from returning to equilibrium by using its printing press and promising unlimited coverage to investors. The latest ECB measures are more of the same.

Of course, when the financial crisis erupted in full force in 2008, following the collapse of the US investment bank Lehman Brothers, the ECB’s interventions were justified. But after the global economy started to recover during the latter part of the following year, the ECB’s moves became increasingly problematic, because they enabled countries to evade structural reform and hindered the necessary disinflation in the southern eurozone countries – or even halted it altogether, as in Portugal and Italy. Southern Europe had succumbed to the drug of cheap credit. But when private credit stalled and the symptoms of withdrawal began to appear, the ECB provided replacement drugs. Instead of treating the addiction, it created junkie economies that were unable to function without a fix.

[..] the worst effects of the ECB policy may be yet to come, if the eurozone’s still-sound economies also become credit junkies. There are already some worrying signs of this. Property markets in Austria, Germany, and Luxembourg have practically exploded throughout the crisis, as a result of banks chasing borrowers with offers of loans at near-zero interest rates, regardless of their creditworthiness. In Austria, property prices have risen by nearly half since the Lehman collapse; in Luxembourg, they have risen by almost one-third. Even Germany, Europe’s largest economy, has been experiencing a massive property boom since 2010, with average urban property prices having risen by more than one-third – and by nearly half in large cities. The country is undergoing a construction boom not seen since reunification. Real estate agents have only leftovers on offer.

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The entire world is affected.

Investors Are in Denial About China’s Troubles (Balding)

Back in 2009, as China unleashed a massive fiscal stimulus and investment spree in response to the global financial crisis, the rest of the world was all too willing to believe the impossible. Aided by consultant research predicting decades of explosive growth, companies placed huge bets on China and expected to ride the never-ending boom to riches. Amid the gold rush, they bulked up to sell China t-shirts or tons of iron ore. They urged their governments to sign free-trade deals with Beijing. Commodity producers heedlessly expanded capacity, believing that 10% growth would continue indefinitely. Consumer brands rushed to set up flagships in third-tier Chinese cities. Shipping companies scrambled to build new fleets to meet an expected explosion in global trade.

However, as with so many previous bouts of irrational exuberance, this time wasn’t really different. The ruthless rules of supply and demand still applied. And now, the longer that painful decisions are delayed, the harder they’ll become. Commodities firms, in particular, are learning that lesson the hard way. As prices rose with Chinese demand, they made large upfront investments financed by borrowing – often on a 20-year timeline, in the expectation that growth would last and last. Now, with China’s economy slowing and the prices of everything from oil to metals plummeting, the bills are coming due. Major iron ore firms, which had predicted that Chinese steel demand would keep rising until about 2030, are now looking at substantial overinvestment and deteriorating credit. Dairy farmers, who increased their herds with future Chinese consumer demand in mind, are feeling the pinch as milk prices plunge.

After years of ramping up production to fuel China’s expected growth, oil-producing countries from Saudi Arabia to Norway are facing grim decisions about their public finances. Russia is rapidly draining its sovereign wealth fund. Venezuela is pleading with China for loans – on top of the nearly $60 billion already doled out – to stave off collapse. Pundits are warning that the large debt load of U.S. shale-gas and oil producers could pose greater risks than sub-prime lending did a decade ago. No less so than China, the rest of the world needs to face up to some new realities. First, the golden age of Chinese construction is over. There’s now enormous surplus capacity in virtually every industry that requires fixed-asset investment. Companies can no longer rely on the “Beijing put” of new government stimulus to boost growth.

Iron ore producers and copper miners all need to begin a painful process of downsizing and deleveraging – just as China’s bloated state-owned enterprises do. Producers around the world haven’t faced up to the new normal. Second, companies of all stripes have to put in the effort to understand China better. Expectations of double-digit growth, regardless of how poor the performance, have vanished. Luxury brands that once hoped their Beijing flagships would smooth the balance sheets at European headquarters need to recognize that different markets require different strategies, and that shops in China won’t run on autopilot. They need to compete. Third, companies and countries alike need to face up to their own irrational exuberance. Whether it’s failing to diversify, spending recklessly on the back of high prices, or taking on too much debt, fundamental mistakes can’t be blamed on China. Doing so only delays the inevitable.

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“Dongbei Special Steel’s missed payment comes just four days after the company disclosed that its former chairman, Yang Hua, was found dead by hanging at his home..”

State-Owned Steelmaker Latest Chinese Company to Miss Bond Payment (BBG)

A state-owned Chinese steelmaker failed to make a 852 million yuan ($131 million) bond payment and expressed uncertainty about meeting a larger bill next week as the slowing economy weighs on debt-laden producers. Dongbei Special Steel, based in the northeastern city of Dalian, said it failed to repay the sum of interest and principal due Monday, according to a statement posted on the Chinamoney website. The company said in a separate statement that it also might not be able to repay 1 billion yuan due April 3 on a 90-day bill because of tight liquidity. The company sold 800 million yuan in one-year bonds last year with a coupon of 6.5%, according to data compiled by Bloomberg. Chinese firms are struggling with surging debt burdens as Premier Li Keqiang seeks to weed out zombie corporations amid the country’s worst economic slowdown in a quarter century.

At least a dozen companies have defaulted on bonds over the past two years even as the central bank loosened monetary policy. Nanjing Yurun Foods, a sausage maker, and Zibo Hongda Mining, an iron ore miner, both said they defaulted on notes this month. Dongbei Special Steel’s missed payment comes just four days after the company disclosed that its former chairman, Yang Hua, was found dead by hanging at his home. The company said the death was under investigation by the relevant authority. Other Chinese steelmakers are also facing rising debt pressures. The northern city of Tianjin plans to set up a committee of creditors to help Bohai Steel “get out of trouble,” Caixin reported March 18. Minister of Human Resources Yin Weimin said Feb. 29 that about 1.8 million steel-and-coal workers would be laid off as the country cuts industrial overcapacity and reforms bloated state-owned enterprises.

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Overpaying for insurance. Now there’s a business model.

The Credit Card Loophole That Gets Around China’s Capital Curbs (BBG)

More than 800. That’s how many times Hong Kong insurance agent Raymond Ng swiped the credit cards of a mainland Chinese client buying HK$28 million ($3.6 million) worth of insurance policies in the city earlier this month. Dozens, maybe more. That’s how many other agents are using similar tactics as a way around new restrictions on insurance policy purchases by mainlanders that are often used to evade capital controls and get their money out of China, according to interviews with five Hong Kong agents working for Prudential, AIA Group and two smaller insurance companies. “There are always ways around new restrictions,” said Ng, 30, who started selling insurance and investment products to mainland Chinese four years ago, declining to allow his company’s name to be used.

“Chinese customers are accelerating the pace of moving assets outside China, especially through insurance products.” Multiple credit-card swiping to buy insurance products, even hundreds of times, isn’t illegal in Hong Kong, but it allows individuals to exceed limits on insurance purchases by mainlanders meant to control capital outflows from China. The widespread practice shows just how eager Chinese remain to move money abroad amid a weakening economy and expectations of further declines in the yuan, potentially putting pressure on authorities to impose stricter curbs. Since February, Chinese regulators have moved to control the booming business of citizens buying insurance in Hong Kong, first by putting a $5,000 limit on each transaction and later by limiting electronic transfers for such purchases.

Previously there had been no limit on the use of the country’s China UnionPay credit and debit cards for buying the policies, giving individuals wanting to move money abroad a convenient way around the country’s foreign-exchange controls. Multiple card swipes mean the new curbs lose some of their effectiveness. When it imposed the $5,000 limit, the State Administration of Foreign Exchange said it would “closely monitor” cardholders and insurers for cases where cards have been swiped multiple times, though the regulator stopped short of banning multiple card use to purchase individual policies.

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A great 21st century Great Con story. Which features, what a surprise, China’s shadow banking system.

How Con Man Used China To Launder Millions (AP)

Gilbert Chikli was rolling in money, stolen from some of the world’s biggest corporations. His targets: Accenture. Disney. American Express. In less than two years, he made off with at least 6.1 million euros from France alone. But he had a problem. He couldn’t spend the money. A tangle of banking rules designed to stop con men like him stood between Chikli and his cash. He needed to find a weak link in the global financial system, a place to make his stolen money appear legitimate. He found it in China. “China has become a universal, international gateway for all manner of scams,” he said in an interview with The Associated Press. “Because China today is a world power, because it doesn’t care about neighboring countries, and because, overall, China is flipping off other countries in a big way.”

A visionary con man, Chikli realized early on — around 2000, the year before China joined the WTO – the potential that lay in the shadows of China’s rise, its entrenched corruption and informal banking channels that date back over 1,000 years. The French-Israeli man told the AP he laundered 90% of his money through China and Hong Kong, slipping it into the region’s great tides of legitimate trade and finance. Today, he is in good company. Criminals around the world have discovered that a good way to liberate their dirty money is to send it to China, which is emerging as an international hub for money laundering, AP has found. Gangs from Israel and Spain, North African cannabis dealers and cartels from Mexico and Colombia are among those using China as a haven where they can safely hide money, clean it, and pump it back into the global financial system, according to police officials, European and U.S. court records and intelligence documents reviewed by AP.

In a regular briefing with reporters Monday, Chinese Foreign Ministry spokesman Hong Lei said the government “places great emphasis” on fighting crimes such as money laundering and is working to expand international cooperation. “China is not, has not been, nor will be in the future a center of global money laundering,” he said. Chikli is widely credited in France with inventing a con that has inspired a generation of copycats. Chikli’s scam, called the fake president or fake CEO scam, has cost companies around the world $1.8 billion in just over two years, according to the FBI. And the damages are rising fast.

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Getting nervous.

Central Melbourne Apartment Values Fall 30% (AFR)

Apartments in central Melbourne are being resold at discounts of up to 30% from their original off-plan purchase price, sales data shows. Not all units have fallen in value – some have risen – but analysis of a handful of transactions shows many apartments have failed to hold their value between original purchase and resale, typically a few years later. One property where prices have fallen is 27 Little Collins Street, which includes 171 apartments in a 32-storey tower above a Sheraton-branded hotel, completed by developer Golden Age in July last year. A three-bedroom, two-bathroom apartment occupying 140 square metres and with two car parks sold for $1,565,000 in August, a 28.7% discount on its November 2010 purchase price of $2,195,000.

A two-bedroom unit in the same building fell almost 23% in less than a year, when it was bought for $1,075,000 last April, having previously been purchased for $1,320,000 in June 2014. A number of smaller apartments without car parks suffered falls ranging from almost 4% to 8% between 2010 and their resale last year. Melbourne’s surge in new apartments led to predictions more than a year ago than an oversupply was likely to push prices down. While greater supply would limit rental income growth, as long as interest rates remained low there was unlikely to be a big correction in prices because buyers could still fund the gap between rental income and their mortgage payments, said BIS Shrapnel analyst Angie Zigomanis.

“Anyone who’s bought an apartment off-plan and then looks to onsell within a couple of years will probably be looking at a 10% decline, but [up to a] 40% decline – there might be the odd example – it’s definitely not going to be the norm,” Mr Zigomanis said. “At the broader level those price falls will be mitigated by lower interest rates and the fact that people aren’t necessarily going to be obliged to put their property on the market.”

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“When the grifters can’t cash their checks — or move their pixels into the accounts receivable column — they will be immobilized. Of course, if that happens, so will everything else, including your ability to buy any more frozen pizzas.”

The Great Nausea (Jim Kunstler)

[..] the latest meme spreading across the web wires is how deeply the voters divide by sex: men flocking around Trump (or Machine Gun Ted Cruz), and the ladies standing at each mighty column of Hillary’s azure pant-suit. Yes, a national war of the sexes. Just what we need with all our shit falling apart. This sorry diversion results not from the triumph of feminism, as widely believed, but actually from the failure of American manhood. Proof of that, of course, is the ascendance of Trump, this punch-line of a political leader with all the gravitas of a hood ornament. History repeats itself, first as tragedy, second as farce – thank you, Karl Marx, O peevish mischief-maker squirming upon your fabled boils!

Finally, what will take the Deep State down is not some lance-wielding armored savior on a white horse but the awful undertow of financial implosion that awaits as the seasons of 2016 turn. When faith in our money and the instruments represented in it goes, look out below. There are so many rifts in the international banking system that the vista begins to look like the spring ice break-up on the Lake of Nations. When the grifters can’t cash their checks — or move their pixels into the accounts receivable column — they will be immobilized. Of course, if that happens, so will everything else, including your ability to buy any more frozen pizzas. Trump, Cruz, Hillary, and Bernie are signs that this poor paralyzed country needs to go through a convulsion to flush out all the toxic idiocy of this historical moment.

Trigger warning: it may be the messiest revolution in history when it finally comes, there is so much dross to clear out of the system. Trump and Hillary are like two giant fistulas obstructing the national bowel. Of course, a lot of sentient Americans do not want their nation dying on the toilet like Elvis. The indignity of it! In the name of the founding fathers, please, someone, fetch the enema bag. Events still lie hidden like bear traps on the path to “Decision 2016” as they like to say on the cable networks. Somewhere in London, Singapore, Shanghai, or New York, a 25-year-old coked-out Forex trader is going to tap the untoward keystroke that brings down a derivatives avalanche… or two brothers of Allah in some Berlin row-house will go forth one bright morning in vests of Semtex… and finally enough will be enough.

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The most vulnerable go first.

Worst Bleaching On Record For Great Barrier Reef (AFP)

Aerial surveys of Australia’s Great Barrier Reef have revealed the worst bleaching on record in the icon’s pristine north, scientists said Tuesday, with few corals escaping damage. Researchers said the view was devastating after surveying some 520 reefs via plane and helicopter between Cairns and the Torres Strait in the north of Queensland state. “This will change the Great Barrier Reef forever,” Terry Hughes, an expert on coral reefs from James Cook University, told the Australian Broadcasting Corporation. “We’re seeing huge levels of bleaching in the northern thousand kilometre stretch of the Great Barrier Reef.” Just over a week ago, the Australian government revealed bleaching at the World Heritage-listed site was “severe” but noted that the southern area had escaped the worst.

Bleaching occurs when abnormal environmental conditions, such as warmer sea temperatures, cause corals to expel tiny photosynthetic algae, draining them of their colour. Hughes, convener of Australia’s National Coral Bleaching Taskforce, agreed in a statement that the southern reef had “dodged a bullet due to cloudy weather that cooled the water temperatures down”. But he said in the far north – the most remote and pristine areas – almost without exception, every reef showed consistently high levels of bleaching. “We flew for 4,000 kilometres in the most pristine parts of the Great Barrier Reef and saw only four reefs that had no bleaching,” he said. “The severity is much greater than in earlier bleaching events in 2002 or 1998.” Fellow James Cook University expert James Kerry said more surveys were to follow, but the damage seen from the air in the north was severe, often falling into the highest category of level four, meaning 60% of the coral was bleached.

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Not unreasonable. But. But they would have to be accepted in full as Germans, both by officials and by the people. Canada’s model is exemplary in this.

Germany Wants Refugees To Integrate Or Lose Residency Rights (Reuters)

German Interior Minister Thomas de Maiziere said he is planning a new law that will require refugees to learn German and integrate into society, or else lose their permanent right of residence. The initiative comes after voters punished Chancellor Angela Merkel’s conservatives in regional elections earlier this month, giving a thumbs-down to her open-door refugee policy and turning in droves to the anti-immigrant party Alternative for Germany (AfD). Around 1 million migrants arrived in Germany last year – many fleeing conflict and economic hardship in the Middle East and Africa – and de Maiziere said around 100,000 more had arrived so far this year. Germany expected that in return for language lessons, social benefits and housing, the new arrivals made an effort to integrate, he told ARD television.

“For those who refuse to learn German, for those who refuse to allow their relatives to integrate – for instance women or girls – for those who reject job offers: for them, there cannot be an unlimited settlement permit after three years,” he said. De Maiziere, who belongs to Merkel’s conservatives party, added that he wanted “a link between successful integration and the permission for how long one is allowed to stay in Germany.” Vice Chancellor Sigmar Gabriel welcomed the draft law, which is planned for May. “We must not only support integration but demand it,” Gabriel told mass-selling daily Bild. Gabriel’s Social Democrats, the junior partner in Germany’s ruling coalition with Merkel’s conservatives, also suffered losses in this month’s elections in three German states.

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“The United States [..] has meanwhile pledged just 7% of the nearly 171,000 considered to be its fair share, it showed. The Netherlands also stood at 7%, Denmark at 15 and Britain at 22, Oxfam said.

Rich Countries Resettle Barely 1% of Syrian Refugees (AFP)

Wealthy countries have resettled only a fraction of the nearly five million refugees who have fled Syria, Oxfam said on Tuesday, urging them to step up and do their share. The British charity called on wealthy countries to resettle at least 10% of the 4.8 million Syrian refugees registered in the region surrounding the war-ravaged nation by the end of the year. So far, rich countries have pledged fewer than 130,000 resettlement spots, and only around 67,100 people – a mere 1.39% of the refugees – have made it to their final destinations since 2013, Oxfam said. The charity issued its report ahead of an unprecedented UN-hosted conference in Geneva on Wednesday, where countries will be asked to pledge resettlement spots for Syrian refugees. As the brutal conflict enters its sixth year, most of the people who have fled are located in Syria’s immediate neighbours such as Turkey, Lebanon, Jordan and Iraq.

But as the war has dragged on and conditions have worsened in the surrounding states, Syrians have increasingly set their sights on Europe, accounting for most of the more than one million migrants who risked their lives crossing the Mediterranean last year. They are also believed to be heavily represented among the more than 7,500 people, including many children, who have died trying to make the crossing since 2014. Wednesday’s conference, which will be opened by UN Secretary General Ban Ki-moon, will aim to ensure “global responsibility sharing” for the crisis sparked by Syria’s brutal conflict, which has claimed more than 270,000 lives. “To date the response to calls of increased resettlement of vulnerable refugees has been disappointing, and the conference is an opportunity for states to mark a change of course,” the Oxfam report said.

The charity said its analysis showed only three of the world’s wealthy countries – Canada, Germany and Norway – had pledged more resettlement spots than what was considered their “fair share” according to the size of their economies. Five other countries, Australia, Finland, Iceland, Sweden and New Zealand had meanwhile pledged more than half of their fair share, while the remaining 20 nations included in the analysis fell far short, Oxfam said. Thus, France had only so far pledged to take in 1,000 Syrian refugees, or only four% of the nearly 26,000 considered to be its fair share, the report said. The United States, which has resettled 1,812 Syrian refugees and said it will take in 10,000 more, has meanwhile pledged just 7% of the nearly 171,000 considered to be its fair share, it showed. The Netherlands also stood at 7%, Denmark at 15 and Britain at 22, Oxfam said.

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The old new route is going strong. After a few days of – weather related- declining arrivals on Lesbos, numbers are rising there again as well.

Nearly 1,500 Migrants Rescued Off Libya In Past 2 Days (AFP)

Nearly 1,500 migrants, including many women and children, have been rescued in the Mediterranean off the coast of Libya over the past two days, the Italian coastguard said Monday. A total of 1,482 people were picked up in about a dozen rescue operations at sea on Sunday and Monday, according to the Italian coastguard which coordinated the search and rescue efforts. They did not release the nationalities of the migrants and refugees.

They said 730 people were rescued on Sunday and 752 on Monday. They did not provide a breakdown of the number of children and women on board. The UN refugee agency said last week that nearly 14,500 migrants had arrived in Italy via Libya since the start of the year, up 42.5% on the same period a year earlier. Libya has long been a stepping stone for migrants seeking a better life in Europe, with Italy some 300 kilometres across the sea. European leaders fear that a recent deal with Ankara to stem the flow of migrants arriving in Greece via Turkey will increase crossings attempts from Libya.

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