Jul 162017
 
 July 16, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Piet Mondriaan The Grey Tree 1912

 

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)
Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)
How Brexit Is Set To Hurt Europe’s Financial Systems (R.)
Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)
Is Russiagate Really Hillarygate? (Forbes)
The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)
France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)
France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)
Is California Bailing Out Tesla through the Backdoor? (WS)
Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

 

 

No markets. No investors.

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)

Thanks, it seems, to a few short words from Janet Yellen, the world’s stock markets added over $1.5 trillion to wealthy people’s net worth this week, sending global market cap to record highs. The value of global equity markets reached a record high $76.28 trillion yesterday, up a shocking 18.6% since President Trump was elected. This is the same surge in global stocks that was seen as the market front-ran QE2 and QE3. This was the biggest spike in global equity markets since 2016.

For the first time since Dec 2007, the market value of global equity markets is greater than the world’s GDP…

Of course – the big question is – how long can ‘they’ keep this dream alive?

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“Actually, the longer it takes to hit, the better it is for us…”

Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)

The global dollar-based monetary system is in serious jeopardy, according to former Texas Congressman Ron Paul. And contrary to Fed Chairwoman Janet Yellen’s assurances that there won’t be another major crisis in our lifetime, the next economy-cratering fiat-currency crash could happen as soon as next month, Paul said during an interview with Josh Sigurdson of World Alternative media. Paul and Sigurdson also discussed false flag attacks, the dawn of a cashless society and the dangers of monetizing national debt. Paul started by saying Yellen’s attitude scares him because “central bankers are always wrong – especially before a bust.”

“There is a subjective element to when people lose confidence, and when is the day going to come when people realize we’re dealing with money that has no intrinsic value to it, we’re dealing with too much debt, too much bad investment and it will come to an end. Something that’s too good to believe usually is and it usually ends. One thing’s for sure, we’re getting closer every day and the crash might come this year, but it might come in a year or two.” “The real test is can it sustain unbelievable deficit financing and the accumulation of debt and it can’t. You can’t run a world like this, if that were the case Americans could just sit back and say “hey, everybody wants our money and will take our money.” Paul advised that, for those who are already girding for the crash by buying gold and silver and stocking their basements with provisions like canned food and bottled water, the rewards for their foresight will only grow with the passage of time.

“Actually, the longer it takes to hit, the better it is for us. The more we can get prepared personally, as well as warn other people, about what’s coming.” “It’s a sign that the authoritarians are clinging to power so they can collect the revenues collect the taxes and make sure you’re not getting around the system. That’s what the cashless society is all about. But it won’t work in fact it might be the precipitating factor that people will eventually lose confidence when the crisis hits. They say the crisis hasn’t come – welI in 2008 and 2009 we had a pretty major crisis and what we learned there is that the middle class got wiped out and the poor people got poorer and now there’s a lot of wealth going on but it’s still accumulating to the wealthy individual.” “People say it might not come for another ten years – well we don’t know whether that’s necessary but one thing that’s for sure when a government embarks on deficit financing and then monetizing the debt the value of commodities like gold and silver generally goes up.

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Anyone think the concentration of finance in the City is maybe not such a great idea? As, you know, for the people?

How Brexit Is Set To Hurt Europe’s Financial Systems (R.)

Interviews with scores of senior executives from big British and international banks, lawyers, academics, rating agencies and lobbyists outline some of the dangers for companies and consumers from potentially losing access to London’s markets. The EU needs London’s money, says Mark Carney, governor of the Bank of England. He calls Britain “Europe’s investment banker” and says half of all the debt and equity issued by the EU involves financial institutions in Britain. Rewiring businesses will be expensive, though estimates vary widely. Investment banks that set up new European outposts to retain access to the EU’s single market may see their EU costs rise by between 8 and 22%, according to one study by Boston Consulting Group.

A separate study by JP Morgan estimates that eight big U.S. and European banks face a combined bill of $7.5 billion over the next five years if they have to move capital markets operations out of London as a result of Brexit. Such costs would equate to an average 2% of the banks’ global annual expenses, JP Morgan said. Banks say most of those extra costs will end up being paid by customers. “If the cost of production goes up, ultimately a lot of our costs will get passed on to the client base,” said Richard Gnodde, chief executive of the European arm of Goldman Sachs. “As soon as you start to fragment pools of liquidity or fragment capital bases, it becomes less efficient, the costs can go up.”

UK-based financial firms are trying to shift some of their operations to Europe to ensure they can still work for EU clients, but warn such a rearrangement of the region’s financial architecture could threaten economic stability not only in Britain but also in Europe because so much European money flows through London. European countries, particularly France and Germany, don’t share these concerns, viewing Brexit as an opportunity to steal large swathes of business away from Britain and build up their own financial centres. Britain alone accounts for 5.4% of global stock markets by value, according to Reuters data. Valdis Dombrovskis, the EU financial services chief, said the EU will still account for 15% of global stock markets by value without Britain, and that measures were being taken to strengthen its capital markets. But he added: “Fragmentation is preventing our financial services sector from realising its full potential.”

Industry figures have similar concerns. Jean-Louis Laurens, a former senior Rothschild banker and now ambassador for the French asset management lobby, told Reuters: “If London is broken into pieces then it is not going to be as efficient. Both Europe and Britain are going to lose from this.” London is currently home to the world’s largest number of banks and hosts the largest commercial insurance market. About six trillion euros ($6.8 trillion), or 37%, of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris. And London dominates Europe’s 5.2 trillion euro investment banking industry.

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Familiar patteren: first blow a bubble, then warn about it.

Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)

British families are signing up for a lifetime of debt with almost one in seven borrowers now taking out mortgages of 35 years or more, official figures show. Rapid house price growth has encouraged borrowers to sign longer mortgage deals as a way of reducing monthly payments and easing affordability pressures. Bank of England data shows 15.75pc of all new mortgages taken out in the first quarter of 2017 were for terms of 35 years or more. While this is slightly down from the record high of 16.36pc at the end of 2016, it has climbed from just 2.7pc when records began in 2005. The steady rise has triggered alarm bells at the Bank, prompting regulators to warn that the trend risks storing up problem[s] for the future if lenders ignore the growing share of households prepared to borrow into retirement. Several lenders including Halifax, the UK’s biggest mortgage provider, and Nationwide have raised their borrowing age limits to 80 and 85 over the past year.

Bank figures show one in five mortgages are taken out for terms of between 30 and 35 years, from below 8pc in 2005, as the traditional 25-year mortgage becomes less popular. David Hollingworth, a director at mortgage broker London & Country, said the trend showed that an increasing share of borrowers were struggling with affordability pressures, and deciding that lengthening the term will offer leeway as house price growth continues to outpace pay rises. However, he said most borrowers were unlikely to stick with the same deal, with most having a desire to review that later and potentially peg [the extra interest costs] back . Mr Hollingworth added that longer mortgage terms were also better than interest-only deals that were prevalent before the credit crunch. The Bank noted in its latest financial stability report that there was little evidence that borrowers were signing up for longer mortgage deals to circumvent tougher borrowing tests for homeowners introduced in 2014.

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Fusion GPS.

Is Russiagate Really Hillarygate? (Forbes)

The most under covered story of Russia Gate is the interconnection between the Clinton campaign, an unregistered foreign agent of Russia headquartered in DC (Fusion GPS), and the Christopher Steele Orbis dossier. This connection has raised the question of whether Kremlin prepared the dossier as part of a disinformation campaign to sow chaos in the US political system. If ordered and paid for by Hillary Clinton associates, Russia Gate is turned on its head as collusion between Clinton operatives (not Trump’s) and Russian intelligence. Russia Gate becomes Hillary Gate. Neither the New York Times, Washington Post, nor CNN has covered this explosive story. Two op-eds have appeared in the Wall Street Journal. The possible Russian-intelligence origins of the Steele dossier have been raised only in conservative publications, such as in The Federalist and National Review.

The Fusion story has been known since Senator Chuck Grassley (R-Iowa) sent a heavily-footnoted letter to the Justice Department on March 31, 2017 demanding for his Judiciary Committee all relevant documents on Fusion GPS, the company that managed the Steele dossier against then-candidate Donald Trump. Grassley writes to justify his demand for documents that: “The issue is of particular concern to the Committee given that when Fusion GPS reportedly was acting as an unregistered agent of Russian interests, it appears to have been simultaneously overseeing the creation of the unsubstantiated dossier of allegations of a conspiracy between the Trump campaign and the Russians.”

Former FBI director, James Comey, refused to answer questions about Fusion and the Steele dossier in his May 3 testimony before the Senate Intelligence Committee. Comey responded to Lindsey Graham’s questions about Fusion GPS’s involvement “in preparing a dossier against Donald Trump that would be interfering in our election by the Russians?” with “I don’t want to say.” Perhaps he will be called on to answer in a forum where he cannot refuse to answer.

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And don’t think it’s over. The pension chips are yet to fall.

The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)

Those who wish to understand how things work in Chicago need read a single article that ties everything together:

“Teamsters Boss Indicted On Charges Of Extorting $100,000 From A Local Business. A politically connected Teamsters union boss was indicted Wednesday on federal charges alleging he extorted $100,000 in cash from a local business. John Coli Sr., considered one the union’s most powerful figures nationally, was charged with threatening work stoppages and other labor unrest unless he was given cash payoffs of $25,000 every three months by the undisclosed business. The alleged extortion occurred when Coli was president of Teamsters Joint Council 25, a labor organization that represents more than 100,000 workers in the Chicago area and northwest Indiana. Coli, 57, an early backer of Mayor Rahm Emanuel, was charged with one count of attempted extortion and five counts of demanding and accepting prohibited payment as a union official.”

[..] Former governor Rod Blagojevich is now in prison for a 14-year sentence. He was found guilty of 18 counts of corruption, including attempting to sell or trade an appointment to a vacant seat in the U.S. Senate. He faces another eight years in prison after an appeals court upheld the sentence in April of this year. No other state can match this claim: 4 OUT OF PREVIOUS 7 ILLINOIS GOVERNORS WENT TO PRISON The way Chicago “works” is the same way Illinois “works”. Corrupt politicians get in bed with corrupt union leaders and screw the taxpayers and businesses as much as they can. Sometimes they get caught. Teamster boss Coli just got caught after all these years of extortion. His deals with Mayor Emanuel screwed Chicago taxpayers. Emanuel promised reforms and transparency but reforms and transparency stop once campaign donations are sufficient enough.

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Macron plays Napoleon.

France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)

French President Emmanuel Macron said his defense chief has no choice but to agree with what he says, a weekly newspaper reported on Sunday, after his top general criticized spending cuts to this year’s budget. “If something opposes the military chief of staff and the president, the military chief of staff goes,” Macron, who as president is also the commander-in-chief of the armed forces, told Le Journal du Dimanche (JDD). Macron said on Thursday that he would not tolerate public dissent from the military after General Pierre de Villiers reportedly told a parliament committee he would not let the government “fuck with” him on spending cuts.

De Villiers still has Macron’s “full trust,” the president told JDD, provided the top general “knows the chain of command and how it works.” “No one deserves to be blindly followed,” De Villiers wrote in a message posted on his Facebook page on Friday. De Villiers’ last Facebook post is an open letter addressed to new military recruits that makes no mention of Macron. But it was perceived by French media as targeting the president’s earlier comments.

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Macron wants to be a global force too. While he has nothing to say in Europe.

France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)

France called on Saturday for a swift lifting of sanctions that target Qatari nationals in an effort to ease a month-long rift between the Gulf country and several of its neighbors. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt imposed sanctions on Qatar on June 5, accusing it of financing extremist groups and allying with the Gulf Arab states’ arch-foe Iran. Doha denies the accusations. “France calls for the lifting, as soon as possible, of the measures that affect the populations in particular, bi-national families that have been separated or students,” French Foreign Minister Jean-Yves Le Drian told reporters in Doha, after he met his counterpart Sheikh Mohammed bin Abdulrahman al-Thani. Le Drian was speaking alongside Sheikh Mohammed, hours after his arrival in Doha. He is the latest Western official to visit the area since the crisis began.

Later in the day he flew to Jeddah, where he repeated his concerns about the effects of the standoff in a televised press appearance with Saudi Foreign Minister Adel al-Jubeir. Jubeir said any resolution of the worst Gulf crisis in years should come from within the six-nation Gulf Cooperation Council. “We hope to resolve this crisis within the Gulf house, and we hope that wisdom prevails for our brothers in Qatar in order to respond to the demands of the international community – not just of the four countries,” he said. [..] Le Drian, who will visit the UAE and Gulf mediator Kuwait on Sunday, follows in the steps of other world powers in the region, including the United States, whose Secretary of State Rex Tillerson sought to find a solution to the impasse this week.

Officials from Britain and Germany also visited the region with the aim of easing the conflict, for which Kuwait has acted as mediator between the fending Gulf countries. In a joint statement issued after Tillerson and Sheikh Mohammed signed an agreement on Tuesday aimed at combating the financing of terrorism, the four Arab states leading the boycott on Qatar said the sanctions would remain in place.

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The Tesla tulip.

Is California Bailing Out Tesla through the Backdoor? (WS)

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout. Tesla will soon hit the limit of the federal tax rebates, which are good for the first 200,000 EVs sold in the US per manufacturer beginning in December 2009 (IRS explanation). In the second quarter after the manufacturer hits the limit, the subsidy gets cut in half, from $7,500 to $3,750; two quarters later, it gets cut to $1,875. Two quarters later, it goes to zero. Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins.

A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t. This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled. That’s what Tesla is facing next year in the US. In California, the largest EV market in the US, 2.7% of new vehicles sold in the first quarter were EVs, up from 0.4% in 2012, according to the California New Dealers Association. California is Tesla’s largest market.

Something big needs to be done to help the Bay Area company, which has lost money every single year of its ten years of existence. And taxpayers are going to be shanghaied into doing it. To make this more palatable, you have to dress this up as something where others benefit too, though the biggest beneficiary would be Tesla because these California subsidies would replace the federal subsidies when they’re phased out. It would be a rebate handled at the dealer, not a tax credit on the tax return. And it could reach “up to $30,000 to $40,000” per EV, state Senator Andy Vidak, a Republican from Hanford, explained in an emailed statement. This is how the taxpayer-funded rebates in the “California Electric Vehicle Initiative” (AB1184) would work, according to the Mercury News:

“The [California Air Resources Board] would determine the size of a rebate based on equalizing the cost of an EV and a comparable gas-powered car. For example, a new, $40,000 electric vehicle might have the same features as a $25,000 gas-powered car. The EV buyer would receive a $7,500 federal rebate, and the state would kick in an additional $7,500 to even out the bottom line.” And for instance, a $100,000 Tesla might be deemed to have the same features as a $65,000 gas-powered car. The rebate would cover the difference, minus the federal rebate (so $27,500). Because rebates for Teslas will soon be gone, the program would cover the entire difference – $35,000. This is where Senator Vidak got his “$30,000 to $40,000.”

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Money changes everything.

Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

The Brazilian environment ministry is proposing the release of 860,000 acres in the National Forest of Jamanxim for agricultural use, mining and logging. The government’s order was a compromise measure after protests from local residents and ecologists who claim that the bill could lead to further deforestation in the Pará area. If approved, the legislation will create a new protection area (APA) close to Novo Progresso. Around 27% of the national forest would be converted into an APA, the ministry said. Carlos Xavier, president of a lobbying group in Pará to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. According to the ministry, the bill includes stipulations to reduce conflicts over land, prevent deforestation and create jobs. The measures were criticised by environmental groups.

“The bill is seen as an amnesty for illegal occupation of the conservancy unit,” said Observatório do Clima on its website, claiming that the government “yielded to pressure” from the rural lobby. Carlos Xavier, president of a lobbying group in Para to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. In 2016, deforestation of the Amazon rose by 29% over the previous year, according to the government’s satellite monitoring, the biggest jump since 2008. Mongabay, an environmental science and conservation website, reports that experts using satellite images have identified illegal logging activities to the east of the BR-163 highway, in Pará state. The BR-163 protests involved stopping trucks from unloading grains at the riverside location of Miritituba, where barges carrying crops are transported en route to the export markets. ATP, the Brazilian private ports association, calculated that the highway protests would result in losses of $47m.

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Jul 022017
 
 July 2, 2017  Posted by at 9:54 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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JMW Turner Lake Llanberis and Snowdon Color Study c.1800

 

Can The Bank of England Get Britain To Kick Its Cheap Credit Habit? (G.)
Britain ‘Is On The Brink Of The Worst House Price Collapse Since 1990s’ (DM)
China Tears Up Promises To UK And Shows The World Who Is In Charge (O.)
Court Ruling Sends Illinois Into Financial Abyss (ZH)
New Jersey Governor Chris Christie Orders Government Shutdown (CBS)
Only 2% of US Politicians Actually Want to Stop Arming Terrorists (Salles)
After Hersh Investigation, Media Connive in Propaganda War on Syria (CP)
How Do We Know that What Hersh Was Told Was True? (PCR)
‘Clean Coal’ Will Always Be a Fantasy (BBG)
Qatar Rejects Deadline Demands, Saying It Does Not Fear Military Action (G.)
Debt-Stricken Greece Gets Record Number Of Visitors (G.)
ECB To Inspect Greek Banks’ Progress On Cutting Bad Loans (R.)
Schaeuble Says Greek Governments To Blame For Pension Cuts (K.)

 

 

The BoE promoted, incited, cheap credit and the housing bubble by lowering rates. And now it has to kill off what it promoted? Who believes that? The role of central banks is truly poorly understood.

Can The Bank of England Get Britain To Kick Its Cheap Credit Habit? (G.)

One thing sure to upset Bank of England officials is any suggestion that the Old Lady of Threadneedle Street has gone soft on the banking industry and turns a blind eye to reckless lending. It brings back disturbing memories of the 2008 credit crunch, the chaos it brought to the economy and the damage it caused the institution’s reputation. Last week, the Bank of England, which has become the overarching regulator of the banking system, made a point of being tough on the banks following the publication of its latest financial stability report. It slapped a demand for more than £11bn of extra reserves on the major lenders – just in case the current economic slowdown should trigger a rise in defaults.

Governor Mark Carney also warned the lending industry that it should expect tougher rules on how it sells mortgages, car loans and credit cards should the current rise in borrowing rocket any further. But one question remains: can Carney and his troops tame the British consumer’s dependence on debt? The most recent figures would say the answer is no. Last week the Bank’s own figures showed that consumer credit grew by £1.7bn in May, the biggest increase since last November, and higher than the six-month average of £1.5bn. The annual rate at which UK consumers are loading up on their already heaving debt pile remained at 10.3% in the year to May. A look at the total stock of UK consumer credit shows that it reached £198bn in April.

That might seem small compared with the total amount of outstanding mortgage debt, which is around seven times larger, at £1.3trillion, but for banks, consumer credit accounts for a much higher proportion of losses. “Since 2007, UK banks’ total write-offs on UK consumer credit have been 10 times higher than on mortgages,” the BoE says. And all this rising debt comes at a time of extraordinary falls in the savings rate. The most recent GDP figures showed that households were putting aside rainy day money at the lowest rate on record. It is a situation that worries experts of all stripes – from Jane Tully, a senior director at the Money Advice Trust, the charity that runs National Debtline, to former Bank of England official Kate Barker, who was a member of the Bank’s interest rate-setting committee during the last crash.

Tully said: “We have already seen an 8% rise in the number of people helped by National Debtline by telephone this year, and all the signs are that demand for debt advice will continue to increase. The higher borrowing levels rise, the more households will be exposed to the risk of financial difficulty in the event of a downturn.” Barker is concerned that eight years of ultra-low interest rates are fuelling a dependence on cheap borrowing, without any end in sight. She says that the growth of car finance plans appears to be a side-effect of the clampdown in other areas of credit, in particular the tighter regulation of mortgages. “There is obviously an incentive to borrow, so as one area is clamped down on, the problem pops up in another,” she says.

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A 40% fall in prices sounds reasonable.

Britain ‘Is On The Brink Of The Worst House Price Collapse Since 1990s’ (DM)

House prices are teetering on the brink of a crash that could be as bad as the bust of the early 1990s, a leading expert has warned. There are already warning signs that prices are heading towards a near 40% plunge, warns Paul Cheshire, Professor of Economic Geography at the London School of Economics. It raises the alarming spectre of the return of ‘negative equity’ – when a house falls so far in value it is worth less than the mortgage – which hit one million people at the worst point in the 1990s. Speaking exclusively to The Mail on Sunday, Prof Cheshire, a former Government housing adviser, said: ‘We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting. ‘Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain.’

Such a shift could push many thousands of recent buyers into trouble. From 1989, the price boom fell apart over the next six years, with prices plunging by 37%. In its most recent figures, The National Association of Estate Agents reported the number of homes sold in May for less than the asking price rose to 77%. According to Prof Cheshire, the fall in real incomes – when wages fail to keep up with inflation – is likely to be the spark for a fall in house prices. Inflation hit 2.9% last month, while incomes only grew by 2.1%. Property experts and estate agents say the housing market in wealthier pockets of the country has been further hit by stamp duty hikes. Prof Christian Hilber of the LSE also warned: ‘If Brexit leads to a recession and/or sluggish growth for extended periods, then an extended and severe downturn is more likely than a short-lived and mild one.’ The Council of Mortgage Lenders said earlier this month that the housing market had ‘stalled’

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From bad to worse. The hubris boomerang.

China Tears Up Promises To UK And Shows The World Who Is In Charge (O.)

Xi Jinping’s tough talk in Hong Kong reflects growing self-confidence in China’s ability to shape world events and browbeat or ignore less powerful countries such as Britain. The Chinese president could have thrown a bone to the pro-democracy movement. He could have offered a sop on civil liberties and political rights to western opinion. Instead, he told Hong Kong who’s boss. Xi the hard man laid down the law according to Beijing. His message: fall into line, or else. His message to Britain was blunt, too, bordering on disdainful. China would not brook outside “interference” in the former colony. Forget about those guarantees of a free, open society painstakingly negotiated before the 1997 handover. “Any attempt to endanger China’s sovereignty and challenge the power of the central government is absolutely impermissible,” Xi said.

Under Xi’s bastardised version of the Basic Law, any criticism is henceforth forbidden, on pain of serious consequences. Boris Johnson received a stinging lesson in the new balance of power earlier in the week. “As we look to the future, Britain hopes that Hong Kong will make more progress toward a fully democratic and accountable system of government,” the foreign secretary intoned with uncharacteristic meekness. Johnson’s statement was shamefully deferential. He could, and should, have been more forceful about Beijing’s responsibilities and its own egregious, sometimes illegal meddling. But China took umbrage all the same. Liu Xiaoming, China’s ambassador in London, set Johnson straight: Hong Kong issues must henceforth be “handled properly” or overall ties would suffer.

Worse was to follow. On Friday, China’s foreign ministry formally renounced the 1984 Sino-British joint declaration, the basis on which Britain agreed to relinquish control of the colony. The two sides had agreed the treaty would remain in force for 50 years. “The Sino-British joint declaration, as a historical document, no longer has any practical significance, and it is not at all binding for the central government’s management over Hong Kong,” the spokesman Lu Kang declared. The Foreign Office swiftly rejected the demarche. But in his present bullish mood, Xi is not listening.

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Keeping up appearances is getting harder.

Court Ruling Sends Illinois Into Financial Abyss (ZH)

[..] the state remains without a spending plan, its tax receipts and outlays mostly on “autopilot”, leaving it with a record $15 billion of unpaid bills as it spent over $6 billion more than it brought in over the past year, and with $800 million in interest on the unpaid bills alone. The impasse has devastated social-service providers, shuttering services for the homeless, disabled and poor. The lack of state aid has wrecked havoc on universities, putting their accreditation at risk. However, in a “shocking” development, just hours remaining before the midnight deadline to pass the Illinois budget, and Illinois’ imminent loss of its investment grade rating, federal judge Joan Lefkow in Chicago ordered Illinois to come up with hundreds of millions of dollars it owes in Medicaid payments that state officials say the government doesn’t have, the Chicago Tribune reported.

Judge Lefkow ordered the state to make $586 million in monthly payments (from the current $160 million) as well as another $2 billion toward a $3 billion backlog of payments – a $167 million increase in monthly outlays – the state owes to managed care organizations that process payments to providers. While it is no secret that as part of its collapse into the financial abyss, Illinois has accumulated $15 billion in unpaid bills, the state’s Medicaid recipients had had enough, and went to court asking a judge to order the state to speed up its payments. On Friday, the court ruled in their favor. The problem, of course, is that Illinois can no more afford to pay the outstanding Medicaid bills, than it can to pay any of its $14,711,351,943.90 in overdue bills as of June 30. The backlog of unpaid claims the state owes to managed-care companies directly, as well as to the doctors, hospitals, clinics and other organizations “is crippling these providers and thereby dramatically reducing the Medicaid recipients’ access to health care,” Lefkow said in her ruling.

Friday’s court ruling, which meant that the near-insolvent state must pay an additional $593 million per month, may have been the straw that finally broke the Illinois camel’s back. “Friday’s ruling by the U.S. District Court takes the state’s finances from horrific to catastrophic,” Comptroller Susana Mendoza, a Democrat, said in an emailed statement after the ruling. [..] “A comprehensive budget plan must be passed immediately.” Realizing where all this is headed, she said that payments to bond holders won’t be interrupted. [..] As a result of the court decision, “payments to the state’s pension funds; state payroll including legislator pay; General State Aid to schools and payments to local governments – in some combination – will likely have to be cut.”

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ME, CT, IL and NJ. Who’s next, please?

New Jersey Governor Chris Christie Orders Government Shutdown (CBS)

New Jersey Gov. Chris Christie and the Democrat-led Legislature are returning to work to try to resolve the state’s first government shutdown since 2006 and the first under Christie. The Republican governor and the Democrat-led Legislature failed to reach an agreement on a new budget by the deadline at midnight Friday, CBS New York reports. In a news conference Saturday morning, Christie blamed Democratic State Assembly Speaker Vincent Prieto for causing the shutdown. “If there’s not a resolution to this today, everyone will be back tomorrow,” Christie said, calling the shutdown “embarrassing and pointless.” He also repeatedly referred to the government closure as “the speaker’s shutdown.” Christie later announced that he would address the full legislature later at the statehouse on Saturday.

Prieto remained steadfast in his opposition, reiterating that he won’t consider the plan as part of the budget process but would consider it once a budget is signed. Referring to the shutdown as “Gov. Christie’s Hostage Crisis Day One,” Prieto said he has made compromises that led to the budget now before the Legislature. “I am also ready to consider reasonable alternatives that protect ratepayers, but others must come to the table ready to be equally reasonable,” Prieto said. “Gov. Christie and the legislators who won’t vote ‘yes’ on the budget are responsible for this unacceptable shutdown. I compromised. I put up a budget bill for a vote. Others now must now do their part and fulfill their responsibilities.” Christie ordered nonessential services to close beginning Saturday. New Jerseyans were feeling the impact as the shutdown took effect, shuttering state parks and disrupting ferry service to Liberty and Ellis islands.

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Where the real power resides.

Only 2% of US Politicians Actually Want to Stop Arming Terrorists (Salles)

One of the few elected Democratic lawmakers with an extensive anti-war record, Rep. Tulsi Gabbard (D-Hawaii), has combined forces with Sen. Rand Paul (R-Kentucky) to push legislation through both the House and the Senate that would bar federal agencies from using taxpayer-backed funds to provide weapons, training, intelligence, or any other type of support to terrorist cells such as al-Qaeda, ISIS, or any other group that is associated with them in any way. The Stop Arming Terrorists Act is so unique that it’s also the only bill of its kind that would also bar the government from funneling money and weapons through other countries that support (directly or indirectly) terrorists such as Saudi Arabia. To our surprise – or should we say shame? – only 13 other lawmakers out of hundreds have co-sponsored Gabbard’s House bill. Paul’s Senate version of the bill, on the other hand, has zero co-sponsors.

While both pieces of legislation were introduced in early 2017, no real action has been taken as of yet. This proves that Washington refuses to support bills that would actually provoke positive chain reactions not only abroad but also at home. Why? Well, let’s look at the groups that would lose a great deal in case this bill is signed into law. With trillions of tax dollars flowing to companies such as Boeing, Lockheed Martin, and even IBM, among others, companies that invest heavily in weapons, cyber security systems, and other technologies that are widely used in times of war would stand to lose a lot – if not everything – if all of a sudden, the United States chose to become a nation that stands for peace and free market principles. For one, these companies have a heavy lobbying presence, ensuring that lawmakers sympathetic to their plight are elected every two years.

When the possibility of a new conflict appears on the horizon, these companies are the first to lobby heavily for action. But this dynamic isn’t a secret. We all know that the crony capitalist system that thrives in Washington, D.C., is the very bread and butter of politics in America. After all, President Dwight D. Eisenhower warned the nation in his farewell address in 1961 that “an immense military establishment and a large arms industry” were becoming the great powers behind U.S. politics, and that if we weren’t weary of this influence, we would risk living in a perpetual state of war. Still, we allowed it to take over. And there isn’t one industry powerful enough to counter this destructive authority. With the support of an army of well-established and connected millionaire lobbyists, the war machine operating in Washington is so powerful that anything can be turned into an existential threat.

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Obviously, if only 2% of US politicians are willing to stop the machine, it will march on. Ike may as well have said nothing.

After Hersh Investigation, Media Connive in Propaganda War on Syria (CP)

So what did Hersh’s investigation reveal? His sources in the US intelligence establishment – people who have helped him break some of the most important stories of the past few decades, from the Mai Lai massacre by American soldiers during the Vietnam war to US abuse of Iraqi prisoners at Abu Ghraib in 2004 – told him the official narrative that Syria’s Bashar Assad had dropped deadly sarin gas on the town of Khan Sheikhoun on April 4 was incorrect. Instead, they said, a Syrian plane dropped a bomb on a meeting of jihadi fighters that triggered secondary explosions in a storage depot, releasing a toxic cloud of chemicals that killed civilians nearby. It is an alternative narrative of these events that one might have assumed would be of intense interest to the media, given that Donald Trump approved a military strike on Syria based on the official narrative.

Hersh’s version suggests that Trump acted against the intelligence advice he received from his own officials, in a highly dangerous move that not only grossly violated international law but might have dragged Assad’s main ally, Russia, into the fray. The Syrian arena has the potential to trigger a serious confrontation between the world’s two major nuclear powers. But, in fact, the western media were supremely uninterested in the story. Hersh, once considered the journalist’s journalist, went hawking his investigation around the US and UK media to no avail. In the end, he could find a home for his revelations only in Germany, in the publication Welt am Sonntag. There are a couple of possible, even if highly improbable, reasons all English-language publications ignored Hersh’s story. Maybe they had evidence that his inside intelligence was wrong.

If so, they have yet to provide it. A rebuttal would require acknowledging Hersh’s story, and none seem willing to do that. Or maybe the media thought it was old news and would no longer interest their readers. It would be difficult to sustain such an interpretation, but at least it has an air of plausibility – except for everything that has happened since Hersh published last Sunday. His story has spawned two clear “spoiler” responses from those desperate to uphold the official narrative. Hersh’s revelations may have been entirely uninteresting to the western media, but strangely they have sent Washington into crisis mode. Of course, no US official has addressed Hersh’s investigation directly, which might have drawn attention to it and forced western media to reference it. Instead Washington has sought to deflect attention from Hersh’s alternative narrative and shore up the official one through misdirection.

That alone should raise the alarm that we are being manipulated, not informed. The first spoiler, made in the immediate wake of Hersh’s story, were statements from the Pentagon and White House warning that the US had evidence Assad was planning yet another chemical attack on his people and that Washington would respond extremely harshly if he did so. Here is how the Guardian reported the US threats: “The US said on Tuesday that it had observed preparations for a possible chemical weapons attack at a Syrian air base allegedly involved in a sarin attack in April following a warning from the White House that the Syrian regime would ‘pay a heavy price’ for further use of the weapons.”

And then on Friday, the second spoiler emerged. Two unnamed diplomats “confirmed” that a report by the Organisation for the Prohibition of Chemical Weapons (OPCW) had found that some of the victims from Khan Sheikhoun showed signs of poisoning by sarin or sarin-like substances.

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“How clear does an orchestration have to be before people are capable of recognizing the orchestration?”

How Do We Know that What Hersh Was Told Was True? (PCR)

If national security advisers gave Trump such excellent information about the alleged sarin gas attack, completely disproving any such attack, why was he given such bad advice about shooting down a Syrian war plane, or was it done outside of channels? The effect of the shootdown is to raise the chance of a confrontation with Russia, because Russia’s response apparently has been to declare a no-fly zone over the area of Russian and Syrian operations. How do we know that what Hersh was told was true? What if Trump was encouraged to order the Tomahawk strike as a way of interjecting the US directly into the conflict? Both the US and Israel have powerful reasons for wanting to overthrow Assad. However, ISIS, sent to do the job, has been defeated by Russia and Syria. Unless Washington can somehow get directly involved, the war is over.

The story Hersh was given also serves to damn Trump while absolving the intelligence services. Trump takes the hit for injecting the US directly into the conflict. Hersh’s story reads well, but it easily could be a false story planted on him. I am not saying that the story is false, but unless we learn more, it could be. What we do know is that the story given to Hersh by national security officials is inconsistent with the June 26 White House announcement that the US has “identified potential preparations for another chemical attack by the Assad regime.” The White House does not have the capability to conduct its own foreign intelligence gathering. The White House is informed by the national security and intelligence agencies. In the story given to Hersh, these officials are emphatic that not only were chemical weapons removed from Syria, but also that Assad would not use them or be permitted by the Russians to use them even if he had them.

Moreover, Hersh reports that he was told that Russia fully informed the US of the Syrian attack on ISIS in advance. The weapon was a guided bomb that Russia had supplied to Syria. Therefore, it could not have been a chemical weapon. As US national security officials made it clear to Hersh that they do not believe Syria did or would use any chemical weapons, what is the source for the White House’s announcement that preparations for another chemical attack by the Assad regime have been identified? Who lined up UN ambassador Nikki Haley and the UK Defence Minister Michael Fallon to be ready with statements in support of the White House announcement? Haley says: “Any further attacks done to the people of Syria will be blamed on Assad, but also on Russia & Iran who support him killing his own people.” Fallon says: “we will support” future US action in response to the use of chemical weapons in Syria.

How clear does an orchestration have to be before people are capable of recognizing the orchestration?

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Yeah, we really need Bloomberg editors’ opinions on matters they know nothing about. Mind you, carbon capture is an empty slogan.

‘Clean Coal’ Will Always Be a Fantasy (BBG)

“Clean coal,” always dubious as a concept and never proved as a reality, has now failed as business proposition. Southern Co. has decided to stop work on a process that would have captured carbon dioxide emissions from a coal plant in Mississippi. Giving up on the project, which was nearly $5 billion over budget and three years behind schedule, makes sense for Southern’s customers and shareholders. And giving up on carbon capture makes sense for the energy industry. The technology is too expensive and complicated to be deployed quickly or widely enough to appreciably protect the climate. The better way to cut back on carbon-dioxide emissions is far simpler: Use less coal. Luckily, that change is already under way. (Michael R. Bloomberg supports the Sierra Club’s Beyond Coal campaign, an effort to replace coal power with cleaner forms of energy.)

Carbon capture once seemed promising – even as recently as a decade ago, when coal fueled almost half of U.S. electricity generation. Back then, continued dependence on the dirty fuel looked inevitable, and a strategy to deal with its prodigious greenhouse-gas emissions seemed essential. Hence, utilities embarked on model coal plants that would capture the carbon dioxide before it could enter the atmosphere. Only a couple have been built, in addition to Southern’s in Kemper County, Mississippi, and none has established an economic case for carbon capture. The Petra Nova facility, in Texas, was reportedly finished on time and on budget, but its construction required a $190 million federal grant, and the carbon-capture unit requires a separate gas-fired power plant.

Canada’s Boundary Dam carbon-capture unit, meanwhile, has operated much less efficiently than expected, suffering multiple breakdowns and requiring expensive repairs. Unfortunately, such costs and complexities are unlikely to diminish very much, and few such facilities are likely to be built worldwide in the next 20 years. A new report issued by the Global Warming Policy Foundation concludes that carbon capture for coal-fired power has “no plausible economic future.”

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Is it time to cut the House of Saud down to size?

Qatar Rejects Deadline Demands, Saying It Does Not Fear Military Action (G.)

Qatar said on Saturday it does not fear any military retaliation for refusing to meet a Monday deadline to comply with a list of demands from four Arab states that have imposed a de-facto blockade on the Gulf nation. During a visit to Rome, foreign minister Sheikh Mohammed bin Abdulrahman Al Thani again rejected the demands as an infringement on Qatar’s sovereignty. He said any country is free to raise grievances with Qatar, provided they have proof, but said any such conflicts should be worked out through negotiation, not by imposing ultimatums. “We believe that the world is governed by international laws, that don’t allow big countries to bully small countries,” he told a press conference in Italy. “No one has the right to issue to a sovereign country an ultimatum.” Saudi Arabia, Egypt, Bahrain and the United Arab Emirates cut diplomatic ties with Qatar last month and shut down land, sea and air links.

They issued a 13-point list of demands, including curbing diplomatic ties to Iran, severing ties with the Muslim Brotherhood and shuttering the Al-Jazeera news network. They accuse Qatar of supporting regional terror groups, a charge Qatar denies. Al Thani rejected the demands and said they were never meant to be accepted. “There is no fear from whatever action would be taken; Qatar is prepared to face whatever consequences,” he said. “But as I have mentioned … there is an international law that should not be violated and there is a border that should not be crossed.” While in Rome, Al Thani met with Italian foreign minister Angelino Alfano, who backed the Kuwait-led mediation effort and urged the countries involved in the standoff to “abstain from further actions that could aggravate the situation”. He added that he hoped Italian companies could further consolidate their presence in Qatar.

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I read these things and think I must be missing something: “..Greece is braced for a record-breaking 30m holidaymakers this year..” and “For every extra 30 holidaymakers a job is created”.

That sounds like a lot of jobs. But seriously, a country that depends too much on tourism is not a healthy country. Not enough stability or resilience. The longer the US and EU wait, the more unstable Greece will become.

Debt-Stricken Greece Gets Record Number Of Visitors (G.)

Up high, above the hills of Arcadia, historic Dimitsana is on a roll. Its hotels are brimming, its cafes are full, and its footpaths and monasteries lure busloads of tourists decanted daily from other parts of the Peloponnese. Either side of the main road that splits the mountain village – in a world far removed from talk of emergency bailout funds, international stewardship and gruelling austerity – Greeks are hard at work, running boutique guesthouses, eateries and bars in the stone mansions that line Dimitsana’s cobbled streets. “Business is very good,” says Labis Baxevanos, the village’s deputy mayor, who owns a patisserie along the strip. “So good that a lot of younger couples have come to work here since the country’s economic crisis began.”

Debt-stricken Greece is braced for a record-breaking 30m holidaymakers this year, almost three times its population. Addressing the Panhellenic Exporters Association last week, the tourism minister Elena Kountoura said that between January and May there had been a noticeable increase in arrivals, revenues and occupancy rates with summer bookings in some areas rising by as much as 70%. Travel receipts grew by 2.4% or €23m (£20m). After eight years of grinding austerity, the influx is a tangible gift, on a par with the €8.5bn financial lifeline thrown Greece earlier this month to once again avert default. Dimitsana – once famous for the gunpowder mills that produced the firepower in the nation’s 1821 war of independence against Ottoman rule – is emblematic of the entrepreneurial spirit taking root as a result of the boom.

“Tourism is our lifejacket,” says Theonimfi Koraki, who opened a boutique hotel in the village last summer. “The aim now is diversity and drawing out the season all year round. Here in Arcadia the creation of the 75km-long Menalon [walking] trail has been hugely successful for example with foreign tourists. It has greatly helped the development of the region.” With the exception of shipping, tourism is Greece’s biggest foreign earner, the mainstay of an economy that has otherwise contracted by 27% since late 2009 when the country’s debt crisis began. The industry accounted for eight out of 10 new jobs in 2016, vital for a nation hit by crippling levels of unemployment. Bank of Greece figures show around 23.5 million tourists visited in 2015, generating €14.2bn of revenues, or 24% of gross domestic product. Last year, the country’s tourism confederation, SETE, announced arrivals of 27.5 million, an all-time high.

Increasingly, the sector has helped boost much-needed job creation, according to data released by the labour ministry. Recently, the prime minister, Alexis Tsipras, said April and May had been record months for tackling the problem with 92,000 and 89,500 jobs created respectively. For every extra 30 holidaymakers a job is created, say officials. They have been at pains to make the point as striking municipal waste workers not only unnerved tour operators this week but highlighted how important tourism is for the economy.

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Translation: the Troika is not done with Greece yet. The bad loans issue will be used to throw more Greeks out of their homes etc.

ECB To Inspect Greek Banks’ Progress On Cutting Bad Loans (R.)

The European Central Bank plans to inspect Greek banks this year to monitor their progress in working off their huge pile of unpaid loans, ECB director Sabine Lautenschlaeger said on Friday. Greek banks have been cutting their share of non-performing loans (NPL) to companies and households, which account for slightly more than half of their books as a result of a severe economic crisis, to meet targets set by the ECB. The ECB supervises Greece’s four largest banks, or significant institutions (SIs), and is one of the three bodies responsible for the country’s bailout, along with the European Commission and the IMF.

“The ECB will perform on-site missions at the Greek SIs during the second half of 2017, a period in which the main operational measures to address NPLs … have to be already implemented,” Lautenschlaeger said in a letter to IMF chief Christine Lagarde. She was responding to an IMF request for information on the ECB’s supervisory work in Greece in the context of a possible IMF program for the country. Greece secured a credit lifeline from euro zone governments earlier this month. The IMF offered Athens a standby arrangement but said it won’t disburse any money until it obtains greater detail on debt relief for the country.

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The best for last today. Schaeuble suggests that Greece could have cut elsewhere and still meet Troika demands. Like kill all health care and education, presumably.

Schaeuble Says Greek Governments To Blame For Pension Cuts (K.)

German Finance Minister Wolfgang Schaeuble has insisted in an interview that successive Greek governments were to blame for the pension cuts that have been enforced in Greece. The German minister stressed in an interview with Ta Nea newspaper on Saturday that the Greek governments are the ones that decided the mix of policies needed to achieve the country’s targets. He also said that the IMF will never be involved again in a program to rescue a European country. Referring to his Greek counterpart Euclid Tsakalotos, he said they communicate frequently, while he dismissed his flamboyant predecessor Yianis Varoufakis as someone he no longer can “take seriously.”

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Apr 102017
 
 April 10, 2017  Posted by at 8:21 am Finance Tagged with: , , , , , , , , , ,  9 Responses »
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Todd Webb Rue des Plantes, Paris 1950

 

Americans Are Becoming Obsessed With Putting Everything On Credit (MW)
Cash Is Dead. Long Live Cash. (WSJ)
A Change In The Change Of Change (Peters)
Great Debt Unwind: Bankruptcies Surge (WS)
Trump’s Rollback of Bank Regulations Risks a Bondholder Backlash (Street)
Syria Strike Designed To Intimidate North Korea: China State Newspaper (G.)
Is Globalisation Dead? (Pettifor)
Housing Costs Are Pushing People Further Out of Sydney (BBG)
Toronto Mayor Says He’s Open to Sale of City Real Estate Assets
Secret Recording Implicates Bank of England In Libor Manipulation (BBC)
The Fire In The Hold Of The Doomed Euro (Ward)
Tsipras: Debt Relief Prerequisite to Legislate New Measures (GR)
Great Barrier Reef at ‘Terminal Stage’ (G.)
John Clarke has Died

 

 

We need a war on plastic, not cash.

Americans Are Becoming Obsessed With Putting Everything On Credit (MW)

It’s more likely that the last time you bought a pack of gum or a can or soda, you used a credit card. People like their credit cards so much they’re using them even for the tiniest purchases, according to a new survey released Monday from the credit cards site CreditCards.com. Among people with credit cards, 17% said they use them to buy items in brick-and-mortar stores that cost less than $5, up from 11% last year. CreditCards.com surveyed about 1,000 U.S. adults in March 2017. After a lull in the wake of the Great Recession, credit cards are once again being used with increased frequency. The Federal Reserve reported last week that collective credit card debt in the U.S. had reached $1 trillion.

Credit-card debt and auto loan debt balances for people ages 60 and older have also risen since 2008, that Fed data showed, whereas credit-card debt for those 59 and younger has fallen. The Fed, when describing that phenomenon, said lending standards have tightened since the recession, and those who are older may also be more creditworthy. But when consumers can pay their balances each month, turning to credit cards for small purchases isn’t a bad thing, said Matt Schulz, a senior industry analyst for CreditCards.com. Putting more charges on a credit card may indicate consumers feel more optimistic about their financial picture for the future, he said. “People who are chasing rewards realize that those little purchases can add up to a lot of rewards over the course of a year,” he added.

Indeed, several high-profile credit cards offer cash back and perks for spending. For example, Amazon introduced a credit card this year for Prime members that gives 5% cash back on Amazon purchases (Prime itself costs $99 per year.) Some retailers, however, prohibit credit-card purchases below a certain amount to avoid paying transaction fees to the credit-card issuers for such purchases. That said, cash and debit cards still are the go-to options for making small purchases, despite the speed with which credit cards are gaining on them. Of those surveyed, 24% said they use debit cards for small purchases, and 55% said they use cash. It appears younger consumers are behind at least some of the growth in credit card use: Some 70% of baby boomers and their older cohorts, the Silent Generation, still choose cash for small purchases versus 43% of those under 53.

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A little incoherent article, but point taken. Countries that try to go cashless should be careful.

Cash Is Dead. Long Live Cash. (WSJ)

[..] the push to get rid of cash is hitting speed bumps all over. India, for example, is already partly reintroducing its 500- and 1000-rupee bills after the government’s abrupt demonetization program drew sharp criticism for hurting its cash-dependent rural population. The U.S. shows no inclination to pare back its notes. “I’m very conscious of the $100 bill being the world’s reserve currency, and every central bank around the world has stacks of $100 bills where they used to have gold,” Treasury Secretary Jacob Lew said in an interview with The Wall Street Journal shortly before he left office in January. One reason it’s a non-starter in the U.S.: About 8% of people don’t have a checking or savings account, making it all-but-impossible for them to participate in a cashless economy.

Banning cash “would bring the economy and many people to their knees if enforced,” said Hoover Institution economist John Cochrane. In the aboveground economy, card-based and digital payment systems offering ever-greater speed, safety and convenience have been steadily encroaching on paper money, even for small consumer transactions. Euromonitor International, a market-research firm, said the volume of global cash payments in 2016 for the first time fell below payments on credit and debit cards. Some of the growth in cash can be attributed to the financial crisis and the aftermath, when people lost faith in banks, and when ultralow interest rates and anemic investment returns reduced the opportunity costs of holding savings in cash. The number of $100 bills in circulation, worth $1.15 trillion in December, has surged 76% since 2009, according to Federal Reserve data.

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“Brexit was a joke. Trump was a joke..”

A Change In The Change Of Change (Peters)

“The change of change is now negative,” said the CIO. “Global growth is still rising, but the rate of improvement is slowing,” he explained. “Same holds true for global inflation, oil prices, copper, iron ore. Credit growth is slowing in the US, Europe, Japan, China.” If these things were all contracting, we’d plunge into recession, but we’re not there. We’re simply at the point in the cycle where the rate of acceleration is slowing – which is both evidence of a pause, and a precondition for every major turn. “The last time we had a major shift in the change of change was a year ago.” In Jan/Feb 2016, China was imploding. Commodity prices were tanking with equity markets, the dollar soared alongside volatility. Then China unleashed explosive credit stimulus, while the Fed blinked, guiding forward interest rates dramatically lower. Within a short time, the change of change turned positive.

Which is not to say things immediately accelerated, it’s just that they started contracting more slowly. And that marked the time to buy. “Pretty much everything that happened in 2016 can be explained by two things; China and oil prices,” he said. “Literally, that’s it.” China’s stimulus-induced rebound and the oil price recovery is all that mattered. “Brexit was a joke. Trump was a joke. In fact, the only real significance of those events was that they provided investors with opportunities to jump on board the reflation trade at back near Q1 prices.” The reflation trade quietly began in the Q1 collapse, and accelerated off the extreme post-Brexit summer lows in global interest rates. That’s what made last year remarkable. Even investors who missed the first opportunity, had two chances to make a lot of money.” You see, that reward is usually reserved for those who act on the first signs of a change in the change of change.

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Credit shrinks, the Zombies fall.

Great Debt Unwind: Bankruptcies Surge (WS)

Commercial bankruptcy filings, from corporations to sole proprietorships, spiked 28% in March from February, the largest month-to-month move in the data series of the American Bankruptcy Institute going back to 2012. They’re up 8% year-over-year. Over the past 24 months, they soared 37%! At 3,658, they’re at the highest level for any March since 2013. Commercial bankruptcy filings skyrocketed during the Financial Crisis and peaked in March 2010 at 9,004. Then they fell sharply until they reached their low point in October 2015. November 2015 was the turning point, when for the first time since March 2010, commercial bankruptcy filings rose year-over-year.

Bankruptcy filings are highly seasonal, reaching their annual lows in December and January. Then they rise into tax season, peak in March or April, and zigzag lower for the remainder of the year. The data is not seasonally or otherwise adjusted – one of the raw and unvarnished measures of how businesses are faring in the economy. Note that there is no “plateauing” in this chart: since the low-point in September 2015, commercial bankruptcies have soared 65%! That red spike is the mega-increase in March:

At first, they blamed the oil bust. The price of oil began to collapse in mid-2014. By 2015, worried bankers put their hands on the money spigot, and a number of companies in that sector, along with their suppliers and contractors, threw in the towel and started filing for bankruptcy protection. But now the price of oil has somewhat recovered, banks have reopened the spigot, Wall Street has once again the hots for the sector, new money is gushing into it, and oil & gas bankruptcy filings have abated. So now they blame brick-and-mortar retail which is in terminal decline, given the shift to online sales. I have reported extensively on the distress of the larger chain stores, but brick-and-mortar retailers include countless smaller operations and stores that no ratings agency follows because they’re too small and can’t issue bonds, and many of them are even more distressed.

[..] Now come the consumers – not all consumers, but those with mounting piles of debt and stagnating or declining real incomes, of which there are many. They’d been hanging on by their teeth, with bankruptcy filings consistently declining since 2010. But that ended in November 2016. In December, bankruptcy filings rose 4.5% from a year earlier. In January they rose 5.4%. It was the first time consumer bankruptcies rose back-to-back since 2010. I called it “a red flag that’ll be highlighted only afterwards as a turning point.” In March, consumer bankruptcy filings rose 4% year-over-year, to 77,900, the highest since March 2015, when 79,000 filings occurred, according to the American Bankruptcy Institute data. The turning point has now been confirmed. Total US bankruptcy filings by consumers and businesses in March spiked 40% from February and rose 4% year-over-year to 81,590, the highest since March 2015:

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Trust at risk.

Trump’s Rollback of Bank Regulations Risks a Bondholder Backlash (Street)

President Donald Trump’s pledge to roll back regulations on U.S. banks could face resistance from an influential constituency: bondholders. While stockholders of firms like JPMorgan Chase and Goldman Sachs have cheered Trump’s plans to repeal or soften rules imposed in the wake of the 2008 financial crisis, bond-rater Standard & Poor’s is warning that such a move could undermine the industry’s creditworthiness. Measures like “stress testing,” in which regulators evaluate banks annually to determine if they’re sufficiently prepared to withstand a deep economic or market downturn, have made the firms safer, according to S&P. And so-called resolution planning – the practice of planning in advance how big banks would be wound down following a Lehman Brothers-style collapse – also has contributed to the industry’s resilience, the ratings firm wrote in a March 20 report.

The timetable for any such changes isn’t yet clear, however. Trump in February signed an executive order directing U.S. Treasury Secretary Steven Mnuchin to identify any laws that might impede economic growth or vibrant markets. Those could include the 2010 Dodd-Frank Act, signed by former President Barack Obama to curb risky activities like using excessive borrowings to fuel earnings growth and allowing in-house traders to speculate on markets with proprietary capital. “An overhaul of Dodd-Frank could be detrimental for bank creditors,” S&P wrote in the report. “If changes to Dodd-Frank watered down these features, and if banks reacted to such changes by weakening their financial management, we could lower ratings.” The fresh concerns could contribute to a shift in investor sentiment that’s been mostly positive toward banks since Trump’s surprise election on Nov. 8.

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Xi responds after he’s left Mar-a-Lago.

Syria Strike Designed To Intimidate North Korea: China State Newspaper (G.)

Donald Trump’s decision to attack Syria had also been designed to intimidate North Korean leader Kim Jong-un, a Chinese newspaper has claimed, as G7 foreign ministers meet to discuss the fallout from last week’s missile incursion. The state-run Global Times said a US strike against North Korea would unleash carnage on the Korean peninsula. The US navy has deployed a strike group towards the western Pacific Ocean, to provide a presence near the Korean peninsula. South Korean officials suspect Kim may be planning to hold his country’s sixth nuclear test later this week to mark the 105th anniversary of the birth of founder Kim Il-sung on 15 April, an event a number of foreign journalists have been invited to cover.

In an editorial entitled: ‘After Syria strikes, will North Korea be next?’, the Global Times suggested the US might now be preparing to launch “similar actions” against Pyongyang and warned of catastrophic consequences if it did. “A symbolic strike against North Korea by the US would bring a disaster to the people in Seoul,” the newspaper said, claiming a “decapitation attack” on North Korea was now “highly possible”. Such a strike would “very likely evolve into large-scale bloody war on the peninsula”. The Global Times noted the decision to deploy a strike force to the Western Pacific over the weekend and cautioned Pyongyang against doing anything that might further inflame the situation.

“New nuclear tests will meet with unprecedented reactions from the international community, even to a turning point.” The warnings came after the US secretary of state, Rex Tillerson, claimed that the situation in North Korea had “reached a certain level of threat that action has to be taken”. Asked if the attack on Syria could be seen as a message to Pyongyang, Tillerson told ABC: “The message that any nation can take is: ‘If you violate international norms, if you violate international agreements, if you fail to live up to commitments, if you become a threat to others, at some point a response is likely to be undertaken.”

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“Hayek: state regulation leads to totalitarianism. But instead self-regulating markets led to today’s authoritarians.”

Is Globalisation Dead? (Pettifor)

In the BBC’s brief and pressured half-hour I wanted to get across that globalisation had not delivered on its promise – to make ‘the market’ the main driver of a more effective, more productive economy; to transform societies into nations of ‘shareholders’; to ensure a revolution in homeownership, and to avoid what Hayek called the threat of a totalitarian state. Instead financial globalisation has been an era largely fuelled by carbon (oil and coal) – as had been the case for over a century. However, unlike the Bretton Woods era, post 1970s de-regulated financial globalisation was built on mountains of private and public debt. The first – private debt – led to recurring financial crises, and the second – public debt – rose as private sector activity weakened, and tax revenues fell.

The consequences of these recurring financial crises in ‘advanced’ economies included ‘austerity’, the removal of employment protection, rising housing and education costs, the return of deflationary pressures, high unemployment, falling real wages, low productivity and rising inequality. These crises have led to increased insecurity and over-rapid social and economic change- as well as the greatest financial and economic crisis since 1929 (itself a product of excessive laissez-faire ideology). More widely, the insecurities and dislocations generated by financial globalisation have led whole populations to seek the ‘protection’ of a strong man (e.g. Presidents Trump, Duterte in the Philippines, Modi in India, Erdogan in Turkey, Putin in Russia).

Not that this worries the extreme adherents of laissez-faire – recall how Hayek supported the murderous dictator Pinochet in Chile for his brutal imposition of deregulatory ‘reform’. And so, contrary to Hayek’s expectations, financial globalisation has proved that it is market fundamentalism, and not the regulatory state that is leading the world into an era of authoritarianism and totalitarianism – in the US, Eastern Europe, India and China.

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But politicians will keep saying that it’s all because not enough is being built. Why don’t you raise rates first and see what happens?

Housing Costs Are Pushing People Further Out of Sydney (BBG)

New South Wales has taken over as Australia’s economic engine as the mining investment boom tails off, with central Sydney contributing almost a quarter of the nation’s growth last fiscal year. That success has come with a price. As workers flock to Sydney, an under-supply of housing, coupled with record-low interest rates, has made the city the world’s second-most expensive property market. Home prices jumped 19 percent in the past 12 months, stoking concern home ownership is increasingly beyond the reach of younger people. That’s a big political problem for the state’s new Premier Gladys Berejiklian, who made housing affordability one of her priorities when she took the job in late January. Housing affordability is “a barbecue stopper,” Berejiklian, 46, said in an interview in her Sydney office on Thursday.

“We are convinced if we put downwards pressure on prices through supply, that’s the best way we can solve it as a state government.” Sydney’s housing completions reached a 15-year high in 2016, though Berejiklian says the state is only now playing catch-up after “a decade of under-investment.” “There are about 100,000 dwellings we are behind on in terms of really digging into the demand,” she said. [..] There are several barriers to boosting housing supply in Sydney. The city is bordered by mountains to the west, the ocean to the east and rivers and national parks to the north and south, restricting the supply of new land, while moves to increase housing density in established suburbs have run into opposition from residents. That’s meant in the past three years, almost 70 percent of new detached houses have been built more than 30 kilometers from Sydney’s central business district…

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“..the Canadian government has been trying to find ways to “crystallize” the value in some of its property assets…”

Toronto Mayor Says He’s Open to Sale of City Real Estate Assets

Toronto’s mayor won’t rule out selling some of the city’s prime downtown real estate as he looks to make better use of assets amid an unprecedented property boom. “Would I take that off the table? No, I wouldn’t,” Mayor John Tory said in an interview last week at Bloomberg’s Toronto office. Selling buildings in the city’s costly downtown market probably wouldn’t be “quite as politically charged” as divesting other types of assets, such as the parking authority or power utility Toronto Hydro, he said. The need for North America’s fourth-largest city to fund critical transit upgrades and housing improvements coincides with skyrocketing property prices in the region. Toronto’s real estate portfolio includes 6,976 buildings with 106.3 million square feet (9.9 million square meters), almost half of which is multifamily, according to a Dec. 6 report on the city’s assets.

With all of the demands on the city to raise money for building transit lines and repairing existing housing, then “might you be looking at the business case for handling real estate in a different way? Because this is the most expensive downtown real estate you could possibly have,” said the mayor, elected in 2014. The report, commissioned by the city and conducted by Deloitte, estimates the value of municipal real estate including community housing, parks and forestry is C$27 billion ($20 billion), while the annual operating costs in “core” real estate and facilities management is C$1.1 billion. Tory said he watched with passing interest the federal government’s sale earlier this year of the Dominion Public Building. The historic downtown property beside Toronto’s Union Station sold for about C$275 million ($205 million), according to newspaper reports.

The property was “super underutilized,” BMO analyst Heather Kirk said in an interview, adding the Canadian government has been trying to find ways to “crystallize” the value in some of its property assets. “What a building is worth to the government in current form is totally different than the value to a developer,” Kirk said. “They are buying density.” When asked how any properties might be sold, Tory stressed he didn’t currently have any specific recommendations to make to the city council, although “I just know those are things that sit out there still as options that are in front of the city government to raise money to do the things we have to do,” he said.

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Ehh.. how do you lock up the Bank of England?

Secret Recording Implicates Bank of England In Libor Manipulation (BBC)

A secret recording that implicates the Bank of England in Libor rigging has been uncovered by BBC Panorama. The 2008 recording adds to evidence the central bank repeatedly pressured commercial banks during the financial crisis to push their Libor rates down. Libor is the rate that banks lend to each other and it sets a benchmark for mortgages and loans for ordinary customers. The Bank of England said Libor was not regulated in the UK at the time. The recording calls into question evidence given in 2012 to the Treasury select committee by former Barclays boss Bob Diamond and Paul Tucker, the man who went on to become the deputy governor of the Bank of England. Libor, the London Interbank Offered Rate, tracks how much it costs banks to borrow money from each other.

As such it is a big influence on the cost of mortgages and other loans. Banks setting artificially low Libor rates is called lowballing. In the recording, a senior Barclays manager, Mark Dearlove, instructs Libor submitter Peter Johnson, to lower his Libor rates. He tells him: “The bottom line is you’re going to absolutely hate this… but we’ve had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower.” Mr Johnson objects, saying that this would mean breaking the rules for setting Libor, which required him to put in rates based only on the cost of borrowing cash. Mr Johnson says: “So I’ll push them below a realistic level of where I think I can get money?” His boss Mr Dearlove replies: “The fact of the matter is we’ve got the Bank of England, all sorts of people involved in the whole thing… I am as reluctant as you are… these guys have just turned around and said just do it.”

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The warnings have always been there. Totally ignored.

The Fire In The Hold Of The Doomed Euro (Ward)

The more basic stuff goes back at least twenty years, to the period where trouble was stored up for the future by fanatical federalists cutting every corner and pulling out all the stops to get EMU (the prototype single currency) up and running. Several eminent economists on continents ranging from Australia and the US to the UK and Europe itself made very sound predictions at the time about coming disaster, and they did so saying two related things: 1) It would offer Germany a cheap, fixed currency leading inevitably to its economic dominance, 2) It would point up the economic consequences of imposing one rigid means of exchange on 18 varietal cultures, leading generally to Southern/South Eastern Europe falling behind.

Just to add more weedkiller to the poisonous formulation, the key European leaders not only ignored the advice; they also first, ignored all the data showing that several member States were nowhere near ready to join the eurozone based on agreed criteria; and then second, were implicated in several corrupt deals on commodities – as varied as German butter, Italian wines and Greek olive oil – to cloud the existence of stark differentials in both export and industrial development. For once, the economic naysayers proved to be soothsayers. Messrs Hollande and Muscovici shrink from the limelight about their own book on the subject of cultural difference (fancy that) but it proved to be spot on….as did the musings of Lawson and Thatcher et al in relation to Germany’s dominance.

The Mark from around 1963 until the creation of EMU was the most reliable, performance-related currency on the planet. But only massive debt forgiveness by the victors after the Second World War enabled that outcome. Both the realities in that last paragraph explain why lectures from Hollande and Merkel today – when joined by hypocrisy from Draghi at the ECB – evoke so much hatred of the EU’s prime movers among the so-called ClubMed nations….and those of us Brits in the Brexit camp. I make these points not to be nihilistic, but rather to level the playing field of media coverage that has been so bombed, excavated, deliberately over-watered and then tilted for good luck by Brussels, Wall Street and Berlin obfuscation and mendacity since 2010. A very real outcome of nihilism is being encouraged (and indeed made inevitable) by the EC’s refusal to recognise that – even as the SS Eunatic set sail – there was a raging fire in the hold.

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Big words.

Tsipras: Debt Relief Prerequisite to Legislate New Measures (GR)

The mid-term debt relief measures so that Greece can enter the quantitative easing program is the prerequisite to vote for the new measures, Greek Prime Minister Alexis Tsipras said on Sunday. Addressing the SYRIZA Central Committee, the party leader spoke about the new austerity measures his administration has agreed to with creditors. He spoke of a compromise that had to be made so that measures had to be counter-balanced by social relief measures of equal fiscal value and aid that the Greek negotiating team. “There are measures that are neither necessary, nor are they the ones we would ever choose, but the compromise achieved would have counter-measures that would counterbalance the fiscal impact and generate zero fiscal balance, and both will be legislated and implemented simultaneously,” Tsipras said.

Speaking on the initial agreement reached at the Malta Eurogroup on Friday, the prime minister said that, “After Malta the way for the identification of the medium-term measures for the debt is open. This will send a clear message to the markets that the uncertainty is over.” “Now we will be the ones to decide the fiscal path the country will follow after the end of the program,” Tsipras said, explaining the strategy for the next round of negotiations. He stressed that without medium-term measures for debt relief that would allow Greece to enter the QE program, he would not implement the new measures.

The prime minister also unleashed an indirect attack against main opposition New Democracy claiming that, “Some were scheming so that the evaluation would not close, because they didn’t want us to be the ones who will pull Greece out of the crisis.” He also attacked ND leader Kyriakos Mitsotakis accusing him of “rushing to meet with the German finance minister to get his blessing and undermine the negotiations.” He also said that the conservative party espouses extreme neoliberalism.

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It was a big mistake to put the Great Barrier Reef near Australia.

Great Barrier Reef at ‘Terminal Stage’ (G.)

Back-to-back severe bleaching events have affected two-thirds of Australia’s Great Barrier Reef, new aerial surveys have found. The findings have caused alarm among scientists, who say the proximity of the 2016 and 2017 bleaching events is unprecedented for the reef, and will give damaged coral little chance to recover. Scientists with the Australian Research Council’s Centre of Excellence for Coral Reef Studies last week completed aerial surveys of the world’s largest living structure, scoring bleaching at 800 individual coral reefs across 8,000km. The results show the two consecutive mass bleaching events have affected a 1,500km stretch, leaving only the reef’s southern third unscathed. Where last year’s bleaching was concentrated in the reef’s northern third, the 2017 event spread further south, and was most intense in the middle section of the Great Barrier Reef.

This year’s mass bleaching, second in severity only to 2016, has occurred even in the absence of an El Niño event. Mass bleaching – a phenomenon caused by global warming-induced rises to sea surface temperatures – has occurred on the reef four times in recorded history. Prof Terry Hughes, who led the surveys, said the length of time coral needed to recover – about 10 years for fast-growing types – raised serious concerns about the increasing frequency of mass bleaching events. “The significance of bleaching this year is that it’s back to back, so there’s been zero time for recovery,” Hughes told the Guardian. “It’s too early yet to tell what the full death toll will be from this year’s bleaching, but clearly it will extend 500km south of last year’s bleaching.”

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A really funny man died over the weekend.

John Clarke has Died

We featured quite a few Clarke and Dawe videos through the years. Here’s a few favorites:

How does the financial system work?

European Debt Crisis

The Greek Economy

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Jan 062017
 
 January 6, 2017  Posted by at 10:23 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Joel Meyerowitz Girl On A Scooter 1965

Intel Report Says US Identifies Go-Betweens Who Gave Emails To WikiLeaks (CNN)
All US Envoys Appointed By Obama Told To Quit By Inauguration Day (R.)
FBI Never Requested Access To Allegedly Hacked DNC Server (DM)
The Coup Against Truth (Paul Craig Roberts)
Rebuild the Fed From the Bottom Up (DiMartino Booth)
Annual US Auto Sales Fell for First Time since 2009 (WS)
Dismal Holiday Sales At Macy’s And Kohl’s Cast Gloom Over Sector (R.)
Half Of Jobless US Men Not In The Labor Force Take Daily Pain Medication (AP)
The Real Reasons Brexit Is Succeeding (Ashoka Mody)
Economics is in Crisis – BOE’s Haldane (G.)
Why Has The UK Economy Defied Predictions Of Doom? (G.)
UK Unsecured Consumer Credit Grows At Annual Rate Of 11% (G.)
No End In Sight For Europe’s Banking Troubles (CNBC)

 

 

What a circus this has become. No matter how hard they try, they still have to admit that “..there is no single intercepted communication that qualifies as a “smoking gun” on Russia’s intention to benefit Trump’s candidacy or to claim credit for doing so.” As for the go-betweens, WikiLeaks will never give info on sources.

Intel Report Says US Identifies Go-Betweens Who Gave Emails To WikiLeaks (CNN)

US intelligence has identified the go-betweens the Russians used to provide stolen emails to WikiLeaks, according to US officials familiar with the classified intelligence report that was presented to President Barack Obama on Thursday. In a Fox News interview earlier this week, WikiLeaks founder Julian Assange denied that Russia was the source of leaked Democratic emails that roiled the 2016 election to the detriment of President-elect Donald Trump’s rival, Democrat Hillary Clinton. Meanwhile, US intelligence has received new information following the election that gave agencies increased confidence that Russia carried out the hack and did so, in part, to help Trump win. Included in that new information were intercepted conversations of Russian officials expressing happiness at Trump’s win. Another official described some of the messages as congratulatory.

Officials said this was just one of multiple indicators to give them high confidence of both Russian involvement and Russian intentions. Officials reiterated that there is no single intercepted communication that qualifies as a “smoking gun” on Russia’s intention to benefit Trump’s candidacy or to claim credit for doing so. Vice President Joe Biden said in an interview with PBS NewsHour that an unclassified version of an intel report provided to him will be released “very shortly” and will “lay out in bold print what” the US knows about the hacking. “I think it will probably confirm what a lot of the American people think,” he said, adding that it would “state clearly” the Russians involvement in the hacking.

In response to the interview, Trump tweeted on Wednesday, “Julian Assange said “a 14 year old could have hacked Podesta” – why was DNC so careless? Also said Russians did not give him the info!” Trump has been publicly skeptical of Russia’s involvement in the hacking, as well as has been publicly deriding the US intelligence community for its unanimous conclusion that Russia hacked Democratic Party groups and individuals to interfere in the US presidential election. Officials told CNN there’s been a disconnect between Trump’s remarks about the intelligence community and his behind-the-scenes behavior when he’s present at private intel briefings.

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Oh lovely.

All US Envoys Appointed By Obama Told To Quit By Inauguration Day (R.)

U.S. President-elect Donald Trump’s transition team has issued a blanket mandate requiring politically appointed ambassadors installed by President Barack Obama to leave their posts by Inauguration Day, the U.S. ambassador to New Zealand said on Friday. “I will be departing on January 20th,” Ambassador Mark Gilbert said in a Twitter message to Reuters. The mandate was issued “without exceptions” through an order sent in a State Department cable on Dec. 23, Gilbert said. He was confirming a report in the New York Times, which quoted diplomatic sources as saying previous U.S. administrations, from both major political parties, have traditionally granted extensions to allow a few ambassadors, particularly those with school-age children, to remain in place for weeks or months.

The order threatens to leave the United States without Senate-confirmed envoys for months in critical nations like Germany, Canada and Britain, the New York Times reported. A senior Trump transition official told the newspaper there was no ill will in the move, describing it as a simple matter of ensuring Obama’s overseas envoys leave the government on schedule, just as thousands of political aides at the White House and in federal agencies must do. Trump has taken a strict stance against leaving any of Obama’s political appointees in place as he prepares to take office on Jan. 20, aiming to break up many of his predecessor’s signature foreign and domestic policy achievements, the newspaper said.

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And why not? Throw on some more…

FBI Never Requested Access To Allegedly Hacked DNC Server (DM)

The FBI never asked the Democratic National Committee if it could examine a computer server that was the subject of cyber attacks last year. Instead federal law enforcement relied on data that, Crowdstrike, a private computer security company, gathered from the device. The FBI later endorsed the conclusion that Russian intelligence services were behind the hacking, and that their goal was to help Donald Trump win the November presidential election. ‘The DNC had several meetings with representatives of the FBI’s Cyber Division and its Washington Field Office, the Department of Justice’s National Security Division, and U.S. Attorney’s Offices, and it responded to a variety of requests for cooperation,’ DNC deputy communications director Eric Walker told BuzzFeed, ‘but the FBI never requested access to the DNC’s computer servers.’

Trump’s incoming press secretary Sean Spicer told reporters on a Thursday morning conference call that ‘the DNC is on the record saying the FBI never contacted them to validate claims by Crowdstrike, which is the third-party tech security firm, and never actually requested the hacked server.’ ‘You know, I would equate this to no one actually going to a crime scene to actually look at the evidence,’ Spicer declared. Walker said there were no restrictions on what the FBI could request from its private security company’s findings. ‘Beginning at the time the intrusion was discovered by the DNC, the DNC cooperated fully with the FBI and its investigation, providing access to all of the information uncovered by CrowdStrike – without any limits,’ he said.

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Restructuring US intelligence can be a hazardous occupation.

The Coup Against Truth (Paul Craig Roberts)

Washington is so intent on its anti-Russian propaganda that Congress has passed, and Obama has signed, an intelligence bill that contains a section, Title V, that authorizes active measures to counter purveyors of false news. These purveyors are alternative media websites, such as this one, that challenge the official lies. The truthful alternative media is accused of being under Russian influence. Last summer a website shrouded in secrecy was created that recently posted a list of 200 websites alleged to be under Russian influence, either directly or indirectly. The Washington Post irresponsibly published a long article endorsing the fake news of 200 websites working for the Russian government. In other words, the suppression of the truth is the last defense of the corrupt American ruling establishment.

During the last 24 years three Washington regimes have murdered millions of peoples in nine or more countries along with US civil liberty. To cover up these vast crimes, unparalleled in history, the presstitutes have lied, slandered, and libeled. And the Washington criminal regime holds itself up to the world as the indispensable protector of democracy, human rights, truth, and justice. As the Russian Foreign Ministry spokeswoman said recently, what makes America exceptional is the use of might in the service of evil. Washington brands not only its opponents but all who speak the truth “Russian agents,” hoping that the demonization of Russia has sufficiently frightened the population that Americans will turn their backs to those who speak the truth.

It would seem obvious even to the insouciant that an establishment that has gone so far out on a limb that the CIA director publicly attributes the election of Donald Trump to Russian interference but is unable to produce a shred of evidence—indeed in the face of totally conclusive evidence to the contrary—is determined to hold on to power at all costs. The CIA’s open, blatant, and unprecedented propaganda attack against a president-elect has caused Trump to throw down the gauntlet to CIA director John Brennan. There are reports that Trump intends to revamp and reorganize the intelligence agency. The last president who said this, John F. Kennedy, was murdered by the CIA before he could strike against them. Kennedy believed that he could not take on the CIA until he was re-elected. The delay gave the CIA time to arrange his assassination.

Trump appears to understand his danger. He has announced that he intends to supplement his Secret Service protection (which was turned against JFK) with private security. Isn’t it striking? The president of Russia states publicly that Washington is driving the world to thermo-nuclear war and that his warnings are ignored. The president-elect of the United States is under full-scale attack from the CIA and knows that he cannot trust his official security force. One might think that these extraordinary topics would be the only ones under discussion. But you can find such discussion only on a few alternative media websites, such as this one, branded by PropOrNot and the Washington Post as “under Russian influence.”

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Why am I under the impression that what Danielle DMB is describing is still an inside(r) job? Can economists clean up the Fed? Can it be cleaned up at all?

Is it as hazardous as redoing intelligence?

Rebuild the Fed From the Bottom Up (DiMartino Booth)

Today the institution of the Fed is as intellectually entrenched as it has ever been. It has become the largest employer of people with doctorates in economics. It has hired or contracted with more than 1,000 of these economists, who actively endeavor to validate, rather than question, orthodox theories and policies. The pipeline of talent filling new positions at the Fed is sourced from the same stagnant academic pool that produced the current leadership. Is it any wonder criticism within the Fed has been quashed? Now the door is open for an outsider to bring the outside world back into the Fed. The last time that all seven governor positions on the Federal Reserve Board were occupied was in 2013. Trump can expeditiously fill these seats, but, more important, he can remake the culture inside the Fed.

Armies of consultants have presumably been busy making a list of potential board nominees. If these advisers have the interests of those who voted for Trump at heart, they will look for individuals who have been on the receiving end of monetary policy and therefore understand it. They will find CEOs who would rather have invested in the future of their companies, thus creating more jobs and opportunities, rather than be pressured to buy back their shares with cheap debt because of regulatory uncertainty. They will seek out the handful of pension fund managers who have insisted on using assumptions for lower rates of return, to better reflect the reality of lower returns on fixed-income securities, and who resisted the siren call of inappropriate investments to offset the dearth of options in a low-interest-rate world.

They will seek rational critics of Fed policy who empathize with, not roundly dismiss, the plight of savers in this environment. Once a full complement of possible nominees is in place, the new administration can concentrate on redrawing the institution to reflect the tremendous change the U.S. economy has undergone in the more than 100 years since the Fed first came into being. Right now, there are 12 Fed districts. Some regions of the U.S. have become more economically powerful over the years. California is the largest economy followed by Texas. They should have their own Fed districts. A third one could encompass most of the rest of the West. At the same time, the regions that have become less economically relevant should be consolidated.

For example, Missouri no longer merits two Feds. St. Louis can be incorporated into the Chicago Fed, along with Cleveland. New York is the third-largest state economy. It seems economically reasonable, from Philadelphia north, to have two Fed districts rather than three. Then give the presidents of the 10 districts that remain permanent votes on the Federal Open Market Committee. This is a necessary act to begin dismantling the over-concentration of power at the board in Washington and at the New York Fed.

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Turning their back on their gods?

Annual US Auto Sales Fell for First Time since 2009 (WS)

The media hoopla has been deafening. In December, “new vehicles sales” – defined as the number of new cars, trucks, and SUVs that dealers sold to their customers, including fleets – rose 3.1%. That was stronger than “expected.” And in the media reports, there was euphoria between the lines. Automakers and dealers had certainly tried. Inventories are high, layoffs and plant closings have already been announced, and so every effort was made to move the iron and pull out the year. No incentive was spared to get the job done. With this gain in December, total sales for 2016 edged up 0.4% to a record 17.55 million vehicles, according to Autodata. Sales of light trucks and SUVs rose 7.2% for the year, but sales of cars sagged 8.1%. Gasoline is cheap, and Americans love big implements.

Car sales at GM dropped 4.3% in 2016, at Ford 13.0%, and at Fiat Chrysler a catastrophic 33.5%! Plants that build cars were the ones mostly (but not exclusively) hit by shutdowns and layoffs. Then there was the whole to-do about Trump, Ford, and the plant in Mexico. Alas, while some automakers posted record sales for the year, the biggest automakers were not among them. And you probably didn’t see this in the media unless you started digging through the data yourself. Somehow this one slipped by the media’s attention. Because something ugly happened in 2016, something we haven’t seen since 2009. For ALL of the big three US automakers, plus for a number of others, sales in 2016 actually fell. For them it was the first annual sales decline since nightmare-year 2009.

Here they are, in terms of the annual decline in their total vehicles sales, as measured by dealer sales to their customers (in descending order of sales): • GM -1.3% • Ford -0.1% • Toyota -2.0% • Fiat-Chrysler -0.4% • Volkswagen -3.3% • BMW -9.7% • Mazda -6.7%. The sales of these seven automakers combined amounted to 11.5 million vehicles in 2016, or 65% of total US sales! And combined, their sales were down 1.5% from the prior year. So this is what Ford meant earlier this year, when it began mentioning the “car recession.”

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‘T is the season to be folly.

Dismal Holiday Sales At Macy’s And Kohl’s Cast Gloom Over Sector (R.)

Disappointing holiday-season sales at Macy’s and Kohl’s underscored the uphill task facing department stores to win back shoppers, who are increasingly turning to online retailers and spending less on apparel. Macy’s shares fell as much as 14% on Thursday, their biggest percentage drop in seven months. Kohl’s stock dropped as much as 20.5%, its biggest decline in more than 14 years. Both reported lower-than-expected sales for November and December and cut their full-year profit forecasts on Wednesday. Macy’s, known the world over for its flagship Herald Square store in Manhattan and its annual Thanksgiving Day parade, is considered a bellwether for department stores. However, it is expected to relinquish its position as the largest U.S. apparel retailer to Amazon.com as soon as this year as it struggles to compete on prices and the convenience offered by online shopping.

Amazon said last week it had its “best ever” holiday season, shipping more than 1 billion items worldwide. Shares of other department store operators, including J.C. Penney and Nordstrom also fell as the dismal showing took investors by surprise. Expectations were high that department stores would get a good boost from a strong holiday shopping season. The National Retail Federation had forecast that 2016 holiday period sales would rise 3.6% to $656 billion. A jump in spending in the last days of December was expected to make up for a slow start to the shopping season. “The strength around Thanksgiving and Christmas was insufficient to offset the sales weakness in the balance of the quarter,” Stifel, Nicolaus & Co analyst Richard Jaffe wrote. “In addition, these peak selling periods were characterized by greater promotions which contributed to weaker than anticipated gross margin as well,” he said in a client note. Struggling Sears, the operator of Sears and Kmart stores, reported a 12-13% drop in same-store sales for November and December on Thursday.

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Brought up as a mere detail in the AP article, but what a striking one. We’re talking many millions of men: “Health problems and the opioid epidemic may also be a major barrier to work, according to research by Alan Krueger, a Princeton economist and former Obama adviser. Nearly half of men ages 25 through 54 who are neither working nor looking for work take pain medication daily, Krueger found.” Go back 100 years and imagine this then.

Half Of Jobless US Men Not In The Labor Force Take Daily Pain Medication (AP)

If President-elect Donald Trump is going to meet his pledge to energize the U.S. economy, there’s a simple yet tough way to do so: Put more men to work. The proportion of men in their prime working years who either have a job or are looking for one has been dropping for decades — and limiting economic growth in the process. The full brunt of the 60-year decline burst into view during the 2016 election. Trump triumphed in part by vowing to restore jobs at steel mills, auto plants and coal mines — the types of work that had once employed legions of men who lacked a college education. Bringing more non-college-educated men into the workforce is a Herculean challenge that has long bedeviled economists. Among the root causes:

• Automation. Factory robots and computer software have eliminated the need for many workers, wiping out an array of jobs that once provided a middle class lifestyle. • Global competition. U.S. workers have been competing for jobs with cheaper foreign workers, a trend that’s led to some offshoring of jobs and curbed pay in some industries. • Criminal records. Stricter criminal laws have left over 20 million Americans with felony convictions and prison records — a fourfold increase from 30 years earlier. That background has made it hard for them to get hired. • Prescription drug use. Nearly half of jobless men who are no longer looking for work are on pain medication, research has found.

Still, Trump appears to endorse a straightforward fix: Bump up economic growth, and workers will land good jobs at decent wages. “Many are dropping out of the labor force because they cannot find good-paying jobs in an economy operating near stall-speed,” the Trump campaign said before the election. To chart the problem and any progress Trump might achieve over the next four years, his team has pointed to an obscure gauge called the “labor force participation rate.” This is the proportion of people who are either working or looking for work. It excludes anyone who’s stopped searching for a job.

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Mody’s been smoking the real good stuff. Bankers leave? Great! Housing market crashes? Even better! Pound plummets? Fantastic!

It’ll all add up to Britain becoming “a beacon amidst the desolate and depressing decay of Western politics and social norms.”

The Real Reasons Brexit Is Succeeding (Ashoka Mody)

Banks are expected to leave for the European continent, taking with them jobs and tax revenues. But if banks do leave, that would be another good outcome for the British economy. Banks have fuelled the finance-property price nexus and have drawn the best talent to flip financial assets. A smaller banking sector will mean a more balanced British economy. And as for those who expect that the economy will suffer when the details of the divorce with the European Union are revealed, their logic does not work. It is the uncertainty of what lies ahead that should depress the economy. Once details become clearer, businesses will adapt. The fact that six months after the decision, the economy is doing so well is a judgement that Brexit could deliver a net economic dividend.

But the greater prize from Brexit lies in a possible political dividend. Western democracy is under the threat of authoritarian populism. Mainstream political parties, having for long failed to heed the calls of those being left behind, are being pushed aside by charlatans. The Brexit vote was a cry of despair by the poorly educated and those employed in dead-end jobs; many such Brexiters have reason to fear that their children will do even worse than them. Through their vote to leave the European Union, the most vulnerable have given another opportunity to the Conservative Party rather than to a Government run by self-promoting and destructive extremists.

Brexit will happen. Prime Minister Theresa May’s Government must heed the true message of the Brexit vote. The task is to regenerate the communities that have turned into wastelands and spread quality education to prepare ever larger numbers of British citizens for the rigours of a 21st century competitive global economy. If the Government succeeds in this greater task, then Britain would not only have done well for itself, it would become a beacon amidst the desolate and depressing decay of Western politics and social norms.

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The crisis in economics should not be confused with that inside the BOE, where Carney turned political to influence the Brexit vote. In vain.

Economics is in Crisis – BOE’s Haldane (G.)

The Bank of England’s chief economist has admitted his profession is in crisis having failed to foresee the 2008 financial crash and having misjudged the impact of the Brexit vote. Andrew Haldane, said it was “a fair cop” referring to a series of forecasting errors before and after the financial crash which had brought the profession’s reputation into question. Blaming the failure of economic models to cope with “irrational behaviour” in the modern era, the economist said the profession needed to adapt to regain the trust of the public and politicians. Haldane described the collapse of Lehman Brothers as the economics profession’s “Michael Fish moment” (a reference to when the BBC weather forecaster predicted in 1987 that the UK would avoid a hurricane that went on to devastate large parts of southern England).

Speaking at the Institute for Government in central London, Haldane said meteorological forecasting had improved markedly following that embarrassing mistake and that the economics profession could follow in its footsteps. The bank has come under intense criticism for predicting a dramatic slowdown in the UK’s fortunes in the event of a vote for Brexit only for the economy to bounce back strongly and remain one of the best performing in the developed world. Haldane is known to be concerned about mounting criticism of experts and the potential for Threadneedle Street’s forecasts to be dismissed by politicians if errors persist. Former Tory ministers, including the former foreign secretary William Hague and the former justice secretary Michael Gove, last year attacked the Bank of England governor, Mark Carney, for predicting a dramatic slowdown in growth if the country voted to leave the EU.

Prominent Brexit campaigners have also besieged the central bank. Before the vote, the foreign secretary, Boris Johnson accused the bank of risking undermining economic confidence by issuing warnings about the potential effects of a vote for Brexit. During her conference speech following the vote, on 6 October, the prime minister, Theresa May, criticised the bank’s reaction to the vote after it cut interest rates further and boosted its package of stimulus measures by £60bn to £435bn.Gove said last week that when he said experts needed to be challenged, he meant economists in particular. In a debate with Stephanie Flanders, the former BBC economics editor, he cited an academic study to support his argument that expert economists were not good at making predictions.

Gove said: “Sometimes we’re invited to take experts as though they were prophets, as though their words were carved in tablets of stone and that we had to simply meekly bow down before them and accept their verdict. “I think the right response in a democracy, to assertions made by experts, is to say ‘show us the evidence, show us the facts’. And then, if experts or indeed anyone in the debate can make a strong case, draw on evidence and let us think again – then of course they deserve respect.”

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For the answer, check the article below this one.

Why Has The UK Economy Defied Predictions Of Doom? (G.)

First it was manufacturing. Then it was construction. Now the hat-trick of upbeat economic news has been completed by the strongest performance by the services sector in 17 months. It goes without saying that this is not what the Treasury or the Bank of England expected at the time of the EU referendum last June. At the time, there was talk of the economy plunging straight into recession. This week’s reports from purchasing managers point to growth of 0.5% in the final three months of 2016 compared with 0.6% in the third quarter. Post-referendum forecasts for 2016 were quickly shredded by the Bank of England when it became clear that activity had not collapsed. Likewise, predictions for 2017 may also soon be revised upwards. There are a number of reasons for this. Firstly, the economy had momentum in late 2016 which will persist into the first few months of 2017.

Secondly, the international outlook is looking brighter than it was a few months ago. Donald Trump’s tax-cutting agenda means the US economy is going to grow rapidly this year and that’s good news for UK exporters. Finally, the stance of both fiscal and monetary policy in the UK has become more growth friendly since the referendum. Philip Hammond throttled back on the government’s austerity plans in last November’s autumn statement, reinforcing the impact of Bank of England’s decision three months earlier to cut interest rates and embark on a new round of quantitative easing. When it cut rates to 0.25% in August the Bank signalled that a further cut was likely to be needed. Clearly, that is no longer going to happen. Official borrowing costs will remain where they are for now but there is a good chance of the next move from Threadneedle Street being a rate rise.

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This is why “The UK Economy Defied Predictions Of Doom”.

UK Unsecured Consumer Credit Grows At Annual Rate Of 11% (G.)

Britain went on a bit of a borrowing binge as Christmas approached. Unable to resist all the bargains on offer on Black Friday, shoppers pulled out the plastic. The rise in unsecured consumer debt in November was the biggest for more than a decade. News of the increase in consumer debt is not exactly a surprise. When the Bank of England cut interest rates in August last year, the aim was to making borrowing cheaper and therefore more attractive. The message came through loud and clear: UK households need little encouragement to buy on the never-never. Unsecured credit is growing at an annual rate just shy of 11% Rising consumer debt is not necessarily a problem. When unemployment is low and real incomes are rising, it can make perfectly good sense to borrow for a big-ticket item, especially when, as on Black Friday, it is on offer at a knockdown price and when interest rates are so low.

But anybody who believes consumers can continue to amass credit at 11% a year is living in cloud cuckoo land. The UK has been through these credit cycles many times in the past, and things have never ended well. Annual growth in unsecured borrowing is edging back up towards the 16% peak reached in the early 2000s, as is unsecured debt as a proportion of disposable income. The danger comes when unemployment rises, real incomes are squeezed or interest rates start to go up. At that point, borrowing becomes less a matter of personal choice and more a sign of financial distress. Britain is not at that point – yet. Consumers are not optimistic about the outlook for the economy but they are relatively happy about the state of their own finances. That could change as inflation starts to climb.

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100% guaranteed.

No End In Sight For Europe’s Banking Troubles (CNBC)

There is another pressing issue to solve in Europe’s banking system: Novo Banco – a Portuguese bank that emerged from the collapse of the country’s biggest lender. The Portuguese Central Bank and government have to find a solution for Novo Banco by August – a deadline agreed with European regulators, after previous failed attempts to recover the 4.9 billion euros ($5.2 billion) used to save the bank. Portugal’s Finance Minister Mario Centeno told a newspaper on Wednesday that “all options are on the table”, including a nationalization. Earlier last year, the government had rebuffed calls for the nationalization of the bank. Such a solution could spark further political turmoil at a sensitive time in European Union politics.

“It’s here (in the stability of the Portuguese government) where I find risks,” Diogo Teixeira dos Santos, chief executive officer at Optimize Investment Partners, told CNBC over the phone. Nationalizing the bank would be more of a political problem rather than an economic issue, he explained. Portugal is being governed by a minority-socialist led government, who enjoys parliamentary support from two leftist parties (the Left Bloc and the Communist Party). Though there are no general elections scheduled for 2017, it is clear that there are divergent views between the three parties when it comes to Novo Banco, which could shake the stability of the government.

The Left Bloc has previously mentioned that Novo Banco should be state owned, but the government continues to push for a private solution – just like the Italian government did for Monte dei Paschi, until the political turmoil forced a state intervention. More importantly, the leftist parties want the solution to have zero impact for taxpayers. The government lent nearly 4 billion euros to the rescue of the bank – an amount that it hopes to recover with a sale. Any losses from the sale will have to be paid gradually by the other Portuguese banks. But, even the best private option at the moment has “a potential impact on public accounts,” Lisbon’s central bank said Wednesday. The bank announced that an offer from Lone Star, a U.S. fund, is the best placed in ongoing negotiations.

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Aug 102016
 
 August 10, 2016  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 10 2016
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Lewis Wickes Hine Workshop of Sanitary Ice Cream Cone Co., OK City 1917

Bank Of England Suffers Stunning Failure On Second Day Of QE (ZH)
Bank of England QE and the Imaginary “Brexit Shock” (AM)
Negative-Yield Debt Is Doing The Opposite Of What It Was Supposed To Do (CNBC)
The Private Pain of China’s Economy (WSJ)
Oil Companies Face $110 Billion Debt Wall Over Next 5 Years (BBG)
The Problem With Europe Is The Euro (Stiglitz)
The EU Enters Its Endgame (Dowd)
Marc Faber: Tesla Shares Are Going To $0 (CNBC)
The US Public Pensions Ponzi (ZH)
Housing ‘Shell Shock’ Faces Danes Who Think Market Can Only Rise (BBG)
Call Blockchain Developers What They Are: Fiduciaries (Walch)
Construction Of Giant Dam In Canada Prompts Human Rights Outcry (G.)

 

 

Did Carney really not see this coming? That would be stunning indeed. Not hard at all to find out.

Bank Of England Suffers Stunning Failure On Second Day Of QE (ZH)

It started off well enough. On the first day of the Bank of England’s resumption of Gilt QE after the central bank had put its monetization of bonds on hiatus in 2012, bondholders were perfectly happy to offload to Mark Carney bonds that matured in 3 to 7 years. In fact, in the first “POMO” in four years, there were 3.63 offers for every bid of the £1.17 billion in bonds the BOE wanted to buy. However, earlier today, when the BOE tried to purchase another £1.17 billion in bonds, this time with a maturity monger than 15 years, something stunning happened: it suffered an unexpected failure which has rarely if ever happened in central bank history: only £1.118 billion worth of sellers showed up, meaning that the BOE’s second open market operation was uncovered by a ratio of 0.96.

Simply stated, the Bank of England encountered an offerless market. What makes this particular failure especially notable – and troubling – is that while technically uncovered sales of government securities happen frequently, and Germany is quite prominent in that regard as numerous Bund auctions have failed to find enough demand in the open market in recent years forcing the “retention” of the offered surplus, when it comes to a central bank’s buying of securities, there should be, at least in practice, full coverage of the operation as the central bank is willing and able to pay any price to sellers to satisfy its quota. For example, in today’s operation, the scarcity led to the BOE accepting all submissions, even as some investors offered prices above the prevailing market.

The highest accepted price for the 4% bond due in 2060, for example, was 194.00, compared with a weighted average of 192.152, which means that the happy seller obtained a yield well in excess of that implied by the market. And yet, despite having a completely price indiscriminate buyer, some £52 million worth of bond sellers simply refused to sell to the BOE at any price! The QE failure quickly raised alarm signals among the bond buying community. In a Bloomberg TV interview, Luke Hickmore at Aberdeen Asset Management said that “lots of people are bidding us for bonds – Mark Carney is now bidding me for bonds and he still can’t have them. The problem is he was trying to buy 15-year plus bonds today in the gilt market. That’s a really difficult area.”

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“One might as well try to improve one’s health by playing a few rounds of Russian roulette every morning before breakfast.”

Bank of England QE and the Imaginary “Brexit Shock” (AM)

For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame). The adulation he receives is really a major head-scratcher. What has he ever done aside from operating the “Ctrl. Prnt.” buttons? As far as we are aware, nothing. As we have discussed previously, his main legacy is that he has left Canada with one of the greatest and scariest real estate and consumer credit bubbles extant in the world today. Some accomplishment!

With respect to his economic analysis, it seems not the least bit different from the neo-Keynesian/ semi-monetarist mumbo jumbo we get to hear from central bankers everywhere. This is by the way no surprise: they’re an incestuous bunch and have largely received their education at the same institutions. Most of them seem genuinely convinced that central planning not only works, but is necessary to improve on the alleged drawbacks of an “unfettered market” (i.e., the mythical unhampered free market economy no-one alive today has ever experienced). If one looks closely at what they are actually doing, it soon becomes clear that it is in principle not much different from what John Law did in France in the early 18th century (the difference is one of degree only).

The much-dreaded “Brexit” has now given Mr. Carney the opportunity to do what he does best, namely open the monetary spigots wide. One might as well try to improve one’s health by playing a few rounds of Russian roulette every morning before breakfast.

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NIRP scares the sh*t out of people. And rightly so.

Negative-Yield Debt Is Doing The Opposite Of What It Was Supposed To Do (CNBC)

Paying someone to borrow your money sounds like a questionable idea on paper, and seems not to be working out so well in practice. Yet that’s exactly what people who buy negative-yielding bonds do: Instead of collecting payments in the form of yields, investors have to pay someone to take their cash. Investors ostensibly hope they can sell the debt elsewhere and make a profit, as prices go up when yields fall. It’s a strange arrangement that nonetheless has become policy in Japan and parts of Europe. The goal that sovereign debt issuers and central banks hope to achieve is a world where money is pushed toward risk and all that no-yielding debt causes inflation that leads to growth.

However, as the arrangement spreads around the world to the point where more than $11 trillion of global debt holds negative yields, questions are growing quickly about its efficacy. “It’s the definition of insanity: Keep doing the same thing over and again and expect a different result. That’s my assessment of central banks in a nutshell,” said Kim Rupert, managing director of global fixed income analysis at Action Economics. “I never thought I’d say that. I had a lot of respect for central bankers. But they’re getting way overindulgent with very little success as far as I can tell.”

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“..urged local officials to “chant bright songs about the China economy loudly” to boost confidence..”

The Private Pain of China’s Economy (WSJ)

Private investment is withering in China. Companies are shying away from risking their capital, discouraged by a cloudy global outlook and four years of slowing Chinese growth, intermittent deflation and conflicting policy messages. The development risks setting back Beijing’s aim to shift the economy from low-end manufacturing to the kind of high-tech industries and services that dynamic private companies tend to provide. Private investment on capital goods like factories and trucks grew by just 2.8% in the year’s first half following nearly 30% annual average growth over the past decade. In June, it fell for the first time since China started tracking the data in 2004. The July figure, to be released Aug. 12, is expected to show further weakness.

In a bid to reverse the trend, Beijing has stepped up efforts to slash red tape and reduce barriers for entrepreneurs and urged local officials to “chant bright songs about the China economy loudly” to boost confidence, according to one circular. Beijing also has tried to flood the economy with credit to compensate for the decline in private investment. It boosted total social financing, a broad measure of credit that includes both bank loans and nonbank lending, to a first-quarter record. But state banks, China’s main lenders, aren’t always cooperating. In the second quarter, state banks charged private companies interest rates that were 6 percentage points higher than for their public-sector counterparts, according to investment bank CICC. Officials at two state banks said they are careful when lending to smaller private borrowers given concerns over risk and lack of sufficient collateral.

Private companies also report more difficulty in raising informal loans from nonbank lenders, friends and relatives as bad loans increase and lenders grow more cautious. China’s leaders also have pressured state-owned firms to invest more. They responded with a 23% first-half jump in investment that helped prop up economic growth. But the strategy sidelines private companies that account for three-fifths of China’s economy and four-fifths of its workforce. “The government plans a lot of large-scale investments but rarely thinks about private investors getting squeezed out,” said Jon Chan Kung, founder of research group Beijing Anbound Information Co. “Companies are facing a lot of confusion and questions about China’s future.”

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It’s all about hoping prices will rise. If they don’t, and soon, these guys are toast.

Oil Companies Face $110 Billion Debt Wall Over Next 5 Years (BBG)

The worst may be yet to come for some strained oil services companies as $110 billion in debt, most of it junk rated, creeps closer to maturity. More than $21 billion of debt from oilfield services and drilling companies is estimated to be maturing in 2018, almost three times the total burden in 2017, according to a report from Moody’s Investors Service on Aug. 9. More than 70% of those high-yield bonds and term loans are rated Caa1 or lower, and more than 90% are rated below B1. Speculative-grade debt is becoming increasingly risky, as the default rate is expected to reach 5.1% in November, according to a separate Moody’s report.

The 12-month global default rate rose to 4.7% in July, up from its long-term average of 4.2%, Moody’s wrote. Of the 102 defaults this year, 49 have come from the oil and gas sector, Moody’s noted. “While some companies will be able to delay refinancing until business conditions improve, for the lowest-rated entities, onerous interest payments and required capital expenditure will consume cash balances and challenge their ability to wait it out,” Morris Borenstein, an assistant vice president at Moody’s, said in the report.

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The problem is the silly assumptions it was built on.

The Problem With Europe Is The Euro (Stiglitz)

Advocates of the euro rightly argue that it was not just an economic project that sought to improve standards of living by increasing the efficiency of resource allocations, pursuing the principles of comparative advantage, enhancing competition, taking advantage of economies of scale and strengthening economic stability. More importantly, it was a political project; it was supposed to enhance the political integration of Europe, bringing the people and countries closer together and ensuring peaceful coexistence. The euro has failed to achieve either of its two principal goals of prosperity and political integration: these goals are now more distant than they were before the creation of the eurozone. Instead of peace and harmony, European countries now view each other with distrust and anger.

Old stereotypes are being revived as northern Europe decries the south as lazy and unreliable, and memories of Germany’s behaviour in the world wars are invoked. The eurozone was flawed at birth. The structure of the eurozone – the rules, regulations and institutions that govern it – is to blame for the poor performance of the region, including its multiple crises. The diversity of Europe had been its strength. But for a single currency to work over a region with enormous economic and political diversity is not easy. A single currency entails a fixed exchange rate among the countries, and a single interest rate. Even if these are set to reflect the circumstances in the majority of member countries, given the economic diversity, there needs to be an array of institutions that can help those nations for which the policies are not well suited.

Europe failed to create these institutions. Worse still, the structure of the eurozone built in certain ideas about what was required for economic success – for instance, that the central bank should focus on inflation, as opposed to the mandate of the Federal Reserve in the US, which incorporates unemployment, growth and stability. It was not simply that the eurozone was not structured to accommodate Europe’s economic diversity; it was that the structure of the eurozone, its rules and regulations, were not designed to promote growth, employment and stability. Why would well-intentioned statesmen and women, attempting to forge a stronger, more united Europe, create something that has had the opposite effect? The founders of the euro were guided by a set of ideas and notions about how economies function that were fashionable at the time, but that were simply wrong.

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Strong by Kevin Dowd: “..what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?”

The EU Enters Its Endgame (Dowd)

The list of countries with strong sentiment for their own Exit votes is a long one: according to a recent opinion poll, over half of the French and Italian electorates want their own exit referenda, and around 40% of the Swedish, Belgian, German, Hungarian, Polish and Spanish electorates want them. There is also strong support in Austria, Denmark, Finland, the Netherlands, Portugal, Slovakia and Sweden. Other opinion polls suggest even stronger support, but by my count, there is strong support for exit referenda in at least 16 of the 28 member countries of the EU—and then there is Greece, which has its own bone or two to pick with the EU.

Further afield, there were calls for secessionist votes in the United States and the Canadian Prime Minister was soon fending off calls for a Quexit vote. The cat is well and truly out of Pandora’s bag. The issues now are not whether there will be a similar referendum in another country but rather which country will be next and then how many will follow after that. Brexit was merely the first domino. The EU will not survive the process—and by that I do not mean that it will not survive in its current form, which is obvious—I mean that it will not survive at all. The EU “project”—the attempt to establish a federalist European superstate against the wishes of many of its subjects—has failed and the EU itself is unraveling. The only question now is how unpleasant the endgame will be.

[..] A week or so ago, I saw the German Chancellor on the news again repeat her mantra that the UK will only have access to the Single Market if it complies with her demand that it maintain free movement of peoples across what is still now the EU. I found myself scratching my head. Memo to Planet Merkel: does she not see that free movement no longer exists? Schengen has largely broken down: border controls within the EU are already a reality and the Nordics are preparing or already have plans to impose further controls to prevent their welfare states being overwhelmed by migrants. So would someone please explain to me: what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?

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“Anybody in the world can make it eventually, at much lower cost and probably much more efficiently..”

Marc Faber: Tesla Shares Are Going To $0 (CNBC)

Marc Faber, editor of the Gloom, Boom & Doom Report, is well-known his perennially bearish take on the overall market. But there are also some specific stocks of which the investor known as “Dr. Doom” takes a particularly dim view – and right now, prime among those is Tesla. “What they produce can be produced by Mercedes, BMW, Toyota, Nissan. Anybody in the world can make it eventually, at much lower cost and probably much more efficiently,” Faber said Monday on CNBC’s “Trading Nation.”

“The market for Toyota and these large automobile companies is simply not big enough, but the moment it becomes bigger, they’ll move into the field and then Tesla will have a lot of competition.” Faber sees this increased competition causing more than a small dent in the company’s business and stock performance. “I think Tesla is a company that is likely to go to zero eventually,” Faber said.

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“Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.”

The US Public Pensions Ponzi (ZH)

Defined Benefit Pension Plans are, in many cases, a ponzi scheme. Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities… classic Ponzi. But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit. Everyone from government officials to union bosses are incentivized to maintain the status quo…public employees get to sleep better at night thinking they have a “retirement plan,” public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.

We even published a note several days ago entitled “Establishment Tries To Suppress “Dissident Actuaries” Explosive Report On Public Pensions,” which pointed out that the American Academy of Actuaries and the Society of Actuaries killed a report that would have warned about the implications of lowering long-term expected returns on pension assets. Apparently the truth was just too scary. Bill Gross has been warning of the unintended consequences of low interest rates for years, and reiterated his concerns to Bloomberg recently: “Fund managers that have been counting on returns of 7% to 8% may need to adjust that to around 4%, Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, said. Public pensions, including the California Public Employees’ Retirement System, the largest in the U.S., are reporting gains of less than 1% for the fiscal year ended June 30.”

To our great surprise, certain pension funds are finally taking notice. Richard Ingram of Illinois’s largest pension fund recently announced that he would be taking another look at long-term return expectations noting that “anybody that doesn’t consider revisiting what their assumed rate of return is would be ignoring reality.” Ingram’s Illinois Teachers’ Retirement System is only 41.5% funded and currently assumes annual returns of 7.5%, down from 8% in 2014. We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.

We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we’ve seen estimates that suggest $3.5 trillion or more might be more appropriate. We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates. Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.

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There’s lots of this in Europe.

Housing ‘Shell Shock’ Faces Danes Who Think Market Can Only Rise (BBG)

Denmark’s biggest mortgage bank is urging homeowners to remember that a seemingly unstoppable series of price gains can end, and even go into reverse. At Nykredit, chief analyst Mira Lie Nielsen says Danes need to start putting the possibility of housing price declines “on their radars” or risk going into “shell shock when it happens.” “Our expectation isn’t that home prices will fall in the near future, but it’s important to say, again and again, that especially apartment prices can also fall,” Nielsen said in an e-mail. After almost half a decade of negative interest rates, many homeowners in Denmark are being paid to borrow, excluding bank fees.

Most analysts estimate Danish rates won’t go positive until 2018 at the earliest, threatening to create an atmosphere of complacency as borrowers take on bigger mortgages based on assumptions that low rates are here to stay. Home prices rose an annual 4.5% across Denmark in July, according to Boligsiden.dk, a web portal that tracks the property market. Copenhagen apartment prices soared 9.4%, underpinning the “continued need to be particularly aware” of the potential risks, Nielsen said. “Prices for city dwellings are at a markedly higher level today and are in a range where few people who aren’t already benefiting from the price gains can join in,” Nielsen said.

“So the price level is playing its own damping role on the market, because incomes haven’t quite been able to keep up. This is already visible in Copenhagen.” Apartment prices in Denmark are about 5% above their 2006 peak, according to the latest data from Statistics Denmark. Back then, the country’s bubble burst and apartment prices slumped about 30% through 2009. But there’s also a flip side to record-low interest rates. Banks have suffered fewer writedowns as borrowers find it easier to repay cheaper loans. The number of homeowners unable to honor their mortgage commitments is falling, with just 0.19% failing to meet payment deadlines in the first quarter, according to industry data published on Tuesday.

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“..the romance of decentralization..”

Call Blockchain Developers What They Are: Fiduciaries (Walch)

The recent hack of the DAO (short for Decentralized Autonomous Organization) and the subsequent reversal of funds on Ethereum’s blockchain should finally put an end to a decentralization charade. People are, in fact, governing public blockchains, and we need to be able to trust them. From the beginning, the core developers (who write, evaluate and modify the software code) and the powerful miners (holders of significant chunks of computing power within the network) have been the governing bodies of these so-called decentralized systems. Yet the romance of decentralization – with the seductive idea that we don’t have to trust anyone because no human is doing anything – has allowed many to overlook this important truth.

In the techno-utopian world of blockchain technology, it has become fashionable to proclaim that software code and its operation can replace the need for human governance. Hence, the push toward “decentralized autonomous organizations,” which are essentially corporations run through code rather than by people. The first of these, the DAO, began operating in May 2016, raising $150 million from investors to operate as a venture fund for blockchain technology. The DAO is just software, coded by an ambitious group at the company Slock.It. It was embarrassingly compromised through a computer hack for $60 million within a month of its inception.

The theft’s fallout has been dramatic. Since the DAO was built on the Ethereum blockchain, everyone involved with the technology was affected: DAO investors, owners of ether (the cryptocurrency of Ethereum) and anyone building anything on Ethereum, which has sought to be a platform for so-called smart contracts. This raised serious questions like: Should folks try to get the stolen ether back? Should they leave it be, as the hack was simply an exploitation of a bug in the purportedly unstoppable code?

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“The rivers are the arteries of the Earth. When we block them up, the earth becomes unhealthy.”

Construction Of Giant Dam In Canada Prompts Human Rights Outcry (G.)

Human rights campaigners are calling on Canadian authorities to halt construction of a huge hydroelectric dam in western Canada over concerns that the mega-project tramples on the rights of indigenous peoples in the area. A global campaign launched by Amnesty International on Tuesday called on the federal government and the provincial government of British Columbia to withdraw all permits and approvals for the Site C hydroelectric dam, a C$9bn project that will see more than 5,000 hectares (12,350 acres) of land – roughly equivalent to about 5,000 rugby fields – flooded in north-east British Columbia. The land is part of the traditional territories of indigenous peoples in the region, said Craig Benjamin of Amnesty International Canada.

“It’s an area that people have used for thousands upon thousands of years. Their ancestors are buried in the land; there are hundreds of unique sites of cultural importance; there is cultural knowledge of how to live on land that is associated with this specific spot.” Many continue to rely on the land to hunt, fish, plant medicines, gather berries and conduct ceremonies. “There are really few other places where they can go to practice their culture and to exercise their rights because this is a region that has been so heavily impacted by large-scale resource development.” Amid protests by several First Nations groups, the project was approved by provincial and federal authorities in 2014, allowing preparatory work to begin last summer.

Earlier this year, as clear-cutting began in the area, part of the construction was held up by a protest camp set up by indigenous activists. “This is home,” said Helen Knott, one of the half a dozen protesters who occupied the site. “The rivers are the arteries of the Earth. When we block them up, the earth becomes unhealthy. It’s about being able to protect something to pass on to our children.” After two months in the snow and braving temperatures that dropped as low as -20C, a provincial court ordered them to dismantle the camp.

Read more …

Aug 042016
 
 August 4, 2016  Posted by at 8:04 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 4 2016
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G.G. Bain New York, suffragettes on way to Boston 1913

Is Deutsche as Dangerous to Financial Stability as Citigroup in 2008? (M2)
Pound Volatility Gauge Climbs as Traders Brace for BOE Rate Cut (BBG)
Britain Faces A Nasty Shock When The Global Energy Cycle Turns (AEP)
Cash Handouts Are Best Way To Boost Growth, Say Economists (G.)
Shock At The ATM: 1000s Of Supplementary Greek Pensions Cut By 21%-46% (KTG)
EU Trade Policy ‘Close To Death’ If Canada Deal Fails (Politico)
Reality of BC’s Foreign Buyers Tax Begins To Bite, Deals Collapsing (FP)
Morgan Stanley Discloses $3.21 Billion Italian Swaps Claim (BBG)
Tesla Loses $293 Million as Deliveries Fall Short, Expenses Rise (WSJ)
We’re Not Out of the Woods Yet (STA)
Justice Department Officials Objected to US Cash Payment to Iran (WSJ)
Julian Assange: The Untold Story Of An Epic Struggle For Justice (Pilger)
Court Throws Out Terrorism Conviction In Canada, Cites Police Entrapment (I’Cept)
Italy Adopts ‘Beautiful’ New Law To Slash Food Waste (BBC)

 

 

Martens and Martens. “..a year ago, Deutsche Bank’s stock closed at $34.88. Its share price at the open this morning was $12.56, a loss of 64% in one year’s time. But from June 1 of 2007, Deutsche Bank has lost a whopping 90% of its share value, right on par with Citigroup.”

Is Deutsche as Dangerous to Financial Stability as Citigroup in 2008? (M2)

Deutsche Bank is starting to resemble the financial basket case that Citigroup became in 2008, leading to Citigroup’s partial ownership by the U.S. government for a time and the bank requiring the largest taxpayer bailout in U.S. financial history. Citigroup’s teetering condition and its interconnectedness to other mega banks played a critical role in the Wall Street crash and collapse of the U.S. economy. That Deutsche Bank (which is highly interconnected to other major Wall Street banks and locked and loaded with tens of trillions of dollars in derivatives) is now showing the same kind of stresses as Citigroup back in 2008, raises the obvious question about just how effectively the Obama administration has reined in systemic financial risk after six years of reassurances that Dodd-Frank financial reform was getting the job done.

On this date a year ago, Deutsche Bank’s stock closed at $34.88. Its share price at the open this morning on the New York Stock Exchange was $12.56, a loss of 64% in one year’s time. But from June 1 of 2007, prior to the onset of the financial crisis, Deutsche Bank has lost a whopping 90% of its share value, right on par with Citigroup. As of this morning’s open, Deutsche Bank has a measly $17.32 billion in equity capital versus a portfolio of derivatives amounting to just shy of $50 trillion notional (face amount) as of December 31, 2015.


Systemic Risk Among Deutsche Bank and Global Systemically Important Banks (Source: IMF: “The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.”)

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Carney’s expected to announce desperate measures today.

Pound Volatility Gauge Climbs as Traders Brace for BOE Rate Cut (BBG)

A measure of overnight potential price swings for the pound against the dollar approached the highest closing level since Britain voted to leave the European Union in June as traders braced for the Bank of England’s policy decision Thursday, which most economists forecast will bring the first interest-rate cut in seven years. Sterling fell versus all but one of its 16 major peers as swaps pricing showed a 100% chance of a rate cut. While all except two of 52 analysts in a Bloomberg survey forecast a reduction, there are a suite of other measures, including an expansion of its bond-purchase program, which the BOE may adopt to tackle a Brexit-induced fallout which are more difficult to predict.

Some economists said they would not rule out the possibility that the BOE will keep its powder dry at this meeting, as it did in July, while awaiting a clearer economic picture. “There is quite a lot of speculation regarding what the BOE might do today, so the short-term volatility is to be expected,” said Mark Dowding, a London-based partner and money manager at BlueBay Asset Management. “We doubt the BOE would be opposed to the idea of the pound falling further as it would support the growth outlook, which is deteriorating markedly. We see the pound falling to $1.20 or lower by the end of the year.”

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Yes, Britain’s in for a bind. But energy is not Ambrose’s strong suit.

Britain Faces A Nasty Shock When The Global Energy Cycle Turns (AEP)

Britain’s energy industry is dying. While the US is striving for self-sufficiency in fuel and power as a primary goal of strategic security in a dangerous world, this country has acted with strange insouciance. We have let matters drift for so long that half of our nuclear reactors will be phased out over the next nine years with nothing ready to replace them. North Sea oil and gas is a spent reserve. Britain’s dependency on imported fuels and electricity has jumped from 17pc to 46pc since 2000. Energy is becoming a corrosive element in Britain’s current account deficit, now 6.9pc of GDP, and the scale of vulnerability has been masked by the slump in world energy prices. When the global fossil cycle turns – inevitable, given the $400 investment freeze in oil and gas projects over the last two years – Britain will face a national energy ‘margin call’.

The confluence of Brexit, a new government, and the review of the Hinkley Point nuclear plant have suddenly thrown open the debate on how the UK should power its economy. It is a dangerous moment, but also giddily fluid. As a summer exercise, I will float a few thoughts on how to seize this chance, open to suggestions from Telegraph readers for better ideas. My heterodox mix will satisfy nobody: it includes fracking a l’outrance, micro-nuclear and molten-salt reactors, more off-shore wind, a Norwegian-style push for electric vehicles by 2030, and a grand plan for carbon capture and storage to take advantage of Britain’s unique competitive advantage in this field and revitalize Northern industries.

There is no shortage of funds. Britain can borrow at 1.47pc for half a century, and it should do so without compunction as an investment stimulus to carry the country through the post-Brexit storm. Oil and gas fracking does not require public money anyway. Britain’s shale industry is already poised to drill, so that is where I will begin today.

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Including Steve Keen, David Graeber.

Cash Handouts Are Best Way To Boost Growth, Say Economists (G.)

Direct cash handouts to households would be a better way of boosting Britain’s flagging economy than the interest-rate cuts expected from the Bank of England on Thursday, according to a group of progressive economists. In a letter to the chancellor, 35 economists have urged Philip Hammond to ditch the approach that has been followed by the government since the recession of 2008-09 and give the Bank the right to try more radical options. The letter, to be printed in Thursday’s Guardian, suggests that the Bank should be allowed to create money to fund key infrastructure projects. Alternatively, the group says the Bank could pay for tax cuts or direct payments to households.

The letter states: “A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.” Threadneedle Street would need approval from the Treasury to adopt what the US economist Milton Friedman once described as “helicopter drops” of money on to the economy as a means of removing the threat of deflation. The nine members of the Bank’s monetary policy committee (MPC) will announce at midday how they plan to respond to the economic shock caused by the decision to leave the EU in the 23 June referendum.

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The rape of Greece continues.

Shock At The ATM: 1000s Of Supplementary Greek Pensions Cut By 21%-46% (KTG)

It was certainly a shock for thousands of Greek pensioners: beginning of August they saw their supplementary pensions to have undergone cuts from 21% up to 46%. Affected are 311,680 pensioners receiving pensions from 11 pension funds. The 3. bailout and the Pensions Reforms provided that if the sum of main and supplementary pension exceeds €1,300 gross, the supplementary pension has to be cut. The second wave of cuts to be implemented as of September will affect another 924,345 pensioners belonging to other pension funds.

The Pension Reforms ended up in throwing all pensioners in one bag and have them ‘share’ the available pension funds, although this is –first of all- “unfair” for the pensioners of the private sector. They have been loyally paying their social security contributions all through their work life, while the pensioners of the public sector have been paying much less and thus receiving disproportionately much more. Public servants who massively left service with early retirement of 25 years in 2010, they ended up receiving a pension amount equal to their salary – although it should have been much lower. Yes, it is unfair. And this is what I hear from more and more people form the private sector.

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100,000 TTiP protesters in Germany yesterday?!

EU Trade Policy ‘Close To Death’ If Canada Deal Fails (Politico)

One of the EU’s most senior officials has warned that the bloc’s trade policy will be “close to death” if it cannot ratify a landmark agreement with Canada. The alarm sounded by Jean-Luc Demarty, director-general for trade, is a sign of growing concern in Brussels that the European Commission is losing control over one of its core competencies in the face of surging public opposition to free trade. In a frustrating blow to the Commission, the member countries last month wrested the approval process for the trade deal with Canada away from Brussels. The accord will now require approval in Europe’s 38 national and regional parliaments, raising the specter of delays and even vetoes in assemblies ranging from Wallonia to Romania.

Demarty delivered his stark warning at the EU’s trade policy committee ahead of the summer break, according to people present at the confidential meeting. Most diplomats expect the Canadian deal to win the qualified majority required for provisional application at the Council. Notes from the July 15 meeting, seen by POLITICO on Monday, showed that Demarty warned that EU trade policy would have a “big credibility problem” if it could not ratify the deal. He then added that it would be “close to death.” Two other diplomats confirmed the remarks and added that this was now typical of Demarty’s tone on the subject. One observed that Demarty seemed “helpless.”

Traditionally, trade has been the blue-riband portfolio in Brussels, with national governments surrendering all of their powers to negotiate trade deals and impose tariffs to the Commission. But Brussels suffered a significant setback on July 5 when France and Germany unexpectedly insisted that a trade deal with Canada would have to be ratified by the EU’s 38 national and regional assemblies. That has left the Commission scrambling to rescue the deal and preserve its status as the biggest force in global trade.

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It’s healthy when bubbles burst. But painful too for some.

Reality of BC’s Foreign Buyers Tax Begins To Bite, Deals Collapsing (FP)

Realtors and lawyers desperate to get in under the deadline filed a record-setting 15,000 property transfer applications on Thursday and Friday, the last business days before B.C.’s punishing new 15-per-cent tax on foreign property buyers went into effect. More than 9,200 transactions were filed on Friday, breaking the 2007-2008 record of more than 8,400 in a single day, according to the B.C. Land Title and Survey Authority. It also reported over 5,800 transactions on Thursday, representing nearly as many deals registered at month’s end in April. The demand was so heavy that it crashed the land titles office’s electronic filing service on both days, the authority said.

Now, as a new dawn breaks in Metro Vancouver’s real estate market, realty companies and real estate boards are reporting the first anecdotes of deals falling through as foreign buyers forfeited deposits on binding deals rather than pay the new tax. And they report evidence of local buyers withdrawing offers in expectation that the market will soften. Elton Ash, executive vice-president of Re/Max Western Region, said it is too early to accurately quantify how many deals fell apart, but he’s heard from realtors in some of the company’s 30 Metro Vancouver offices of cases where foreign buyers who couldn’t rearrange previously negotiated closing dates have already walked away.

[..] Jonathan Cooper, vice-president of operations at MacDonald Realty, expects many cases to go to court because deposits are held in trust by realtors and usually can’t be released without a court order. “I think the next chapters in this story are going to be written by lawyers,” Cooper said. “There are going to be cases for sellers trying to get the deposit out of trust and maybe suing the buyer for specific performance trying to get them to complete, and/or for damages if they are not able to find a buyer at a similar price point.”

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“Across Italy, cities faced with shrinking income and rising expenses bought swaps from U.S. firms to cut short-term interest costs..”

Morgan Stanley Discloses $3.21 Billion Italian Swaps Claim (BBG)

Morgan Stanley said an Italian prosecutor may seek as much as €2.88 billion ($3.21 billion) over allegations that derivatives the investment bank sold more than a decade ago were improper and unfairly unwound. Italy’s Court of Accounts, the country’s state auditor, sent Morgan Stanley the proposed claim over derivatives created from 1999 through 2005 and terminated by 2012, the New York-based bank said Wednesday in a quarterly regulatory filing. Italy had paid Morgan Stanley $3.4 billion to unwind interest-rate swaps and options that had backfired, as it was cheaper than renewing the contracts, Bloomberg reported in 2012.

Mark Lake, a Morgan Stanley spokesman, said the proposed claim is groundless and that the bank will defend itself vigorously. Wall Street has been accused of duping municipalities with sophisticated and complex instruments. Some banks pitched the derivatives transactions as a way to save on borrowing expenses, but many ended up being costly for their government customers. Across Italy, cities faced with shrinking income and rising expenses bought swaps from U.S. firms to cut short-term interest costs, putting them at risk of paying more in the long run.

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Wonder when this bubble will burst. Tesla rides ‘green waves’ in more than one way.

Tesla Loses $293 Million as Deliveries Fall Short, Expenses Rise (WSJ)

Tesla Motors’s loss widened in the second quarter amid higher costs, but the company stuck to an ambitious plan that calls for building nearly 80,000 cars in 2016 and pulling forward a cheaper sedan aimed at the mass market. The Silicon Valley electric car maker’s report follows a tumultuous period capped by a traffic fatality related to the company’s semiautonomous Autopilot system. Regulators also dinged the company’s practice of having certain buyers sign nondisclosure agreements and the company faced continued questions about the quality of its Model X sport-utility vehicle.

Tesla, long known as a company that moves faster than traditional auto makers, plowed forward during the quarter. It announced its intention to combine with SolarCity Corp., which shares with Tesla Elon Musk as chairman. On Monday, the Tesla announced a firm deal with SolarCity valued at $2.6 billion.

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“..the next leg down in oil prices could be far more disruptive than most investors expect and it may not take much to trigger a major financial event.”

We’re Not Out of the Woods Yet (STA)

The risk of a global shock appears to be rising once again as (1) oil prices fall back into the $30s and (2) modestly improving US economic growth strengthens the case for a rising dollar. In addition to a likely revival in US rate hike expectations, growing foreign demand for US cash flows, or the prospect for more central bank easing abroad (both of which could drive the dollar higher), the world economy may already be nearing another breaking point as foreign central bank assets held at the Federal Reserve continue to fall on a year-over-year basis. Every time this measure has fallen below zero in the last fifty years, it has coincided with a major global event.

My suspicion is that oil producing countries (who officially flipped from current account surplus into current account deficit in 2015) are liquidating their US dollar assets to manage government budget shortfalls. With that in mind, the next leg down in oil prices could be far more disruptive than most investors expect and it may not take much to trigger a major financial event. We’re not aggressively betting on a crisis, but my colleagues and I on the STA Investment Committee continue to run conservative portfolios with an underweight to equities, and a focus on yield-oriented assets (like corporate bonds and preferred stocks) and defensive assets (like cash, gold, managed futures, and long-dated US Treasuries) while we wait for quality assets to go on sale.

If you’ve been paying attention to global markets this year, you are probably still scratching your head as to what fundamentally changed in early February. What pulled us back from the edge of a global crisis and set the stage for one of the most powerful reflations (ex earnings) in recent memory? What caused corporate credit spreads to collapse, crude oil to bottom, and the S&P 500 to scream higher? And, most importantly, is this a sustainable new trend? Or an epic bear trap? As regular FWIW readers may remember, I offered a hypothesis in mid-March – arguing that major central banks had begun to quietly intervene in foreign exchange markets – and I laid out a vision for 2016 as long as policy elites were able to keep the trade-weighted US dollar in a “goldilocks” trading range.

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Ronald Reagan Returns.

Justice Department Officials Objected to US Cash Payment to Iran (WSJ)

Senior Justice Department officials objected to sending a plane loaded with cash to Tehran at the same time that Iran released four imprisoned Americans, but their objections were overruled by the State Department, according to people familiar with the discussions. After announcing the release of the Americans in January, President Barack Obama also said the U.S. would pay $1.7 billion to Iran to settle a failed arms deal dating back to 1979. What wasn’t disclosed then was that the first payment would be $400 million in cash, flown in at the same time, as The Wall Street Journal reported Tuesday.

The timing and manner of the payment raised alarms at the Justice Department, according to those familiar with the discussions. “People knew what it was going to look like, and there was concern the Iranians probably did consider it a ransom payment,’’ said one of the people. The disclosures reignited a political furor over the Iran deal in Washington that could complicate White House efforts to fortify it before Mr. Obama’s term ends. Three top Republicans who have been feuding in recent weeks—presidential candidate Donald Trump, Sen. John McCain and House Speaker Paul Ryan—were united Wednesday in blasting the Obama administration.

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Excellent expose by John Pilger.

Julian Assange: The Untold Story Of An Epic Struggle For Justice (Pilger)

The siege of Knightsbridge is both an emblem of gross injustice and a gruelling farce. For three years, a police cordon around the Ecuadorean embassy in London has served no purpose other than to flaunt the power of the state. It has cost £12 million. The quarry is an Australian charged with no crime, a refugee whose only security is the room given him by a brave South American country. His “crime” is to have initiated a wave of truth-telling in an era of lies, cynicism and war. The persecution of Julian Assange is about to flare again as it enters a dangerous stage. From August 20, three quarters of the Swedish prosecutor’s case against Assange regarding sexual misconduct in 2010 will disappear as the statute of limitations expires.

At the same time Washington’s obsession with Assange and WikiLeaks has intensified. Indeed, it is vindictive American power that offers the greatest threat – as Chelsea Manning and those still held in Guantanamo can attest. The Americans are pursuing Assange because WikiLeaks exposed their epic crimes in Afghanistan and Iraq: the wholesale killing of tens of thousands of civilians, which they covered up, and their contempt for sovereignty and international law, as demonstrated vividly in their leaked diplomatic cables. WikiLeaks continues to expose criminal activity by the US, having just published top secret US intercepts – US spies’ reports detailing private phone calls of the presidents of France and Germany, and other senior officials, relating to internal European political and economic affairs.

None of this is illegal under the US Constitution. As a presidential candidate in 2008, Barack Obama, a professor of constitutional law, lauded whistleblowers as “part of a healthy democracy [and they]must be protected from reprisal”. In 2012, the campaign to re-elect President Barack Obama boasted on its website that he had prosecuted more whistleblowers in his first term than all other US presidents combined.

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The details are stunning, but at the same time familiar.

Court Throws Out Terrorism Conviction In Canada, Cites Police Entrapment (I’Cept)

Sting operations — in which an undercover agent or informant provides the means and opportunity to lure otherwise incapable people into committing a crime — have represented the default tactic for counterterrorism prosecutions since the 9/11 attacks. Critics believe these stings amount to entrapment. Human Rights Watch, for instance, argues that law enforcement authorities in the U.S. have overstepped their role by “effectively participating in developing terrorism plots.” Nonetheless, U.S. courts have rejected entrapment defenses, no matter how hapless the defendants. In Canada, however, the legal standing of counterterrorism stings has suddenly shifted.

Last week, a high-ranking judge in British Columbia stayed the convictions of two alleged terrorists, ruling that they had been “skillfully manipulated” and entrapped by an elaborate sting operation organized by the Royal Canadian Mounted Police. “The specter of the defendants serving a life sentence for a crime that the police manufactured by exploiting their vulnerabilities, by instilling fear that they would be killed if they backed out, and by quashing all doubts they had in the religious justifications for the crime, is offensive to our concept of fundamental justice,” the judge wrote. “Simply put, the world has enough terrorists. We do not need the police to create more out of marginalized people who have neither the capacity nor sufficient motivation to do it themselves.”

This is the first time that a counterterrorism sting — whose tactics were developed by the FBI through modifying those of undercover drug stings — has been thrown out of court whole cloth in Canada or the U.S. Supreme Court Justice Catherine J. Bruce was ruling in the case of John Nuttall and his common-law wife, Amanda Korody, two drug addicts who lived on the streets in British Columbia. As part of sting operation in which the RCMP paid at least 200 officers a total of more than $900,000 Canadian in overtime, law-enforcement agents encouraged the couple to place pressure-cooker bombs at the British Columbia parliament building on Canada Day 2013. As in FBI counterterrorism stings, RCMP provided Nuttall and Korody with everything they needed to become terrorists.

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Can we adopt this throughout the world please?

Italy Adopts ‘Beautiful’ New Law To Slash Food Waste (BBC)

Italy has passed into law a raft of new measures to try to reduce the mountain of food wasted in the country each year. The bill – backed by 181 Senators, with two against and 16 abstaining – aims to cut waste one million tonnes from the estimated five million it wastes each year. It has been heralded as “one of the most beautiful and practical legacies” of the Expo Milano 2015 international exhibition – which focused on tackling hunger and food waste worldwide – by Agriculture Minister Maurizio Martina. According to ministers, food waste costs Italy’s business and households more than €12bn per year. Studies suggest it could amount to more than 1% of GDP.

The problem is by no means confined to Italy. The UN Food and Agricultural Organisation (FAO) estimates that some one third of food may be wasted worldwide – a figure which rises to some 40% in Europe. “The food currently wasted in Europe could feed 200 million people,” the FAO says. It’s not the first time Italy has acted decisively over issues of hunger and food. Three months ago, its highest court ruled that stealing small amounts of food to stave off hunger was not a crime.

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Jun 182016
 
 June 18, 2016  Posted by at 8:41 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle June 18 2016
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Harris&Ewing F Street N.W., Washington, DC 1918

Stocks Slump Most In 4 Months As Global Financial Stress Nears 5-Year Highs (ZH)
The Fed And Other Central Banks Have Lost Their Magic Powers (Das)
ECB Closes Ranks With Bank Of England To Avert Brexit Crunch (AEP)
Canada’s Housing ‘Affordability Crisis’ Fueled By Overseas Money: Trudeau (G.)
Rio State Declares ‘Public Calamity’ Over Finances Weeks Before Olympics (BBC)
Japan: A Future of Stagnation (CH Smith)
EU Is Too Big and ‘Sinking’, UK Should Leave (CNBC)
Money and Banking, Keen and Krugman (Legge)
All You Need To Know About Blockchain, Explained Simply (WEF)
Digital Currency Ethereum Is Cratering Because Of A $50 Million Hack (BI)
German Minister Criticises ‘Warmongering’ NATO (BBC)
Greece Sidelines Officials Who Blocked Expulsion Of Refugees To Turkey (G.)
MSF Rejects EU Funds Over ‘Shameful’ Migrant Policy (AFP)

Oh what fun it is to play….

Stocks Slump Most In 4 Months As Global Financial Stress Nears 5-Year Highs (ZH)

Global Financial Stress Index spikes up most since Aug 2011…

 

As Brexit polls surge towards "Leave"…

 

As USDollar Scarcity (panic demand) rears its ugly head again…

 

And GDP-weighted European Sovereign risk surged to 2 year highs…

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They were always only illusionary.

The Fed And Other Central Banks Have Lost Their Magic Powers (Das)

During the financial crisis of 2008-09, politicians facing difficult and electorally unpopular decisions cleverly passed the responsibility for the economy to central bankers. These policymakers accepted the task to nurse the global economy to health. But there are increasing doubts about central banks’ powers and their ability to deliver a recovery. Policymakers have engineered an artificial stability. Budget deficits, low-, zero-, and now negative interest rates , and quantitative easing (QE) have not restored global growth or increased inflation to levels necessary to bring high-debt under control. Instead, low rates and the suppression of volatility have encouraged asset-price booms in many world markets.

Since prices of assets act as collateral for loans, central banks are being forced to support these inflated values because of the potential threat to financial institutions holding the debt. As the tried and tested policies lose efficacy, new unconventional initiatives have been viewed by markets with increasing suspicion and caution. Key to this debate is negative interest rate policy (NIRP), now in place in Europe and Japan, and most recently affecting German bonds. Markets do not believe that NIRP will create the borrowing-driven consumption and investment that generates economic activity. Existing high-debt levels, poor employment prospects, low rates of wage growth, and overcapacity have lowered potential growth rates, sometimes substantially.

NIRP is unlikely to create inflation for the same reasons, despite the stubborn belief among economic clergy that increasing money supply can and will ultimately always create large changes in price levels. There are toxic by-products to this policy. Low- and negative rates threaten the ability of insurance companies and pension funds to meet contracted retirement payments. Bank profitability also has been adversely affected. Potential erosion of deposits may reduce banks’ ability to lend and also reduce the stability of funding.

The capacity of NIRP to devalue currencies to secure export competitiveness is also questionable. The euro, yen and Swiss franc have not weakened significantly so far, despite additional monetary accommodation. One reason is that these countries have large current account surpluses: the eurozone (3.0% of GDP), Japan (2.9% of GDP), and Switzerland (12.5% of GDP). The increasing ineffectiveness of NIRP in managing currency values reflects the fact that the underlying problem of global imbalances remains unresolved.

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Crumbling.

ECB Closes Ranks With Bank Of England To Avert Brexit Crunch (AEP)

The European Central Bank has pledged to flood the financial system with euro liquidity if credit markets seize up after a Brexit vote. The move came as European bank stocks plummeted across the board for another day, the epicentre of stress as nerves fray over the potential fall-out from British referendum. The Euro Stoxx index of bank equities fell to a four-year low, and is nearing levels last seen in during the eurozone debt crisis in 2012. Europe’s banks have lost half their value in the last year. “We have taken the necessary precautionary measures to meet liquidity needs,” said Ewald Nowotny, Austria’s central bank governor and an ECB board member. “We have assured that there will be no liquidity bottlenecks, either among English banks or European banks, if it becomes necessary,” he said.

The soothing words put to rest any fear that the ECB might withhold full cooperation from the Bank of England in the poisonous political mood after a withdrawal vote. A spat might have sparked fears of a funding crunch for international banks in the City of London with short term debts in foreign currencies. The Bank of England cannot print euros or dollars. The world’s central banks tend to work closely together as an Olympian fraternity, knowing that their fates are bound together regardless of the political fighting around them. The US Federal Reserve and the central banks of Japan, Switzerland, Sweden, and Canada are all working as tightknit team with the Bank of England and the ECB, determined to avoid being caught off guard as they were when the payments system went into meltdown after the Lehman crisis.

[..] German banks are in surprisingly deep trouble, struggling with the corrosive effects of negative interest rates on their profit margins. But Italian lenders worry regulators most as tougher capital adequacy rules come into force, and the eurozone’s new ‘bail-in’ policy for creditors turns the sector into a lepers’ colony. The non-performing loans of Italian banks have reached 18pc of their balance sheets, the legacy of Italy’s economic Lost Decade. This is coming into focus as premier Matteo Renzi bleeds support and risks losing a make-or-break referendum in October.

Euro Intelligence reports that he faces an “insurrection” after ex-premier Massimo D’Alema – supposedly a Renzi ally – said he has switched his support to the radical Five Star movement of comedian Beppe Grillo. It is no longer implausible to imagine a Five Star government in charge of Italy within months, setting off a political earthquake. The picture is equally dramatic in Spain where the ultra-Left Podemos coalition has pulled well ahead of the establishment Socialist Party (PSOE) in the polls and has an outside chance of winning the elections on June 26, opening the way for an anti-austerity government in Madrid. The possibility of a ‘Syriza-style’ rebellion in Spain is viewed with horror in Brussels.

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No shit, Justin.

Canada’s Housing ‘Affordability Crisis’ Fueled By Overseas Money: Trudeau (G.)

An influx of capital from Asia is partly responsible for soaring housing prices in Vancouver and Toronto, Justin Trudeau has said, as a new study showed more than 90% of all detached homes in Vancouver are now worth more than C$1m($772,141). “We know that there is an awful lot of capital that left Asia in the past few years,” Canada’s prime minister told public broadcaster CBC on Friday. “Obviously overseas money coming in is playing a role” in Canada’s housing affordability crisis, he said. Trudeau provided no supporting data Friday to back up his remarks, although his government set aside funds to study the widespread perception that overseas investors and speculators are to blame for Canada’s housing bubble.

Concern over the overheated property market has focused on Vancouver, where the proportion of million-dollar homes in the city has climbed this year to 91%. The figure marks a leap from two years ago, when around 59% of houses were worth a million or more, according to the study by Andy Yan, acting director of Simon Fraser University’s City Program. “This shows how what used to be the earnest product of a lifetime of local work is perhaps quickly becoming a leveraged and luxurious global commodity,” Yan said. The median household income in Vancouver, meanwhile, rose just 8.6% between 2009 to 2013, according to the most recent data from Statistics Canada. Adjusted for inflation, it would be about C$77,000 a year in 2016.

That puts typical incomes well below the threshold needed to purchase million-dollar homes, said Yan, noting other factors must be driving the sharp increase in home values in Vancouver. “It’s global cash, meeting cheap money, meeting limited supply,” he said, adding that all three factors are working to “magnify each other” and drive further speculation.

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To quote myself: “You sure about those Olympics?”

Rio State Declares ‘Public Calamity’ Over Finances Weeks Before Olympics (BBC)

The Brazilian state of Rio de Janeiro has declared a financial emergency less than 50 days before the Olympics. Interim Governor Francisco Dornelles says the “serious economic crisis” threatens to stop the state from honouring commitments for the Games. Most public funding for the Olympics has come from Rio’s city government, but the state is responsible for areas such as transport and policing. Interim President Michel Temer has promised significant financial help. The governor has blamed the crisis on a tax shortfall, especially from the oil industry, while Brazil overall has faced a deep recession.

The measure could accelerate the release of federal emergency funds. Rio state employees and pensioners are owed wages in arrears. Hospitals and police stations have been severely affected. In a decree, Mr Dornelles said the state faced “public calamity” that could lead to a “total collapse” in public services, such as security, health and education. He authorised “exceptional measures” to be taken ahead of the Games that could impact “all essential public services”, but no details were given.

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Make that the entire western world.

Japan: A Future of Stagnation (CH Smith)

One of our longtime friends in Japan just sold the family business. The writing was on the wall, and had been for the past decade: fewer customers, with less money, and no end of competition for the shrinking pool of customers and spending. Our friend is planning to move to another more vibrant economy in Asia. She didn’t want to spend the rest of her life struggling to keep the business afloat. She wanted to have a family and a business with a future. It was the right decision, not only for her but for her family: get out while there’s still some value in the business to sell. [..] The Keynesian Fantasy is that encouraging people to borrow money to replace what they no longer earn is a policy designed to fail, and fail it has.

Borrowing money incurs interest payments, which even at low rates of interest eventually crimps disposable earnings. Banks must loan this money at a profit, so interest rates paid by borrowers can’t fall to zero. If they do, banks can’t earn enough to pay their operating costs, and they will close their doors. If banks reach for higher income, that requires loaning money to poor credit risks and placing risky bets in financial markets. Once you load them up with enough debt, even businesses and wage earners who were initially good credit risks become poor credit risks. Uncreditworthy borrowers default, costing the banks not just whatever was earned on the risky loans but the banks’ capital.

The banking system is designed to fail, and fail it does. Japan has played the pretend-and-extend game for decades by extending defaulting borrowers enough new debt to make minimal interest payments, so the non-performing loan can be listed in the “performing” category. Central banks play the game by lowering interest rates so debtors can borrow more. This works like monetary cocaine for a while, boosting spending and giving the economy a false glow of health, but then the interest payments start sapping earnings, and once the borrowed money has been spent/squandered, what’s left is the interest payments stretching into the future.

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“These opportunities come along once in a generation where people actually get to vote on what they want.”

EU Is Too Big and ‘Sinking’, UK Should Leave (CNBC)

The European Union is too big and is “sinking,” and the United Kingdom should take the chance to get out while it can, economist David Malpass said Friday. British citizens vote next Thursday on whether the U.K. should exit the union. “The EU is just too big. It’s too expensive. It doesn’t work,” the president of Encima Global said in an interview with CNBC’s “Power Lunch.” “They haven’t even made progress on their mission, which was fiscal responsibility, banking reforms, defending the external borders. They’re just not doing the job.” He believes the Brits should not squander the opportunity, noting that the last referendum the country held was in 1975. “These opportunities come along once in a generation where people actually get to vote on what they want.”

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More on an old feud.

Money and Banking, Keen and Krugman (Legge)

Keen carved out a major distinction between his approach and that of Krugman, but also of that of many of the economists who agree that money is not neutral. He argues that an increase in bank lending affects the macro economy by increasing demand. It follows that measured growth should be decomposed into workforce growth, productivity growth, and debt growth. Keen’s third term is deeply disturbing, because he goes on to argue that that a major part of the observed economic growth since 1980 has been driven by rising household debt levels.

Since all household debt involves interest, there must be a point at which households have all the debt that they can carry, and don’t take on any more. At this point, argues Keen, the affected economy will become a “debt zombie”, stuck in a low or even negative growth trajectory. Keen proposes a “debt jubilee” to write off excessive household debt and allow growth to resume. On its own, this would only postpose the debt/stagnation crisis; but perhaps after one debt jubilee they could become regular events.

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101. But nothing on security threats. Hmm.

All You Need To Know About Blockchain, Explained Simply (WEF)

Many people know it as the technology behind Bitcoin, but blockchain’s potential uses extend far beyond digital currencies. Its admirers include Bill Gates and Richard Branson, and banks and insurers are falling over one another to be the first to work out how to use it. So what exactly is blockchain, and why are Wall Street and Silicon Valley so excited about it? Currently, most people use a trusted middleman such as a bank to make a transaction. But blockchain allows consumers and suppliers to connect directly, removing the need for a third party. Using cryptography to keep exchanges secure, blockchain provides a decentralized database, or “digital ledger”, of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.

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What’s that about the chain and its weakest link?

Digital Currency Ethereum Is Cratering Because Of A $50 Million Hack (BI)

The value of the digital currency Ethereum has dropped dramatically amid an apparent huge attack targeting an organisation with huge holdings of the currency. The price per unit dropped to $15 from record highs of $21.50 in hours, with millions of units of the digital currency worth as much as $50 million stolen at post-theft valuations. At a pre-theft valuation, it works out as a staggering $79.6 million. Ethereum developers have proposed a fix that they hope will neutralise the attacker and prevent the stolen funds from being spent. The core Ethereum codebase does not appear to be compromised. Ethereum is a decentralised currency like bitcoin, but it is built in such a way that it also allows for decentralised organisations to be built on top of its blockchain (the public ledger of transactions) and for smart contracts that can execute themselves automatically if certain conditions are met.

One of these organisations is the DAO, the Decentralised Autonomous Organisation, which controls tens of millions of dollars’ worth of the digital currency. ( The bitcoin news site CoinDesk has a good feature explaining more about how the DAO operates.) The DAO is sitting on 7.9 million units, known as ether, of the currency worth $132.7 million. Early Friday morning, it appears to have been hit with a devastating attack, with unidentified attackers appearing to exploit a software vulnerability and draining drain millions of ether – with a theoretical value in the tens of millions of dollars. One ether wallet identified by community members as a recipient of the apparently stolen funds holds more than 3.5 million ether. At an exchange rate of about $14 a unit, that works out at $47 million. At $21.50, the value of ether before the hack, it’s significantly more – $79.6 million.

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Germany wants to be able to talk to Russia.

German Minister Criticises ‘Warmongering’ NATO (BBC)

German Foreign Minister Frank-Walter Steinmeier has criticised Nato military exercises in Eastern Europe, accusing the organisation of “warmongering”. Mr Steinmeier said that extensive Nato manoeuvres launched this month were counterproductive to regional security and could enflame tensions with Russia. He urged the Nato military alliance to replace the exercises with more dialogue and co-operation with Russia. Nato launched a simulated Russian attack on Poland on 7 June. The two-week-long drill involves about 31,000 troops, including 14,000 from the US, 12,000 from Poland and 1,000 from the UK. It will also feature dozens of fighter jets and ships, along with 3,000 vehicles.

“What we shouldn’t do now is inflame the situation further through sabre-rattling and warmongering,” Mr Steinmeier said in an interview to be published in Germany’s Bild am Sontag newspaper. “Whoever believes that a symbolic tank parade on the alliance’s eastern border will bring security, is mistaken. “We are well-advised to not create pretexts to renew an old confrontation,” he said. The exercises are intended to test Nato’s ability to respond to threats, and take place every two years. But Russia has repeatedly said that Nato troops close to its borders are a threat to its security.

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This is serious. No sovereignty, no independent legal system, and hardly a constitution left. The political system trumps all. This is the EU. And Tsipras should never sign off on it, of course. Bus boy.

Greece Sidelines Officials Who Blocked Expulsion Of Refugees To Turkey (G.)

The Greek government has sidelined members of an independent authority that had blocked the deportation of Syrian refugees, following sustained pressure from other European countries. Greek MPs voted on Thursday to change the composition of the country’s asylum appeals board, in an attempt to sideline officials who had objected on legal grounds to the expulsion of Syrians listed for deportation to Turkey. The appeals board had jeopardised the EU-Turkey migration deal, the agreement enacted in March that is meant to see all asylum seekers landing on the Greek islands detained in Greece – and then deported. While Greek police had enacted the first part of the plan,

Greek appeals committees have largely held up the planned deportations – potentially giving Syrians greater incentive to reach Greece. The appeals committees argued that Turkey does not uphold refugee law, and is therefore not a safe country for refugees. Currently the three-person appeals committees consist of one government-appointed official, and two appointed independently by the UN refugee agency and Greece’s national committee for human rights. After pressure from European politicians who feared a new surge in arrivals to Greece, Greek MPs have voted to create new committees formed of two administrative judges and one person appointed by the UN, meaning that state officials will now outnumber independent ones on the committees.

An independent appeals committee member interviewed by the Guardian in the run-up to the law change said it was a political move designed to bend an independent judicial process to the will of the executive. Speaking on condition of anonymity, the official said the change was “a serious blow to the independence of the committee. We think like legal scientists. We have a specific view that is based on legal analysis. If we lose our [places on the committee] then the cases will be handled the way that politicians want.”

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This mirrors the long held view of our friend Kostas, who we actively support with TAE funds here in Athens: “We cannot accept funding from the EU or the Member States while at the same time treating the victims of their policies..

MSF Rejects EU Funds Over ‘Shameful’ Migrant Policy (AFP)

Aid group Doctors Without Borders said on Friday that it would no longer take funds from the EU in protest at its “shameful” policies on the migration crisis including a deal with Turkey. The charity, more widely known by its French acronym MSF, received €56 million from EU institutions and the 28 member states last year.”MSF announces today that we will no longer take funds from the EU and its Member States in protest at their shameful deterrence policies and their intensification of efforts to push people and their suffering back from European shores,” the group said in a statement. The group singled out for criticism the EU’s deal with Turkey in March to stem the biggest flow of migrants into the continent since World War II.

“For months MSF has spoken out about a shameful European response focused on deterrence rather than providing people with the assistance and protection they need,” Jerome Oberreit, international secretary general of MSF, told a press conference. “The EU-Turkey deal goes one step further and has placed the very concept of ‘refugee’ and the protection it offers in danger.” [..] Oberreit also criticised a proposal last week to make similar deals with African and Middle Eastern countries. He added: “We cannot accept funding from the EU or the Member States while at the same time treating the victims of their polices. It’s that simple.” MSF said it received €19 million from EU institutions and €37 million from member states in 2015, amounting to 8% of its funding. It added that its activities are 90% privately funded.

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Jan 072015
 
 January 7, 2015  Posted by at 1:10 pm Finance Tagged with: , , , , , , ,  3 Responses »
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DPC Foundry, Detroit Shipbuilding Co., Wyandotte, Michigan 1915

Attack at Paris Satirical Magazine Office Kills 12 People (WSJ)
Is Attack Linked to Novel Depicting France Under Islamist President? (Bloomberg)
Bill Gross Calls It: 2015 Is Going to Be Terrible (Bloomberg)
Bill Gross Says the Good Times Are Over (Bloomberg)
Not Just Oil: Are Lower Commodity Prices Here To Stay? (CNBC)
Oil Price Slump Deepens As Drillers Seen Slashing Spending (Telegraph)
How the Bear Market in Crude Oil Has Polluted Non-Energy Stocks (Bloomberg)
As Oil Drops Below $50, Can There Be Too Much of a Good Thing? (BW)
ECB Considering Three Approaches To QE (Reuters)
Germany Prepares For Possible Greek Exit From Eurozone (Reuters)
Germany, France Take Calculated Risk With ‘Grexit’ Talk (Reuters)
Greece On the Cusp of a Historic Change (Alexis Tsipras, SYRIZA)
Eurozone Inflation Turns Negative For First Time Since October 2009 (Reuters)
Greek 10-Year Bond Yields Exceed 10% for First Time Since 2013 (Bloomberg)
Euro’s Drop is a Turning Point for Central Banks Reserves (Bloomberg)
Eurozone Prices Seen Falling as Risk of Deflation Spiral Mounts (Bloomberg)
Operation Helicopter: Could Free Money Help the Euro Zone? (Spiegel)
Russia’s ‘Perfect Storm’: Reserves Vanish, Derivatives’ Default Warnings (AEP)
Obama Threatens Keystone XL Veto (BBC)
Bank Of England Was Unaware Of Impending Financial Crisis (BBC)

Insanity. Marine Le Pen will become a lot more popular now in France.

Attack at Paris Satirical Magazine Office Kills 12 People (WSJ)

Armed men stormed the Paris offices of French satirical magazine Charlie Hebdo on Wednesday morning, killing 12 people and injuring more, French President François Hollande said. The men opened fire inside the magazine’s offices using automatic AK-47 rifles before fleeing, a police officer said. In November 2011, Charlie Hebdo’s headquarters were gutted by fire, hours before a special issue of the weekly featuring the Prophet Muhammad appeared on newsstands. The weekly has often tested France’s secular dogma, printing caricatures of the prophet on several occasions. Since the arson attack, the weekly has moved to a new location, which was guarded by police. Two of the victims in Wednesday’s shooting were police, an officer on the scene said.

The 2011 fire caused no injuries but spurred debate over press freedom and religious tolerance in France, which is home to Europe’s largest Muslim population. The special issue put a caricature of the prophet on its front page, quoting him as promising “100 lashes if you don’t die from laughter.” Several journalists received anonymous threats and its website was hacked, according to French officials. In 2012, France closed embassies and French schools in 20 countries after the weekly published a series of cartoons. In 2006, the paper reprinted images of Muhammad that had appeared in a Danish magazine a year before. The next year, it published a picture of Muhammad crying, with the tagline “It’s hard to be loved by idiots.” The Grand Mosque of Paris and the Union of Islamic Organizations of France filed slander charges, but a French court cleared the paper.

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Suggestive title. Answer: no. What happened is an editorial meeting was going on to prepare a special issue, named Sharia Hebdo, with the prophet Mohamed as guest editor.

Is Attack Linked to Novel Depicting France Under Islamist President? (Bloomberg)

“Submission,” a book by Michel Houellebecq released today, is sparking controversy with a fictional France of the future led by an Islamic party and a Muslim president who bans women from the workplace. In his sixth novel, the award-winning French author plays on fears that western societies are being inundated by the influence of Islam, a worry that this month drew thousands in anti-Islamist protests in Germany. In the novel, Houellebecq has the imaginary “Muslim Fraternity” party winning a presidential election in France against the nationalist, anti-immigration National Front. “A pathetic and provocative farce,” is how Liberation characterized the book in a Jan. 4 review that scathingly said the novelist is “showing signs of waning writing skills.”

Political analyst Franz-Olivier Giesbert in newspaper Le Parisien yesterday was kinder, calling it a “smart satire,” adding that “it’s a writers’ book, not a political one.” National Front’s leader Marine Le Pen, who appears in the 320-page novel, said on France Info radio on Jan. 5 that “it’s fiction that could become reality one day.” On the same day, President Francois Hollande said on France Inter radio he would read the book “because it’s sparking a debate,” while warning that France has always had “century after century, this inclination toward decay, decline and compulsive pessimism.” In an interview on France 2 TV last night, Houellebecq denied that he was being a scaremonger.

“I don’t think the Islam in my book is the kind people are afraid of,” he said. “I’m not going to avoid a subject because it’s controversial.” Hollande and German Chancellor Angela Merkel plan to discuss their respective countries’ struggle with Islamophobia, anti-immigration protests and the rise of Europe’s nationalist parties at an informal dinner in Strasbourg on January 11 organized by the European Parliament President Martin Schulz. Houellebecq’s book is set in France in 2022. It has the fictional Muslim Fraternity’s chief, Mohammed Ben Abbes, beating Le Pen, with Socialists, centrists, and Nicolas Sarkozy’s UMP party rallying behind him to block the National Front.

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Wow: “Gross is putting himself way out on a limb: Not one of Wall Street s professional forecasters predict the S&P 500 will drop in 2015.” Wow.

Bill Gross Calls It: 2015 Is Going to Be Terrible (Bloomberg)

Bill Gross, bond king, ousted executive, self-styled poet of the markets, has a bold, depressing prediction for 2015, and he’s not couching it in any of his usual metaphor: The good times are over, he wrote in his January investment outlook note. By the end of 2015, he goes on, there will be minus signs in front of returns for many asset classes. Gross is putting himself way out on a limb: Not one of Wall Street s professional forecasters predict the S&P 500 will drop in 2015. Their average estimate calls for an 8.1% rise. And while the global economy looks weak, the U.S. has been heating up, with GDP up 5% in the third quarter. These gloomy predictions come without Gross s usual colorful commentary. At Pimco, his monthly notes made reference to Flavor Flav and Paris Hilton. Since leaving for Janus Capital Group in September, he’s riffed on domestic violence in the NFL, the porosity of sand and the joys of dancing with his wife.

This month, Gross is almost all business. The trouble for the world s economy is that ultra low interest rates are holding back growth rather than stimulating it, he warns. After years of rising markets, investors are facing too much risk for the prospect of low returns. The time for risk taking has passed, he writes. Gross admits he’s taking his own risk with this call. Even if he’s completely right that the bear market is over, he could very well be a year or two early. And even if he’s right about economic growth, he could be wrong about how the market reacts to it. Gross advises buying Treasury and high-quality corporate bonds, but they could be hurt if U.S. interest rates rise this year.

He also puts a word in for stocks of companies with low debt, attractive dividends and diversified revenues both operationally and geographically. But as Causeway Capital Management s Sarah Ketterer warned, those high-quality dividend payers have already soared and could have trouble meeting expectations in the next few years. Gross has been wrong before, most famously in his predictions that bond yields would rise when the Federal Reserve ended quantitative easing. But maybe this time he sees something other market observers don’t. As Gross writes, deploying the commentary’s only off-color metaphor: There comes a time when common sense must recognize that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs.

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Perhaps when he says it people actually will wake up.

Bill Gross Says the Good Times Are Over (Bloomberg)

Bill Gross, the former manager of the world’s largest bond fund, said prices for many assets will fall this year as record-low interest rates fail to restore sufficient economic growth. With global expansion still sputtering after years of interest rates near zero, investors will gradually seek alternatives to risky assets, Gross wrote today in an investment outlook for Janus Capital, where he runs the $1.2 billion Janus Global Unconstrained Bond Fund. “When the year is done, there will be minus signs in front of returns for many asset classes,” Gross, 70, wrote in the outlook. “The good times are over.” Six years after the end of the financial crisis, borrowing costs in the world’s richest nations are stuck near zero, a sign investors have little confidence that their economies will strengthen.

Gross, the former chief investment officer of Pacific Investment Management Co. who left that firm in September to join Janus, has argued the Federal Reserve won’t raise interest rates until late this year if at all as falling oil prices and a stronger U.S. dollar limit the central bank’s room to increase borrowing costs. The benchmark U.S. 10-year yield fell to 1.99% today, and bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.28% as of yesterday, the lowest based on data starting in 1996. The all-time 10-year Treasury low is 1.379% on July 25, 2012. Economists predict the yield will rise to 3.06% by end of 2015, according to a Bloomberg News survey with the most recent forecasts given the heaviest weightings.

Stocks plunged yesterday, with the Standard & Poor’s 500 Index dropping 1.8% to 2,020.58 and the Chicago Board Options Exchange Volatility Index increasing for the fifth time in six days. Declines spurred by tumbling oil and concerns Greece will exit the euro have sent American equities to the biggest decline to start a year since 2005, data compiled by Bloomberg show. While timing the end of a bull market is difficult, the next 12 months will probably see a turning point, Gross wrote. “Knowing when the ‘crowd’ has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear,” he wrote. “As you know, however, moving out of the way has never been my style.”

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Yes.

Not Just Oil: Are Lower Commodity Prices Here To Stay? (CNBC)

Oil isn’t the only commodity that’s gotten cheaper. From nickel to soybean oil, plywood to sugar, global commodity prices have been on a steady decline as the world’s economy has lost momentum. That lower demand helps explain, in part, why nearly everything from crude oil to cotton has been getting cheaper. Sure, some commodity prices are rising. Local supply constraints have pushed prices higher in some parts of the world; transportation costs can also have a big impact on local prices. In the U.S., for example, a drought in California caused the price of vegetables and other food products to spike last year. Prices are also rising for some commodities, especially meats such as beef and chicken, thanks to growing demand from an expanding middle class in the developing world. But the global cost of most commodities has been on a long-term, downward trend since the Great Recession. The chart below is based on global prices, in dollars, assembled by the World Bank.

Now, as much of the world slogs through a faltering recovery, there are fears that falling prices in slow-moving economies such as Europe and Japan could spark and extended period of deflation, when the consumer prices of finished goods fall over an extended period. Deflation can be difficult to reverse if businesses and consumers start to cut back on spending and investment, waiting for prices to fall further, setting off an economic contraction that can deepen. European central bankers are scrambling to avoid that amid signs that prices in the euro zone have all but flattened. On Monday, the latest data showed that German inflation slowed to its lowest level in over five years in December; prices inched up at an annual rate of 0.1%, down from 0.5% in November. A widely watched inflation index of the entire euro zone is due out Wednesday. Some analysts think it could show a negative reading for the first time since October 2009.

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We’ve seen nothing yet.

Oil Price Slump Deepens As Drillers Seen Slashing Spending (Telegraph)

Brent crude has slumped to a new five-and-a-half-year low as leading ratings agency Moody’s warns that oil companies could be forced to slash spending by up to 40% this year. The benchmark crude contract fell to as low as $51.64 per barrel in early trading, while West Texas Intermediate oil traded in the US fell 2.2% to $48 per barrel. Earlier, Moody’s Investors Service issued a report warning of broad cuts in spending that could soon hit the entire oil and gas industry as companies move to protect their dwindling profit margins. The agency fears that, should prices remain below $60 per barrel for a significant period, companies in North America will slash capital spending by up to 40%.

“If oil prices remain at around $55 a barrel through 2015, most of the lost revenue will hit the E&P [exploration and production] companies’ bottom line, which will reduce cash flow available for re-investment,” said Steven Wood, managing director for corporate finance at Moody’s. “As spending in the E&P sector diminishes, oilfield services companies and midstream operators will begin to feel the stress.” However, Moody’s believes that oil majors such as ExxonMobil, Royal Dutch Shell, BP, Chevron and Total are in a stronger position to weather the financial storm caused by lower prices because they have already trimmed their capital expenditure for 2015.

Moody’s is the latest ratings agency to issue a major warning about the impact that falling oil prices will have on exploration and production companies. Standard & Poor’s said last month that the dramatic deterioration in the oil price outlook had prompted it to take a number of “rating actions” on European oil and gas majors including Shell, BP, and BG Group. Meanwhile, Saudi Arabia’s King Abdullah bin Abdul-Aziz al-Saud has said that a weak global economy was to blame for the current slide in prices, which will place his kingdom under severe economic stress. In a speech read out on state television by Crown Prince Salman, the king said that Saudi will deal with the current fall in oil prices “with a firm will”. The 91-year-old monarch of the world’s largest oil exporter was recently admitted into hospital, raising concerns over succession in the kingdom.

Saudi Arabia was instrumental in convincing the other members of OPEC not to cut output in November, a decision which triggered the current sharp falls in prices. The kingdom, which has the capacity to pump up to 12.5m barrels per day (bpd) of crude), this week discounted its oil heavily to European and US customers as it seeks to protect its market share. European buyers can now pay $4.65 per barrel less than for the Brent reference price for Saudi crude. “There is little reason at present to expect any end to the nose-diving oil prices,” said analysts at Commerzbank.

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Fifth Third Bancorp 2 years ago: “The oil and natural gas sector represents a tremendous growth opportunity.”

How the Bear Market in Crude Oil Has Polluted Non-Energy Stocks (Bloomberg)

Perusing the list of the biggest stock-market losers since the price of oil peaked in June yields some predictable results. You have your large-cap energy companies like Transocean, Denbury, Naborsm Noble and Halliburton, all down at least 45%. Yet mixed in with all the obvious ugliness are some names that bring to mind the question asked of Billy Joel by those drinkers at the piano bar, or perhaps even some of the wedding guests who watched him walk down the aisle with Christie Brinkley: Man, what are you doing here? The answer illustrates how much of an impact the energy industry has had on the bottom line of corporate America, whether it’s companies profiting from the boom in domestic production or those that made big investments based on the premise that fuel will always be expensive. As such it helps explain why the entire stock market, not just the energy companies, tends to freak out when oil heads lower rapidly.

The big bets on high energy prices made by companies like Ford (down 13% since oil peaked on June 20) or Tesla Motors (down 10%) or Boeing (down 3.9%) jump immediately to mind. Not so obvious, unless you follow the stock closely, is the investment made by Fifth Third Bancorp, one of the regional lenders that tried to chase the fracking boom. (It’s down 12% since June 20.) Here’s how the company’s management described the rationale for the launch of a new national energy banking team two years ago: “The energy sector is a rapidly growing industry,” said the announcement. The new team “demonstrates our commitment to providing dedicated banking services to this evolving sector. The oil and natural gas sector represents a tremendous growth opportunity.” The sector certainly is “evolving.” Fitch Ratings last month identified regional banks lifted by the shale boom that now face potential credit pressures in loans related to the industry. Oil prices below $50 a barrel, like now, would likely trigger a jump in credit losses, Fitch said.

Fitch’s list of banks with high concentrations of loans to the industry is topped by BOK Financial, which is down 13% since June 20.; Cullen/Frost, down 16%; Hancock, down 19%; Comerica, down 14%; and Amergy Bank of Texas, which is down 13%. Losses are even worse among the industrial companies that provide the services and sell the pipes, valves and assorted doodads used to pump oil and gas. Fluor Corp. an engineering, maintenance and project management firm that counted on the oil and gas industry for 42% of its revenue in 2013, is down 27% since June 20. Flowserve Corp., whose pumps and valves are used in refineries and pipelines, is off about the same amount. Caterpillar, Joy Global, Allegheny, Dover, Jacobs Engineering and Quanta Services are all down more than 20% since oil peaked at almost $108.

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Oh come on, let’s get real.

As Oil Drops Below $50, Can There Be Too Much of a Good Thing? (BW)

Oil falls below $50 a barrel on Jan. 5, and the Dow Jones Industrial Average plunges nearly 330 points. Seems like an open-and-shut case that the price plunge is getting to be a problem. People remember that in 1998, a sharp decline in the price of oil contributed to a Russian default that rocked the global financial system. Not quite. Cheaper oil is still creating more winners than losers. Far more people live in oil-importing countries than live in oil-exporting countries. The U.S., for one, remains a net importer. The well-publicized travails of U.S. shale oil producers are small compared with the gains by American consumers and businesses that are paying less for gasoline, diesel, jet fuel, petrochemicals, and the like. With fuel prices down, people are driving more miles and buying more cars and trucks.

Do the math: Close to 70% of the U.S. economy is consumer spending, which will gain from cheaper crude. Only about 10% is capital spending, of which 10% to 15% is the energy sector. That comes to roughly 1% of U.S. output, which might decline 20% this year, making it a relative drop in the bucket of U.S. gross domestic product, says Nariman Behravesh, chief economist for IHS Global Insight. Why, then, did stock prices fall when West Texas Intermediate for February delivery dropped nearly $3 a barrel on Jan. 5, to $49.89? Mostly because of market fears about global growth, which weighed down both stocks and oil prices, says Gus Faucher, a senior economist at PNC Financial Services. In other words, the latest drop in oil is a symptom, not a cause, of economic weakness, Faucher says. “Anyone who thinks that lower oil/gasoline prices is a net negative for the U.S. (and the global economy) is brain dead, economically speaking!” argues a Dec. 23 report by Faucher’s boss, PNC Chief Economist Stuart Hoffman.

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Try and trick the Germans?!

ECB Considering Three Approaches To QE (Reuters)

The European Central Bank is considering three possible options for buying government bonds ahead of its Jan. 22 policy meeting, Dutch newspaper Het Financieele Dagblad reported on Tuesday, citing unnamed sources. As fears grow that cheaper oil will tip the euro zone into deflation, speculation is rife that the ECB will unveil plans for mass purchases of euro zone government bonds with new money, a policy known as quantitative easing, as soon as this month. According to the paper, one option officials are considering is to pump liquidity into the financial system by having the ECB itself buy government bonds in a quantity proportionate to the given member state’s shareholding in the central bank.

A second option is for the ECB to buy only triple-A rated government bonds, driving their yields down to zero or into negative territory. The hope is that this would push investors into buying riskier sovereign and corporate debt. The third option is similar to the first, but national central banks would do the buying, meaning that the risk would “in principle” remain with the country in question, the paper said.

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Hot air.

Germany Prepares For Possible Greek Exit From Eurozone (Reuters)

Germany is making contingency plans for the possible departure of Greece from the euro zone, including the impact of any run on a bank, tabloid newspaper Bild reported, citing unnamed government sources. The newspaper said the government was running scenarios for the Jan. 25 Greek election in case of a victory by the leftwing Syriza party, which wants to cancel austerity measures and a part of the Greek debt. In a report in the Wednesday issue of the paper, Bild said government experts were concerned about a possible bank collapse if customers storm Greek institutions to secure euro deposits in the event that Greece leaves the zone.

The European Union banking union would then have to intervene with a bailout worth billions, the paper said. Der Spiegel magazine reported on Saturday that Berlin considers a Greek exit almost unavoidable if Syriza wins, but believes the euro zone would be able to cope. Vice Chancellor Sigmar Gabriel said on Sunday that Germany wants Greece to stay and there are no contingency plans to the contrary, while noting the euro zone has become far more stable in recent years. As the euro zone’s paymaster, Germany is insisting that Greece stick to austerity and not backtrack on its bailout commitments, especially as it does not want to open the door for other struggling members to relax reform efforts.

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Right. And they have their pet hamsters doing the calculating.

Germany, France Take Calculated Risk With ‘Grexit’ Talk (Reuters)

Evoking a possible Greek exit from the euro zone, Germany and France are taking a coordinated and calculated risk in the hope of averting a leftist victory in Greece’s general election on Jan. 25. The intention, according to Michael Huether, head of Germany’s IW economic institute, is to make clear that other euro area countries “can get on well without Greece, but Greece cannot get on without Europe”, and to warn that the left-wing Syriza party would bring disaster on the country. Syriza leader Alexis Tsipras, whose party leads in opinion polls, insists he wants to keep Greece in the euro. However, he has promised to end austerity imposed by foreign creditors under the country’s bailout deal if he wins power, and wants part of the €240 billion lent by the EU and IMF written off.

The risk is that the European Union’s two main powers are seen by Greeks as interfering and threatening them, provoking a backlash after a six-year recession that shrunk their economy by 20% and put one in four workers out of a job. French President Francois Hollande said on Monday it was up to the Greek people to decide whether they wanted to stay in the single currency, while a German magazine reported that Berlin no longer feared a “Grexit” would endanger the entire euro area. Chancellor Angela Merkel’s spokesman did not explicitly deny the weekend “Der Spiegel” report but said: “The aim has been to stabilize the euro zone with all its members, including Greece. There has been no change in our stance.”

Merkel and Hollande conferred by telephone during the winter holidays and will meet in Strasbourg on Sunday with European Parliament President Martin Schulz for what a French diplomatic source insisted were not crisis talks on Greece. Should center-right Prime Minister Antonis Samaras lose power in the election, the real issue was how a Syriza-led government might seek to reschedule Greece’s debt, not its place in the euro, the French source said. Paris and Berlin have underlined that any new government in Athens would have to honor the country’s obligation to repay the bailout loans received since 2010. In an article in the Huffington Post, Tsipras accused German conservatives of spreading “old wives’ tales”, singling out Finance Minister Wolfgang Schaeuble. Syriza, a coalition of former communist and independent leftist groups, “is not an ogre, or a big threat to Europe, but the voice of reason,” he wrote.

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Tsipras himself sees it this way:

Greece On the Cusp of a Historic Change (Alexis Tsipras, SYRIZA)

Greece is on the cusp of a historic change. SYRIZA is no longer just a hope for Greece and the Greek people. It is also an expectation of a change of course for the whole of Europe. Because Europe will not come out of the crisis without a policy change, and the victory of SYRIZA in the 25th of January elections will strengthen the forces of change. Because the dead end in Greece is the dead end of today’s Europe. On January 25th, the Greek people are called to make history with their vote, to trail a space of change and hope of all people across Europe by condemning the failed memoranda of austerity, proving that when people want to, when they dare, and when they overcome fear, then things can change. The expectations alone of political change in Greece, has already begun to change things in Europe. 2015 is not 2012

SYRIZA is not an ogre, or a big threat to Europe, but the voice of reason. It’s the alarm clock which will lift Europe from its lethargy and sleepwalking. This is why SYRIZA is no longer treated as a major threat like it was in 2012, but as a challenge to change. By all? Not by all. A small minority, centered on the conservative leadership of the German government and a part of the populist press, insists on rehashing old wives’ tales and Grexit stories. Just like Mr. Samaras in Greece, they can no longer convince anyone. Now that the Greek people have experienced his government, they know how to tell the lies from the truth. Mr. Samaras offers no other program except continuing with the failed MOU of austerity.

It has committed itself and others to new wage and pension cuts, new tax increases, in the framework of accumulated income cuts and over- taxation of six whole years. He asks Greek citizens to vote for him so that he can implement the new memorandum. It is precisely because he has committed to austerity, that he interprets the rejection of this failed and destructive policy as a supposedly unilateral action. He is essentially hiding that Greece as a Eurozone member is committed to targets and not to the political means by which those targets are achieved. For this reason, and unlike the ruling party of Nea Dimokratia, SYRIZA has committed to the Greek people to apply from the first days of its’ administration a specific, cost-efficient and fiscally balanced program, “The Thessaloniki Program” regardless of our negotiation with our lenders.

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The editor told them not to call it deflation.

Eurozone Inflation Turns Negative For First Time Since October 2009 (Reuters)

Euro zone consumer prices fell by more than expected in December because of much cheaper energy, a first estimate by the European statistic office showed in data that is likely to trigger the European Central Bank’s government bond buying program. Eurostat said inflation in the 18 countries using the euro in December was -0.2% year-on-year, down from 0.3% year-on-year in November. The last time euro zone inflation was negative was in October 2009, when it was -0.1%. Economists polled by Reuters had expected a -0.1% year-on-year fall in prices. The ECB wants to keep inflation below but close to 2% over the medium term. Eurostat said that core inflation, which excludes the volatile energy and unprocessed food prices, was stable at 0.7% year-on-year in December – the same level as in November and October. But energy prices plunged 6.3% year-on-year last month and unprocessed food was 1.0% cheaper, pulling down the overall index despite a 1.2% rise in the cost of services.

The ECB is concerned that a prolonged period of very low inflation could change inflation expectations of consumers and make them hold back their purchases in the hope of even lower prices, triggering deflation. Because the ECB’s interest rates are already at rock bottom, the bank is preparing a program of printing money to buy government bonds on the secondary market to inject even more cash into the economy, boost demand and make prices rise faster. Economists expect the decision to launch such a bond buying program could be made as soon as the ECB’s next meeting on January 22. “We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary to react to a too long period of low inflation. There is unanimity within the Governing Council on this,” ECB President Mario Draghi said on January 1. Inflation in the euro zone has below 1% – or what the ECB calls the danger zone – since October 2013.

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There we go again. Maybe the ECB is behind this.

Greek 10-Year Bond Yields Exceed 10% for First Time Since 2013 (Bloomberg)

For the first time in 15 months, Greek 10-year government bond yields are back above 10%. The rate on the securities climbed to 10.18% today as investors abandoned the bonds in the run-up to a Jan. 25 election that Prime Minister Antonis Samaras said will determine Greece’s euro membership. Greek stocks also fell, posting the biggest decline among 18 western-European markets. The double-digit yield is reminiscent of the euro region’s debt crisis. In 2012, Greece’s 10-year rates climbed as high as 44.21% before the nation held the biggest reorganization of sovereign debt in history.

Greek 10-year yields increased 44 basis points, or 0.44 %age point, to 10.18% at 11:02 a.m. London time. The 2% bond due in February 2024 fell 1.885, or 18.85 euros per 1,000-euro ($1,185) face amount, to 60.585. The nation’s three-year rate jumped 60 basis points to 14.65%. The ASE Index of stocks fell 2.7%, set for the lowest close since November 2012. With a 29% slump, the ASE posted the world’s worst performance among equity indexes after Russia last year.

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We said long ago that the dollar would rise.

Euro’s Drop is a Turning Point for Central Banks Reserves (Bloomberg)

Central banks and reserve managers are breaking from past practice by showing little appetite to add euros as the currency tumbles. The total amount of reserves held in euros fell 8.1% in the third quarter, more than the currency’s 7.8% decline in the period against the dollar, according to the most recent figures from the International Monetary Fund. The last two times the euro depreciated 7% or more in a quarter, 2011 and 2010, holdings declined much less. The data suggest reserve managers are passing up the chance to buy euros while they’re cheap, removing a key pillar of support. In August, European Central Bank President Mario Draghi cited the drop in central banks’ euro holdings as a factor that would help weaken the exchange rate and ultimately boost the region’s faltering economy.

“Central banks have found new reasons not to feel comfortable with the euro,” Stephen Jen, managing partner and co-founder of SLJ Macro, said. “Nobody wants to have a negative yield. You’re not keeping a currency to lose money.” The ECB has experimented with negative interest rates on deposits in an attempt to draw money out of safe government debt and into the broader economy. Yields on two-year notes in Germany, the Netherlands and France are all below zero on speculation the ECB is losing the battle against deflation. Policy makers are signaling they are ready to step up the fight by expanding the money supply through further stimulus, such as purchasing government debt, that typically weigh on a currency’s value.

Adding to the pressure is concern that Draghi won’t be able to hold the currency bloc together amid signs Greece may quit the euro area after its Jan. 25 election. The 19-nation euro fell in each of the past six months, dropping to $1.1843 today, its lowest level since February 2006. A spokesman for the Frankfurt-based ECB, who asked not to be identified, said yesterday by e-mail that the international role of the euro is primarily determined by market forces and the central bank neither hinders nor promotes it. The amount of euros held in allocated reserves – or those where the currency is specified – fell to $1.4 trillion in the third quarter, or 22.6% of the total, from $1.5 trillion, or 24.1%, at the end of June, according to figures published by the IMF on Dec. 31. The proportion is the lowest since 2002 and down from as much as 28% in 2009.

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“We expect the ECB to announce a broad-based asset-purchase program including government bonds.”

Eurozone Prices Seen Falling as Risk of Deflation Spiral Mounts (Bloomberg)

Consumer prices in the euro area probably fell for the first time in more than five years last month, pushing the European Central Bank closer to adding stimulus as it battles to revive inflation. Prices dropped an annual 0.1% in December, according to the median forecast of economists in a Bloomberg survey. That would be the first decline since October 2009. ECB officials are working on a plan to buy government bonds as they strive to prevent a deflationary spiral of falling prices and households postponing spending, a risk President Mario Draghi has said can’t be “entirely excluded.” They may use a gathering tomorrow to weigh options for a quantitative-easing program that may be announced at their Jan. 22 policy meeting.

“Inflation will most likely fall even further in January and remain extremely low all year long,” said Evelyn Herrmann, European economist at BNP Paribas SA in London. “We expect the ECB to announce a broad-based asset-purchase program including government bonds.” A sluggish economy and plunging oil prices are damping inflation across the euro region. Consumer prices are falling on an annual basis in Spain and Greece, while data yesterday showed inflation in Germany at 0.1%, its weakest since 2009. Crude oil prices have fallen about 50% in the past year amid a supply glut. Core euro-zone inflation, which strips out volatile items such as energy, food, tobacco and alcohol, is forecast to have increased 0.7% year-on-year in December.

Eurostat, the EU’s statistics office, will publish the data at 11 a.m. in Luxembourg, along with its unemployment report for November. ECB officials have taken different approaches in analyzing the impact of plunging oil prices on the economy. While Draghi has warned of a dis-anchoring of inflation expectations and signaled support for QE, Bundesbank President Jens Weidmann favors not acting at this time, arguing that the drop could prove to be a “mini-stimulus package.”

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“Daniel Stelter at think tank Beyond the Obvious has even called for giving €5,000 to €10,000 to each citizen. “It has to be massive if it is going to have any effect,” he says.”

Operation Helicopter: Could Free Money Help the Euro Zone? (Spiegel)

It sounds at first like a crazy thought experiment: One morning, every resident of the euro zone comes home to find a check in their mailbox worth over €500 euros ($597) and possibly as much as €3,000. A gift, just like that, sent by the ECB in Frankfurt. The scenario is less absurd than it may sound. Indeed, many serious academics and financial experts are demanding exactly that. They want ECB chief Mario Draghi to fire up the printing presses and hand out money directly to the people. The logic behind the idea is that recipients of the money will head to the shops, helping to turn around a paralyzed economy in the common currency area. In response, companies would have to increase production and hire more workers, leading to both economic growth and a needed increase in prices because of the surge in demand.

Currently, the inflation rate is barely above zero and fears of a horror deflation scenario of the kind seen during the Great Depression in the United States are haunting the euro zone. The ECB, whose main task is euro stability, has lost control. In this desperate situation, an increasing number of economists and finance professionals are promoting the concept of “helicopter money,” tantamount to dispersing cash across the country by way of helicopter. The idea, which even Nobel Prize-winning economist Milton Friedman once found attractive, has triggered ferocious debates between central bank officials in Europe and academics. For backers, there’s more to this than just a new instrument. They are questioning cast-iron doctrines of monetary policy. One thing, after all, is becoming increasingly clear: Draghi and his fellow central bank leaders have exhausted all traditional means for combatting deflation.

The failure of these efforts can be easily explained. Thus far, central banks have primarily provided funding to financial institutions. The ECB provided banks with loans at low interest rates or purchased risky securities from them in the hope that they would in turn issue more loans to companies and consumers. The problem is that many households and firms are so far in debt already that they are eschewing any new credit, meaning the money isn’t ultimately making its way to the real economy as hoped. Sylvain Broyer at French investment bank Natixis, says, “It would make much more sense to take the money the ECB wants to deploy in the fight against deflation and distribute it directly to the people.” Draghi has calculated expenditures of a trillion euros for his emergency program, funds that would be sufficient to provide each euro zone citizen with a gift of around €3,000.

Daniel Stelter at think tank Beyond the Obvious, has even called for giving €5,000 to €10,000 to each citizen. “It has to be massive if it is going to have any effect,” he says. Stelter freely admits that such figures are estimates. After all, not a single central bank has ever tried such a daring experiment. Many academics have based their calculations on experiences in the United States, where the government has in the past provided cash gifts to taxpayers in the form of rebates in order to shore up the economy. Oxford economist John Muellbauer, for one, looks back to 2001. After the Dot.com crash, the US gave all taxpayers a $300 rebate. On the basis of the experience at the time, Muellbauer calculates that €500 per capita would be sufficient to spur the euro zone. “It (the helicopter money) would even be much cheaper for the ECB than the current programs>],” the academic says.

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Ambrose doesn’t like Putin.

Russia’s ‘Perfect Storm’: Reserves Vanish, Derivatives’ Default Warnings (AEP)

Russia’s foreign reserves have dropped to the lowest level since the Lehman crisis and are vanishing at an unsustainable rate as the country struggles to defends the rouble against capital flight. Central bank data show that a blitz of currency intervention depleted reserves by $26bn in the two weeks to December 26, the fastest pace of erosion since the crisis in Ukraine erupted early last year. Credit defaults swaps (CDS) measuring bankruptcy risk for Russia spiked violently on Tuesday, surging by 100 basis points to 630, before falling back slightly. Markit says this implies a 32% expectation of a sovereign default over the next five years, the highest since Western sanctions and crumbling oil prices combined to cripple the Russian economy. Total reserves have fallen from $511bn to $388bn in a year. The Kremlin has already committed a third of what remains to bolster the domestic economy in 2015, greatly reducing the amount that can be used to defend the rouble.

The Institute for International Finance (IIF) says the danger line is $330bn, given the dollar liabilities of Russian companies and chronic capital flight. Currency intervention did stabilise the exchange rate in late December after a spectacular crash threatened to spin out of control, but relief is proving short-lived. The rouble weakened sharply to 64 against the dollar on Tuesday. It has slumped moe than 20% since Christmas, with increasing contagion to Belarus, Georgia and other closely-linked economies. There are signs that Russia’s crisis may undermine President Vladimir’s Putin’s Eurasian Economic Union before it has got off the ground. Belarus’s Alexander Lukashenko is already insisting that trade be carried out in US dollars, while Kazakhstan’s Nursultan Nazarbayev warned that the Russian crash poses a “major risk” to the new venture.

The rouble is trading in lockstep with Brent crude, which has continued its relentless slide this week, falling to a five-year low of $51.50 a barrel. “If oil drops to $45 or lower and stays there, Russia is going to face a big problem,” said Mikhail Liluashvili, from Oxford Economics. “The central bank will try to smooth volatility but they will have to let the rouble fall and this could push inflation to 20%.” Under the Russian central bank’s “emergency scenario”, GDP may contract by as much as 4.7% this year if oil settles at $60. The damage could be worse following the bank’s contentious decision to raise rates from 9.5% to 17% in December. BNP Paribas says that each 1% rise in rates cuts 0.8% off GDP a year later. BNP’s Tatiana Tchembarova said the situation is more serious than in 2008, when Russia had to spend $170bn to rescue its banks. This time it no longer has enough reserves to cover external debt, and it enters the crisis “twice as levered”.

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Why bother?

Obama Threatens Keystone XL Veto (BBC)

President Barack Obama will veto a bill approving the controversial Keystone XL pipeline if it passes Congress, the White House has said. It is the first major legislation to be introduced in the Republican-controlled Congress and a vote is expected in the House later this week. Spokesman Josh Earnest said the legislation would undermine a “well-established” review process. The $5.4bn (£3.6bn) project was first introduced in 2008. Mr Obama has been critical of the pipeline, saying at the end of last year it would primarily benefit Canadian oil firms and not contribute much to already dropping petrol prices. Environmentalists are also critical of the project, a proposed 1,179-mile (1,897km) pipe that would run from the oil sands in Alberta, Canada, to Steele City, Nebraska, where it could join an existing pipe.

And the project is the subject of a unresolved lawsuit in Nebraska over the route of the pipeline. “There is already a well-established process in place to consider whether or not infrastructure projects like this are in the best interest of the country,” Mr Earnest said on Tuesday. He added that the question of the Nebraska route was “impeding a final conclusion” from the US on the project. Despite the veto threat from the White House, the bill sponsors say they have enough Democratic votes to overcome a procedural hurdle to pass in the Senate.

“The Congress on a bipartisan basis is saying we are approving this project,” said Republican John Hoeven, one of the bill’s sponsors. But Mr Hoeven and Democratic Senator Joe Manchin said they would be open to additional amendments to the bill, a test of the changing political realities of the Senate. Democratic critics of the bill are said to be planning to add measures to prohibit exporting the oil abroad, use American materials in the pipeline construction and increased investment in clean energy. It is unclear if those amendments would gather the two-thirds of votes needed in both chambers to override Mr Obama’s veto.

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But took decisions costing trillions of pounds anyway.

Bank Of England Was Unaware Of Impending Financial Crisis (BBC)

A month before the start of the financial crisis, the Bank of England was apparently unaware of the impending danger, new documents reveal. In a unique insight of its workings, the Bank has published minutes of top-secret meetings of the so-called Court that took place between 2007 and 2009. The minutes show that the Bank did identify liquidity as a “central concern” in July 2007. However no action was taken as a result. The documents show that the Bank also used a series of code names for banks that were in trouble. Royal Bank of Scotland was known as “Phoenix”, and Lloyds as “Lark”. Following publication, Andrew Tyrie MP, the chairman of the Treasury Select Committee, was highly critical of some of the Court’s non-executive directors. He said they had failed to challenge senior executive members, like the then governor, Mervyn King, whom some accuse of failing to prioritise financial stability.

The minutes show that in July 2007, the Court – akin to a company board – spent time discussing staff pensions, open days and new members of the Monetary Policy Committee. Members heard that the Bank was working on a new model to detect risks to the financial system, but there was little suggestion of any impending trouble. Less than a month later, on 9 August, the French bank BNP Paribas came clean about its exposure to sub-prime mortgages, in what some believe was the start of the financial crisis. Six weeks later, despite some turmoil in financial markets, Court members were told to have confidence in the triple oversight of the Bank of England, the Treasury and the then Financial Services Authority (FSA). “The Executive believed that the events of the last month had proven the sense and strength of the tripartite framework,” the minutes asserted for the 12th September, 2007. The next day the banking crisis began in earnest.

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Nov 222014
 
 November 22, 2014  Posted by at 12:58 pm Finance Tagged with: , , , , , , , , , ,  1 Response »
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NPC Newsstand with Out-of-Town Papers, Washington DC 1925

Cheap Oil May Be A Sign Of Bigger Problems (MarketWatch)
Drilling Slowdown on Sub-$80 Oil Creeps Into Biggest US Fields (Bloomberg)
Russia to Cooperate With Saudis on Oil, Avoiding Output Cuts (Bloomberg)
Sell, Sell, Sell .. The Central Bank Madmen Are Raging (David Stockman)
What Record Stock Buybacks Say About Economic Growth (Zero Hedge)
Is China Building a Mortgage Bomb? (Bloomberg)
‘China’s Economy Is Slowing Faster Than You Think’ (CNBC)
China Cut Pegs Growth Floor At 7%, Says Stephen Roach (CNBC)
Yen Weakens to Seven-Year Low as Japan Will Vote on Abenomics (Bloomberg)
‘We Are Living in an Aberrational World’ (Finanz und Wirtschaft)
European Central Bank Has Begun Buying Asset-Backed Securities (Reuters)
RBS Admits Overstating Financial Strength In Stress Test (Guardian)
Bank Of England Investigates Staff Over Possible Auction Rigging (Reuters)
The Impossible American Mall Business. ‘We Surrender’ (Bloomberg)
Dudley Defends New York Fed Supervision In Heated Senate Hearing (Bloomberg)
Illinois $111 Billion Pension Deficit Fix Struck Down (Bloomberg)
Click Here to See If You’re Under Surveillance (BW)

“If China does decelerate well below 7% in 2015, an oil price target in the $30 to $40 range is completely realistic.”

Cheap Oil May Be A Sign Of Bigger Problems (MarketWatch)

While there is no instant replay in the markets, if commodities raised more red flags over the summer, at this point they are doing the equivalent of the football coach screaming in the referee’s face as he has been completely ignoring the flags being thrown on the field. Looking at oil dispassionately, one has to admit that for all intents and purposes, WTI crude oil has been down for seven straight weeks. The glass-half-full crowd will note that consumers get more money to spend for the holidays, and this is true. The glass-half-empty crowd will say that oil price weakness indicates weak global demand and consumers cannot possibly make up for that. This does not necessarily have to be the case, although it is certainly a possibility with rising probabilities at the moment. Brent crude oil futures (the European benchmark) are much weaker from a trading perspective as they have taken out key support levels with rather persistent selling that indicates weak demand at a time when oil markets have ample supply.

European economic data signifies what is in effect an economic rarity — a triple-dip recession — as the eurozone never really recovered from its sovereign-debt crisis. Shrinking eurozone bank lending over the past two years already told us with a high degree of certainty that this was coming, but now that it is here, we are starting to see repercussions in key commodities. One thing that strikes me about this oil-price decline is how persistent and methodical it has been. Commodities trend much differently than stocks as strong trends sometimes seem almost linear in nature with very shallow countertrend moves. I have used the analogy that the zigs and zags of stocks are typically much better defined than those for key commodities in strong trends. The other asset class that tends to show such “zagless” strong trends at times is currencies. This can easily be seen in the yen’s USD/JPY cross rate upward move. The euro is also showing a weakening trend, where the EUR/USD downward move has been accelerating as deposit rates at the ECB have sunk further into negative territory.

Strong declines in commodity prices signify a supply-demand imbalance. You can’t quickly shut off supply, as there are many already-spent budgets and projects that need to be completed, so weakening demand can carry the oil price much further. I think this oil situation has little to do with the U.S. and much more to do with Europe and China, much the same way in which commodity-price weakness in 1997-1998 was due to the Asian Crisis and not U.S. demand. How low can the oil price go? [..] we know that the cash cost of shale oil is about $60 per barrel, varying among different producers, and that historically, commodity producers have been known to produce their respective commodities at a loss to keep personnel and equipment going, as well a service debts that have financed their recent expansion. In that regard, it would be interesting to note that energy junk bonds comprise 16% of the junk-bond market, and their issuance is up 148% to $211 billion according to Fitch. So, yes, I think the oil price can decline below $60.

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2015 will be a bloody year for the shale industry. Money looks certain to stop flowing in, and then reality fills the freed up space.

Drilling Slowdown on Sub-$80 Oil Creeps Into Biggest US Fields (Bloomberg)

The slowdown in the U.S. oil-drilling boom spread to two of the nation’s largest fields this week. The Permian Basin of Texas and New Mexico, the country’s biggest oil play, lost four rigs targeting crude, dropping to 558, Baker Hughes aid on its website today. Those in North Dakota’s Williston Basin, the third-largest and home to the Bakken shale formation, slid to the lowest level since August, according to the Houston-based field services company’s website. It was the first time in four weeks that oil rigs dropped in the Williston. Oil prices have tumbled 29% from this year’s peak, pausing a surge in drilling in U.S. shale plays that has propelled domestic crude production to the most in three decades and brought retail gasoline prices below $3 a gallon for the first time since 2010. Drillers from Apache to Hess have announced plans to cut their rig counts in some North American oil fields as crude futures trade under $80 a barrel.

U.S. benchmark West Texas Intermediate crude for January delivery gained 66 cents to settle at $76.51 a barrel on the New York Mercantile Exchange. “We’ll start to see really big drops early next year if oil prices stay the same,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. Nineteen shale regions in the U.S. are no longer profitable with oil at $75 a barrel, data compiled by Bloomberg New Energy Finance show. Those areas, including parts of the Eaglebine and Eagle Ford in Texas, pumped about 413,000 barrels a day, according to the latest data available from Drillinginfo and company presentations.

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“If OPEC wants to reduce output, it only makes sense if other oil producers outside of OPEC do the same .. ”

Russia to Cooperate With Saudis on Oil, Avoiding Output Cuts (Bloomberg)

Russia said it’s willing to cooperate with Saudi Arabia on the oil market, while avoiding a commitment to limit output to reverse plunging prices. The two countries also sought to overcome differences on Syria during the first ever talks in Moscow between their foreign ministers, marking a thawing of ties between the world’s two biggest oil exporters. Oil has collapsed into a bear market this year as the U.S. pumps crude at the fastest rate in more than three decades and demand shows signs of weakening. Russia, which depends on oil and gas for about half its revenue, is on the brink of recession amid U.S. and European sanctions targeting its energy and financial industries.

Saudi Arabia and Russia, which together produce 25% of global oil, agreed the market “must be free of attempts to influence it for political and geopolitical reasons,” Russian Foreign Minister Sergei Lavrov said after the talks today. Where supply and demand are “artificially distorted,” oil exporters “have a right to take measures to correct these non-objective factors.” Lavrov and Saudi Arabian Foreign Minister Prince Saud Al-Faisal said in a joint statement that they’ll coordinate on “issues” affecting the energy and oil markets, without giving more detail. [..] “If OPEC wants to reduce output, it only makes sense if other oil producers outside of OPEC do the same,” said Elena Suponina, a Middle East expert and adviser to the director of Moscow’s Institute for Strategic Studies. “Otherwise you just lose market share.”

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“Japan is going down for the count, China’s house of cards is truly collapsing, Europe is plunging into a triple dip and Wall Street’s spurious claim that 3% “escape velocity” has finally arrived in the US is soon to be discredited for the 5th year running.”

Sell, Sell, Sell .. The Central Bank Madmen Are Raging (David Stockman)

The global financial system has come unglued. Everywhere the real world evidence points to cooling growth, faltering investment, slowing trade, vast excess industrial capacity, peak private debt, public fiscal exhaustion, currency wars, intensified politico-military conflict and an unprecedented disconnect between debt-saturated real economies and irrationally exuberant financial markets. Yet overnight two central banks promised what amounts to more monetary heroin and, presto, the S&P 500 index jerked up to 2070. That is, the robo-traders inflated the PE multiple for S&P’s basket of US-based global companies to a nose bleed 20X their reported LTM earnings. And those earnings surely embody a high water mark in a world where Japan is going down for the count, China’s house of cards is truly collapsing, Europe is plunging into a triple dip and Wall Street’s spurious claim that 3% “escape velocity” has finally arrived in the US is soon to be discredited for the 5th year running.

So it goes without saying that if “price discovery” actually existed in the Wall Street casino, the capitalization rate on these blatantly engineered earnings (i.e. inflated EPS owing to massive buybacks) would be decidedly less exuberant. In truth, nothing has changed about the precarious state of the world since yesterday. Except .. except the Great Bloviator at the ECB made another fatuous and undeliverable promise – this time that he would do whatever he “must to raise inflation and inflation expectations as fast as possible”; and, at nearly the same hour, the desperate comrades in Beijing administered another sharp poke in the eye to China’s savers by lowering the deposit rate to by 25 bps to 2.75%.

Let’s see. Can it possibly be true that European growth is faltering because it does not have enough inflation? Or that China’s fantastic borrowing and building boom is cooling rapidly because the People Bank of China (PBOC) has been too stingy? The answer is not on your life, of course. So why would stocks soar based on two overnight announcements that can not possibly alleviate Europe’s slide into recession or the collapse of China’s out-of-control investment and construction bubble?

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There is no growth.

What Record Stock Buybacks Say About Economic Growth (Zero Hedge)

For all the obfuscation surrounding the topic of stock buybacks and corporations returning record amounts of cash to their shareholders, the bottom line is as simple as it gets. This is what you are taught in CFO 101 class:

if you see organic growth opportunities for your business, or if you want to maintain the asset quality generating your cash flows, you invest in (either maintenance or growth) capex.
if there are no such opportunities, you return cash to investors (or, maybe spend a little on M&A unless you are Valeant in which case you spend everything and then much more).

That’s it. Well, based on this shocking chart from the FT’s John Authers, does it seem that America’s corporations – who are returning over a record 90% of Net Income to shareholders – are seeing (m)any growth opportunities?

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The Chinese housing sector is in deep doodoo.

Is China Building a Mortgage Bomb? (Bloomberg)

The first Chinese interest-rate cut in more than two years is a stark recognition that the world’s second-biggest economy is in trouble. After years of piling ever more public debt onto the national balance sheet, it makes sense to have the People’s Bank of China take the lead in propping up gross domestic product. Yet while today’s benchmark rate cut should help stabilize growth, the move also adds to worries about looser credit that could pose risks to the global economy. Case in point: mortgages. Earlier this year, Chinese officials took several stealthy steps aimed at stabilizing the property sector and bolstering GDP growth. The China Banking Regulatory Commission loosened lending policies. Even before cutting the one-year lending rate to 5.6% and the one-year deposit rate to 2.75% today, the central bank had cut payment ratios and mortgage rates, while prodding loan officers to ease up on their reluctance to approve borrowers without local household registrations.

Pilot programs for mortgage-backed securities and real-estate investment trusts got more support. Incentives were rolled out to encourage high-end buyers to upgrade properties. There’s good news and bad in all this. The good: It marks progress for President Xi Jinping’s efforts to recalibrate China’s growth engines. In highly developed economies like the U.S., the quest for homeownership feeds myriad growth ecosystems and offers the masses ways to leverage their equity for other financial pursuits. And China’s debt problems are in the public sphere, not among consumers. The bad: If ramped-up mortgage borrowing isn’t accompanied by bold and steady progress in modernizing the economy, China will merely be creating another giant asset bubble. “Expanding the underdeveloped mortgage market is not bad news,” says Diana Choyleva of Lombard Street Research. “But if China relies on household credit to power the economy and pulls back from much-needed financial reforms, the omens are not good.”

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As I’ve said a hundred times.

‘China’s Economy Is Slowing Faster Than You Think’ (CNBC)

The Chinese economy is slowing even faster than indicated by the People’s Bank of China’s surprise interest rate cut on Friday, said Peter Baum, a former Asian sourcing executive. China has too much manufacturing capacity for current levels of global demand, which has not adequately recovered from the financial crisis, the COO and CFO of Essex Manufacturing told CNBC’s “Power Lunch” on Friday. “As an example, I was just back. We have plants that we run where they used to have 500, 1,000 workers. They’re down to 200,” Baum said.

Labor costs for factories are rising because working age Chinese have been educated and don’t want to toil in such positions, he said. At the same time, the managers must amortize the fixed costs of the facilities over lower productivity. On top of that, the Chinese renminbi has appreciated 25% since 2004, putting pressure on producers to raise prices, Baum said. Debt levels could be problematic because many Chinese factory owners plan to sell their property to developers if the business fails, but the real estate market is on the rocks, he said. “If real estate is tanking, if there’s no demand for manufacturing, somebody is carrying all the debt, whether it’s banks, whether it’s their shadow banking system,” Baum said.

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Roach is more of a religious man, or I can’t explain the 7% limit. It’s as if he’s saying China can set its own growth level.

China Cut Pegs Growth Floor At 7%, Says Stephen Roach (CNBC)

After unexpectedly cutting interest rates for the first time in two years, Chinese leaders have revealed their floor for economic growth is around 7%, said Stephen Roach, senior fellow at Yale’s Global Affairs Institute. The move also signals investors can expect further moves if China fears the growth rate will go appreciably below 7%, the former chairman of Morgan Stanley Asia said Friday on CNBC’s “Squawk Box.” In a surprise announcement Friday, the People’s Bank of China said it was cutting one-year benchmark lending rates by 40 basis points to 5.6%. It also lowered one-year benchmark deposit rates by 25 basis points. The changes take effect Saturday. The rate cut is seen as addressing slowing factory growth and a stalled property market, which have dragged down the broader economy.

China is addressing cyclical changes while also fixing big structural issues in its economy, something that no other economy is doing right now, Roach said. “There are headwinds associated with that when you try to shift the mix of economic growth from your hyper-growth sectors of investment—debt-intensive investments and exports—to services and internal private consumption,” he said. “There’s some slowing associated with that, and when that occurs in the context of much weaker external environment, which is obviously the case given what’s going on in the world, China’s got downside pressures to contend with,” Roach added. The hyperbole about China being an ever-ticking debt bomb stacked with excesses and nonperforming loans is based on emotion rather than empirical data, he said.

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And China needs to keep up with the yen devaluation too.

Yen Weakens to Seven-Year Low as Japan Will Vote on Abenomics (Bloomberg)

The yen slid to its lowest level in seven years versus the dollar after Japan’s Prime Minister Shinzo Abe called early elections seeking to renew his mandate for economic stimulus as the nation entered a recession. The 18-nation euro declined versus most of its 31 major peers as European Central Bank President Mario Draghi said officials “will do what we must” to raise inflation. The Swiss franc tested its cap versus the weakening shared currency as a central bank official vowed to defend it. The yen fell for a sixth week against the euro, the longest streak since December 2013, as the Bank of Japan warned inflation may slip below 1% before a consumer prices report Nov. 27.

“We have uncertainty on the political front and we have weaker domestic data combined with very aggressive policy coming from the central bank, all of which should be driving a weaker yen,” said Camilla Sutton, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. The yen tumbled 1.3% against the dollar this week in New York, touching 118.98 on Nov. 20, the weakest level since August 2007. The currency lost 0.2% versus the euro, which fell 1.2% to $1.2391 per dollar. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose a fifth week, adding 0.2% to close at the highest level since March 2009.

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“By the end of this year or by the start of next year, without QE, the market is going down”.

‘We Are Living in an Aberrational World’ (Finanz und Wirtschaft)

The editor of the influential investment newsletter ‘The High-Tech Strategist’ warns of trouble in semiconductor stocks and spots bright investment opportunities in gold miners. It’s unchartered territory: For the first time since more than half a decade the global financial markets are supposed to live without the constant liquidity infusions of the Federal Reserve. Fred Hickey, the outspoken editor of the widely-read investing newsletter ‘The High-Tech Strategist’, says this won’t work well for long. “By the end of this year or by the start of next year, without QE, the market is going down”, says the sharply thinking contrarian. In his view, especially the outlook for semiconductor makers like Intel is gloomy. As protection against the upcoming crash he recommends investments in gold and in gold mining stocks.

Mr. Hickey, after the short setback in October the hunt for new records at the stock market is on once again. What’s your take on the current situation?
We are living in an aberrational world. It’s all driven by an orgy of money printing. All the major central banks are engaged in this. From the Federal Reserve in the United States to the ECB, to the Bank of England and the National Bank of Switzerland to the Bank of Japan and the People’s Bank of China. It’s been tried ever since there was money, but in thousands of years of history it has never worked. When the Roman empire was unraveling the Caesars would shave the silver from the coins in order to be able to make a lot more of them. And in Weimar Germany, Reichsbank president Rudolf Havenstein ran the printing presses day and night, seven days a week. And here we are now, repeating the same mistake.

Yet, the markets love cheap money. The S&P 500 just climbed to another record high this Monday.
I lean towards the school of Austrian economists and they tell you that you can’t get out of those things. As a reminder, I keep the following quote from the great Austrian economist Ludwig von Mises pinned to the bulletin board in my office: “The final outcome of credit expansion is general impoverishment”. Von Mises also warned that the boom can only last as long as the credit expansion progresses at an ever-accelerating pace. That’s why the Federal Reserve is unable to get out of this. Shortly after QE1 the stock market sold off 13% and the economy tanked. Then they did QE2 and when that ended the market sunk 16% in just a few weeks. That led to Operation Twist and that led to QE3, the biggest money printing operation of them all. Even before QE3 ended the markets started to take a dive and the Fed had to come to the rescue again. James Bullard of the St. Louis Fed came out and said that maybe they shouldn’t stop QE. That led to what they call the «Bullard Bounce» or «Bullard’s Charge». So they gave the green light to speculate once again. But fact of the matter is that money printing does not work.

Nevertheless, Fed chief Janet Yellen stopped QE3 at the end of October.
That’s why I expect things to fall apart in the market. I don’t know what’s going to happen between now and the year end because this is a seasonally strong period for stocks. Money managers who have been underperforming all year are under pressure to get into the stock market. And we might see what I call a «Run for the Roses» and the market gets to even more extreme levels. I don’t know how much longer this global money printing experiment can continue. But it sure feels to me that we’re nearing the day that it spins out of control. By the end of this year or by the start of next year without QE the market is going down and we will end up in chaos.

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Another stillborn plan. In his latest speech, Draghi was poiting to the emphasis on confidence. His actions must make people feel confident. I guess that shows he doesn’t believe it himself.

European Central Bank Has Begun Buying Asset-Backed Securities (Reuters)

The European Central Bank has started buying asset-backed securities, it said on Friday, in a move to encourage banks to lend and revive the economy. “Following publication of legal act on the implementation of the ABS purchase programme, the Eurosystem has started the purchases on 21/11/2014,” the ECB said on its Twitter feed. The program is one plank in a strategy which ECB chief Mario Draghi hopes will increase its balance sheet by up to €1 trillion. It already buys covered bonds, a secure form of debt often backed by property.

The ABS and covered bond programs will last for at least two years. The ECB will give a weekly updated on its purchases on its website around 1430 GMT on Mondays, as it is already doing with the covered bond purchases. If it falls short of this overall €1 trillion mark and fails to boost the economy significantly, pressure to print money to buy government bonds, also known as quantitative easing, will reach fever pitch. However, expectations among market experts for the program are muted. To limit its risk, the ECB will buy only the most secure part of such loans in the hope that others pile in behind it to buy riskier credit.

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Excuse me, but what use is a stress test if banks can throw out false numbers and the test doesn’t detect them?

RBS Admits Overstating Financial Strength In Stress Test (Guardian)

Royal Bank of Scotland has admitted it made a mistake that led to it overstating its financial strength to banking regulators. Shares in RBS tumbled by almost 3% at one point on Friday as investors digested the bank’s announcement that it is less able to withstand an economic crisis than previously thought. The bank, which is 80% owned by the British taxpayer, has still passed the stress test exercise designed by European banking regulators, but among UK banks it has the least margin for error. An RBS spokesperson said the stress tests were a “theoretical” exercise that had no impact on its most recent capital position. One in five European banks failed the stress tests that were published last month by the European Banking Authority. The tests were intended to prevent a rerun of the economic crisis, with banks required to show they had enough capital to withstand a series of economic shocks such as a sudden rise in unemployment, a sharp fall in house prices and decline in economic growth.

The banks were asked to model how a slide into recession imposing £20bn of losses would affect their common equity tier 1 ratio – a key measure of financial strength based on its earnings. Under Friday’s revised results, RBS has found that its capital position in a crisis would be weaker than it previously thought: it would have a common equity tier 1 ratio of 5.7%, scraping above the EBA pass rate of 5.5%, but significantly less comfortable than the 6.7% it reported last month. The revised results mean that RBS beat the threshold by the narrowest margin among UK banks: Lloyds came in at 6.2%, followed by Barclays at 7.1% and HSBC at 9.3%. RBS said that if it was repeating the stress-test exercise based on its latest earnings figures, it would have a stronger financial cushion. The bank said it had improved its CET 1 ratio by 220 basis points to 10.8% by 30 September, compared to 8.6% at the end of last year.

The mistake was discovered by officials at the Bank of England, who spotted an anomaly in RBS’s figures after the pan-European results were published in late October. Officials at Threadneedle Street contacted RBS, which amended the figures and filed the results to the EBA on Friday. No errors were uncovered at any other UK bank, although Deutsche Bank amended one of its figures shortly after the stress test results were published.

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Investigating yourself. That always works fine.

Bank Of England Investigates Staff Over Possible Auction Rigging (Reuters)

The Bank of England is investigating whether staff knew or even aided possible manipulation of auctions it held at the onset of the financial crisis to pump liquidity into the banking system, the Financial Times has reported. The newspaper said the formal inquiry began during the summer and the central bank asked the British lawyer who looked into the Bank’s role in a foreign exchange scandal to head the new investigation. “If the bank were conducting an investigation or review of any of its activities, as it does from time to time, it would be wholly inappropriate to provide a running commentary via the press,” a spokesman said. “I can tell you that no actions have been taken or are currently being contemplated against any employee of the bank.“ The FT, quoting people familiar with the situation, said the investigation would look into whether Bank of England money market auctions in late 2007 and early 2008 were rigged, and whether officials were party to any manipulation.

About 10 Bank staff have been interviewed as part of the inquiry and have been provided with defence lawyers at the expense of the Bank, the FT said. The report comes little more than a week after an investigation, headed by lawyer Anthony Grabiner and commissioned by the Bank’s oversight committee, found no evidence that any of its official had been involved in improper behaviour in relation to a foreign exchange trading scandal. The FT said Grabiner had been asked to conduct the new investigation. The Bank dismissed its chief foreign exchange dealer last week, saying it found information about serious misconduct but it stressed the case was unrelated to the foreign exchange scandal.

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A dead model. Good riddance.

The Impossible American Mall Business. ‘We Surrender’ (Bloomberg)

On a crisp Friday evening in late October, Shannon Rich, 33, is standing in a dying American mall. Three customers wander the aisles in a Sears the size of two football fields. The RadioShack is empty. A woman selling smartphone cases watches “Homeland” on a laptop. “It’s the quietest mall I’ve ever been to,” says Rich, who works for an education consulting firm and has been coming to the Steeplegate Mall in Concord, New Hampshire, since she was a kid. “It bums me out.” Built 24 years ago by a former subsidiary of Sears Holdings Corp., Steeplegate is one of about 300 U.S. malls facing a choice between re-invention and oblivion. Most are middle-market shopping centers being squeezed between big-box chains catering to low-income Americans and luxury malls lavishing white-glove service on One%ers.

It’s a time of reckoning for an industry that once expanded pell-mell across the landscape armed with the certainty that if you build it, they will come. Those days are over. Malls like Steeplegate either rethink themselves or disappear. This summer Rouse Properties a real estate investment trust with a long track record of turning around troubled properties, decided Steeplegate wasn’t salvageable and walked away. The mall is now in receivership. As management buys time by renting space to temporary shops selling Christmas stuff, employees fret that if the holiday shopping season goes badly, more stores will close. Should the mall lose one of its anchors – Sears, J.C. Penney and Bon-Ton Stores – the odds of survival lengthen. “Rouse is basically saying ‘We surrender,’” said Rich Moore, an analyst at RBC Capital Markets who has covered mall operators for more than 15 years. “If Rouse couldn’t make it work and that’s their specialty, then that’s a pretty tough sale to keep it as is.”

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“Either you need to fix it, Mr. Dudley, or we need to get someone who will.”

Dudley Defends New York Fed Supervision In Heated Senate Hearing (Bloomberg)

William C. Dudley came under attack today by U.S. senators, who accused the Federal Reserve Bank of New York president of being too cozy with big Wall Street banks. “I wouldn’t accept the premise that there’s been a long list of failures by the New York Fed since my tenure,” Dudley said in response to an assertion by Elizabeth Warren, a Massachusetts Democrat. “Is there a cultural problem at the New York Fed? I think the evidence suggests that there is,” Warren said. “Either you need to fix it, Mr. Dudley, or we need to get someone who will.” The hearing was prompted by allegations by a former New York Fed bank examiner, Carmen Segarra, who said her colleagues were too deferential to Goldman Sachs Group Inc., the Wall Street bank where Dudley was chief economist for a decade.

Segarra attended today’s hearing and later released a statement via a spokesman expressing disappointment that she was not given a chance to address the panel. “She looks forward to publicly testifying if and when the Senate moves forward with additional hearings,” said her spokesman, Jamie Diaferia, in an e-mail. Senators questioned Dudley, 61, on issues ranging from whether some banks are too big to regulate to the Fed’s role in overseeing their commodities businesses. Some of the criticism was pointed. Warren, a frequent critic of financial regulators, asked Dudley if he was “holding a mirror to your own behavior.”

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Can this be solved without a default? Hard to see.

Illinois $111 Billion Pension Deficit Fix Struck Down (Bloomberg)

Illinois will have to find a new way to fix the worst pension shortfall in the U.S. after a judge struck down a 2013 law that included raising the retirement age. Yesterday’s ruling that the pension changes would have violated the state’s constitution undoes a signature achievement of outgoing Democratic Governor Pat Quinn and hands responsibility for tackling the state’s $111 billion pension deficit to Republican businessman Bruce Rauner, who defeated him in the Nov. 4 election. State constitutions have been invoked elsewhere to try to prevent cuts to public pensions. In Rhode Island, unions settled with the state over pension cuts before their constitutional challenge could be put to the test. In municipal bankruptcy cases in Detroit and California, judges ruled that federal law overrode state bans on cutting pensions.

Illinois Attorney General Lisa Madigan, a Democrat, said she’ll appeal the ruling by Judge John Belz in Springfield and ask the state Supreme Court to fast-track the review. “Today’s ruling is the first step in a process that should ultimately be decided by the Illinois Supreme Court,” Rauner said yesterday. “It is my hope that the court will take up the case and rule as soon as possible. I look forward to working with the legislature to craft and implement effective, bipartisan pension reform.” Belz concluded that a 1970 constitutional provision barring cuts to public employee retirement benefits trumps the state’s claim that it has the power to trim future cost-of-living adjustments and delay retirement eligibility for some workers. “The court finds there is no police power or reserved sovereign power to diminish pension benefits,” he said, voiding the legislation in its entirety and permanently barring the state from enforcing any part of it.

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Unfortunately, only for Windows computers.

Click Here to See If You’re Under Surveillance (BW)

For more than two years, researchers and rights activists have tracked the proliferation and abuse of computer spyware that can watch people in their homes and intercept their e-mails. Now they’ve built a tool that can help the targets protect themselves. The free, downloadable software, called Detekt, searches computers for the presence of malicious programs that have been built to evade detection. The spyware ranges from government-grade products used by intelligence and police agencies to hacker staples known as RATs—remote administration tools. Detekt, which was developed by security researcher Claudio Guarnieri, is being released in a partnership with advocacy groups Amnesty International, Digitale Gesellschaft, the Electronic Frontier Foundation, and Privacy International.

Guarnieri says his tool finds hidden spy programs by seeking unique patterns on computers that indicate a specific malware is running. He warns users not to expect his program (which is available only for Windows machines) to find all spyware, and notes that the release of Detekt could spur malware developers to further cloak their code. The use of the programs—which can remotely turn on webcams and track keystrokes—gained attention as researchers increasingly found the spyware being used to target political activists and journalists. In Syria, dissidents have been attacked by malware delivered through fake documents sent via Skype. In Washington and London, Bahraini democracy activists received e-mails laced with what was identified as the German-made FinSpy Trojan.

In Ethiopia, another hacking tool made multiple attempts against employees of an independent media company, according to a probe by Guarnieri and security researchers Morgan Marquis-Boire, Bill Marczak, and John Scott-Railton. The new safeguard comes amid fresh reminders of pervasive electronic snooping around the globe. Just this week, London-based Privacy International published a 96-page report detailing surveillance capabilities of Central Asian republics and the companies that supply them.

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Sep 252014
 
 September 25, 2014  Posted by at 5:51 pm Finance Tagged with: , , , , , ,  9 Responses »
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Wyland Stanley Studebaker motor car in repair shop, San Francisco 1919

There are substantial and profound changes developing in the global economy, and in my view we should all pay attention, because everyone will be greatly affected. Some more than others, but still.

‘Metal markets’, be they gold, silver, copper or iron, exhibit distress and uncertainty, prices are falling, or at least seem to be. Partly, that is because of the apparently still ongoing investigation in the Chinese port of Qingdao, through which a $10 billion ‘currency fraud’ is reported today, ostensibly related to the double/triple borrowing that has been exposed, in which the same iron ore and copper shipments were used as collateral multiple times.

This could soon bring such shipments to the market and add to the oversupply already in place. Combined with ever more evidence of a slowdown in Chinese growth numbers, this doesn’t look good for iron, copper, aluminum.

But the Slow Boat To – or from – China is by no means the only reason metal prices are dropping. The main one is, plain and simple, the US dollar. Gold, for instance, hasn’t changed much at all when compared to a year ago, against the euro. Whereas it’s lost 8-9% against the dollar over the last 2-3 months, about the same percentage as that same euro. The movement is not – so much – in gold, it’s in the dollar.

To claim that this is the market at work makes no sense anymore. Today central banks, for all intents and purposes, are the market. As Tyler Durden makes clear once again for those who still hadn’t clued in:

Bank Of Japan Buys A Record Amount Of Equities In August

Having totally killed the Japanese government bond market, Shinzo Abe has – unlike the much less transparent Federal Reserve, who allegedly use their proxy Citadel – gone full tilt into buying Japanese stocks (via ETFs). In May, we noted the BoJ’s aggressive buying as the Nikkei dropped, and in June we pointed out the BoJ’s plan to buy Nikkei-400 ETFs and so, as Nikkei news reports, it is hardly surprising that the Bank of Japan bought a record JPY 123.6 billion worth of ETFs in August.

The market ‘knows’ that the BoJ tends to buy JPY 10-20 billion ETFs when stock prices fall in the morning. The BoJ now holds 1.5% of the entire Japanese equity market cap (or roughly JPY 480 trillion worth) and is set to surpass Nippon Life as the largest individual holder of Japanese stocks. And, since even record BoJ buying was not enough to do the job, Abe has now placed GPIF reform (i.e. legislating that Japan’s pension fund buys stocks in much greater size) as a primary goal for his administration. The farce is almost complete as the Japanese ponzi teeters on the brink.

Shinzo Abe wants the yen to fall, and he gets his (death)wish, because the Japanese economy and the financial situation of its government are in such bad shape, there’s nowhere else to go for the yen. That doesn’t spell nice things for the Japanese people, who will see prices for imported items (energy!) rise, but for all we know Abe sees that as a way to push up inflation. That’s not going to work, what we will push up instead is hardship. And that plan to force pension funds into stocks is just plain insane, an idea he got from US pension funds which are 50% in stocks – which is just as crazy.

Draghi talks down the euro, says a headline today, but I don’t see it; I wonder why that would be supposed to work now, and not in the preceding years, when it was just as obvious how poorly Europe was doing. Sure, there’s a new ‘threat’ in the AfD (Alternative for Germany), a right wing anti-euro party, but that’s not – for now – enough to cause the euro slide we’re seeing. The movement is not – so much – in the euro, it’s in the dollar.

Why the Fed moves the way it does, the moment it does, in its three pronged combo of fully tapering QE, hiking rates (or at least threatening to) and pushing up the greenback, is not immediately clear, but a few suggestions come to mind, some of which I mentioned earlier this month in The Fed Has A Big Surprise Waiting For You and in What Game Is Being Played With the US Dollar?.

My overall impression is that the Fed has given up on the US economy, in the sense that it realizes – and mind you, this may go back quite a while – that without constant and ongoing life-support, the economy is down for the count. And eternal life-support is not an option, even Keynesian economists understand that. Add to this that the -real – economy was never a Fed priority in the first place, but a side-issue, and it becomes easier to understand why Yellen et al choose to do what they do, and when.

When the full taper is finalized next month, and without rate rises and a higher dollar, the real US economy would start shining through, and what’s more important – for the Fed, Washington and Wall Street -, the big banks would start ‘suffering’ again. Just about all bets are on the same side of the trade today, and that’s bad news for Wall Street banks’ profits.

The higher dollar will bring some temporary relief for Americans, in lower prices at the pump, and for imported products in stores, for example. Higher rates, however, will put a ton and a half of pressure bearing down on everyone who’s in debt, and that’s most Americans. The idea is probably that by the time this becomes obvious and gets noticed, we’re far enough down the line that there’s no going back. Besides, we could be in full-scale war by then. One or two IS attacks in the west would do.

The higher dollar – certainly in combination with higher rates – will also mean a very precarious situation for the US government, which will have to pay a lot more in borrowing costs, but our leadership seems to think that at least in the short term, they can keep that under control. And then after that, the flood. Maybe the US can start borrowing in yuan, like the UK wants to do?

To reiterate: there is no accident or coincidence here, and neither is it the market reacting to anything. That’s not an option in this multiple choice, since there is no market left. It’s all central banks all the way (like the universe made up of turtles). It’s faith hope and charity, and the greatest of these is the Federal Reserve. Is they didn’t want a higher dollar, there would not be one. Ergo: they’re pushing it higher.

The Bank of England will follow in goose lockstep, while the ECB and Bank of Japan can’t. That’s earthquake and tsunami material. The biggest richest guys and galls will do fine wherever they live. The rest, not so much. Wherever they live . At the Automatic Earth, we’ve been telling you to get out of debt for years, and we reiterate that call today with more urgency. Other than that, it’s wait and see how many export-oriented US jobs will be lost to the surging buckaroo. And how a choice few nations in the northern hemisphere will make through the cold days of winter.

Whatever you do, don’t take this lightly. A major move is afoot.

Dollar Hits Four-Year High as Metals Drop on China Fraud (Bloomberg)

The dollar jumped to a four-year high and precious metals retreated on speculation the strengthening U.S. economy is pushing the Federal Reserve closer to raising interest rates. Industrial metals and the yuan declined after China said it uncovered $10 billion of trade fraud, while European stocks rose. The Bloomberg Dollar Spot Index climbed for a fifth day, rising 0.3% by 10:17 a.m. in London, as the euro tumbled to a 22-month low. New Zealand’s dollar led losses against the greenback after the central bank said its strength is unjustified, while silver slumped 0.8% and gold fell to an eight-month low. Copper dropped 0.4% and the yuan reference rate was set at a two-week low. Spain’s bonds rose with Italy’s as the Stoxx Europe 600 Index climbed 0.3%. Standard & Poor’s 500 Index (XU100) futures were little changed.

The U.S. reports durable-goods orders and initial jobless claims numbers today after new-home sales surged in August to the highest level in more than six years. The stronger data are leading traders to bring forward bets on higher U.S. interest rates, buoying the dollar, as monetary policy from the euro area to New Zealand weighs on other currencies. Some banks played roles in fake trade at the port of Qingdao, said Wu Ruilin, deputy head of China’s State Administration of Foreign Exchange. “The theme during the second half of this year is dollar strength,” Yannick Naud, a money manager at Sturgeon Capital Ltd. in London, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro. “The economy is growing very strongly, we have a very good set of results and the central bank will probably be the first, or the second after the Bank of England, to increase interest rates.”

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Iron Ore Falls Below $80 to Lowest Since 2009 on China Concerns (Bloomberg)

Iron ore slumped below $80 a metric ton for the first time in five years on speculation that China’s slowing economic growth will curb demand in the world’s biggest user, exacerbating a global surplus. Ore with 62% content delivered to Qingdao, China, fell 0.5% to $79.69 a dry ton, the lowest level since Sept. 16, 2009, according to data from Metal Bulletin Ltd. The drop followed seven weeks of declines as the steelmaking raw material had the longest run of losses since May. The commodity plunged 41% this year as BHP Billiton Ltd. (BHP) and Rio Tinto Group (RIO) expanded output in a bet that the increase in volumes would more than offset falling prices as higher-cost mines are forced to shut. China’s Finance Minister Lou Jiwei said this week growth in Asia’s largest economy faces downward pressure. China’s economy remained stuck in “low gear” this quarter, with retail and residential real-estate industries struggling, according to the China Beige Book.

“The ramp-up in global supply and downturn in Chinese property sector are driving prices lower,” Paul Bloxham, chief Australia economist at HSBC Holdings Plc, said by e-mail today. “We expect Chinese miners to cut back production, which should keep prices well above the costs of major Australian producers.” Iron ore’s decline came after raw materials dropped to the lowest level in five years yesterday. The Bloomberg Commodities Index (BCOM) retreated 5.1% this year, poised for a fourth year of losses. Global output of seaborne ore will exceed demand by 52 million tons this year and 163 million tons in 2015, according to Goldman Sachs Group Inc. The price will average $102 a ton this year and $80 in 2015, according to the bank. So far this year, it’s averaged about $105.25 in Qingdao. China accounts for about 67% of global seaborne demand.

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That’s all?

China Watchdog Finds $10 Billion in Fake Currency Trade (Bloomberg)

China uncovered almost $10 billion in fraudulent trade nationwide as part of an investigation begun in April last year, including many irregularities in the port of Qingdao, the country’s currency regulator said today. Companies “faked, forged and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, said at a briefing in Beijing. The trades have “increased pressure from hot money inflows and provided an illegal channel for criminals to move funds,” Wu said, adding that those involved in such fraud would be severely punished.

“Some companies used the trade channel to bring in hot money,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. SAFE’s investigation “will likely further cool down hot money inflows and commodity imports could slow as banks will likely conduct more careful checks on documentation.” Industrial metals fell and the yuan weakened after the announcement. Copper slid as much as 0.5% and all main metals on the London Metal Exchange declined. Chinese banks have about 20 billion yuan ($3.3 billion) of exposure to companies caught up in a loan fraud probe in Qingdao, two government officials told Bloomberg in July. SAFE identified the fake trade invoicing as part of a crackdown on the practice in 24 cities and provinces, Wu said. The news raised speculation that metals supplies may increase as stockpiles tied up in financing deals come back on the market.

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Bank Of Japan Buys A Record Amount Of Equities In August (Zero Hedge)

Having totally killed the Japanese government bond market, Shinzo Abe has – unlike the much less transparent Federal Reserve, who allegedly use their proxy Citadel – gone full tilt into buying Japanese stocks (via ETFs). In May, we noted the BoJ’s aggressive buying as the Nikkei dropped, and in June we pointed out the BoJ’s plan tobuy Nikkei-400 ETFs and so, as Nikkei news reports, it is hardly surprising that the Bank of Japan bought a record JPY 123.6 billion worth of ETFs in August. The market ‘knows’ that the BoJ tends to buy JPY10-20 billion ETFs when stock prices fall in the morning. The BoJ now holds 1.5% of the entire Japanese equity market cap (or roughly JPY 480 trillion worth) and is set to surpass Nippon Life as the largest individual holder of Japanese stocks. And, since even record BoJ buying was not enough to do the job, Abe has now placed GPIF reform (i.e. legislating that Japan’s pension fund buys stocks in much greater size) as a primary goal for his administration. The farce is almost complete as the Japanese ponzi teeters on the brink. Via Nikkei Asia:

The Bank of Japan is growing into its role as a key source of support for the country’s stock market, as it has stepped up purchases of exchange-traded funds to bring its equities portfolio to an estimated 7 trillion yen ($63.6 billion) or so. The central bank bought 123.6 billion yen worth of ETFs in August, the largest monthly tally so far this year. At one point, it snapped up ETFs in six straight sessions amid weak stock prices. The BOJ tends to make 10 billion yen to 20 billion yen worth of purchases when stock prices fall in the morning. The bank has not made any purchases so far in September because the market has been rallying. According to BOJ data, the market value of individual stocks and ETFs that it held as of March 31 came to 6.15 trillion yen. Given its purchases since then and the market rally, the value is estimated to have increased to a whopping 7 trillion yen or so by now.

That figure accounts for 1.5% of the entire market value of all Japanese shares, or roughly 480 trillion yen. It also means the BOJ may surpass Nippon Life Insurance, the largest private-sector stock holder with some 7 trillion yen in holdings, as early as this year and emerge as the second-biggest shareholder behind the Government Pension Investment Fund – the national pension fund with 21 trillion yen. The BOJ started outright purchases of shareholdings from banks back in 2002 with the aim of stabilizing the country’s financial system. To prevent stocks from tumbling steeply, it also began buying ETFs in 2010. The bank does not buy individual shares now, but it doubled its annual ETF purchases to 1 trillion yen when it introduced unprecedented levels of monetary easing in April 2013.

It is unusual for a central bank to buy stocks and ETFs, given that their sharp price swings pose the risk of undermining the health of the bank’s assets. High levels of purchases by the BOJ affect stock prices and may hurt asset allocation and development of the financial markets. The timing and technique of selling the BOJ’s shareholdings are also a tricky question. A freeze has been put on sales of individual shares until March 2016, and there is no selling schedule for ETFs. But given that the bank’s holdings are equal to roughly half the 15 trillion yen in net buying by foreigners last year, large-scale selling would be certain to shake the market.

We hope, by now, it is clear what a fraud the entire system has become. Simply put, the BoJ has the firepower (unlimited printing) but not the liquidity (the markets are just not deep enough as was clear in the JGB complex) to keep the dream alive if (and when) investors lose faith in Abenomics. Clearly that’s why Abe needs to get the GPIF on the case…

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What a surprise that is.

Lending to Minorities Declines to a 14-Year Low in US (Bloomberg)

The share of mortgage lending to minority borrowers fell to at least a 14-year low as U.S. regulators struggle to ease credit to blacks and Hispanics shut out of the housing recovery. These borrowers, whose share of the purchase mortgage market has been shrinking since the collapse of subprime lending, continued to lose ground to white borrowers through 2013, according to federal data released this week. Blacks and Hispanics were a smaller portion of borrowers last year than they were in 2000, before the housing bubble.

Minorities, who tend to have less savings and lower credit scores than whites, have been hit hardest by lenders who are giving mortgages only to the strongest borrowers. Fair-lending advocates and civil-rights groups are urging the government to create new loan products and change how creditworthiness is determined to give blacks and Hispanics greater access to one of the best vehicles for building wealth. “These numbers are a wake-up call that the housing market is a major driver of the economy and it can’t be a vibrant market when so many new households are excluded from it,” said Jim Carr, a former Fannie Mae executive who is now a scholar at the Opportunity Agenda, a New York-based organization that works on racial equity issues.

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And don’t you forget it.

The World’s Largest Subprime Debtor: The US Government (Mises.ca)

Do you have a friend who consistently borrows 30% of his income each year, is currently in debt about six times her annual income, and wanted to take advantage of short-term interest rates so that he needs to renegotiate with his banker about once every six years? Well, if Uncle Sam is your friend you do!

Lehman Brothers filed for Chapter 11 bankruptcy protection six years ago this month. The event has become famous as the spark that ignited the global financial crisis. Since that date, millions have lost their jobs and livelihoods, and countless others have seen their futures evaporate before their eyes, sometimes permanently. At the heart of the crisis of 2008 was a common cause acknowledged by almost all commentators. Borrowers now infamously known as “subprime” (or more politely, “non-prime”) were the main reason behind the meltdown. As financial institutions extended loans to those with less than stable means to repay their debts, the foundation of the financial world was destabilized. Six years on and these subprime debtors are largely a relic of the past. That fact notwithstanding, there is a new threat lurking in the global financial arena. This one borrower is far larger than all the previous subprime characters combined, and poses a far more dangerous hazard to the financial stability of nearly all (if not all) of the world’s citizens.

I am speaking, of course, of the United States government. Subprime borrowers are defined by FICO scores which are largely inapplicable to sovereign nations. We can instead look at the type of loans that these borrowers took on to understand how precarious the United States federal government’s finances are. To simplify matters greatly, consider three types of loans that made debt attractive to subprime borrowers. The first was the adjustable rate mortgage. After a short period at a low introductory teaser rate, the interest rate would reset higher. Second was the interest only loan. Borrowers could take out a sum of money and for a period not worry about paying down the principal. An extreme form of the interest only loan is the final type: the negative amortization loan. In this case, not only does the payment not reduce the principal of the loan, it doesn’t even cover all the accrued interest! The effect is that each month that goes by, the borrower slips further in debt as interest deferral is added to the principal to be repaid.

In the wake of the crisis, a lot of commentators focused on two measures of the government’s financial stability. The first was its debt to GDP level, which was added to on a yearly basis by its deficit (also expressed as a%age of GDP). At its nadir in 2010, the federal government ran a budget deficit of nearly 10% of GDP (the highest since World War II). As of today, the federal debt level (ignoring unfunded liabilities such as Social Security or Medicare) amounts to 102% of GDP. While these numbers are indeed high, they really understate the problem. After all, the denominator in both cases is the total income of the whole United States, not just that of the government.

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Two pieces on the same anti-euro bet at S&P.

Germany’s Ukip Threatens To Paralyse Eurozone Rescue Efforts (AEP)

The stunning rise of Germany’s anti-euro party threatens to paralyse efforts to hold the eurozone together and may undermine any quantitative easing by the European Central Bank, Standard & Poor’s has warned. Alternative für Deutschland (AfD) has swept through Germany like a tornado, winning 12.6pc of the vote in Brandenburg and 10.6pc in Thuringia a week ago. The party has broken into three regional assemblies, after gaining its first platform in Strasbourg with seven euro-MPs. The rating agency said AfD’s sudden surge has become a credit headache for the whole eurozone, forcing Chancellor Angela Merkel to take a tougher line in European politics and risking an entirely new phase of the crisis. “Until recently, no openly Eurosceptic party in Germany has been able to galvanise opponents of European ‘bail-outs’. But this comfortable position now appears to have come to an end,” it said. The report warned that AfD has upset the chemistry of German politics, implying even greater resistance to any loosening of EMU fiscal rules.

It raises the political bar yet further for serious QE, and therefore makes the tool less usable. There has long been anger in Germany over the direction of EMU politics, with a near universal feeling that German taxpayers are being milked to prop up southern Europe, but dissidents were until now scattered. “AfD appears to enjoy a disciplined leadership, and is a well-funded party appealing to conservatives more broadly, beyond its europhobe core,” it said. “This shift in the partisan landscape could have implications for euro area policies by diminishing the German government’s room for manoeuvre. We will monitor any signs of Germany hardening its stance.” Mrs Merkel has a threat akin to Ukip on her right flank, and can no longer pivot in the centre ground of German politics. AfD has almost destroyed the centre-Right Free Democrats (FDP), and is also eating into the far-Left of the Linke party. The new movement calls for an “orderly break-up” of monetary union, either by dividing the euro into smaller blocs or by returning to national currencies.

“Germany doesn’t need the euro, and the euro is hurting other countries. A return to the D-mark should not be a taboo,” it says. Club Med states should recover viability through debt restructuring, rather than rely on taxpayer bail-outs that draw out the agony. Unlike Ukip, the movement wants Germany to stay in a “strong EU”. Party leader Bernd Lucke is a professor of economics at Hamburg University. His right-hand man is Hans-Olaf Henkel, former head of Germany’s industry federation. Attempts to discredit the party as a Right-wing fringe group have failed. Prof Lucke had a taste of his new power in the European Parliament this week, questioning the ECB’s Mario Draghi directly on monetary policy. He attacked ECB asset purchases, insisting that there is already enough liquidity in the financial system to head off deflation. Such stimulus merely stokes asset bubbles and does little for the real economy, he argued, adding that the ECB is “saddling up the wrong horse” because it doesn’t have another one in the stable.

S&P said the rise of AfD would not matter for EMU affairs if the eurozone crisis were safely behind us. “This is unlikely to be the case. Eurozone output is still below 2007 levels and in 2014 the weak recovery has come to a near halt in much of the euro area. Public debt burdens continue to rise in all large euro area countries bar Germany,” it said. The report warned that any sign of hardening attitudes in German politics could “diminish the confidence of financial investors in the robustness of multilateral support” for EMU crisis states, leading to a rise in bond spreads. This in turn would shift the focus back on to Club Med debt dynamics, arguably worse than ever.

S&P said a forthcoming judgment by the European Court on the ECB’s backstop plan for Italy and Spain (OMT) might further constrain the EU rescue machinery. Germany’s top court has already ruled that the OMT “manifestly violates” EU treaties and is probably ultra vires, meaning that Bundesbank may not legally take part. The political climate in the eurozone’s two core states is now extraordinary. A D-Mark party is running at 10pc in the latest polls in Germany, while the Front National’s Marine Le Pen is in the lead in France on 26pc with calls for a return to the franc. One more shock would test EMU cohesion to its limits.

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Standard & Poor’s Warns Germany to Trigger the Next Debt Crisis (WolfStreet)

A true debacle happened. Just when we thought the euro was safe, that ECB President Mario Draghi had single-handedly duct-taped the Eurozone back together in the summer of 2012 with his magic words, “whatever it takes.” Markets assumed that they were backed by the ECB’s printing press, and they loved their assumption. Spanish, Italian, even highly dubious Greek debt, some of it with a fresh haircut, soared. And hedge funds and banks gorged on it and loved it. The debt crisis was over! Stocks soared even more. Money was being made. So bank bailouts continued, and the Eurozone recession proved to be a nasty long-term affair, but no problem, everything seemed to be guaranteed by the ECB. Debt-sinner countries, as Germans like to call them, could suddenly borrow for nearly free, and neither deficits nor debts mattered to financial markets.

But now comes ratings agency Standard & Poor’s and douses our illusions, because that’s all they were, with a bucket of ice water. The soaring popularity and electoral successes of Germany’s anti-euro party, Alternative for Germany (AfD), could push Chancellor Angela Merkel and her party, the conservative CDU, to take a harder line against bailouts, hopes of QE, and all manner of other ECB miracles that financial markets had been counting on. And it could spook them. And the nearly free money could suddenly dry up. So S&P warned:

None of this would matter much, if we were to assess that the euro crisis is safely behind us. However, this is unlikely to be the case. Eurozone output is still below 2007 levels, and in 2014 the weak recovery has come to a near halt in much of the euro area. Unemployment remains precariously high and disinflationary pressures have been mounting. Public debt burdens continue to rise in all large euro area countries bar Germany.

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Nice try but.

Just How Big Is Britain’s Debt Mountain? (Telegraph)

The Office for National Statistics (ONS) has changed the way it measures our public finances, throwing fresh light on the precise state of the nation’s coffers. The latest revisions help bring the UK in line with European accounting standards, but they don’t make great reading for the Chancellor. According to the figures, Britain’s debt mountain is £127 billion bigger that we first thought. To provide some context, that’s more than the government’s annual budget for education and housing put together.

In total, the government owes its creditors £1.4 trillion as of this year. Public sector borrowing – the difference between what the government earns in revenues and what it spends and invests – has also jumped. The ONS now thinks borrowing is around £99 billion, £5 billion higher than previously calculated. So what’s changed? The ONS has adopted a different methodology for calculating the public finances. Debt and borrowing are now higher as the new figures include the cost of the bank bailouts carried out in the wake of the credit crunch, as well as the Bank of England’s quantitative easing programme. The new accounting rules also mean that Network Rail has been reclassified as part of central government rather than the private sector. The liabilities associated with Network Rail add £33 billion to the nation’s debt pile. That’s approximately the entire GDP of Uruguay.

Meanwhile the inclusion of the Asset Purchase Facility, the part of the Bank of England that has been purchasing government bonds, adds on a further £42.4 billion to the debt burden. This is more than Britain’s entire defence budget for 2014/15, or roughly six times the market capitalisation of Marks & Spencer’s. In other areas, the ONS no longer treats the government’s auctioning of 4G phone spectrum licences as a one-off windfall. Should we worry? On the question of the accounting changes, the government’s fiscal watchdog, the Office for Budget Responsibility says: “it is important to stress that these are changes to the way public sector finances are measured, not to the underlying activities being measured.”

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But they’ll raise rates, Carney said again today.

Bank of England ‘Won’t Risk Recovery’: Deputy Governor Minouche Shafik (YP)

Businesses must increase productivity, investment and exports to ensure a lasting economic recovery, according to the new deputy governor of the Bank of England. In her first interview since taking on the role, Minouche Shafik discussed the risks to the rebounding UK economy, the need for more growth-orientated policies in Europe and when to start unwinding the Bank’s £375bn quantitative easing scheme. She said the economy has been growing faster than many had expected at 3.2%. Ms Shafik told The Yorkshire Post: “The recovery is encouraging. The real question is how can we make this recovery sustainable. “We don’t want to take risks with this recovery. It’s been a long recession and I think that’s going to be the biggest challenge going forward.”

On the question of when to increase interest rates, she said she would be closely watching the relationship between wage growth and productivity. She said there are mixed signals about the strength of that growth. “If wage increases are expected but productivity is performing well we can wait for longer; if those wage increases are not accompanied by productivity increases then I think we will have to move more quickly on rates because inflationary pressures will build up. “I think that’s the key choice that we face,” said Ms Shafik, who has so far attended two meetings of the Monetary Policy Committee.

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Buy stocks in a shrinking economy. Great idea.

Brace For China Markets’ Biggest Opening In Years (NY Times)

O’Connor, the $5.6 billion hedge fund owned by UBS, has been expanding its presence in Asia. It has hired traders from UBS’s proprietary trading desk to work in its Hong Kong and Singapore offices. In August, it hired John Yu, a former analyst at SAC Capital Advisors. It is not alone. Bankers, brokerage firms and hedge funds have all been quietly expanding their Asian operations to take advantage of one event: the biggest opening into China in years. China plans to connect the Shanghai stock exchange to its counterpart in Hong Kong over the next month as part of an initiative announced by Premier Li Keqiang this year to open China’s markets to foreign investors who have been largely shut out. The move will allow foreign investors to trade the shares of companies listed on the Shanghai stock exchange directly for the first time, and Chinese investors to buy shares in companies listed in Hong Kong.

The potential rewards of an open market between the mainland and Hong Kong are enormous for investors. Currently, the only way for foreign investors to trade Chinese stocks is indirectly through a limited quota program that allows a trickle of foreign money into the country. “This is the single most important development in China’s intention to internationalize this market,” one senior Western banker in Asia said of the planned reform, speaking on the condition he not be named because he was not authorized to speak publicly on the matter. The program, called the Shanghai-Hong Kong Connect, will create the second-largest equity market in the world in terms of the market value of the combined listed companies, said Dawn Fitzpatrick, the chief investment officer of O’Connor. “It is also going to create a much more efficient way for the global marketplace to value many Chinese companies, and this attribute alone makes the market more attractive,” she added.

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Infighting?

Speculation Resurfaces on China Central Bank Governor (Bloomberg)

Speculation about the retirement of China central bank Governor Zhou Xiaochuan, a champion of shifting the world’s second-largest economy to greater reliance on markets, is resurfacing, focusing attention on potential successors. With Zhou, 66, past the typical retirement age for senior officials and a Communist Party leadership meeting looming next month, social media chatter on his possible exit escalated. The Wall Street Journal said yesterday party boss Xi Jinping is considering replacing Zhou, citing unidentified officials. The China Times this month published an opinion piece on prospects for ex-securities regulator Guo Shuqing taking the job. Six of 13 economists in a Bloomberg News survey this month cited Guo, 58, as the most likely successor when Zhou does leave. Five predicted it would be People’s Bank of China Deputy Governor Yi Gang, 56. The government, which controls the PBOC, hasn’t publicly signaled its intention and rounds of speculation in 2007 and 2012 that Zhou would be replaced failed to pan out.

“There will eventually be a rumor that’s right – Zhou will retire at some point,” David Loevinger, former U.S. Treasury Department senior coordinator for China affairs and now a Los Angeles-based analyst at TCW Group Inc., said in an e-mail. “I’ve met Guo several times. He’s an accomplished economist, banker and regulator with a good understanding of the international financial system.” The PBOC, along with the rest of the nation’s policy making community, is grappling with a slowdown in growth and efforts to follow through on a pledge to give markets a “decisive” role in the economy. Zhou, at 11 years the longest-serving PBOC chief on record, has advocated freeing up controls on interest rates and reducing intervention in the exchange rate. “If Guo were to replace him, I wouldn’t expect much change in Chinese policy,” said Nicholas Lardy, author of the book “Markets Over Mao” and a senior fellow at the Peterson Institute for International Economics in Washington. “Guo Shuqing has very similar strong reformist credentials as Governor Zhou.”

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Altogether now.

Is Shorting The Euro The New One-Way Bet? (CNBC)

The euro’s drop to its lowest against the U.S. dollar in over a year may be just the beginning, with some analysts expecting the common currency to fall to levels not seen since 2003. “The euro is vulnerable to a serious hit,” analysts at Barclays said in a note Wednesday. “We now expect a large, multi-year downtrend in the euro, following a substantial deterioration in the euro area’s economic outlook and the ECB’s (European Central Bank) aggressive response to that deterioration.” The euro slipped as low as $1.2764 in early Asian trade Thursday, touching its lowest level since July 2013, after ECB President Mario Draghi said monetary policy will remain loose for as long as it takes to bring the euro zone’s inflation rate up to the central bank’s 2% target.

On Monday, Draghi told the European parliament the central bank may use unconventional tools to spur inflation and growth, which could include quantitative easing, or buying credit and sovereign bonds. Draghi reiterated those views in an interview published Thursday by Lithuanian business daily Verslo Zinios, and noted he expects modest economic growth in the second half of this year after it stalled in the second quarter Also weighing on the common currency, fresh data from the region’s economic powerhouse Germany showed business sentiment fell in September to its lowest level since April of last year.

Barclays cut its 12-month forecast for the euro to $1.10 from $1.25, with much of the depreciation expected within six months. Others are equally bearish. “The main drivers of euro trends point to significant weakness,” Societe Generale said in a note earlier this week. “Draghi will succeed in weakening the euro now because in the coming months the contrast between euro area and U.S. economic performance will translate into monetary policy divergence as the ECB remains accommodative but the Federal Reserve first stops buying assets and then raises rates from mid-2015 onwards.”

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Well, that sounds realistic …

Rapid Growth At Top Of Agenda For Emerging Market Businesses (CNBC)

Emerging economies look to corporations to keep their economies expanding at their rapid rates, according to a survey. One in three (34%) of the public and 30% of business leaders in emerging economies said helping to strengthen the economy was the most important responsibility for a company, according to the CNBC/Burson-Marsteller Corporate Perception Index. Job creation was the second most important responsibility for corporations. In developed markets however, the trend was flipped with job creation seen as the number one role of corporations, followed by helping the economy more generally. Emerging market countries are known for their rapid economic growth, which has appealed to investors over recent years. China is obsessed with its growth rate and the government continues to push for a 7.5% target. This focus on rapid growth is behind the results of the survey, according to economists.

“Growth is key and it is all about growth,” Benoit Anne, head of global emerging market strategy at Societe Generale, told CNBC by phone. “In emerging markets unemployment seems to be less of a concern because the informal economy is large and premium is attached to growth considerations.” 37% of the general public in developed countries, which includes Spain, France and the U.K., said creating jobs was the most important role for an organization, while 31% of business executives thought this was the case. The euro zone economy has been struggling since the 2008 crisis and even Germany, the bloc’s largest economy contracted in the second quarter. Unemployment in the 18 country zone stands at 11.5%, and in Spain at 24.5%. This, combined with increasing perception of income inequality, has driven the results of the survey, analysts said.

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Power.

What Does The US Gain From Paying For Europe’s Security? (RT)

Despite the fact that Europe is a very rich continent – the EU’s total GDP is higher than the US – Americans are bankrolling its security. The only way to explain the background to this conundrum is in fairytale style. When detailed in analytical text it’s even more baffling, and I don’t want to confuse everyone. Once upon a time in a land far away there were two families, the Europas and the Amerigos, who were closely related. The Europa’s fought bloody wars for millennia, mainly due to disputes between kings and queens they declared fealty to, and a few centuries ago, the Amerigos moved out of the home region. After that, the Europas continued to – constantly – argue and the Amerigos became extremely rich in their new homeland. Then, about 70 years ago, the Europas had the mother, father and cousin of all internal rows and much of the family was annihilated in a mass fratricide, but the Amerigos and their other cousins, the Sovetskys, came to save them.

While the Europas became largely poor as a result of the conflict, the Amerigos and the Sovetskys were bolstered and decided they both wanted to be top dog. They then ‘fought’ a cold war for 45 years. The Amerigos worshipped free markets, but the Sovetskys believed in socialism. The Europas were divided by the ‘isms’ – capital and social. Most of the family members on the west side of town supported the Amerigos but the east end of things fancied the Sovetskys ideas. Eventually, the Sovetskys system of communism proved inadequate and their power dissipated so the Europas began to unite again. But something had changed. A half century of peace and stability meant that the western Europas were now as wealthy as the Amerigos but the eastern branch were not; in fact, many on the east side of town were sickeningly poor after their system had collapsed.

The western Europas had become used to the Amerigos looking after security needs, but most of them were no longer afraid of the Sovetskys, who had now embraced the free market ideology and were called the Rus. They’d changed their names after half the family had splintered into smaller groups. However, many of the eastern Europas were still extremely afraid of the Rus and they pressured the Amerigos into also paying for their security. The Amerigos had promised the Rus after the Sovetsky split that they wouldn’t interfere with former family members – but this promise was broken. Now the eastern Europas too had their safety bankrolled by the Amerigos. However, they didn’t run off and join their cousins, instead they re-united with the western branch of the Europa family.

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Blame Putin.

Ukraine Is Broke – And Winter Is Coming… (RT)

How broke is Ukraine? On a scale of one to 10, I’d venture 10 and a half. What the well-meaning idiots from abroad haven’t talked about is how dependent Kiev’s economy is on Russia. In 2013, more than 60% of their exports went to post-Soviet countries. Meanwhile, export levels have, officially, fallen by a gigantic 19% already this year (and the real figure is probably much worse). Also, what little high-end manufacturing Ukraine had was almost entirely beholden to the Russian military-industrial complex. An example is Antonov, the famed aircraft maker, which recently had to write off $150 million when it couldn’t deliver an order to the Russian Air Force. Antonov’s planes can’t compete in western markets, so without the Russian market the company is finished. Good news for Komsomolsk-on-Amur (the home of Sukhoi) in Russia’s Far East, but a tragedy for the 12,000 employees of Antonov, near Kiev.

I’m not sure how Roshen Chocolates is doing, but with a $1.3 billion fortune, its owner, oligarch Willy Wonka, or President Petro Poroshenko as he’s better known, won’t be going hungry. He’s one of the lucky ones. Industrial production has fallen off a cliff in Ukraine, down over 20% already this year and retail sales aren’t far off, at about 19%. Foreign currency reserves have collapsed by around 25%, even with emergency IMF funding. Yet, that’s not even close to the largest concern. This would be the currency, the hryvna, which crumbled by 11% against the dollar last Friday alone. A year ago, the rate was around 8.1, it’s now a startling 13.5. Great news for those paid in greenbacks, but 99% of locals are remunerated in hryvnas. Inflation is north of 14% and is set to increase dramatically in the short-term as the currency is geared in only one direction. Winter is coming, and anyone who has been in Kiev in January can tell you how shivery that gets. It’s a special variety of biting cold and it takes more than North Face – for the few can afford it – to survive the onslaught.

Ukraine imports 80% of its natural gas – and most of that comes from Russia. A real problem here is that Kiev currently owes Gazprom, Russia’s state gas giant, $4.5 billion. In fact, Ukraine’s single most profitable export service (worth $3 billion annually) is transit fees for Gazprom’s access to other European markets. This is what is known as a “double bind.” I didn’t mention the IMF loans yet. They are not “aid” – and they must be repaid. The latest guarantee was around $20 million and there have been suggestions that a sizeable portion has been looted by kleptocrat insiders already. The IMF’s Articles of Agreement forbid it to make loans to countries that clearly cannot pay. Unless the agency is willing to tear up its rule book – thus making Greeks the happiest people alive – it’s clear that emergency funding from that source is also about to grind to a halt.

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Good Parry piece.

The High Cost of Bad Journalism on Ukraine (Robert Parry)

To blame this crisis on Putin simply ignores the facts and defies logic. To presume that Putin instigated the ouster of Yanukovych in some convoluted scheme to seize territory requires you to believe that Putin got the EU to make its reckless association offer, organized the mass protests at the Maidan, convinced neo-Nazis from western Ukraine to throw firebombs at police, and manipulated Gershman, Nuland and McCain to coordinate with the coup-makers – all while appearing to support Yanukovych’s idea for new elections within Ukraine’s constitutional structure. Though such a crazy conspiracy theory would make people in tinfoil hats blush, this certainty is at the heart of what every “smart” person in Official Washington believes. If you dared to suggest that Putin was actually distracted by the Sochi Olympics last February, was caught off guard by the events in Ukraine, and reacted to a Western-inspired crisis on his border (including his acceptance of Crimea’s request to be readmitted to Russia), you would be immediately dismissed as “a stooge of Moscow.”

Such is how mindless “group think” works in Washington. All the people who matter jump on the bandwagon and smirk at anyone who questions how wise it is to be rolling downhill in some disastrous direction. But the pols and pundits who appear on U.S. television spouting the conventional wisdom are always the winners in this scenario. They get to look tough, standing up to villains like Yanukovych and Putin and siding with the saintly Maidan protesters. The neo-Nazi brown shirts are whited out of the picture and any Ukrainian who objected to the U.S.-backed coup regime finds a black hat firmly glued on his or her head. For the neocons, there are both financial and ideological benefits. By shattering the fragile alliance that had evolved between Putin and Obama over Syria and Iran, the neocons seized greater control over U.S. policies in the Middle East and revived the prospects for violent “regime change.”

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But not going to happen.

Russia Calls For International Probe Into Ukraine Mass Burial Sites (RT)

Russia is calling for an international investigation into the discovery of burial sites with signs of execution at locations where the Ukraine National Guard forces were stationed two days earlier. The head of Russia’s presidential human rights council, Mikhail Fedotov, has called on the authorities to do everything to “ensure an independent international probe” and “let international human rights activists and journalists” gain access to the site in Eastern Ukraine’s embattled Donetsk region. The crime, Fedotov noted, shouldn’t “remain without consequences.” He didn’t exclude the discovery of other burial sites, reminding that mass killings are “the reality of the modern-day war” and that such crimes were committed in the wars in the former Yugoslavia. The burial sites near the Kommunar mine, 60 kilometers from Donetsk, were first discovered on Tuesday by self-defense forces. Four bodies have been exhumed, including those of three women. Their hands were tied, at least one of the bodies was decapitated, self-defense fighters said.

Two bodies were found Monday, and two others Tuesday. Self-defense forces believe there might be other burials in the area. “They are from Kommunar, which has just been freed [by DNR/DPR forces]. The people told me that the women had been missing and here we found four bodies. And I don’t know how many more people we might find,” a self-defense fighter, nicknamed Angel, told RT. “The peaceful Ukrainian army came here and “liberated” them but I can’t understand what the Army freed them from. These women died horribly,” his comrade, Alabai, added. Self-defense forces said that near the mine – which was abandoned by the Ukrainian forces a few days ago – there are other burial sites which will also be examined.

OSCE monitors have already visited and inspected the burial site. According to the OSCE report published Wednesday, some of the victims buried not far from Donetsk were killed a month ago. Near an entrance to the village the organization’s staff saw “a hill of earth, resembling a grave” and a sign with the initials of five people and a date of death – August 27, 2014. This was one of the three unidentified burial sites discovered by OSCE monitors. Prosecutors in the Donetsk People’s Republic have started an investigation. Russian Foreign Ministry’s envoy for human rights, Konstantin Dolgov, said on Twitter that the Ukrainian army was to blame for the killings. “The finding of mass burial sites in Donetsk area is yet another trace of the Ukrainian forces’ and radical nationalists’ humanitarian crime,” Dolgov said. “This beastly crime targeting civilians attracts our attention even more to the necessity of investigating humanitarian crimes in Ukraine under international control,” he added.

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Not just the US, I’d venture.

How the US Screwed Up in the Fight Against Ebola (BW)

It was a small victory in a grim, relentless, and runaway catastrophe. In July, Kent Brantly and Nancy Writebol, both American medical workers in Liberia, became stricken with Ebola hemorrhagic fever after treating dozens suffering from the disease, which has a mortality rate of between 50% and 90%. They were rushed doses of an experimental cocktail of Ebola antibodies called ZMapp, flown home via a Gulfstream III on separate flights on Aug. 2 and 5, and isolated inside a special tent called an “aeromedical biological containment system.” The U.S. State Department and the Centers for Disease Control and Prevention (CDC) coordinated the flights, operated by Phoenix Air, a private transport company based in Georgia. Cared for in a special ward at Emory University in Atlanta, they recovered within the month and later met with President Obama. It appeared a win for the White House.

Mapp Biopharmaceutical, the San Diego company that developed ZMapp, is also in a way a White House project. It’s supported exclusively through federal grants and contracts that go back to 2005. The antibody mixture hadn’t yet passed its first phase of human clinical trials, but after the two Americans were infected with Ebola, the Food and Drug Administration granted emergency access to ZMapp. It’s impossible to say whether ZMapp was vital to the Americans’ survival. There were a limited number of doses available. Mapp ran out after having given doses to the two Americans, a Spanish priest, and doctors in two West African countries, although it declined to say how many. And that raised a fair question: Why hadn’t the promising treatment gone through human clinical trials sooner, and why were there so few doses on hand?

Since appearing in Guinea in December, Ebola has spread to five West African countries and infected 5,864 people, of which 2,811 have died, according to the World Health Organization’s Sept. 22 report. This number is widely considered an underestimate. The CDC’s worst-case model assumes that cases are “significantly under-reported” by a factor of 2.5. With that correction, the CDC predicts 21,000 total cases in Liberia and Sierra Leone alone by Sept. 30. A confluence of factors has made it the biggest Ebola outbreak yet. For starters, West Africa has never seen Ebola before; previous outbreaks have mainly surfaced in the Democratic Republic of the Congo in Central Africa. The initial symptoms of Ebola—fever, vomiting, muscle aches—are also similar to, and were mistaken for, other diseases endemic to the region, such as malaria.

Then, when officials and international workers swept into villages covered head to toe and took away patients for isolation, some family members became convinced that their relatives were dying because of what happened to them in the hospitals. They avoided medical care and lied to doctors about their travel histories. Medical staff at local hospitals became scared and quit their jobs. Aid workers trying to set up isolation units or trace infected people’s contacts were attacked by angry villagers. With these countries short on resources, staff, medical equipment, and basic understanding of the disease, Ebola took hold and spread.

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Ambrose is the epitomy of techno-happy. And he proves once more than actual knowledge has nothing to do with it.

Technology Revolution In Nuclear Power Could Slash Costs Below Coal (AEP)

The cost of conventional nuclear power has spiralled to levels that can no longer be justified. All the reactors being built across the world are variants of mid-20th century technology, inherently dirty and dangerous, requiring exorbitant safety controls. This is a failure of wit and will. Scientists in Britain, France, Canada, the US, China and Japan have already designed better reactors based on molten salt technology that promise to slash costs by half or more, and may even undercut coal. They are much safer, and consume nuclear waste rather than creating more. What stands in the way is a fortress of vested interests. The World Nuclear Industry Status Report for 2014 found that 49 of the 66 reactors under construction – mostly in Asia – are plagued with delays, and are blowing through their budgets.

Average costs have risen from $1,000 per kilowatt hour to around $8,000/kW over the past decade for new nuclear, which is why Britain could not persuade anybody to build its two reactors at Hinkley Point without fat subsidies and a “strike price” for electricity that is double current levels. All five new reactors in the US are behind schedule. Finland’s giant EPR reactor at Olkiluoto has been delayed again. It will not be up and running until 2018, nine years late. It was supposed to cost €3.2bn. Analysts now think it will be €8.5bn. It is the same story with France’s Flamanville reactor. We have reached the end of the road for pressurised water reactors of any kind, whatever new features they boast. The business is not viable – even leaving aside the clean-up costs – and it makes little sense to persist in building them. A report by UBS said the latest reactors will be obsolete by within 10 to 20 years, yet Britain is locking in prices until 2060.

The Alvin Weinberg Foundation in London is tracking seven proposals across the world for molten salt reactors (MSRs) rather than relying on solid uranium fuel. Unlike conventional reactors, these operate at atmospheric pressure. They do not need vast reinforced domes. There is no risk of blowing off the top. The reactors are more efficient. They burn up 30 times as much of the nuclear fuel and can run off spent fuel. The molten salt is inert so that even if there is a leak, it cools and solidifies. The fission process stops automatically in an accident. There can be no chain-reaction, and therefore no possible disaster along the lines of Chernobyl or Fukushima. That at least is the claim.

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