Oct 302016
 
 October 30, 2016  Posted by at 7:51 am Finance Tagged with: , , , , , , , , ,  1 Response »


Jack Delano The Chicago & North Western between Chicago and Clinton, Iowa 1943

It looks like I owe you an update. Things move fast in the FBI vs Huma Abedin case. When only some 24 hours ago I started writing my article “Throw Huma Under the Bus?”, there was one thing I did not know at all, one thing I was guessing at as much as the reporters who brought it up, and one I couldn’t verify sufficiently to feel comfortable about including it in the piece.

First, what I did not know at all was the role of Department of Justice head and US Attorney General, Loretta Lynch. Nobody I had read wrote a single word about her role, and I said “Wait a minute! Anybody seen Loretta Lynch lately?”. 24 hours later we know that Lynch, and the DOJ, actively attempted to keep James Comey from writing his infamous letter to members of Congress.

These attempts were ostensibly based on a ‘longstanding’ tradition of the DOJ and FBI to minimalize any potential interference in (presidential) elections. Given that Comey didn’t have ‘enough’ solid evidence gathered from the emails, Lynch et al apparently told him he should not come forward. But it turns out there’s a dark flipside to this argument, please bear with me.

Second, there was the ‘rumor’, or whatever we may call it, that Comey faced pressure from agents (or ‘assets’) in the Bureau to either come forward or risk having details leaked into the press from within the FBI. This is still not verified, and maybe never will be, but it does fit a narrative that’s starting to take shape. Though perhaps not quite the way one might have suspected.

Third, something I couldn’t verify sufficiently, was the issue of a warrant the FBI would need to examine the emails on devices owned by, and in at least some cases shared by, Huma and husband Anthony Weiner. I had seen this, and wrote in yesterday’s Debt Rattle at the Automatic Earth that “The NY Post suggests that NBC suggests that the FBI needs a fresh warrant to study the new batch of emails..”. Nobody else mentioned it though.

But now there’s more on that aspect, and it changes the story, perhaps a lot. In an overall pretty good article, Yahoo’s Michael Isikoff has this:

FBI Still Does Not Have Warrant To Review New Abedin Emails Linked To Clinton Probe

When FBI Director James Comey wrote his bombshell letter to Congress on Friday about newly discovered emails that were potentially “pertinent” to the investigation into Hillary Clinton’s private email server, agents had not been able to review any of the material, because the bureau had not yet gotten a search warrant to read them, three government officials who have been briefed on the probe told Yahoo News.

At the time Comey wrote the letter, “he had no idea what was in the content of the emails,” one of the officials said, referring to recently discovered emails that were found on the laptop of disgraced ex-Rep. Anthony Weiner, the estranged husband of top Clinton aide Huma Abedin. Weiner is under investigation for allegedly sending illicit text messages to a 15-year-old girl.

As of Saturday night, the FBI was still in talks with the Justice Department about obtaining a warrant that would allow agency officials to read any of the newly discovered Abedin emails, and therefore was still in the dark about whether they include any classified material that the bureau has not already seen. “We do not have a warrant,” a senior law enforcement official said.

When I saw that confirmed, a whole new picture started emerging. You have on the one side James Comey who does something ‘unprecedented’, for which he knows he’ll face a lot of flack. On the other you have Loretta Lynch, a staunch Democrat not known to be nearly as impartial as Comey, trying to keep him from sending the letter.

And on top of that you have ‘negotiations’ between the DOJ and FBI about obtaining a warrant to get access to the emails. The DOJ can, and still may, refuse to grant the FBI that warrant. But that chance is a lot smaller now than if Comey had not sent his letter. By bringing the matter out into the open, he’s hugely increased the pressure on Lynch to issue the warrant.

What we have here in fact is a power struggle. And as I hinted before, this may not be Lynch vs Comey directly, but it may come from within the FBI. Where various ‘assets’ have become so frustrated with how the investigations have been conducted so far that they have put pressure on Comey that may even have taken the form of an ultimatum. “We’ll leak unless we get a warrant”.

But it’s quite possible that Comey himself is the one behind the pressure on the DOJ, it’s quite possible that he has grown as weary as his people of the ‘progress’ in the entire Hillary email proceedings.

There is no indication from the eight-page FBI report on the interview, however, that the agents ever pressed her on what has now turned into an explosive issue in the final days of the 2016 campaign: Did Weiner have access to any classified government documents on his laptop and iPhone — devices that, he apparently used to exchange sexually charged messages with women he met online, including in one alleged case, an underage teenager in North Carolina?

The fact that FBI agents failed to follow up on this shows that the original probe into the Clinton email server was “not thorough” and was “fatally flawed,” said Joseph DiGenova, a former U.S. attorney and independent counsel who has been a strong critic of Comey and the FBI probe. “The first thing they should have done was gotten a sworn affidavit about all her accounts and devices,” he said, adding that agents should have immediately attempted to obtain the devices, including Weiner’s.

We don’t know why the agents haven’t. The suggestion I referred to yesterday that Huma Abedin may have been granted a ‘secret immunity’ deal could have played a big part in that. After all, there must be some reason why no devices were seized in ‘part 1’ of the investigation; even if that reason is not exactly public knowledge. The ‘secret immunity’ and the lack of devices seized, of course remind us again of Lynch’s meeting with Bill Clinton on a tarmac in Phoenix back in June.

Agents may simply not have had the authority to ‘obtain’ the devices. Whether that was because the DOJ actively frustrated their investigation, or the orders came from Comey, we don’t know and we never may. But something’s changed since then. That’s what Comey’s letter, and its timing, strongly seems to suggest.

About the material found on Weiner’s devices, Hillary’s side of course has a good idea what’s in the emails. Huma has been thoroughly grilled by now, if she hadn’t been before. The FBI probably has at least a partial idea: it’s highly likely they have seen things when investigating Weiner that would now be a part of the Hillary email investigation if the warrant were issued.

Hillary and other Dems can now protest Comey’s actions all they want, and demand full openness, but they know full well that this openness depends on ‘their own Loretta Lynch’ granting the FBI that warrant. And every single second that the warrant is not issued is a dark cloud on Hillary’s campaign, and indeed on the whole of America.

Of course the Democrats would love to lift this whole thing over November 8, and that’s why they seek to play for time and focus -again- not on the content but on the process, the proceedings and the individuals involved. People inside the FBI -whether that includes Comey or not- appear to think that would not serve democracy. But they have tens of thousands of mails to dig through even if they get the warrant, and that takes time. Will they get that time?

There’s no way Comey is not smart enough to have seen coming what’s happening now. From the Democrats’ favorite son he’s become in their eyes so incompetent they even suggest he may be yet another of Putin’s assets in America.

Is he seeking to right a wrong? Did he think that no matter what he did he would be fed to either the Republican or the Democrat sharks anyway? Or was he pressured by his ‘assets’? Right now, it seems too soon to tell. But don’t be surprised if James Comey comes out of this looking like a true American Hero. Even if it costs him his job.

 

 

Sep 212016
 
 September 21, 2016  Posted by at 9:16 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle September 21 2016


Harris&Ewing Preparations for the inauguration of Woodrow Wilson, Court of Honor before White House 1913

Unlike in 1986, This Time US Might Not Dodge a Recession: Deutsche Bank (BBG)
Get Ready For The Mother Of All Stock Market Corrections (Tel.)
Japan Exports Fall 11th Straight Month, 9.6% YoY, Imports Plunge 17.3% (R.)
Bank of Japan Overhauls Policy Framework, Sets Yield Curve Target (R.)
Bank of Japan Introduces Rate Target for 10-Year Government Bonds (WSJ)
Could Germany Allow Deutsche Bank To Go Under? (Golem XIV)
Keynesian Deflation Humbug (Mish)
Nobody Has Ever Shut Down The World’s Best Drilling Rigs – Until Now (BBG)
Crude Slips As Venezuela Says Market Is 10% Oversupplied (Dow Jones)
SEC Probes Exxon Over Asset Valuation, Climate Change Accounting (WSJ)
Court Says Hanjin Shipping Rehab Plan ‘Realistically Impossible’ (R.)
Elizabeth Warren to Wells Fargo CEO: Resign, Return Earnings, Face Inquiry (G.)
Mexico Police Raid Sawmills To Rescue Monarch Butterfly Refuge (AFP)
Italy PM Renzi: Merkel Is ‘Lying To The Public’, Europe Is a ‘GHOST’ (Exp.)
EU: Refugees Must Stay On Greek Islands Despite Lesbos Fire (AP)

 

 

There are few things more nonsensical than ‘experts’ saying things like “..there’s a 30% probability that the U.S. will succumb to a recession over the next 12 months..” Yet, people keep listening.

Unlike in 1986, This Time US Might Not Dodge a Recession: Deutsche Bank (BBG)

Falling corporate margins, weakness in the U.S. labor market and rising corporate default rates — all features of the U.S. economy in 1986, a year it avoided a recession. Even if this year markets are largely shrugging off the deterioration in those key indicators and betting grim readings are down to temporary forces, Deutsche Bank strategists say to take little hope from a 30-year old precedent. Investors jittery over bleak readings on a slew of macro and corporate data have seized on 1986, when the same signals for a U.S recession were in place but the economy ended up growing 3.5% after inflation.

But bets on the continued expansion in U.S. output over the next year might be misplaced, according to European equity strategists at Deutsche Bank, since the economy is on a significantly weaker footing compared to the year that saw the release of Ferris Bueller’s Day Off. They restate the bank’s call that there’s a 30% probability that the U.S. will succumb to a recession over the next 12 months. That compares pessimistically with the 20% that is the average expectations of analysts surveyed by Bloomberg — and even with other analysts at the bank.

Read more …

…when central banks stop printing…

Get Ready For The Mother Of All Stock Market Corrections (Tel.)

[..] According to Chris Watling at Longview Economics, a wide range of indicators confirm the message: recession risks are rising. And if a recession is indeed looming, it almost certainly means a bear market in equities. Looking at all the US recessions of the last 77 years, Mr Watling finds that there is only one (1945) which has not been accompanied by a stock market correction. Complicating matters further is an ever more worrisome phenomenon – that both bond and equity markets are being artificially propped up by central bank money printing. Further easing this week from the Bank of Japan would only deepen the problem. Yet eventually it must end, and when it does, share prices globally will return to earth with a bump. Only lack of alternatives for today’s ever rising wall of money seems to hold them aloft.

Over the last year, central bank manipulation of markets has reached ludicrous levels, far beyond the “quantitative easing” used to mitigate the early stages of the crisis. Through long use, “unconventional monetary policy” of the original sort has become ineffective, and, well, simply conventional in nature. To get pushback, central banks have been straying ever further onto the wild-west frontiers of monetary policy. Today it’s not just government bonds which are being bought up by the lorry load, but corporate debt, and in the case of the Bank of Japan and the Swiss National Bank (SNB), even high risk equities. [..] For global corporations at least, credit has never been so free and easy, encouraging aggressive share buy-back programmes.

This in turn further inflates valuations already in danger of losing all touch with underlying fundamentals. By the by, it also helps trigger lucrative executive bonus awards. Where’s the real earnings and productivity growth to justify the present state of stock markets? As long as the central bank is there to do the dirty work, it scarcely seems to matter. In any case, the situation seems ever more precarious and unsustainable. Conventional pricing signals have all but disappeared, swept away by a tsunami of newly created money. Globally, the misallocation of capital must already be on a par with what happened in the run-up to the financial crisis, and possibly worse given the continued build-up of debt since then.

Read more …

World trade summed up.

Japan Exports Fall 11th Straight Month, 9.6% YoY, Imports Plunge 17.3% (R.)

Japan’s exports fell 9.6% in August from a year earlier, posting an 11th straight month of decline, Ministry of Finance data showed on Wednesday, underscoring sluggish external demand. The fall compares with a 4.8% decrease expected by economists in a Reuters poll. It followed a 14.0% drop in July, the data showed. Imports fell 17.3% in August, versus the median estimate for a 17.8% decline. The trade balance swung to a deficit of 18.7 billion yen ($184 million), versus the median estimate for a 202.3 billion yen surplus. It was a first trade deficit in three months.

Read more …

Who says Kuroda has no sense of humor? After failing to lift inflation for years, he now says he will “..allow inflation to overshoot its target..

Bank of Japan Overhauls Policy Framework, Sets Yield Curve Target (R.)

The Bank of Japan added a long-term interest rate target to its massive asset-buying program on Wednesday, overhauling its policy framework and recommitting to reaching its 2% inflation target as quickly as possible. The central bank also said it will allow inflation to overshoot its target by maintaining an ultra-loose policy – beefing up its previous commitment to keep policy easy until the target was reached and kept in a stable manner. At the two-day rate review that ended on Wednesday, the BOJ maintained the 0.1% negative interest rate it applies to some of the excess reserves that financial institutions park with the central bank.

But it abandoned its base money target and instead adopted “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero %. The BOJ said it would continue to buy long-term government bonds at a pace that ensures its holdings increase by 80 trillion yen ($781 billion) per year. Under the new framework that adds yield curve control to its current quantitative and qualitative easing (QQE), the BOJ will deepen negative rates, lower the long-term rate target, or expand base money if it were to ease again, the central bank said in a statement announcing the policy decision. “The BOJ will seek to lower real interest rates by controlling short-term and long-term interest rates, which would be placed as the core of the new policy framework,” it said.

Read more …

But seriously, historians will look back on today wondering how on earth we could have all swallowed this continuing gibberish.

Bank of Japan Introduces Rate Target for 10-Year Government Bonds (WSJ)

Japan’s central bank took an unexpected step Wednesday, introducing a zero interest-rate target for 10-year government bonds to step up its fight against deflation, after an internal review of previous measures that fell short of expectations. he adoption of a long-term target, the first such attempt in the BOJ’s history, came as global central banks struggle to find ways to get prices rising. Financial markets gyrated following the Bank of Japan’s announcement of what it called a “new framework” to overcome deflation. Some thought it illustrated the limits of the BOJ’s powers, since the decision didn’t include any direct new stimulus measures, while others were encouraged by the BOJ’s tone.

“Investors are showing a positive response as they got the feeling that the BOJ will do whatever it can do to tackle deflation,” said Kengo Suzuki at Mizuho Securities in reference to the yen’s fall following the BOJ action. The dollar was around 102.60 yen in afternoon Tokyo trading, compared with around 101.90 yen before the decision. The 10-year Japanese government bond yield had already been near zero in recent weeks. It was minus 0.06% just before the decision and was minus 0.03% in Tokyo afternoon trading hours after the decision. The new framework puts 10-year interest rates at the center of policy, a contrast to the BOJ’s approach for the last 3 1/2 years under Gov. Haruhiko Kuroda, when asset purchases and expanding the monetary base were the key policy tool.

Read more …

Smart from Golem.

Could Germany Allow Deutsche Bank To Go Under? (Golem XIV)

[..] public bail outs are supposed to be strictly temporary. No holding 80% of RBS for most of a decade. Really? But that’s not the point which is important for Deutsche Bank. The important point is that in any sale of the viable parts of Germany’s only G-SIB, the brutal fact of the matter is that there is no other German financial institution that could afford to buy any of it. Commerzbank? Allianz? Letting an insurer buy a bank? So imagine the situation for Germany. They lose their seat at the top table and then they watch as France, England, American or perhaps China buy the crown of German financial might. So I don’t think it will ever happen. Or at least it will only happen when Germany is truly out of any other options. So if Deutsche is not going to be declared “no longer viable” what are the alternatives?

One option is the UniCredit route. UniCredit was a trillion euro bank. It was Italy’s flag carrier. It had bought Bavaria’s banks and some of Austria’s as well. And yet it’s share price was always paltry. Just 7.6 Euros at the market top in May ’07. And since then it has been a hollow and enfeebled giant. Lumbering and ineffectual. It has been the laughing stock of European banks. But Italy doesn’t seem to mind. They seem content to let UniCredit be the quintessential Zombie bank. Would Germany be as sanguine to leave Deutsche to go the same way? This would, I suggest, be almost as injurious to German pride and industrial policy as letting Deutsche go down completely.

But if Germany decided it could not face the financial consequences of obeying the letter of the resolution law nor leave the bank to be a bloated and useless zombie then the alternatives bring in their train even greater political upheavals. Imagine the German government decides that not bailing out Deutsche just inflicts too much damage on Germany – potentially reducing Germany from the front rank of globally significant nations to something lesser. It becomes a matter of national pride if not of survival. So Germany ignores all the FSB rules and regulations and bails Deutsche bringing it into government ownership/protection – call it what you like. In so doing it demolishes the entirety of European policy regarding bail outs, government debts and austerity.

Where then all the German insistence on fiscal discipline it has forced upon Greece, Ireland, Portugal, Spain and Italy? The Bundesbank, Berlin and the ECB would have no authority at all. Every country would have a green light to do the same for their flag carriers. It would be the end the European experiment. Or the European system would have to try to continue without Germany. And that could only happen if all debts to Germany were repudiated. I realise all this is speculation. But Deutsche has lost 90% of its value. Only RBS has lost more. Deutsche has 7000 legal cases against it. Frau Merkel is losing her grip, Brexit rocked the complacent rulers of Euroland and Madame Marine Le Pen would like to push France to do the same.

Read more …

Mish restates the obvious: “Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it’s precisely the opposite.”

Keynesian Deflation Humbug (Mish)

Hip, hip, hooray! The CPI is up more than expected, led by a huge 1.1% month-over-month surge in medical care supplies. Medical care services jumped 0.9%, and shelter jumped 0.3%. This will not help the economy. And it will subtract from consumer spending other than Obamacare and rent, but economists are cheering.

Real World Happiness

  • Food at home -1.9%
  • Energy -9.2%
  • Gasoline -17.3%
  • Fuel Oil -12.8%
  • Electricity -.07%
  • Used cars -4.0%

Unreal World Happiness

  • Food Away From Home +2.8%
  • Medical Care Commodities +4.5%
  • Shelter +3.4%
  • Transportation Services +3.1%
  • Medical Care Services +5.1%

Keynesian Theory vs. Practice Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it’s precisely the opposite. If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.

Reality Check Questions

  • If price of food drops will people stop eating?
  • If the price of gasoline drops will people stop driving?
  • If price of airline tickets drop will people stop flying?
  • If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
  • If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
  • If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
  • Will people delay medical procedures in expectation of falling prices?
  • If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

Anyone who thinks soaring Obamacare and rent is a good thing and will help the economy is crazy.

Read more …

Forget the OPEC output cut talks, here’s what’s really happening in oil.

Nobody Has Ever Shut Down The World’s Best Drilling Rigs – Until Now (BBG)

In a far corner of the Caribbean Sea, one of those idyllic spots touched most days by little more than a fisherman chasing blue marlin, billions of dollars worth of the world’s finest oil equipment bobs quietly in the water. They are high-tech, deepwater drillships – big, hulking things with giant rigs that tower high above the deck. They’re packed tight in a cluster, nine of them in all. The engines are off. The 20-ton anchors are down. The crews are gone. For months now, they’ve been parked here, 12 miles off the coast of Trinidad & Tobago, waiting for the global oil market to recover. The ships are owned by a company called Transocean Ltd., the biggest offshore-rig operator in the world. And while the decision to idle a chunk of its fleet would seem logical enough given the collapse in oil drilling activity, Transocean is in truth taking an enormous, and unprecedented, risk.

No one, it turns out, had ever shut off these ships before. In the two decades since the newest models hit the market, there never had really been a need to. And no one can tell you, with any certainty or precision, what will happen when they flip the switch back on. It’s a gamble that Transocean, and a couple smaller rig operators, felt compelled to take after having shelled out millions of dollars to keep the motors running on ships not in use. That technique is called warm-stacking. Parked in a safe harbor and manned by a skeleton crew, it typically costs about $40,000 a day. Cold-stacking – when the engines are cut – costs as little as $15,000 a day. Huge savings, yes, but the angst runs high.

Read more …

OPES helps the US bring Maduro to his knees.

Crude Slips As Venezuela Says Market Is 10% Oversupplied (Dow Jones)

Oil prices dipped to a new one-month low Tuesday as hopes for any deal between OPEC countries and Russia to freeze production continued to fade. U.S. crude for October delivery recently fell 14 cents, or 0.3%, to $43.18 a barrel on the New York Mercantile Exchange. The October contract expires at settlement, and the more actively traded November contract recently fell 27 cents, or 0.6%, to $43.59 a barrel. Brent, the global benchmark, fell 42 cents, or 0.9%, to $45.53 a barrel on ICE Futures Europe. Recent trade has been marked by fears that more OPEC members are intent on increasing production, even as leaders discuss the possibility of an output cap. Libya, Iran and Nigeria combined want to increase their output by about 1.5 million barrels a day this year.

Even Venezuela is raising exports, despite financial and production troubles, and the moves from all these countries are a clear message that none would be interested in agreeing to a cap, said Bjarne Schieldrop from Sweden’s SEB bank. He added that any deal would probably allow exceptions for Nigeria, Libya, Venezuela and Iran to lift production, possibly nullifying any agreement. “It doesn’t seem like any oil producers outside of North America are doing anything to control their production levels,” said Gene McGillian, research manager at Tradition Energy. Oil has been in a steady downtrend for the better part of two weeks with concerns over lingering oversupply. Prices are down 9.4% since they hit a high point for nearly the past month on Sept. 8.

The biggest drop came in two days last week after the International Energy Agency said a slowdown in global oil demand growth accelerated this quarter, sinking to 800,000 barrels a day – 1.5 million barrels a day lower than the third quarter of 2015. Despite that and talks of an output cap, data show OPEC members broadly producing near-record amounts of crude. “Fundamentals suggest the oil market is likely to remain in surplus for longer than many expected,” strategists at ING Bank said in a note.

Read more …

Exxon has not: 1) written down valuations of reserves as prices plunged, and 2) accounted for the financial consequences of climate change regulations.

SEC Probes Exxon Over Asset Valuation, Climate Change Accounting (WSJ)

The U.S. Securities and Exchange Commission is investigating how Exxon Mobil values its assets in a world of increasing climate-change regulations, a probe that could have far-reaching consequences for the oil and gas industry. The SEC sought information and documents in August from Exxon and the company’s auditor, PricewaterhouseCoopers, according to people familiar with the matter. The federal agency has been receiving documents the company submitted as part of a continuing probe into similar issues begun last year by New York Attorney General Eric Schneiderman, the people said.

The SEC’s probe is homing in on how Exxon calculates the impact to its business from the world’s mounting response to climate change, including what figures the company uses to account for the future costs of complying with regulations to curb greenhouse gases as it evaluates the economic viability of its projects. The decision to step into an Exxon investigation and seek climate-related information represents a moment in the effort to take climate change more seriously in the financial community, said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based advocacy organization that has pushed for more carbon-related disclosure from companies.

“It’s a potential tipping point not just for Exxon, but for the industry as a whole,” he said. As part of its probe, the SEC is also examining Exxon’s longstanding practice of not writing down the value of its oil and gas reserves when prices fall, people familiar with the matter said. Exxon is the only major U.S. producer that hasn’t taken a write down or impairment since oil prices plunged two years ago. Peers including Chevron have lowered valuations by a collective $50 billion.

Read more …

Shipping prices will plummet.

Court Says Hanjin Shipping Rehab Plan ‘Realistically Impossible’ (R.)

The South Korean court overseeing Hanjin Shipping’s receivership said a rehabilitation plan is “realistically impossible” if top priority debt such as backlogged charter fees exceed 1 trillion won ($896 million), South Korea’s Yonhap newswire reported on Wednesday. Hanjin Shipping, the world’s seventh-largest container carrier, filed for receivership late last month in a South Korean court and must submit a rehabilitation plan in December. With debt of about 6 trillion won ($5.4 billion) at the end of June and the South Korean government’s unwillingness to mount a rescue, expectations are low that Hanjin Shipping will be able to survive. Top priority debt means claims for public interests, which are paid first to creditors and include cargo owners’ damages and unpaid charter fees, Yonhap reported citing the Seoul Central District Court.

Read more …

Shouldn’t such an inquiry be as obvious as common sense??

Elizabeth Warren to Wells Fargo CEO: Resign, Return Earnings, Face Inquiry (G.)

Wells Fargo chief executive John Stumpf should resign, return his pay and be criminally investigated over the bank’s illegal sales practices, Senator Elizabeth Warren said on Tuesday. The Massachusetts senator’s comments came moments after Stumpf said he was “deeply sorry” for the more than 2m unauthorized accounts his staff opened for the bank’s customers. The accounts, ranging from credit cards to checking accounts, were opened by thousands of the bank’s employees in an effort to meet Wells Fargo’s sales quotas and have already led to a record $185m fine. While testifying in front of the Senate banking committee, Stumpf said he was “deeply sorry” that the bank let down its customers and apologized for violating their trust.

“I accept full responsibility for all unethical sales practices in our retail banking business, and I am fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust,” Stumpf said in his prepared remarks. Warren accused Stumpf of “gutless leadership”, telling him that his definition of being accountable is to push the blame on lower-level employees who do not have a PR firm to defend them. Warren questioned Stumpf’s compensation, asking him: “Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?” “The board will take care of that,” Stumpf said after attempting to duck the question. He also told Warren that this “was not a scam”.

Warren pointed out that during the time that the unauthorized accounts were being opened, the share price of Wells Fargo went up by about $30. Stumpf personally owns about 6.75m shares of Wells Fargo stock and made more than $200m just off his stock during that time, Warren said. [..] At the hearing Stumpf pointed out that the lowest paid employees at Wells Fargo earn $12 an hour and that the employees let go for opening unauthorized accounts were making “good money”, earning $30,000 to $60,000 a year. “How much money did you make last year?” New Jersey senator Robert Menendez asked Stumpf. “$19.3m,” said Stumpf. “Now that’s good money,” said Menendez.

Read more …

Kudo’s.

Mexico Police Raid Sawmills To Rescue Monarch Butterfly Refuge (AFP)

A special Mexican police unit has raided seven sawmills near the monarch butterfly’s mountain sanctuary in a bid to prevent illegal logging threatening the insect’s winter migration, officials said Tuesday. Backed up by a helicopter, some 220 members of the country’s police force and 40 forestry inspectors participated in the September 12 operation in the western state of Michoacan. North American governments have taken steps since last year to protect the monarch butterfly, which crosses Canada and the United States each year to hibernate on the fir and pine trees of Mexico’s western mountains. Last week’s raid was the first since the government decided in April to add the police to protection efforts for the brilliant orange and black monarchs.

The force has been conducting foot patrols day and night, using drones and helicopters for surveillance when weather permits, Abel Corona, director of the special units, said at a news conference. [..] Illegal logging dropped by 40% between the 2014-2015 and 2015-2016 butterfly season, environmental protection authorities said last month. But March storms killed seven% of the monarchs. The cold spell came after authorities had reported a rebound in the 2015-2016 season, with the butterfly covering 4.01 hectares (9.9 acres) of forest, more than tripling the previous year’s figure.

Read more …

Renzi in his referendum desperation finally tells the truth, somewhat.

Italy PM Renzi: Merkel Is ‘Lying To The Public’, Europe Is a ‘GHOST’ (Exp.)

Angela Merkel has been lying to the public about European unity, Italian Prime Minister Matteo Renzi has said. In a brutal attack on his fellow EU members, he said the first EU summit without the UK amounted to no more than “a nice cruise on the Danube”. Having been excluded from a joint news conference by the German Chancellor, Mrs Merkel and French President Francois Hollande, he said he was dissatisfied with the Bratislava summit’s closing statement. The outspoken Italian premier hit out at the lack of commitments on the economy and immigration in the summit’s conclusions, despite signing it himself. In a fiery interview in Italian daily Corriere della Sera, Mr Renzi intensified his criticisms, although he remained vague on what commitments he would have liked the summit to produce.

The Prime Minister has staked his career on a referendum this autumn over plans for constitutional reform, promising to resign if he loses. Talking about his fellow leaders, he said: “If we want to pass the afternoon writing documents without any soul or any horizon they can do it on their own. “I don’t know what Merkel is referring to when she talks about the ‘spirit of Bratislava’. “If things go on like this, instead of the spirit of Bratislava we’ll be talking about the ghost of Europe.” Mr Renzi said he is preparing a 2017 budget which he claims will cut taxes despite a slowing economy and record high public debt. He added: “At Bratislava we had a nice cruise on the Danube, but I hoped for answers to the crisis caused by Brexit, not just to go on a boat trip.”

He was similarly belligerent about the Italian budget to be presented next month, saying there would be “no negotiation” with Brussels, and money he planned to spend on tackling immigration and making Italy safer from earthquakes would be excluded from EU rules on deficit limits. Other countries were more guilty than Italy of breaking budget rules and Italy had met its commitments on tackling the inflows of migrants crossing the Mediterranean, Renzi said. He said: “I’m not going to stay silent for the sake of a quiet life. “If someone wants to keep Italy quiet they have picked the wrong place, the wrong method and the wrong subject.”

Read more …

In case anyone still had any doubts about this, here’s more proof that it’s the EU, not Greece, that is responsible for the expanding misery. Europe wants the islands to serve as holding pens, so richer Europe doesn’t have to face the consequences of the policies it itself dictates.

“To avoid secondary movement to the rest of Europe, that means keeping asylum seekers on the islands..”

EU: Refugees Must Stay On Greek Islands Despite Lesbos Fire (AP)

Authorities on the island of Lesvos called for the immediate evacuation Tuesday of thousands of refugees to the Greek mainland after a fire gutted a detention camp following protests. But EU officials appeared cool to the idea. More than 4,000 people were housed at the camp in Moria on Lesvos where the fire broke out late Monday, destroying or damaging tents and trailers. No injuries were reported at the camp, about 8 kilometers north of the island’s main town. Nine migrants were arrested on public disturbance charges after the chaotic scenes. Families with young children hastily packed up their belongings and fled into the nearby fields as the fire raged after nightfall. Many were later given shelter at volunteer-run camps. “We have been saying for a very long time that overcrowding on the islands must be eased,” regional governor Christiana Kalogirou said.

“On the islands of the northeast Aegean, official facilities have a capacity of 5,450 places, but more than 10,500 people are there. There is an immediate need to take people off the islands because things will get even more difficult,” she said. More than 60,000 migrants and refugees are stranded in transit in Greece, and those who arrived after March 20 have been restricted to five Aegean islands under an EU-brokered deal to deport them back to Turkey. But the agreement has been fraught with delays. In Brussels, a spokeswoman for the European Commission, Natasha Bertaud, said the Greek government had described the situation as being under control. Transfers to the mainland, she said, would remain limited. “To avoid secondary movement to the rest of Europe, that means keeping asylum seekers on the islands for the most part,” Bertaud said.

Read more …

Sep 202016
 
 September 20, 2016  Posted by at 9:13 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 20 2016


DPC Main Street, Buffalo, NY 1900

The Bank of Japan May Overshadow the Fed on Super Wednesday (CNBC)
Italy PM Renzi Tells Bundesbank To Solve German Banks’ Derivatives Problem (R.)
Housing Crisis Is Driving A “Geographic Wedge” Between Generations (Ind.)
Global Regulators See Risks in European Banks (WSJ)
Shore Up The Euro Before It’s Too Late (R.)
Theresa May Outs Herself as Wall Street’s Poodle in Brexit Talks (NC)
China Creates Global Steel Champion As Doubts Deepen On Output Cuts (AEP)
China’s Property Bubble Keeps Getting Bigger (WSJ)
Chinese Say Home Prices ‘High and Hard to Accept’ but Buying Frenzy Surges (WS)
Yuan Funding Crunch Shows Risks in Reserve Currency Ranking (BBG)
New Zealand’s Sizzling Economy Sees Goldman Go Out On a Limb Over Rates (BBG)
Alabama Selling Bonds Backed by Deepwater Horizon Settlement (BBG)
Slowly, Then All at Once (Jim Kunstler)
Italy ‘Ready To Go It Alone On Migrants’ (ANSA)
Thousands Flee As Blaze Sweeps Through Moria Refugee Camp In Lesbos (G.)

 

 

Stupid circus.

The Bank of Japan May Overshadow the Fed on Super Wednesday (CNBC)

In Super Wednesday’s central bank double-header, the Federal Reserve’s show may be an afterthought to the Bank of Japan’s performance. In a case of unusual timing, both the BOJ and the Fed will announce the outcomes of their monetary policy meetings on Wednesday. [..] Analyst predictions for the BOJ’s next move varied widely, from expectations that the central bank would cut interest rates deeper into negative territory, to changing the size or make up of its quantitative easing asset purchases, to trying to steepen the yield curve or to doing nothing at all. “The BOJ has a propensity to surprise, although most of the time, the surprises are negative,” Lam said. The market certainly took a negative view of the BOJ’s late January surprise move to introduce a negative interest rate policy, when the central bank cut the rate it pays on certain deposits to negative 0.1%.

That counterintuitively sent the yen sharply higher, frustrating policymakers who had hoped a weaker currency would help the BOJ reach its long-delayed 2% inflation target by increasing the cost of imports and spurring more consumption. Indeed, the yen may become the bellwether of how the markets view the twin central bank meetings. “Dollar-yen has fallen pretty much every time we’ve had an FOMC and BOJ meeting week this year,” David Forrester at Credit Agricole told CNBC’s “Street Signs” on Monday. He expected that the BOJ would aim to steepen Japan’s bond yield curve and if that move “impressed” the Nikkei stock index, then the yen might weaken. Forrester also noted that if the Fed sounded more hawkish in its statement, that would push up the dollar, and by extension, weaken the yen.

Read more …

At least $42 trillion worth.

Italy PM Renzi Tells Bundesbank To Solve German Banks’ Derivatives Problem (R.)

Italian Prime Minister Matteo Renzi said on Monday that Germany’s central bank chief Jens Weidmann should concentrate on fixing the problems of his own country’s banks, after Weidmann had urged Italy to cut its huge public debt. Renzi told reporters in New York that Weidmann needed to solve the problem of German banks which had “hundreds and hundreds and hundreds of billions of euros of derivatives” on their books. Renzi, who has staked his career on a referendum on constitutional reform this autumn, has repeatedly criticized other European leaders in the last few days over what he sees as an inadequate European Union response to the problems of the economy and immigration. In an interview with daily La Stampa published on Monday, Weidmann said Italy needed to consolidate its budget to avoid doubts emerging about the sustainability of its public debt.

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How to kill a city, Chapter 26.

Housing Crisis Is Driving A “Geographic Wedge” Between Generations (Ind.)

The housing crisis is driving a “geographic wedge” between the generations, weakening the bond between different age groups, according to new research. The study found that the rise in “age segregation”, caused by the lack of affordable housing for younger people, is damaging our society. Across England and Wales, the number of neighbourhoods in which half the population is aged over 50 has risen rapidly since 1991, the research from the Intergenerational Foundation (IF) found. In 1991 there were just 65 such neighbourhoods. This had risen to 485 by 2014, 60% of which were rural. But within urban areas, older people, children and young adults are also living increasingly separately.

“The housing crisis is driving a geographic wedge between the generations,” the research said. “It means that older and younger generations are increasingly living apart.” Since 1991, the median average age of neighbourhoods near the centre of cities has generally fallen by between five and 10 years, the report said. The report identified Cardiff, with its large student population, as “the most age segregated city in England and Wales”. Brighton, Leeds, Nottingham, Sheffield and Southampton were also identified by the report as age segregation “hotspots”. In Cardiff and Brighton, nearly a quarter of the population would need to move home in order to eliminate age segregation.

Surging house prices and a lack of choice for buyers have meant many people in the younger generation have had to move to find affordable housing close to employment. Younger generations are more likely rent than own, but older generations also face a “last-time buying crisis” due to a general lack of supply and a lack of affordable suitable accommodation to downsize into, the report said. Living apart in this way is making it harder for younger and older generations to look after each other, putting a bigger strain on the NHS. Age segregation also reduces people’s opportunities to find work and makes it harder for people to see different generations’ perspectives, it said.

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It is really simple: “..every euro of loans or securities they own is worth less than 30 cents in risk-weighted assets..”

Global Regulators See Risks in European Banks (WSJ)

Global rule makers think some banks are too clever by half. They want to limit the capital benefits those banks get from sophisticated risk models because they worry that these create a level of accuracy and detail as seductive as it is fallible. The Basel Committee, which sets global banking rules, wants to rein in the outliers: Those banks whose models produce the lowest-risk weightings and create most benefits in reducing their capital requirements. This will disproportionately affect European banks versus U.S. peers because Europeans have long designed their businesses around a risk-based approach to capital, while U.S. banks historically were governed by simpler leverage ratios that use plain asset measures.

It is quite easy to see which banks in Europe face the biggest potential impact from the changes currently being designed and debated by the rule makers who should complete them by the year’s end. Deutsche Bank, Société Générale, Barclays and BNP Paribas all have a relatively low-risk density, which is a measure of how little risk a bank assigns to the assets on its books. Each has a risk density of less than 30%, which means that every euro of loans or securities they own is worth less than 30 cents in risk-weighted assets. And it is risk-weighted assets that determines a bank’s capital requirement. For comparison, J.P. Morgan has a risk density of 61%.

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The answer to all problems with the euro(-zone): more euro.

Shore Up The Euro Before It’s Too Late (R.)

Will the euro survive the next big crisis? A new report inspired by Jacques Delors, one of the architects of the single currency, says it probably won’t and urges policymakers to pursue immediate changes to Europe’s troubled monetary union to ward off the inevitable collapse. The report, entitled “Repair and Prepare – Growth and the Euro after Brexit”, comes at a time when even the most ardent defenders of the euro are cautioning against closer integration in the aftermath of Britain’s vote to leave the European Union. Pressing ahead, they worry, would deepen public resentment towards Europe after years of economic crisis that has pushed up unemployment and sent populist, eurosceptic parties surging in opinion polls.

The authors, a group of academics, think tankers and former policymakers from across Europe, acknowledge the obstacles but argue that politicians cannot afford to wait. They have put together a three-pronged plan for shoring up the euro that they believe is politically feasible despite the troubling backdrop. “Reforming the euro might not be popular. But it is essential and urgent: at some point in the future, Europe will be hit by a new economic crisis,” the report says. “We do not know whether this will be in six weeks, six months or six years. But in its current set-up the euro is unlikely to survive that coming crisis.”

[..] In a first stage to shore up the single currency, they recommend “quick fixes” that include a reinforcement of the euro zone’s rescue mechanism, the ESM, a strengthening of banking union and improved economic policy coordination that does not require changes to the EU treaty. This would be followed by a north-south quid pro quo on structural reforms and investments. In a third stage, the euro zone would move to a more federal structure, with risk and sovereignty sharing. This final stage, the most controversial, could take a decade or more to realize and is described as important but optional.

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So there!

Theresa May Outs Herself as Wall Street’s Poodle in Brexit Talks (NC)

The only elements that differentiate Theresa May’s latest move from a Monty Python skit is her lack of a pith helmet and safari jacket. The British Prime Minister, per the Financial Times, plans to visit with top executives of major Wall Street firms to “canvass” them on “how Britain should structure its departure from the EU to reassure them that Brexit will not damage their UK business.” Mind you, she is not making this kiss-the-ring trip to New York to “reassure” the financial behemoths. That would mean the UK has a plan and is making the rounds to sell it and perhaps make cosmetic changes around the margins to make them feel important. Nor is it “consult,” which is diplo-speak for, “We’ll listen to your concerns but are making no commitment as to how much if any well take under advisement.”

No, “canvass” means they are a valued constituency she intends to win over and is seeking their input for real. This “canvass” is yet more proof of how out of its depth the UK government is in handling the supposedly still on Brexit. There’s a decent likelihood that May is running to the US because her team is short on staff and ideas and those clever conniving Americans might have some useful ideas up their sleeves. After all, they don’t want to go through the bother of getting more licenses and moving some staff to the Continent or Dublin. It’s much simpler to keep everything in London, particularly since top New York execs might face a tour of duty there, and the housing, shopping and schools are much more to their liking. Mind you, most financial services would remain in London with a Brexit, but Euroclearing will require a restructuring (that will have to be done out of an EU entity).

The embarrassing part is that May is apparently having to solicit input, when the big issue is obvious and binary: will the UK keep passporting rights for banking? This is binary and not hard to understand. If not, UK and US banks will need to obtain EU licenses to do certain types of business and some customer-facing personnel will need to be domiciled in the EU, not the UK. Numerous estimates have been bandied about, and they vary widely. Note that many important operations, like foreign exchange trading, were centered in the UK long before it entered the EU, are not regulated, and are conducted by phone and electronically, so there’s no reason to think they will need to migrate.

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China wa never going to restructure steel. It’s a strategic industry.

China Creates Global Steel Champion As Doubts Deepen On Output Cuts (AEP)

China has backed the creation of a giant national steel champion with continental reach, calling into question the country’s pledge at the G20 summit to slash over-production.Caixin Magazine said regulators have approved the merger of Baosteel and the loss-making group Wuhan Iron and Steel, calling it the birth of a strategic “behemoth” with a capacity of over 60 million tonnes a year. The move is touted as part of a restructuring plan to slash 100-150 million tonnes of excess capacity in China by 2020, with the loss of 180,000 steel jobs. But the evidence so far shows that output is still rising. An internal document from the German steel federation Stahl alleges that China has added 9m tonnes of extra capacity so far this year and there is no chance whatsoever that the country will meet its commitment to eliminate 45m tonnes of plant in 2016.

Stahl said China’s capacity has been increasing every year for the last four years, reaching 1,105m tonnes at a time when internal demand in China has slumped to 686m tonnes. Over-capacity has in effect doubled to 419m tonnes since 2012, more than twice the entire steel output of the EU. The Baosteel takeover of Wuhan is not necessarily a threat. Mergers can be part of the slow process of consolidation, and in this case the two state-owned companies have vowed to cut capacity by 13.4m tonnes between them. The nagging doubt is that steel is deemed a “strategic” industry by Beijing, a term with specific meaning in Communist Party ideology. The normal reflex of the authorities – especially regional party bosses – is to keep ailing steel mills alive by rolling over bad debts or forcing debt-equity swaps.

[..] For now the global steel crisis is in remission. The glut has been masked by China’s own policies over recent months, chiefly a fresh blast of infrastructure spending and a 20pc surge in new construction driven by easier credit. This looks like a cyclical bounce, now a routine feature of China’s stop-go economic management. The latest property boom is highly unstable. House prices rose 9.2pc in August from a year earlier, reaching 40pc in Hefei, 37pc in Shenzhen, 37pc in Nanjing, and 31pc in Shanghai. Once the new bubble deflates, a slowdown in building is likely to expose the immense scale of the steel glut once again.

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See my article yesterday.

China’s Property Bubble Keeps Getting Bigger (WSJ)

China’s attempts to contain property prices have been halfhearted. If anything, they may have made the bubble grow even bigger. Average new-home prices in August were up 1.3% from July, the government reported, the 17th straight increase and the biggest since at least January 2011. Prices declined in only four of the 70 cities surveyed. The latest leg of China’s property boom, which began last year in the biggest cities—such as Shenzhen and Shanghai—has recently spread to smaller cities, driving local governments to roll out tightening measures. Some specifically aim at capping land prices, which in some places exceed the price per square meter of already-built housing nearby. Shanghai has suspended land auctions while other cities, including Nanjing and Guangzhou, have capped land prices.

These measures, however, may have backfired by reducing supply, driving developers to acquire land in other ways. Sunac China, for example, said Sunday it would buy 42 property projects from Legend Holdings, the biggest shareholder of computer maker Lenovo, for 13.8 billion yuan ($2.1 billion). More important, tightening measures haven’t tackled the key factor of rising home prices—easy credit. As a%age of total loans, outstanding mortgage loans are at their highest since at least 2008. For developers, cheaper money available in the onshore bond market fuels aggressiveness. Sunac, for example, a company whose dollar-denominated bonds were yielding 10% just 17 months ago, raised 4 billion yuan last month with coupons of 3.44% to 4%—despite a doubling of its net debt in just the past year. With so many parties including banks and local governments all depending on real estate, it may not make sense for them to pop the bubble.

Read more …

Until another stock bubble is blown. Beijing had better understand that game is largely up after it’s in the IMF basket. Then stability becomes much more important.

Chinese Say Home Prices ‘High and Hard to Accept’ but Buying Frenzy Surges (WS)

Home prices in China are “high and hard to accept,” said 53.7% of the respondents in a survey by the People’s Bank of China, published today in the People’s Daily, the official paper of the Communist Party. Only 42.9% found them “acceptable.” And only 23.1% predicted that they would rise next quarter, while 11.9% expected them to fall. But that isn’t stopping people from wanting to participate in this frenzy: “Nevertheless, the ratio of residents who were prepared to buy a house within the next three months increased 1.3% from the third quarter to reach 16.3%.” That’s a lot of people “prepared to buy a house,” even with prices “high and hard to accept.”

There are several remarkable things in this survey: the worried tone in terms of the soaring prices, the increased desire to buy because, or despite, of the soaring prices, and the fact that this survey came via the official party organ from the PBOC which has been publicly fretting about the housing bubble, the debt bubble that comes along with it, and what it might do when it deflates. And what a bubble it is! The average new home price in 70 Chinese cities soared 9.2% in August year-over-year, after having jumped 7.9% in July, the eleventh month in a row of year-over-year gains, according to the China Housing Index, reported by the National Bureau of Statistics. In Tier 1 cities, prices skyrocketed: in Beijing, by 23.5% and in Shanghai by 31.2%!

Prices increased in 64 of the 70 cities, up from 51 in July. They fell in only four cities and remained flat in two. This chart by tradingeconomics.com shows the year-over-year percentage change in new home prices, the boom and bust cycles, and the stage of the boom where prices are at the moment:

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Beijing will have to give up a substantial part of the control it’s used to having over the yuan. That will not be a smooth process.

Yuan Funding Crunch Shows Risks in Reserve Currency Ranking (BBG)

China’s desire to stabilize the yuan risks undermining its future as a global reserve currency. For the second time this year, the overnight cost to borrow the offshore currency in Hong Kong surged above 20% amid speculation the People’s Bank of China is mopping up liquidity to boost the exchange rate. The volatility comes less than two weeks before the yuan’s inclusion in the IMF’s Special Drawing Rights – an event seen as a validation of President Xi Jinping’s efforts to promote its standing on the world stage. “This is not the sort of behavior you would expect from an SDR currency,” said Sue Trinh at Royal Bank of Canada in Hong Kong. “You can’t have funding for a reserve currency blowing up or moving in such a volatile fashion; it would be a nightmare for short-term portfolio management.”

Any use of borrowing rates to shake down bears risks eroding authorities’ pledges to give markets more sway in the world’s second-largest economy and undercutting Hong Kong’s position as the biggest offshore yuan trading center. The yuan’s funding costs at home and abroad have been more volatile than the four existing currencies in the IMF’s reserve basket over the past three years, data compiled by Bloomberg show. The offshore yuan funding cost, known as Hibor, jumped 15.7 percentage points to 23.7% on Monday, the second-largest increase on record, before falling to 12.4% on Tuesday. The rate previously surged to a high of 66.8% in January as China’s policy makers battled to restore control over the currency after a series of weaker fixings.

Traders are growing used to China’s policy makers intervening before key events, said Hao Hong at Bocom International in Hong Kong. “The central bank has done this before.” Still, the move is underscoring the greater volatility in China’s money markets compared with other reserve currencies. While the overnight Shanghai Interbank Offered Rate surged to 13% during a credit crunch in 2013, similar funding costs for the dollar, yen, euro and pound all traded within a 100 basis-point range in the past three years, according to data compiled by Bloomberg.

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Those Auckland homes are turning into ATMs.

New Zealand’s Sizzling Economy Sees Goldman Go Out On a Limb Over Rates (BBG)

New Zealand’s sizzling economy has prompted Goldman Sachs to go out on a limb and call an end to the country’s easing cycle. Data last week showed GDP expanded 3.6% in the year through June, putting New Zealand among the fastest-growing economies in the developed world and suggesting inflation should finally start to gather pace. The Kiwi economy is “too strong to justify further rate cuts,” Tim Toohey, chief economist at Goldman Sachs Australia, wrote in a note to clients. He cancelled the two rate reductions he’d been forecasting and said the Reserve Bank of New Zealand will now hold its official cash rate at 2% through 2017. That’s a bold call after RBNZ Governor Graeme Wheeler all but committed himself to at least one more cut as he struggles to return inflation to target.

While 16 other economists surveyed by Bloomberg expect Wheeler to keep borrowing costs on hold at Thursday’s policy decision, they all predict he’ll lower them in November and some forecast another cut early next year. New Zealand’s strong dollar is damping the price of imports, meaning Wheeler has to crank up domestic price pressures to get inflation back into his 1-3% target band. He’s worried the longer the gauge stays low – it’s currently at 0.4% and forecast to slow further – the greater the risk inflation expectations will drop and create a deflationary spiral. Goldman may be on to something though. The GDP data showed a surge in household spending growth to a four-year high, suggesting inflation may be just around the corner. Spending was led by categories such as furniture, carpets and audio equipment.

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Craziness. Not a crisis goes to waste.

Alabama Selling Bonds Backed by Deepwater Horizon Settlement (BBG)

The 2010 Deepwater Horizon oil-rig disaster, featured in a major-motion picture opening next week, may soon help Alabama rebuild its reserves, pay Medicaid expenses and fund road projects. Alabama plans to use annual payments from a $1 billion settlement with U.K. oil producer BP to back bonds issued within the next two months, said Bill Newton, the state’s acting director of finance, who also sits on the Alabama Economic Settlement Authority, which was created to handle the debt issue. The state will receive the payments under the settlement for 18 years.

State lawmakers earlier this month approved the bond sale and authorized creation of the six-member authority, which had its first meeting Monday. Under the legislation about $400 million of the bond proceeds will go to repay money the state loaned itself from reserve funds in prior years to balance budgets, with the rest going to fund Medicaid expenses and road work in the southern part of the state. The amount issued will depend on interest rates when the debt is sold. “We started the process to issue the bonds within the next two months,” said Newton. “We’ll see what the market brings.”

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Wise words: “They can organize ten-acre farms instead of cell phone game app companies. They can do physical labor instead of watching television. They can build compact walkable towns instead of suburban wastelands….”

Slowly, Then All at Once (Jim Kunstler)

As is usually the case with troubled, over-ripe societies, these elites have begun to resort to magic to prop up failing living arrangements. This is why the Federal Reserve, once an obscure institution deep in the background of normal life, has come downstage front and center, holding the rest of us literally spellbound with its incantations against the intractable ravages of debt deflation. One way out of this quandary would be to substitute the word “activity” for “growth.” A society of human beings can choose different activities that would produce different effects than the techno-industrial model of behavior.

They can organize ten-acre farms instead of cell phone game app companies. They can do physical labor instead of watching television. They can build compact walkable towns instead of suburban wastelands (probably even out of the salvaged detritus of those wastelands). They can put on plays, concerts, sing-alongs, and puppet shows instead of Super Bowl halftime shows and Internet porn videos. They can make things of quality by hand instead of stamping out a million things guaranteed to fall apart next week. None of these alt-activities would be classifiable as “growth” in the current mode. In fact, they are consistent with the reality of contraction. And they could produce a workable and satisfying living arrangement.

The rackets and swindles unleashed in our futile quest to keep up appearances have disabled the financial operating system that the regime depends on. It’s all an illusion sustained by accounting fraud to conceal promises that won’t be kept. All the mighty efforts of central bank authorities to borrow “wealth” from the future in the form of “money” – to “paper over” the absence of growth – will not conceal the impossibility of paying that borrowed money back. The future’s revenge for these empty promises will be the disclosure that the supposed wealth is not really there – especially as represented in currencies, stock shares, bonds, and other ephemeral “instruments” designed to be storage vehicles for wealth. The stocks are not worth what they pretend. The bonds will never be paid off. The currencies will not store value. How did this happen? Slowly, then all at once.

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Renzi has everyhting to lose with his referendum coming before the new year.

Italy ‘Ready To Go It Alone On Migrants’ (ANSA)

Italian Premier Matteo Renzi on Monday reiterated his disappointment at Friday’s EU summit in Bratislava, which concluded with him openly coming out against Germany’s and France’s stance on migrants and economic growth for the bloc’s post-Brexit future. “If Europe continues like this, we’ll have to get organised and act autonomously on immigration,” Renzi said. “This is the only new development to come from Bratislava, where there were so many words, but we weren’t capable to saying anything clear about the issue of Africa. “That’s why, to use a euphemism, we didn’t take it well. ” Juncker says lots of wonderful things, but we don’t see actions. “This is one of Europe’s problems. Italy will go it alone. “It is capable of doing it, but this is a problem for the EU”

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The camp is basically gone. The poor just got a whole lot more desperate. Why the EU should no longer exist.

Thousands Flee As Blaze Sweeps Through Moria Refugee Camp In Lesbos (G.)

Thousands of refugees detained at one of Greece’s biggest camps, on the island of Lesbos, have fled the facility amid scenes of mayhem after some reportedly set fire to it, local police have said. Up to 4,000 panic-stricken men, women and children rushed out of the barbed-wire-fenced installation following rumours of mass deportations to Turkey. “Between 3,000 and 4000 migrants have fled the camp of Moria,” a police source said, attributing the exodus to fires that rapidly swept through the facility because of high winds. Approximately 150 unaccompanied children, controversially housed at the camp, had been evacuated to a childrens’ village, the police source added. No one was reported to have been injured in the blaze.

But damage was widespread and with tents and prefabricated housing units going up in flames, the Greek channel Skai TV, described the site as “a war zone”. The disturbances, it reported, had been fuelled by frustration over the notoriously slow pace with which asylum requests were being processed. A rumour, earlier in the day, that Greek authorities were preparing to send possibly hundreds back to Turkey – in a bid to placate mounting frustration in Germany over the long delays – was enough to spark the protests. [..] The increase in arrivals in recent months from Turkey – the launching pad for more than a million Europe-bound refugees last year – has added to the pressure on Greek authorities.

On Monday, the government announced that 60,352 refugees and migrants were registered in the country, essentially ensnared by the closure of borders along the Balkan corridor into Europe. Some 13,536 were detained on Aegean islands, including Lesbos which has borne the brunt of the influx. The detention centre at Moria has a capacity to house no more than 3,000 but is now said to be holding almost twice that number ..

Read more …

Sep 092016
 
 September 9, 2016  Posted by at 8:57 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 9 2016


NPC Daredevil John “Jammie” Reynolds, Washington DC 1917

ECB’s Mario Draghi Has Run Out Of Magic As Deflation Closes In (AEP)
ECB Stands Pat on Stimulus as Draghi Defends Policy (WSJ)
German July Exports, Imports Plunge (Street)
Goldman Calculates True Growth Rate Of China’s Debt: 40% of GDP Per Year (ZH)
China’s Reviving the American Heartland – One Low Wage at a Time (BBG)
Bank of Japan Risk: Running Out of Bonds to Buy (WSJ)
Australia, New Zealand Housing Booms Set Currencies On Course For Parity (BBG)
Coal Rises From the Grave to Become One of Hottest Commodities
Historic Tax Fraud Rocks Denmark As Loss Estimates Keep Growing (BBG)
Goldman Sachs Just Launched Project Fear in Italy (DQ)
Humans Have Destroyed A Tenth Of Earth’s Wilderness In 25 Years (G.)

 

 

Why does it seem so normal to use the word ‘magic’ in this context? When did that start?

ECB’s Mario Draghi Has Run Out Of Magic As Deflation Closes In (AEP)

Large parts of the eurozone are slipping deeper into a deflationary trap despite negative interest rates and €1 trillion of quantitative easing by the ECB, leaving the currency bloc with no safety buffer when the next global recession hits. The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle. Mario Draghi, the ECB’s president, said there are limits to monetary policy and called on the rest of the eurozone to act “much more decisively” to lift growth, with targeted spending on infrastructure.

“It is abundantly clear that Draghi is played out and we’re in the terminal phase of QE. The eurozone needs a quantum leap in the nature of policy and it has to come from fiscal policy,” said sovereign bond strategist Nicholas Spiro. Mr Draghi dashed hopes for an expansion of the ECB’s monthly €80bn programme of bond purchases, and offered no guidance on whether the scheme would be extended after it expires in March 2017. There was not a discussion on the subject. “The bar to further ECB action is higher than widely assumed,” said Ben May from Oxford Economics. The March deadline threatens to become a neuralgic issue for markets given the experience of the US Federal Reserve, which suggests that an abrupt stop in QE stimulus amounts to monetary tightening and can be highly disruptive.

The ECB has pulled out all the stops to reflate the economy yet core inflation has been stuck at or below 1pc for three years. Officials are even more worried about the underlying trends. Data collected by Marchel Alexandrovich at Jefferies shows that the percentage of goods and services in the inflation basket currently rising at less than 1pc has crept up to 58pc. This is a classic precursor to deflation and suggests that the eurozone is acutely vulnerable to any external shock. The figure has spiked to 67pc in Italy, and is now significantly higher that it was when the ECB launched QE last year. The eurozone should have reached economic “escape velocity” by now after a potent brew of stimulus starting last year: cheap energy, a cheaper euro, €80bn a month of QE, and the end of fiscal austerity. [..] “The euro is far stronger than they want, and stronger than the economy deserves, but they don’t know how to weaken it. This is exactly what happened to the Japanese,” said Hans Redeker, currency chief at Morgan Stanley.

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Draghi’s starting to come down on Germany, but it’s too late: their exports just fell 10%.

ECB Stands Pat on Stimulus as Draghi Defends Policy (WSJ)

The ECB left its €1.7 trillion stimulus unchanged at a policy meeting Thursday, brushing off concerns over economic shock waves from Britain’s vote to leave the EU and disappointing investors expecting the ECB to act again soon. The decision to stand pat, even as new forecasts showed the ECB missing its inflation target for years, underlines how central banks are approaching the limits of what they can achieve without support from other policy areas, notably governments. In China earlier this month, Group of 20 leaders warned that monetary policy alone can’t fix the world’s economic ills, and pledged to boost spending and adopt overhauls aimed at boosting growth.

At a news conference here, ECB President Mario Draghi said he was concerned about persistently low eurozone inflation, which has fallen short of the ECB’s near-2% target for more than three years. Fresh ECB staff forecasts, published Thursday, showed inflation rising very gradually, to 1.2% next year and 1.6% in 2018. Despite that, Mr. Draghi said policy makers didn’t even discuss fresh stimulus, and praised the effectiveness of the bank’s existing policy measures, which include negative interest rates and €80 billion a month of bond purchases. He also aimed an unusually direct rebuke at Germany, criticizing Berlin for not boosting spending to support the economy. “Countries that have fiscal space should use it,” Mr. Draghi said. “Germany has fiscal space.”

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Germany looks a lot like Japan and China.

German July Exports, Imports in Shock Plunge (Street)

German imports and exports unexpectedly shrunk in July, with a sharp export contraction causing a surprise narrowing in Germany’s trade balance. Federal Statistical Office data showed seasonally adjusted exports fell by 2.6% – analysts had expected about 0.3% growth – whereas imports fell by 0.7%, as against expectations for a 0.8% rise. On the year exports slumped by 10% and imports shriveled by 6.5%. The foreign trade balance shrunk to €19.4 billion from €21.4 billion in June, as against expectations for a balance of €22 billion. The Federal Statistical Office said the pace of German exports to other EU countries fell by 7% in July, while imports from the region fell by 4.5%. The falls were slightly narrower for trade with other eurozone countries.

German trade outside the 28-nation EU fared worse, with exports plunging by 13.8% and imports by 10.1%. Faltering German exports amid lackluster worldwide growth and emerging-market volatility has long been a drag on German growth. But the sharper-than-expected export fall challenges expectations of a second-half pickup in German trade with the rest of the world, and the surprise – albeit small -import decline suggests domestic demand isn’t robust enough to step into the breach. The trade data come in a week that the statistics office reported weaker-than-expected industrial output and manufacturing production for July. But the euro held firm against the dollar after the figures and was recently up 0.11% at $1.1272.

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“..some time around 2019, China’s total Debt/GDP will be over 400%, an absolutely ridiculous number, and one which assures a banking, if not global, financial crisis.”

Goldman Calculates True Growth Rate Of China’s Debt: 40% of GDP Per Year (ZH)

For a long time when it came to Chinese loan creation, analysts would only look at the broadest reported aggregate: the so-called Total Social Financing. And, for a long time, it was sufficient – TSF showed that in under a decade, China had created over $20 trillion in new loans, vastly more than all the “developed market” QE, the proceeds of which were used to kickstart growth after the 2009 global depression, to fund the biggest capital misallocation bubble the world has ever seen and create trillions in nonperforming loans. However, a problem emerged about a year ago, when it was revealed that not even China’s TSF statistic was sufficient to fully capture the grand total of total new loan creation in China.

[..] according to Goldman, “a substantial amount of money was created last year, evidencing a very large supply of credit, to the tune of RMB 25tn (36% of 2015 GDP).” This massive number was 9% higher than the TSF data, which implied that “only” a quarter of China’s 2015 GDP was the result of new loans. As Goldman further noted, the “divergence from TSF has been particularly notable since Q2 last year after a major dovish shift in policy stance.” In short, in addition to everything else, China has also been fabricating its loan creation data, and the broadest official monetary aggregate was undercutting the true new loan creation by approximately a third. The reason for this is simple: China does not want the world – or its own population – to realize just how reliant it is on creating loans out of thin air (and “collateralized” by increasingly more worthless assets), as it would lead to an even faster capital outflow by the local population sensing just how unstable the local banking system is.

Here is the good news: compared to late 2015, the record credit creation has slowed down fractionally, and the gap with the TSF total has shrunk. The smaller gap seems to be in line with recent reports that listed banks’ “investment receivables” expanded less rapidly in 2016 H1, and it might partly reflect the regulators’ tougher stance against shadow lending in recent months. And now, the bad news: this “tougher stance” has not been nearly tough enough, because as the following chart shows on a 1-year moving average, nearly 40% of China’s “economic growth” is the result of new credit creation, or in other words, new loans. What this really means, is that China’s debt/GDP, estimated most recently by the IIF at 300%…

… is now growing between 30% and 40% per year, when one accounts for the unaccounted for “shadow” credit conduits. Here is how Goldman concludes this stunning observation: “The PBOC appears to have shifted to a less dovish, though still supportive, policy bias in the last few months. However, given the prospective headwinds from slower housing construction and tighter on-budget fiscal stance in the coming months, there remains a clear need to sustain a high level of infrastructure investment, which is credit intensive, to achieve the minimum 6.5% full-year growth target. This poses constraints on how much further the PBOC can keep reining in credit, in our view.”

Translating Goldman, some time around 2019, China’s total Debt/GDP will be over 400%, an absolutely ridiculous number, and one which assures a banking, if not global, financial crisis.

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The resounding success of globalization.

China’s Reviving the American Heartland – One Low Wage at a Time (BBG)

For six years, the General Motors factory that used to make Chevy Trailblazers in Moraine, Ohio, sat abandoned, a rusting monument to the decline of the American auto industry. These days, the plant is humming again, fueled by a resurgent U.S. consumer – but now under Chinese management. On the shop floor, Chinese supervisors in sky-blue uniforms that carry the logo of the new owners, Fuyao Glass, teach American employees how to assemble windshields. Drive along Interstate 75, through America’s industrial heartland, and you’ll find no shortage of Chinese-owned firms like Fuyao. They’re setting up shop in states such as Ohio and Michigan, key voter battlegrounds in November, where traditional manufacturing has been hollowed out – in many cases, by trade. With China.

[..] Fuyao acquired roughly half the old GM plant in 2014, spending $450 million to buy and remodel it. For a company that started out as a small producer of covers for water-meters and is now the world’s second-biggest auto-glass supplier, the acquisition capped a decade-long push into U.S. markets. For the Dayton area, it meant employment: the city, hometown of the Wright brothers, was hit hard by the shutdown of the GM plant two days before Christmas in 2008. [..] “Hey, 1,700 jobs is 1,700 jobs,” said Shawn Kane, a 28-year-old chef shopping at the Kroger grocery store in Moraine last month. “At least it’s not sitting empty anymore.” They’re jobs that tend not to pay as well as factory work once did, though – and there probably aren’t as many of them.

To keep its production in the U.S. viable, Fuyao uses more automation than it does in China, said John Gauthier, president of Fuyao Glass America. “Our customers, all they care about is that their cost doesn’t increase,” he said. A line worker at Fuyao starts at $12 per hour, equivalent to an annual salary of about $25,000. GM workers at the old Moraine plant could make at least twice that, topped off by perks like defined-benefit pensions, according to union officials and former employees. “When you don’t have enough protections for American workers, and when you’ve got a globalized economy, this is what happens,” said Chris Baker, a 40-year-old sales rep based near Moraine. “This is the new normal. It’s very sad.”

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WHen will they start buying people’s homes? Cars perhaps?

Bank of Japan Risk: Running Out of Bonds to Buy (WSJ)

Japan’s central bank is facing a new problem: It could be running out of government bonds to buy. The Bank of Japan is snapping up the equivalent of more than $750 billion worth of government debt a year in an effort to spur inflation and growth. At that rate, analysts say, banks could run out of government debt to sell within the next 18 months. The looming scarcity is a powerful sign of the limits central banks face as they turn to ever-more aggressive means of stimulating their economies. The problem is mirrored in Europe, where self-imposed rules limit how many eurozone government bonds the ECB can buy from individual governments. Facing a diminishing supply of sovereign bonds, the ECB started buying corporate debt in June.

Some economists have even called for the ECB to start buying stocks. The central bank left its bond-buying program and interest-rate policy unchanged at its meeting Thursday. The Japanese central bank has fewer options if the country’s banks, which have to hold a certain amount of safe debt to use as collateral in everyday transactions, ever become unwilling to sell more of their holdings. Its most obvious alternatives—pushing rates deeper into negative territory or buying other types of assets—have practical limitations. Meanwhile, the BOJ’s economic goals remain out of reach: Inflation is stubbornly low, and the yen has strengthened about 18% this year.

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Does nobody have any common sense down under?

Australia, New Zealand Housing Booms Set Currencies On Course For Parity (BBG)

Housing booms in New Zealand and Australia could be putting the neighbors’ currencies on course to reach parity for the first time ever. Both nations have seen house prices surge in recent years, but the underlying causes are fundamentally different, according to Deutsche Bank analysis. Australia’s boom is largely home-grown, whereas New Zealand’s is being fueled by record immigration. That’s affecting the countries’ current accounts differently. While Aussies are feeling richer due to house-price gains, prompting them to spend more on imports and boosting their current account deficit, New Zealand is sucking more offshore capital into its housing market, narrowing its current account gap. Currencies are sensitive to trends in the current account – a country’s balance with the rest of the world – because they are a gauge of risk for investors.

“The nature of the real estate boom in Australia should have bearish currency implications because it leads to deterioration in the basic balance,” Robin Winkler, a London-based strategist for Deutsche Bank, said in a research note. “This is not the case in New Zealand and adds to our conviction that AUD/NZD should drop to parity.” The two currencies have never converged in the free-floating era that began in the 1980s. They came close in April last year, when the kiwi briefly reached 99.79 Australian cents or, to express it the other way, the Aussie dollar fell below NZ$1.01. The New Zealand dollar was worth 96.8 Australian cents at 12:35p.m. in Wellington Friday.

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Burn baby burn.

Coal Rises From the Grave to Become One of Hottest Commodities

For all the predictions about the death of coal, it’s now one of the hottest commodities in the world. The resurrection may have further to run. A surge in Chinese imports to compensate for lower domestic production has seen European prices jump to near an 18-month high, while Australia’s benchmark is set for the first annual gain since 2010. At the start of the year, prices languished near decade lows because of waning demand from utilities seeking to curb pollution and amid the International Energy Agency’s declaration that the fuel’s golden age in China was over. Now, traders are weighing the chances of extreme weather hitting major producers and China further boosting imports as factors that could push prices even higher.

“It’s a commodity that’s been on a slippery slide for the past four years and it’s making a remarkable recovery,” said Erik Stavseth, an analyst at Arctic Securities in Oslo, who’s tracked the market for almost a decade. “There’s a strong pulse.” What could light up the market further is the occurrence of a La Nina weather pattern later this year. Last time it happened in 2010 and 2011, heavy rains flooded mines in Australia and Indonesia, the world’s two largest exporters. While some meteorologists have toned down their predictions for the weather phenomenon forming, “another strong forecast” would cause prices to rise further, according to Fitch’s BMI Research.

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Still don’t think I know what exactly the fraud was. Though I read the piece twice.

Historic Tax Fraud Rocks Denmark As Loss Estimates Keep Growing (BBG)

About two weeks after Denmark revealed it had lost as much as $4 billion in taxes through a combination of fraud and mismanagement, the minister in charge of revenue collection says that figure may need to be revised even higher. Speaking to parliament on Thursday, Tax Minister Karsten Lauritzen said he “can’t rule out” that losses might be bigger than the most recent public estimates indicate. It would mark the latest in a string of revisions over the past year, in which Danes learned that losses initially thought to be less than $1 billion somehow ended up being about four times as big. The embarrassment caused by the tax fraud, which spans about a decade of successive administrations, has prompted Lauritzen to consider debt collection methods not usually associated with Scandinavian governments.

Denmark has long had one of the world’s highest tax burdens – government revenue as a percentage of GDP – and a well-functioning tax model is essential to maintaining its fabled welfare system. “We’re entertaining new ideas, considering more new measures,” Lauritzen told Bloomberg. Danish officials are now prepared to pay anonymous sources for evidence from the same database that generated the Panama Papers. Jim Soerensen, a director at Denmark’s Tax Authority, says the first batch of clues obtained using this method is expected by the end of the month.

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Project Fear didn’t work in Britain either.

Goldman Sachs Just Launched Project Fear in Italy (DQ)

Project Fear began two years ago in the run up to Scotland’s national referendum. It then spread to the rest of the UK in the lead up to this summer’s Brexit referendum. But it keeps on moving. Its latest destination is Italy, where the campaign to instill fear and trepidation in the hearts and souls of Italy’s voters was just inaugurated by the world’s most influential investment bank, Goldman Sachs. It just released a 14-page report warning about the potentially dire consequences of a “no” vote in Italy’s upcoming referendum on the government’s proposed constitutional reforms. The reforms seek, among other things, to streamline Italy’s government process by dramatically restricting the powers of the senate, a major source of political gridlock, while also handing more power to the executive.

The polls in Italy are currently neck and neck, though the momentum belongs to the reform bill’s opponents. If the Italian public vote against the bill, the response of the markets could be extremely negative, warns Goldman, putting in jeopardy the latest attempt to rescue Italy’s third largest and most insolvent bank, Monte dei Paschi di Siena. The rescue is being led by JP Morgan Chase and Italian lender Mediobanca, and includes the participation of a select group of global megabanks that are desperate to prevent contagion spreading from Italy’s banking system to other European markets, and beyond. In the event of a “no” vote, MPS’ planned €5 billion capital increase would have to be put on ice, while investors wait for the political uncertainty to clear before pledging further funds.

This being Italy, the wait could be interminable and the delay fatal for Monte dei Paschi and other Italian banks, Goldman warns. It also points out that Italy is the only European country where a substantial portion of its bank bonds are held in household portfolios (about 40% according to data from Moody’s, four times more than Germany and eight times more than France and Spain). In other words, things could get very ugly, very fast, if those bank bonds collapse! As for Italian government bonds and Europe’s broader debt markets, they would be insulated from any fallout by former Goldmanite Mario Draghi’s bond binge buying.

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We are unstoppable.

Humans Have Destroyed A Tenth Of Earth’s Wilderness In 25 Years (G.)

Humans have destroyed a tenth of Earth’s remaining wilderness in the last 25 years and there may be none left within a century if trends continue, according to an authoritative new study. Researchers found a vast area the size of two Alaskas – 3.3m square kilometres – had been tarnished by human activities between 1993 and today, which experts said was a “shockingly bad” and “profoundly large number”. The Amazon accounted for nearly a third of the “catastrophic” loss, showing huge tracts of pristine rainforest are still being disrupted despite the Brazilian government slowing deforestation rates in recent years. A further 14% disappeared in central Africa, home to thousands of species including forest elephants and chimpanzees.

The loss of the world’s last untouched refuges would not just be disastrous for endangered species but for climate change efforts, the authors said, because some of the forests store enormous amounts of carbon. “Without any policies to protect these areas, they are falling victim to widespread development. We probably have one to two decades to turn this around,” said lead author Dr James Watson, of the University of Queensland and Wildlife Conservation Society. The analysis defined wilderness as places that are “ecologically largely intact” and “mostly free of human disturbance”, though some have indigenous people living within them. The team counted areas as no longer wilderness if they scored on eight measures of humanity’s footprint, including roads, lights at night and agriculture.

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Sep 052016
 
 September 5, 2016  Posted by at 9:44 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle September 5 2016


DPC Sternwheeler Mary H. Miller in Mississippi River floating dry dock, Vicksburg 1905

China, US Commit To Refrain From Currency Wars (R.)
China’s $3.9 Trillion Wealth-Management Product Boom Seen Cooling (BBG)
China Banks Play Catch Up With Capital Raising As Bad Loans Soar (BBG)
Stiglitz: “Cost Of Keeping Euro Probably Exceeds Cost Of Breaking It Up” (LSE)
Hanjin Shipping Shares Drop 30% As It Seeks Stay Orders In 43 Countries (BBG)
Japan’s Long-Term Bonds Add To Worst Rout Since 2013 (BBG)
BOJ’s Kuroda Says Room For More Easing, Including New Ideas (R.)
EU Finds Volkswagen Broke Consumer Laws In 20 Countries (R.)
The Greater Depression (Quinn)
The Ultimate 21st Century Choice: OBOR Or War (Escobar)
EU Will Not Release More Bailout Money For Greece This Month (R.)
Hungary Police Recruit ‘Border-Hunters’ To Keep Migrants Out (BBC)
Overnight Clashes At Lesvos Refugee Center (Kath.)
9,000-Year-Old Stone Houses Found On Australian Island (G.)
World’s Largest Gorillas ‘One Step From Going Extinct’ (AFP)

 

 

Sure. We believe you.

China, US Commit To Refrain From Currency Wars (R.)

China and the United States on Sunday committed anew to refrain from competitive currency devaluations, and China said it would continue an orderly transition to a market-oriented exchange rate for the yuan. A joint “fact sheet”, issued a day after U.S. President Barack Obama and his Chinese counterpart Xi Jinping held talks, also said the two countries had committed “not to unnecessarily limit or prevent commercial sales opportunities for foreign suppliers of ICT (information and communications technology) products or services”. While China and the United States cooperate closely on a range of global issues, including North Korea’s disputed nuclear program and climate change, the two countries have deep disagreements in other areas, like cyberhacking and human rights.

Both countries said they would “refrain from competitive devaluations and not target exchange rates for competitive purposes”, the fact sheet said. Meanwhile, China would “continue an orderly transition to a market-determined exchange rate, enhancing two-way flexibility. China stresses that there is no basis for a sustained depreciation of the RMB (yuan). Both sides recognize the importance of clear policy communication.” China shocked global markets by devaluing the yuan in August 2015 and allowing it to slip sharply again early this year. Though it has stepped in to temper losses in recent weeks, the currency is still hovering near six-year lows against the dollar.

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Only when Beijing can locate another bubble to blow.

China’s $3.9 Trillion Wealth-Management Product Boom Seen Cooling (BBG)

China’s multi-trillion dollar boom in wealth-management products, under scrutiny around the world because of potential threats to financial stability, is set to cool as yields fall on tighter regulation, according to China Merchants Securities analyst Ma Kunpeng. Ma cited a “significant slowdown” in the products’ growth in the first half and said that WMPs may shrink in the future, with money flowing elsewhere. Banks have started to lower yields on WMPs in preparation for requirements for funds to be held in third-party custody, the analyst said, adding that such a change may be implemented over six months to a year. Currently, lenders can use newly invested money to pay off maturing products. The Chinese government and agencies including the IMF are focused on potential risks from WMPs that rose to a record 26.3 trillion yuan ($3.9 trillion) as of June 30.

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Have investors, who are mostly domestic, buy your banks’ bad debt. This is just shifting the rotten fish from the right pocket to the left.

China Banks Play Catch Up With Capital Raising As Bad Loans Soar (BBG)

China’s banks, which dialed down fundraising efforts this year even as bad debts swelled, are making up for lost time. Both lenders and the companies set up to acquire their delinquent assets are bolstering their finances. China Citic Bank last month announced plans to raise as much as 40 billion yuan ($6 billion), while Agricultural Bank of China, Industrial Bank and China Zheshang Bank are also boosting capital. China Cinda Asset Management and China Huarong Asset Management are poised to tap investors. “Chinese banks are preemptively raising capital while pricing remains favorable in order to tackle higher loan impairments,” said Nicholas Yap at Mitsubishi UFJ Securities in Hong Kong.

“Additionally, the mid- and small-sized lenders also need to boost their capital levels as they have been growing their asset bases rapidly, largely through their investment receivables portfolios.” Chinese banks have strained their finances with the busiest first-half lending spree on record, despite having the highest amount of bad debt in 11 years. Still, completed offerings of hybrid capital declined 38% after two consecutive years of record fundraising. A rule change in April that requires lenders to make full provisions for loan rights they have transferred is also encouraging the fundraising. BNP Paribas said Chinese lenders may be assessing the right time to approach investors.

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You have to specify who’s going to pay that cost, Joe.

Stiglitz: “Cost Of Keeping Euro Probably Exceeds Cost Of Breaking It Up” (LSE)

Can the euro be saved? In an interview with Artemis Photiadou and EUROPP’s editor Stuart Brown, Nobel Prize-winning economist and bestselling author Joseph Stiglitz discusses the structural problems at the heart of the Eurozone, why an amicable divorce may be preferable to maintaining the single currency, and how European leaders should respond to the UK’s vote to leave the EU. Your new book, The Euro: And its Threat to Europe, outlines the problems at the heart of the euro and their effects on European economies. Can the euro be saved?

The fundamental thesis of the book is that it is the structure of the Eurozone itself, not the actions of individual countries, which is at the root of the problem. All countries make mistakes, but the real problem is the structure of the Eurozone. A lot of people say there were policy mistakes – and there have been a lot of policy mistakes – but even the best economic minds in the world would have been incapable of making the euro work. It’s fundamentally a structural problem with the Eurozone. So are there reforms that could make the euro work? Yes, I think there are and in my book I talk about what these reforms would be. They are not that complicated economically, after all the United States is made up of 50 diverse states and they all use the same currency so we know that you can make a currency union work. But the question is, is there political will and is there enough solidarity to make it work?

There is an argument that even if the euro was a mistake, the costs of breaking it up may be so severe that it is worth pushing for a reformed euro rather than pursuing what you call an ‘amicable divorce’. Are the benefits of a properly functioning euro worth the costs to get there? You are right. The question of whether you should form the union is different from whether you should break it up: history matters. I think it’s pretty clear now that it was a mistake to start the euro at that time, with those institutions. There will be a cost to breaking it up, but whichever way you look at it, over the last 8 years the euro has generated enormous costs for Europe. And I think that one could manage the cost of breaking it up and that under the current course, the cost of keeping the Eurozone together probably exceeds the cost of breaking it up.

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Chapter 11.

Hanjin Shipping Shares Drop 30% As It Seeks Stay Orders In 43 Countries (BBG)

South Korea’s financial regulator said Hanjin Shipping will seek stay orders in 43 countries to protect its vessels from being seized, after its court receivership filing last week roiled companies’ supply chain before the year-end shopping season. Applications in 10 countries will be made this week and the remainder soon, the Financial Supervisory Commission said in a statement Monday. Hanjin Group, owner of the shipping line, should also take more action to account for the “chaos” caused to the shipping industry, FSC Chairman Yim Jong Yong said. Vessels of Hanjin – the world’s 7th-largest container carrier with a 2.9% market share – are getting stranded at sea and ports after the box carrier sought protection, hurting the supply of LG televisions and other consumer goods ahead of the holiday season.

Hanjin Shipping shares resumed trading Monday limit down 30% and later erased losses to rally as much as 18%. Any optimism may be misplaced, said Park Moo Hyun Hana Financial Investment in Seoul. “Retail investors are hoping for the best on false hopes,” Park said. “They think that government measures to help resolve the supply-chain disruptions could mean it’s also supporting Hanjin Shipping. They don’t seem to realize that that’s the wrong conclusion.” The commission said 79 of Hanjin’s vessels, including 61 container ships, have had their operations disrupted. Hanjin Group Chairman Cho Yang Ho and Korean Air Lines, the shipping company’s largest shareholder, should take steps to ease the disruptions, Yim said.

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Keep digging!

Japan’s Long-Term Bonds Add To Worst Rout Since 2013 (BBG)

Japanese long-term bonds fell, with 30-year debt adding to its biggest weekly loss in almost 2 1/2 years, as investors prepared to bid at an auction of the securities Tuesday. The rout is being driven by speculation the Bank of Japan will reduce its bond-buying program at its next policy meeting Sept. 20-21 now that it owns a third of the nation’s government debt. BOJ Governor Haruhiko Kuroda said Monday he doesn’t share the view there’s a limit to monetary easing. PIMCO said last month the central bank has pushed monetary policy as far as it can. “Unless Governor Kuroda directly rules out scaling back bond purchases, the market will continue to hold that as a possibility,” said Shuichi Ohsaki, the chief rates strategist at Bank of America’s Merrill Lynch unit in Tokyo. “Selling of longer-dated debt is likely ahead of tomorrow’s 30-year auction.”

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The whole notion that you’re going to try out ‘New Ideas’ kills off confidence, the one thing you know is needed.

BOJ’s Kuroda Says Room For More Easing, Including New Ideas (R.)

Bank of Japan Governor Haruhiko Kuroda signaled his readiness to ease monetary policy further using existing or new tools, shrugging off growing market concerns that the bank is reaching its limits after an already massive stimulus program. He also stressed the BOJ’s comprehensive assessment of its policies later this month won’t lead to a withdrawal of easing. But Kuroda acknowledged that the BOJ’s negative interest rate policy may impair financial intermediation and hurt public confidence in Japan’s banking system, a sign the central bank is becoming more mindful of the rising cost of its stimulus.

“Even within the current framework, there is ample room for further monetary easing … and other new ideas should not be off the table,” Kuroda told a seminar on Monday. “There may be a situation where drastic measures are warranted even though they could entail costs,” he said, adding that the BOJ should “always prepare policy options.” Under its current framework that combines negative rates with hefty buying of government bonds and some riskier assets, the BOJ has gobbled up a third of Japan’s bond market and faced criticism from banks for squeezing already thin profit margins.

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Slap that wrist!

EU Finds Volkswagen Broke Consumer Laws In 20 Countries (R.)

The European Commission has found that Volkswagen broke consumer laws in 20 European Union countries by cheating on emissions tests, German daily Die Welt reported, citing Commission sources. Among them are the Consumer Sales and Guarantees Directive – which prohibits companies from touting exaggerated environmental claims in their sales pitches – and the Unfair Commercial Practises Directive, both of which apply across the EU, the paper said. The European Commission said Industry Commissioner Elzbieta Bienkowska has repeatedly invited Volkswagen to consider compensating consumers voluntarily, without an encouraging response, and that it was for national courts to determine whether consumers were legally entitled to compensation.

To ensure consumers are treated fairly, a Commission spokeswoman said, Consumer Commissioner Vera Jourova had written to consumer associations across the EU to collect information. “She will meet relevant representatives in Brussels this week,” the spokeswoman wrote in an emailed response. Jourova has been working with consumer groups to pressure Volkswagen to compensate clients in Europe as it has in the United States over the diesel emissions scandal. Volkswagen has pledged billions of euros to compensate owners of VW diesel-powered cars, but has so far rejected calls for similar payments for the 8.5 million affected vehicles in Europe, where different legal rules weaken the chances of winning a pay out.

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Jim makes a good point: today’s food lines have turned digital.

The Greater Depression (Quinn)

It’s the black and white photographs of disheartened men and hungry children from the 1930’s that define the Great Depression for present day generations. Of course after years of government run social engineering disguised as education, most people couldn’t even define when or what constituted the Great Depression. These heart wrenching portraits of average Americans suffering and in despair capture the zeitgeist of the last Fourth Turning crisis. Apologists for the status quo contend the last eight years couldn’t possibly be classified as a depression. The narrative of economic recovery has been peddled by corporate media mouthpieces, feckless politicians, Too Big To Trust Wall Street bankers, Federal Reserve puppets, and government apparatchiks flogging manipulated data as proof of economic advancement. They point to the lack of soup lines as proof we couldn’t be experiencing a depression.

First of all, if there were soup lines, the corporate media would just ignore them. If they don’t report it, then it isn’t happening. Secondly, the soup lines are electronic, as the government downloads the “soup” onto EBT cards so JP Morgan can reap billions in fees to run the SNAP program. Just because there are no pictures of starving downtrodden Americans in shabby clothes waiting in soup lines, doesn’t mean the majority of Americans aren’t experiencing a depression. If the country has actually been experiencing an economic recovery for the last seven years, why would 14% to 15% of all Americans be dependent on food stamps to survive? When the economy is actually growing and employment is really below 5%, the%age of Americans on food stamps is below 8%.

If the government economic data was truthful, there would not be 43.5 million people living in 21.4 households (17% of all households) dependent on food stamps. More than 100 million Americans are now dependent on some form of federal welfare (not including Social Security or Medicare). If the economy came out of recession in the second half of 2009, why would 6 million more Americans need to go on welfare over the next two years?

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I don’t know, it’s an ambitious dream and all, but… Reading that $40 billion has been pledged for a $1.4 trillion project doesn’t help, I guess.

The Ultimate 21st Century Choice: OBOR Or War (Escobar)

The G20 meets in tech hub Hangzhou, China, at an extremely tense geopolitical juncture. China has invested immense political/economic capital to prepare this summit. The debates will revolve around the main theme of seeking solutions “towards an innovative, invigorated, interconnected and inclusive world economy.” G20 Trade Ministers have already agreed to lay down nine core principles for global investment. At the summit, China will keep pressing for emerging markets to have a bigger say in the Bretton Woods system. But most of all China will seek greater G20 backing for the New Silk Roads – or One Belt, One Road (OBOR), as they are officially known – as well as the new Asian Infrastructure Investment Bank (AIIB).

So at the heart of the G20 we will have the two projects which are competing head on to geopolitically shape the young 21st century. China has proposed OBOR; a pan-Eurasian connectivity spectacular designed to configure a hypermarket at least 10 times the size of the US market within the next two decades. The US hyperpower – not the Atlanticist West, because Europe is mired in fear and stagnation — “proposes” the current neocon/neoliberalcon status quo; the usual Divide and Rule tactics; and the primacy of fear, enshrined in the Pentagon array of “threats” that must be fought, from Russia and China to Iran. The geopolitical rumble in the background high-tech jungle is all about the “containment” of top G20 members Russia and China.

Shuttling between the West and Asia, one can glimpse, in myriad forms, the graphic contrast between paralysis and paranoia and an immensely ambitious $1.4 trillion project potentially touching 64 nations, no less than 4.4 billion people and around 40 per cent of the global economy which will, among other features, create new “innovative, invigorated, interconnected and inclusive” trade horizons and arguably install a post-geopolitics win-win era. An array of financial mechanisms is already in place. The AIIB (which will fund way beyond the initial commitment of $100 billion); the Silk Road Fund ($40 billion already committed); the BRICS’s New Development Bank (NDB), initially committing $100 billion; plus assorted players such as the China Development Bank and the Hong Kong-based China Merchants Holdings International.

Chinese state companies and funds are relentlessly buying up ports and tech companies in Western Europe – from Greece to the UK. Cargo trains are now plying the route from Zhejiang to Tehran in 14 days, through Kazakhstan and Turkmenistan; soon this will be all part of a trans-Eurasia high-speed rail network, including a high-speed Transiberian. The $46 billion China-Pakistan Economic Corridor (CPEC) has the potential to unblock vast swathes of South Asia, with Gwadar, operated by China Overseas Port Holdings, slated to become a key naval hub of the New Silk Roads. Deep-sea ports will be built in Kyaukphyu in Myanmar, Sonadia island in Bangladesh, Hambantota in Sri Lanka. Add to them the China-Belarus Industrial Park and 33 deals in Kazakhstan covering everything from mining and engineering to oil and gas.

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Greece gets punished for not inflicting more misery on its people fast enough.

EU Will Not Release More Bailout Money For Greece This Month (R.)

The euro zone will not release additional bailout money for Greece at a meeting in Bratislava this month, Germany’s Handelsblatt Global reported on Sunday, citing European Union diplomats. The online edition of the German business daily quoted the diplomats as saying that Athens had only implemented two of 15 political reforms that are conditions for the bailout money. Above all, they said, Greece had been slow to privatize state assets. Under a deal signed last year with the Troika, the ESM will provide financial assistance of up to €86 billion to Greece by 2018 in return for the agreed reforms.

The debt relief is due to be granted in tranches, including short-term measures to extend Greece’s debt, with a further reduction due after 2018 including interest deferrals and interest rate caps. Handelsblatt Global said the Eurogroup had approved a tranche of €10.3 billion for Greece in May from the overall package. An initial €7.5 billion of that sum had been transferred to Athens with the rest scheduled to arrive in the fall. The diplomats said the Eurogroup will only discuss a progress report on Greece at the Bratislava meeting. The comments came just days after the head of the euro zone’s bailout fund, the European Stability Mechanism (ESM) on Saturday said Greece could secure short-term debt relief measures “very soon” if it implements remaining reforms agreed under its bailout program.

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Civilized Europe.

Hungary Police Recruit ‘Border-Hunters’ To Keep Migrants Out (BBC)

The Hungarian police are advertising for 3,000 “border-hunters”, who will reinforce up to 10,000 police and soldiers patrolling a razor-wire fence built to keep migrants out. The new recruits, like existing officers, will carry pistols with live ammunition, and have pepper spray, batons, handcuffs and protective kit. The number of migrants reaching Hungary’s southern border with Serbia has stagnated, at fewer than 200 daily. The new guards will start work in May.\ The recruits will have six months’ training, they must be over 18, physically fit and must pass a psychological test, police officer Zsolt Pozsgai told Hungarian state television. Monthly pay will be 150,000 forint ($542) for the first two months, then 220,300 forint.

Hungary is in the grip of a massive publicity campaign, launched by Prime Minister Viktor Orban’s right-wing government ahead of a 2 October referendum. Voters will be asked to oppose a European Commission proposal to relocate 160,000 refugees more fairly across the 28-nation EU. Under the EU scheme, Hungary has been asked to take 1,300 refugees. The relocation programme is for refugees from Syria, Iraq and Eritrea. Currently 30 migrants are allowed into Hungary each day through official “transit zones”.

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Inevitable when far too many people are forced into far too few places, over prolonged periods of absolute uncertainty about their fate. Though children assaulting children is a new depth. Our friend Kostas says these things originate almost always in a lack of food. The solution is simple: EU countries should live up to their promises regarding refugee relocation.

Overnight Clashes At Lesvos Refugee Center (Kath.)

Authorities say clashes have broken out between rival ethnic groups of refugees and other migrants at a detention camp on the eastern Aegean Sea island of Lesvos. The trouble at the Moria hot spot started shortly after midnight in a wing of the camp where minors are held and then spread, authorities said, adding that child refugees from Syria had been assaulted by a group of Afghan children. An unspecified number of children were injured while about 40 of them escaped into nearby fields. Order was restored around 4 a.m. after intervention by riot police. Authorities were trying to locate the missing children. Nearly 5,000 migrants and refugees are currently sheltered on the islands of Lesvos. Local authorities are demanding immediate government action to decongest overcrowded migrant facilities.

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Australia’s ancient civilizations were way ahead of anyone else.

9,000-Year-Old Stone Houses Found On Australian Island (G.)

Archeologists working on the Dampier archipelago off Australia’s north-west coast have found evidence of stone houses dating back 9,000 years – to the end of the last ice age – building the case for the area to get a world heritage listing. Circular stone foundations were discovered in a cave floor on Rosemary Island, the outermost of 42 islands that make up the archipelago. The islands and the nearby Burrup peninsula are known as Murujuga – a word meaning “hip bones sticking out” – in the language of the Ngarluma people. Prof Jo Mcdonald, director of the Centre for Rock Art Research and Management at the University of Western Australia, said the excavations showed occupation was maintained throughout the ice age and the period of rapid sea level rise that followed.

“Around 8,000 years ago, it would have been on the coast,” McDonald told Guardian Australia. “This is the time that the islands were starting to be cut off and it’s a time when people were starting to rearrange themselves.” The sea level on Australia’s north-west coast rose 130 metres after the end of the ice age, at a rate of about a metre every five to 10 years. “In people’s lifetimes they would have seen loss of territory and would have had to renegotiate – a bit like Miami these days,” McDonald said. The placement of the stone structures indicated how that sudden space restriction was managed, she said. “The development of housing is really significant in terms of understanding how people actually divided up their space and lived in close proximity to each other in times of environmental stress.”

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“..we are wiping out some of our closest relatives..”

World’s Largest Gorillas ‘One Step From Going Extinct’ (AFP)

The world’s largest gorillas have been pushed to the brink of extinction by a surge of illegal hunting in the Democratic Republic of Congo, and are now critically endangered, officials said Sunday. With just 5,000 Eastern gorillas (Gorilla beringei) left on Earth, the majestic species now faces the risk of disappearing completely, officials said at the International Union for Conservation of Nature’s global conference in Honolulu. Four out of six of the Earth’s great apes are now critically endangered, “only one step away from going extinct,” including the Eastern Gorilla, Western Gorilla, Bornean Orangutan and Sumatran Orangutan, said the IUCN in an update to its Red List, the world’s most comprehensive inventory of plant and animal species. Chimpanzees and bonobos are listed as endangered.

“Today is a sad day because the IUCN Red List shows we are wiping out some of our closest relatives,” Inger Andersen, IUCN director general, told reporters. War, hunting and loss of land to refugees in the past 20 years have led to a “devastating population decline of more than 70%,” for the Eastern gorilla, said the IUCN’s update. One of the two subspecies of Eastern gorilla, known as Grauer’s gorilla (G. b. graueri), has drastically declined since 1994 when there were 16,900 individuals, to just 3,800 in 2015. Even though killing these apes is against the law, hunting is their greatest threat, experts said. The second subspecies of Eastern gorilla – the Mountain gorilla (G. b. beringei) – has seen a small rebound in its numbers, and totals around 880 individuals.

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Jul 302016
 


Jack Delano Street scene on a rainy day in Norwich, Connecticut 1940

US GDP Grew a Disappointing 1.2% in Q2 As Q1 Revised Down to 0.8% (WSJ)
Rescue Package In Place For Europe’s Oldest Bank, Weakest In Stress Tests (G.)
ECB Bond Buying Risks Blocking Debt Restructurings (R.)
Chinese Capital Outflows May Still Be Happening – But In Disguise (BBG)
Bank of Japan’s Quest for 2% Inflation (BBG)
The Bank of Japan Is At A Crossroads (BBG)
US Authorities Subpoena Goldman In 1MDB Probe (R.)
Australia Headed For Recession As Early As Next Year – Steve Keen (ABC.au)
‘Sell The House, Sell The Car, Sell The Kids’ – Gundlach (R.)
British Columbia Violates NAFTA With Its Foreign Property Tax (FP)
Another “Smoking Gun” Looms As Hillary Campaign Admits Server Hacked (ZH)
Greek Islands Appeal For Measures To Deal With Influx Of Refugees (Kath.)
England’s Plastic Bag Usage Drops 85% Since 5p Charge Introduced (G.)

 

 

Only positive is consumer spending. But without knowing how much of that is borrowed (let alone manipulated), it’s a meaningless number.

US GDP Grew a Disappointing 1.2% in Q2 As Q1 Revised Down to 0.8% (WSJ)

Declining business investment is hobbling an already sluggish U.S. expansion, raising concerns about the economy’s durability as the presidential campaign heads into its final stretch. GDP, the broadest measure of goods and services produced across the U.S., grew at a seasonally and inflation adjusted annual rate of just 1.2% in the second quarter, the Commerce Department said Friday, well below the pace economists expected. Economic growth is now tracking at a 1% rate in 2016—the weakest start to a year since 2011—when combined with a downwardly revised reading for the first quarter. That makes for an annual average rate of 2.1% growth since the end of the recession, the weakest pace of any expansion since at least 1949.

The output figures are in some ways discordant with other gauges of the economy. The unemployment rate stands at 4.9% after a streak of strong job gains, wages have begun to pick up, and home sales hit a post-recession high last month. Consumer spending also remains strong. Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 4.2% rate in the second quarter, the best gain since late 2014. On the downside, the third straight quarter of reduced business investment, a large paring back of inventories and declining government spending cut into those gains. “Consumer spending growth was the sole element of good news” in the latest GDP figures, said Gregory Daco at Oxford Economics. “Weakness in business investment is an important and lingering growth constraint.”

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“This is a market operation that will reinforce the capital position of the bank and free it completely of bad loans…” If it’s that easy, do it all over the place, I’d think. Who do they think they’re fooling?

Rescue Package In Place For Europe’s Oldest Bank, Weakest In Stress Tests (G.)

A rescue package of the world’s oldest bank has been announced after a health check of the biggest banks across the EU showed that Banca Monte dei Paschi di Siena’s financial position would be wiped out if the global economy and financial markets came under strain. The much-anticipated result of the stress tests – for which there was no pass or fail mark – of 51 banks showed that Italy’s third largest bank emerged weakest from the assessment. But the test – which exposed banks to headwinds in the global economy and dramatic movements in currency markets – also underlined the drop in the capital position of bailed-out Royal Bank of Scotland and the hit taken by Barclays observed under the imaginary scenarios. Banks from Italy, Ireland, Spain and Austria fared worst.

Regulators said that the tests showed that the bank sector was much stronger than it had been at the time of the 2008 financial crisis, which led to the introduction of the stress tests. Even so, the European Banking Authority (EBA), which conducted the tests on lenders, acknowledged that more needed to done.Under the latest stress test scenario, some €269bn (£227bn) would be wiped off the capital bases of the banks. “The EBA’s 2016 stress test shows the benefits of capital strengthening done so far are reflected in the resilience of the EU banking sector to a severe shock,” said Andrea Enria, EBA chair. “This stress test is a vital tool to assist supervisors in accelerating the process of repair of banks’ balance sheets, which is so important for restoring lending to households and businesses.

“The EBA’s stress test is not a pass [or] fail exercise. While we recognise the extensive capital raising done so far, this is not a clean bill of health. There remains work to do which supervisors will undertake.” The bank that fared the worst was MPS, which suffered a dramatic 14 percentage point fall in its capital position. It had been expected to perform badly and talks had already been underway before the results of the stress tests were published to try to find a way to bolster its capital. New EU regulations prevented the Italian government from pumping any taxpayer money into MPS so efforts were needed to try to stop of tens of thousands of ordinary Italians – who had bought its bonds – losing their savings. Italy’s banks are in the spotlight as they are weighed down by €360bn of bad debts.

Italy’s finance minister, Pier Carlo Padoan – who as recently as Sunday said there was no crisis in Italy – endorsed the deal put together to raise €5bn from private investors and sell €9.2bn of bad debts. “The government is greatly satisfied with the operation [the deal] launched … by Monte dei Paschi of Siena,” he said. “This is a market operation that will reinforce the capital position of the bank and free it completely of bad loans. The operation will allow the bank to develop a solid industrial plan, thanks to which it will boost its support for the real economy through lending to families and businesses.”

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Unintended consequences. Hilarious, really.

ECB Bond Buying Risks Blocking Debt Restructurings (R.)

The European Central Bank could scupper future eurozone debt restructurings if it increases the amount of a country’s bonds it can buy under its economic stimulus program, a top debt lawyer warned. The problem, on the radar of European authorities suffering a hangover from the 2012 crisis, has been pushed to the fore by expectations the ECB will need to raise limits on its bond purchases to keep its quantitative easing scheme on track.

Kai Schaffelhuber, a partner at law firm Allen & Overy, said that if the ECB permitted itself to buy more than a third of a country’s debt it would make a restructuring of privately-held bonds more difficult, a move that could increase the likelihood of taxpayer rescues. In a debt restructuring, a quorum of investors has to agree the terms of a deal. The ECB cannot participate because it is forbidden from directly financing governments. “They (the ECB) should avoid a situation where they are holding so much (of a) debt that a restructuring becomes virtually impossible,” said Schaffelhuber, whose firm worked on Greece’s 2012 debt restructuring.

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Samoa….

Chinese Capital Outflows May Still Be Happening – But In Disguise (BBG)

When there’s a will to get money out of China, there’s a way: overpay. Authorities in the world’s second-largest economy have been able to pursue a policy of managed depreciation for the Chinese yuan without spooking markets and eliciting expectations of major foreign-exchange volatility, the way the one-off devaluation did last August. One big reason is that Beijing seems to have had success in cracking down on the flood of money leaving the country, which had been prompting sizable drawdowns in the central bank’s foreign currency reserves, to prop up the value of the yuan. But a report from a Nomura team led by Chief China Economist Yang Zhao says these capital outflows have merely taken another form: the over-invoicing of imports from select locales.

And this time, it’s not just a Hong Kong story. “A detailed breakdown by region shows imports from some tax haven islands or offshore financial centres surged” in the first half of the year, he writes, “against the backdrop of a large decline in overall imports.” Now, it may be the China’s appetite for copra and coconut oil, two key Samoan exports, has indeed surged. But Zhao has a different explanation. “This suggests to us that capital outflows may have been disguised as imports in China’s trade with these tax-haven or offshore financial centres, though the precise volumes are unknown,” according to the economist. “With stronger capital controls in place we believe continued capital outflows via the current account are likely.”

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Exposing the uselessness of the whole idea.

Bank of Japan’s Quest for 2% Inflation (BBG)

The U.S. Federal Reserve, the Bank of England and the ECB are among the world’s monetary authorities that have set an inflation target right around 2%. Nowhere, though, does the quest for this special number carry drama like it does in Japan, where Bank of Japan Governor Haruhiko Kuroda has vowed to do whatever it takes to stimulate prices. On Friday in Tokyo, the BOJ indicated there were risks to achieving this target anytime soon.

1. What’s so special about 2%? The BOJ set its current inflation target in January 2013, less than a month after Prime Minister Shinzo Abe came to power with a plan to pull the economy out of two decades of stagnation. In Japan and many other developed economies, prices rising by 2% a year is seen as optimal for encouraging companies to invest and consumers to spend. It’s also thought to be low enough to avoid sparking the runaway inflation that crippled Germany’s Weimar Republic in the 1920s and Zimbabwe in more recent times.

2. How close has Japan gotten to 2% inflation? Not very. What Japan has had, on-and-off since the late 1990s, is deflation – inflation below 0% – with prices dropping across a wide range of goods.

3. What caused deflation? It began with the bursting of a real estate and asset-price bubble. Wounded banks curbed lending, companies focused on cutting debt, wages stagnated and consumers reined in spending. Households became accustomed to falling prices and put off purchases. The global financial crisis of 2008, and the devastating earthquake, tsunami and nuclear meltdown at the Fukushima Daiichi plant in 2011, entrenched what Kuroda describes as a “deflationary mindset” among consumers and companies in Japan. The nation’s aging and shrinking population is now making matters worse.

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I think they passed that crossroads long ago. Just didn’t recognize it for what it was.

The Bank of Japan Is At A Crossroads (BBG)

After more than three years of pumping out wave after wave of cheap money that’s failed to secure its inflation target, the Bank of Japan has signaled a rethink. Instead of buying yet more government bonds, cutting interest rates or pushing further into uncharted territory, the BOJ disappointed some Friday when its policy meeting concluded with only a modest adjustment. Governor Haruhiko Kuroda, 71, and his colleagues declared it was time to assess the impact of their policies, which have variously spurred strong criticism from bankers, bond dealers and some lawmakers and former BOJ executives. The next gathering, on Sept. 20-21, offers a chance to either provide greater evidence that the current framework should continue, head further into uncharted territory, or scale back.

Regardless of the decision, this isn’t where one of the world’s most aggressive central bankers wanted to be in his fourth year in office. In early 2013, he expressed confidence the BOJ had the power to ensure its 2% inflation target could be reached within about two years. This year, with the shock adoption of a negative interest rate policy backfiring through a welter of warnings from commercial banks, there’s a growing perception monetary policy is losing effectiveness. “We are at a turning point” for the BOJ, because “it can no longer assume that stepping harder on the gas pedal would make this car go faster,” said Stephen Jen, co-founder of hedge fund SLJ Macro Partners and a former IMF economist. “Arrow 2 will take the lead now,” he said, in a reference to the three arrows of Abenomics – monetary, fiscal and structural-reform policies.

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Yeah, that’ll result in some jail time….

US Authorities Subpoena Goldman In 1MDB Probe (R.)

U.S. authorities have issued subpoenas to Goldman Sachs for documents related to the bank’s dealings with scandal-hit Malaysian state fund 1MDB, the Wall Street Journal reported late on Friday. Goldman received the subpoenas earlier this year from the U.S. Department of Justice and the Securities and Exchange Commission , the Journal reported, citing a person familiar with the matter. The authorities also want to interview current and former Goldman employees in connection with the inquiries, but none of those meetings had occurred by Friday, WSJ said.

1MDB, which was founded by Malaysian Prime Minister Najib Razak in 2009 shortly after he came to office, is being investigated for money-laundering in at least six countries including the United States, Singapore and Switzerland. Najib has consistently denied any wrongdoing. U.S. law enforcement officials are attempting to identify whether Goldman violated federal law after failing to flag a transaction in Malaysia, the Journal reported in June. New York state regulators have also asked the Wall Street bank for details about probes into billions of dollars it raised in a bond offering for 1MDB, Reuters reported in June, citing a person familiar with the matter.

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Note – Steve says: “I’ve said “as early as” 2017 and “between 20% & 70% fall” but all people hear is 2017 & 70%..”

Australia Headed For Recession As Early As Next Year – Steve Keen (ABC.au)

Australia’s credit binge will lead to a bust as soon as next year, with house prices to fall between 40 and 70% and unemployment to rise sharply, Professor Steve Keen says. The professor famously lost a bet when he predicted a catastrophic crash in Australian house prices following the GFC and had to walk from Canberra to Mount Kosciusko as a result. But he says, this time, he is right and does not have his hiking boots at the ready. “We have borrowed ourselves so much to the hilt that we are now dependent on that continuing to rise over time and it simply won’t,” he told the ABC’s The Business.

Many believe the Reserve Bank has been a steady guiding hand to the Australian economy in the years since the GFC, but Professor Keen believes it has guided the economy “straight toward the shoals” by encouraging households to borrow with low rates which has led to asset bubbles. “They don’t know what they’re doing,” he said. “Our debt level according to the Bank of International Settlements, private debt level, has gone from 150% of GDP to 210% of GDP.” He argued that means a large part of the growth that Australia has enjoyed since the GFC, while many other countries plunged into recession, has been fuelled by a 60% rise in household debt. “Ireland did the same thing when they called themselves the Celtic Tiger and they don’t call themselves that anymore,” he said.

“Spain was doing the same thing during its housing bubble and we’ve replicated the same mistakes. He believes the Reserve Bank will be forced to take rates down to zero from their current level of 1.75% as the economy continues to slow, but that will not stop the collapse of the credit binge that has kept the country afloat until now. “[Lower rates] will suck more people in, it will suck more people in for a while and the [Reserve Bank] can delay this for a while by cutting the rates,” he said. He said the catalysts for the recession were the declining terms of trade, the continued fall in investment into the economy and the Federal Government’s “stupid” pursuit of a budget surplus. “The Government is frankly stupid about the economy and is obsessed about running surpluses when it is bad economics.”

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“The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”

‘Sell The House, Sell The Car, Sell The Kids’ – Gundlach (R.)

Jeffrey Gundlach, the chief executive of DoubleLine Capital, said on Friday that many asset classes look frothy and his firm continues to hold gold, a traditional safe-haven, along with gold miner stocks. Noting the recent run-up in the benchmark Standard & Poor’s 500 index while economic growth remains weak and corporate earnings are stagnant, Gundlach said stock investors have entered a “world of uber complacency.” The S&P 500 on Friday touched an all-time high of 2,177.09, while the government reported that U.S. GDP in the second quarter grew at a meager 1.2% rate. “The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach said in a telephone interview.

“The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.” Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine, said the firm went “maximum negative” on Treasuries on July 6 when the yield on the benchmark 10-year Treasury note hit 1.32%. “We never short in our mainline strategies. We also never go to zero Treasuries. We went to lower weightings and change the duration,” Gundlach said. Currently, the yield on the 10-year Treasury note is 1.45%, which has translated into some profits so far for DoubleLine. “The yield on the 10-year yield may reverse and go lower again but I am not interested. You don’t make any money. The risk-reward is horrific,” Gundlach said. “There is no upside” in Treasury prices.

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The perks of trade agreements.

British Columbia Violates NAFTA With Its Foreign Property Tax (FP)

The British Columbia government has suddenly introduced a penalty tax forcing non-Canadian purchasers of residential real estate in the Greater Vancouver Regional District to pay a 15% tax on all purchases registered from Aug. 2, 2016. This penalty tax discriminates by definition against foreign investors buying residential real estate in the Greater Vancouver Area: Canadian citizens buying residential real estate are exempt; foreign buyers must pay the tax. That discrimination is a glaring violation of our trade treaties. The North American Free Trade Agreement (NAFTA) and other Canadian trade agreements prohibit governments from imposing discriminatory policies that punish foreigners while exempting locals.

NAFTA’s national treatment obligation requires that citizens from other NAFTA partners investing in B.C. receive the same treatment from the government as the very best treatment received by Canadian investors. Americans and Mexicans forced to pay the 15% penalty tax would be able to pursue direct compensation for B.C.’s discriminatory tax from an independent international tribunal. [..] While the vast majority of Vancouver’s foreign property buyers might be Chinese, who were apparently the provincial government’s main target, enough investors from our dozens of treaty partners, comprising of hundreds of affected foreigners with trade rights, could be caught up in this tax, leading to mass claims. Those claims would be against the Canadian government, the signatory to NAFTA and the other international trade treaties, not B.C. Canadian taxpayers could be on the hook for hundreds of millions, or even billions, of dollars.

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Big kahuna remains: the classified mails on Hillay’s server(s).

Another “Smoking Gun” Looms As Hillary Campaign Admits Server Hacked (ZH)

In the third cyberattack on Democratic Party-related servers, Reuters reports that the computer network used by Democratic presidential candidate Hillary Clinton’s campaign was hacked. This follows hacks of the DNC and the DCCC (the party’s fund-raising committee) in the past week. Who to blame this time? Well with US intelligence head Jim Clapper having exclaimed that he was “somewhat taken aback by the hyperventilation [blaming Russia]” by Democratic surrogates, we suspect another scapegoat will need to be found. The latest attack, which was disclosed to Reuters on Friday, follows reports of two other hacks on the Democratic National Committee and the party’s fundraising committee for candidates for the U.S. House of Representatives.

“The U.S. Department of Justice national security division is investigating whether cyber hacking attacks on Democratic political organizations threatened U.S. security, sources familiar with the matter said on Friday. The involvement of the Justice Department’s national security division is a sign that the Obama administration has concluded that the hacking was state sponsored, individuals with knowledge of the investigation said. The Clinton campaign, based in Brooklyn, had no immediate comment and referred Reuters to a comment from earlier this week by campaign senior policy adviser Jake Sullivan criticizing Republican presidential candidate Donald Trump and calling the hacking “a national security issue.”

It was not immediately clear what information on the Clinton campaign’s computer system hackers would have been able to access, but the possibility of more ‘smoking guns’ only rises with each hack. Of course the finger will inevitably be pointed at Vladimir Putin (and his media-designated puppet Trump) but even The Director of Nation Intelligence has urged that an end be put to the “reactionary mode” blaming it all on Russia…

“We don’t know enough to ascribe motivation regardless of who it might have been,” Director of National Intelligence James Clapper said speaking at Aspen’s Security Forum in Colorado, when asked if the media was getting ahead of themselves in fingering the perpetrator of the hack. Speaking on Thursday, Clapper said that Americans need to stop blaming Russia for the hack, telling the crowd that the US has been running in “reactionary mode” when it comes to the numerous cyber-attacks the nation is continuously facing. “I’m somewhat taken aback by the hyperventilation on this,” Clapper said, as cited by the Washington Examiner. “I’m shocked someone did some hacking,” he added sarcastically, “[as if] that’s never happened before.”

Of course that won’t stop the endless distraction and guilt-mongering to avoid any accountability for actual content of anything that is released. Finally, does it not seem a little “reckless” that so many Democratic servers have been hacked so easily?

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It’s starting to increase again.

Greek Islands Appeal For Measures To Deal With Influx Of Refugees (Kath.)

As the influx of migrants from neighboring Turkey continues – with a slight but noticable increase – regional authorities and tourism professionals are calling for measures to support communities on the Aegean islands. Over the past two weeks, following a failed coup in Turkey on July 15, the influx of migrants has increased, according to government figures. Overall, more than 1,000 migrants landed on the five so-called hot spots: Lesvos, Chios, Kos, Samos and Leros since the failed coup. Those islands are now accommodating 9,313 migrants in camps, many of whom have been there for several months awaiting the outcome of asylum applications or deportation.

In a letter to Migration Policy Minister Yiannis Mouzalas and Alternate Defense Minister Dimitris Vitsas, the governor of the northern Aegean region, Christiana Kalogirou, asked for immediate steps to decongest the islands. “We are seeing a constant and apparently increasing flow of migrants and refugees toward the islands of the northern Aegean,” she wrote, noting that the maximum capacity of state reception centers has been exceeded on all the islands. A representative of an aid agency working on Lesvos said that the increase in migrant arrivals on the island has not yet fuelled tensions in the camps. “But if they keep arriving at the same rate, we’ll have a problem soon,” according to the worker who asked not to be identified.

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That’s how hard that is. 5p.

England’s Plastic Bag Usage Drops 85% Since 5p Charge Introduced (G.)

The number of single-use plastic bags used by shoppers in England has plummeted by more than 85% after the introduction of a 5p charge last October, early figures suggest. More than 7bn bags were handed out by seven main supermarkets in the year before the charge, but this figure plummeted to slightly more than 500m in the first six months after the charge was introduced, the Department for Environment, Food and Rural Affairs (Defra) said. The data is the government’s first official assessment of the impact of the charge, which was introduced to help reduce litter and protect wildlife – and the expected full-year drop of 6bn bags was hailed by ministers as a sign that it is working.

The charge has also triggered donations of more than £29m from retailers towards good causes including charities and community groups, according to Defra. England was the last part of the UK to adopt the 5p levy, after successful schemes in Scotland, Wales and Northern Ireland. Retailers with 250 or more full-time equivalent employees have to charge a minimum of 5p for the bags they provide for shopping in stores and for deliveries, but smaller shops and paper bags are not included. There are also exemptions for some goods, such as raw meat and fish, prescription medicines, seeds and flowers and live fish. Around 8m tonnes of plastic makes its way into the world’s oceans each year, posing a serious threat to the marine environment. Experts estimate that plastic is eaten by 31 species of marine mammals and more than 100 species of sea birds.

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Jun 082016
 
 June 8, 2016  Posted by at 8:43 am Finance Tagged with: , , , , , , , , ,  3 Responses »


Harris&Ewing Washington Monument, view from air 1919

Bank of Japan’s Sovereign Debt Endgame Is The Naked Emperor (FP)
Japan’s Biggest Bank To Quit As JGB Primary Dealer (ZH)
Draghi Fires Starting Gun on Corporate Bond Purchases in Europe (BBG)
Public Support For The EU Plunges Across Europe (R.)
France Shuns Europe As Brexit Revolt Spreads (AEP)
Billions Of Pounds Taken Out Of Britain Amid Fears Of Brexit (Ind.)
China’s Exports Weaken, Signaling More Headwinds For Growth (BBG)
China Central Bank Holds Line On Growth Forecast, Sees More Pain To Come (R.)
US-China Talks Limited by Disagreements (WSJ)
Millions Around The World Are Fleeing Neoliberal Policy (RNN)
Only 10 Countries In The World Are Not At War (Ind.)
Arctic Sea Ice Hit A Stunning New Low In May (WaPo)
Greek Legal Rulings Back 35 Refugees Appealing Deportation (Kath.)
EU Considers Linking African Aid to Curbs on Migrant Flows (WSJ)

“The workability of the institution breaks down when a different set of rules are seen to apply to governments versus those that apply to everyone else.”

Bank of Japan’s Sovereign Debt Endgame Is The Naked Emperor (FP)

Last week, Bloomberg reported in depth on Japan’s miraculous diminishing debt load. Turns out, despite a steady rise in government borrowing, the burden of repayment is diminished because the buyer of 90% of that debt is the Bank of Japan. This has serious implications for Canadian investors, yet the full significance has not yet been thoroughly unpacked by media. My bet is most analysts and economists are aghast at this admission by a G7 government that debt could just be summarily forgiven. It suggests the notion of liability in credit does not apply to government, or its associated (yet private, to varying degree) central banks. But it’s really quite simple. The single most important rule upon which our global debt-driven economic growth equation is dependent is that debt is repaid.

If it isn’t, assets are confiscated. Just like if you don’t keep up with the mortgage payments on your house, you lose it. But what happens when the biggest creditor is also the debtor? The entire debtor/creditor relationship is rendered nonsensical. The size of the debt any one nation can undertake is directly related to its ability to repay any proposed amount over time. Its ability to repay its debt, in turn, is derived from the consensus of markets that demand a higher rate of interest the closer a debtor gets to defaulting. The debt limit is reached when no one will lend, because even at the highest rate of interest, the chance of default is greater. Or when the debtor misses a payment. This works well in a world ostensibly governed by free markets, and when the rules are universally applied. The workability of the institution breaks down when a different set of rules are seen to apply to governments versus those that apply to everyone else.

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BoJ buys everything. Banks have to deal with a monopoly, no profit in that.

Japan’s Biggest Bank To Quit As JGB Primary Dealer (ZH)

Ever since the launch of Japan’s QE, and worsening in the aftermath of January’s shocking NIRP announcement, Japan’s bond market, which moments ago slid to new record lows yields across the curve, has had its share of near-death experiences: between repeated VaR shocks, to days in which not a single bond was traded, to trillions in bonds with negative yields, it has seemed that the Japanese Government Bond is on life support. That support may be ending. According to Nikkei, and confirmed by Bloomberg, Japan’s biggest bank, Bank of Tokyo-Mitsubishi UFJ, is preparing to quit its role as a primary dealer of Japanese government bonds as negative interest rates turn the instruments into larger risks, a fallout from massive monetary easing measures by the Bank of Japan.

While the role of a Primary Dealer comes with solid perks such as meetings with the Finance Ministry over bond issuance and generally being privy to inside information and effectively free money under POMO, dealers also are required to bid on at least 4% of a planned JGB issuance, which as the Nikkei reports has become an increasingly heavy burden for BTMU. In other words, one of the key links that provides liquidity and lubricates the Japanese government bond market has just decided to exit the market due to, among other thinks, lack of liquidity entirely due to the policy failure of Abenomics in general, and Kuroda’s disastrous monetary policies in particular.

One could, of course, ask just how does BTMU plan on also exiting the Japanese economy itself, if and when the country’s $8 trillion bond market implodes, but we doubt the bank will ever be able to answer that. The ministry is expected to let the bank resign. Japan has 22 primary dealers including megabanks and major brokerages. Several foreign brokerages had pulled out before as part of restructuring efforts at home or for other reasons, but BTMU will be the first Japanese institution to quit. In a revolutionary shift, one created by the Bank of Japan itself, banks, once the biggest buyers of JGBs, see little appeal in sovereign debt today. The bonds have very low yields, and a rise in interest rates could leave banks with vast unrealized losses.

Private-sector banks held just over 229 trillion yen ($2.13 trillion) in JGBs at the end of 2015, nearly 30% less than at the end of March 2013, before the BOJ launched massive quantitative and qualitative easing measures. Negative rates introduced this year by the BOJ reinforced the trend. The highest bid yield on benchmark 10-year JGBs sank to a record low of negative 0.092% on Thursday. BTMU was the fifth-largest buyer of Japanese government bonds among the 22 primary dealers until spring 2015, but ranked 10th or lower between October 2015 and March 2016 as shareholders turned up their nose on government debt.

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One day we’ll understand just how insane this is. One massive debt orgasm.

Draghi Fires Starting Gun on Corporate Bond Purchases in Europe (BBG)

Investors will be watching Mario Draghi’s first corporate bond purchases on Wednesday for an indication of whether they were right to snap up the notes before the ECB. The ECB is adding investment-grade corporate notes to its €80 billion monthly purchase program, which already includes covered bonds, asset-backed securities and government debt, as part of efforts to encourage growth. The challenge will be buying enough bonds in increasingly illiquid markets, investors and analysts say. “There is a fair amount riding on this in terms of the ECB’s credibility,” said Victoria Whitehead at BNP Paribas Investment Partners. “The perception is that if they can’t buy at least €5 billion of bonds a month, the program will be seen as unsuccessful.” Investors have piled into investment-grade corporate bonds on the promise of central bank purchases, driving up prices and cutting borrowing costs.

The average yield for euro notes tumbled to 1.002% on Monday, the lowest in more than a year, according to BofAML index data. Companies responded to the surge in demand by selling more than €50 billion of bonds in the single currency in May, the second-busiest month on record. While purchases of more than €5 billion of bonds may boost the market, investors may be disappointed if the ECB bought less than €3 billion a month, CreditSights analysts wrote in a June 5 report. Commerzbank and Morgan Stanley don’t expect the monthly purchases to surpass €5 billion. “We’re worried that they won’t be able to buy quite as much as they want to,” said Tim Winstone at Henderson Global Investors. “If the buying underwhelms and reported volumes are less than most people expect, there is a risk of a selloff.”

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Dissolve the monster peacefully while you still can. Or else.

Public Support For The EU Plunges Across Europe (R.)

Public support for the European Union has fallen sharply in its biggest member states over the past year, a survey showed on Tuesday, weeks before Britons vote on whether to leave the 28-nation bloc. The survey of 10 large EU states by the Washington-based Pew Research Center showed strong support for Britain to stay in the EU, with 89% of Swedes, 75% of Dutch and 74% of Germans viewing a so-called Brexit as a bad thing. But most striking was a plunge in the percentage of Europeans who view the EU favorably, a development which appears linked to the bloc’s handling of the refugee crisis and the economy. The fall was most pronounced in France, where only 38% of respondents said they had a favorable view of the EU, down 17 points from last year.

Favorability ratings also fell by 16 points in Spain to 47%, by eight points in Germany to 50%, and by seven points in Britain to 44%. Public support for the EU was strongest in Poland and Hungary, countries which ironically have two of the most EU-sceptical governments in the entire bloc. The Pew survey showed that 72% of Poles and 61% of Hungarians view the EU favorably. “The British are not the only ones with doubts about the European Union,” Pew said. “Much of the disaffection with the EU among Europeans can be attributed to Brussels’ handling of the refugee issue. In every country surveyed, overwhelming majorities disapprove of how Brussels has dealt with the problem.”

This was especially true in Greece, which has been overwhelmed by migrants crossing the Aegean Sea from Turkey. Some 94% of Greeks believe the EU has mishandled the refugee crisis. In Sweden it was 88%, in Italy 77% and in Spain 75%. At 92%, Greeks were also the most disapproving of the EU’s handling of the economy, followed by the Italians at 68% and French at 66%. Roughly two-thirds of Greeks and Britons said powers should be returned to national governments from Brussels, far higher than in the other surveyed countries.

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Close to what I’ve written before: “They may have to dissolve the EU as it is and try to reinvent it, both in order to bring the Brits back and because they fear that the whole political order will be swept away unless they do..”

France Shuns Europe As Brexit Revolt Spreads (AEP)

France has turned even more viscerally eurosceptic than Britain over recent months, profoundly altering the political geography of Europe and making it impossible to judge how Paris might respond to Brexit. An intractable economic crisis has been eating away at the legitimacy of the French governing elites for much of this decade. This has now combined with a collapse in the credibility of the government, and mounting anger over immigration. A pan-European survey by the Pew Research Center released today found that 61pc of French voters have an “unfavourable” view, compared to 48pc in the UK. A clear majority is opposed to “ever closer union” and wants powers returned to the French parliament, a finding that sits badly with the insistence by President Francois Hollande that “more Europe” is the answer to the EU’s woes.

“It is a protest against the elites,” said Professor Brigitte Granville, a French economist at Queen Mary University of London. “There are 5000 people in charge of everything in France. They are all linked by school and marriage, and they are tight.” Prof Granville said the mechanisms of monetary union have upset the Franco-German strategic marriage, wounding the French psyche. “The EU was sold to the French people as a `partnership’ of equals with Germany. But it has been very clear since 2010 that this is not the case. Everybody could see that Germany decided everything in Greece,” she said. The death of the Monnet dream in the EU’s anchor state poses an existential threat to the European project and is running in parallel to what is happening in Britain.

The Front National’s Marine Le Pen is leading the polls for the presidential elections in 2017 with vows to restore the French franc and smash the EU edifice. While it has long been assumed that she could never win an outright majority, nobody is quite so sure after the anti-incumbent upset in Austria last month. “The Front National is making hay from the Brexit debate,” said Giles Merritt, head of the Friends of Europe think tank in Brussels. “The EU policy elites are in panic. If the British vote to leave the shock will be so ghastly that they will finally wake up and realize that they can no longer ignore demands for democratic reform,” he said.

“They may have to dissolve the EU as it is and try to reinvent it, both in order to bring the Brits back and because they fear that the whole political order will be swept away unless they do,” he said. Mr Merritt said it is an error to suppose that the EU would carry on as a monolithic bloc able to dictate terms after a Brexit vote. “The British would have pricked the bubble. The Germans are deeply alarmed at how suddenly the mood is shifting everywhere,” he said.

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It’s going to be so much fun, the next two weeks. Can the footballers save England at the Euro Cup?

Billions Of Pounds Taken Out Of Britain Amid Fears Of Brexit (Ind.)

Investors are moving billions of pounds in assets out of British currency and assets ahead of the EU referendum, new figures suggest. An analysis by Sky News found £65bn left the UK or was converted into other currencies in March and April, the largest amount since the economic crash. In the six months to the end of April, £77bn was pulled out of British pounds, compared to just £2bn in the six months to the end of last October. The figures, published by the Bank of England, are consistent with investors worrying that the pound is due for a sharp fall should Brexit to occur. Because financial markets are prone to collective panic, investors’ views are the main factor in determining whether the pound will actually fall. Any perception that a fall was about to take place could end up becoming a self-fulfilling prophecy.

In February, HSBC warned that 20% could be wiped off the value of sterling were Britain to leave the EU. In May this figure was corroborated by the National Institute for Economic and Social Research. The pound plunged to a three-week low yesterday, probably partly in response to polls showing the Leave campaigning ahead. It hit a seven-year low against the dollar the day after the former Mayor of London, Boris Johnson, announced he was backing Brexit, and also suffered the biggest one-day fall since David Cameron become Prime Minister. The collapse of the pound at the end of June would mean Britons going abroad during the summer would have their spending power reduced. Imported goods such as electronics would also likely become significantly more expensive.

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That is one damning graph. Where would China’s imports be without the fake invoices?

China’s Exports Weaken, Signaling More Headwinds For Growth (BBG)

China’s exports stabilized in May, with a weakening currency giving some support to growth in the world’s biggest trading nation. Overseas shipments fell 4.1% in dollar terms from a year earlier, the customs administration said Wednesday. Imports slipped 0.4% – the smallest drop since late 2014 – to leave a trade surplus of $50 billion. Reflecting a weaker currency, both exports and imports fared better when measured in local currency terms. The Shanghai Composite Index pared losses and the Australian dollar rallied. “The worst time for Chinese exports has passed,” said Harrison Hu at Royal Bank of Scotland in Singapore, adding that the dollar-denominated export growth is slightly misleading due to the price changes.

“The quantity of exports actually showed a subdued increase. The yuan also depreciated against a basket of currencies, which supports exports.” Still, that support remains restrained. The World Bank on Tuesday cut its global growth estimate to 2.4% for this year, which would be the same as 2015, from the 2.9% projected in January. Ma Jun, chief economist of the People’s Bank of China’s research bureau, lowered his forecast for China’s exports this year to a 1% decline, versus a 3.1% increase seen previously, according to a work paper published Wednesday. “The weakening momentum of global growth is our main reason to lower the forecast,” he wrote. “A 10-percentage point decline in exports can drag GDP growth down by about 1%.”

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“China’s trade shrank 8% last year, compared with the government’s goal for 6% growth..”

China Central Bank Holds Line On Growth Forecast, Sees More Pain To Come (R.)

China’s central bank slashed its forecast for exports on Wednesday, predicting a second straight annual fall in shipments, but said the economy will still grow 6.8% this year. The People’s Bank of China also warned in its mid-year work report that the government’s push to reduce debt levels and overcapacity could increase bond default risks and make it more difficult for companies to raise funds. And ahead of a meeting of the U.S. Federal Reserve’s policymaking board next week, it said the pace of U.S interest rate rises would affect global capital flows and emerging market currencies, but it did not mention the yuan. “Since the beginning of this year, the global and domestic economic environment has experienced a number of changes,” the PBOC said in the report.

“Reflecting these recent developments, we revised our China macroeconomic forecasts for 2016. Compared with our published forecasts in December last year, we maintain our baseline projection of 2016 real GDP growth at 6.8%.” The report was released shortly after monthly data showed China’s exports fell an annual 4.1% in May, more than expected and the 10th decline in the past 12 months. Imports were more encouraging, however, declining only marginally and much less than expected, pointing to improving domestic demand and adding to views that the economy may be slowly stabilizing. Preliminary commodity trade data showed sharp rises in imports of copper and iron ores.

[..] Despite cutting its forecast for exports to minus 1% from growth of 3.1%, the PBOC saw a domestic recovery remaining on track. It upgraded its forecast for fixed-asset investment growth to 11%, an increase of 0.2 percentage points from estimates it made late last year. A government spending spree on major infrastructure projects and a continuing recovery in the housing market have boosted demand for materials from cement to steel. China’s trade shrank 8% last year, compared with the government’s goal for 6% growth , in the worst performance since the global financial crisis.

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And those are here to stay. Sharply conflicting interests.

US-China Talks Limited by Disagreements (WSJ)

The U.S. and China made little progress on a series of disagreements during two days of high-level economic and security talks, as both countries prepare for leadership change and further economic uncertainty. Statements by officials from both sides on Tuesday suggested mostly incremental results from the dialogue. U.S. Treasury Secretary Jacob Lew said Chinese officials reaffirmed a commitment not to devalue an already weakening yuan for competitive purposes and pledged not to “target” an expansion of the steel industry, whose surging production he previously called market-distorting. Beijing widened access to its tightly regulated financial markets, offering U.S. investors a quota of 250 billion yuan ($38.1 billion) to buy Chinese stocks and bonds.

The two governments agreed to designate clearing banks in the U.S. for settling yuan transactions, a move that would promote greater use of the Chinese currency. Mr. Lew said it was too early to say which U.S. financial institution might be chosen but said the U.S. will have the second-largest quota after Hong Kong. On the more contentious issues in the relationship, the senior officials appeared to restate positions and, in some cases, outright disagree. A new Chinese law that grants police the authority to monitor foreign nonprofits provoked sharp differences. This year’s meeting of the Strategic and Economic Dialogue is the last for the Obama administration, with the U.S. presidential election approaching. China soon will face its own important leadership transition.

In 2017, five of the seven members of the Politburo Standing Committee, China’s top decision-making body, are due to step down. The timing of the meetings, combined with tensions over the South China Sea—where the U.S. is challenging Beijing’s assertion of sovereignty over islands, reefs and surrounding waters claimed by other countries—limited prospects for breakthroughs on issues such as trade and investment barriers and China’s currency policy.

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TEXT

Millions Around The World Are Fleeing Neoliberal Policy (RNN)

What it tells is almost identical to what has already been narrated for Russia and Greece. And what’s responsible for the increasing death rates is actually neoliberal economic policy, neoliberal trade policy, and the polarization and impoverishment of a large part of society. After the Soviet Union broke up in 1991, death rates soared, lifespans shortened, health standards decreased all throughout the Yeltsin administration, until finally President Putin came in and stabilized matters. Putin said that the destruction caused by neoliberal economic policies had killed more Russians than all of whom died in World War II, the 22 million people. That’s the devastation that polarization caused there.

Same thing in Greece. In the last five years, Greek lifespans have shortened. They’re getting sicker, they’re dying faster, they’re not healthy. Almost all of the British economists of the late 18th century said when you have poverty, when you have a transfer of wealth to the rich, you’re going to have shorter lifespans, and you’re also going to have immigration. The countries that have a hard money policy, a creditor policy, people are going to emigrate. Now, at that time that was why England was gaining immigrants. It was gaining skilled labor. It was gaining people to work in its industry because other countries were still in the post-feudal system and were driving them out. Russia had a huge emigration of skilled labor, largely to Germany and to the United States, especially in information technology. Greece has a heavy outflow of labor.

The Baltic states have had almost a 10% decline in their population in the last decade as a result of their neoliberal policies. Also, health problems are rising. Now, the question is, in America, now that you’re having as a result of this polarization shorter lifespans, worse health, worse diets, where are the Americans going to emigrate’ Nobody can figure that one out yet. There’s no, seems nowhere for them to go, because they don’t speak a foreign language. The Russians, the Greeks, most Europeans all somehow have to learn English in school. They’re able to get by in other countries. They’re not sure where on earth can the Americans come from’ Nobody can really figure this out.

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Curious ‘thingy’ from the Independent: somewhere in the article it says Iceland is the world’s most peaceful country, even though it’s not in that list of 10.

Only 10 Countries In The World Are Not At War (Ind.)

The world is becoming a more dangerous place and there are now just 10 countries which can be considered completely free from conflict, according to authors of the 10th annual Global Peace Index. The worsening conflict in the Middle East, the lack of a solution to the refugee crisis and an increase in deaths from major terrorist incidents have all contributed to the world being less peaceful in 2016 than it was in 2015. And there are now fewer countries in the world which can be considered truly at peace – in other words, not engaged in any conflicts either internally or externally – than there were in 2014. According to the Institute for Economics and Peace, a think-tank which has produced the index for the past 10 years, only Botswana, Chile, Costa Rica, Japan, Mauritius, Panama, Qatar, Switzerland, Uruguay, and Vietnam are free from conflict.

Brazil is the country that has dropped out of the list, and as one of the worst performing countries year-on-year represents a serious concern ahead of the Rio Olympics, the IEP’s founder Steve Killelea told The Independent. But perhaps the most remarkable result from this year’s peace index, he said, was the extent to which the situation in the Middle East drags down the rest of the world when it comes to peacefulness. “If we look at the world overall, it has become slightly less peaceful in the last 12 months,” Mr Killelea said. “But if we took the Middle East out of the index over the last decade – and last year – the world would have become more peaceful,” he said. “It really highlights the impact the Middle East is having on the world.”

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Man was here.

Arctic Sea Ice Hit A Stunning New Low In May (WaPo)

The 2016 race downward in Arctic sea ice continued in May with a dramatic new record. The average area of sea ice atop the Arctic Ocean last month was just 12 million square kilometers (4.63 million square miles), according to the National Snow and Ice Data Center (NSIDC). That beats the prior May record (from 2004) by more than half a million square kilometers, and is well over a million square kilometers, or 500,000 square miles, below the average for the month. Another way to put it is this: The Arctic Ocean this May had more than three Californias less sea ice cover than it did during an average May between 1981 and 2010. And it broke the prior record low for May by a region larger than California, although not quite as large as Texas.

This matters because 2016 could be marching toward a new record for the lowest amount of ice ever observed on top of the world at the height of melt season — September. The previous record September low was set in 2012. But here’s what the National Snow and Ice Data Center has to say about that: Daily extents in May were also two to four weeks ahead of levels seen in 2012, which had the lowest September extent in the satellite record. The monthly average extent for May 2016 is more than one million square kilometers (386,000 square miles) below that observed in May 2012. In other words, for Arctic sea ice, May 2016 was more like June 2012 — the record-breaking year. Going into the truly warm months of the year, then, the ice is in a uniquely weak state.

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The whole thing is turning into such a mess you would think this is happening on purpose.

Greek Legal Rulings Back 35 Refugees Appealing Deportation (Kath.)

Fears are rising about the possible breakdown of a deal between the European Union and Turkey for the return of migrants after legal committees in Greece upheld dozens of appeals by refugees against their deportation. By late Monday, Greek appeals committees had ruled in favor of 35 refugees, ruling that Turkey is “an unsafe country.” Only two rulings overturned appeals by refugees against their deportation. On Tuesday a crowd of refugees blocked the container terminal at the port of Thessaoniki to protest the slow pace at which asylum applications are being processed. Hundreds of applications are pending and there are fears that they too will result in rulings in favor of refugees, undercutting a deal signed between Ankara and Brussels in March to return migrants to Turkey.

Meanwhile there are also concerns about a pickup in arrivals from neighboring Turkey. For several weeks, a crackdown by Turkish authorities on smugglers had all but stopped the migrant influx. Now that ties between Turkey and the EU are strained over the former’s refusal to reform terrorism laws and its insistence that Turks be granted visa-free access to the bloc, more migrants have started arriving in Greece from Turkey. The total number of refugees in Greece is 57,458, according to government figures made public on Tuesday. The figure includes 5,700 people in rented accommodation arranged by the United Nations refugee agency, UNHCR. The remainder of the migrants are living in makeshift camps or state-run facilities on the Aegean islands or mainland Greece.

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When in a hole, keep digging. One deal with a madman is not enough.

EU Considers Linking African Aid to Curbs on Migrant Flows (WSJ)

The European Union’s executive body on Tuesday presented plans linking trade and investment perks for African countries to their efforts in reducing migration to Europe, a controversial idea that still needs the backing of EU governments. While the bloc has managed to stem the influx of Syrian refugees and other migrants after striking a deal with Turkey in March, an increasing number of mostly African migrants are attempting to make the perilous journey via Libya across the Mediterranean Sea to Italy. Nearly 50,000 people were rescued and brought to Italy this year and over 2,000 are feared dead after several boats capsized off the Libyan coast, according the United Nations’ refugee agency.

“We must do in the southern Mediterranean what we’ve done in the Aegean,” European Commission Vice-President Frans Timmermans said Tuesday in the European Parliament in Strasbourg. Under the proposed measures from the European Commission, which still need the approval of EU governments and the European Parliament, EU development funding and trade incentives would be linked to the countries’ level of cooperation on migration. “We propose a mix of positive and negative incentives, to reward those countries willing to cooperate effectively with us and to ensure there are consequences for those who do not. This includes using our development and trade policies to create leverage,” Mr. Timmermans said.

EU diplomats in Brussels expect “quite heated discussions” on the idea of linking development aid and trade policies to cooperation on migration, as governments have different views on whether it is ethical to make aid conditional on countries taking people back or preventing them from leaving. EU interior ministers meeting in Luxembourg on Friday will have a first exchange of views on the topic.

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Feb 212016
 
 February 21, 2016  Posted by at 10:50 pm Finance Tagged with: , , , , , , , , , ,  6 Responses »


“6 gals for 99c”, Roosevelt and Wabash, Chicago 1939

That the world’s central bankers get a lot of things wrong, deliberately or not, and have done so for years now, is nothing new. But that they do things that result in the exact opposite of what they ostensibly aim for, and predictably so, perhaps is. And it’s something that seems to be catching on, especially in Asia.

Now, let’s be clear on one thing first: central bankers have taken on roles and hubris and ‘importance’, that they should never have been allowed to get their fat little greedy fingers on. Central bankers in their 2016 disguise have no place in a functioning economy, let alone society, playing around with trillions of dollars in taxpayer money which they throw around to allegedly save an economy.

They engage solely, since 2008 at the latest, in practices for which there are no historical precedents and for which no empirical research has been done. They literally make it up as they go along. And one might be forgiven for thinking that our societies deserve something better than what amounts to no more than basic crap-shooting by a bunch of economy bookworms. Couldn’t we at least have gotten professional gamblers?

Central bankers who moreover, as I have repeatedly quoted my friend Steve Keen as saying, even have little to no understanding at all of the field they’ve been studying all their adult lives.

They don’t understand their field, plus they have no idea what consequences their next little inventions will have, but they get to execute them anyway and put gargantuan amounts of someone else’s money at risk, money which should really be used to keep economies at least as stable as possible.

If that’s the best we can do we won’t end up sitting pretty. These people are gambling addicts who fool themselves into thinking the power they’ve been given means they are the house in the casino, while in reality they’re just two-bit gamblers, and losing ones to boot. The financial markets are the house. Compared to the markets, central bankers are just tourists in screaming Hawaiian shirts out on a slow Monday night in Vegas.

I’ve never seen it written down anywhere, but I get the distinct impression that one of the job requirements for becoming a central banker in the 21st century is that you are profoundly delusional.

Take Japan. As soon as Abenomics was launched 3 years ago, we wrote that it couldn’t possibly succeed. That didn’t take any extraordinary insights on our part, it simply looked too stupid to be true. In an economy that’s been ‘suffering’ from deflation for 20 years, even as it still had a more or less functioning global economy to export its misery to, you can’t just introduce ‘Three Arrows’ of 1) fiscal stimulus, 2) monetary easing and 3) structural reforms, and think all will be well.

Because there was a reason why Japan was in deflation to begin with, and that reason contradicts all three arrows. Japan sank into deflation because its people spent less money because they didn’t trust where their economy was going and then the economy went down further and average wages went down so people had less money to spend and they trusted their economies even less etc. Vicious cycles all the way wherever you look.

How many times have we said it? Deflation is a b*tch.

And you don’t break that cycle by making borrowing cheaper, or any such thing, you don’t break it by raising debt levels, and try for everyone to raise theirs too. Which is what Abenomics in essence was always all about. They never even got around to the third arrow of structural reforms, and for all we know that’s a good thing. In any sense, Abenomics has been the predicted dismal failure.

Now, I remember Shinzo Abe ‘himself’ at some point doing a speech in which he said that Abenomics would work ‘if only the Japanese people would believe it did’. And that sounded inane, to say that to people who cut down on spending for 2 decades, that if only they would spend again, the sun would rise in concert. That’s like calling your people stupid to their faces.

The reality is that in global tourism, the hordes of Japanese tourists have been replaced by Chinese (and we can tell you in confidence that that’s not going to last either). The Japanese economy simply dried out. It sort of functions, still, domestically, albeit it on a much lower level, but now that global trade is grasping for air, exports are plunging too, the population is aging fast and there’s a whole new set of belts to tighten.

So last June, the desperate Bank of Japan governor Haruhiko Kuroda did Abe’s appeal to ‘faith’ one better, and, going headfirst into the fairy realm, said:

I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it’. Yes, what we need is a positive attitude and conviction. Indeed, each time central banks have been confronted with a wide range of problems, they have overcome the problems by conceiving new solutions.

And that’s not just a strange thing to say. In fact, when you read that quote twice, you notice -or I did- that’s it’s self-defeating. Because, when paraphrasing Kuroda, we get something like this: ‘the moment the Japanese people doubt whether their government can save the economy, they cease forever to believe that it can’.

Now, I’m not Japanese, and I’m not terribly familiar with the role of fairy tales in the culture, but just the fact that Kuroda resorted to ‘our’ Peter Pan makes me think it’s not all that large. But I also think the Japanese understood what he meant, and that even the few who hadn’t yet, stopped believing in him and Abe right then and there.

Then again, Asian cultures still seem to be much more obedient and much less critical of their governments than we are, for some reason. The Japanese don’t voice their disbelief, they simply spend ever less. That’s the effect of Kuroda’s Peter Pan speech. Not what he was aiming for, but certainly what he should have expected, entirely predictable. Why hold that speech then, though? Despair, lack of intelligence?

In a similar vein, we chuckled out loud on Friday, first when president Xi demanded ‘Absolute Loyalty’ from state media when visiting them, an ‘Important Event’ broadly covered by those same media. Look, buddy, when you got to go on TV to demand it, someone somewhere’s bound to to be thinking you don’t have it…

And we chuckled also when the South China Morning Post (SCMP) broke the news that the People’s Bank of China, in its monthly “Sources and Uses of Credit Funds of Financial Institutions” report has stopped publishing the “Position for forex purchase”, which is that part of capital movements -and in China’s case today that stands for huge outflows- which goes through ‘private’ banks instead of the central bank itself.

It’s like they took a page, one-on-one-, out of the Federal Reserve’s playbook, which cut its M3 money supply reporting back in March 2006. What you don’t see can’t hurt you, or something along those lines. The truth is, though, that if you have something to hide, the last thing you want to do is let anyone see you digging a hole in the ground.

But the effect of this attempt to not let analysts get the data is simply that they’re going to get suspicious, and start digging even harder and with increased scrutiny. And they have access to the data anyway, through other channels, so the effect will be the opposite of what’s intended. And that too is predictable.

First, from Fortune, based on the SCMP piece:

Is China Trying to Hide Capital Outflows?

China’s central bank is making it harder to calculate the size of capital outflows afflicting the economy, just as investors have started paying closer attention to those mounting outflows, which in December reached almost $150 billion and in January around $120 billion. The central bank omitted data on “position for forex purchase” during its latest report, the South China Morning Post reported today.

The unannounced change comes at a time pundits are questioning whether outflows have the potential to cripple China’s currency and economy. Capital outflows lead to a weaker currency, which concerns the hordes of Chinese companies that borrowed debt in foreign currencies over the past few years and now have to pay it back with a weaker yuan.

The news of the central bank withholding data is important because capital outflow figures aren’t released as line items. They are calculated by analysts in a variety of ways, one of which includes using the omitted data. The Post quoted two analysts concluding the central bank’s intention was to hide the true amount of continuing outflows.

The impulse to hide bad news shouldn’t come as a surprise. China’s government has been evasive about economic matters from this summer’s stock bailout to its efforts propping up the value of the yuan. Analysts still have a variety of ways to estimate the flows, but the central bank is making it ever more difficult.

And then the SCMP:

Sensitive Financial Data ‘Missing’ From PBOC Report On Capital Outflows

Sensitive data is missing from a regular Chinese central bank report amid concerns about capital outflow as the economy slows and the yuan weakens. Financial analysts say the sudden lack of clear information makes it hard for markets to assess the scale of capital flows out of China as well as the central bank s foreign exchange operations in the banking system.

Figures on the “position for forex purchase” are regularly published in the People’s Bank of China’s monthly report on the “Sources and Uses of Credit Funds of Financial Institutions”. The December reading in foreign currencies was US$250 billion. But the data was missing in the central bank’s latest report. It seemed the information had been merged into the “other items” category, whose January figure was US$243.9 billion -a surge from US$20.4 billion the previous month.

[..] “Its non-transparent method has left the market unable to form a clear picture about capital flows,” said Liu Li-Gang, ANZ’s chief China economist in Hong Kong. “This will fuel more speculation that China is under great pressure from capital outflows. It will hurt the central bank’s credibility.”

[..] All forex-related data released by the central bank is closely monitored by financial analysts. They often read item by item from the dozens of tables and statistics to try to spot new trends and changes. China Merchants Securities chief economist Xie Yaxuan said the PBOC would not be able to conceal data as there were many ways to obtain and assess information on capital movements.

“We are waiting for more data releases such as the central bank’s balance sheet and commercial banks’ purchase and sales of foreign exchange released by the State Administration of Foreign Exchange for a better understanding of the capital movement and to interpret the motive of the central bank for such change,” Xie said.

It’s like they’ve landed in a game they don’t know the rules of. But then again, that’s what we think every single time we see Draghi and Yellen too, who are kept ‘alive’ only by investors’ expectations that they are going to hand out free cookies, and lots of them, every time they make a public appearance.

And what’s going on in Japan and China will happen to them, too: they will achieve the exact opposite of what they’re aiming for. They arguably already have. Or at least none of their desperate measures have achieved anything close to their stated goals.

They may have kept equity markets high, true, but their economies are still as bad as when the QE ZIRP NIRP stimulus madness took off, provided one is willing to see through the veil that media coverage and ‘official’ numbers put up between us and the real world. But they sure as h*ll haven’t turned anything around or caused a recovery of any sorts. Disputing that is Brooklyn Bridge for sale material.

Eh, what can we say? Stay tuned?! There’ll be a lot more of this lunacy as we go forward. It’s baked into the stupid cake.


Professor Steve Keen and Raúl Ilargi Meijer discuss central banking, Athens, Greece, Feb 16 2016

Feb 192016
 
 February 19, 2016  Posted by at 8:36 am Finance Tagged with: , , , , , , , , ,  3 Responses »


Richardson Hope for a New Life: Man passes baby through fence, Serbia/Hungary border 2015

Negative Interest Rates Set The Stage For The Next Crisis (Stephen Roach)
Why Negative Interest Rates Spell Doom For Capitalism (Romano)
Central Banking Is In Crisis. Can The World Economy Be Far Behind? (Economist)
Bank of Japan Baffled by Negative Reaction to Negative-Rate Policy (WSJ)
Nomura Sees Yen Falling More Than 10% on BOJ Negative Rates (BBG)
Abenomics? How About Kurodanomics? (BBG)
OECD Calls for Urgent Increase in Government Spending (WSJ)
China Bears Say the Capital Outflow Is Just Beginning (BBG)
Red Ink In China (Economist)
Overproduction Swamps Smaller Chinese Cities, Revealing Depth of Crisis (WSJ)
You Cannot Print Your Way to Prosperity (Ron Paul)
The Real Economy Is Talking, but Treasuries Aren’t Listening (BBG)
Number Of UK Homes Worth More Than £1 Million Set To ‘Triple By 2030’ (G.)
400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts (ZH)
The Political War on Cash (WSJ)
Swiss MPs Want New 5,000-Franc Banknotes To ‘Save Privacy And Freedom’ (L.)
The Stressed-Out Oil Industry Faces an Existential Crisis (BBG)
Oil Gives Up Gains as Inventories Build (WSJ)
Anglo American Cut to Junk for Third Time This Week (BBG)
Wary On Turkey, EU Prepares For Refugee Crisis In Greece (Reuters)

As QE and ZIRP did before them. This started years ago.

Negative Interest Rates Set The Stage For The Next Crisis (Stephen Roach)

In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates — one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis. The adoption of negative interest rates — initially launched in Europe in 2014 and now embraced in Japan — represents a major turning point for central banking. Previously, emphasis had been placed on boosting aggregate demand — primarily by lowering the cost of borrowing, but also by spurring wealth effects from appreciating financial assets.

But now, by imposing penalties on excess reserves left on deposit with central banks, negative interest rates drive stimulus through the supply side of the credit equation — in effect, urging banks to make new loans regardless of the demand for such funds. This misses the essence of what is ailing a post-crisis world. As Nomura economist Richard Koo has argued about Japan, the focus should be on the demand side of crisis-battered economies, where growth is impaired by a debt-rejection syndrome that invariably takes hold in the aftermath of a “balance sheet recession.” Such impairment is global in scope. It’s not just Japan, where the purportedly powerful impetus of Abenomics has failed to dislodge a struggling economy from 24 years of 0.8% inflation-adjusted growth in GDP.

It’s also the U.S., where consumer demand — the epicenter of America’s Great Recession — remains stuck in an eight-year quagmire of just 1.5% average real growth. Even worse is the eurozone, where real GDP growth has averaged just 0.1% over the 2008-2015 period. All of this speaks to the impotence of central banks to jump-start aggregate demand in balance-sheet-constrained economies that have fallen into 1930s-style “liquidity traps.” As Paul Krugman noted nearly 20 years ago, Japan exemplifies the modern-day incarnation of this dilemma. When its equity and property bubbles burst in the early 1990s, the keiretsu system — “main banks” and their tightly connected nonbank corporates — imploded under the deadweight of excess leverage.

But the same was true for over-extended, saving-short American consumers — to say nothing of a eurozone that was basically a levered play on overly inflated growth expectations in its peripheral economies — Portugal, Italy, Ireland, Greece, and Spain. In all of these cases, balance-sheet repair pre-empted a resurgence of aggregate demand, and monetary stimulus was largely ineffective in sparking classic cyclical rebounds. This could be the greatest failure of modern central banking. Yet denial runs deep. then-Federal Reserve Chair Alan Greenspan’s “mission accomplished” speech in early 2004 is an important case in point. Greenspan took credit for using super-easy monetary policy to clean up the mess after the dot-com bubble burst in 2000, while insisting that the Fed should feel vindicated for not leaning against the speculative madness of the late 1990s.

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“When, not if, central banks go completely negative, they will wind up paying banks to borrow money from them. That’s quantitative easing by another name.”

Why Negative Interest Rates Spell Doom For Capitalism (Romano)

Interest rates in Switzerland, Denmark, Sweden, the European Central Bank and now the Bank Japan have now plunged into negative territory, starting a new phase in the era of central banking that is very much uncharted. Time will tell if it leaves the global economy lost at sea. So far, banks are primarily being charged for keeping excess reserves on account at these central banks, a policy designed to jumpstart lending by making it more expensive for banks to sit on reserves. In some cases, like Sweden, the deposit rates have gone negative, too. Whether it will all work out or not remains to be seen — initiating inflation and economic growth. Maybe it will, but so far it’s not really looking good. So what if it doesn’t work? The longer term implication is that central banks will then feel compelled to move their discount rates and other rates negative, too.

Once that Pandora’s Box is open, it will mean that when financial institutions borrow money from the central bank, they will earn interest instead of owing it. You read that right. When, not if, central banks go completely negative, they will wind up paying banks to borrow money from them. That’s quantitative easing by another name. Say, the interest rate is -1%. For every $1 trillion that is lent, the central bank in theory would owe an additional $10 billion in interest to the borrowing banks. Fast forward 10 or 20 years into the future. Can you imagine a world where commercial banks pay their customers to borrow money? Sure, scoff now. But mark my words. Central banks are so desperate to kick start the economy and credit creation, they will do almost anything. So, if they have to bribe you to borrow money to start acquiring more things, then that’s exactly what they’ll do.

A few problems immediately emerge. If it ends up costing money for banks to lend money, how will they make any profits? The answer might be that the profits will be the difference between the interest earned from that bank borrowing the money from the central bank less the interest owed to the borrowing customer. So, say the bank borrowed from the central bank at -5% and then issued a loan with that money at -1%. The customer still earns 1%age point of negative interest, and the bank still gets to pocket the remaining 4%age points of negative interest from the central bank. But what about savers? Would they be charged just to put money into the bank? If so, why would they keep it there? Since banks depend on deposits to make up their capital requirements, they would have a powerful disincentive against charging customers to keep deposits, lest it provoke a run on the banks. But why invest in bonds? This is where the real rub comes.

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Chicken and the egg. Central bankers incompetence will drag us all down.

Central Banking Is In Crisis. Can The World Economy Be Far Behind? (Economist)

A world of helicopter drops is anathema to many: monetary financing is prohibited by the treaties underpinning the euro, for example. Incomes policies are even more problematic, as they reduce flexibility and are hard to reverse. But if the rich world ends up stuck in deflation, the time will come to contemplate extreme action, particularly in the most benighted economies, such as Japan’s. Elsewhere, governments can make use of a less risky tool: fiscal policy. Too many countries with room to borrow more, notably Germany, have held back. Such Swabian frugality is deeply harmful. Borrowing has never been cheaper. Yields on more than $7 trillion of government bonds worldwide are now negative.

Bond markets and ratings agencies will look more kindly on the increase in public debt if there are fresh and productive assets on the other side of the balance-sheet. Above all, such assets should involve infrastructure. The case for locking in long-term funding to finance a multi-year programme to rebuild and improve tatty public roads and buildings has never been more powerful. A fiscal boost would pack more of a punch if it was coupled with structural reforms that work with the grain of the stimulus. European banks’ balance-sheets still need strengthening and, so long as questions swirl about their health, the banks will not lend freely. Write-downs of bad debts are one option, but it might be better to overhaul the rules so that governments can insist that banks either raise capital or have equity forced on them by regulators.

Deregulation is another priority—and no less potent for being familiar. The Council of Economic Advisors says that the share of America’s workforce covered by state-licensing laws has risen to 25%, from 5% in the 1950s. Much of this red tape is unnecessary. Zoning laws are a barrier to new infrastructure. Tax codes remain Byzantine and stuffed with carve-outs that shelter the income of the better-off, who tend to save more. The problem, then, is not that the world has run out of policy options. Politicians have known all along that they can make a difference, but they are weak and too quarrelsome to act. America’s political establishment is riven; Japan’s politicians are too timid to confront lobbies; and the euro area seems institutionally incapable of uniting around new policies.

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Makes sense, since they have no idea what they’re doing. Then again, since this is a double negative…

Bank of Japan Baffled by Negative Reaction to Negative-Rate Policy (WSJ)

A clash Thursday between Japan’s central-bank chief and lawmakers highlighted the downside of negative interest rates: They are making the Japanese public feel negative. Bank of Japan Gov. Haruhiko Kuroda, who announced the nation’s first move into minus rates three weeks ago, found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was victimizing consumers and sending a message of despair. Even a ruling-party member, Masahiro Ishida, called the policy hard to grasp. “It could have the opposite effect of confusing the market,” he said. The criticism has come as a surprise to central-bank officials who thought their efforts to spark lending and faster economic growth would gain more public support.

“Those who understand this policy are criticizing us, and those who do not are also criticizing us,” said one official this week. It is a symptom of a global problem. The more central banks move into unconventional policies, the harder it becomes to get their message across. That is a particular problem when the policies are supposed to work in part by inspiring confidence. It also highlights an open question about negative rates: Commercial banks, for the most part, haven’t started charging depositors to hold their cash, despite increasing pressure on margins. But what happens if they do? Under new rules that took effect Tuesday, the Bank of Japan started imposing an interest rate of minus -0.1% on some deposits it holds for commercial banks, meaning the banks have to pay to store their money.

The goal was to bring down interest rates generally, including long-term rates charged for home loans. The move followed years of attempts to defeat deflation and stimulate moribund spending, including by pumping ¥80 trillion ($701 billion) of cash annually into the economy with purchases of government bonds. The immediate impact was muted as global markets swooned and the yen, seen as a haven in times of trouble, rose against the dollar, threatening the profits of Japanese exporters. This week, markets have stabilized, but the central bank is struggling with a different and equally hard-to-control force: public opinion.

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But if that’s true for all negative rates, who would the yen fall against?

Nomura Sees Yen Falling More Than 10% on BOJ Negative Rates (BBG)

Nomura is sticking to its forecast for the yen to weaken to 130 per dollar by year-end on the view Japan’s negative interest-rate policy will prompt investors to buy more overseas assets and U.S. borrowing costs will rise. Japan’s biggest brokerage has maintained the projection since December 2014, when the yen completed a six-month slide to 119.78 after the central bank boosted its debt purchases to a record. The yen has rallied 5.5% this year against the dollar, about 14% stronger than Nomura’s target, as a flight to haven assets from tumbling global stocks burnished the currency’s allure. “There is nothing convincing yet to alter the outlook,” said Yunosuke Ikeda at Nomura Securities in Tokyo. “The most important check points for now are a set of U.S. data in early March. If we can confirm recession risks are low, the 130-yen forecast can be maintained.”

The yen’s recent strength was partly driven by the dollar’s weakness as concerns over a slowdown in China and the health of banks in Europe caused traders to pare bets that the Federal Reserve will raise rates again this year after moving in December. There’s a 41% probability the Fed will boost rates by the end of December, according to futures data compiled by Bloomberg. The odds were more than 90% at the end of last year. The yen’s advance is being driven by “low conviction” risk aversion, according to Nomura’s Ikeda, a trend that may lose momentum should the U.S. show signs of strength when economic figures are released next month. “The worst case scenario is the low-conviction risk off will become high-conviction should the U.S. economy become decisively bad,” he said. “ For this, ISM manufacturing and non-manufacturing as well as jobs data due in early March are very significant.”

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I’ve suggested seppuku before.

Abenomics? How About Kurodanomics? (BBG)

Despite all Prime Minister Shinzo Abe has done, Japan’s economy contracted an annualized 1.4% in the final three months of 2015, the government announced on Feb. 15. Consumer prices rose just 0.2% year to year, perilously close to deflation. Japanese consumers, hurt by tepid growth in wages and bonuses and a 3%age point rise in the consumption tax in 2014, are holding on to their wallets, with private consumption dropping 0.8% in the quarter. The yen has gained 5.6% against the dollar since the start of the year, eroding profits for exporters such as Toyota Motor and Panasonic. These companies have benefited from the yen’s weakness since the prime minister came to office in late 2012 and began the policy changes known as Abenomics.

“There’s no clear driver to support Japan’s economy,” says Yuichi Kodama at Meiji Yasuda Life Insurance in Tokyo. Yet on the same day the government announced the economy’s contraction, the benchmark Nikkei stock index rose more than 7%. Investors hope that the weak data could spur Bank of Japan Governor Haruhiko Kuroda, who pushed through a negative interest rate last month, to move even deeper into negative territory, or purchase even more bonds. They also hope Abe will postpone another hike in the consumption tax. Handpicked by Abe in 2013, Kuroda has aggressively implemented the monetary policy envisioned by Abenomics. He has championed a quantitative easing program of bond and other asset purchases by the central bank that has left the BOJ with a balance sheet about three-quarters the size of Japan’s $4.6 trillion economy.

Kuroda’s bold and unconventional moves helped drive down the yen, contributing to an increase in corporate earnings and stock prices. In January, the Bank of Japan started charging 0.1% on part of the cash deposited at the central bank by big financial institutions. The idea is to encourage banks to lend instead of watching their cash lose value. “Kuroda is doing everything he can,” says Marcel Thieliant, Japan economist for Capital Economics. Abe’s program has what he calls three “arrows”: an easy-money policy, fiscal stimulus, and structural reforms. Although the BOJ has done its part in terms of interest rates and bond purchases, Abenomics has been a disappointment in the other two areas. The government has moved slowly on reforms of labor laws and other regulations.

As for fiscal stimulus, Abe has increased spending, but also raised the consumption tax to 8%. He wants to raise it to 10%. “Abe and the government have no choice but to depend on Bank of Japan policy,” says Kazuhiko Ogata at Crédit Agricole. But with the BOJ rate negative, Kuroda has little room to maneuver. GDP growth for the fiscal year ending in March will be just 0.8%, according to Bloomberg Intelligence, lower than the central bank’s target of 1.1%. Confidence in Abenomics is falling. In a Yomiuri poll published on Feb. 16, approval of Abe’s economic policies fell to a record low of 39%.

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Can we talk about timing here, OECD?

OECD Calls for Urgent Increase in Government Spending (WSJ)

Governments in the U.S., Europe and elsewhere should take “urgent” and “collective” steps to raise their investment spending and deliver a fresh boost to flagging economic growth, the Organization for Economic Growth and Development said on Thursday. In its most forceful call to action since the financial crisis, the OECD said the global economy is suffering from a weakness of demand that can’t be remedied through stimulus from central banks alone. Releasing its first economic forecasts of 2016, it urged governments that can borrow at very low interest rates to boost their spending on infrastructure. The OECD said that if governments work together, fresh borrowing could have such a positive impact on growth that it would reduce rather than increase their debts relative to economic output.

Speaking to The Wall Street Journal, OECD Chief Economist Catherine Mann said that without such action, governments will be unable to honor their pledges to deliver a “better life” for young people, adequate pensions and health care for old people, and the returns anticipated by investors. “The economic performance generated by today’s set of policies is insufficient to make good on these commitments,” said Ms. Mann, who has worked at the U.S. Federal Reserve and the Council of Economic Advisers. “Those commitments will not be met unless there is a change in policy stance.” The Paris-based think tank lowered its forecasts for global growth this year and next. It now expects the U.S. economy to grow by 2.0% in 2016 and 2.2% in 2017, having in November projected expansions of 2.5% and 2.4%, respectively.

The OECD lowered its eurozone growth forecasts to 1.4% and 1.7% from 1.8% and 1.9%, and nudged down its Japanese growth forecast for this year to 0.8% from 1.0%. It left its growth forecasts for China unchanged. Overall, it expects the global economy to grow by 3% this year, the same rate of expansion as in 2015 but slower than the 3.3% it anticipated in November. “The downgrade in forecasts is broadly based, reflecting a wide range of disappointing incoming data for the fourth quarter of 2015 and the recent weakness and volatility in global financial markets,” the OECD said. “These trends have been apparent in both advanced and emerging economies.” Last month, the IMF cut its global growth forecast for this year, but still expected a pickup from 2015.

Ms. Mann said the sharp and varying falls in prices of assets and commodities since the start of the year largely reflect a delayed response to weaker growth prospects around the world, and not just in China. “We should have had a decline starting a year ago,” she said. “We can see in those different rates of decline both investor views of prospects, but some over shooting.” The OECD said that budget policy in a number of major economies -including Japan, the U.K. and the U.S.- is “contractionary,” while some developing economies had also made recent budget decisions that will slow growth. It urged governments to reverse course.

“Governments in many countries are currently able to borrow for long periods at very low interest rates, increasing fiscal space,” the OECD said. “Many countries have room for fiscal expansion to strengthen demand. This should focus on policies with strong short-run benefits and that also contribute to long-term growth. A commitment to raising public investment collectively would boost demand while remaining on a fiscally sustainable path.”

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Seems obvious.

China Bears Say the Capital Outflow Is Just Beginning (BBG)

Yuan bears say this month’s rally shouldn’t be taken as a sign China’s great reversal in capital flows has finished. Goldman Sachs warns that any further shock depreciation will only accelerate the exit. Daiwa Capital Markets, which predicted the outflow risks back in 2014, says less than half of the $3 trillion of dollar debt that ended up in China has been repaid. Commerzbank said record new yuan loans in January showed companies are raising money to repay more debt abroad. Corporate bond sales onshore have more than doubled this year, as offshore issuance in the greenback dropped about 30%. Goldman Sachs says there have been $550 billion of outflows in the second half of 2015, and that every 1% yuan weakening risks $100 billion more.

The yuan’s appreciation in the four years through 2013 prompted companies to borrow dollars offshore and use the money to profit from a strong currency and higher interest rates in China. The one-way bets began to fade in 2014 as the exchange rate to the dollar plunged the most since 1994. This month’s 0.9% rally hasn’t dissuaded analysts from forecasting a further 3.4% drop by year-end. “We’re less than halfway done” in terms of carry trade unwinding, said Kevin Lai at Daiwa. “My main focus is not about unwinding, but the reverse carry trade. People are taking fresh positions to sell the yuan. We’re talking about a massive deflationary scenario now, which is very bad for the market, economy, for everything.” Daiwa’s estimate for the carry trade is on the high side because it includes borrowing by companies outside China, such as Hong Kong and Taiwan.

Oversea-Chinese Banking economist Tommy Xie estimates the positions at around $1 trillion, based on data from the Bank of International Settlements and the Hong Kong Monetary Authority. Chinese companies’ total foreign-currency debt dropped by about $140 billion in the second half of 2015 to $1.69 trillion, including corporate borrowing from onshore banks, Goldman estimates. That was dwarfed by the $370 billion outflows by Chinese residents buying foreign currencies, it said. “A risk is that any further shocks to renminbi confidence and the perception of policy uncertainty could sharply compound the outflow pressure and render any subsequent stabilization attempts much less effective,” Goldman wrote in a note released to media on Jan. 26.

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Much worse now: “As of 2014, according to an estimate by the McKinsey Global Institute, total debt in China stood at 282% of GDP.”

Red Ink In China (Economist)

This week began with the release of a staggering number. In January, new debt issued in China rose to just over $500 billion, an all-time high. Not all of the “new” debt was actually new; some represented a move out of foreign-currency loans and into local-currency borrowing (in order to reduce foreign-currency risk). But the flow of red ink is not a mirage. China’s government opened the credit taps early in 2016 in order to reduce the odds of a sharp economic slowdown. Private borrowing in China has grown rapidly and steadily since 2008, even as nominal output growth has slowed. As of 2014, according to an estimate by the McKinsey Global Institute, total debt in China stood at 282% of GDP. China is rapidly becoming one of the most indebted countries in the world.

So what? There is a cottage industry of analysts out there gaming out the ways in which a crisis of some sort might unfold within China. But with debts of this magnitude accumulating, you don’t need to posit a looming crisis to draw some reasonably strong, and reasonably gloomy conclusions about the near-term future of the Chinese economy—and the world as a whole. At some point, Chinese corporates will need to deleverage. It is hard to say precisely when or why, but a deleveraging at some point is inevitable. The result of that deleveraging, when it occurs, will be a big drag on demand growth within China. That, in turn, will translate into much slower GDP growth, unless some other source of demand can be found. China could try to boost demand by encouraging more spending and investment by non-corporates.

This probably wouldn’t work especially well, if the history of other economies in such circumstances is any guide. Households have also been adding debt at a good clip. To get them to borrow at an even faster pace, especially at a time when (presumably, given the corporate deleveraging) animal spirits are not at their most spirited, the Chinese government would basically have to force new loans down households’ throats. Certainly, we could expect China to hit the zero lower bound on interest rates and to begin QE. Zero rates and QE would place significant downward pressure on the value of the yuan. That’s just as well, since another thing history tells us is that demand-deficient, deleveraging economies depreciate their currencies and rely on exernal demand to support growth.

Of course, most countries in the situation we’re imagining here aren’t already running big trade surpluses. It is possible, given the importance to China of supply-chain trade, that even a big depreciation wouldn’t boost demand in the economy very much, since it would make imported components more expensive even as it made exports cheaper. If those arguments are right, they suggest that a Chinese adjustment would require either a really big depreciation, or would be slower and more painful, or a bit of both. Conventional wisdom has it, however, that China does not want to depreciate the currency. Depreciation might not boost net exports by much, but it would make dollar-denominated loans more expensive (increasing the pressure on some of those deleveraging corporates), it would squeeze Chinese consumers, and it would represent a big loss of face for the government.

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Delusional: “The government aims to urbanize 100 million lower-income people within five years to expand a middle class that can afford movies and medicine, and sustain China’s upward trajectory.”

Overproduction Swamps Smaller Chinese Cities, Revealing Depth of Crisis (WSJ)

Even in China’s remotest places, relentless overproduction—here it is mushrooms and cement trucks—is clouding the country’s path to prosperity and jolting the global economy. When 48-year-old farmer Yang Qun began trading at Suizhou’s bustling morning mushroom market a half decade ago, the fungus industry was expanding, even attracting a rural lending arm of British financial giant HSBC. Ms. Yang saved enough to buy a minivan. When wet snow fell last month, she was settling for closeout prices to unload six bags of dried mushrooms that took a half year to cultivate. For Xu Song, a clanging sound was once a welcome reminder that his 200 colleagues were busy pounding steel into the giant barrels used on cement trucks.

On a recent day, he sat alone watching videos in an unheated office, the only worker left on an abandoned factory floor where dozens of rusting barrels were stacked like multi-ton footballs. “The decline was steep,” says Mr. Xu, standing inside the all-but-defunct Hubei Aoma Special Automobile Co. factory, where he was hired to do quality control. “I don’t know what had really happened to us.” Beyond the glut of steel and apartments that weighed down growth in recent years, China’s economy is also saturated with surplus goods from farms and factories. Numerous small and midsize cities such as Suizhou, which boomed on easy credit and government support for agribusiness and construction, were supposed to provide the second wave in China’s growth story. Instead they are now sputtering, wearing down prices, profits and job opportunities.

The struggles in Suizhou show how China’s slowdown is broad and deep and hard to fix. It has fueled volatile market trading around the world and has contributed to anxiety about potentially stalled U.S. growth. Domestic overproduction means China is now spending less overseas, while businesses that sell to China are bracing for possible protectionist moves aimed at propping up local companies. And with Chinese demand at risk, its industrial giants with idle capacity are looking to capture market share abroad, including construction and railway equipment makers. The government has made a priority of eliminating “zombie companies,” kept alive with loans to produce unneeded goods, to clear the path for more vibrant parts of the economy. The squeeze won’t be easy because in small, remote places such as Suizhou, overbuilt industries are often the economic backbone.

[..] China’s future is dependent on spreading opportunity more widely. While Shanghai and other gleaming metropolises on the coast powered the first decades of market liberalization, Beijing is now counting on smaller cities for the next phase. The government aims to urbanize 100 million lower-income people within five years to expand a middle class that can afford movies and medicine, and sustain China’s upward trajectory.

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How many times have we said this?!

You Cannot Print Your Way to Prosperity (Ron Paul)

Last week US stock markets tumbled yet again, leaving the Dow Jones index down almost 1500 points for the year. In fact, most major world markets are in negative territory this year. There are many Wall Street cheerleaders who are trying to say that this is just a technical correction, that the bottom is near, and that everything will be getting better soon. They are ignoring the real message the markets are trying to send: you cannot print your way to prosperity. People throughout history have always sought to acquire wealth. Most of them understand that it takes hard work, sacrifice, savings, and investment. But many are always looking for that “get rich quick” scheme. Monetary cranks throughout history have thought that just printing more money would result in greater wealth and prosperity. Every time this was tried it resulted in failure.

Huge economic booms would be followed by even larger busts. But no matter how many times the cranks were debunked both in theory and practice, the same failed ideas kept coming back. The intellectual descendants of those monetary cranks are now leading the world’s central banks, which is why the last decade has seen an explosion of money creation. And what do the central bankers have to show for it? Lackluster employment numbers that have not kept up with population growth, increasing economic inequality, a rising cost of living, and constant fear and uncertainty about what the future holds. The past decade has been a lot like the 1920s, when prices wanted to drop but the Federal Reserve kept the price level steady through injections of easy money into the economy. The result in the 1920s was the Great Depression.

But in the 1920s prices were dropping because of increased production. More goods being produced meant lower prices, which the Fed then tried to prop up by printing money. Unlike the “Roaring 20s” however, the economy isn’t quite as strong today. It’s more of a gasp than a roar. Production today is barely above 2007 levels, while heavily-indebted households already hurt during the financial crisis don’t want to keep spending. The bad debts and mal-investments from the last Federal Reserve-induced boom were never liquidated, they were merely papered over with more easy money. The underlying economic fundamentals remain weak but the monetary cranks who run the Fed keep trying to pump more and more money into the system. They fail to realize that easy money is the cause, not the cure, of recessions and depressions. [..] The more money the Federal Reserve creates, the more ordinary Americans will end up suffering.

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What happens when you make it all up.

The Real Economy Is Talking, but Treasuries Aren’t Listening (BBG)

There’s a massive divergence between recent economic data and U.S. Treasury yields. Amid widespread risk aversion, the yield on 10-year debt fell below 1.60% this month before recovering to back over 1.75% on Thursday. According to Deutsche Bank Chief International Economist Torsten Sløk, that’s still far too low. The Atlanta Fed’s GDPNow indicator provides an estimate for quarterly economic growth based on recently released economic data, which currently stands at 2.6% for the first quarter: “Using the historical relationship between the Atlanta Fed GDP Now estimate and 10y rates shows that 10y rates today should not be 1.82% but instead 2.3%,” he wrote. “Put differently, markets are currently pricing a deep recession, but that is simply not what the data is showing.”

Some caveats apply: The sample size depicted here is quite small, so there’s no guarantee the Atlanta Fed’s GDPNow will prove accurate, and the composition of growth, not merely the headline rate, is important in assessing economic health. Additionally, while it makes intuitive sense for there to be a relationship between yields on sovereign debt, it’s worth remembering what goes into a bond yield: expectations regarding short-term interest rates, market-based measures of inflation compensation, and the term premium (what investors demand for taking on more duration). At present, market-implied expectations for the federal funds rate and inflation are quite low. Term premiums are also suppressed, due in part to strong demand for U.S. assets that are perceived as a safe haven, particularly in times of market turmoil. Those assets also provide a yield that’s more attractive than most other advanced economies.

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How the Anglo model of ownership obsession ritually murders itself.

Number Of UK Homes Worth More Than £1 Million Set To ‘Triple By 2030’ (G.)

The number of properties in Britain worth £1m or more is set to more than triple by 2030, widening the gap between the housing haves and have-nots, according to a report. Less than half a million homes in the UK are currently valued at £1m-plus, but a study by high street lender Santander claims this number will rise to more than 1.6m in the next 15 years. The report also warns that affordability will worsen considerably by the end of the next decade as house price rises far outstrip growth in household incomes. The average property price amounts to 7.9 times the average income at present, but by 2030 this is expected to hit a multiple of 9.7. Santander said: “By 2030 the UK will be even more starkly divided into the housing wealthy and the housing poor than it is now.”

There is a stark geographical divide among the projected members of the £1m club, according to Santander. One in four homes in London will cost £1m-plus by 2030, rising to 70% in two boroughs in the capital – Kensington and Chelsea and the City of Westminster. More than half of homes in three more London boroughs – Camden, the City of London and Hammersmith and Fulham – will also be worth more than £1m. Across the south-east, 7% of homes are expected to be valued at that level. However, many areas of the UK – the north-east, north-west, Yorkshire and Humber, Scotland and the East Midlands – are expected to host a negligible number of such expensive houses (less than 1%). One area, Torfaen in Wales, home to more than 90,000 people, will have none.

The report, carried out in partnership with Paul Cheshire, professor of economic geography at the London School of Economics, predicts that prices in London, which are currently 11.5 times average incomes, will soar to a multiple of 16.5 by 2030. Cheshire said: “By 2030, the divide between housing haves at the top and the have-nots at the bottom will be even wider than it is now. More owners will enjoy millionaire status, as homes that many would consider modest fetch seven figure prices in sought-after areas. “It will make entering the market more difficult still for new buyers, further highlighting the importance of the right timing, advice, support and financial planning; and not just having a mum and dad who bought a house, but a grandparent, too.”

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Make that the entire western world; pensions are Ponzi’s: “What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States..”

400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts (ZH)

Dale Dorsey isn’t happy. After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school. Dorsey attended a town hall meeting in Kansas City on Tuesday where retirees turned out for a discussion on “massive” pension cuts proposed by the Central States Pension Fund, which covers 400,000 participants, and which will almost certainly go broke within the next decade. “A controversial 2014 law allowed the pension to propose [deep] cuts, many of them by half or more, as a way to perhaps save the fund,” The Kansas City Star wrote earlier this week adding that “two much smaller pensions also have sought similar relief under the law, and still more pensions are significantly underfunded.”

“What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States,” said Jay Perry, a longtime Teamsters member. Jay is probably correct. Public sector pension funds are grossly underfunded in places like Chicago and Houston, while private sector funds are struggling to deal with rock bottom interest rates, which put pressure on expected returns and thus drive the present value of funds’ liabilities higher. Illinois’ pension burden has brought the state to its knees financially speaking and in November, Springfield was forced to miss a $560 million payment to its retirement fund. In the private sector, GM said on Thursday that it will sell 20- and 30-year bonds in order to meet its pension obligations.

“At the end of last year GM’s U.S. hourly pension plan was underfunded by $10.4 billion,” The New York Times writes. “About $61 billion of the obligations were funded for the plan’s roughly 360,000 pensioners.” Maybe it’s time for tax payers to bail themselves out. Speaking of GM, Kenneth Feinberg – the man who oversaw the distribution of cash compensation to victims who were involved in accidents tied to faulty ignition switches – is now tasked with deciding whether the Central States Pension Fund’s proposal to cut benefits passes legal muster. “Central States’ proposal would allow the retirees to work and still collect their reduced benefits. But some are no longer able to work, and the idea didn’t seem plausible to others,” the Star goes on to note.

“You know anybody hiring a 73-year-old mechanic?” Rod Heelan asked Feinberg. “I’m available.” “I’ll have to go find a job. I don’t know. I’m 68,” Gary Meyer of Concordia, Mo said. “It would probably be a minimum-wage job.” To be sure, retirees’ frustrations are justified. That said, the fund is simply running out of money. “We simply can’t stay afloat if we continue to pay out $3.46 in pension benefits for every $1 paid in from contributing employers,” a letter to retirees reads. The fund is projected to go broke by 2026. Without the proposed cuts, no benefits at all will be paid from that point forward.

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Not even the WSJ is fooled.

The Political War on Cash (WSJ)

These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency. Mario Draghi fired the latest salvo on Monday when he said the ECB would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin. Alexander Hamilton may soon—and shamefully—be replaced on the $10 bill, but at least the 10-spots would exist for a while longer. Ol’ Ben would be banished from the currency the way dead white males like him are banned from the history books.

Limits on cash transactions have been spreading in Europe since the 2008 financial panic, ostensibly to crack down on crime and tax avoidance. Italy has made it illegal to pay cash for anything worth more than €1,000, while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. Fines for violators can run into the thousands of euros. Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. Deutsche Bank CEO John Cryan predicted last month that cash won’t survive another decade. The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them.

Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counterterrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not. The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession. Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it to increase economic demand. But that goal will be undermined if citizens hoard cash. And hoarding cash is easier if you can take your deposits out in large-denomination bills you can stick in a safe. It’s harder to keep cash if you can only hold small bills.

So, presto, ban cash.

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First Austria, now Switzerland. 5000 francs is well over $5000.

Swiss MPs Want New 5,000-Franc Banknotes To ‘Save Privacy And Freedom’ (L.)

Two MPs from the canton of Zug’s parliament are calling on the Swiss federal government to create 5,000-franc banknotes to “save the privacy and freedom” of citizens. Philip Brunner and Manuel Brandberg, members of the right-wing Swiss People’s Party, have proposed a motion that they hope Zug will support for a cantonal initiative seeking changes to the federal currency law. They argue that the creation of 5,000-franc notes will ensure that the Swiss franc maintains its status as a safe haven currency. The move goes in the opposite direction of in the European Union, where finance ministers have talked about withdrawing 500-euro bills from circulation to deter their use for financing terrorism, money laundering and other illegal activities.

But Brunner and Brandberg maintain that the tendency in the EU and in OECD member countries is to “weaken individual liberties” and to exercise greater control over citizens. In this context “cash is comparable to the service firearm kept by Swiss citizen soldiers,” the pair argued in their motion, saying they both “guarantee freedom”. “In France and Italy already cash payments of only up to 1,000 euros are allowed and the question of the abolition of cash is being seriously discussed and considered in Europe, “ Brunner said on his Facebook page. The move toward electronic payments allows governments “total surveillance” over individuals, the pair claim. Switzerland already has a 1,000-franc note (worth around $1,008), which is the most valuable banknote in Europe and second in the world only to the Singapore $10,000 note among currencies in general circulation.

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“You can’t have these conversations when oil is $125 because then you can’t get it out of the ground quickly enough. And you can’t have it at $27 because you’re just trying to survive.”

Hmmm. Looks to me like it’s at $27 that you can’t get it out of the ground quickly enough.

The Stressed-Out Oil Industry Faces an Existential Crisis (BBG)

The Saudis may go public, OPEC’s in disarray, the U.S. is suddenly a global exporter, and shale drillers are seeking lifelines from investors as banks abandon them. Welcome to oil’s new world order, full of stresses, strains and fractures. For leaders gathering in Houston next week at the IHS CERAWeek conference – often dubbed the Davos of the energy industry – a key question is: what will break first? Will it be the balance sheets of big U.S. shale companies? The treasuries of Venezuela and Nigeria? The resolve of Saudi Arabia, whose recent deal with Russia to freeze output levels offered the first hint of a rethink? After watching prices crash through floor after floor in the worst slump for a generation, the industry is eager for answers.

Insiders say it’s not too hard to visualize what markets might look like after the storm – say five years down the line, when today’s cost-cutting creates a supply vacuum that will push up prices. But it’s what happens in the meantime that’s got them scratching their heads. “This is a weird thing for a market analyst to say because it’s usually the opposite case, but I have more conviction in my five-year outlook than my one-year outlook,” said Mike Wittner at Societe Generale. “Maybe I’m letting my head get turned upside down by the last couple months.” Seeking clarity at closed-door sessions, cocktail hours and water-coolers in Houston will be some of the industry’s biggest players, from Saudi Petroleum Minister Ali al-Naimi to Shell CEO Ben Van Beurden.

In a less volatile year, the long-term viability of fossil fuels might have been high on their agenda after December’s breakthrough climate deal in Paris. But within the industry, that debate has “fallen into the abyss of $27 oil,” said Deborah Gordon, director of the Carnegie Endowment for International Peace’s energy and climate program. “It seems like it’s never a good time,” she said. “You can’t have these conversations when oil is $125 because then you can’t get it out of the ground quickly enough. And you can’t have it at $27 because you’re just trying to survive.”

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Keep watching below.

Oil Gives Up Gains as Inventories Build (WSJ)

U.S. oil prices eked out a gain Thursday as the U.S. government’s weekly oil-inventory report showed another increase in stockpiles of crude oil. U.S. crude inventories rose by 2.1 million barrels last week to 504.1 million barrels, a new weekly record high, the Energy Information Administration said. In monthly data, which don’t line up exactly with weekly data, inventories last exceeded 500 million barrels in 1930. Light, sweet crude for March delivery settled 0.4%, at $30.77 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, slipped 0.6% to $34.28 a barrel on ICE Futures Europe. Both benchmarks had been up about 3% ahead of the government data, which was delayed one day due to the Presidents Day holiday. Oil prices are down more than 70% since a peak in June 2014, driven lower by a mismatch between ample supplies and tepid demand for crude around the globe.

“U.S. and global inventories are nearing maximums, and global production is showing little sign of slowing,” said Rob Haworth at U.S. Bank Wealth Management in a note. Price moves have been especially volatile in recent weeks amid uncertainty about the pace of global demand growth. The U.S. oil benchmark settled up or down by 1% or more for 23 straight sessions until Thursday, the longest such streak since 2009. U.S. crude stockpiles have climbed since the start of the year as production continued to outpace demand. Inventories fell in the week ended Feb. 5 as imports declined, but imports rose again last week, the EIA data show. ”It’s back to business as usual,” said Bob Yawger at Mizuho. He predicted that prices “will eventually cave under the weight of these storage numbers.”

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Better come clean before you’re forced to?!

Anglo American Cut to Junk for Third Time This Week (BBG)

Anglo American’s credit rating was cut to junk by Standard & Poor’s, following similar downgrades by Moody’s Investors Service and Fitch Ratings this week, amid questions about the miner’s ability to sell assets. The company’s rating was reduced to BB from BBB- with a stable outlook, S&P said in a statement Thursday. Moody’s cut Anglo to Ba3, and Fitch lowered the rating to BB+ earlier in the week. The shares slid 4.6% as of 2:25 p.m. in London. Anglo, which became the first major London-based miner to be rated junk, has said it’s looking to speed up sales of coal and iron ore assets after losses bled into a fourth year. It’s trying to engineer a turnaround by focusing on its best mines that produce diamonds, platinum and copper. The company wants to raise $4 billion from mine sales and cut net debt to less than $10 billion this year.

Anglo said on Thursday it will start a tender for a maximum of $1.3 billion of bonds to reduce debt and interest costs. It may purchase $1 billion of notes maturing in 2016, 2017 and 2018 in euros and pounds as well as a maximum of $300 million in dollar-denominated securities, according to company statements.= On Tuesday, Anglo added mines including coal in Australia and nickel in Brazil to an already long list of assets for sale as it seeks to scale back its $12.9 billion debt. CEO Mark Cutifani expects to sell 10 assets by the first half of 2016 and because there are so many up for sale, Anglo wouldn’t be forced to accept any offer, he said.

“Although the program should enable Anglo to lower its debt levels, the depressed market means that we view the proceeds and timeline as very uncertain,” S&P said in the statement. “Because other companies are also seeking to divest assets at this time, we remain very cautious about the timing of any sales and the level of proceeds they will generate.” Goldman Sachs said Tuesday that the miner’s plan to sell off assets was “ambitious” in such a tough environment. Bank of America questioned whether the market trusted the management team to execute sales, while Citigroup said the process was coming too late.

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Translation: Dump ’em all in Greece. And then dump Greece itself.

Wary On Turkey, EU Prepares For Refugee Crisis In Greece (Reuters)

The European Union hopes Turkey will prevent as many migrants reaching Greece as last year but is readying “contingency” plans to shelter large numbers who may arrive but can no longer trek north toward Germany. Migration Commissioner Dimitris Avramopoulos told Reuters on Thursday that it was unclear how far Turkey could reduce numbers once the weather improves and, with efforts under way to prevent a repeat of last summer’s chaotic treks through the Balkans, the EU was working with Athens to shelter refugees in Greece. “As long as our cooperation agreement we made with Turkey doesn’t start giving results, the situation will not be easy at all. The flows will continue,” said Avramopoulos. “That is why we have already started working on contingency planning.”

“If this happens, we are going to be confronted with a huge humanitarian crisis and this has to be avoided.” When more than 800,000 people, many Syrian refugees, arrived in Greece last year, most moved north through the Balkans to Germany. Berlin does not want a repeat, leaving states to the south along the route tightening borders and raising a prospect that a large proportion of new arrivals may be halted in Greece. Assessing how far Turkey will help reduce the flow in return for cash and closer ties with the EU is difficult. Avramopoulos noted that arrivals had dropped sharply in the past week or so, despite good sailing weather, but spiked again on Wednesday.

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Jan 302016
 
 January 30, 2016  Posted by at 9:00 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle January 30 2016


William Henry Jackson Steamboat Metamora of Palatka on the Ocklawaha, FL 1902

Bank Of Japan’s Negative Rates Are ‘Economic Kamikaze’ (CNBC)
Negative Rates In The US Are Next (ZH)
The Boxed-In Fed (Tenebrarum)
Central Banks Go to New Lengths to Boost Economies (WSJ)
China Stocks Have Worst.January.Ever (ZH)
China’s ‘Hard Landing’ May Have Already Happened (AFR)
China To Adopt 6.5-7% Growth Target Range For 2016 (Reuters)
Junk Bonds’ Rare Negative Return In January Is Bad News For Stocks (MW)
I Worked On Wall Street. I Am Skeptical Hillary Clinton Will Rein It In (Arnade)
VW Says Defeat Software Legal In Europe (GCR)
Swiss To Vote On Basic Income (DM)
Radioactive Waste Dogs Germany Despite Abandoning Nuclear Power (NS)
Mediterranean Deaths Soar As People-Smugglers Get Crueller: IOM (Reuters)

The essence, as Steve Keen keeps saying, is that negative rates on reserves are madness, because banks can’t lend out their reserves. Something central bankers genuinely don’t seem to grasp, weird as that may seem. Which speaks volumes, and shines a very bleak light, on the field of economics.

Bank Of Japan’s Negative Rates Are ‘Economic Kamikaze’ (CNBC)

The Japanese central bank has only dug the country deeper into a hole by adopting negative interest rates, Lindsey Group chief market analyst Peter Boockvar said Friday. “I think it’s economic kamikaze,” he told CNBC’s “Squawk Box.” “Let’s tax money and hope things get better. Let’s create higher inflation for the Japanese people, who are barely seeing wage growth. And let’s amp up the currency battles, and hope everything gets better.” The Bank of Japan surprised markets on Friday by pushing interest rates into negative territory for the first time ever. By doing so, the BOJ is essentially charging banks for parking excess funds. The fact that the vote was split shows that BOJ Governor Haruhiko Kuroda got a lot of pushback to advance the policy, Boockvar said. “If this means now that they’re out of bullets with [QE], and this is their last hope, then I think this is a mess,” he said.

In a statement released along with the rate decision, the BOJ said the Japanese economy has recovered modestly with underlying inflation and spending by companies and households ticking up. But the bank warned that increasing uncertainty in emerging markets and commodity-exporting countries may delay an improvement in Japanese business confidence and negatively affect the current inflation trend. The BOJ’s inflation target is 2%. The BOJ now forecasts core inflation to average 0.2 to 1.2% between April 2016 and March 2017. Boockvar said he believes it’s a fallacy that Japan needs inflation to generate growth. “Inflation readings are a symptom of what underlying growth is,” Boockvar said. “For Kuroda to think ‘I need to generate higher inflation to generate growth’ to me is completely backwards, especially when Japanese wage growth is so anemic. You’re basically penalizing the Japanese consumer, and I don’t know what economic theory is behind that.”

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And they will make things worse.

Negative Rates In The US Are Next (ZH)

When stripping away all the philosophy, the pompous rhetoric, and the jawboning, all central banks do, or are supposed to do, is to influence capital allocations and spending behavior by adjusting the liquidity preference of the population by adjusting interest rates and thus the demand for money. To be sure, over the past 7 years central banks around the globe have gone absolutely overboard when it comes to their primary directive and have engaged every possible legal (and in the case of Europe, illegal) policy at their disposal to force consumers away from a “saving” mindset, and into purchasing risk(free) assets or otherwise burning through savings in hopes of stimulating inflation. Today’s action by the Bank of Japan, which is meant to force banks, and consumers, to spend their cash which will now carry a penalty of -0.1% if “inert” was proof of just that.

Ironically, and perversely from a classical economic standpoint, as we showed before in the case of Europe’s NIRP bastions, Denmark, Sweden, and Switzerland, the more negative rates are, the higher the amount of household savings! This is what Bank of America said back in October: “Yet, household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.” Bingo: that is precisely the fatal flaw in all central planning models, one which not a single tenured economist appears capable of grasping yet which even a child could easily understand.

[..] And here is the one chart which in our opinion virtually assures that the Fed will follow in the footsteps of Sweden, Denmark, Europe, Switzerland and now Japan. Since the middle of 2015, US investors have bought a big fat net zero of either bonds or equities (in fact, they have been net sellers of risk) and have parked all incremental cash in money-market funds instead, precisely the inert non-investment that is almost as hated by central banks as gold.

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Lots of good graphs. This one must be the scariest.

The Boxed-In Fed (Tenebrarum)

As we often stress, economics is a social science and therefore simply does not work like physics or other natural sciences. Only economic theory can explain economic laws – while economic history can only be properly interpreted with the aid of sound theory. Here is how we see it: If the authorities had left well enough alone after Hoover’s depression had bottomed out, the economy would have recovered quite nicely on its own. Instead, they decided to intervene all-out. The result was yet another artificial inflationary boom. By 1937 the Fed finally began to worry a bit about the growing risk of run-away inflation, so it took a baby step to make its policy slightly less accommodative.

Once the artificial support propping up an inflationary boom is removed, the underlying economic reality is unmasked. The cause of the 1937 bust was not the Fed’s small step toward tightening. Capital had been malinvested and consumed in the preceding boom, a fact which the bust revealed. Note also that a huge inflow of gold from Europe in the wake of Hitler’s rise to power boosted liquidity in the US enormously in 1935-36, with no offsetting actions taken by the Fed. Moreover, the Supreme Court had just affirmed the legality of several of the worst economic interventions of the crypto-socialist FDR administration, which inter alia led to a collapse in labor productivity as the power of unions was vastly increased, as Jonathan Finegold Catalan points out.

He also notes that bank credit only began to contract after the stock market collapse was already well underway – in other words, the Fed’s tiny hike in the minimum reserve requirement by itself didn’t have any noteworthy effect. On the other hand, if the Fed had implemented the Bernanke doctrine in 1937 and had continued to implement monetary pumping at full blast in order to extend the boom, it would only have succeeded in structurally undermining the economy and currency even more. Inevitably, an even worse bust would eventually have followed.

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There’s not a number left you can trust.

Central Banks Go to New Lengths to Boost Economies (WSJ)

Central banks around the world are going to new lengths to boost their economies, underscoring both the importance and limits of monetary policy in a global economy plagued by paltry growth and unsettled markets. The Bank of Japan on Friday joined a host of European peers in setting its key short-term interest rate below zero. The move, long denied as a possible course by the bank s governor, came a week after the ECB president indicated he was ready to launch additional monetary stimulus in March and days after the Fed expressed new worries over market turbulence and sluggish growth overseas. The latest moves by central banks to rescue the global economy capped a volatile month across financial markets, with U.S. stocks finishing strong Friday but nonetheless posting their worst January since 2009, and major currencies lurching lower against the dollar.

The swings highlighted the fragile mood of investors despite hopes that some economies, particularly the U.S., could lead an exit from crisis-era policies. Fresh data Friday that showed the U.S. economy had sputtered in the final months of 2015 could cloud Fed deliberations over the timing of another round of rate increases. U.S. GDP, the broadest measure of economic output, grew by just 0.7% in the fourth quarter, hit hard by shrinking exports and business investment. Despite growth in consumer spending and clear strength in the job market, the weak performance added to concerns that the sagging global economy could hit the U.S.

Markets around the world were buoyed by Japan s move, extending the earlier assurances delivered by the ECB. Japan s Nikkei Stock Average closed up 2.8% in a volatile session, while the yield on Japanese government bonds fell to historically low levels. The Shanghai Composite Index jumped 3.1% and the Stoxx Europe 600 rose 2.2%. U.S. stocks also rose, with the Dow Jones Industrial Average climbing nearly 400 points. Despite the day s surge, some investors remained skeptical about the lasting impact of the central banks efforts. People are starting to feel more and more that central bank action is having less and less fire for effect, said Ian Winer, head of equities at Wedbush Securities.

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Lunar New year starts Feb 7. Beijing will be so happy with the week long break.

China Stocks Have Worst.January.Ever (ZH)

Thanks to BoJ’s global “float all boats” NIRP-tard-ness, Chinese stocks avoided the headline of “worst month in 21 years” by rallying above the crucial 2,667 level (for SHCOMP). However, January’s 23% plunge is the worst month since October 2008 and is officially the worst start to a year in the history of Chinese stocks. While Shanghia Composite was ugly, the higher beta Shenzhen and ChiNext indices were a disaster…

Making it the worst January ever…

So February is a buying opportunity?

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4% over past 5 years. Could easily be 2% for 2015.

China’s ‘Hard Landing’ May Have Already Happened (AFR)

It’s the biggest question in the world of finance: how fast is China’s economy growing? And the biggest frustration is: what are the actual numbers? China’s lack of transparency – with murky data releases, opaque policy making and confusing announcements – is notorious among emerging-market watchers. But rarely do research firms or analysts use different figures to the official statistics. Until recently. The Conference Board, a widely respected and often-cited non-profit research group, used an alternate series of Chinese GDP estimates in its latest economic outlook paper. In an effort to adjust for overstated official Chinese data, the Conference Board looked to the work of Harry Wu, an economist at the Institute of Economic Research, Hitotsubashi University in Tokyo, to adjust its calculations.

This was a footnote of the report: “Growth rates of Chinese industrial GDP are adjusted for mis-reporting bias and non-material services GDP are adjusted for biases in price deflators. This adjustment has important implications for our assessment of the growth rate of the global economy in general and that of the emerging markets in particular – both reflecting a downward adjustment in their recent growth rates.” Macquarie Wealth Management analysts picked up on the change, adding: “We are unaware of any other reputable agency adopting anything other than official numbers as a base case, although clearly there has always been a lot of scenario analysis.” Traditionally, China has used the Soviet system of collecting information through a chain of command, where local officials reported on their states, often misrepresenting their figures to meet designated targets.

Over the past 10 years, China has gradually moved towards the internationally recognised System of National Accounts, which relies on statistical surveys to discover what people are spending their money on and where. But as Macquarie points out, that transition is far from complete. The Wu-Maddison estimates are starkly different to those issued by Chinese authorities. Whereas Chinese authorities have claimed average GDP growth of about 7.7% for the past five years, Wu suggests it is much lower, about 4%. These new figures show a much higher degree of volatility than suggested by the official numbers. While the world frets about the possibility of a “hard landing” for the Chinese economy, the Conference Board observed the new estimates “suggest that the economy has already experienced a significant slowdown over the past four years, beginning in 2011.”

Macquarie echoes this sentiment. “In our view, Wu-Maddison numbers explain the current state of commodity markets and fit into the global deflationary narrative much better than official numbers,” the analysts Macquarie said in a note. But, as the bank points out, if the “hard landing” has already occurred, there will be a range of consequences for productivity growth, overcapacity absorption and financial stress. “If Wu estimates are right, the room for stimulus and investment is more limited and the need to drive productivity [structural reforms] much more urgent. Although by the time China retroactively adjusts its GDP, it would be treated as history. “In the absence of stronger productivity rebound, China would be in danger of getting stuck in the ‘middle-income trap’ and would be unable to inject incremental demand into the global economy. Stay safe.”

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They can target what they want, and so they do. But it’s meaningless.

China Set To Adopt 6.5-7% Growth Target Range For 2016 (Reuters)

China’s leaders are expected to target economic growth in a range of 6.5% to 7% this year, sources familiar with their thinking said, setting a range for the first time because policymakers are uncertain on the economy’s prospects. The proposed range, which would follow a 2015 target of “around 7%” growth, was endorsed by top leaders at the closed-door Central Economic Work Conference in mid-December, according to the sources with knowledge of the meeting outcome. The world’s second-largest economy grew 6.9% in 2015, the weakest in 25 years, although some economists believe real growth is even lower. “They are likely to target economic growth of 6.5-7% this year, with 6.5% as the bottom line,” said one of the sources, a policy adviser.

Policymakers, worried by global uncertainties and the impact on growth of their structural economic reforms, struggled to reach a consensus at the December meeting, the sources said. The State Council Information Office, the public relations arm of the government, had no comment on the growth forecast when contacted by Reuters. The floor of 6.5% reflects the minimum average rate of growth needed over the next five years to meet an existing goal of doubling gross domestic product and per capita income by 2020 from 2010. The 2016 growth target and the country’s 13th Five-Year Plan, a blueprint covering 2016-2020, will be announced at the annual meeting of the National People’s Congress, the country’s parliament, in early March.

Although the target range was endorsed by the leadership in December, it could still be adjusted before parliament convenes. “The government will not be too nervous about growth this year and will focus more on structural adjustments,” said a government economist. “Growth may still slow in the first and second quarter and people are divided over the third and fourth quarter. The full-year growth could slow to 6.5-6.6%.” A string of cuts in interest rates and bank reserve requirements since November 2014 have failed to put a floor under the slowing economy. Beijing is expected to put more emphasis on fiscal policy to support growth, including tax cuts and running a bigger budget deficit of about 3% of GDP.

China’s leaders have flagged a “new normal” of slower growth as they look to shift the economy to a more sustainable, consumption-led model. About half of China’s 30 provinces and municipalities have lowered their growth targets for 2016, while nearly a third kept targets unchanged from last year, according to local media. Guangdong and Zhejiang provinces have set a growth target of 7-7.5% this year, while Jiangsu and Shandong are aiming for growth of 7.5-8%. In 2015, growth in Chongqing municipality was 11%, the fastest in the country, while growth in Liaoning province in the rustbelt northeast, was 3%, the country’s lowest. For this year, Chongqing is eyeing 10% growth and Liaoning is aiming for 6%.

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Correlation.

Junk Bonds’ Rare Negative Return In January Is Bad News For Stocks (MW)

The U.S. high-yield, or “junk” bond market, has started the year on the back foot, which history suggests could be a very bad sign for the stock market. The asset class is showing negative returns of almost 2% for the year so far, and negative returns of 7.6% for the last six months, according to The Bank of America Merrill Lynch U.S. High Yield Index. The negative return is especially significant, given that the month of January has recorded positive returns in 25 of the 29 years that the BofA high-yield index has existed, or 86.2% of the time, according to Marty Fridson, chief Investment Officer–Lehmann Livian Fridson, in a report published in LCD. With the S&P 500 index also heading for the biggest monthly decline in nearly six years, stock investors may finally be catching on to the high-yield bond market’s bearish message.

In previous instances in which the high-yield bond market and stocks trended in a different direction, it was the high-yield bond market that proved prescient. The reason stocks have been so late to follow the high-yield market’s bearish trend, may be because of the Federal Reserve’s efforts to prop up asset prices through quantitative easing. The current bearish trend is showing no signs of letting up. The high-yield index’s option-adjusted spread widened to 775 basis points at Thursday’s close from 695 basis points at the end of December, and 526 basis points at the end of July. The OAS is now about 200 basis points wider than its historical average of 576 basis points, according to Fridson. Much of the weakness is still due to the troubled energy sector, which combined with slowing Chinese growth to spark a more than 100 basis-points widening of the BofA US High Yield Index’s option-adjusted spread in the first three weeks of January. That send the spread to a high of 820 basis points on Jan 20.

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Condemnation.

I Worked On Wall Street. I Am Skeptical Hillary Clinton Will Rein It In (Arnade)

I owe almost my entire Wall Street career to the Clintons. I am not alone; most bankers owe their careers, and their wealth, to them. Over the last 25 years they – with the Clintons it is never just Bill or Hillary – implemented policies that placed Wall Street at the center of the Democratic economic agenda, turning it from a party against Wall Street to a party of Wall Street. That is why when I recently went to see Hillary Clinton campaign for president and speak about reforming Wall Street I was skeptical. What I heard hasn’t changed that skepticism. The policies she offers are mid-course corrections. In the Clintons’ world, Wall Street stays at the center, economically and politically. Given Wall Street’s power and influence, that is a dangerous place to leave them.

Salomon Brothers hired me in 1993, seven months after President Bill Clinton’s inauguration. Getting a job had been easy, Wall Street was booming from deregulation that had begun under Reagan and was continuing under Clinton. When Bill Clinton ran for office, he offered up him and Hillary (“Two for the price of one”) as New Democrats, embracing an image of being tough on crime, but not on business. Despite the campaign rhetoric, nobody on the trading floor I joined had voted for the Clintons or trusted them. Few traders on the floor were even Democrats, who as long as anyone could remember were Wall Street’s natural enemy. That view was summarized in the words of my boss: “Republicans let you make money and let you keep it. Democrats don’t let you make money, but if you do, they take it.”

Despite Wall Street’s reticence, key appointments were swinging their way. Robert Rubin, who had been CEO of Goldman Sachs, was appointed to a senior White House job as director of the National Economic Council. The Treasury Department was also being filled with banking friendly economists who saw the markets as a solution, not as a problem. The administration’s economic policy took shape as trickle down, Democratic style. They championed free trade, pushing Nafta. They reformed welfare, buying into the conservative view that poverty was about dependency, not about situation. They threw the old left a few bones, repealing prior tax cuts on the rich, but used the increased revenues mostly on Wall Street’s favorite issue: cutting the debt. Most importantly, when faced with their first financial crisis, they bailed out Wall Street.

That crisis came in January 1995, halfway through the administration’s first term. Mexico, after having boomed from the optimism surrounding Nafta, went bust. It was a huge embarrassment for the administration, given the push they had made for Nafta against a cynical Democratic party. Money was fleeing Mexico, and much of it was coming back through me and my firm. Selling investors’ Mexican bonds was my first job on Wall Street, and now they were trying to sell them back to us. But we hadn’t just sold Mexican bonds to clients, instead we did it using new derivatives product to get around regulatory issues and take advantages of tax rules, and lend the clients money. Given how aggressive we were, and how profitable it was for us, older traders kept expecting to be stopped by regulators from the new administration, but that didn’t happen.

When Mexico started to collapse, the shudders began. Initially our firm lost only tens of millions, a large loss but not catastrophic. The crisis however was worsening, and Mexico was headed towards a default, or closing its border to money flows. We stood to lose hundreds of millions, something we might not have survived. Other Wall Street firms were in worse shape, having done the trade in a much bigger size. The biggest was rumored to be Lehman, which stood to lose billions, a loss they couldn’t have survived. As the crisis unfolded, senior management traveled to DC as part of a group of bankers to meet with Treasury officials. They had hoped to meet with Rubin, who was now Treasury secretary. Instead they met with the undersecretary for international affairs who my boss described as: “Some young egghead academic who likes himself a lot and is wide eyed with a taste of power.” That egghead was Larry Summers who would succeed Rubin as Treasury Secretary.

To the surprise of Wall Street, the administration pushed for a $50bn global bail-out of Mexico, arguing that to not do so would devastate the US and world economy. Unmentioned was that it would have also devastated Wall Street banks.

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New twist.

VW Says Defeat Software Legal In Europe (GCR)

Another week brings more new stories on the diesel-emission cheating scandal that threatens to dig Volkswagen deeper into a ditch of its own making. Following reports in German newspapers late last week suggesting that the “defeat device” software was an “open secret” in VW’s engine group, the company bit back yesterday. VW Group CEO Matthias Müller told reporters at a reception that the sources for the Sueddeutsche Zeitung report “have no idea about the whole matter.” Müller’s statement, as reported by Reuters, “casts doubt” on the newspaper’s report, which it said came from statements by a whistleblower cited in the company’s internal probe of the scandal. The CEO also suggested that the company would not release results of that probe, conducted by U.S. law firm Jones Day, any time before its annual shareholder meeting on April 21.

“Is it really so difficult to accept that we are obliged by stock market law to submit a report to the AGM on April 21,” asked Müller, “and that it is not possible for us to say anything beforehand?” VW Group’s powerful Board of Directors will hold their third meeting in three weeks on the affair this coming Wednesday. Despite PR fallout, VW Group’s German communications unit continues to allege that while the “defeat device” software in its TDI diesels violated U.S. laws, it was entirely legal in Europe. The majority of the 11 million affected vehicles were sold in European countries, helped by policies instituted by some national governments that gave financial advantages to diesel vehicles and their fuel.

In a statement to The New York Times, which published an article on the matter last week, the VW Group wrote that the software “is not a forbidden defeat device” under European rules. As the Times notes, that determination, “which was made by its board, runs counter to regulatory findings in Europe and the United States.” “German regulators said last month that VW did use an illegal defeat device,” the newspaper said, suggesting that the statement reflected VW’s legal approach to the affair. “While it promises to fix affected vehicles wherever they were sold,” it said, “it is prepared to admit wrongdoing only in the United States.” The VW view only underscores the loosely-regulated European emission testing rules, now the subject of a fight in the European Parliament.

Two issues are at stake. The first is the degree to which new and tougher testing rules continue to allow manufacturers to exceed existing emission limits The second is whether European Union authorities can, in some circumstances, overrule the testing bodies of individual countries -namely Germany- which enforce common EU limits within their own borders. And so the saga continues.

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I think that as pensions plans crumble to levels where too many elederly go hungry, basic income will come to the forefront.

Swiss To Vote On Basic Income (DM)

Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of £425 a week (or £1,700 a month). The plan, proposed by a group of intellectuals, could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not. But the initiative has not gained much traction among politicians from left and right despite the fact that a referendum on it was approved by the federal government for the ballot box on June 5. Under the proposed initiative, each child would also receive 145 francs (£100) a week. The federal government estimates the cost of the proposal at 208 billion francs (£143 billion) a year.

Around 153 billion francs (£105 bn) would have to be levied from taxes, while 55 billion francs (£38 bn) would be transferred from social insurance and social assistance spending. The group proposing the initiative, which includes artists, writers and intellectuals, cited a survey which shows that the majority of Swiss residents would continue working if the guaranteed income proposal was approved. ‘The argument of opponents that a guaranteed income would reduce the incentive of people to work is therefore largely contradicted,’ it said in a statement quoted by The Local. However, a third of the 1,076 people interviewed for the survey by the Demoscope Institute believed that ‘others would stop working’. And more than half of those surveyed (56%) believe the guaranteed income proposal will never see the light of day.

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There will be no money to pay for even temporary storage, and there is no solution for permament.

Radioactive Waste Dogs Germany Despite Abandoning Nuclear Power (NS)

Half a kilometre beneath the forests of northern Germany, in an old salt mine, a nightmare is playing out. A scheme to dig up previously buried nuclear waste is threatening to wreck public support for Germany’s efforts to make a safe transition to a non-nuclear future. Enough plutonium-bearing radioactive waste is stored here to fill 20 Olympic swimming pools. When engineers backfilled the chambers containing 126,000 drums in the 1970s, they thought they had put it out of harm’s way forever. But now, the walls of the Asse mine are collapsing and cracks forming, thanks to pressure from surrounding rocks. So the race is on to dig it all up before radioactive residues are flushed to the surface.

It could take decades to resolve. In the meantime, excavations needed to extract the drums could cause new collapses and make the problem worse. “There were people who said it wasn’t a good idea to put radioactive waste down here, but nobody listened to them,” says Annette Parlitz, spokeswoman for the Federal Office for Radiation Protection (BfS), as we tour the mine. This is just one part of Germany’s nuclear nightmare. The country is also wrestling a growing backlog of spent fuel. And it has to worry about vast volumes of radioactive rubble that will be created as all the country’s 17 nuclear plants are decommissioned by 2022 – a decision taken five years ago, in the aftermath of Japan’s Fukushima disaster. The final bill for decommissioning power plants and getting rid of the waste is estimated to be at least €36 billion.

Some 300,000 cubic metres of low and intermediate-level waste requiring long-term shielding, including what is dug from the Asse mine, is earmarked for final burial at the Konrad iron mine in Lower Saxony. What will happen to the high-level waste, the spent fuel and other highly radioactive waste that must be kept safe for up to a million years is still debated. Later this year, a Final Storage Commission of politicians and scientists will advise on criteria for choosing a site where deep burial or long-term storage should be under way by 2050. But its own chairman, veteran parliamentarian Michael Muller, says that timetable is unlikely to be met. “We all believe deep geology is the best option, but I’m not sure if there is enough [public] trust to get the job done,” he says.

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Is it the smugglers or the EU?

Mediterranean Deaths Soar As People-Smugglers Get Crueller: IOM (Reuters)

More people died crossing the eastern Mediterranean in January than in the first eight months of last year, the International Organization for Migration said on Friday, blaming increased ruthlessness by people-traffickers. As of Jan. 28, 218 had died in the Aegean Sea – a tally not reached on the Greek route until mid-September in 2015. Another 26 died in the central Mediterranean trying to reach Italy. Smugglers were using smaller, less seaworthy boats, and packing them with even more people than before, the IOM said. IOM spokesman Joel Millman said the more reckless methods might be due to “panic in the market that this is not going to last much longer” as traffickers fear European governments may find ways to stem the unprecedented flow of migrants and refugees.

There also appeared to be new gangs controlling the trafficking trade in North Africa, he said. “There was a very pronounced period at the end of the year when boats were not leaving Libya and we heard from our sources in North Africa that it was because of inter-tribal or inter-gang fighting for control of the market,” Millman said. “And now that it’s picking up again and it seems to be more lethal, we wonder: what is the character of these groups that have taken over the trade?” The switch to smaller, more packed boats had also happened on the route from Turkey to Greece, the IOM said, but was unable to explain why.

The increase in deaths in January was not due to more traffic overall. The number of arrivals in Greece and Italy was the lowest for any month since June 2015, with a total of 55,528 people landing there between Jan. 1 and Jan. 28, the IOM said. Last year a record 1 million people made the Mediterranean Sea crossing, five times more than in 2014. During the year, the IOM estimates that 805 died in the eastern Mediterranean and 2,892 died in the central Mediterranean. In the past few months the proportion of children among those making the journey has risen from about a quarter to more than a third, and Millman said children often made up more than half of the occupants of the boats.

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