Mar 092018
 
 March 9, 2018  Posted by at 10:29 am Finance Tagged with: , , , , , , , , , , , , , ,  


Broadway, New York 1954

 

Trump’s Historic Bet on Kim Summit Shatters Decades of Orthodoxy (BBG)
Trump Sets Steel And Aluminum Tariffs; Canada, Mexico Exempted (R.)
There Will Be No Economic Boom – Part II (Roberts)
“Gary Cohn, We Hardly Knew Ya” (David Stockman)
The Risk Lurking In The US Mortgage Market (CNN)
The End of Cheap Debt Will Bring a Wave of – Green- Bankruptcies (Mises)
Tesla Chief Musk Says China Trade Rules Uneven, Asks Trump For Help (R.)
China Will Rely Less On Stimulus As It Battles Risks From Debt – PBOC (CNBC)
UK Retirement Bill Rises More Than £1 Trillion In Five Years (Ind.)
Shares, Profits Of Britain’s Largest Estate Agent Countrywide Plummet (G.)
Toronto Home Builders Just Had Their Busiest February Since 1948 (BBG)
EU Freezes Brexit Talks Until Britain Produces Irish Border Solution (Ind.)
Calais ‘To Be 10 Times Worse Than Irish Border’ After Brexit (G.)
Bitcoin Tumbles Further In Broad Selloff For Cryptocurrencies (MW)
US Is Experiencing The Highest Drug Overdose Death Rates Ever (ZH)
Chinese Panda Conservation Park To Be Twice The Size Of Yosemite (G.)
Discarded Fishing Gear Massacres Whales, Dolphins, Seals, Turtles, Birds (Ind.)

 

 

Question is whether that is a bad thing. Or you could say: Trump brings along his own orthodoxy.

Trump’s Historic Bet on Kim Summit Shatters Decades of Orthodoxy (BBG)

Donald Trump took the biggest gamble of his presidency on Thursday, breaking decades of U.S. diplomatic orthodoxy by accepting an invitation to meet with North Korean leader Kim Jong Un. The bet is that Trump’s campaign to apply maximum economic pressure on Kim’s regime has forced him to consider what was previously unthinkable: surrendering the illicit nuclear weapons program begun by his father. If the president is right, the U.S. would avert what appeared at times last year to be a steady march toward a second Korean War. It was classic Trump, showing an unerring confidence to get the better end of any negotiation.

But it was also Trump in another way: high risk and high reward, with little regard for those in the foreign policy establishment who worry it’s too much, too soon. “He’s taking a risk,” said Patrick Cronin, senior director of the Asia-Pacific Security Program at the Center for a New American Security. “By seizing an opportunity for a summit meeting, a decision that would have taken much more time in another administration, the president has said, ‘I’m going to go right now. And we’re going to test this.”’

Read more …

“If you don’t want to pay tax, bring your plant to the USA..”

Trump Sets Steel And Aluminum Tariffs; Canada, Mexico Exempted (R.)

U.S. President Donald Trump pressed ahead on Thursday with import tariffs of 25% on steel and 10% for aluminum but exempted Canada and Mexico and offered the possibility of excluding other allies, backtracking from an earlier “no-exceptions” stance. Describing the dumping of steel and aluminum in the U.S. market as “an assault on our country,” Trump said in a White House announcement that the best outcome would for companies to move their mills and smelters to the United States. He insisted that domestic metals production was vital to national security. “If you don’t want to pay tax, bring your plant to the USA,” added Trump, flanked by steel and aluminum workers.

Plans for the tariffs, set to start in 15 days, have stirred opposition from business leaders and prominent members of Trump’s own Republican Party, who fear the duties could spark retaliation from other countries and hurt the U.S. economy. Within minutes of the announcement, U.S. Republican Senator Jeff Flake, a Trump critic, said he would introduce a bill to nullify the tariffs. But that would likely require Congress to muster an extremely difficult two-thirds majority to override a Trump veto. Some Democrats praised the move, including Senator Joe Manchin of West Virginia, who said it was “past time to defend our interests, our security and our workers in the global economy and that is exactly what the president is proposing with these tariffs.”

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Perhaps somewhat surprising: The consumer spending part of GDP only rises.

There Will Be No Economic Boom – Part II (Roberts)

When the “tax cut” bill was being passed, everyone from Congress to the mainstream media, and even the CFP’s I spoke with yesterday, regurgitated the same “storyline:” “Tax cuts will lead to an economic boom as corporations increase wages, hire and produce more and consumers have extra money in their pockets to spend.” As I have written many times previously, this was always more “hope” than “reality.” The economy, as we currently calculate it, is roughly 70% driven by what you and I consume or “personal consumption expenditures (PCE).” The chart below shows the history of real, inflation-adjusted, PCE as a percent of real GDP.

If “tax cuts” are going to substantially increase the growth rate of the U.S. economy, as touted by the current Administration, then PCE has to be directly targeted. However, while the majority of consumers will receive an “average” of $1182 in the form of a tax reduction, (or $98.50 a month), the increase in take-home pay has already been offset by surging health care cost, rent, energy and higher debt service payments. [..] But this is nothing new as corporations have failed to “share the wealth” for the last couple of decades.

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Those crazy earnings numbers WILL come crashing down.

“Gary Cohn, We Hardly Knew Ya” (David Stockman)

That was quick. The trade war scare was over by noon yesterday, and by the market close they were singing “Gary Cohn, we hardly knew ya”. Folks, what more evidence do you need that the financial markets are completely uncoupled from reality and that these feeble bounces between the 50-day and 20-day chart points are essentially the rigor mortis of a dead bull? At the moment, the 50-day stands at 2740 on the S&P 500 and is functioning as “resistance” according to the chart mavens, while the 20-day at 2700 is purportedly acting as “support”. So there’s that, but also this: At the exact mid-point of 2720, the broad market is currently trading at 25.6X reported earnings for 2017.

That’s the nosebleed section of history no matter how you slice it – and most especially in the context of an earnings growth trend that is shackled to the flat line, and which has no prospect of breaking away before the next recession, either. With virtually every company having reported, it turns out that GAAP earnings for 2017 came in at $109.46 per share on the S&P 500. Then again, 40 months earlier in September 2014 reported LTM earnings were $105.96 per share. That tabulates to a 1.0% per year gain during what will surely prove to have been the sweet spot (month #63 to month #102) of the current long-in-the-tooth business expansion.

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Non-banks. How is that different from China?

The Risk Lurking In The US Mortgage Market (CNN)

Low interest rates. Easy credit. Poor regulation. Toxic mortgages. These were just a few reasons regulators gave for the collapse of the US housing market a decade ago. Since then, regulators have improved the standards that lenders use when Americans apply for mortgages. But today increasing danger lurks in the mortgage market, and economists say it could put the financial system at “even greater risk” when the next recession strikes or too many borrowers fall behind on their mortgage payments. A growing segment of the mortgage market is being financed by so-called non-bank lenders — financial institutions that offer loans to consumers but don’t provide saving or checking accounts.

Borrowers with poor credit have increasingly turned to these alternative lenders instead of traditional banks. The alternative lenders are subject to far less regulation and have fewer safeguards when borrower defaults start to pile up. “A collapse of the non-bank mortgage sector has the potential to result in substantial costs and harm to consumers and the US government,” economists at the Federal Reserve and the University of California, Berkeley, write in a paper released Thursday at a Brookings Institution conference. As of 2016, non-bank financial institutions originated close to half of all mortgages. They originated three-quarters of mortgages with explicit government backing, underscoring the risk to taxpayers.

“The experience of the financial crisis suggests that the government will be pressured to backstop the sector in a time of stress,” the authors write. The danger is that non-banks may have fewer resources to weather economic shocks to the mortgage market, like a rise in interest rates or a decline in house prices. “What happens if interest rates rise and non-bank revenue drops? What happens if commercial banks or other financial institutions lose their taste for extending credit to non-banks? What happens if delinquency rates rise and servicers have to advance payments to investors?” the authors write. “We cannot provide reassuring answers to any of these questions,” they write.

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The entire Green Facade depends on cheap credit. And subsidies.

The End of Cheap Debt Will Bring a Wave of – Green- Bankruptcies (Mises)

The end of the era of cheap money highlights the risk of “Enron-style” bankruptcies in many sectors, including renewable energy. With the path of three rate hikes in the United States in 2018 confirmed by the Federal Reserve and a nervous equity market, the challenges are more evident than ever. The past eight years of massive liquidity and low rates have not helped deleverage, and many companies have used this period to increase imbalances and create complex debt structures. In fact: • Corporate net debt to EBITDA levels is at record highs. About 20% of US corporates face default if rates rise, according to the IMF. • The number of zombie companies has risen above pre-crisis levels according to the Bank of International Settlements (BIS). • This is particularly evident in the renewable sector where, even in the years of high liquidity and low rates, bankruptcies soared.

The renewable sector has undergone an absolutely spectacular transformation in the past eight years. Technology advanced, costs fell and global leaders strengthened when their strategy was to develop an energy model. Understanding that disruptive technologies cannot be more leveraged than traditional ones was key. When technology reduces costs and disrupts inflationary models, basing the business on ever-increasing subsidies and higher prices and financing it with massive debt is suicidal. In the era of cheap money and extreme liquidity, many companies used the “green” subterfuge to implement an extremely leveraged builder-developer model, ignoring demand, costs, and competition. A model whose sole objective was to install for the sake of installing capacity, whether there was a demand or not, and that pursued subsidies while stating that it is very competitive.

Even in a period of falling interest rates and very high liquidity, there have been spectacular bankruptcies, so imagine what can happen when rates rise. [..] If a technology is viable, it does not need subsidies. If it is unviable, no subsidies will change it. Bankruptcies in the solar sector exceed all those of the inefficient coal and fracking companies combined. This domino of bankruptcies, which includes more than 120 corpses of large companies around the world, was self-inflicted. And now, winter is coming. [..] The global renewable sector faces refinancing needs in the next seven to eight years that exceed its entire market capitalization (134 billion euros, Renixx Index).

It is not a problem of technology, it is the addiction to cheap debt and growth for growth sake. And it’s not just a problem in the renewable sector. The combination of lower revenues and increased debt costs is a danger. Cost of debt rises, and cost of equity soars due to higher perceived risk, which in turn can dry up the market for capital increases and refinancing. It is not just renewables, but it is worth highlighting that energy is -again- the most vulnerable sector due to the cyclical nature of its revenues and the perpetuation of overcapacity of the past eight years.

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Musk is the leader of the Green Facade.

Tesla Chief Musk Says China Trade Rules Uneven, Asks Trump For Help (R.)

Tesla CEO Elon Musk took to Twitter on Thursday to call on U.S. President Donald Trump to challenge China’s auto trade rules, which limit foreign ownership of Chinese ventures and impose steep tariffs on imported cars. In a series of tweets aimed at the president, Musk said he was “against import duties in general, but the current rules make things very difficult. It’s like competing in an Olympic race wearing lead shoes.” Tesla has been pushing hard to build cars in China, the world’s largest auto market, but has hit roadblocks in negotiations with local authorities, in part because Musk is keen to keep full control of any local venture. “No U.S. auto company is allowed to own even 50% of their own factory in China, but there are five 100% China-owned EV (electric vehicle) auto companies in the U.S.,” Musk wrote in another tweet.

Tesla “raised this with the prior administration and nothing happened. Just want a fair outcome, ideally where tariffs/rules are equally moderate. Nothing more. Hope this does not seem unreasonable,” he said. Trump quoted one of Musk’s tweets in his announcement on new tariffs and said American automakers have not been treated fairly by trade rules around the world. Trump announced steep tariffs on steel and aluminum imports on Thursday. Politicians “have known it for years and never did anything about it. It’s got to change,” Trump said, saying he plans to impose a “reciprocal tax” on other countries. “We’re changing things,” Trump added. “We just want fairness.”

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Yeah, we all believe that.

China Will Rely Less On Stimulus As It Battles Risks From Debt – PBOC (CNBC)

China has moved away from its old growth model which was heavily reliant on investment and will rely less on stimulus to boost the economy in future, People’s Bank of China governor Zhou Xiaochuan said on Friday. Zhou’s comments echoed those of other top officials at China’s parliament this week which suggested that Beijing will be more cautious about spending this year while it focuses on reducing the risks from a rapid build-up in debt. After years of heavy pump-priming, markets worry less generous stimulus could retard the pace of growth not only in China but globally. But analysts believe Beijing will continue to keep the system well supplied with cash to avoid the risk of a sharp slowdown in economic growth, even as they continue to tighten the screws on financial regulations.

“We now emphasize the new normal of the economy, shifting from the past growth model of quantitative growth… referring to the accumulation of capital and investment to boost economic growth,” Zhou told reporters on the sidelines of the annual parliament session. “While pursuing higher quality growth, we will have to reduce our reliance on the old growth model of investment,” said Zhou, in what was likely his last news briefing before his expected retirement this month. Zhou said China needs to improve its regulatory supervision as soon as possible to curb risks to the financial system. He said China has begun to make progress in reducing such risks, but numerous threats remain, such as a lack of transparency at financial holding companies and digital currencies.

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The Brexit fiasco continues to expose the hidden weaknesses. Which in the case of pensions are global, but mostly remain hidden.

UK Retirement Bill Rises More Than £1 Trillion In Five Years (Ind.)

The UK’s pension funding crisis reached a new crisis milestone this week as the Office for National Statistics revealed the UK’s pension funding liabilities rose to £7.6 trillion at the end of 2015. The figure – the total amount promised to pay Brits’ future retirement income – includes £5.3 trillion of pension entitlements that were the responsibility of central and local government, most of which – around £4 trillion – came from State Pension entitlements. The remaining £2.3 trillion were private sector employee pension entitlements with £2 trillion due to final salary pensions, up from £1.4 trillion in 2010. As things stand, expert commentators suggest there is only around a third of that ‘in the bank’ in company pension funds.

The remainder, it is hoped, will be generated by future working populations. The figures are designed to provide a snapshot of household retirement entitlements, though they don’t include self-invested personal pensions, which have grown significantly in recent years thanks to legislative changes known as pensions freedoms. “While these are obviously large amounts of money, it is important to remember that the payments will be drawn over many years,” says Darren Morgan, head of national accounts for the ONS. “The figures say nothing about the sustainability of our pension system in future.”

In fact, pensions experts have been shocked by the statistics, which come just days after official warnings from the Government Actuary that National Insurance may have to increase by 5% to pay for future state pay outs. “The figures published by the ONS today are astonishing and bring into sharp relief the reasons behind proposed increases in the state pension age,” adds Tom Selby, senior analyst at AJ Bell. “Unfunded state pension entitlements are worth more than double UK GDP – these are promises that will, ultimately, have to be paid for by future generations either through higher taxes, a lower state pension income or a later retirement age.

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Why not say it like it is?

Shares, Profits Of Britain’s Largest Estate Agent Countrywide Plummet (G.)

Countrywide, Britain’s largest estate agent, has reported a 22.5% fall in core annual earnings and scrapped its dividend, sending its shares to record lows. It pledged to go “back to basics” to return its sales and lettings business to profitable growth after what it described as a disappointing year. “We have got to put our resources back in the front line and not at the head office,” said the executive chairman, Peter Long, adding that restructuring would reduce headcount to 350 from 400. Countrywide said its 2018 property pipeline was “significantly lower” and that it expected a fall of about 36% (£10m) in first-half adjusted earnings before interest, taxation and amortisation (Ebitda).

Its 2017 adjusted Ebitda fell 22.5% to £64.7m while group income fell almost 9% to £671.9m. Shares in Countrywide plunged to a record low of 66.64p before rising to 77p in mid-morning trading, down 13.4% . “The next few months will be messy as new plans are put into place,” Jefferies analysts said in a note to clients. “However, banks are lending their support to the new plan and we believe those equity investors who choose to do the same will have their patience rewarded.”

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As sales are down 35%.

Greater Toronto Home Sales Down 35% From February 2017

Toronto Home Builders Just Had Their Busiest February Since 1948 (BBG)

Toronto developers had one of their busiest months on record in February in another sign the condo market is alive and well in Canada’s biggest real estate market, even amid a broader slowdown. Builders began work on 5,677 units during the month, most of them multiple-unit projects like condos, the Canada Mortgage and Housing Corp. said Thursday in Ottawa. That’s the strongest February, and the sixth-highest figure for any month, in records back to 1948. The bulk of Toronto condo units are typically sold before construction begins, so the latest surge may simply reflect past sales. But the report also suggests developers are betting the condo market will be less affected by headwinds including higher borrowing costs and tighter mortgage qualification rules that are currently hitting Toronto housing.

“It’s probably lagging a little bit. Historically you tend to see supply follow demand,” said Robert Kavcic, an economist at Bank of Montreal. “The other nuance here is that a lot of the policy changes we’ve seen over the last year, they really had a bigger impact on the higher end of the single detached housing market.” [..] Construction is picking up in Toronto just as sales begin to slide, after various levels of government and regulators took measures to curb surging prices. Most recently, tougher mortgage guidelines came into play on Jan. 1, making it harder for prospective buyers to qualify for loans. Many buyers rushed into the market in December to get ahead of the rules.

Transactions fell 35% in February from a year earlier to 5,175 units, according to data released Tuesday by the Toronto Real Estate Board. It was the weakest February for sales since 2009. Prices are holding up better, particularly in the condo segment, which has gained consistently over the past year and is up 20% since last February. Prices for single-detached homes have fallen 12% since reaching a record last year. Fundamentals that favor condos seem to be at work, as rising immigration levels drive demand. And since the net effect of the new regulations is to limit the size of mortgage credit, the tougher rules may be buoying the less-expensive condo market.

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Thumbscrews.

EU Freezes Brexit Talks Until Britain Produces Irish Border Solution (Ind.)

The EU has thrown down an ultimatum to Theresa May in Brexit talks, warning that it will not open discussions about trade or other issues until the Irish border question is solved. Speaking in Dublin alongside the Irish Prime Minister Leo Varadkar, European Council President Donald Tusk said talks would be a case of “Ireland first” and that “the risk of destabilising the fragile peace process must be avoided at all costs”. “We know today that the UK Government rejects a customs and regulatory border down the Irish Sea, the EU single market, and the customs union,” the Mr Tusk said. “While we must respect this position, we also expect the UK to propose a specific and realistic solution to avoid a hard border.

“As long as the UK doesn’t present such a solution, it is very difficult to imagine substantive progress in Brexit negotiations. “If in London someone assumes that the negotiations will deal with other issues first before the Irish issue, my response would be: Ireland first.” British negotiators have long been keen to move to discussions about trade and had hoped to do so after the March meeting of the European Council in two weeks, but Mr Tusk’s latest ultimatum suggests further delays could be in store. The EU says a withdrawal agreement must be negotiated by October to give it time to ratify the deal before the UK falls out of the bloc in March 2019.

Mr Tusk recalled that the Good Friday Agreement, whose 20th anniversary is next month, had been “ratified by huge majorities north and south of the border”. “We must recognise the democratic decision taken by Britain to leave the EU in 2016 – just as we must recognise the democratic decision made on the island of Ireland in 1998 with all its consequences,” he said, in a play on the rhetoric used by Brexiteers regarding the 2016 EU referendum. The EU27 nations granted the UK “sufficient progress” to move to the rest of Brexit talks in the December meeting of the European Council after the UK made a commitment to avoid a hard border on the island of Ireland at all costs.

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30-mile lines of waiting trucks. That was reason no. 1 to establish the EU. Well, they’re back.

Calais ‘To Be 10 Times Worse Than Irish Border’ After Brexit (G.)

The boss of the port of Calais has said there could be tailbacks up to 30 miles in all directions and potential food shortages in Britain if a Brexit deal involves mandatory customs and sanitary checks at the French ferry terminal. Jean-Marc Puissesseau made an impassioned plea to Theresa May and Michel Barnier to put plans in place immediately to avert congestion in Calais and Dover, where bosses have already warned of permanent 20-mile tailbacks. At the same time a leading politician for the Calais region said the problems in France would be 10 times worse than at the Irish border. At a private meeting at the European parliament, Xavier Bertrand, a former French health minister and the president of the Hauts-de-France political region, said politicians needed to grasp the magnitude of the problem.

“I know Ireland is going to be a real problem, but please remember the economic issues in Ireland are 10 times smaller than what is going to happen here,” he said. “This is a black scenario, but it is going to get darker and darker,” he said, urging politicians in Brussels and London to take urgent action by setting up working groups and listening to business. Bertrand angrily denounced those who had power to influence the Brexit outcome. It was not right that economic operators should be expected to “sit on their hands waiting very anxiously for something to happen”.

At the same meeting, Puissesseau said both sides would be affected by the problems at the ports, with suppliers from the UK trying to get their goods through strict EU controls treated no better than those from a developing country. “The UK is part of the 21st century. But this takes us back 100 years. This is sad,” he said. “From Brexit day, 100% of our traffic will be from outside the EU. I tell you honestly that GB will be a third country, this frightens me. There’s such a long history between the UK and EU.” “At the moment, 70% of food imported comes from the EU. Even if that goes down to 50% after Brexit because of controls, it still needs to flow smoothly; people still need to eat,” he said.

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$8,500 as I write this, -8.46%.

Bitcoin Tumbles Further In Broad Selloff For Cryptocurrencies (MW)

Selling intensified for digital currencies on Friday, as the price of the No.1 cryptocurrency bitcoin pushed below $9,000. The price of a single bitcoin fell 4.8% to $8,847.85, but bounced off a low of $8,370.80, according to CoinDesk. In a week, bitcoin has dropped around 20%. Losses were widespread across cryptocurrencies. Ether was down 4.5% to $671.66, bitcoin cash slid 6.4% to $970.66 and Litecoin fell 6.2% to $166.22, according to CoinDesk. Ripple tumbled 10% to $0.78, according to CoinMarketCap. The moves build on sharp drops on Thursday, which some suggested were due to technical factors.

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Winning.

US Is Experiencing The Highest Drug Overdose Death Rates Ever (ZH)

Across the United States, government officials are struggling to combat the next wave of the opioid epidemic, which is expected to deliver a massive blow to the heartland. A new report from the Centers for Disease Control and Prevention (CDC) confirms the opioid crisis has dramatically worsened since the second half of 2016. Raw data from hospital emergency rooms show a significant increase in drug overdoses across the U.S. In a press briefing on Tuesday, CDC Director Anne Schuchat, M.D., warned that the U.S. is currently experiencing the highest drug overdose death rates ever.

In the newly issued report, which examined data from 16 states, emergency department visits for suspected opioid overdoses jumped 30% from July 2016 through September 2017. In some regions of the country, overdoses were far more significant, but overall, data from most areas showed the opioid crisis is worsening, despite President Trump’s new initiative to tackle the epidemic.

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Save the symbols?!

Chinese Panda Conservation Park To Be Twice The Size Of Yosemite (G.)

The Bank of China has pledged at least 10bn yuan (£1.1bn) to create a vast panda conservation park in south-west Sichuan province, the Chinese forestry ministry has said. The Sichuan branch of the central bank signed an agreement with the provincial government to finance the vast national park’s construction by 2023. The park aims to bolster the local economy while providing the endangered animals with an unbroken range in which they can meet and mate with other pandas in order to enrich their gene pool.The ministry said the park will measure 2m hectares (5m acres), making it more than twice the size of Yellowstone national park in the US.

Zhang Weichao, a Sichuan official involved in the park planning, told the state-run China Daily the agreement would help alleviate poverty among the 170,000 people living within the project’s proposed territory. Plans for the park were initiated in January last year by the ruling Communist party’s central committee and the state council, the China Daily reported. Giant pandas are China’s unofficial national mascot and live mainly in the Sichuan mountains, with some in neighbouring Gansu and Shaanxi provinces. An estimated 1,864 live in the wild, where they are chiefly threatened by habitat loss. Another 300 live in captivity.

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By treating the oceans as our garbage bin, we will make it exactly that.

Discarded Fishing Gear Massacres Whales, Dolphins, Seals, Turtles, Birds (Ind.)

The world’s biggest seafood firms are all contributing to the deaths of more than 100,000 whales, dolphins, seals, turtles and seabirds that are killed in agony every year by discarded fishing equipment, according to a new report. Many of the creatures are drowned, strangled or mutilated by plastic gear lost or abandoned at sea, while others suffer “a prolonged and painful death, usually suffocating or starving” either because they cannot fish or their stomachs are full of plastic. Campaigners believe the fishing litter problem is becoming so bad that the oceans could end up unable to provide any catches for humans to eat.

They say “ghost gear” has become a huge but overlooked threat to marine life, and 640,000 tons of it are added to the oceans each year – a rate of more than a ton every minute. A new study analysed the approaches to fishing equipment of the world’s 15 biggest seafood companies, to rank them in five categories – but found that none could be ranked in the top two as having “best practice” or making “responsible handling” of their fishing gear integral to their business strategy. [..] The report, entitled Ghosts beneath the Waves, says abandoned and lost gear is four times more likely to trap and kill creatures than all other forms of marine debris combined, and more than 70% of visible plastic in the sea is fishing-related.

Microplastics – minuscule pieces – were found in the digestive tracts of 80% of seals tested off the coast of Ireland, while other research cited found that plastic accounted for 69% of the debris ingested by whales. Other studies said 98% of whale entanglements involved ghost gear, while 82% of North Atlantic right whales have become entangled at least once. “This is a huge crisis of animal suffering, yet hardly anyone is talking about it,” said World Animal Protection. In one deep water fishery in the north east Atlantic 25,000 nets have been recorded as lost or discarded each year, according to the report. “Even within small areas, the amount of ghost gear can be staggering,” it said. “The Florida Keys National Marine Sanctuary, for example, is estimated to be littered with 85,000 active ghost lobster and crab pots.

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Feb 202018
 
 February 20, 2018  Posted by at 11:00 am Finance Tagged with: , , , , , , , , , , ,  


Emanuel Leutze Washington Crossing the Delaware 1851

 

Morgan Stanley Says Stock Slide Was Just Appetizer for The Real Deal (BBG)
Weak Dollar Could Bring 3% Boost To Global Trade Growth (BBG)
More Than 80% Of American Adults Owe Somebody Else Money (Snyder)
Thirteen Russians and a Ham Sandwich (Jim Kunstler)
Seeking Post-Brexit Unity, EU Leaders Find More Fights (AFP)
UK Has a Secret Plan to Hold Brexit Cash If EU Refuses to Trade (BBG)
London’s Property Crash Has Begun (Reilly)
BOJ To Keep Retreating From Stimulus Under Kuroda (R.)
Italians Find Way Around Election Poll Ban With ‘Horse Races’ (BBG)
Turkey Threatens to Invade Greece (Bulut)
The Royal Society and the GMO-Agrochemical Sector (CP)
France To Let Wolf Population Grow By 40% Despite Anger From Farmers (AFP)
Ocean Plastic Tide ‘Violates International Law’ (BBC)

 

 

A very safe bet.

Morgan Stanley Says Stock Slide Was Just Appetizer for The Real Deal (BBG)

The U.S. stock market only had a taste of the potential damage from higher bond yields earlier this year, with the biggest test yet to come, according to Morgan Stanley. “Appetizer, not the main course,” is how the bank’s strategists led by London-based Andrew Sheets described the correction of late January to early February. Although higher bond yields proved tough for equity investors to digest, the key metric of inflation-adjusted yields didn’t break out of their range for the past five years, they said in a note Monday. uld be at worst neutral, if they boost earnings along the way. Higher real yields, on the other hand, mean a bigger discount rate to value future earnings. Should they break out of the range over the past five years as investors anticipate greater central bank policy normalization, that could hit stocks harder, according to the Morgan Stanley thinking.

Relatively low real yields were a big support for equity valuations, so a break higher would indicate that stocks will have to rely on earnings – not multiple expansion – to drive them higher, Sheets and his colleagues wrote. And the challenge there is that a slowdown may loom starting in the second quarter, they said. “It’s when growth softens while inflation is still rising that returns suffer most,” the strategists wrote. “Strong global growth and a good first-quarter reporting season provided an important offset. We remain on watch for ‘tricky handoff’ in the second quarter, as core inflation rises and activity indicators moderate.”

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That’s real growth, right?!

Weak Dollar Could Bring 3% Boost To Global Trade Growth (BBG)

The weak greenback may prove to be a boon for global trade. On top of the boost already coming from robust global GDP growth, the dollar’s fall over the past year may add over 3% to the level of world trade, according to Gabriel Sterne, global head of macro research at Oxford Economics Ltd. Tipping further dollar weakness, the risks are skewed to the upside for Oxford’s baseline forecast for 5% growth in world trade in 2018. “Falls in the value of the dollar oil the wheels of the global financial system, boosting global liquidity by strengthening balance sheets and alleviating currency mismatches,” Sterne wrote in a note.

“One important channel is variation in the differential between the cost of raising dollars onshore and offshore. Dollar weakness reduces the cross-currency basis, increases cross-border lending and boosts bank equities.” The biggest winners will likely be emerging economies given the weaker dollar will lower the value of their dollar-denominated debt, taking pressure off their balance sheets and from credit conditions more generally. “The seven-year link between dollar strength and U.S. recovery (2009-16) now appears broken, and we think it will remain so, with relatively strong U.S. growth and a weakening dollar providing a significant boost to global activity,” Sterne wrote.

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“..As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host…”

More Than 80% Of American Adults Owe Somebody Else Money (Snyder)

How long can our debt levels keep growing much, much faster than the overall economy? We haven’t had a year of 3 percent growth for the U.S. economy since the middle of the Bush administration, but we keep borrowing money as if there is no tomorrow. Much of the focus has been on the exploding debt of the federal government, and that is definitely something I plan to address once I get to Washington. But on an individual level, U.S. consumers have been extremely irresponsible as well. In fact, one new survey has found that more than 80 percent of all American adults are currently in debt… It’s no secret that America is a nation that runs on debt, but it may surprise you to learn that the overwhelming majority of U.S. adults owe money in some way, shape, or form. According to new data from Comet, here’s how many Americans have debt at present:

• 80.9% of Baby Boomers • 79.9% of Gen Xers • 81.5% of Millennials For most of us, it starts very early. We were told that going into debt to get a college education would not be a problem because we would be able to pay those loans off with the good jobs we would get after graduation. Unfortunately, those good jobs never really materialized for many of us, and now millions of former college students are absolutely drowning in debt. A study released Friday by the Brookings Institution finds that most borrowers who left school owing at least $50,000 in student loans in 2010 had failed to pay down any of their debt four years later. Instead, their balances had on average risen by 5% as interest accrued on their debt.

As of 2014 there were about 5 million borrowers with such large loan balances, out of 40 million Americans total with student debt. Large-balance borrowers represented 17% of student borrowers leaving college or grad school in 2014, up from 2% of all borrowers in 1990 after adjusting for inflation. Large-balance borrowers now owe 58% of the nation’s $1.4 trillion in outstanding student debt. In addition to owing more than a trillion dollars on student loans, Americans are also now carrying more than a trillion dollars of auto loan debt and more than a trillion dollars of credit card debt. Corporations have been incredibly irresponsible as well. Corporate debt has doubled since the last financial crisis, and corporate bankruptcies have been rising steadily in recent years. All it would take for the dominoes to really start falling is some sort of a major economic downturn.

[..] We can’t keep doing this to ourselves. Our incessant greed is literally destroying the future, but anyone that tries to warn about the collective insanity that has descended upon our society is mocked and ridiculed. Let me ask you a question. Would you willingly choose to give yourself cancer? Of course not, but that is essentially what we are doing to ourselves as a society. Debt is economic cancer, and as Lance Roberts has pointed out, if we continue to allow debt levels to grow like this eventually it will kill our entire economy… Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host.

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“..the greatest act of bureaucratic ass-covering in US history.”

Thirteen Russians and a Ham Sandwich (Jim Kunstler)

Remember that one from 1996? Funny, that was the American mainstream media bragging, after the fact, about our own meddling in another nation’s election.

WASHINGTON — A team of American political strategists who helped [California] Gov. Pete Wilson with his abortive presidential bid earlier this year said this week that they served as Russian President Boris N. Yeltsin’s secret campaign weapon in his comeback win over a Communist challenge. —The Los Angeles Times, July 9, 1996

The beauty in Robert Mueller’s indictment of thirteen Russian Facebook trolls is that they’ll never face trial, so Mr. Mueller will never have to prove his case. In the new misrule of law made popular by the #Me Too movement, accusations suffice to convict the target of an investigation. Kind of sounds like going medieval to me, but that’s how we roll now in the Land of the Free. Readers know, of course, that I’m not a Trump supporter, that I regard him as a national embarrassment, but I’m much more disturbed by the mindless hysteria ginned up Washington’s permanent bureaucracy in collusion with half a dozen major newspapers and cable news networks, who have run a psy-ops campaign to shove the country into a war mentality. The New York Times published a doozy of a lead story on Saturday, the day after the indictments were announced.

The headline said: Trump’s Conspicuous Silence Leaves a Struggle Against Russia Without a Leader. Dean Baquet and his editorial board are apparently seeking an American Napoleon who will mount a white horse and take our legions into Moscow to teach these rascals a lesson — or something like that. I’m surely not the only one to notice how this hysteria is designed to distract the public attention from the documented misconduct among FBI, CIA, NSA, State Department officials and the leaders of the #Resistance itself: the Democratic National Committee, its nominee in the 2016 election, HRC, and Barack Obama’s White House inner circle. You would think that at least some of this mischief would have come to Robert Mueller’s attention, since the paper trail of evidence is as broad and cluttered as the DC Beltway itself. It actually looks like the greatest act of bureaucratic ass-covering in US history.

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How to fake democracy.

Seeking Post-Brexit Unity, EU Leaders Find More Fights (AFP)

EU leaders face difficult talks this week on the thorny issues of how to plug holes in the post-Brexit budget and choose a successor for European Commission chief Jean-Claude Juncker. A special one-day summit in Brussels on Friday of the 27 leaders without Britain is meant to be a key step in the roadmap to a leaner and more unified bloc after Britain leaves in just over a year. But cracks have already appeared between French President Emmanuel Macron, leading the charge for a reformed Europe, and Juncker with his federalist vision of how top EU officials should be chosen in future. The row means the EU’s attempts to overcome the shock of losing a major member are running into the classic problems that have bedevilled it for its six decades of existence: money and sovereignty.

Juncker was picked after European elections in 2014 by a controversial “Spitzenkandidat” system — German for “lead candidate” — under which the political group with the most votes gets to nominate its candidate for the job. Both the European Parliament and Juncker back a repeat after the May 2019 European election, saying it gives the public a direct say in who heads the commission, the EU’s powerful executive arm. European Council President Donald Tusk — who coordinates summits and represents the EU member states — is expected to lay out options at the summit, including whether to continue with the Spitzenkandidat system. Leaders are expected to say it is their own “right and obligation” to choose the commission chief, while “taking into account” the views of parliament, as the EU treaties state, an EU source told AFP.

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“Formerly” secret?

UK Has a Secret Plan to Hold Brexit Cash If EU Refuses to Trade (BBG)

Prime Minister Theresa May’s team is eyeing up a contingency plan to hold back billions of pounds in Brexit payments, if the EU refuses to give the U.K. the trade deal it wants. Senior British officials have privately discussed the idea as a fall-back option that could be triggered if negotiations go wrong, three people familiar with the matter said. The plan is not the U.K.’s preferred outcome, but some in May’s administration believe it could be necessary in case the EU tries to renege on a future commitment to a free-trade deal. The proposal comes at a sensitive time, with British ministers seeking in public to build mutual trust with the EU rather than stoke suspicions. The U.K. is trying to persuade the bloc to cooperate on plans for an ambitious trade agreement, which will come into force after the split.

On Tuesday, Brexit Secretary David Davis will outline his idea for collaboration, promising the other 27 member countries that the U.K. won’t try to undercut them by tearing up regulations when it leaves. May is planning to announce her goals for a detailed draft trade accord in a major speech next week, with the aim of having a deal drafted by October to be signed soon after Brexit in March 2019. But the EU says a full trade agreement will be impossible to finish before Brexit. October’s conclusions are likely to form only an outline political declaration rather than a legally binding contract, raising fears among British lawmakers that the U.K. could be vulnerable if the EU backslides on the deal.

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It’ll be a steep fall.

London’s Property Crash Has Begun (Reilly)

The average age of a first time mum at London’s Chelsea and Westminster hospital is 37, a statistic that tells you everything you need to know about the choices supposedly affluent city dwellers are being forced to make in the capital. For the middle classes, the cost of living in London -the cost of getting by- long ago went past insane (£17,040: the cost per year of educating a four year-old child at Thomas’s school in Fulham, not including uniform). It’s the incredible price of property, of course, that’s been the engine driving this madness, ratcheting the pressure ever higher on Londoners who don’t own a home while making very wealthy, on paper at least, those who do.

For the last two decades and more, the capital’s property market to all intents and purposes has behaved like a giant Ponzi scheme played on a global scale. Money from all over the world has poured into London bricks, inflating values unrealistically in relation to wages, while the lavish bonuses paid to European bankers working in the City have also stoked momentum responsible for pushing up, for example, the average price of a London semi-detached house by 553 per cent between January 1995 and November 2017, from £133,820 to £873,603. Over the same period, the average cost of a detached house in the capital went from £257,748 to £1,453,271.

At last, however, the party is over. London property prices, now still flailing cartoonishly in mid-air despite being well over the edge of a cliff, are at the start of what we can call, for want of a better term, a death plunge. Although the carnage is only just beginning in earnest, desperate homeowners looking to sell are already dropping asking prices by tens of thousands of pounds and more. They know the tide is going out quickly. The reasons you would have to be clinically insane to buy property in London today are blessedly easy to understand. Describing a modern financial disaster normally requires some pretence of understanding, say, derivatives markets or the myriad immensely complex ways international banks package and trade debt. Not this time.

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Abenomics continues to its last breath.

BOJ To Keep Retreating From Stimulus Under Kuroda (R.)

The reappointment of Bank of Japan Governor Haruhiko Kuroda for another five-year term means the central bank will continue to gradually edge away from crisis-mode stimulus, former BOJ board member Takahide Kiuchi said. Premier Shinzo Abe’s decision to reappoint Kuroda, whose massive easing efforts failed to accelerate inflation to his 2% target since becoming governor in 2013, is a sign the government is no longer insisting that the BOJ meet its price goal quickly, he said. Since abandoning a policy targeting the pace of money printing in 2016, the BOJ is already whittling down its sweeping stimulus program by slowing its bond purchases, Kiuchi said.

“A de-facto normalization of monetary policy is already taking place and will continue under a reappointed Kuroda,” said Kiuchi, who served at the BOJ’s nine-member board until July. “The reappointment was a signal from the government that it wants continuity in monetary policy,” he told Reuters on Monday. The government reappointed Kuroda for another five-year term on Friday, signaling its hope the BOJ will keep up efforts to reflate the economy. During his tenure at the BOJ, Kiuchi has warned of the pitfalls of Kuroda’s monetary experiment and rightly predicted that the bank would be forced to slow its bond buying given the rising costs of its stimulus program. He retains deep insight into the workings of BOJ policy.

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Does that come with actual betting?

Italians Find Way Around Election Poll Ban With ‘Horse Races’ (BBG)

Italians have hit on a way around a ban on publishing polls in the two weeks before March 4 general elections: turn them into horse races. Bloggers Andrea Mancia and Simone Bressan have begun writing up the results of fictitious “underground” races as a means of conveying the performance of various political parties and coalitions without falling foul of the law. Hence, avid politics watchers can check on favorites like Burlesque and his stable — a not-so-thinly veiled reference to former Premier Silvio Berlusconi and his center-right coalition. They can also learn more about the performance of jockeys like Louis le Subjonctif, a reference to Five Star Movement lead candidate Luigi Di Maio and his supposed difficulties in correctly using the subjunctive tense in Italian.

This isn’t the first time the two bloggers have attempted to circumvent blackout legislation and they are not the only ones. Another blog, YouTrend.it, is known for publishing supposed polls with references to papal conclaves and names of imaginary cardinals to indicate the different candidates. During the two-week blackout period, pollsters continue to conduct surveys which circulate among politicians, market analysts and others, but are barred from publishing their findings. Newspapers and other media are also banned from publishing any indications of voting intentions so as not to influence the election.

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Jihad. Inside NATO.

Turkey Threatens to Invade Greece (Bulut)

In an incident that took place less than two weeks after the Greek Defense Ministry announced that Turkey had violated Greek airspace 138 times in a single day, a Turkish coast guard patrol boat on February 13 rammed a Greek coast guard vessel off the shore of Imia, one of many Greek islands over which Turkey claims sovereignty. Most of the areas within modern Greece’s current borders were under the occupation of the Ottoman Empire from the mid-15th century until the Greek War of Independence in 1821 and the establishment of the modern Greek state in 1832. The islands, however, like the rest of Greece, are legally and historically Greek, as their names indicate. Turkey’s ruling Justice and Development Party (AKP), however, and even much of the opposition seem intent on, if not obsessed with, invading and conquering these Greek islands, on the grounds that they are actually Turkish territory.

[..] The Ottoman dynasty and empire was established by a nomadic Turkmen chief sometime around the year 1300. During the more than 600 years of the Ottoman period, the Ottoman Turks, who also represented the Islamic Caliphate, regularly launched wars of jihad, invading and occupying lands across five continents. Neo-Ottomanists in Turkey still proudly embrace the concept of jihad (Islamic holy war) against the kafirs (infidels). The head of the state-funded Directorate of Religious Affairs, the Diyanet, has openly described Turkey’s recent military invasion of Afrin as “jihad.”

This designation makes sense when one considers that Muslim Turks owe their demographic majority in Asia Minor to centuries of Turkish Muslim persecution and discrimination against the Christian, Yazidi and Jewish inhabitants of the area. In the 11th century, Turkic jihadists from Central Asia invaded and conquered the Greek-speaking, Christian Byzantine Empire, paving the way for the gradual Turkification and Islamization of the region through methods such as murder, kidnapping, rape and forced conversions.

The greatest 20th century Turkish assault against Christians took place in the 1914-1923 genocide of Greeks, Armenians and Assyrians (Syriacs/Chaldeans) in Ottoman Turkey. This did not prevent Turkey, which continues to deny the genocide, from becoming a member of NATO in 1952. The assault also did not stop Turkey, three years after joining NATO, from committing a savage anti-Greek pogrom in Istanbul or from forcibly expelling the remaining Greeks from Turkey in 1964. It is precisely because the Turks have never been held accountable for their criminal actions and aggression that they continue to threaten the security and sovereignty of their neighbors. It is high time for the West wake up and take Ankara to task.

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The church of science is not objective.

The Royal Society and the GMO-Agrochemical Sector (CP)

The Royal Society in the UK is a self-governing fellowship of distinguished scientists. Its purpose is reflected in its founding charters of the 1660s: to recognise, promote and support excellence in science and to encourage the development and use of science for the benefit of humanity. Its motto, nullius in verba, is taken to mean ‘take nobody’s word for it’. It is an expression of the determination to withstand the domination of authority and to verify all statements by an appeal to facts based on experiment. In 2015, Steven Druker challenged the Royal Society to justify its outspoken and partisan support of GMO crops and to correct any errors of fact in his book ‘Altered Genes,Twisted Truth’. Not long after the book’s release, he wrote an open letter to the Society calling on it to acknowledge and correct the misleading and exaggerated statements that is has used to actively promote GMOs and in effect convey false impressions.

Druker cited specific instances where members of the Royal Society have at various times made false statements and the Society’s actions were not objective or based on scientific reasoning but biased and stridently pro-GMO. He argued that the Royal Society has misrepresented the case for GMOs and has effectively engaged in a campaign of disinformation. Almost three years later, from what we can gather, the Royal Society has not responded to Druker. [..] In a new, fully-referenced 45-page open letter, environmentalist Dr Rosemary Mason is strident in her criticism of the Royal Society: “The Royal Society of London has thrown its hand in with the agrochemical industry, has received funding from it and accepted its word that GM crops are safe. The scientists who founded The Royal Society (Wren, Boyle, Wilkins and Newton) would turn in their graves.”

Rosemary Mason’s letter is addressed to Venkatraman Ramakrishnan, president of the Royal Society. She sets out in some detail the disturbing effects of the rising use of agrochemicals on human health, the environment, biodiversity and ecology in the UK and beyond. As she notes, many have sounded the alarm over global mass poisoning as a result of tens of thousands of synthetic chemicals entering world markets with no evidence of safety. It has reached the point where we now have an ‘ecological Armageddon’ after a dramatic plunge in insect numbers. Given Mason’s concerns about the Royal Society’s collusion with corporate interests, she refers Ramakrishnan to the reputation of Monsanto and the findings of the Monsanto Tribunal, the Monsanto Papers and the dozens of lawsuits in the US involving that company.

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You can try… But French farmers are what they are..

France To Let Wolf Population Grow By 40% Despite Anger From Farmers (AFP)

The French government has announced it will allow the wolf population to grow 40% despite pressure from farmers in mountain regions who are worried about their sheep flocks. A new strategy unveiled by the centrist government of President Emmanuel Macron will enable the number of wolves to increase from an estimated 360 now to 500 by 2023. Hunting wiped out the grey wolf in France during the 1930s and they only returned in 1992 via Italy – currently home to around 2,000 wolves – before spreading into Switzerland and Germany. The regeneration of the population in France has led to tensions between the government and farmers in the Alps and Pyrenees mountains who complain that attacks on their livestock cause major financial losses.

In a bid to respond to that anger, hunters will be allowed to kill 10% of the population every year, which can be raised to 12% if attacks are more frequent than usual. “We place trust in all of the stakeholders and local lawmakers to calm the debate and enable a co-existence over the long-term,” agriculture minister Stephane Travert and environment minister Nicolas Hulot wrote in a foreword to the report. Hulot, a celebrity environmentalist, spoke recently of how wolf culling “makes me sick to the stomach” but he accepted it was a necessary measure to take farmers’ concerns into account. Hundreds of sheep were let loose on the streets of the city of Lyon last November in one of a number of protests against the wolf, which has protected status.

The 100-page wolf strategy will also enable livestock owners to apply for state funds to shield their animals, but it will make compensation contingent on them installing fencing and taking other protective measures. Wolves eat between 2-4kg (4.4 to 8.8lb) of meat a day on average and the predators have been blamed for an explosion in the number of attacks on livestock in mountainous areas. A total of 10,000 sheep were killed in the Alps region in 2016, according to official figures from the regional government, but the wolf is also known to feast on deer, wild boar or even domestic animals.

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When everyone’s guilty, who goes to jail?

Ocean Plastic Tide ‘Violates International Law’ (BBC)

The global tide of ocean plastic pollution is a clear violation of international law, campaigners say. They have been urging for a new global treaty to tackle the problem. But a new report – to be presented to a Royal Geographical Society conference on Tuesday – says littering the sea with plastics is already prohibited under existing agreements. The report urges those governments that are trying to tackle the issue to put legal pressure on those that are not. The paper has been written by the veteran environment journalist Oliver Tickell. His conclusions are backed by ClientEarth, the legal group that successfully sued the UK over failures to meet air pollution laws. Tickell says legal action against big polluters such as China, India and Indonesia can be taken only by a nation state.

So he calls for governments and green groups to support small island nations suffering most from plastic pollution. Tickell maintains that marine plastic litter can already be controlled through the United Nations Convention on the Law of the Sea (UNCLOS); the London Convention; the MARPOL Convention; the Basel Convention; Customary Law, and many other regional agreements. Article 194 of UNCLOS, for instance, requires states to “prevent, reduce and control pollution of the marine environment from any source. “Measures shall include, inter alia, those designed to minimize to the fullest possible extent… the release of toxic, harmful or noxious substances, especially those which are persistent, from land-based sources… [and] shall include those necessary to protect and preserve rare or fragile ecosystems as well as the habitat of depleted, threatened or endangered species and other forms of marine life.”

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Feb 192018
 
 February 19, 2018  Posted by at 10:56 am Finance Tagged with: , , , , , , , , , ,  


Frank Larson Broadway Billboard Seven Year Itch 1955

 

Global Dividends Hit Record Of $1.25 Trillion In 2017, More To Come (R.)
Jittery US Bond Market Braces For Supply Wave (R.)
How Did America Go Bankrupt? Slowly At First, Then All At Once (CH)
London’s Housing Boom Is Over, Rightmove Says (BBG)
Average Price Of Newly Marketed UK Home Rises Above £300,000 Again (G.)
Ex-CIA Director Thinks US Hypocrisy About Election Meddling Is Hilarious (CJ)
German Carmakers In A Spin Ahead Of Diesel Ban Ruling (R.)
Sweden Is Getting Worried About Its Cashless Society (BBG)
Europe Is A Collection Of Filter Bubbles (BBG)

 

 

As is the case with buybacks, this is all money that execs decide NOT to invest in a company (productivity, modernization, maintenance), but in its stock value.

Global Dividends Hit Record Of $1.25 Trillion In 2017, More To Come (R.)

Global dividends rose 7.7% to an all-time high of $1.25 trillion (1 trillion euros) last year boosted by a buoyant world economy and rising corporate confidence, Janus Henderson said on Monday, predicting another record year ahead. The surge – the strongest since 2014 – was driven by increases in every region and almost every industry with record showings in 11 countries including the United States, Japan, Switzerland, Hong Kong, Taiwan and the Netherlands, the investment manager added. For 2018 Janus Henderson expects dividends to keep the same 7.7% growth rate to reach around $1.35 trillion, as corporate and economic growth remains strong even in more volatile financial markets. “Companies are seeing rising profits and healthy cash flows, and that’s enabling them to fund generous dividends.

The record payout last year was almost three-quarters higher than in 2009, and there is more to come,” Ben Lofthouse, Director of Global Equity Income at Janus Henderson, said. “The next few months are set fair, and we expect global dividends to break new records in 2018.” Adjusting for movements in exchange rates, special one-off dividends and other factors, global dividends rose 6.8% last year and are expected to rise another 6.1% in 2018. Janus said 2017’s dividend growth showed less regional divergence than in previous years, reflecting the broadly based global economic recovery, though Europe lagged behind. European dividends rose just 1.9% to $227 billion, weighed down by cuts from a handful of large companies in France and Spain, lower special dividends and a weak euro during the second quarter, when most dividends are paid, it said.

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How can more debt not be good?

Jittery US Bond Market Braces For Supply Wave (R.)

Bond investors, who have been on edge over signs of growing inflation and a possibly more aggressive Federal Reserve, will have their work cut out for them as the U.S. government seeks to sell $258 billion worth of debt this coming week. The Treasury Department began ramping up its debt issuance earlier this month to fund the expected growth in borrowing tied to the biggest tax overhaul in 30 years and a two-year federal spending package. Last year’s tax reform is expected to add as much as $1.5 trillion to the federal debt load, while the budget agreement would increase government spending by almost $300 billion over the next two years. Analysts worry the combination of a rising budget deficit, faster inflation and more Fed rate increases have ratcheted up the risk of owning Treasuries. Those concerns pushed benchmark 10-year Treasury yields up to 2.944%, a four-year peak last week.

Treasury bill and two-year yields have reached their highest level in more than nine years. The five-year Treasury yield is hovering at its highest levels in nearly eight years, while seven-year yield climbed to levels not seen since April 2011. The increase in U.S. yields may entice investors seeking steady income in the wake of the rollercoaster sessions on Wall Street and other stock markets this month, analysts said. [..] The heavy Treasury supply will kick off on Tuesday with $151 billion worth of bills including record amounts of three-month and six-month T-bills. The rest of the debt sales will spread over a holiday-shortened week with $28 billion of two-year fixed rate notes on Tuesday; $35 billion in five-year debt on Wednesday and $29 billion in seven-year notes on Thursday. The Treasury Department also plans to add $15 billion to an older two-year floating-rate issue.

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Everything is debt. Imagine what would happen if it wasn’t there. Or soon won’t be.

How Did America Go Bankrupt? Slowly At First, Then All At Once (CH)

Clearly, debt has surged since 2000 and particularly since 2008 versus decelerating net full time jobs growth. The number of full time employees is economically critical as, generally speaking, only these jobs offer the means to be a home buyer or build savings and wealth in a consumer driven economy. Part time employment generally offers only subsistence level earnings. But if we look at the change over those periods highlighted, we get a clear picture. Full time jobs are being added at a rapidly declining rate while federal debt is surging in the absence of the growth of full time employees.

And if we look at the federal debt added per full time job added (chart below)…broken arrow…broken arrow!!! That is $1.92 million dollars in new federal debt per net new full time employee since 2008. Compare that to the $30 thousand per net new full time employee from ’70 to ’80…or $140 thousand from ’80 to ’90…and nearly quadruples the $460 thousand per from ’00 to ’08. Despite a far larger total population and after ten years of “recovery” since ’08, this is likely as good as it gets. We are likely at or very near the top of this economic cycle. This pattern is likely to carry forward over the next decade and economic cycle…likely with disastrous results.

[..] US population growth has been decelerating since 1790 and debt to GDP rising (chart below). Originally, the combination of a relatively small population, high immigration, and high birth rates meant annual population growth in excess of 3% and relatively low debt to GDP. Over time, as the population grew, immigration slowed, and birth rates collapsed; US population growth tumbled. Since 1950 total annual population growth (black line in chart below) has decelerated almost 75% (from 2% to 0.6%) but more critically the annual population growth among the under 65 year old population has essentially ceased (as the yellow line in the chart shows) and more debt has been the resounding “solution”. Massive interest rate cuts to incent debt creation have been substituted for the decelerating organic growth.

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About time.

London’s Housing Boom Is Over, Rightmove Says (BBG)

London’s property market has moved out of its boom phase and home sellers need to be more realistic about their price demands, according to Rightmove. The February report from the home-listing website shows that asking prices were down 1% from a year earlier, a sixth consecutive fall. They rose 4.4% on the month, reflecting the usual jump at the start of the spring season. While multiple reports point to a cooling in London housing, the damage is being limited by cautious sellers, who aren’t flooding the market in a panic to dump property. That means the long-running supply-demand imbalance in the city is providing some support to prices. “End-of-the-boom prices normally readjust more quickly if there is an over supply,” Miles Shipside, Rightmove director, said in the report. However, “some would-be sellers are holding back, preventing a glut of competition from forcing prices downward,” he said.

The capital’s housing market was the worst performing in the U.K. in 2017 and there’s little to suggest any upturn is in store. Brexit uncertainty has damped demand, while years of rampant inflation has pushed ownership out of reach for many. The mean asking price in London this month was almost 630,000 pounds ($885,000), more than 20 times average U.K. earnings. For those who need a fast sale, Shipside’s advice is to “sacrifice some of the substantial price gains of the last few years.” The average time to sell a property in London is now 83 days, up from 73 days a year ago. Nationally, asking prices increased 0.8% in February from January, though that was below the 10-year average for the time of year. The average price of 300,000 pounds is up 1.5% year-on-year. That compares with gains of about 6% seen less than two years ago.

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But wait, this quotes Rightmove as well…

Average Price Of Newly Marketed UK Home Rises Above £300,000 Again (G.)

The average price of a UK property coming on to the market has risen by more than £2,400 in a month to just over £300,000 amid evidence of “record” levels of house-hunting activity, according to Rightmove. The website, which tracks 90% of the UK property market, said the national average asking price for a home had increased by 0.8% during the past month, following the 0.7% rise it reported in mid-January. However, some sellers may be over-pricing their properties: the average time to sell has risen once again and is now 72 days, compared with 67 days a month ago and 55 during the summer of 2017. In London, the average has climbed to 83 days. Rightmove said that while it was the norm for new sellers’ asking prices to be buoyant at the start of a new year, “this first complete month in 2018 is seeing more pricing optimism than the comparable period in 2017”.

In general, however, sellers were not being over-ambitious or setting too high a price, it added. The website, which claims to display a stock of more than one million properties to buy or rent, said the average asking price now stood at £300,001, compared with £297,587 a month ago. It described January as its “busiest month ever”, with a record 141m website visits. In all the UK regions it tracks, the typical price of a newly-marketed property rose during the past month, with the exception of south-west England, where the figure slipped back slightly. Scotland saw the biggest monthly increase, at 5.1%, while the north-east and Wales managed 3.6% and 3.5%. However, on a national basis, the annual rate of price growth “remains subdued” at 1.5%, said the website.

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Isn’t it?

Ex-CIA Director Thinks US Hypocrisy About Election Meddling Is Hilarious (CJ)

Take off the terrorist’s mask, and it’s the CIA. Take off the revolutionary’s mask, and it’s the CIA. Take off the Hollywood producer’s mask, and it’s the CIA. Take off the billionaire tech plutocrat’s mask, and it’s the CIA. Take off the news man’s mask, and guess what? It’s the motherfucking CIA. CIA influence is everywhere. Anywhere anything is happening which could potentially interfere with the interests of America’s unelected power establishment, whether inside the US or outside, the depraved, lying, torturing, propagandizing, drug trafficking, coup-staging, warmongering CIA has its fingers in it. Which is why its former director made a cutesy wisecrack and burst out laughing when asked if the US is currently interfering in other democracies.

Fox’s Laura Ingraham unsurprisingly introduced former CIA Director James Woolsey as “an old friend” in a recent interview about Special Prosecutor Robert Mueller’s indictment of 13 alleged members of a Russian troll farm, in which Woolsey unsurprisingly talked about how dangerous Russian “disinformation” is and Ingraham unsurprisingly said that everyone should really be afraid of China. What was surprising, though, was what happened at the end of the interview. “Have we ever tried to meddle in other countries’ elections?” Ingraham asked in response to Woolsey’s Russia remarks. “Oh, probably,” Woolsey said with a grin. “But it was for the good of the system in order to avoid the communists from taking over. For example, in Europe, in ’47, ’48, ’49, the Greeks and the Italians we CIA-”

“We don’t do that anymore though?” Ingraham interrupted. “We don’t mess around in other people’s elections, Jim?” Woolsey smiled and said said “Well…”, followed by a joking incoherent mumble, adding, “Only for a very good cause.” And then they both laughed. They laughed about this. They thought it was funny and cute. They thought it was funny and cute that the very allegation being used to manufacture support for world-threatening new cold war escalations against a nuclear superpower was something they both knew the United States does constantly, usually through Woolsey’s own CIA. The US government’s own data shows that it has deliberately meddled in the elections of 81 foreign governments between 1946 and 2000, including Russia in the nineties. That isn’t even counting the coups and regime changes it facilitated, including right here in my home Australia in the seventies.

The US meddles constantly in other democracies, not “for a good cause” as Woolsey claims, but to advance the agendas of the loosely allied plutocrats, intelligence and defense agencies which comprise America’s permanent government. It does this not to improve or protect the lives of ordinary Americans, but to make the rich richer and the powerful more powerful, usually at the expense of the money, resources, homes, governments, livelihoods and lives of people in other countries. It does this with impunity and without hesitation.

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Carmakers rule the country.

German Carmakers In A Spin Ahead Of Diesel Ban Ruling (R.)

A court will decide on Thursday whether German cities can ban heavily polluting cars, potentially wiping hundreds of millions of euros off the value of diesel cars on the country’s roads. Environmental group DUH has sued Stuttgart in Germany’s carmaking heartland, and Duesseldorf over levels of particulate matter exceeding EU limits after Volkswagen’s 2015 admission to cheating diesel exhaust tests. The scandal led politicians across the world to scrutinize diesel emissions, which contain the matter and nitrogen oxide (NOx) and are known to cause respiratory disease. There are around 15 million diesel vehicles on German streets and environmental groups say levels of particulates exceed the EU threshold in at least 90 German towns and cities.

Local courts ordered them to bar diesel cars which did not conform to the latest standards on days when pollution is heavy, startling German carmakers because an outright ban could trigger a fall in vehicle resale prices, and a rise in the cost of leasing contracts, which are priced on assumed residual values. The German states concerned, where the carmakers and their suppliers have a strong influence, appealed against the decisions, leaving Germany’s federal administrative court – the court of last resort for such matters – to rule on whether such bans can legally be imposed at local level.

“The key question is whether bans can already be considered to be legal instruments,” said Remo Klinger, a lawyer for DUH. “It’s a completely open question of law.” Paris, Madrid, Mexico City and Athens have said they plan to ban diesel vehicles from city centers by 2025, while the mayor of Copenhagen wants to ban new diesel cars from entering the city as soon as next year. France and Britain will ban new petrol and diesel cars by 2040 in a shift to electric vehicles.

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Big Brother is not worried.

Sweden Is Getting Worried About Its Cashless Society (BBG)

‘“No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile. But the pace at which cash is vanishing has authorities worried. A broad review of central bank legislation that’s underway is now taking a special look at the situation, with an interim report due as early as the summer. “If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash, said Mats Dillen, the head of the parliamentary review. He declined to get into more details on what types of proposals could be included in the report. Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments.

But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society. “One may get into a negative spiral which can threaten the cash infrastructure,” Dillen said. “It’s those types of issues we are looking more closely at.” Last year, the amount of cash in circulation dropped to the lowest level since 1990 and is more than 40 percent below its 2007 peak. The declines in 2016 and 2017 were the biggest on record. An annual survey by Insight Intelligence released last month found only 25 percent of Swedes last year paid in cash at least once a week, down from 63 percent just four years ago. A full 36 percent never use cash, or just pay with it once or twice a year.

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There is no such thing as one Europe. And the more the EU promotes the narrative, the more that will become obvious.

Europe Is A Collection Of Filter Bubbles (BBG)

The EU can act in unison at times – for example, on Russia sanctions or, at least so far, on Brexit. But as French President Emmanuel Macron and German Chancellor Angela Merkel try for a closer union in the next few years, they will need to be mindful of the fact that there is no single narrative among the publics in different European countries on matters of economic importance. A recent paper for Bruegel, a Brussels-based think tank, vividly shows this by analyzing coverage of Europe’s recent financial crisis by four important centrist newspapers: Germany’s Sueddeutsche Zeitung, France’s Le Monde, Italy’s La Stampa and Spain’s El Pais. The total data set encompassed 51,714 news stories. The researchers fed them to a content analysis algorithm and then analyzed the results to construct generalized narratives. Their focus was on how blame for the crisis was attributed.

They found that only El Pais consistently attributed blame to Spain itself for its financial troubles during the euro crisis. “In Spain, the connection between the global financial crisis, the local housing bubble and the mismanagement of a previous period of impressive growth was more visible,” Porcaro explained to me. As one might expect, Sueddeutsche Zeitung blames the crisis on a departure from the traditional German social market economic model. Everyone except Germany seems to have contributed, according to the Munich paper — from greedy financial market players to financially imprudent Greeks to the ECB with its loose monetary policy. Le Monde, too, blamed the banks and speculators, but also German intransigence in handling the indebted southern Europeans.

And La Stampa focused on Italy’s role as a victim of circumstance, namely globalization and German-imposed austerity. Banks and financiers didn’t get much attention as culprits from the Italian newspaper, but the Italian political system and government did get some blame, as in Spain. Le Monde and La Stampa, according to the Bruegel paper, both “embrace a sense of desperation that goes far beyond purely economic considerations but calls into question the entire political system and social fabric.” It’s as if the euro area’s four biggest economies didn’t share a reality. The four quality dailies resemble the blind men in the Indian parable, feeling different parts of an elephant’s body, declaring the whole animal should look like a tree or a snake, then coming to blows when they can’t agree.

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Feb 162018
 
 February 16, 2018  Posted by at 10:59 am Finance Tagged with: , , , , , , , , , , , ,  


Paul Gauguin Yellow haystacks (Golden harvest) 1889

 

US Market Gurus Who Predicted Selloff Say Current Calm An Illusion (R.)
There Will Be No Economic Boom (Roberts)
T-Bills Flood Set to Put Upward Pressure on Short-Term Funding Costs (BBG)
“Financial Stress” Spikes – Just As The Fed Intends (WS)
Hedge Fund King Dalio Bets Big Against Europe (BBG)
Everybody’s Already Invested, So Who’s The Buyer? (ZH)
Donald Trump’s Dangerous Currency Game (Spiegel)
US Dollar Spirals Down, Hits Lowest Point Since 2014 (WS)
Home Ownership Among Britain’s Young Adults Has ‘Collapsed’ (G.)
Warren Buffett, Prime Example Of The Failure Of American Capitalism (Dayen)
Monopolies Game the System (Nation)
Greece Warns Turkey Of Non-Peaceful Response Next Time (K.)
Borneo Has Lost Half Its Orangutans This Century (Ind.)

 

 

Short is hip again.

US Market Gurus Who Predicted Selloff Say Current Calm An Illusion (R.)

You ain’t seen nothing yet. Some veteran investors who were vindicated in calling for a pullback in shares and a spike in volatility could now be cheering. Actually, they’re looking at the risks that still lie ahead in the current relative calm. The last week’s wild market swings confirmed that the market was in correction territory – falling more than 10% from its high. The falls were triggered by higher bond yields and fears of inflation but came against a backdrop of a stretched market that had taken price/earnings levels to as high as 18.9. Adding to downwards pressure was the unwinding of bets that volatility would stay low. The fall had come after a growing number of strategists and investors said a pullback was in the offing – although the consensus opinion was that the market would then start rising again. The big question is: what comes now?

“Do you honestly believe today is the bottom?” said Jeffrey Gundlach, known as Wall Street’s Bond King, last week, who had been warning for more than a year that markets were too calm. Gundlach had been particularly vocal in his warnings about the VIX, Wall Street’s “fear gauge,” which tracks the volatility implied by options on the S&P 500. The sell-off in U.S. stocks derailed some popular short volatility exchange-traded products, which contributed to more downwards pressure on the market. Gundlach in May last year warned that the VIX was “insanely low.” Hedge fund manager Douglas Kass was short SPDR S&P 500 ETF and said he “took a lot of small losses” last year but says he still sees more stress ahead. He said he is now re-shorting that ETF. Investors who bet low volatility would continue will need time to unwind their strategies, Kass said.

[..] Veteran short-seller Bill Fleckenstein, who ran a short fund but closed it in 2009, said that “last week’s action was an early indication that the end of bull market is upon us.” Fleckenstein said there was a lot of money in the market with no conviction behind it, for example, buying index funds and ETFs just “to be part of the party” which was an element of “hot money.” “Last week was just the preview to the bigger event that we’ll see this year probably,” Fleckenstein said. Fleckenstein said he is not short at the moment – although he did make “a couple of bucks” last week shorting Nasdaq futures. He said he is looking for an opportunity to get short again. He said he has “flirted with the idea of restarting a short fund”.

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The US is betting big. But don’t let that blind you to the fact that so is everyone else.

There Will Be No Economic Boom (Roberts)

Last week, Congress passed a 2-year “continuing resolution, or C.R.,” to keep the Government funded through the 2018 elections. While “fiscal conservatism” was just placed on the sacrificial alter to satisfy the “Re-election” Gods,” the bigger issue is the impact to the economy and, ultimately, the financial markets. The passage of the $400 billion C.R. has an impact that few people understand. When a C.R. is passed it keeps Government spending at the same previous baseline PLUS an 8% increase. The recent C.R. just added $200 billion per year to that baseline. This means over the next decade, the C.R. will add $2 Trillion in spending to the Federal budget. Then add to that any other spending approved such as the proposed $200 billion for an infrastructure spending bill, money for DACA/Immigration reform, or a whole host of other social welfare programs that will require additional funding.

But that is only half the problem. The recent passage of tax reform will trim roughly $2 Trillion from revenues over the next decade as well. This is easy math. Cut $2 trillion in revenue, add $2 trillion in spending, and you create a $4 trillion dollar gap in the budget. Of course, that is $4 Trillion in addition to the current run rate in spending which continues the current acceleration of the “debt problem.”

But it gets worse. As Oxford Economics reported via Zerohedge: “The tax cuts passed late last year, combined with the spending bill Congress passed last week, will push deficits sharply higher. Furthermore, Trump’s own budget anticipates that US debt will hit $30 trillion by 2028: an increase of $10 trillion.” Oxford is right. In order to “pay for” all of the proposed spending, at a time when the government will receive less revenue in the form of tax collections, the difference will be funded through debt issuance.

Simon Black recently penned an interesting note on this: “Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years. And the numbers are pretty gruesome. In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year. Then nearly $1.1 trillion next fiscal year. And up to $1.3 trillion the year after that. This means that the national debt will exceed $25 trillion by September 30, 2020.”

Of course, “fiscal responsibility” left Washington a long time ago, so, what’s another $10 Trillion at this point? While this issue is not lost on a vast majority of Americans that “choose” to pay attention, it has been quickly dismissed by much of the mainstream media, and Congressman running for re-election, by suggesting tax reform will significantly boost economic growth over the next decade. The general statement has been: “By passing much-needed tax reform, we will finally unleash the economic growth engine which will more than pay for these tax cuts in the future.”

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Nobody expects the bond vigilantes?!

T-Bills Flood Set to Put Upward Pressure on Short-Term Funding Costs (BBG)

Get ready for the deluge of Treasury bills, and the increase in short-term funding costs that’s likely to accompany it. Investors are bracing for an onslaught of T-bill supply following last week’s U.S. debt ceiling suspension. That’s already prompting them to demand higher rates from borrowers across money markets. And that’s just a result of the government replenishing its cash hoard to normal levels. The ballooning budget deficit means there’s even more to come later, and that deluge of supply could further buoy funding costs down the line, making life more expensive both for the government and companies that borrow in the short-term market. Concerns about the U.S. borrowing cap had forced the Treasury to trim the total amount of bills it had outstanding, but that’s no longer a problem and the government is now busy ramping up issuance.

Financing estimates from January show that the Treasury expects to issue $441 billion in net marketable debt in the current quarter and the bulk of that is likely to be in the short-term market. “Supply will come in waves and we’re in a very heavy wave right now,” said Mark Cabana at Bank of America. “If you take Treasury at their word that they want to issue $300 billion in bills, that’s a lot of net supply that needs to come to market.” Next week’s three- and six-month bill auctions will be the largest on record at $51 billion and $45 billion respectively, Treasury said Thursday. The four-week auction will be boosted to $55 billion next week, having already been lifted to $50 billion for the Feb. 13 sale. Auction volume at the tenor had earlier been shrunk to just $15 billion.

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Spikes but is still negative. Wait till that changes.

“Financial Stress” Spikes – Just As The Fed Intends (WS)

The weekly St. Louis Fed Financial Stress index, released today, just spiked beautifully. It had been at historic lows back in November, an expression of ultra-loose financial conditions in the US economy, dominated by risk-blind investors chasing any kind of yield with a passion, which resulted in minuscule risk premiums for investors and ultra-low borrowing costs even for even junk-rated borrows. The index ticked since then, but in the latest week, ended February 9, something happened. The index, which is made up of 18 components (seven interest rate measures, six yield spreads, and five other indices) had hit a historic low of -1.6 on November 3, 2017, even as the Fed had been raising its target range for the federal funds rate and had started the QE Unwind. It began ticking up late last year, hit -1.35 a week ago, and now spiked to -1.06.

The chart above shows the spike of the latest week in relationship to the two-year Oil Bust that saw credit freeze up for junk-rated energy companies, with the average yield of CCC-or-below-rated junk bonds soaring to over 20%. Given the size of oil-and-gas sector debt, energy credits had a large impact on the overall average. The chart also compares today’s spike to the “Taper Tantrum” in the bond market in 2014 after the Fed suggested that it might actually taper “QE Infinity,” as it had come to be called, out of existence. This caused yields and risk premiums to spike, as shown by the Financial Stress index. This time, it’s the other way around: The Fed has been raising rates like clockwork, and its QE Unwind is accelerating, but for months markets blithely ignored it. Until suddenly they didn’t.

This reaction is visible in the 10-year Treasury yield, which had been declining for much of last year, despite the Fed’s rate hikes, only to surge late in the year and so far this year. It’s also visible in the stock market, which suddenly experienced a dramatic bout of volatility and a breathless drop from record highs. And it is now visible in other measures, including junk-bond yields that suddenly began surging from historic low levels. The chart of the ICE BofAML US High Yield BB Effective Yield Index, via the St. Louis Fed, shows how the average yield of BB-rated junk bonds surged from around 4.05% last September to 4.98% now, the highest since November 20, 2016:

But a longer-term chart shows just how low the BB-yield still is compared to where it had been in the years after the Financial Crisis, and how much more of a trajectory it might have ahead:

The Financial Stress Index is designed to show a level of zero for “normal” financial conditions. When these conditions are easy and when there is less financial stress than normal, the index is negative. The index turns positive when financial conditions are tighter than normal. But at -1.06, it remains below zero. In other words, financial conditions remain extraordinarily easy. This is clear in a long-term chart of the index that barely shows the recent spike, given the magnitude of prior moves. This is precisely what the Fed wants to accomplish.

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Feels a bit like Soros vs Britain in 1992.

Hedge Fund King Dalio Bets Big Against Europe (BBG)

Ray Dalio, billionaire philosopher-king of the world’s biggest hedge fund, has a checklist to identify the best time to sell stocks: a strong economy, close to full employment and rising interest rates. That may explain why the firm he created, Bridgewater Associates, has caused a to-do the past two weeks by quickly amassing an $21.65 billion bet against Europe’s biggest companies. The firm’s total asset pool is $150 billion, according to its website. Economic conditions in Europe appear to fit Dalio’s requirements. Last year, the continent’s economy grew at the fastest pace in a decade, and ECB President Mario Draghi has indicated he’s on a slow path toward boosting rates as economic slack narrows. Factories around the world are finding it increasingly hard to keep up with demand, potentially forcing them to raise prices.

But Dalio is leading his firm down a path that few other funds care to tread. Renaissance Technologies, most recently famous for its association with Breitbart donor Robert Mercer, is only $42 million short in Europe. Two Sigma Investments is betting even less than that. Kenneth Griffin’s Citadel has less than $2 billion in European company shorts. So Dalio will rise or fall virtually on his own. “It is not unusual to see strong economies accompanied by falling stock and other asset prices, which is curious to people who wonder why stocks go down when the economy is strong and don’t understand how this dynamic works,” Dalio wrote in a LinkedIn post this week. Bridgewater’s shorting spree started last fall in Italy. With the country’s big banks accumulating billions in bad debt, Bridgewater mounted a $770 million wager against Italian financial stocks.

Saddled with non-performing loans and under constant regulatory scrutiny, they made for a juicy target. Throughout the fall and into winter the bet against Italy represented the majority of Bridgewater’s publicly disclosed short positions. The initial bet was eventually raised to encompass 18 firms and nearly $3 billion. Bridgewater had flipped its portfolio in January to turn bearish on Western Europe stocks and also started shorting Japanese equities, according to a person with knowledge of the matter. The hedge fund significantly raised its long U.S. equities exposure last month, the person added.

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“This market is nuts.”

Everybody’s Already Invested, So Who’s The Buyer? (ZH)

With stocks erasing their early-day losses and the VIX tumbling once again, CNBC – the go-to resource for retirees and other retail investors – was back to reassuring investors that this month’s explosion of volatility was just another dip deserving to be bought. But Embark Capital CIO Peter Toogood offered an important counterpoint during an appearance this morning where he warned his audience against exactly this kind of credulousness by ignoring the fundamental growth global growth story that seemingly every other portfolio manager has been relying on and instead pointing to one simple fact: “Everybody is already invested”.

But even with positioning stretched to such an exaggerated degree, that doesn’t necessarily mean a crash is right around the corner. Instead, Toogood foresees a “step bear market” that will continue until the PPT, newly reconstituted under the leadership of Jerome Powell, realizes that they must once again intervene…because with so much systemic debt and myriad other risks – like the dangerously underfunded pensions that we’ve highlighted again and again – a sustained selloff would be far too risky to countenance. “I noticed Dudley the other day say ‘this is small potatoes’ and warning investors not to worry about it. And I would accept that’s all true, if everybody wasn’t already invested. And I want to know who the marginal buyer of this story is. Everyone is in. Look at consumer sentiment surveys, loo at professional money managers, everyone is in. So who’s the buyer? It’s very 2007-2008.”

He added that hedge fund managers are now “sitting around scratching their heads” because even European high yield bonds – the debt of some of the worst companies on Earth – are yielding a staggeringly low 2%. Toogood also pointed out that stocks are breaking through important technical levels… “You’re breaking some very major levels in most markets outside of the US still, and that is very, very significant. That is the test of where you’d think a bear market is coming; I still do, just on valuation alone. I think this market is nuts,” Toogood said. Which is leaving asset managers in a bind… “It’s one of those extremely unpleasant moments when people need income but income is expensive and that’s the other problem we see … We are forced into high yield (bonds) and we don’t want to be there,” Toogood said.’

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“..our currency, but your problem..”

Donald Trump’s Dangerous Currency Game (Spiegel)

“There is no longer any doubt that the U.S. government is not only waging a currency war, but is also in the process of winning it,” Joachim Fels, chief economist at Pimco, says. Trump’s policies represent a threat to Europe’s recovery, a situation that has displeased the ECB. But there isn’t much the ECB can do about it. By pursuing economic policies that ignore the needs of America’s trading partners – an approach economists refer to as “beggar-thy-neighbor” – Trump has revisited an old American tradition. In the early 1970s, it was Treasury Secretary John Connally who raised the prospect of a budget deficit of $40 billion – a massive sum at the time – and justified it as “fiscal stimulus.” In response to concerns voiced by his European counterparts, worried as they were about the weak dollar, he responded with his legendary line that the dollar “is our currency, but your problem.”

Lloyd Bentsen, treasury secretary under Bill Clinton, informed the Japanese in 1993 that he urgently desired a stronger yen in order to stem the Asian trading partner’s high export surpluses. With “America First,” Trump has now elevated “beggar thy neighbor” to the status of administration doctrine. The first part of Trump’s economic policy agenda envisions stimulating the economy through tax cuts and public infrastructure investments. That would help American companies, and the rest of the world could also profit initially if the U.S. economy were to grow more rapidly and companies in Europe or Asia were to receive more orders. But it’s the second part of the Trump program that reveals the real strategic thrust.

During the same weak that the treasury secretary could be heard preaching the virtues of a weak dollar, the U.S. government imposed steep import tariffs on washing machines and solar cells. The combination of a weak dollar and protectionist measures are aimed at creating a competitive advantage for American companies versus their competitors from around the world. “The government clearly wants a weak dollar right now because inflation is moderate and a weaker dollar will make it easier for the manufacturing sector to grow,” says Barry Eichengreen, a professor for economics at the University of California at Berkeley.

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Europe will have to act. Simple as that.

US Dollar Spirals Down, Hits Lowest Point Since 2014 (WS)

The US dollar has dropped 2.0% in the past five days, 2.4% over the past month, 4.1% year-to-date, 5.3% over the past three months, and 9.4 % over the past 12 months, according to the WSJ Dollar Index. At 82.47, the index is at the lowest level since December 25, 2014: The index weighs the US dollar against a basket of 16 other currencies that account for about 80% of the global currency trading volume: Euro, Japanese Yen, Chinese Yuan, British Pound, Canadian Dollar, Mexican Peso, Australian Dollar, New Zealand Dollar, Hong Kong Dollar, South Korean Won, Swiss Franc, Swedish Krona, Singapore Dollar, Indian Rupee, Turkish Lira, and Russian Ruble. The currencies are weighted based on their foreign exchange trading volume.

Whatever the reasons may be for the decline of the dollar against this basket of currencies — everyone has their own theory, ranging from the much prophesied death of the dollar to Treasury Secretary Steve Mnuchin’s actively dissing the dollar at every opportunity he gets — one thing we know: The decline started in late December 2016, after the index had peaked at 93.50. And it has not abated since. With the index currently at 82.47, it has fallen nearly 12% over those 14 months. The dominant factor in the decline of the dollar index is the strength of the euro, the second largest currency. Over those 14 months, the euro, which had been given up for dead not too long ago, has surged 20% against the dollar. The decline of the dollar is another indication that markets have blown off the Fed, similar to the 10-year Treasury yield falling for much of last year, even as the Fed was raising its target range for the federal funds rate.

The Fed keeps an eye on the dollar. A weak dollar makes imports more expensive and, given the huge trade deficit of the US, adds to inflationary pressures in the US. Over the past few years, the Fed has practically been begging for more inflation. So for the Fed, which is chomping at the bit to raise rates further, the weak dollar is a welcome sight. Conversely, a surging dollar would worry the Fed. At some point it would get nervous and chime in with the chorus emanating from the Treasury Department and the White House trying to talk down the dollar. If the dollar were to surge past certain levels, and jawboning isn’t enough to knock it down, the Fed might alter its monetary policies and might back off its rate-hike strategies or it might slow down the QE Unwind.

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“For 25- to 34-year-olds earning between £22,200 and £30,600 per year, home ownership fell to just 27% in 2016 from 65% two decades ago Good luck trying to find buyers.

Home Ownership Among Britain’s Young Adults Has ‘Collapsed’ (G.)

The chances of a young adult on a middle income owning a home have more than halved in the past two decades. New research from the Institute for Fiscal Studies shows how an explosion in house prices above income growth has increasingly robbed the younger generation of the ability to buy their own home. For 25- to 34-year-olds earning between £22,200 and £30,600 per year, home ownership fell to just 27% in 2016 from 65% two decades ago. Middle income young adults born in the late 1980s are now no more likely than those lower down the pay scale to own their own home. Those born in the 1970s were almost as likely as their peers on higher wages to have bought their own home during young adulthood.

Andrew Hood, a senior research economist at the IFS, said: “Home ownership among young adults has collapsed over the past 20 years, particularly for those on middle incomes.” The IFS said young adults from wealthy backgrounds are now significantly more likely than others to own their own home. Between 2014 and 2017 roughly 30% of 25- to 34-year-olds whose parents were in lower-skilled jobs such as delivery drivers or sales assistants owned their own home, versus 43% for the children of those in higher-skilled jobs such as lawyers and teachers. The study shows the growing disparities between rich and poor, as well as young and old, across the country. It also illustrates the drop in home ownership over the past decade. While those on middle incomes have seen the largest fall in ownership rates, those in the top income bracket have been least affected.

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Who needs capitalism when you can worship the golden calf?

Long article in a new series at the Nation.

Warren Buffett, Prime Example Of The Failure Of American Capitalism (Dayen)

Warren Buffett should not be celebrated as an avatar of American capitalism; he should be decried as a prime example of its failure, a false prophet leading the nation toward more monopoly and inequality. You probably didn’t realize that the same avuncular billionaire controls such diverse companies and products as See’s Candies, Duracell batteries, Justin Boots, Benjamin Moore Paints, and World Book encyclopedias. But Buffett has transformed Berkshire Hathaway, initially a relatively small textile manufacturer, into the world’s largest non-technology company by market value. Berkshire Hathaway owns over 60 different brands outright. And through Berkshire, Buffett also invests in scores of public corporations. The conglomerate closed 2016 with over $620 billion in assets.

The money mainly comes from Berkshire’s massive insurance business, composed of the auto insurer GEICO, the global underwriter General Reinsurance Corporation, and 10 other subsidiaries. Insurance premiums don’t get immediately paid out in claims; while the cash sits, Buffett can invest it. This is known as “float,” and Berkshire Hathaway’s float has ballooned from $39 million in 1970 to approximately $113 billion as of last September. It’s a huge advantage over rival investors—effectively the world’s largest interest-free loan, helping to finance Buffett’s pursuit of monopoly. “[W]e enjoy the use of free money—and, better yet, get paid for holding it,” Buffett said in his most recent investor letter. Indeed, as a 2017 Fortune article noted, with almost $100 billion in cash at the end of that year’s second fiscal quarter, Buffett’s Berkshire Hathaway literally has more money than it knows what to do with.

The dominant narrative around Buffett is that he invests in big, blue-chip companies whose products he enjoys, like Coca-Cola or Heinz ketchup. But Buffett’s taste for junk food cannot match his hunger for monopoly, and he scours the investment landscape to satisfy it.

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Monopoly contradicts capitalism. Well, in theory, that is.

Monopolies Game the System (Nation)

More than a century ago, Elizabeth Magie developed two sets of rules for a board game that would become known as Monopoly. There’s the one we know today: You play an aspiring real-estate tycoon, buying up properties to extract ever-larger sums from your opponents; you win when everyone else is destitute. But in Magie’s version, players could agree to switch midgame to a second rule book. Instead of paying rent to a landowner, they’d send funds to a common pot. The game would be over when the poorest player doubled their capital. Magie’s goal was to show the cruelty of monopoly power and the moral superiority of progressive taxation. Her board game was a rebuke to the slumlords and corporate giants of the Gilded Age.

Today, a few corporations once again dominate sectors of our economy. In an interview with The Nation’s George Zornick, Senator Elizabeth Warren points out that two companies sell 70% of the beer in the country; four companies produce 85% of American beef; and four airlines account for 80% of domestic seats. With monopolies squeezing out the competition and underpaying workers, profits are funneled to a tiny elite. It’s no coincidence that the three richest Americans—Amazon’s Jeff Bezos, Microsoft’s Bill Gates, and Berkshire Hathaway’s Warren Buffett—are together worth slightly more than the bottom half of the entire US population.

Just as railroad monopolies once controlled the crucial infrastructure of 19th-century commerce, tech companies are trying to own the infrastructure of the 21st. As Stacy Mitchell explains in “The Empire of Everything,” Amazon is not only the leading retail platform, but it has developed a vast distribution network to handle package delivery. Amazon announced in February that it would begin testing its own delivery service, which could soon rival UPS and FedEx. It also runs more than a third of the world’s cloud-computing capacity, handling data for the likes of Netflix, Nordstrom, and The Nation. Unlike past monopolies, however, Amazon doesn’t want to dictate to the market; it seeks to replace the market entirely.

Under these conditions, small businesses and start-ups are struggling to compete. In 2017, there were approximately 7,000 store closings—more than triple the number in the prior year. And the percentage of companies in the United States that are new businesses has dropped by nearly half since 1978. In many industries, starting a new business is like playing Monopoly when all the squares have already been purchased: Everywhere you land, there’s a monopolist making demands, everything from fees to sell items on its website to the release of data with which to undercut you later.

Read more …

EU and US better act. Greece will start shooting soon. They have a formidable army.

Greece Warns Turkey Of Non-Peaceful Response Next Time (K.)

Athens toughened up its stance on Turkish action in the eastern Aegean, with the foreign minister and the government spokesman making it clear to Ankara that Greece’s response to another incident will not be peaceful. Foreign Minister Nikos Kotzias said in an interview on Alpha TV late on Thursday that the incident on Monday, when a Turkish vessel rammed a Greek one off Imia island, “touched on the red line and in some sense it overstepped it.” He went on to add that there will not be another such peaceful behavior by the Greek side should such an incident recur.

Kotzias also clarified that “Imia is Greek” and warned Ankara “you should not open a gray-zone issue, because if we do, based on international law, not only are you wrong but you will also incur losses.” Government spokesman Dimitris Tzanakopoulos echoed Kotzias on Friday morning, warning that aggression will be met with an equal response. “If there is another act of Turkish aggression on Greek territory, there will be a response and there is no other way for us,” he told Skai TV. Greece’s verbal toughening comes as the Turkish armed forces conducted an extensive war game near the Greek-Turkish land border by Evros river in Thrace, including the scenario of crossing a river to invade a neighboring country.

Read more …

Words cannot express the sadness. Once we’ve eradicated the man of the woods, man is next.

Borneo Has Lost Half Its Orangutans This Century (Ind.)

Borneo has lost more than 100,000 orangutans in the space of just 16 years as a result of hunting and habitat loss, according to a new report. Logging, mining, oil palm, paper, and linked deforestation have been blamed for the the diminishing numbers. However, researchers also found many orangutans have vanished from more intact, forested regions, suggesting that hunting and other direct conflict between orangutans and humans continues to be a chief threat to the species. The report published in the Current Biology Journal found more than 100,000 of the island’s orangutans vanished in the period of 1999 to 2015. “Orangutans are disappearing at an alarming rate,” said Emma Keller, agricultural commodities manager at the Worldwide Fund for Nature (WWF).

“Their forests homes have been lost and degraded, and hunting threatens the existence of this magnificent great ape. “Immediate action is needed to reform industries that have pushed orangutans to the brink of extinction. UK consumers can make a difference through only supporting brands and retailers that buy sustainable palm oil.” Around half of the orangutans living on the island of Borneo, the largest island in Asia, were lost as a result of changes in land cover. [..] The report comes after an orangutan was shot at least 130 times with an air gun before it died earlier in the month, according to police in Borneo.

Read more …

Oct 132017
 
 October 13, 2017  Posted by at 7:45 pm Finance Tagged with: , , , , , , , ,  


Rembrandt Old man with a beard 1630

 

“The Cost of Missing the Market Boom is Skyrocketing”, says a Bloomberg headline today. That must be the scariest headline I’ve seen in quite a while. For starters, it’s misleading, because people who ‘missed’ the boom haven’t lost anything other than virtual wealth, which is also the only thing those who haven’t ‘missed’ it, have acquired.

Well, sure, unless they sell their stocks. But a large majority of them won’t, because then they would ‘miss’ out on the market boom… Some aspects of psychology don’t require years of study. Is that what behavioral economics is all about?

And it’s not just the headline, the entire article is scary as all hell. It reads way more like a piece of pure and undiluted stockbroker propaganda that it does resemble actual objective journalism, which Bloomberg would like to tell you it delivers. And it makes its point using some pretty dubious claims to boot:

 

The Cost of Missing the Market Boom Is Skyrocketing

Skepticism in global equity markets is getting expensive. From Japan to Brazil and the U.S. as well as places like Greece and Ukraine, an epic year in equities is defying naysayers and rewarding anyone who staked a claim on corporate ownership. Records are falling, with about a quarter of national equity benchmarks at or within 2% of an all-time high.

If equity markets in places like Greece and Ukraine, ravaged by -in that order- financial and/or actual warfare, are booming, you don’t need to fire too many neurons to understand something’s amiss. Some of their companies may be doing okay, but not their entire economies. Their boom must be a warning sign, not some bullish signal. That makes no sense. Stocks in Aleppo may be thriving too, but…

“You’ve heard people being bearish for eight years. They were wrong,” said Jeffrey Saut, chief investment strategist at St. Petersburg, Florida-based Raymond James, which oversees $500 billion. “The proof is in the returns.” To put this year’s gains in perspective, the value of global equities is now 3 1/2 times that at the financial crisis bottom in March 2009.

If markets crash by, pick a number, 20-30-50% next week, will Mr. Saut still claim “The proof is in the returns”? I doubt it. Though this time he might be right. As for the ‘value’ of global equities being 250% (give or take) higher than in March 2009, does that mean those who were -or still are- bearish were wrong? Or is there some remote chance that the equities are part of a giant planetwide bubble?

Aided by an 8% drop in the U.S. currency, the dollar-denominated capitalization of worldwide shares appreciated in 2017 by an amount – $20 trillion – that is comparable to the total value of all equities nine years ago. And yet skeptics still abound, pointing to stretched valuations or policy uncertainty from Washington to Brussels. Those concerns are nothing new, but heeding to them is proving an especially costly mistake.

$20 trillion. That’s a lot of dough. It’s what all equities in the world combined were ‘worth’ 9 years ago. It’s also, oh irony, awfully close to the total increase in central bank balance sheets, through QE etc. Might the two be related in any way?

 

 

Clinging to such concerns means discounting a harmonized recovery in the global economy that’s virtually without precedent – and set to pick up steam, according to the IMF. At the same time, inflation remains tepid, enabling major central banks to maintain accommodative stances.

‘Harmonized recovery’ is a priceless find. But you have to feel for anyone who believes it. And it’s obviously over the top ironic that central banks are said to be ‘enabled’ to keep rates low precisely because they fail to both understand and raise inflation. Let’s call it the perks of failure.

“When policy is easy and growth is strong, this is an environment more conducive for people paying up for valuations,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. “The markets are up in line with what the earnings have done, and stronger earnings helped drive a higher level of enthusiasm and a higher level of risk taking.”

Oh boy. He actually said that? What have earnings done? He hasn’t read any of the warnings on P/E (price/earnings) for the (US) market in general –“the Shiller P/E Cyclically Adjusted P/E, or CAPE, ratio, which is based on the S&P 500’s average inflation-adjusted earnings from the previous 10 years, is above 30 when its average is 16.8”– or for individual companies (tech) in particular?

The CAPE ratio has been higher than it is now only twice in history: right before the Great Depression and during the dotcom bubble, when tech companies didn’t even have to be able to fog a mirror to attract billions in ‘capital’. And the chief cross-asset strategist at Morgan Stanley says markets are in line with earnings? Again, oh boy.

No, it’s not earnings that “..helped drive a higher level of enthusiasm and a higher level of risk taking.” Cheap money did that. Central banks did that. As they were destroying fixed capital, savings, pensions.

 

 

The numbers are impressive: more than 85% of the 95 benchmark indexes tracked by Bloomberg worldwide are up this year, on course for the broadest gain since the bull market started. Emerging markets have surged 31%, developed nations are up 16%. Big companies are becoming huge, from Apple to Alibaba.

Look, emerging markets and developed economies have borrowed up the wazoo. Because they could. Often in US dollars. That may cause a -temporary- gain in stock markets, but it casts a dark spell over the reality of these markets. If it’s that obvious that a substantial part of your happy news comes from debt, there’s very little reason to celebrate.

Technology megacaps occupy all top six spots in the ranks of the world’s largest companies by market capitalization for the first time ever. Up 39% this year, the $1 trillion those firms added in value equals the combined worth of the world’s six-biggest companies at the bear market bottom in 2009. Apple, priced at $810 billion, is good for the total value of the 400 smallest companies in the S&P 500.

To cast those exact same words in a whole different light, no, Apple is not ‘good for the total value of the 400 smallest companies in the S&P 500’. Yes, you can argue that Apple’s ‘value’ has lifted other stocks too, but this has happened in a time of zero price discovery AND near zero interest rates. That means people have no way to figure out if a company is actually doing well, so it’s safer to park their cash in Apple.

Ergo: Apple, and the FANGs in general, take valuable money out of the stock market. At the same time that they, companies with P/E earnings ratios to the moon and back, buy back their stocks at blinding speeds. So yeah, Apple may be ‘good’ for the total value of the 400 smallest companies in the S&P 500, but at the same time it’s not good for that value at all. It’s killing companies by sucking up potential productive investment.

And Apple’s just an example. Silicon Valley as a whole is a scourge upon America’s economy, hoovering away even the cheapest and easiest money and redirecting it to questionable start-up projects with very questionable P/E ratios. But then, that’s what you get without price discovery.

 

 

Overall, U.S. corporate earnings are expected to rise 11% this year, on track to be the best profit growth since 2010. And after years of disappointments, European profits are set to climb 14% in 2017, Bloomberg data show. The expectations for both regions are roughly in line with forecasts made at the beginning of the year, defying the usual pattern of analysts downgrading their estimates as the months go by.

Come on, the European Central Bank has been buying bonds and securities at a rate of €60 billion a month for years now. How can it be any wonder that officially stock markets are up 14%? Maybe we should be surprised it’s not 114%. Maybe the one main point in all of this is that the ECB is still buying at that rate, and thereby signaling things are still as bad as when they started doing it.

Meanwhile, Asia is home to some of the world’s steepest rallies, led by Hong Kong stocks that are up 29% this year. Shares in Tokyo also hit fresh decade highs this week, bolstered by investor confidence before the local corporate earnings season and a snap election this month. “Asia will benefit from continued improving regional growth, stable macroeconomic conditions and undemanding valuations,” said BNP Paribas Asset Management’s head of Asia Pacific equities Arthur Kwong. Any pullback in Asian equities after the year-to-date rally presents a buying opportunity for long-term investors, he wrote in a note.

In Japan, so-called investor confidence is based solely on the Bank of Japan continuing to purchase anything that’s not bolted down. In China, the central bank buys the kitchen sink as well. How, knowing that, can you harp on about increased investor confidence? As if central banks taking over entire economies either isn’t happening, or makes no difference to economies? Buying opportunity?

Global economic growth has been robust in most places, with Europe finally joining the party and the euro-area economy on track for its best year since at least 2010. The region’s steady recovery has eclipsed worries about populism, which a few years ago would have been enough to derail any stock market rally.

No, global economic growth has not been ‘robust’. Stock market growth perhaps has been, but that’s only due to QE and buybacks. Still, stock markets are not the economy.

“I’ve never been so optimistic about the global economy,” said Vincent Juvyns, global market strategist at J.P. Morgan Asset Management. “Ten years after the financial crisis, Europe is recovering and we have synchronized economic growth around the world. Even if we get it wrong on a country or two, it doesn’t change the big picture, which is positive for the equity markets.”

Oh man. And at that exact moment the ECB announces it wants to cut its QE purchase in half by next year.

Nowhere is the shifting sentiment more pronounced than in Europe, where global investors began the year with a election calendar looming like a sword of Damocles. Ten months later, the Euro Stoxx 50 Index is up 10%, Italy’s FTSE MIB Index is up 17% and Germany’s DAX Index is up 13%. The rally is even stronger when priced in U.S. dollars, with the Euro Stoxx 50 up 23% since the start of the year.

Sure, whatever. I don’t want to kill your dream, and I don’t have to. The dream will kill itself. You’ll hear a monumental ‘POP’ go off, and then you’re back in reality.

 

 

Note: Rembrandt painted the portrait above when he was just 23-24 years old.

 

 

Nov 032016
 
 November 3, 2016  Posted by at 9:46 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle November 3 2016


Lewis Wickes Hine Berrie pickers, Seaford, Delaware. ’17 children and 5 elders live here’ 1910

S&P 500 Logs Longest Losing Streak Since 2011 (CNBC)
EU Plans New Rules To Cap US, UK’s £440bn Per Day Derivatives Business (Ind.)
Vancouver Home Sales Plunge 39% as New Rules Chill Market (BBG)
Clinton Foundation Case Moving Towards “Likely an Indictment” (RCP)
Obama Slams FBI Over New Hillary Clinton Emails (MJ)
Secret Recordings Fueled FBI Feud in Clinton Probe (WSJ)
Senior FBI Officials Were Told Of New Emails In Early October (WaPo)
South Korea’s Out-of-Control Presidential Crisis (CNBC)
UK High Court To Declare If Government Has Right To Trigger Brexit (G.)
Car Makers To Get More In Brexit Subsidies From UK Than They Pay Workers (R.)
Make Finance The Servant, Not The Master (Pettifor)
Western Australia: Masterclass In What Not To Do With A Resources Boom (Con.)

 

 

Long but shallow. There’s another 7 days of suspense. The next bombshell might energize the decline.

S&P 500 Logs Longest Losing Streak Since 2011 (CNBC)

The S&P 500 has fallen in seven straight sessions through Wednesday, the first time the large-cap index has done that since 2011. The last streak also came in a November, culminating with a 0.27% slip on Nov. 25. And while the market’s past can never predict its future, it is notable that the November 2011 seven-session losing streak was immediately followed by a jump of nearly 3%. Yet even amid all of the declines, the S&P has fallen less than 2.5% in the past seven sessions. To put that into context, the market has suffered a greater%age drop on two separate days this year.

And some see a bright side in all the losses. For Frank Cappelleri, a trader and technical analyst at Instinet, the losing streak is a sign that “the [S&P 500] SPX is sequentially oversold and seemingly ready for at least a counter-trend bounce.” However, he added in his Wednesday morning note that since the S&P hasn’t fallen by all that much, “the index doesn’t exactly appear washed out at this stage.” The recent market decline has come as oil has slid, and as Republican Donald Trump’s perceived chances of winning the presidential election have risen. Meanwhile, Wednesday afternoon’s Federal Reserve statement, which could have been the event of the week, delivered little that was unexpected.

Read more …

The insanity of the world of finance. “The loss of euro clearing would cost 100,000 UK jobs..”

EU Plans New Rules To Cap US, UK’s £440bn Per Day Derivatives Business (Ind.)

EU officials have discussed new laws to undermine the UK’s multi-billion pound clearing business after Brexit, London Stock Exchange chief executive, Xavier Rolet told a House of Lords Committee. Financial transactions can currently be cleared anywhere in the world and London has a dominant position in the market, processing £440 billion of trades every day and supporting 100,000 jobs. But the EU is now considering limiting the amount of euro transactions that can be processed outside the EU, so that it can force the industry to move within its borders after Brexit, according to Rolet Millions of euro-denominated transactions are currently cleared in New York, but a cap on US trades is now being considered, so that similar restrictions can be placed on London when it is outside the EU, a move that could fatally undermine the industry.

“I understand that some discussions have already originated in the EU for limiting the ability of US-based clearinghouses to clear euro-denominated securities by capping or somehow restricting their ability to engage meaningfully in their business,“ Rolet said. The loss of euro clearing would cost 100,000 UK jobs, fragment markets and force banks to tie up an extra £70 billion in “margin” or cash to back up trades. That money that could otherwise aid economic growth, Rolet said. If customers decided they cannot wait for the outcome of Britain’s trade negotiations with the EU, then the “whole engine” of clearing across all major currencies in London would be at risk, he added.

Read more …

But prices still rise.

Vancouver Home Sales Plunge 39% as New Rules Chill Market (BBG)

Vancouver home sales plunged 39% in October from a year earlier, the biggest drop since 2010, as new regulations chill Canada’s most expensive property market. Sales in the Pacific coast city fell to 2,233 in the month, from 3,646 a year earlier, the Real Estate Board of Greater Vancouver said Wednesday. That was 15% below the 10-year average for October. The slowdown follows a series of measures aimed at curbing price gains in Vancouver, which topped a list of global cities identified by UBS as most at risk of a housing bubble. The British Columbia government imposed a 15% tax on foreign buyers in August, the city plans to start taxing vacant homes next year and the federal government tightened mortgage insurance eligibility requirements on Oct. 3.

Read more …

If elected, Hillary will have two separate major investigations running against her.

Clinton Foundation Case Moving Towards “Likely an Indictment” (RCP)

BRET BAIER: Here’s the deal: We talked to two separate sources with intimate knowledge of the FBI investigations. One: The Clinton Foundation investigation is far more expansive than anybody has reported so far… Several offices separately have been doing their own investigations. Two: The immunity deal that Cheryl Mills and Heather Samuelson, two top aides to Hillary Clinton, got from the Justice Department in which it was beleived that the laptops they had, after a narrow review for classified materials, were going to be destroyed. We have been told that those have not been destroyed – they are at the FBI field office here on Washington and are being exploited. .

Three: The Clinton Foundation investigation is so expansive, they have interviewed and re-interviewed many people. They described the evidence they have as ‘a lot of it’ and said there is an ‘avalanche coming in every day.’ WikiLeaks and the new emails. They are “actively and aggressively pursuing this case.” Remember the Foundation case is about accusations of pay-for-play… They are taking the new information and some of them are going back to interview people for the third time. As opposed to what has been written about the Clinton Foundation investigation, it is expansive. The classified e-mail investigation is being run by the National Security division of the FBI. They are currently combing through Anthony Weiner’s laptop.

They are having some success – finding what they believe to be new emails, not duplicates, that have been transported through Hillary Clinton’s server. Finally, we learned there is a confidence from these sources that her server had been hacked. And that it was a 99% accuracy that it had been hacked by at least five foreign intelligence agencies, and that things had been taken from that… There has been some angst about Attorney General Loretta Lynch — what she has done or not done. She obviously did not impanel, or go to a grand jury at the beginning. They also have a problem, these sources do, with what President Obama said today and back in October of 2015… I pressed again and again on this very issue… The investigations will continue, there is a lot of evidence. And barring some obstruction in some way, they believe they will continue to likely an indictment.

Read more …

Not particularly presidential.

Obama Slams FBI Over New Hillary Clinton Emails (MJ)

President Barack Obama harshly criticized the FBI’s actions informing Congress about the discovery of new Hillary Clinton emails, suggesting to NowThisNews on Wednesday that the much-criticized letter was outside of law enforcement protocol. “We don’t operate on innuendo,” Obama said in his first remarks since the FBI’s announcement last Friday. “We don’t operate on incomplete information and we don’t operate on leaks. We operate based on concrete decisions that are made. “When this was investigated thoroughly, the last time, the conclusion of the FBI, the conclusion of the Justice Department, the conclusion of repeated congressional investigations was that she had made some mistakes but that there wasn’t anything there that was prosecutable.”

The president also reiterated his support for Clinton and urged young people not to allow the ongoing email investigation affect their votes. “I trust her, I know her,” he said. “I wouldn’t be supporting her if I didn’t have absolute confidence in her integrity and her interest in making sure that young people have a better future.” The interview comes just one day after White House Press Secretary Josh Earnest refused to defend or criticize FBI Director James Comey over the decision. Since the ambiguous letter was released on Friday, the Clinton campaign has accused Comey of improperly interfering with the election, thus benefiting her opponent. “That announcement has allowed for Donald Trump to take advantage of the absence of facts to wildly speculate and lie about Hillary Clinton,” campaign manager Robby Mook said on Monday.

Read more …

Is obstruction of FBI agents equal to obstruction of justice?

Secret Recordings Fueled FBI Feud in Clinton Probe (WSJ)

Secret recordings of a suspect talking about the Clinton Foundation fueled an internal battle between FBI agents who wanted to pursue the case and corruption prosecutors who viewed the statements as worthless hearsay, people familiar with the matter said. Agents, using informants and recordings from unrelated corruption investigations, thought they had found enough material to merit aggressively pursuing the investigation into the foundation that started in summer 2015 based on claims made in a book by a conservative author called “Clinton Cash: The Untold Story of How and Why Foreign Governments and Businesses Helped Make Bill and Hillary Rich,” these people said. The account of the case and resulting dispute comes from interviews with officials at multiple agencies.

Starting in February and continuing today, investigators from the Federal Bureau of Investigation and public-corruption prosecutors became increasingly frustrated with each other, as often happens within and between departments. At the center of the tension stood the U.S. attorney for Brooklyn, Robert Capers, who some at the FBI came to view as exacerbating the problems by telling each side what it wanted to hear, these people said. The roots of the dispute lie in a disagreement over the strength of the case, these people said, which broadly centered on whether Clinton Foundation contributors received favorable treatment from the State Department under Hillary Clinton. Senior officials in the Justice Department and the FBI didn’t think much of the evidence, while investigators believed they had promising leads their bosses wouldn’t let them pursue, they said.

These details on the probe are emerging amid the continuing furor surrounding FBI Director James Comey’s disclosure to Congress that new emails had emerged that could be relevant to a separate, previously closed FBI investigation of Mrs. Clinton’s email arrangement while she was secretary of state. [..] Amid the internal finger-pointing on the Clinton Foundation matter, some have blamed the FBI’s No. 2 official, deputy director Andrew McCabe, claiming he sought to stop agents from pursuing the case this summer. His defenders deny that, and say it was the Justice Department that kept pushing back on the investigation.

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Comey seems to have been prudent.

Senior FBI Officials Were Told Of New Emails In Early October (WaPo)

Senior FBI officials were informed about the discovery of new emails potentially relevant to the investigation of Hillary Clinton’s private email server at least two weeks before Director James B. Comey notified Congress, according to federal officials familiar with the investigation. The officials said that Comey was told that there were new emails before he received a formal briefing last Thursday, although the precise timing is unclear. The information goes beyond the details provided in the letter that Comey sent to lawmakers last week declaring that he was restarting the inquiry into whether Clinton mishandled classified material during her tenure as secretary of state. He wrote in the Friday letter that “the investigative team briefed me yesterday” about the additional emails.

[..] senior officials had been informed weeks earlier that a computer belonging to former congressman Anthony Weiner contained emails potentially pertinent to the Clinton investigation. [..] Comey did not notify Congress as soon as he learned about the emails because officials wanted additional information before proceeding, the officials said. [..] It is unclear what FBI agents have learned since discovering the emails in early October. But officials say they gained enough information from the email metadata to take the next step, seeking a warrant to review the actual emails. That legal step prompted Comey’s letter to Congress, which has made him a central figure during the stretch run of the presidential campaign. “He needed to make an informed decision, knowing that once he made that decision, he was taking it to another level,” an official said.

Soon after the investigators found the new trove of thousands of emails, they notified the separate team of FBI agents in Washington that worked on the probe into Clinton’s private email server, officials said. Comey said in July that the investigation was complete and that he would recommend to prosecutors that no charges be brought. After the agents on the Clinton case were notified in early October about the newly discovered emails, they in turn told FBI leaders about them. At that point, the leaders did not believe they had enough information to make a decision about what to do next, officials said.

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There was a time when this would have been crazier than what happens stateside.

South Korea’s Out-of-Control Presidential Crisis (CNBC)

South Korean President Park Geun-Hye, under fire in what critics are calling the nation’s biggest-ever political scandal, seems to be digging herself into a deeper hole. The President replaced her prime minister, finance minister and public safety minister on Wednesday in an attempt to contain public anger over a spiraling corruption scandal that has hit the ruling Saenuri party. But the surprise cabinet reshuffle may do more harm than good. “Despite her expectations, these snap nominations backfired. Critics angrily charged that the move is part of a strategy to maintain control and does not jive with plans being discussed to form a neutral cabinet with a prime minister empowered to dominant policymaking, with Park taking a back seat,” Scott Seaman, senior Asia analyst at Eurasia, explained in a note.

Opposition parties will now likely use their combined majority in the National Assembly to hinder Park’s attempts to install her candidates, he continued. Furthermore, Park is essentially powerless to ignore their objections given her current fragile standing, he added. Park, 64, faces calls to resign or face impeachment for allowing a close friend, Choi Soon-Sil, to interfere in state affairs. Choi reportedly had access to classified documents without security clearance and was involved in presidential decision making, local media said. Choi, 60, is also accused of embezzlement, forcing conglomerates to make massive donations to nonprofit foundations, and getting preferential treatment from banks for loans.

Read more …

Super Thursday today in Britain.

UK High Court To Declare If Government Has Right To Trigger Brexit (G.)

The lord chief justice is to deliver the high court’s momentous decision on whether parliament or the government has the constitutional power to trigger Brexit. After less than three weeks considering the politically charged case with two other senior judges, Lord Thomas of Cwmgiedd will read out a summary of their decision at 10am on Thursday to a packed courtroom in London’s Royal Courts of Justice. In order to prevent leaks of the market-sensitive ruling, which involves a large number of parties, preliminary drafts of the judgment have unusually not been sent out in advance to the lawyers. The outcome of the case, which ventures into constitutionally untested ground, will resolve whether MPs or ministers have the authority to formally inform Brussels about whether the UK intends to leave the EU.

The legal dispute focuses on article 50 of the treaty on EU, which states that any member state may leave “in accordance with its own constitutional requirements” – an undefined term that has allowed both sides to pursue rival interpretations. The arguments deployed during the three-day hearing last month appear, at the very least, to have reinforced political pressure for parliament to be given a greater role in negotiating Brexit. Whether the high court finds in favour of the claimants or Theresa May’s assertion that the prime minister has power under the royal prerogative to inform Brussels of the UK’s intention to leave, one side or the other is likely to appeal to the supreme court. However, there has been speculation that the government could decide not to appeal if it loses, calculating that enough MPs will feel bound by the result of the referendum to vote to leave the EU. There may be stiffer opposition in the House of Lords.

Read more …

What’s this other than a major step towards universal income?

Car Makers To Get More In Brexit Subsidies From UK Than They Pay Workers (R.)

Compensating carmakers in Britain for any post-Brexit tariffs on exports to Europe could see the government hand the companies more money than they need to pay the salaries of all their British workers, a Reuters analysis of corporate filings shows. Japan’s Nissan said in September it would only commit to new UK investment if it received a guarantee of compensation to offset any such tariffs. Last week, it agreed to build new models in the country after Prime Minister Theresa May assured it the government would provide support to preserve its competitiveness in the EU market after Brexit. The nature of the Nissan deal – which gave Britain a crucial corporate endorsement as it prepares for life outside the European Union – is unknown. The government said there hadn’t been a “detailed and specific” agreement on tariffs.

If Britain does not secure a free-trade deal with the EU, car makers in the country could face export tariffs of 10% – the level the EU imposes on cars imported from outside the bloc. The cost of compensating Nissan, which has £2.9 billion ($3.5 billion) of annual EU exports, would be £290 million a year. That would exceed the company’s British wage bill, which was £288 million in 2015, accounts for Nissan’s main UK operating unit show. The pattern is followed across Britain’s car-making industry. Reuters examined the accounts of eight of the biggest car exporters, including Jaguar Land Rover, Toyota, Bentley, Mini, Rolls-Royce, Aston Martin and Honda, which are all foreign-owned. Their wage bills averaged 7.5% of total operating costs and 7.7% of turnover. This suggests the cost of tariffs on vehicles exported from Britain to the continent – levied at 10% of turnover – would exceed the wages paid to British workers to build those vehicles.

Read more …

Long read by Ann Pettifor on the history of the growth paradigm, and what needs to be done now it’s dead.

Make Finance The Servant, Not The Master (Pettifor)

Before the Second World War the concept of ‘growth’ scarcely existed, as Geoff Tily explains in his PRIME essay On Prosperity, Growth and Finance. “National accounts and measures of national income (the forerunners of GDP) were devised in the 1930s, in the wake of the great depression. Policymakers and economists were preoccupied by getting the economy and financial system to function and addressing a crisis in unemployment. Later in the Second World War economic statistics were needed to try and prevent inflation, given that all resources – especially labour – were fully utilized. Then, later in the Bretton Woods era, full employment was regarded as the proper goal of economic policy-making.” With financial liberalization all this was to change.

Financiers could make extraordinary capital gains from financial speculation – far more than the average industrial capitalist could make in profits. This was largely because financiers can gamble and make gains in money markets without engaging with either the land – in the broadest sense of the word – or labour. Industrial capitalists by contrast have to engage with both land and labour. The substantial capital gains made from speculation by increasingly deregulated financiers were then pitted against the lower profits made by industrial capitalists from investment, employment and output. As financiers became more dominant, competition with industrial capitalists intensified. It is hard to pinpoint the exact timing for the shift of emphasis, but under the surface changes were underway from at least the 1950s.

The pressure on industrial capital was applied by both the finance sector, but also by friends in the economics profession, and in particular economic commentators. The latter began to reframe the key concept of levels of economic activity, and invented the term growth. Growth follows the trajectory of capital gains more closely than it follows that of more volatile profits. Capital gains – like those made from winning the lottery – can rise exponentially (until they crash). Profits rise and fall as capitalists battle the land and labour. In the UK one of the most prominent campaigners for the concept of ‘growth’ was Samuel Brittan of the Financial Times: he proudly identified himself as a ‘growthman’. At a time of full employment, he and other economists castigated the government (and industry) for what they regarded as an economy less profitable or dynamic than that seen in other countries.

To apply pressure on those active in the real economy, they had to raise the bar of economic expectations. Full employment was not a sufficient goal. It was to be abandoned. The concept of growth was subsequently adopted as the goal of all economy policy by the newly-founded OECD in 1961. In that year the organisation agreed an extraordinary fifty per cent growth target for the whole of the 1960s, as Tily explains: The aim of fixing the level of employment and output to sustainable levels had been abandoned. Instead the world had officially been set a systematic and improbable target: to chase growth. Nobody seems to have paused to consider whether growth derived as the rate of change of a continuous function was a meaningful or valid way to interpret changes in the size of economies over time.”

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Transferring back into a wasteland.

Western Australia: Masterclass In What Not To Do With A Resources Boom (Con.)

Every policymaker in Australia should be made to read Paul Cleary’s excellent analysis of the way Norway handled its boom: Trillion Dollar Baby. The experience could hardly be more different and the comparison would be laughable were it not for the fact that future generations will come to rue the folly and myopia of our current leaders. The key lesson that emerges from Cleary’s analysis is that even small states can have a big say in determining what happens to the windfall revenues booms generate – but only if they understand what is happening at present and have a plan for the long-term future of the country. Norway had both. First, they had a capable government and skilled bureaucrats (yes, they are valuable and important) who quickly realised that Norway’s oil boom had to be managed for the benefit of Norway, not the multinational oil companies.

This meant not being intimidated by powerful multinational corporations and recognising the inherent bargaining strength of national governments. You can only exploit resources where they are. Host governments can – and should – determine how they are developed. In contrast to successive state and federal governments in Australia, this is precisely what the Norwegians did. Firstly, they compelled the oil majors to build their required oil platforms in Norway, developing a world class manufacturing capability in the process. Secondly, and in another unflattering and revealing contrast to Australia, they ensured 90% of the windfall revenues derived from the oil boom in Norway remained there.

Norway’s “problem”, unlike ours, has been what to do with the astounding amounts of wealth generated as a direct consequence of its activist and enlightened policies. A third critical innovation was establishing a sovereign wealth fund. Sovereign wealth funds serve two purposes. First, they put aside the windfall revenues of today for future generations – a possibility our own leaders seem incapable of contemplating given their truncated political horizons. Second, by investing most of the wealth overseas, they put downward pressure on the domestic currency, allowing other domestic industries to survive. At a time when we are collectively waving farewell to much of the manufacturing sector, this is another sobering lesson – especially for the young who will not benefit from all that squandered wealth and may wonder where they will actually work.

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Jul 182016
 
 July 18, 2016  Posted by at 8:54 am Finance Tagged with: , , , , , , , , , ,  


Arthur Rothstein General store and railroad crossing, Atlanta, Ohio 1938

Ireland Hits Brexit Alarm in Biggest Foreign Crisis in 50 Years (BBG)
Yuan Declines to 2010 Low as Property Prices Slow, Dollar Rises (BBG)
Goodbye Lenin, Hello Bernanke (ABC.au)
Stocks and Bonds Are on a Collision Course (DR)
Bubbles in Bond Land (David Stockman)
Chinese Cities’ Expansion Plans Could House 3.4 Billion People (BBG)
Slowing China Home Price Rises Add To Doubts About Economy (R.)
Under-35s Could Be The First Generation To Earn Less Than Their Parents (DM)
Boom to Bust (Salt)
Justice Department ‘Uses Aged Computer System To Frustrate FOIA Requests’ (G.)
MH-17: Russia Convicted By Propaganda (PCR)
Donald Trump’s Ghostwriter Tells All (New Yorker)
Six Wealthiest Countries Host Less Than 9% Of World’s Refugees (G.)
20 Migrants Dead, 366 Saved From Boats In Mediterranean (NW)

 

 

Huh? Didn’t Ireland grow 26% just last week?

Ireland Hits Brexit Alarm in Biggest Foreign Crisis in 50 Years (BBG)

The prime minister is under pressure, economists are slashing growth forecasts and companies are warning of Brexit’s dire consequences. London? No, Dublin. The intertwining of trade and finance means no other country is feeling the fallout from the U.K.’s vote to leave the European Union more than Ireland. In the year the Irish marked the centenary of their uprising against British rule, the country remains at the mercy of the unfolding drama in its closest neighbor. “It’s the most serious, difficult issue facing the country for 50 years,” said John Bruton, 69, who was Irish prime minister between 1994 and 1997 and later served as the EU’s ambassador to the U.S.

Exporters have warned the plummeting pound will erode earnings and economic growth, just as a recovery had taken hold after the 2010 international bailout that followed the banking meltdown. Irish shares have declined, not least because the U.K. is the top destination for the country’s exports after the U.S. and the biggest for its services. Meantime, Prime Minister Enda Kenny is fending off demands by Northern Irish nationalists for a reunification poll as he comes to terms with the loss of a key EU ally and plotters from his own party try to topple him. Then there’s the future of the U.K.’s only land border with the EU. “The consequences are mind-boggling,” said Eoin Fahy, chief economist at Kleinwort Benson Investors in the Irish capital.

Britain and Ireland joined the European Economic Community in 1973. Ireland was drawn in part to escape what one politician called “our gate-lodge attitude towards England.” More than four decades later, the two countries remain woven together economically as well as culturally and linguistically. Ireland uses the euro, yet does about $45 billion of trade with the U.K. About 380,000 Irish citizens living in Britain were eligible to vote in the Brexit referendum. Britain also chipped in for Ireland’s bailout six years ago, despite not being part of the euro region. When Theresa May took over as British prime minister last Wednesday, Kenny was among three leaders she spoke to, along with Germany’s Angela Merkel and Francois Hollande of France.

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Bloomberg should simply say: “The yuan fell, and we have no idea why”.

Yuan Declines to 2010 Low as Property Prices Slow, Dollar Rises (BBG)

China’s yuan fell to the weakest level since 2010, pulled down by cooling property prices, a dollar rebounding on haven demand and a weaker central bank fixing. New home prices rose in fewer cities in June compared with a month earlier, according to official data released Monday, blunting optimism prompted by last week’s figures showing forecast-beating economic growth. The monetary authority weakened the yuan’s daily fixing to the lowest since 2010 after the dollar strengthened Friday following a coup attempt in Turkey.

The greenback was supported on Monday also as China said it would hold military exercises in the South China Sea. “The dollar strengthened as orders to buy the currency jumped, pressuring the yuan and the rest of Asian currencies lower,” said Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia. “There’s news that China will hold military exercises in the South China Sea later this month,” which could spur some haven-demand for the greenback.

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Lookalike contest.

Goodbye Lenin, Hello Bernanke (ABC.au)

Maybe it’s just me, but have you noticed the striking similarity between Vladimir Lenin and Ben Bernanke lately? Superficially, there’s the obvious physical resemblance; whippet build, glabrous pate, facial hair and a penchant for stylish, if somewhat conservative, garb. More significantly, both appear to harbour the same ideological distrust of free markets or, at the very least, a burning desire to control them as much as possible. Separated by almost a century, both men have made it a lifelong ambition to impose state control over the economy. And it has to be said, while Vladimir Ilyich Ulyanov Lenin achieved significant success in spreading the word from Russia through developing nations, he and his successors never quite got across the line when it came to the so-called free world.

Maybe it was his reputation as a firebrand, an over-reliance on bloody revolution by force and the frightening prospect – for the ruling elite at least – that wealth would be redistributed to the poor. Enter Ben Bernanke. In the space of a mere eight years, the former Federal Reserve chief has managed to achieve what Vladimir could barely conceive. He’s convinced the United States of America, the United Kingdom, Japan and Europe to embark on a revolutionary journey to completely subvert free market instincts. Unlike his Russian predecessor, Ben has opted for the calm, congenial exterior of Central Banker from Central Casting, complete with a mogadon monotone designed to lull his audience into a state of torpor.

He’s also wisely decided to modify the wealth distribution bit. As western governments have raided the kitty, plunging themselves into an ocean of debt, much of the proceeds have flowed directly into asset markets – stocks, bonds and property – which has helped maintain the flow of wealth towards the wealthy. Brilliant! Last week, Ben was in Japan. And that got twitchy fingered traders across the globe all hot under the collar. Ben, after all, is the man who pioneered the implementation of “unorthodox monetary policy”.

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“Bond markets are signaling something very nasty coming down the road at us — an all-encompassing, worldwide deflation.”

Stocks and Bonds Are on a Collision Course (DR)

One of the following is correct: A) The stock market is lying. B) The bond market is lying. They both can’t be true. Consider: The stock market has sprung to record highs this week. Shocking, given the world was coming to an end after Brexit. But it’s true. Both the S&P and the Dow eclipsed previous records this week. What does that normally indicate? A rollicking economy in high gear, stability, investor belief in the future. Maybe some “healthy” inflation into the bargain. Now consider: Bonds are also trading at record highs. Meaning yields are at historic lows (prices and yields move in opposite directions – the higher the price, the lower the yield, and vice versa). Yields on 10-year Treasuries plunged to all-time lows this month. Same with 30-year Treasuries.

That would normally signal an economy on the brink of ruin and investors panicking into government bonds. It also means deflation of the hide-the-women-and-children variety. TheTelegraph: “Bond markets are signaling something very nasty coming down the road at us — an all-encompassing, worldwide deflation.” Two completely different narratives. One wrong, one right. Someone’s in for a nasty shock – and probably soon. Says analyst William Koldus, founder of The Contrarian: The tug of war between inflationary and deflationary assets is likely to be resolved in 2016. Either U.S. stock prices, which have been an outlier to the upside, are wrong, and a significant correction awaits stock investors, or U.S. bond prices, and global sovereign bond yields, which have priced in a significant deflationary head wind, are wrong, and safe-haven bondholders are set for losses.

Who’s the jury to believe? Generally, the bond market. As Neil Irwin of The New York Times explains, “Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.” Here he dumps more rain on the parade: “And right now, if the bond market is correctly predicting the economic path ahead, we should all be terrified.”

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“Surely, BOJ Governor Kuroda will go down in history as the stupidest central banker of all-time.”

Bubbles in Bond Land (David Stockman)

Last year Japan lost another 272,000 of its population as it marches steadily toward its destiny as the world’s first bankrupt old age colony. At the same time, the return on Japan’s 40-year bond during the last six months has been an astonishing 48%. That’s right! We aren’t talking Tesla, the biotech index or the FANGs. To the contrary, like the rest of the Japanese Government Bond (JGB) yield curve, this bond has no yield and no prospect of repayment. But that doesn’t matter because it’s not really a sovereign bond, anyway. It has actually morphed into a risk free gambling chip. Leveraged front-runners are scooping up whatever odds and sots of JGBs that remain on the market and are selling them to the Bank of Japan (BOJ) at higher, and higher and higher prices.

At the same time, these punters face virtually no risk. That’s because the BOJ already owns 426 trillion yen of JGBs, which is nearly half of the bonds outstanding. And it is buying up the rest at a rate of 80 trillion yen per year under current policy, while giving every indication of sharply stepping up its purchase rate as it segues to outright helicopter money. It can therefore be well and truly said that the BOJ is the ultimate roach motel. Virtually every scrap of Japan’s gargantuan public debt will go marching into its vaults never to return, and at “whatever it takes” bond prices to meet the BOJ’s lunatic purchase quotas. Surely, BOJ Governor Kuroda will go down in history as the stupidest central banker of all-time.

But in the interim the man is contributing — along with Draghi, Yellen and the rest of the central bankers guild — to absolute mayhem in the global fixed income market. That’s because these fools have succeeded in unleashing a pincer movement among market participants that is flat-out suicidal. That is, the leveraged fast money gamblers are chasing prices ever higher as sovereign bonds become increasingly scarce. At the same time, desperate bond fund managers, who will lose their jobs for just sitting on cash, are chasing yields rapidly lower on any bond that still has a positive current return. This is the reason the 30-year U.S. treasury bond has produced a 22% return during the last six months. To say the least, that’s not shabby at all considering that its current yield is just 2.25%.

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Want to see a real housing crisis?

Chinese Cities’ Expansion Plans Could House 3.4 Billion People (BBG)

New areas planned by China’s small cities could accommodate 3.4 billion people by 2030 – or almost half the world’s current population – a target that even Chinese state media calls problematic. A report by the National Development & Reform Commission, China’s central planning agency, found that small- and medium-sized cities were planning more than 3,500 new areas that could accommodate more than twice the country’s current population of 1.4 billion. The entire world has a population of 7.4 billion, according to U.S. Census estimates. The findings were detailed in an analysis by the official Xinhua News Agency, which criticized the planned new areas as unworkable: “Who’s going to live in them? That’s a problem,” the piece said.

The expansion comes amid urbanization calls by President Xi Jinping and Premier Li Keqiang as China prepares for another 100 million people to move from the countryside to urban metropolises by the end of the decade. People tend favor bigger markets with more opportunities and fewer than 1-in-10 migrant workers moved to small cities last year, according to an NDRC report published in April. Even without the new areas, China already has more housing than it needs and “ghost cities” have proliferated. China has been building more than 10 million new units annually for the past five years, outstripping an estimated of demand of less than 8 million, according to an analysis by Bloomberg Intelligence Economists Tom Orlik and Fielding Chen.

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Look, Reuters, there comes a point where things like “..a construction-led rebound in the economy may not be sustainable..” become meaningless. We reached that point quite a while ago.

Slowing China Home Price Rises Add To Doubts About Economy (R.)

Home price rises in China slowed in June for a second straight month, adding to fears that a construction-led rebound in the economy may not be sustainable. The property market is a key driver of the world’s second-largest economy and a robust recovery in home prices and sales gave a stronger-than-expected boost to activity in the first half of the year. But slowing price growth in smaller cities and cooling property investment show the bounce may already be fading, raising the risk of weaker economic growth in coming months. Home prices in China’s 70 major cities rose 7.3% in June from a year earlier, an official survey showed on Monday, accelerating from a 6.9% rise in May.

To be sure, some of the biggest cities showed eye-popping gains on a yearly basis, with prices in the southern boomtown of Shenzhen up 46.7% and Shanghai up 27.7%. Gains on a monthly basis continued to slow, however, as cities tightened policies amid fears of a housing price bubble. The monthly rise slowed slightly to 0.8% in June, easing from 0.9% in May, according to a Reuters calculation based on data issued by the National Bureau of Statistics (NBS). “We continue to expect the property rebound to subside and property investment growth to fall in the second half of the year,” economists at Nomura said in a note, predicting sales would stabilize and a large glut of unsold homes would keep pressure on prices in some areas.

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Stupidest term in a long time: “generational pay progress”.

Under-35s Could Be The First Generation To Earn Less Than Their Parents (DM)

Millennials could become the first generation to earn less than their predecessors, analysis by a think-tank has found. The Research Foundation found that under-35s have been hit hardest by the recent pay squeeze and earned £8,000 less during their 20s than a typical person in the previous generation – known as generation X. The finding comes just days after new Prime Minister Theresa May warned of a ‘growing divide between a more prosperous older generation and a struggling younger generation’. The report, which comes as the thank-tank launches its Intergenerational Commission, warns that a post-Brexit downturn could depress millennials’ wages further.

The Intergenerational Commission report states that while some of the pay squeeze is down to millennials entering the job market as the recession hit, it also found generational pay progress had actually stopped before the 2007/08 financial crash. If the future pay of millennials follows the path of generation X, that would reduce their lifetime earnings to around £825,000 – making them the first ever generation to earn less than their predecessors over the course of their working lives. The comparable figure for Generation X is around £832,000. Even if their wages followed a more optimistic path and improved rapidly like their baby boomer parents, their lifetime earnings would be around £890,000. This would be just 7% more than generation X and a third of the size of the pay progress that generation X are set to enjoy over the baby boomers.

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“Boomers got the Pill, free love, free education and easy jobs. Gen X got AIDS, HECS and the GFC.”

Boom to Bust (Salt)

I feel sorry for Generation X, those of you born between 1965 and 1983 and who are now straddling the load-bearing years of the late 30s and 40s. There is no escaping the big responsibilities at this time in the life cycle. At this very moment, Xers are raising families and paying taxes and working flat out… and yet nary a peep from this lot does anyone hear. It’s all about the baby boomers, and if it’s not about the baby boomers and their interminable retirement woes then it’s all about their gifted Generation-Y children. Are we paying you enough, Gen Y? Is anyone being mean to you? Can I get you a pillow? You do realise that I am a Generation Xer, trapped inside a baby boomer body. The reason I feel sorry for the Xers is that they’re always in the wrong place at the wrong time.

Xers are the pissed-off generation. They are heartily sick of baby boomers and their cultural chest-beating. Yes, boomers, we know it was you who saved humanity from the Vietnam War. Yes, we know you discovered free love in the 1960s. No one had thought of sex prior to that, had they? This is what I mean about being pissed off. Baby boomers got the Pill and free love when they were coming of age. But what did older Xers get when they passed through their teens and 20s? The 1980s. Out went the concept of free love; in came the mortal threat of HIV-AIDS. Kind of puts a dampener on the sex thing, don’t you think?

Boomers got fee-free university education courtesy of Gough Whitlam. When did most Xers go to uni? Oh, that’d be after 1989, when we decided fee-free tertiary education was unsustainable and in came HECS. When did many Xers enter the workforce? Oh, that’d be in the early 1990s, when unemployment peaked at nearly 12 per cent. And then they worked for baby boomer managers, biding their time, pacing, scheming, forever waiting for the boomers to let go of the reins. And when was it that baby boomer management let go of the reins? Oh, that’d be around the time of the global financial crisis. “Here you go Xers, it’s your turn now. We’re off on a Rhine River cruise. Make sure you pay your taxes. Bye.”

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If the Department of Justice won’t obey the law, what do you get?

Justice Department ‘Uses Aged Computer System To Frustrate FOIA Requests’ (G.)

A new lawsuit alleges that the US Department of Justice (DoJ) intentionally conducts inadequate searches of its records using a decades-old computer system when queried by citizens looking for records that should be available to the public. Freedom of Information Act (Foia) researcher Ryan Shapiro alleges “failure by design” in the DoJ’s protocols for responding to public requests. The Foia law states that agencies must “make reasonable efforts to search for the records in electronic form or format”. In an effort to demonstrate that the DoJ does not comply with this provision, Shapiro requested records of his own requests and ran up against the same roadblocks that stymied his progress in previous inquiries.

A judge ruled in January that the FBI had acted in a manner “fundamentally at odds with the statute”. Now, armed with that ruling, Shapiro hopes to change policy across the entire department. Shapiro filed his suit on the 50th anniversary of Foia’s passage this month. Foia requests to the FBI are processed by searching the Automated Case Support system (ACS), a software program that celebrates its 21st birthday this year. Not only are the records indexed by ACS allegedly inadequate, Shapiro told the Guardian, but the FBI refuses to search the full text of those records as a matter of policy. When few or no records are returned, Shapiro said, the FBI effectively responds “sorry, we tried” without making use of the much more sophisticated search tools at the disposal of internal requestors.

“The FBI’s assertion is akin to suggesting that a search of a limited and arbitrarily produced card catalogue at a vast library is as likely to locate book pages containing a specified search term as a full text search of database containing digitized versions of all the books in that library,” Shapiro said.

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Will be a big story again when Holland produces its ‘objective’ report. Which has lost all credibility way before publication.

MH-17: Russia Convicted By Propaganda (PCR)

Today is the second anniversary of the downing of Malaysia Airlines Flight 17, and we still do not know the explanation. Washington and its European vassal politicians and media instantly politicized the event: The Russians did it. End of story. After 15 months of heavy anti-Russian propaganda had imprinted the message on peoples’ minds, the Dutch Safety Board issued its inconclusive report. By then, it was irrelevant what the report said. Everyone already knew that “the Russians did it.” I remember when pre-trial media accusations resulted in dismissed cases. Anyone declared guilty prior to presentation of evidence and conviction was considered to have been convicted in advance and unable to receive a fair trail. Such cases were dismissed by judges.

Washington’s story never made any sense. Neither Russia nor the separatists in the Donetsk region had any reason to shoot down a Malaysian airliner. In contrast Washington had enormous incentives as Washington’s propaganda machine could place the blame on Russia and use the incident to compel European governments to accept Washington’s sanctions placed on Russia. It worked for Washington. Washington successfully used the incident to wreck Europe’s political and economic relationships with Russia. Four months into the anti-Russian propaganda campaign, a website called Bellingcat, claiming to be an open source site for citizen journalists, but which could be a MI-5, MI-6, or CIA front, issued a report that the Buk missile was fired by a Russian unit, the 53rd Buk Brigade, based in the Russian city of Kursk.

This allegation exposed the propaganda for what it is. Whereas it is possible that separatists unfamiliar with the Buk weapon system could accidentally shoot down a civilian airliner, it is not possible for a Russian military unit to make such a mistake. Moreover, it is unclear why separatists or the Ukrainian government would have any reason to use Buk missiles in their conflict. The separatists have no air force. The Ukrainians attack the separatists at ground level with ground attack aircraft and helicopters, not with high altitude bombing. The Buk missile is a high altitude missile. The only way the separatists could have acquired Buk missiles is by overrunning and capturing Ukrainian positions that for unfathomed reasons had deployed Buk missiles.

It seems to me that if a Buk missile was present in the conflict area, it was moved there for a reason unrelated to the conflict. A European air traffic controller said that MH-17 and the airliner carrying Russian President Vladimir Putin were initially on the same course. Possibly Washington and its vassal in Kiev thought MH-17 was Putin’s plane and destroyed the Malaysian flight by mistake.

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Brought to you by the Clinton Foundation: “I put lipstick on a pig,” he said. “I feel a deep sense of remorse that I contributed to presenting Trump in a way that brought him wider attention and made him more appealing than he is.” He went on, “I genuinely believe that if Trump wins and gets the nuclear codes there is an excellent possibility it will lead to the end of civilization.”

Donald Trump’s Ghostwriter Tells All (New Yorker)

Last June, as dusk fell outside Tony Schwartz’s sprawling house, on a leafy back road in Riverdale, New York, he pulled out his laptop and caught up with the day’s big news: Donald J. Trump had declared his candidacy for President. As Schwartz watched a video of the speech, he began to feel personally implicated. Trump, facing a crowd that had gathered in the lobby of Trump Tower, on Fifth Avenue, laid out his qualifications, saying, “We need a leader that wrote ‘The Art of the Deal.’ ” If that was so, Schwartz thought, then he, not Trump, should be running. Schwartz dashed off a tweet: “Many thanks Donald Trump for suggesting I run for President, based on the fact that I wrote ‘The Art of the Deal.’ ”

Schwartz had ghostwritten Trump’s 1987 breakthrough memoir, earning a joint byline on the cover, half of the book’s five-hundred-thousand-dollar advance, and half of the royalties. The book was a phenomenal success, spending forty-eight weeks on the Times best-seller list, thirteen of them at No. 1. More than a million copies have been bought, generating several million dollars in royalties. The book expanded Trump’s renown far beyond New York City, making him an emblem of the successful tycoon. Edward Kosner, the former editor and publisher of New York, where Schwartz worked as a writer at the time, says, “Tony created Trump. He’s Dr. Frankenstein.”

Starting in late 1985, Schwartz spent eighteen months with Trump—camping out in his office, joining him on his helicopter, tagging along at meetings, and spending weekends with him at his Manhattan apartment and his Florida estate. During that period, Schwartz felt, he had got to know him better than almost anyone else outside the Trump family. Until Schwartz posted the tweet, though, he had not spoken publicly about Trump for decades. It had never been his ambition to be a ghostwriter, and he had been glad to move on. But, as he watched a replay of the new candidate holding forth for forty-five minutes, he noticed something strange: over the decades, Trump appeared to have convinced himself that he had written the book. Schwartz recalls thinking, “If he could lie about that on Day One—when it was so easily refuted—he is likely to lie about anything.”

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While being responsible for 91% of them fleeing in the first place.

Six Wealthiest Countries Host Less Than 9% Of World’s Refugees (G.)

The six wealthiest countries in the world, which between them account for almost 60% of the global economy, host less than 9% of the world’s refugees, while poorer countries shoulder most of the burden, Oxfam has said. According to a report released by the charity on Monday, the US, China, Japan, Germany, France and the UK, which together make up 56.6% of global GDP, between them host just 2.1 million refugees: 8.9% of the world’s total. Of these 2.1 million people, roughly a third are hosted by Germany (736,740), while the remaining 1.4 million are split between the other five countries. The UK hosts 168,937 refugees, a figure Oxfam GB chief executive, Mark Goldring, has called shameful.

In contrast, more than half of the world’s refugees – almost 12 million people – live in Jordan, Turkey, Palestine, Pakistan, Lebanon and South Africa, despite the fact these places make up less than 2% of the world’s economy. Oxfam is calling on governments to host more refugees and to do more to help poorer countries which provide shelter to the majority of the world’s refugees. “This is one of the greatest challenges of our time yet poorer countries, and poorer people, are left to shoulder the responsibility,” said Mark Goldring, chief executive of Oxfam GB. “It is a complex crisis that requires a coordinated, global response with the richest countries doing their fair share by welcoming more refugees and doing more to help and protect them wherever they are.

“Now more than ever, the UK needs to show that it is an open, tolerant society that is prepared to play its part in solving this crisis. It is shameful that as one of the richest economies the UK has provided shelter for less than 1% of refugees.”

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Look away.

20 Migrants Dead, 366 Saved From Boats In Mediterranean (NW)

Rescuers saved 366 migrants from rickety boats trying to cross the Mediterranean to Italy but at least 20 people were reported to have drowned, Italian police said on Saturday. The survivors, who were rescued in four separate operations, were crammed onto three rubber dinghies and a wooden fishing boat. They were all taken to the Sicilian port of Augusta, where they were questioned on Friday evening by the Italian police unit Interforce, which combats illegal immigration.

The Norwegian ship Siem Pilot went to the aid of one dinghy that sank in the Sicilian Channel, but many migrants were already in the sea when it arrived, Antonio Panzanaro, an Interforce official, told Reuters. One corpse was recovered but survivors said that at least 20 people had drowned before the ship arrived, he said. There were 82 women and 25 children among the 366 people rescued, he said. The survivors were mainly from Nigeria, Ethiopia, Eritrea and Bangladesh. Seven people were arrested from the four boats, including their drivers, on suspicion of people-trafficking, he said.

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Jun 032016
 
 June 3, 2016  Posted by at 8:17 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing Happy News Cafe, “restaurant for the unemployed”, Washington, DC 1937

Bill Gross: Capitalism Doesn’t Work At 0% (CNBC)
Negative-Yielding Sovereign Debt Tops $10 Trillion (WSJ)
Japan’s Sovereign Debt Burden Is Quietly Falling the Most in the World (BBG)
Explosion in Quasi-Sovereign Bond Issuance Is Making Analysts Queasy (BBG)
US-China Trade Troubles Grow (WSJ)
One Third Of Americans Are ‘Just Getting By’ (NY Times)
OECD Sees ‘Dramatic And Destabilising’ End To Australia Property Boom (AFR)
Fed Likely To Avoid Rate Hike Before Britain Votes On Leaving EU (R.)
Draghi Insists ECB Stimulus Only Half Done (BBG)
Bank of France Cuts Inflation Outlook, 2017 GDP Forecast (WSJ)
Bundesbank Cuts German GDP Forecasts On Weaker Export Demand (R.)
President Obama, Pardon Edward Snowden and Chelsea Manning (G.)
Facial Recognition Will Soon End Your Anonymity (MW)
The Fat Lady Always Sings Twice (Jim Kunstler)
Fewer Than 500 of 163,000 Migrants Find Jobs In Sweden (BB)
Corruption Gripes Help Five Star Movement Top Italy Local Election Polls (G.)
US Announces Near-Total Ban On Trade Of African Elephant Ivory (AFP)

Central bankers seem to think it does, though.

Bill Gross: Capitalism Doesn’t Work At 0% (CNBC)

Bill Gross has some bad news for investors. In his June investment outlook released Thursday, the widely followed bond fund manager contended that bond and stock returns realized in the last 40 years are “a grey if not black swan event that cannot be repeated.” Investors should not expect 7% returns on bonds or returns in the high single digits or double digits on stocks, Gross told CNBC on Thursday. “The markets are entirely different and it would pay to travel to Mars as opposed to stay on Earth, because the returns here are very, very low,” the manager of the Janus Capital Unconstrained Bond Fund, said on CNBC’s “Power Lunch”. Gross said easy central bank policy could hold down bond returns. Central banks in Europe and Japan have adopted negative interest rates, while the Federal Reserve’s target rate is at 0.25 to 0.50%.

German and Japanese 10-year bonds currently have negative yields, while their 30-year bonds yield less than 1%. The U.S. 10-year Treasury note yield sat around 1.8% Thursday. Gross contended those rate trends can hurt not only savers but also the broader economy. He said Fed policymakers, who have signaled they could hike rates at least once this year, realize they need to normalize policy. “Ultimately, they have to move back up and I think a certain number of Fed governors realize that the normalization process is necessary in order to save business models and to save capitalism basically because capitalism doesn’t work at 0% and it doesn’t work at negative interest rates,” he said.

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Negative bonanza.

Negative-Yielding Sovereign Debt Tops $10 Trillion (WSJ)

The amount of global sovereign debt with negative yields surpassed $10 trillion for the first time in May, according to Fitch Ratings. The measure stood at $10.4 trillion on May 31, up 5% from $9.9 trillion on April 25, when the rating agency last measured the amount, according to a Thursday report. It is spread across 14 countries, with Japan by far the largest source of negative-yielding bonds. Of the total, $7.3 trillion was long-term debt and $3.1 trillion was short-term debt.

The amount of debt with yields below zero has increased sharply this year as global central banks have instituted unconventional policy measures, such as negative interest rates. The Bank of Japan in January surprised markets by driving its rates below zero, pushing Japanese government-bond yields sharply lower. Banks in the euro currency bloc have also increased demand for government debt to meet regulatory requirements, another factor weighing on yields, Fitch said. “Higher amounts of Japanese and Italian sovereign securities with sub-zero yields were the biggest contributors to the monthly changes,” said Fitch analysts, led by Robert Grossman.

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Because it’s shifting into private hands. The BOJ buys it all. Which allows the government to keep on borrowing with abandon.

Japan’s Sovereign Debt Burden Is Quietly Falling the Most in the World (BBG)

Japan for years has been renowned for having the world’s largest government debt load. No longer. That’s if you consider how the effective public borrowing burden is plunging – by one estimate as much as the equivalent of 15 percentage points of GDP a year, putting it on track toward a more manageable level. Accounting for the Bank of Japan’s unprecedented government bond buying from private investors, which some economists call “monetization” of the debt, alters the picture. Though the bond liabilities remain on the government’s balance sheet, because they aren’t held by the private sector any more they’re effectively irrelevant, according to a number of analysts looking at the shift. “Japan is the country where public debt in private hands is falling the fastest anywhere,” said Martin Schulz at Fujitsu Research Institute in Tokyo.

While Japan’s estimated gross government debt is now over twice the size of the economy, according to Schulz’s calculations using BOJ data, the shuffle of holdings from private actors like banks and households to the central bank is having a big impact. It means debt in private hands will fall to about 100% of GDP in two to three years, from 177% just before Prime Minister Shinzo Abe took power in late 2012, he estimates. It’s not like Japan is slowing down on borrowing. Abe’s administration is now laying the groundwork for another burst of fiscal stimulus, which could be funded by selling bonds. He also announced Wednesday a delay to a sales tax hike planned for April 2017, rebuffing fiscal hawks who argued it was vital to raise revenue.

Finance Minister Taro Aso explained Tuesday that “the biggest problem is that private consumption hasn’t risen,” making now not a good time to raise the levy. Helping improve household sentiment could be one reason for making it explicit that at least some of the government bonds in the BOJ’s holdings will be written off. If Japanese consumers understand they’re not on the hook for all the gross debt outstanding, their mood could potentially perk up.

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What can we say but: Anything Goes!

Explosion in Quasi-Sovereign Bond Issuance Is Making Analysts Queasy (BBG)

Which fixed-income asset class is growing fast, outperforms similar debt issues, and rarely defaults? Emerging market ‘quasi-sovereign’ bonds, of course! At some $600 billion, debt sold by state-supported companies in emerging markets ranging from China to Oman has surpassed the amount of emerging market government debt outstanding, according to a new note from Bank of America Merrill Lynch. Such quasi-sovereign debt issuance has helped propel the stunning growth of the overall bond market, with EM issuance accounting for 47% of the growth in global debt between 2007-14, compared to 22% in the previous seven years, according to S&P Global Ratings.

But the surge in ‘quasi’ bonds is making some feel, well, queasy. “Quasi-sovereigns are effectively a ‘contingent liability’ for a country,” write the BofAML analysts, led by Kay Hope. They note that quasi-sovereign issuance now makes up half of the $1.6 – 1.8 trillion euro- and dollar-denominated corporate bond market for emerging markets, which could put added pressure on strained emerging market coffers.

China, with its lumbering state-owned enterprises, accounts for a full quarter of this kind of debt — despite the Chinese sovereign itself lacking virtually any foreign-denominated bonds. Meanwhile, the amount of debt from Brazilian quasi-sovereigns has nearly quadrupled, according to BofAML, while that sold by Mexico’s state-owned companies has just about doubled. Much of the growth has been driven by companies in the energy and commodities sectors, with giants of industry including Pemex, Petrobras, China National Offshore Oil and Gazprom all tapping the market in recent years.

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There’s going to be trouble.

US-China Trade Troubles Grow (WSJ)

The U.S. and China, facing mounting political pressures at home, are seeing economic tensions flare to their worst point in years over currency and trade practices. China has pushed the yuan to a five-year low against the dollar, reviving charges from American firms of currency manipulation to gain a competitive advantage for Chinese goods. The Obama administration has fired off a series of trade complaints and levied duties on several Chinese industries, from chicken feet to cold-rolled steel used in appliances and auto parts. The friction between the world’s two largest economies could worsen as domestic politics collide with already weak growth.

The U.S., seeing heightened anti-China rhetoric in the presidential election, wants China to press ahead with promised policies to open up its markets and allow greater international investment. Chinese leaders, worried about a deeper economic slowdown, are trying to keep factories humming and prevent the kind of market unrest that gripped global investors over the past year. [..] Some analysts think President Xi Jinping, wanting to consolidate power in the Communist Party ahead of a leadership transition next year, has paused reform efforts and instead is revving up the old playbook of credit-fueled growth and infrastructure spending. His aim: Ensure economic stability and mollify rivals, they say.

An attempt last year by Beijing to allow markets to play a role in setting its exchange rate was mismanaged, adding to a summertime of woe for China’s financial markets and sparking global jitters. The reaction surprised Chinese officials and created a headache for reformers. The Chinese government is keeping steel mills, coal plants and a host of manufacturing industries afloat despite dwindling demand and a tumble in commodity prices that should have closed many. [..] By supporting excess production capacity, the Chinese government is “engaged in economic warfare against the U.S.,” said John Ferriola, chief executive of North Carolina steel giant Nucor Corp. “Thousands of hardworking Americans have lost their jobs because of these illegal, unfair trade practices.”

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“..nearly half of all respondents said they could not cover an unexpected expense of $400..”

One Third Of Americans Are ‘Just Getting By’ (NY Times)

In the United States, nearly one-third of adults, about 76 million people, are either “struggling to get by” or “just getting by,” according to the third annual survey of households by the Federal Reserve Board. That finding, dismal though it is, represents a mild improvement in general well-being last year, compared with the two years before. The improvement, however, was clearly too little to raise Americans’ spirits: The new survey, which was conducted in late 2015 and released last week, also shows that optimism about the future has tempered. The Fed policy committee should take the survey to heart when it meets this month to decide whether to raise interest rates.

Higher rates are a way to slow an economy that is at risk of overheating – a far-fetched proposition when tens of millions of Americans are barely hanging in there. Congress and other economic policy makers, as well as the presidential candidates, could also use the survey to get some insight into Americans’ real economic problems. Among them is deep insecurity. Nearly 70% of adults said they were “living comfortably” or “doing O.K.” — up a bit from previous years — but nearly half of all respondents said they could not cover an unexpected expense of $400, or could do so only by selling something or borrowing money. Americans seeking a path upward through education are staggering under a load of debt. The median debt load for someone with a bachelor’s degree was $19,162.

For a master’s, it was $36,000, and for a professional degree, $100,000. Many students with debt use deferments or other plans to delay or extend repayments, but in most cases that increases the balance they owe. For those making payments, the average monthly bill was $533. By all indications, however, they are the relatively lucky ones. Americans who had attended college accounted for most of the improvement reported in the survey. Financial stress was more prevalent among less-educated people who responded to the survey, as well as racial and ethnic minorities and adults making less than $40,000 a year.

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Please remember and compare to yesterday’s (also OECD): “We’re a little concerned about housing prices in the greater Vancouver area and Toronto..”

OECD Sees ‘Dramatic And Destabilising’ End To Australia Property Boom (AFR)

Australia may be on the cusp of a “dramatic and destabilising” end to the housing boom rather than a hoped-for soft landing because of the apartments building boom, the Organisation for Economic Co-operation and Development said. In its latest assessment of the threats to the economy, the Paris-based think tank said jitters over the federal election are adding to risks, and called for an increase in the goods and services tax. Somewhat paradoxically, the OECD appears particularly worried about how to interpret changes in the housing market – even as it notes simultaneously that risks of a boom appear to be receding which, it argues, provides leeway for even more official interest rate cuts.

“Domestically, the unwinding of housing market tensions to date may presage dramatic and destabilising developments, rather than herald a soft landing,” it said. Parts of the real estate industry have already warned about failed settlements as record numbers of new apartments come due for completion in Sydney, Melbourne and Brisbane this year and next. The warning, which is accompanied by graphs showing dwelling approvals retreating from a peak and house prices levelling out, appears to have been prepared ahead of more recent evidence of a rebound in both measures.

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First things first.

Fed Likely To Avoid Rate Hike Before Britain Votes On Leaving EU (R.)

The U.S. Federal Reserve may be forced to delay a rate hike at its June meeting because of mounting concern over the economic fallout from Britain’s vote on whether to leave the European Union. The geopolitical risk likely will push any rate increase until at least July, despite apparent consensus among Fed officials that a hike is warranted by stronger U.S. growth and tight labor markets. The Fed’s June 14-15 rate-setting meeting comes just a week before the British vote on June 23. A “leave” vote is expected to roil financial markets, cause credit spreads to widen, trigger a rush into safe assets and bolster the dollar. The dollar’s recent stability is one reason the Fed has become more comfortable with raising rates, and officials may want to let the threat of Brexit pass before moving to tighten financial conditions.

Fed Board Governor Daniel Tarullo on Thursday joined the chorus of those warning of his concerns over the British vote, telling Bloomberg that Brexit would be a “factor” he would consider at the Fed’s June policy meeting and said that the British vote’s impact on markets would be key. [..] If the Fed does indeed take a pass at its June meeting, officials have signaled they’ll be ready to move in July. Minutes of the Fed’s March policy meeting showed officials preparing the ground for higher rates sometime in the summer months. After July, the next option would be September, in the middle of a U.S. election campaign, in which the Fed and Yellen could well become targets of debate.

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The illusion gets expensive, as returns diminish.

Draghi Insists ECB Stimulus Only Half Done (BBG)

Mario Draghi’s insistence that his stimulus program is only half done brings with it a worrying thought. What if its best effects are already spent anyway? At least four times at Thursday’s press conference in Vienna, the European Central Bank president emphasized how policy makers need to see the “full impact” and must “focus on implementation” of their measures. That augurs a busy month ahead as officials keep hoovering up government debt, start buying corporate bonds and enact the first of four long-term loan offerings to banks. While Draghi’s remarks suggest the next major calendar point for the ECB’s assessment of its stimulus will be September – after the release of economic-growth data and coinciding with its fresh forecasts – the omens so far are weak.

Yet another report of negative consumer prices this week underscored the challenge of revitalizing an economy fatigued by years of debt crises and delayed reforms, and battered by global forces beyond the ECB’s control. “We’re getting to the point of radically diminishing effectiveness of these interventions,” Andrew Balls, Pimco’s global fixed income chief investment officer, said on Bloomberg Television. “If we get a recession, which is perfectly plausible over the next three to five years, there’s a real question in terms of how policy makers can respond.”

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France blames emerging economies.

Bank of France Cuts Inflation Outlook, 2017 GDP Forecast (WSJ)

The Bank of France cut its inflation forecasts and trimmed its 2017 economic growth forecast in a semi-annual economic outlook Friday. The Bank of France pared back its GDP forecast for 2017 to 1.5% from 1.6% in December as it expects weaker trade to drag on the French economy. Despite a stronger-than-expected first quarter, it kept its GDP forecast for the whole of 2016 at 1.4%. The softer forecasts indicate how weak oil prices and uncertainty over the outlook for the global economy are cooling eurozone economies just as they emerge from a long period of weak growth. “While global demand is dynamic, it will accelerate only slightly in 2016, due to a less favorable growth outlook than previously forecast in emerging economies,” the Bank of France said.

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Germany blames exports in general. Stingy Greeks?!

Bundesbank Cuts German GDP Forecasts On Weaker Export Demand (R.)

The Bundesbank cut its German inflation and growth forecasts on Friday citing weaker demand for exports, even as it predicted that robust consumer demand and a tightening labor market would keep the domestic economy buoyant. The euro zone’s biggest economy has been an outperformer in recent years, posting healthy growth and driving the currency bloc’s best run since the start of the global financial crisis almost a decade ago. Exporters have been forced to “surrender” some of their market share gained in recent years, however, and this trend may continue this year and offset strong domestic factors, the central bank said in a biannual economic outlook.

“This should probably be interpreted mainly as a correction of previous market share gains not explained by price competitiveness,” the Bundesbank said. “This process could continue further into 2016 according to Ifo and DIHK surveys, in which industrial firms reported subdued export expectations and only a comparatively moderate increase in exports this year,” it said. The bank now sees GDP growing at 1.7% this year, below a December projection for 1.8%, and 1.4% in 2017, down from 1.7% seen earlier. The growth rate would then rebound to 1.6% in 2018.

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Not going to happen.

President Obama, Pardon Edward Snowden and Chelsea Manning (G.)

As he wraps up his presidency, it’s time for Barack Obama to seriously consider pardoning whistleblowers Chelsea Manning and Edward Snowden. Last week, Manning marked her six-year anniversary of being behind bars. She’s now served more time than anyone who has leaked information to a reporter in history – and still has almost three decades to go on her sentence. It should be beyond question at this point that the archive that Manning gave to WikiLeaks – and that was later published in part by the Guardian and New York Times – is one of the richest and most comprehensive databases on world affairs that has ever existed; its contribution to the public record at this point is almost incalculable. To give you an idea: in just the past month, the New York Times has cited Manning’s state department cables in at least five different stories.

And that’s almost six years after they first started making headlines. We know now that, despite being embarrassing for the United States, the leaks caused none of the great harm that US government officials said would come to pass. Even the government admitted during Manning’s trial that no one died because of her revelations, despite the hyperbolic government comments at the time, including that WikiLeaks had “blood on its hands”. (By the way, the US officials knew they were exaggerating in the media at the time.) Even if you think that she deserves some punishment for breaking the law, six years behind bars (and being tortured during her pretrial confinement) should be more than enough.

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Creepy.

Facial Recognition Will Soon End Your Anonymity (MW)

Nearly 250 million video surveillance cameras have been installed throughout the world, and chances are you’ve been seen by several of them today. Most people barely notice their presence anymore – on the streets, inside stores, and even within our homes. We accept the fact that we are constantly being recorded because we expect this to have virtually no impact on our lives. But this balance may soon be upended by advancements in facial recognition technology. Soon anybody with a high-resolution camera and the right software will be able to determine your identity. That’s because several technologies are converging to make this accessible. Recognition algorithms have become far more accurate, the devices we carry can process huge amounts of data, and there’s massive databases of faces now available on social media that are tied to our real names.

As facial recognition enters the mainstream, it will have serious implications for your privacy. A new app called FindFace, recently released in Russia, gives us a glimpse into what this future might look like. Made by two 20-something entrepreneurs, FindFace allows anybody to snap a photo of a passerby and discover their real name — already with 70% reliability. The app allows people to upload photos and compare faces to user profiles from the popular social network Vkontakte, returning a result in a matter of seconds. According to an interview in the Guardian, the founders claim to already have 500,000 users and have processed over 3 million searches in the two months since they’ve launched.

What’s particularly unsettling are the use cases they advocate: identifying strangers to send them dating requests, helping government security agencies to determine the identities of dissenters, and allowing retailers to bombard you with advertisements based on what you look at in stores. While there are reasons to be skeptical of their claims, FindFace is already being deployed in questionable ways. Some users have tried to identify fellow riders on the subway, while others are using the app to reveal the real names of porn actresses against their will. Powerful facial recognition technology is now in the hands of consumers to use how they please.

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American history 101.

The Fat Lady Always Sings Twice (Jim Kunstler)

That was the week Hillary began to look like the candidate who fell off a truck wearing a Nixon mask. Email-gate is taking on the odor of Watergate — the main ingredient of which was not the dopey crime itself but the stonewalling around it. The State Department Inspector General’s report saying definitively, no, she was not “allowed” to use a private, unsecured email server validated Donald Trump’s juvenile name-calling of “Crooked Hillary.” We may never hear the end of that now (if Trump is actually nominated). And, of course, there lurks the Godzilla-sized skeleton in her closet of the still-unreleased Goldman Sachs speech transcripts, the clamor over which is sure to grow. Meanwhile the specter of the California primary looms, a not inconceivable loss to Bernie Sanders.

And onto the convention in Philly which I contend will be even more fractious and violent than the 1968 fiasco in Chicago. I’ll say it again: Hillary is a horse that ain’t gonna finish. The Democrats better be prepared to haul Uncle Joe out of the closet, fluff up his transplanted hair, wax his dentures, give him a few Vitamin B-12 shots, and stick a harpoon in his fist for the autumn run against the White Whale (if Trump is actually nominated). The Republican convention in Cleveland is apt to be as bloody and violent a spectacle too (if Trump is actually nominated), with Black Lives Matters cadres having already promised to put on a show for global television and their Latino counterparts marching with Mexican Flags and cute signs saying: Trump: Chingate tu madre, perhaps garnished with the sobriquet pendejo.

In such a situation, Trump has enormous potential to make things worse with his childish snap-backs. Hubert Humphrey in 1968 at least had the good sense to keep his mouth shut about the moiling multitudes out on Michigan Avenue inveighing against him. The Vietnam War was a grave debacle, and it especially pissed off the young men subject to being drafted to fight in it, but the woof and warp of American life was otherwise intact. Blue collar workers still pulled in high wages in the Big Three auto plants, and women had not yet declared war on men, and the airwaves weren’t pornified, and there were still people in government with moral authority who loudly opposed official policy. The sobering martyrdoms of Martin Luther King and Robert Kennedy sanctified the opposition to the status quo.

Even Hubert Humphrey himself, a thoughtful man underneath his Rotarian clown mask, began to turn away from Lyndon Johnson’s war hawks. Nixon won. He surely benefited most not so much from the war issue and the riots in the streets as from the mass defection of Southern states from the long-entrenched domination of the Democratic Party — directly due to Johnson’s dismantling of the old Jim Crow laws. As a personality, Nixon was as much a pendejo as Donald Trump, but no one doubted his ability to run the machinery of government, if not the way they wanted to run it.

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” The figures of migrant unemployment follow a trend in Sweden of high unemployment for foreigners.”

Fewer Than 500 of 163,000 Migrants Find Jobs In Sweden (BB)

Sweden’s state-funded broadcaster has revealed that of 163,000 migrants who came to Sweden, less than 500 have found jobs. Sweden saw a record 163,000 applications for asylum last year as a result of the migrant crisis and many Swedes were assured that the new arrivals would contribute to the economy; but new research from Sweden’s state-owned SVT reveals that fewer than 500 migrants have found work. Using data from the Swedish employment agency and the Swedish migration authority, Migrationsverket, the network claims that only 494 asylum seekers are contributing to the economy, The Local reports. While in many countries asylum seekers are banned from formally working while their application is being processed, in Sweden there are exceptions.

The “at-und” is an exemption granted by Migrationsverket which allows asylums seekers access to the labour market. In an effort to explain the incredibly low number of migrants working, Lisa Bergstrand of Migrationsverket told SVT: “There was an incredible number of people applying for asylum in Sweden and so that we should be able to register them, we had to de-prioritise certain tasks, and that was the matter of jobs”. Of the migrants who claimed asylum in 2015 approximately one third of the men and women aged 20-64 were given the exemption to allow them to work, which is around 53,790 migrants. The figures of migrant unemployment follow a trend in Sweden of high unemployment for foreigners. The unemployment for those born in Sweden is at the lowest point since the 2008 financial crisis at around 4.8%, while foreign born unemployment is at 14.9%.

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Question to Italian readers: what effect has the death of Casaleggio had on Beppe?

Corruption Gripes Help Five Star Movement Top Italy Local Election Polls (G.)

Alessandro Aquilini had her by the hand. And he wasn’t letting go. Virginia Raggi, the woman tipped to be the next mayor of Rome, was hunting for votes in the street market in Boccea, a lower middle-class district of the Italian capital. Raggi’s trademark is exquisite courtesy – she proffers a slender hand even to reporters who approach her with hostile questions. At the butcher’s stall, though, she got more of a handshake than she bargained for. “We need help,” the 50-year-old Aquilini began. “Left. Right. Centre. We can’t take any more [of party politicians]. This country needs a bit more honesty.” Still gripping Raggi’s hand as he stretched across the slabs of veal, the burly butcher added: “We’re up to here with taxes and corruption.”

His monologue captured many of the reasons why Raggi, the candidate of the Five Star Movement (M5S), is leading the polls ahead of local elections in Rome and other Italian cities on Sunday. Unlike other non-traditional movements that have prospered in Europe, such as Syriza in Greece, the M5S’s protest is not so much against austerity as the corruption and cronyism of Italy’s mainstream parties. Nowhere has this been highlighted more vividly than Rome, where establishment politicians and officials are on trial alongside alleged mobsters, charged with conspiring to pocket millions of euros from rigged public contracts. All three of the final polls released before a ban took effect on 21 May put Raggi ahead by 3-6%age points in the mayoral race.

Run-offs between the two leading candidates in each town are slated for 19 June. Only then will it be known if the 37-year-old lawyer – almost unknown to the public until a few months ago – has won. A victory for Raggi would be a stinging reverse for Italy’s prime minister, Matteo Renzi, who leads the centre-left Democratic party, and a dramatic breakthrough for the internet-based M5S. Founded less than seven years ago by the comedian Beppe Grillo and his digital guru, the late Gianroberto Casaleggio, the M5S is today Italy’s leading opposition party. Grillo has said he will set fire to himself in public if Raggi fails to win. But he may yet regret that pledge.

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Is there hope?

US Announces Near-Total Ban On Trade Of African Elephant Ivory (AFP)

US authorities announced a near-total ban on the trade of African elephant ivory Thursday, finalizing a years-long push to protect the endangered animals. “Today’s bold action underscores the United States’ leadership and commitment to ending the scourge of elephant poaching and the tragic impact it’s having on wild populations,” Secretary of the Interior Sally Jewell said. The new rule “substantially limits” imports, exports and sales of such ivory across state lines, the US Fish and Wildlife Service (FWS) said. However, it does make exceptions for some “pre-existing manufactured” items, such as musical instruments, furniture and firearms that contain less than 200 grams of ivory and meet other specific criteria, according to the FWS.

Antiques, as defined under the Endangered Species Act, are also exempt. The new measures fulfill restrictions in an executive order on combating wildlife trafficking issued by President Barack Obama in 2013, the FWS said in its statement announcing the ban. It said that once illegal ivory enters the market it becomes virtually impossible to tell apart from legal ivory, adding that demand for elephant ivory, particularly in Asia, “is so great that it grossly outstrips the legal supply and creates a void in the marketplace that ivory traffickers are eager to fill.”

“We hope other nations will act quickly and decisively to stop the flow of blood ivory by implementing similar regulations, which are crucial to ensuring our grandchildren and their children know these iconic species,” Jewell said. The Wildlife Conservation Society welcomed the ban, calling it historic and groundbreaking. “The USA is shutting down the bloody ivory market that is wiping out Africa’s elephants,” WCS president and chief executive Cristian Samper said in a statement. “The USA is boldly saying to ivory poachers: You are officially out of business.” Some 450,000 elephants can be found on the African continent and it is estimated that more than 35,000 of these animals are killed each year.

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 May 13, 2016  Posted by at 8:26 am Finance Tagged with: , , , , , , , , , ,  


Jack Delano AT&SF Railroad locomotive shops, San Bernardino, CA 1943

Iron Ore Goes From Boom To Bust In Just Three Weeks (BBG)
With $100 Billion In Debt, Glencore Emerges As The Next Lehman (ZH)
China Bubble Set To Rock Global Markets (CNBC)
The Biggest Source Of Global Growth In 2016 Is About To Hit A Brick Wall (ZH)
Middle Class Shrinks In 9 Of 10 American Cities As Incomes Fall (AP)
Congressman X: ‘Screw The Next Generation’ (DM)
Nassim Taleb Compares Monetary Policy to Novocaine (BBG)
Yellen Says Won’t Completely Rule Out Negative Rates (R.)
Dear Homeowner, What Exactly Do You “Own”? (CH Smith)
IMF Under Pressure From Germany Over Greece (WSJ)
The German Current Account Surplus Requires Deficits Elsewhere (Harrison)
Ideas For Reducing The Debt Burden (Economist)
‘Death Awaits’: Africa Faces Worst Drought in Half a Century (Spiegel)
Europol To Send Experts To Greek Islands To ‘Identify Terrorists’ (Kath.)
EU Mission ‘Failing’ To Disrupt Mediterranean People-Smugglers (BBC)

So predictable one must wonder what Xi was/is thinking. A lot of money is being lost in China, and much of it by mom and pop. They’re not going to like it.

Iron Ore Goes From Boom To Bust In Just Three Weeks (BBG)

Don’t say there wasn’t any warning. Iron ore’s gone from boom to bust in the space of just three weeks, fulfilling predictions for a slump in prices that were jacked up to unsustainable levels by a short-lived speculative frenzy in China. The SGX AsiaClear contract for June settlement in Singapore sank as much as 3.5% to $48.64 a metric ton in Singapore [..] It’s collapsed 12% this week, the most since December, after losing 11% the week before. In Dalian, iron ore futures plunged on Friday to the lowest since February as steel in Shanghai headed for the biggest weekly loss on record.

Iron ore and steel are buckling once again after widespread predictions that the trading frenzy in China that had propelled prices upward in April wouldn’t endure as regulators clamped down and the rallies themselves induced higher production. Iron ore stockpiles at ports in China have expanded to near 100 million tons, while mills produced more steel than ever in March. Lower steel prices erode mills’ margins, cutting their ability to restock on iron ore, according to China Merchants Futures. “As steel profits have dropped sharply recently, the desire to replenish iron ore stocks is not strong,” said Zhao Chaoyue, an analyst at China Merchants, said in a note on Friday. “Supplies of steel are recovering as demand weakens. Steel prices remain vulnerable.”

Among those that foresaw a retracement, Goldman Sachs said on April 22 that iron ore’s rally was unsustainable, and a tight steel market in China was a “temporary distraction” from fundamentals. Days later, Fitch said the surge in steel prices wouldn’t last. And at the end of last month, Brazil’s Itau Unibanco said iron would soon drop by $10, describing the speculation as a short-term issue. Spot iron ore with 62% content delivered to Qingdao fell 0.9% to $55.05 a dry ton on Thursday, according to Metal Bulletin. Prices have sunk 22% since they peaked at more than $70 last month.

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China’s commodity casino starts to spread its losses…

With $100 Billion In Debt, Glencore Emerges As The Next Lehman (ZH)

One week ago, in a valiant attempt to defend the stock price of struggling commodity trading titan Glencore, one of the company’s biggest cheerleaders, Sanford Bernstein’s analyst Paul Gait (who has a GLEN price target of 450p) appeared on CNBC in what promptly devolved into a great example of just how confused equity analysts are when it comes to analyzing highly complex debt-laden balance sheets. In the clip below, starting about 2:30 in, CNBC’s Brian Sullivan gets into a heated spat with Gait over precisely how much debt Glencore really has, with one saying $45 billion the other claiming it is a whopping $100 billion. The reason for Gait’s confusion is that he simplistically looked at the net debt reported on Glencore’s books… just as Ivan Glasenberg intended.

However, since Glencore – like Lehman – is first and foremost a trading operation, one also has to add in all the stated derivative exposure (something we did ten days ago), in addition to all the unfunded liabilities, off balance sheet debt, bank commitments and so forth, to get a true representation of just how big, or rather massive, Glencore’s true risk is to its countless counterparties. Conveniently for the likes of equity analysts such as Gait and countless others who still have GLEN stock at a “buy” rating, Bank of America has done an extensive analysis breaking down Glencore’s true gross exposure. Here is the punchline:

“We consider different approaches to Glencore’s debt. Credit agencies, such as S&P, start with “normal” net debt, i.e. gross debt less cash and then deduct some share (80% in the case of S&P of “RMIs” – Readily Marketable Inventories. These are considered to be “cash like” inventories (working capital) in the marketing business. At the last results, RMIs were about US$17.7 bn. Giving full credit for RMIs plus a pro-forma for the equity raise and interim dividend we derive a “Glencore Adjusted Net Debt” of c. US$28 bn.

On the other hand, from discussions with our banks team, we believe the banks industry (and ultimately regulators) may look at the number i.e. gross lines available (even if undrawn) + letters of credit with no credit for inventories held. On this basis, we estimate gross exposure (bonds, revolver, secured lending, letters of credit) at c. $100 bn. With bonds at around $36 bn, this would still leave $64 bn to the banks’ account (assuming they don’t own bonds).”

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Never listen to people predicting black swans.

China Bubble Set To Rock Global Markets (CNBC)

For the moment, the following is the shock NOT heard ’round the world … at least not yet. Rampant speculation in China’s commodities markets could very well be the next “black swan” event that rocks global markets and possibly the global economy. Though very little attention has been paid to this recent action, speculative excesses in China’s commodity markets have taken traders and investors on a wild ride, which may likely soon spill over to the rest of the world. Trading volumes and volatility have been so extreme they make the recent swings in Shanghai and Shenzhen’s stock markets look mild by comparison. Chinese speculators have driven up, and then down, the prices of everything from iron ore to steel, and from soybeans to egg futures.

Prices in most of these commodities have fallen back to earth after massive, but relatively brief, spikes in prices. But, that’s not to say more damage hasn’t been done to China’s already fragile market system and economy. One truly astonishing feature of this bout of speculation is that the average holding period of a commodity futures contract was just three hours in April, according to Bloomberg. That makes other speculative trading episodes look like long-term investing. It also suggests a massive appetite for risk, which in and of itself, is potentially destabilizing, both in China and, by extension, elsewhere in the world. Why do we care? Well, first of all, the recent rebound in commodity prices, here at home, and the affiliated rebound in raw materials stocks, could have been driven, at least in part, by those very speculative excesses in China.

It also means that the rebound in inflation expectations could be a false signal, which on its face, reads as an indicator of a rebound in demand for raw materials, or a sign that the global economy could be stabilizing and re-accelerating. That’s the type of false signal that could convince the Fed that inflation is accelerating, causing them to mistakenly raise rates. While that hasn’t happened yet, it is a risk that bears watching. The “fake-out breakout” also could have suggested that supply of, and demand for, raw materials is coming back into balance in a world burdened by a commodity glut. That, too, appears to be have been a diversion. There is still more cotton, more copper, more steel and more soybeans than the world demands. The market-based signaling matrix appears to be broken thanks to this bout of speculative excess.

This is the Wild Wild East of markets these days. After speculating excessively in real estate a few years ago, in stocks last year, driven by heavy margin buying and then a crash, Chinese investors and traders have quickly moved on to commodities. These rolling bubbles are making the Chinese economy more and more unstable and more susceptible to a much-feared “hard landing” in the economy. That has implications for the Mild Mild West, where growth has been hard to come by and could be upended by another deceleration in Chinese economic activity.

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Yup. China again.

The Biggest Source Of Global Growth In 2016 Is About To Hit A Brick Wall (ZH)

After issuing a record $1 trillion in combined bank and shadow loans in the first quarter which just like during the financial crisis provided a short-term boost to global growth (while sending China’s debt/GDP to all time highs), China’s dramatic debt issuance binge is about to hit a brick wall. According to MarketNews, Chinese bank loan growth is expected to slow sharply in April compared with March as the pillar of bank lending, mortgage loans, slowed as the property market cooled. Citing bank officials, the news service said that robust first-quarter lending almost depleted their resources, making it difficult to find good targets to lend to, which also hurt loan growth. It also means that suddenly the credit impulse that drove both Chinese and global growth for the past two months is about to evaporate.

How big is the drop? Sources familiar with the loan number told MNI that combined new loans in April by the Big Four state-owned banks were more than halved from March’s level. As a reminder, the Big Four banks lent out CNY402 billion in March, according to the People’s Bank of China. While there is no preview of how bit (or small) the combined TSF number will be, it is safe to assume it will be a far smaller total than the CNY2.34 trillion in total social financing that flooded the Chinese economy in March. The slowdown mainly came from moderating mortgage growth, which has been the key driving force behind loan growth so far this year. In the city of Shanghai, mortgage loans hit a record high of CNY36.1 billion in March, beating the previous record of CNY34.6 billion set in January, according to PBOC data.

The PBOC said the country’s total outstanding mortgage loan was up 25.5% y/y at the end of March, much faster than the 14.7% of average outstanding loan growth. But that mortgage strength in the first quarter failed to continue into April as property sales growth slowed sharply on government tightening measures. According to Essence Securities, new residential house sales in tier one cities, namely Beijing, Shanghai, Guangzhou and Shenzhen, fell 21.2% on month in April and only edged up 0.5% from a year ago, including a 38.6% m/m and 30.8% y/y plunge in the city of Shenzhen, which leads the current round of property rebound. But if April was bad, May was a disaster: “it appears the situation is even worse into May. Shenzhen saw house sales in the first week of May plummet another 49% when compared with the previous week, dragging year-to-date sales into a 1% drop in terms of floor space.”

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More on the Rew report. It warrants attention, lots of it. It paints the real picture of America. And that’s with Pew’s perhaps somewhat distorting definition of ‘middle class’, which includes 3-person households with incomes of up to $125,000. This may be statistically correct if you try hard enough, but an awful lot of people living on $40,000 or less will not agree.

Middle Class Shrinks In 9 Of 10 American Cities As Incomes Fall (AP)

In cities across America, the middle class is hollowing out. A widening wealth gap is moving more households into either higher- or lower-income groups in major metro areas, with fewer remaining in the middle, according to a report released Wednesday by the Pew Research Center. In nearly one-quarter of metro areas, middle-class adults no longer make up a majority, the Pew analysis found. That’s up from fewer than 10% of metro areas in 2000. That sharp shift reflects a broader erosion that occurred from 2000 through 2014. Over that time, the middle class shrank in nine of every 10 metro areas, Pew found. The squeezing of the middle class has animated this year’s presidential campaign, lifting the insurgent candidacies of Donald Trump and Bernie Sanders.

Many experts warn that widening income inequality may slow economic growth and make social mobility more difficult. Research has found that compared with children in more economically mixed communities, children raised in predominantly lower-income neighborhoods are less likely to reach the middle class. Pew defines the middle class as households with incomes between two-thirds of the median and twice the median, adjusted for household size and the local cost of living. The median is midway between richest and poorest. It can better capture broad trends than an average, which can be distorted by heavy concentrations at the top or bottom of the income scale.

By Pew’s definition, a three-person household was middle class in 2014 if its annual income fell between $42,000 and $125,000. Middle class adults now make up less than half the population in such cities as New York, Los Angeles, Boston and Houston. “The shrinking of the American middle class is a pervasive phenomenon,” said Rakesh Kochhar, associate research director for Pew and the lead author of the report. “It has increased the polarization in incomes.”

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‘We spend money we don’t have and blithely mortgage the future with a wink and a nod. Screw the next generation..’ [..] ‘Nobody here gives a rat’s a** about the future and who’s going to pay for all this stuff we vote for. That’s the next generation’s problem. It’s all about immediate publicity, getting credit now, lookin’ good for the upcoming election.’

Congressman X: ‘Screw The Next Generation’ (DM)

A new book threatens to blow the lid off of Congress as a federal legislator’s tell-all book lays out the worst parts of serving in the House of Representatives – saying that his main job is to raise money for re-election and that leaves little time for reading the bills he votes on. Mill City Press, a small Minnesota-based ‘vanity press’ publisher describes ‘The Confessions of Congressman X’ as ‘a devastating inside look at the dark side of Congress as revealed by one of its own.’ ‘No wonder Congressman X wants to remain anonymous for fear of retribution. His admissions are deeply disturbing.’ The 84-page exposé is due in bookstores in two weeks, and Washington is abuzz with speculation about who may be behind it.

The book, a copy of which DailyMail.com has seen, discloses that the congressman is a Democrat – but not much else. The anonymous spleen-venter has had a lot to say about his constituents, however. Robert Atkinson, a former chief of staff and press secretary for two congressional Democrats, took notes on a series of informal talks with him – whoever he is – and is now publishing them with his permission. ‘Voters claim they want substance and detailed position papers, but what they really crave are cutesy cat videos, celebrity gossip, top 10 lists, reality TV shows, tabloid tripe, and the next f***ing Twitter message,’ the congressman gripes in the book. ‘I worry about our country’s future when critical issues take a backseat to the inane utterings of illiterate athletes and celebrity twits.’

Much of what’s in the book will come as little surprise to Americans who are cynical about the political process. ‘Fundraising is so time-consuming I seldom read any bills I vote on,’ the anonymous legislator admits. ‘I don’t even know how they’ll be implemented or what they’ll cost.’ ‘My staff gives me a last-minute briefing before I go to the floor and tells me whether to vote yea or nay. How bad is that?’ And on controversial bills, he says, ‘I sometimes vote “yes” on a motion and “no” on an amendment so I can claim I’m on either side of an issue.’ ‘It’s the old shell game: if you can’t convince ’em, confuse ’em.’

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“There is no evidence that 0% is better than 3%. Show me the evidence.”

Nassim Taleb Compares Monetary Policy to Novocaine (BBG)

Nassim Taleb, distinguished scientific advisor at Universa Investments and New York University professor of risk engineering, discusses monetary policy. He speaks with Erik Schatzker from the SALT Conference in Las Vegas, Nevada on “Bloomberg Markets.”

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As Taleb says in the video above, Yellen is a very smart person but one who’s only recently found out that she’s stuck.

Yellen Says Won’t Completely Rule Out Negative Rates (R.)

Fed Chair Janet Yellen said on Thursday that while she “would not completely rule out the use of negative interest rates in some future very adverse scenario,” the tool would need a lot more study before it could be used in the United States. Yellen, in responses to written questions from U.S. Congressman Brad Sherman following her February testimony on Capitol Hill, said the Fed plans to raise interest rates gradually, given its expectations that the economy will continue to strengthen and inflation will move back up to the Fed’s 2% goal. She also said that if the economy unexpectedly takes a turn for the worse, the Fed will adjust its stance. Central banks in Europe and Japan have used negative interest rates to try to stimulate their economies, and Yellen said the Fed is attempting to learn as much as it can from their experiences. Before using negative rates at home, she said, policymakers would need to consider a number of issues, “including the potential for unintended consequences.”

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Charles revisits a theme Nicole and I talked a lot about in the past: “.. in effect, anyone “owning” a home with high property taxes is leasing the property from the local government for the “right” to gamble that a new housing bubble is underway.” As Nicole puts it: “..renting is paying somone else to carry the risk of owning..”.

Dear Homeowner, What Exactly Do You “Own”? (CH Smith)

We’re constantly told ours is an ownership society in which owning a home is the foundation of household wealth. The concept of ownership may appear straightforward, but consider these questions: 1. If the house is mortgaged, what does the homeowner “own” when the bank has the senior claim to the property? 2. If the homeowner owes local government $13,000 a year in property taxes, what does the homeowner “own” once they pay $260,000 in property taxes over 20 years? The answer to the first question: the homeowner only “owns” the homeowners’ equity, the market value of the home minus the the mortgage and closing costs. In a housing bubble, homeowners’ equity can soar as the skyrocketing value accrues to the homeowner, as the mortgage is fixed (in conventional mortgages). But when bubbles pop and housing prices return to reality-based valuations, the declines also accrue to the homeowner’s equity.

If the price declines below the mortgage due the lender, the homeowners’ equity vanishes and the property is underwater. The property may still be worth (say) $400,000, but if the mortgage(s) total $400,000, the owner owns nothing but the promise to pay the mortgage and property taxes and the right to claim a tax deduction for the mortgage interest paid. To answer the second question, let’s consider an example. In areas with high property taxes (California, New Jersey, New York, Illinois, etc.), annual bills in excess of $10,000 annually are not uncommon. If we take $13,000 annually as a typical total property tax in these areas (property taxes can include school taxes, library taxes, and a host of special assessments on top of the “official” base rate), the homeowner “owns” the obligation to pay local tax authorities $130,000 per decade for the right to “own” the house.

In states without Prop 13-type limits on how much property taxes can be raised, there is no guarantee that property taxes won’t jump higher in a decade, but for the sake of simplicity, let’s assume the rate is unchanged. In 20 years of ownership, the homeowner will pay $260,000 in property taxes.Let’s compare that with the rise in their homeowners’ equity. Since home values are high in high-tax regions, let’s assume a $400,000 purchase price with an $80,000 down payment and a conventional 4% 30 year mortgage of $320,000. In 20 years of mortgage and tax payments, the homeowners paid about $197,500 in interest to the bank (deductible from their income taxes), and about $170,000 in mortgage principle, leaving them total homeowner’s equity of the $80,000 down payment and the $170,000 in principle, or a total of $250,000. Since they paid $260,000 in property taxes in the period, have they gained anything?

If we look at the property as merely leased from the local government for the annual fee of $13,000, then was “ownership” a good deal for the local government or for the homeowner? If the homeowner subtracts the lease fee (i.e. property taxes) from their equity, they are underwater by $10,000. The real estate industry answer is that “ownership” is great because the skyrocketing appreciation accrues to the homeowner. If the house doubles in value from $400,000 to $800,000 in a decade, who cares about the $130,000 in property taxes paid? If we subtract this $130,000 lease fee, the homeowner would still pocket a hefty profit: $800,000 sales price minus the $400,000 purchase price, the $130,000 in property taxes, the costs of 10 years of maintaining the home and the selling commission and closing fees. So in effect, anyone “owning” a home with high property taxes is leasing the property from the local government for the “right” to gamble that a new housing bubble is underway.

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Greece has a major payment to the ECB coming in July. Something will be found, but it will not be advantageous to Athens.

IMF Under Pressure From Germany Over Greece (WSJ)

In Europe’s battle with the IMF over Greece, Germany has a way to win. Germany, Europe’s dominant economic power, is leaning heavily on the IMF to accept hypothetical assurances that Greece’s debt burden will be addressed in the future if needed, rather than the definite and far-reaching debt relief that the IMF wanted, according to people familiar with the talks. Berlin believes the IMF will have to accept what’s on offer, even if IMF staff are unhappy about it, these people say. The IMF is also under heavy European pressure to accept Greek austerity policies that are less specific than the cuts the IMF wanted. An accord hasn’t been reached yet, and some warn it could take several weeks. The IMF’s Achilles’ heel: Its board is controlled by Germany, other European Union countries, and the U.S., none of whom want a new crisis over Greece.

That power reality weakens the IMF’s threat to pull out of the Greek bailout if it is unsatisfied. The EU currently faces multiple challenges that threaten to unravel the 60-year-old project of European integration, including the U.K.’s referendum on leaving the bloc, the migration crisis, and the rise of EU-skeptic populist parties. Germany and other European governments have no appetite for another round of brinkmanship over Greece like in 2015, and want a deal in coming weeks that settles Greece’s future—at least for now. Any deal is nevertheless likely to include some important concessions to the IMF. German Finance Minister Wolfgang Schäuble -who until recently adopted the hard-line stance in public that Greece needs no debt relief at all- has already permitted discussions to start this week about how eurozone loans to Greece might be restructured in the future.

A deal, which many European officials are now confident of reaching in late May or early June, is expected to include a promise by Germany and other eurozone countries to keep Greece’s debt burden below a certain threshold. That promise would entail easing the terms of Greece’s loans “if necessary.” Crucially for Berlin, however, any decision to restructure the loans would be delayed until 2018—after Germany’s 2017 elections. Mr. Schäuble and his boss, Chancellor Angela Merkel, are determined to avoid, for now, any material change to Greece’s bailout plan that would force them to hold an awkward debate in Germany’s parliament, the Bundestag, according to people familiar with their thinking.

An accord on Greek debt and austerity would allow Athens to stay afloat this summer, when large bonds fall due. But it is unlikely to resolve the country’s seven-year-old debt crisis. Participants in the troubled bailout are braced for further drawn-out negotiations in coming years about Greece’s fiscal and other overhauls. The main source of this year’s re-escalation of the Greek debt saga is Germany’s insistence that it cannot release any further bailout funds unless the IMF agrees to resume its own lending to Athens. IMF lending has been in limbo since last July, when IMF staff stated that “Greece’s public debt has become highly unsustainable.”

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One day perhaps more people will start to understand this. Germany is blowing up the eurozone. And the EU. The Q1 2016 growth announced today more than doubled, and that just makes it that much worse.

The German Current Account Surplus Requires Deficits Elsewhere (Harrison)

With the periphery’s downturn came austerity and internal devaluation. And this has meant two adjustments. First, the EU as a whole has moved from a roughly balanced external position to a net creditor position as the German and Dutch export-led model is forced onto the periphery via internal devaluation used to achieve export competitiveness. Second, the Germans and Dutch have been forced to turn elsewhere to maintain their mercantilist trading stance. And they have found willing buyers in Asia and the emerging markets writ large.

The thing to realize about multilateral trade is that the imbalances do not necessarily build up as bilateral imbalances between two countries. Rather, imbalances build multilaterally, with some countries – particularly the reserve-currency holding US – taking on the net debtor position. And we see that now, with the UK showing record trade deficits at the same time Germany is sporting huge surpluses. The IMF faults Germany for the surplus. Martin Wolf faults Germany for this too. Irrespective, there is no mechanism in the current global currency system to correct these imbalances except through balance of payments crisis and the rise of protectionist populist politicians.

And so my conclusion here is that these imbalances will only shift in a crisis – like the one we experienced within the eurozone. Except next time, the crisis will be global. It would be nice to think that world leaders would understand that dangerous imbalances are building that feed a populist and violent political response. Alas, there is no indication that the Germans or any other net surplus country gets this. And while the Swiss and the Dutch are small trading nations, Germany is a global behemoth. Like China, it will attract negative attention when the economy turns down. And the Germans will get the blame when the trade barriers go up. Right now, it seems only a matter of when not if.

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In which the Economist is found short of ideas.

Ideas For Reducing The Debt Burden (Economist)

DEBT levels grew spectacularly in the rich world from 1982 to 2007. When the financial crisis broke, worries about the ability of borrowers to repay or refinance that debt caused the biggest economic downturn since the 1930s. It could have been worse. The danger was that, as private-sector borrowers scrambled to reduce their debts, the resulting contraction in credit would drive the world into depression. Fortunately, this outcome was averted. First, the governments of rich countries allowed their debts to rise, offsetting the reduction in private debt. In addition, emerging markets (notably China) continued to borrow. So there was no global deleveraging; quite the reverse. Central banks also helped, slashing interest rates to zero and below.

Although lower policy rates have not always resulted in cheaper borrowing costs (in Greece, for example), debt-servicing costs have fallen in most developed countries. Although this approach has staved off disaster, it has not got rid of the problem, as a research note from Manoj Pradhan, an economist at Morgan Stanley, makes clear. “High debt forces interest rates to stay low, which encourages yet more debt,” Mr Pradhan writes. Central banks dare not push interest rates up too quickly for fear of causing another crisis; hence the stop-start nature of the Federal Reserve’s statements on monetary policy. The developed world seems stuck with sluggish growth and low rates. In health terms, the disease is chronic, not acute.

A lurch into another global crisis, Mr Pradhan reckons, would require three ingredients. First, the assets financed by the debt build-up would need to fall sharply in price or prove uneconomic. Second, the debtors would have to be concentrated in big, globalised economies. Lastly, global investors would have to be heavily exposed to the debt in question. All this was the case in 2007-08, as debt secured by American housing turned bad, raising doubts about the health of the Western banking system. This time round the debtors are in different places. Some of them are emerging-market governments and commodity producers. But, except for China, none of these is crucial to the world economy. And China’s debts are mainly in domestic hands, rather than widely dispersed in the portfolios of international banks, pension funds and insurance companies.

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“..more than 50 million people in Africa are acutely threatened by famine..”

‘Death Awaits’: Africa Faces Worst Drought in Half a Century (Spiegel)

Herdsman Ighale Utban used to be a relatively prosperous man. Three years ago, he owned around a hundred goats. Now, though, all but five of them have died of thirst at a dried-up watering hole, victims of the worst drought seen in Ethiopia and large parts of Africa in a half-century. Utban, a wiry man of 36 years, belongs to a nomadic people known as the Afar, who spend their lives wandering through the eponymously named state in northeastern Ethiopia. “This is the worst time I’ve experienced in my life,” he says. On some days, he doesn’t know how to provide for himself and his seven-member family. “We can no longer wander,” Utban says, “because death awaits out there.” For now, he’ll have to remain in Lii, a scattered little settlement in which several families have erected their makeshift huts. Lii means “scorching hot earth.”

Since time immemorial, shepherds have wandered with their animals through the endless expanses of the Danakil desert. They live primarily off of meat and milk, and it was always a meagre existence. But with the current drought, which has lasted for over a year, their very existence is threatened. “First the livestock die, then the people,” Utban says. The American relief organization USAID estimates that in Afar alone, over a half million cattle, sheep, goats, donkeys and camels have perished. Reservoirs are empty, pastures dried up, feed reserves nearly exhausted. With no rain, grass no longer grows. Many nomads are selling their emaciated livestock, but oversupply has led to a 50% decline in prices. Currently, millions of African farmers and herders are suffering similar fates to Utban’s. The UN estimates that more than 50 million people in Africa are acutely threatened by famine.

After years of hope for increased growth and prosperity, the people are once again suffering from poverty and malnutrition. The governments of Malawi, Mozambique, Zimbabwe, Lesotho and Swaziland have already declared states of emergency, and massive crop losses have caused food prices to explode in South Africa. Particularly hard stricken are the countries in the southern part of the continent as well as around the Horn of Africa, Somalia, Djibouti, Eritrea and especially Ethiopia. Meteorologists believe the natural disaster is linked to a climate phenomenon that returns once every two to seven years known as El Niño, or the Christ child, a disruption of the normal sea and air currents that wreaks havoc on global weather patterns. The El Niño experienced in 2015-2016 has been particularly strong.

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Summing it up. Europe doesn’t send help to relieve the conditions refugees live in. They send policemen instead. 200 of them.

Europol To Send Experts To Greek Islands To ‘Identify Terrorists’ (Kath.)

Europol, the European Union’s law enforcement agency, is soon to deploy 200 officers to refugee centers on the Greek islands and mainland to help identify potential terrorists. The officers, specially trained experts in immigration and terrorism, will not be in charge of border protection but will examine individuals deemed to be suspicious. After several weeks of reduced inflows of migrants from neighboring Turkey, Thursday saw an increase in arrivals with 130 people arriving on Greek shores in one day, amid growing concerns about the fate of an agreement between Turkey and the European Union to curb migration.

The total number of migrants in Greece on Thursday stood at 54,542, according to the spokesman for the government’s coordinating committee for refugees, Giorgos Kyritsis. Of this total, nearly 10,000 are living in squalid conditions at a makeshift camp near the village of Idomeni close to the border with the Former Yugoslav Republic of Macedonia. Kyritsis said the Idomeni camp would be evacuated but did not specify when. The situation at the camp is tense and local residents are running out of patience, with the head of the Idomeni community on Wednesday lodging a legal suit against Citizens’ Protection Minister Nikos Toskas for a “complete absence of state control” at the camp.

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Oh my, what a surprise.

EU Mission ‘Failing’ To Disrupt Mediterranean People-Smugglers (BBC)

The EU naval mission to tackle people smuggling in the central Mediterranean is failing to achieve its aims, a British parliamentary committee says. In a report, the House of Lords EU Committee says Operation Sophia does not “in any meaningful way” disrupt smugglers’ boats. The destruction of wooden boats has forced the smugglers to use rubber dinghies, putting migrants at even greater risk, the document says. Operation Sophia began in 2015. It was set up in the wake of a series of disasters in which hundreds of migrants died while trying to cross from Libya to Italy. The EU authorised its vessels to board, search, seize and divert vessels suspected of being used for people smuggling.

The report states that “the arrests made to date have been of low-level targets, while the destruction of vessels has simply caused the smugglers to shift from using wooden boats to rubber dinghies, which are even more unsafe”. It says that there are also “significant limits to the intelligence that can be collected about onshore smuggling networks from the high seas. “There is therefore little prospect of Operation Sophia overturning the business model of people smuggling,” the document concludes. It adds that the mission is still operating out in international waters, and not – as originally intended – in Libyan waters.

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Apr 252016
 
 April 25, 2016  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  


Mathew Brady Three captured Confederate soldiers, Gettysburg, PA 1863

The Revenge Of Globalisation’s Losers (Münchau)
Obama and Merkel Unite Over TTiP (FT)
China Debt Load Reaches Record High As Risk To Economy Mounts (FT)
China’s Fresh Boom Nears Peak Just As Amateurs Pile In (AEP)
Warnings Flash for China’s Red-Hot Steel Market on 47% Surge (BBG)
China’s Steel Mill Margins Surge to 7-Year High on Boom (BBG)
Draghi’s Growth and Inflation Conundrum Will Be Displayed Friday (BBG)
Stunted Growth: The Mystery Of The UK’s Productivity Crisis (G.)
The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc. (BBG)
Goldman Expects The Japanese Yen To Collapse Within 12 Months (ZH)
How Argentina Settled a Billion-Dollar Debt & Paul Singer Made 392% (NY Times)
You Don’t Own That! The Evolution of Property (Roth)
UN To Urge Media To Take More ‘Constructive’ Approach To News (G.)
World Heads For Catastrophe In Failure to Prepare For Natural Disasters (G.)

Globalization has already died, it perished with the economic system. But it may take a long time until this is recognized, since that recognition would threaten vested interests.

The Revenge Of Globalisation’s Losers (Münchau)

Globalisation is failing in advanced western countries, where a process once hailed for delivering universal benefit now faces a political backlash. Why? The establishment view, in Europe at least, is that states have neglected to forge the economic reforms necessary to make us more competitive globally. I would like to offer an alternative view. The failure of globalisation in the west is in fact down to democracies failure to cope with the economic shocks that inevitably result from globalisation — such as the stagnation of real average incomes for two decades. Another shock has been the global financial crisis — a consequence of globalisation — and its permanent impact on long-term economic growth.

In large parts of Europe, the combination of globalisation and technical advance destroyed the old working class and is now challenging the skilled jobs of the lower middle class. So voters’ insurrection is neither shocking nor irrational. Why should French voters cheer labour market reforms if it could result in the loss of their jobs, with no hope of a new one? Some reforms have worked, but ask yourself why. Germany’s acclaimed labour market reforms in 2003 succeeded in the short term because they raised the country’s cost competitiveness through lower wages relative to other advanced countries. The reforms produced a state of near full employment only because no other country did the same. If others had followed, there would have been no net gain. The reforms had a big downside.

They reduced relative prices in Germany and pushed up net exports in turn generating massive savings outflows, the deep cause of the imbalances that led to the eurozone crisis. Reforms such as these can hardly be the recipe for how advanced nations should address the problem of globalisation. Nor is there any factual evidence that countries that have reformed are performing better or are more able to cope with a populist insurrection. The US and the UK have more liberal market structures than most of continental Europe. Yet the UK may be about to exit the EU; in the US the Republicans may be about to nominate an extreme populist as their presidential candidate. Finland leads all the competitiveness rankings but the economy is a non-recovering basket case — and it has a strong populist party.

The economic impact of reforms is usually subtler than its advocates admit. And there is no straight connection between reforms and support for established political parties. My diagnosis is that globalisation has overwhelmed western societies politically and technically. There is no way we can, or should, hide from it. But we have to manage the change. This means accepting that the optimal moment for the next trade agreement, or market liberalisation, may not be right now.

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TTiP is just a leftover chicken walking a few more steps after its head is chopped off.

Obama and Merkel Unite Over TTiP (FT)

Barack Obama and Angela Merkel have called for talks over a transatlantic trade deal to be completed this year as fears mount that the opportunity to reach an agreement is slipping away. The US president used a visit to Hanover in Germany on Sunday to try to breathe new life into the Transatlantic Trade and Investment Partnership, which has been beset by political opposition in the US and Europe. “I am confident we will get this done,” Mr Obama said, talking about completing the negotiations this year. But he said time was “not on our side”, calling on all European leaders to support the deal and not “let this opportunity close”. President Obama was in Germany after a visit to Saudi Arabia and the UK where he waded into the Brexit debate, urging Britain to remain in the EU.

Speaking at a joint press conference, Mr Obama went out of his way to praise the German chancellor, who has been one of his closest confidants among international leaders but whose domestic political standing has been undermined by the migrant crisis. The German decision to allow more than 1m people to enter the country last year had put Ms Merkel “on the right side of history” despite the political backlash, he said. “She is giving voice to principles that bring people together rather than divide them. I’m very proud of her for that and I’m proud of the German people for that,” he added. In return, Ms Merkel showered her American counterpart with praise for his leadership on the Paris climate accords. “Barack, a personal thanks to you,” she said. “Without the United States of America, this would not have come to pass.”

The TTIP negotiations, which were launched in July 2013, have progressed slowly as opposition in Europe has grown and some member states have begun expressing scepticism. Ms Merkel said she wanted to speed up the negotiations, as a deal would be helpful in allowing the German and eurozone economies to grow. “We should do our bit,” she said. The chancellor added that she would canvas widely to get the deal back on track and pledged to “inject this with a new dynamism from the European side”. Mr Obama said that although he hoped the negotiations would be concluded this year, it would take longer for countries to ratify a deal.

[..] The closer the talks get to 2017, the more difficult life will become for EU trade negotiators. Chancellor Merkel faces re-election in parliamentary polls and French president François Hollande is at risk of losing in presidential elections, with National Front leader Marine Le Pen comfortably ahead in opinion polls. With TTIP divisive in both countries, officials, especially France, are unlikely to want to press ahead with the talks. Matthias Fekl, France’s trade minister, on Sunday reiterated previous threats to withdraw from the talks if there was not sufficient progress on a number of issues in the months to come. France has constantly put forward criteria, conditions, demands, Mr Fekl told the country’s i-Tele news channel. If these conditions are not fulfilled…France will withdraw.

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Tyler Durden’s comment: the real debt is not 237% of GDP, but 350%.

China Debt Load Reaches Record High As Risk To Economy Mounts (FT)

China’s total debt rose to a record 237% of GDP in the first quarter, far above emerging-market counterparts, raising the risk of a financial crisis or a prolonged slowdown in growth, economists warn. Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163 trillion ($25 trillion) at the end of March, including both domestic and foreign borrowing, according to Financial Times calculations. Such levels of debt are much higher as a proportion of national income than in other developing economies, although they are comparable to levels in the U.S. and the eurozone. While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated — Chinese debt was only 148% of GDP at the end of 2007.

“Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth,” Ha Jiming, Goldman Sachs chief investment strategist, wrote in a report this year. The country’s present level of debt, and its increasing links to global financial markets, partly informed the International Monetary Fund’s recent warning that China poses a growing risk to advanced economies. Economists say it is difficult for any economy to deploy productively such a large amount of capital within a short period, given the limited number of profitable projects available at any given time. With returns spiralling downwards, more loans are at risk of turning sour. According to data from the Bank for International Settlements for the third quarter last year, emerging markets as a group have much lower levels of debt, at 175% of GDP.

The BIS data, which is based on similar methodology to the FT, put Chinese debt at 249% of GDP, which was broadly comparable with the euro zone’s figure of 270% and the US level of 248%. Beijing is juggling spending to support short-term growth and deleveraging to ward off long-term financial risk. Recently, however, as fears of a hard landing have intensified, it has shifted decisively towards stimulus. New borrowing increased by Rmb6.2tn in the first three months of 2016, the biggest three-month surge on record and more than 50% ahead of last year’s pace. Economists widely agree that the health of the country’s economy is at risk. Where opinion is divided is on how this will play out. At one end of the spectrum is acute financial crisis — a “Lehman moment” reminiscent of the U.S. in 2008, when banks failed and paralyzed credit markets.

Other economists predict a chronic, Japan-style malaise in which growth slows for years or even decades. Jonathan Anderson, principal at Emerging Advisors Group, belongs to the first camp. He warns that banks driving the huge credit expansion since 2008 rely increasingly on volatile short-term funding through sales of high-yielding wealth management products, rather than stable deposits. As Lehman and Bear Stearns proved in 2008, this kind of funding can quickly evaporate when defaults rise and nerves fray. “At the current rate of expansion, it is only a matter of time before some banks find themselves unable to fund all their assets safely,” Mr Anderson wrote last month. “And at that point, a financial crisis is likely.”

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The greater fools are getting fleeced. “..But how much longer can Beijing go on creating debt at a breakneck pace?”

China’s Fresh Boom Nears Peak Just As Amateurs Pile In (AEP)

Elite global banks have begun to warn clients that China’s latest credit-driven boom is nearing its peak and will lose momentum by late summer, dashing hopes for a genuine cycle of fresh economic growth and commodity demand. Morgan Stanley, Nomura, and Societe Generale have all issued cautionary notes just as amateur investors belatedly turn bullish again on China and start to pile into both commodities and emerging market equities. “While the mini-recovery is likely to last another 3-4 months, our economists expect a renewed slowdown in the second half of the year, as stimulus efforts fade,” said Morgan Stanley. The US bank said record credit growth over the last quarter will keep growth humming for a little longer but the fiscal blitz is already ebbing and the government is imposing property curbs in the Eastern cities to prevent a speculative bubble.

China’s reflation drive has been explosive. New home sales jumped 64pc in March from a year earlier. House prices have risen 28pc in Beijing, 30pc in Shanghai, and 63pc in the commercial hub of Shenzhen. The rush to buy has spread to the Tier 2 cities such as Hefei – up 9pc in a single month. “The housing market is on fire,” said Wei Yao, from Societe Generale. “In the first quarter, increases in total credit exploded to 7.5 trilion yuan, up 58pc year-on-year. There is no bigger policy lever than this kind of credit injection.” “This looks like an old-styled credit-backed investment-driven recovery, which bears an uncanny resemblance to the beginning of the“four trillion stimulus” package in 2009. The consequence of that stimulus was inflation, asset bubbles and excess capacity. We still think that this recovery will not last very long,” she said.


China’s housing market is on fire

The signs of excess are visible everywhere as the Communist Party once again throws caution to the wind . Cement production jumped 24pc in March and infrastructure investment rose 19pc. Yang Zhao from Nomura said the edifice is becoming more dangerously unstable with each of these stop-go mini-booms. “Structural problems and financial imbalances are worsening. We believe this debt-fueled growth is not sustainable,” he said. Nomura said the law of diminishing returns is setting in as the economy nears credit exhaustion. The ‘incremental credit-output ratio” has deteriorated to 5.0 from 2.3 in 2008. Loans are losing traction and the quality of investment is falling. “Be careful. We are nearing the point where things are as good as they get for the first half of 2016. We recommend taking some money off the table,” said Wendy Liu and Vicky Fung, the bank’s equity strategists.

Despite the stimulus, defaults among private companies and state entities (SOEs) have jumped to 11 so far this year from 17 last year, and the defaults are getting bigger. China Railway Materials has just suspended trading on $2.6bn of debt. Michelle Lam from Lombard Street Research said Beijing has retreated from reform and resorted to pump-priming again. “This may last for one or two quarters. But how much longer can Beijing go on creating debt at a breakneck pace?” she said. Capital Economics says there has typically been a lag of six to nine months after each burst of credit, suggesting that economic growth will roll over in the late Autumn. Markets do not move in lockstep, and may anticipate this.


China’s M1 money supply is growing at the fastest pace since the post-Lehman stimulus

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Must we wait till they run out of storage space for this too?

Warnings Flash for China’s Red-Hot Steel Market on 47% Surge (BBG)

Warnings are stacking up fast after China’s eye-popping steel rally. Fitch Ratings said prices lifted in part by heightened speculation are destined to slump, while a bank in Singapore flagged the risk of a boom-bust cycle reminiscent of China’s equity market. The rapid advance isn’t sustainable as mills are expected to bring back idled capacity, raising supply, Fitch said in a report on Monday. Price gains have been driven by a seasonal recovery in activity that’s been exacerbated by increased speculation in the futures market, according to analyst Laura Zhai. Steel prices have surged in 2016, with reinforcement-bar up 47%, after policy makers in China talked up growth and added stimulus, helping to lift property prices and ignite a speculative frenzy. The gains have helped to restore mills’ profitability, boosting their incentive to increase output.

Singapore-based Oversea-Chinese Banking warned on Monday that there may be parallels between the sudden jump in steel trading and last year’s performance in equities, citing the potential for a boom-bust scenario. “The rapid increase in Chinese steel prices so far this year is not sustainable, as it is largely due to a seasonal pick-up in construction and elevated speculation in the steel futures market,” Fitch said. “With prices now surging, many of the suspended plants have resumed production.” Futures for rebar extended gains, rallying as much as 6.2% to 2,781 yuan ($427) a metric ton on the Shanghai Futures Exchange, before trading 0.2% higher on Monday. The price of the product used to strengthen concrete advanced for the 11th straight week through Friday, adding 14%. Steel output in the world’s largest supplier may see a further increase this month as more furnaces are fired up, according to Fitch.

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Pon. Zi.

China’s Steel Mill Margins Surge to 7-Year High on Boom (BBG)

China’s steel mills are making more money on each ton produced than at any time since 2009 after the government embarked on 4 trillion yuan ($615 billion) in infrastructure spending. A surprise rebound in China’s property and construction sectors has left steel buyers facing a shortage, and handed embattled mills a sudden boost to margins, according to data from Bloomberg Intelligence. The rally in steel prices is unsustainable as higher profits draw idled plants back into operation, says Fitch Ratings.

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The lack of understanding of what inflation is, and what drives it, among both central bankers and media, is baffling.

Draghi’s Growth and Inflation Conundrum Will Be Displayed Friday (BBG)

A suite of euro-area data on Friday will provide Mario Draghi with his first simultaneous dispatches from both fronts in his struggle to boost inflation – showing how he still has a fight on his hands. GDP numbers, in a newly accelerated publication just one month after the first quarter ended, will coincide with the usual end-of-the-month inflation statistics to present a snapshot of what the ECB president still has to achieve. It’s likely to show the euro area has now completed a dozen quarters of consecutive growth – though that momentum isn’t strong enough to produce faster price gains. Euro-area inflation hasn’t hit its target since 2013, when the economy was contracting. But now that it’s expanding, weak global demand, cheap commodity costs and a lack of investment are weighing down prices.

It’s a conundrum that Draghi hasn’t been able to solve, even after he’s cut interest rates to record lows, expanded bond purchases and started an additional loan program for banks. “The big story on inflation is that it’s flat, and going nowhere in the short term,” said Anatoli Annenkov, senior economist at Societe Generale in London, adding that cheap oil is behind the restraint and prices should move up later in the year. “We don’t doubt that the ECB’s measures are helping – they should have an impact on inflation and growth. The question is how big.” The region’s inflation rate probably stayed at zero in April, based on a Bloomberg survey of economists. That’s far below policy maker’s near-2% goal. By contrast, first-quarter growth probably picked up to 0.4% from 0.3% in the previous quarter.

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Mystery? Not here.

Stunted Growth: The Mystery Of The UK’s Productivity Crisis (G.)

Our economic future isn’t what it used to be. In March the Office for Budget Responsibility (OBR) revised down its growth estimates for each of the next five years. The chancellor was quick to blame a weakening world economy but the true driver lies closer to home. The problem isn’t a loud global economic crash but something much quieter: engine trouble. Productivity growth, the long-term motor of rising living standards, is slowing. The fact that this appears to be happening across the globe offers scant consolation. What’s worse is that no one is entirely sure what is causing the problem or how to fix it. And it is coming at about the worst time imaginable: global demographics are changing, with the supply of new workers set to slow and the older share of the population rising.

The future is of course inherently unknowable, but the reasons for longer-term pessimism on economic growth are starting to stack up. Productivity – the amount of output produced for each hour worked – rose at a fairly steady annual rate of about 2.2% in the UK for decades before the recession. Since the crisis though, that annual growth rate has collapsed to under 0.5%. The OBR has decided to revise down its future assumption on productivity from that pre-crisis 2.2% to a lower 2%. That small revision was enough to give the chancellor a large fiscal headache in his latest budget, but it still assumes a big rebound in productivity growth from its current level. What if that rebound doesn’t come? The near death of the British steel industry is a tragedy. But for all the political heat it has generated, its long-term consequences wouldn’t be as serious as the wider crisis. For while closing mills are highly visible, slipping productivity is not.

Looking at the global picture shows that while there are of course national nuances, the overall impression is grim and dates back to before the 2008 crash. Everywhere from the “dynamic” United States to “sclerotic” France, productivity growth has dropped considerably in recent years. The UK is an outlier with a bigger fall than many, but not by much. Some of this could be explained by measurement issues. To use every economist’s favourite example, it is straightforward to measure the inputs, the outputs – and hence the productivity – of a widget factory, even if no one is really sure what a widget is. It is harder to do the same with an online widget brand manager. But the mismeasurement would have to be on an unprecedented scale to explain away the problem.

What we are left with is a bewildering array of theories as to what has driven the fall but no clear answer. We know the productivity slowdown is broad based and happening across most sectors of the economy. Lower corporate and public investment than in the past almost certainly explains some of the shortfall. Weaker labour bargaining power than in previous decades might also be playing a role. Low wages are allowing low-skill, low-productivity business models to expand and deincentivising corporate spending on new kit. Why spend on expensive labour-saving technology when labour itself is cheap?

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How does this differ from China again?

The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc. (BBG)

They may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank. While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90% of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It’s now a major owner of more Japanese blue-chips than both BlackRock, the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion. To critics already wary of the central bank’s outsized impact on the Japanese bond market, the BOJ’s growing influence in stocks risks distorting valuations and undermining efforts to improve corporate governance.

Proponents, meanwhile, say the purchases provide a much-needed boost to investor confidence. With the Nikkei 225 down 8.3% this year and inflation well below official targets, a majority of analysts surveyed by Bloomberg predict the BOJ will boost its ETF buying – a move that could come as soon as Thursday. “For those who want shares to go up at any cost, it’s absolutely fantastic that the BOJ is buying so much,” said Shingo Ide at NLI Research Institute in Tokyo. “But this is clearly distorting the sanity of the stock market.” Under the BOJ’s current stimulus plan, the central bank buys about 3 trillion yen ($27.2 billion) of ETFs every year.

While policy makers don’t disclose how those holdings translate into stakes of individual companies, estimates can be gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. The estimates reveal a presence in Japan’s top firms that’s rivaled by few others, with the BOJ ranking as a top 10 holder in more than 200 of the Nikkei gauge’s 225 companies. The central bank effectively controls about 9% of Fast Retailing, the operator of Uniqlo stores, and nearly 5% of soy sauce maker Kikkoman. It has an estimated shareholder rank of No. 3 in both Yamaha, one of the world’s largest makers of musical instruments, and Daiwa House, Japan’s biggest homebuilder.

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A state run economy has a limited lifespan, but it can be stretched beyond expectations.

Goldman Expects The Japanese Yen To Collapse Within 12 Months (ZH)

Forget the G-20 agreement on no “competitive devaluations” – the full court press on the Bank of Japan to engage in the next round of aggressive currency devaluation is on, just three months after Kuroda unveiled Japan’s first negative interest rate. Recall that it was Goldman who not only brought forward its forecast for a first rate hike from July to April and first suggested earlier this week that it is time for the Bank of Japan to forget about caution and to more than double its purchases of equities in the form of ETFs (and which the BOJ already owns a majority of all available securities) as doing either more NIRP and more QE may no longer have a favorable outcome:

… we think the BOJ is most likely to ease mainly via the qualitative measure, with increasing ETF purchasing the central pillar, with a view to improving business confidence. We think the market is already factoring in an increase in annual purchasing from ¥3.3 tn to ¥5-6 tn, and we thus think the BOJ may look to slightly more than double its current figure to around ¥7 tn.

This pushed both the USDJPY and the S&P off their overnight lows when it was first floated in the early morning of April 20. Then, on Friday, the Yen had its biggest one day surge since the announcement of the expanded QQE in October 2014 when Bloomberg reported of the latest BOJ trial balloon whereby “the Bank of Japan may consider helping banks lend by offering a negative rate on some loans, according to people familiar with talks at the BOJ.” This happened just as the net spec short position in the USDJPY hit record short, forcing yet another massive squeeze in the currency which soared higher by nearly 300 pips in one day.

Which brings us to today, when in its latest attempt to throw everything at the wall and hope something sticks, Goldman Sachs’ FX team – whose trading recommendations in the past 6 months have been an unmitigated disaster – is predicting that the $/JPY will “move higher again in the near term and continue to forecast $/JPY at 130 a year from now.” Why does Goldman expect a collapse in the Yen by nearly 20 big figures? Because as analysts Sylvia Ardagna and Robin Brooks note, “the BoJ faces an important challenge: it needs to reaffirm that the monetary easing arrow of Abenomics is still on course, or the market will price that the central bank is backtracking from the 2% inflation goal. This could be extremely disruptive for the Japanese economy. Using markets jargon, the BoJ is already so long into ‘the reflationary trade’ that it has to continue to deliver further accommodation for the time being.”

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The vulture as the Apex predator.

How Argentina Settled a Billion-Dollar Debt & Paul Singer Made 392% (NY Times)

The Waldorf Astoria hotel in Manhattan has long been a location for secret diplomacy, but few meetings there would have seemed as unlikely as the one that took place one day in early December. In a hotel conference room, a top Argentine politician drank coffee with two hedge fund executives — a meeting that was nothing short of remarkable after more than a decade of bitter legal skirmishes between Argentina and a group of disgruntled debt holders who at one point seized an Argentine Navy ship. The previous Buenos Aires government reviled the hedge funds as “vultures.” That meeting on Dec. 7 between Luis Caputo, who days later would be sworn in as Argentina’s finance secretary, and Jonathan Pollock and Jay Newman from Elliott Management, the $27 billion hedge fund founded by Paul E. Singer, was the start of a rapprochement leading to a momentous debt deal that has now allowed Argentina to rejoin the global financial markets that it had been locked out of for 15 years.

Last week, Argentina successfully sold $16.5 billion in bonds to international investors, a record amount for any developing country. And on Friday, Elliott and the other bondholders finally received their reward in the form of billions of dollars in repayment, representing returns worth hundreds of times their original investments. “Today, we have put a definitive close to this chapter,” Alfonso Prat-Gay, Argentina’s economic minister, told an Argentine radio station on Friday. The negotiations that led to the deal were set in motion by the election in November of President Mauricio Macri, who ran on a promise to reignite Argentina’s flailing economy. Striking a deal with the country’s aggrieved bondholders was central to getting that done.

How Argentina and the hedge funds were able to break the long stalemate and reach a deal in a matter of weeks is a story of furious back-channeling and clashes that nearly derailed an agreement. Details of those negotiations have emerged from interviews with eight people who were involved in those meetings, as well as court filings and emails reviewed by The New York Times. Many of those people spoke on condition of anonymity because they were not authorized to speak publicly. There were moments when the talks nearly fell apart. Three days before a deal was signed with Elliott, Mr. Caputo, exasperated by a back-and-forth with bondholders over whether they would return government assets they had seized, emailed the court-appointed mediator: “THIS IS A JOKE; NO DEAL.”

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” The whole world’s financial machinery [..] all comes down to (the threat of) physical force.”

You Don’t Own That! The Evolution of Property (Roth)

There are a large handful of things that make humans uniquely different from animals. In many other areas — language, abstract reasoning, music-making, conceptions of self and fairness, large-scale cooperation, etc. — humans and animals vary (hugely) in degree and kind. But they still share those phenotypic behavioral traits. I’d like to explore one of those unique differences: ownership of property. Animals don’t own property. Ever. They can and do possess and control goods and territories (possession and control are importantly distinct), but they never “own” things. Ownership is a uniquely human construct. To understand this, imagine a group of tribes living around a common water source. A spring, say. There’s ample water for all the tribes, and all draw from it freely. Nobody “owns” it.

Then one day a tribe decides to take possession of the spring, take control of it. They set up camp surrounding it, and prevent other tribes from accessing it. They force the other tribes to give them goods, labor, or other concessions in return for access to water. The other tribes might object, but if the controlling tribe can enforce their claim, there’s not much the other tribes can do about it. And after some time, maybe some generations, the other tribes may come to accept that status quo as the natural order of things. By eventual consensus (however vexed), that one tribe “owns” the spring. Other tribes even come to honor and respect that ownership, and those who claim and enforce it. That consensus and agreement is what makes ownership ownership. Absent that, it’s just possession and control.

It’s not hard to see the crucial fact in this little fable: property rights are ultimately based, purely, on coercion and violence. If the controlling tribe can’t enforce its claim through violence, their “ownership” is meaningless. And those claimed rights are not just inclusionary (the one tribe can use the water). Property rights are primarily or even purely exclusionary. Owners can prevent others from doing anything with the owners’ property. Get off my lawn! When push comes to shove (literally), when brass tacks meet the rubber on the road (sorry, couldn’t resist), ownership and property rights are based purely on violence and the threat of violence. Full stop, drop the mic.

In the modern world we’ve largely outsourced the execution of that violence, the monopoly on violence, to government. If a family sets up a picnic on “your” lawn, you can call the police and they’ll remove that family — by force if necessary. And we’ve multiplied the institutional and legal mechanics and machinery of ownership a zillionfold. The whole world’s financial machinery — the immensely complex web of claims, claims on claims, and claims on claims on claims, endlessly and densely iterated and interwoven — all comes down to (the threat of) physical force.

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Newspeak goes global.

UN To Urge Media To Take More ‘Constructive’ Approach To News (G.)

The United Nations is to call for the world’s media to take a more “constructive” and “solutions-focused” approach to news to combat “apathy and indifference”. UN director general Michael Møller is to meet broadcast, print and online journalists in London on Wednesday to to discuss how new ways of covering the world with the help of the UN and the Constructive Voices programme run by the National Council for Voluntary Organisations. Constructive Voices incorporates an online resource designed to help journalists find case studies that provide practical solutions to problems. The UN has separately launched GAVDATA, an online portal providing access to a huge store of information from the the UN and other international organisations and NGOs. Speaking ahead of the event, director general Michael Møller said many people feel “disempowered” by the news and unable to influence decisions.

He said: “The choices we make are determined by the information we are given. These are fundamental to how we shape a better world together.” “In a world of 7 billion people, with a cacophony of voices that are often ill-informed and based on narrow agendas, we need responsible media that educate, engage and empower people and serve as a counterpoint to power. We need them to offer constructive alternatives in the current stream of news and we need to see solutions that inspire us to action. Constructive journalism offers a way to do that.” “It’s vital too that we have data and different points of view.” The UN and the NCVO also claims that the public are turned off by overwhelmingly negative news, and are more likely to share stories that offer solutions to problems, providing a commercial incentive for media organisations to include more positive stories.

NCVO chair Sir Martyn Lewis, a former BBC News presenter in the 80s and 90s who covered the death of Princess Diana, said the organisations were not asking the media to abandon its traditional approach, but to supplement it with journalism that helps solve problems. “It’s 23 years almost to the day that I first spoke out about the need for more balanced news agenda. I have been misunderstood in the past, with people believing I just wanted fluffy, feelgood news at the expense of covering real news,” said Lewis. “This is not the case at all. I’d like to see the media engage in solutions-driven journalism which not only reports problems but explores potential solutions to those problems as well.” “I would stress that this approach absolutely does not mean giving up the traditional approach to journalism, but is complementary to it and, interestingly, there is growing evidence that it makes a lot of commercial sense as well.”

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How the human brain is designed.

World Heads For Catastrophe In Failure to Prepare For Natural Disasters (G.)

The world’s failure to prepare for natural disasters will have “inconceivably bad” consequences as climate change fuels a huge increase in catastrophic droughts and floods and the humanitarian crises that follow, the UN’s head of disaster planning has warned. Last year, earthquakes, floods, heatwaves and landslides left 22,773 people dead, affected 98.6 million others and caused $66.5bn of economic damage. Yet the international community spends less than half of one per cent of the global aid budget on mitigating the risks posed by such hazards. Robert Glasser, the special representative of the secretary general for disaster risk reduction, said that with the world already “falling short” in its response to humanitarian emergencies, things would only get worse as climate change adds to the pressure.

He said: “If you see that we’re already spending huge amounts of money and are unable to meet the humanitarian need – and then you overlay that with not just population growth … [but] you put climate change on top of that, where we’re seeing an increase in the frequency and severity of natural disasters, and the knock-on effects with respect to food security and conflict and new viruses like the Zika virus or whatever – you realise that the only way we’re going to be able to deal with these trends is by getting out ahead of them and focusing on reducing disaster risk.” Failure to plan properly by factoring in the effects of climate change, he added, would result in a steep rise in the vulnerability of those people already most exposed to natural hazards. He also predicted a rise in the number of simultaneous disasters.

“As the odds of any one event go up, the odds of two happening at the same time are more likely. We’ll see many more examples of cascading crises, where one event triggers another event, which triggers another event.” Glasser pointed to Syria, where years of protracted drought led to a massive migration of people from rural areas to cities in the run-up to the country’s civil war. While he stressed that the drought was by no means the only driver of the conflict, he said droughts around the world could have similarly destabilising effects – especially when it came to conflicts in Africa. “It’s inconceivably bad, actually, if we don’t get a handle on it, and there’s a huge sense of urgency to get this right,” he said. “I think country leaders will become more receptive to this agenda simply because the disasters are going to make that obvious. The real question in my mind is: can we act before that’s obvious and before the costs have gone up so tremendously? And that’s the challenge.”

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