Oct 262015
 
 October 26, 2015  Posted by at 10:02 am Finance Tagged with: , , , , , , , , , ,  7 Responses »


Wyland Stanley Chalmers touring car 1922

US Economic Data Has Never Been This Weak For This Long (Zero Hedge)
US Companies Warn of Pending Recession (WSJ)
EU Agrees To Tighten Border Controls And Slow Migrant Arrival (AP)
Tensions Rise Between European Nations Over Refugee Crisis (Bloomberg)
Greece Says Refugees Are Not Enemies, Refuses to Protect Borders From Them (WSJ)
European Trust: The Perfect Storm (Mungiu-Pippidi)
China Containerized Freight Index Collapses to Worst Level Ever (WolfStreet)
A China Twist: Why Are Malls Closing If Consumption Is Rising? (Reuters)
China’s Leaders Shift From Short-Term Stimulus to Five-Year Plan (Bloomberg)
China Banks Turn To Investors For More Capital As Bad Loans Pile Up (Reuters)
‘Deflationary Boom’ In Prospect As China Slows (FT)
Why China’s Interest Rate Cut May Be Bad News For The World Economy (Guardian)
Emerging Currencies’ Fate Looms Large In Rich World Rates Policy (Reuters)
Africa Is In Grave Danger From The Global Economic Slowdown (Telegraph)
Japan’s Struggling Economy Finds ‘Abenomics’ Is Not an Easy Fix (NY Times)
Reality Keeps Catching Up With BOJ’s Inflation Forecasts (Bloomberg)
When Greeks Fled To Syria (Kath.)

“..this period of economic weakness and disappointment is not just the longest on record, but it is entirely unprecedented…”

US Economic Data Has Never Been This Weak For This Long (Zero Hedge)

Despite the ongoing propaganda reinforcing America’s “cleanest sheets in a brothel” economic growth, the fact is, there is a reason why The Fed folded, why Draghi doubled-down, why China cut, and why Kuroda will likely unleash moar QQE this week. It appears the ‘trap’ that central planners have set for themselves – by enabling massive financial asset inflation in the face of what is now the longest streak of economic weakness and data disappointment on record – now looks set to prove their impotence and/or Enisteinian insanity. As Ice Farm Capital notes: “.. a year ago were looking at 5yr inflation breakevens around 1.5%. They have since deteriorated to 1.15% (by way of 1%) and this week we are expecting a Q3 GDP print more like 1.5% – a deceleration of a full 240bps.”

“Corporate profit margins have taken a sharp hit and corporate profits for the S&P are now down 3% yoy despite continued share buybacks. Through this entire period, markets have continually expected happy days to be just around the corner.”

As a result, we have seen economic surprises for the US negative for the longest stretch in the history of the data series:

To make it a little clearer, this period of economic weakness and disappointment is not just the longest on record, but it is entirely unprecedented…

Read more …

“The industrial environment’s in a recession. I don’t care what anybody says..”

US Companies Warn of Pending Recession (WSJ)

Quarterly profits and revenue at big American companies are poised to decline for the first time since the recession, as some industrial firms warn of a pullback in spending. From railroads to manufacturers to energy producers, businesses say they are facing a protracted slowdown in production, sales and employment that will spill into next year. Some of them say they are already experiencing a downturn. “The industrial environment’s in a recession. I don’t care what anybody says,” Daniel Florness, chief financial officer of Fastenal Co., told investors and analysts earlier this month. A third of the top 100 customers for Fastenal’s nuts, bolts and other factory and construction supplies have cut their spending by more than 10% and nearly a fifth by more than 25%, Mr. Florness said.

Caterpillar last week reduced its profit forecast, citing weak demand for its heavy equipment, and 3M, whose products range from kitchen sponges to adhesives used in automobiles, said it would lay off 1,500 employees, or 1.7% of its total, as sales growth sagged for a wide range of wares. The weakness is overshadowing pockets of growth in sectors such as aerospace and technology. Industrial companies are being buffeted on multiple fronts. The slump in energy prices has gutted demand for drilling equipment and supplies. Economic expansion is slowing in China and major emerging markets such as Brazil, which U.S. companies have relied on for sales growth. And the dollar’s strength also has eroded overseas profits.

The drag on earnings and sluggish growth projections for next year come as the Federal Reserve considers raising interest rates for the first time in nine years, and could add momentum to those in favor of postponing any rate increase until next year. Profit and revenue are falling in tandem for the first time in six years, with a third of S&P 500 companies reporting so far. Analysts expect the index’s companies to book a 2.8% decline in per-share earnings from last year’s third quarter, according to Thomson Reuters. Sales are on pace to fall 4%—the third straight quarterly decline. The last time sales and profits fell in the same quarter was in the third period of 2009.

Read more …

Priorities couldn’t be more skewed.

EU Agrees To Tighten Border Controls And Slow Migrant Arrival (AP)

European and Balkan leaders agreed on measures early Monday to slow the movement of tens of thousands whose flight from war and poverty has overwhelmed border guards and reception centers and heightened tension among nations along the route to the European Union’s heartland. In a statement to paper over deep divisions about how to handle the crisis, the leaders committed to bolster the borders of Greece as it struggles to cope with the wave of refugees from Syria and beyond that cross over through Turkey. The leaders decided that reception capacities should be boosted in Greece and along the Balkans migration route to shelter 100,000 more people as winter looms. They also agreed to expand border operations and make full use of biometric data like fingerprints as they register and screen migrants, before deciding whether to grant them asylum or send them home.

“The immediate imperative is to provide shelter,” European Commission President Jean-Claude Juncker said after chairing the mini-summit of 11 regional leaders in Brussels. “It cannot be that in the Europe of 2015 people are left to fend for themselves, sleeping in fields.” Nearly 250,000 people have passed through the Balkans since mid-September. Croatia said 11,500 people entered its territory on Saturday, the highest tally in a single day since Hungary put up a fence and refugees started moving sideways into Croatia a month ago. Many are headed northwest to Austria, Germany and Scandinavia where they hope to find a home. “This is one of the greatest litmus tests that Europe has ever faced,” German Chancellor Angela Merkel told reporters after the summit. “Europe has to demonstrate that it is a continent of values and of solidarity.”

“We will need to take further steps in order to get through this,” she said. Slovenian Prime Minister Miro Cerar said his small Alpine nation was being overwhelmed by the refugees – with 60,000 arriving in the last 10 days – and was not receiving enough help from its EU partners. He put the challenge in simple terms: if no fresh approach is forthcoming “in the next few days and weeks, I do believe that the European Union and Europe as a whole will start to fall apart.” The leaders agreed to rapidly dispatch 400 border guards to Slovenia as a short-term measure. As they arrived at the hastily organized meeting, some leaders traded blame for the influx with their neighbors, with Greece targeted for the mismanagement of its porous island border.

“We should go down south and defend the borders of Greece if they are not able to do that,” said Hungarian Prime Minister Viktor Orban, who claimed he was only attending the meeting as an “observer” because Hungary is no longer on the migrant route since it tightened borders. But the country that many say is another key source of the flow – Turkey – was not invited, and some leaders said that little could be done without its involvement. “It has to be tackled in Turkey and Greece, and this is just a nice Sunday afternoon talk,” Croatian Prime Minister Zoran Milanovic said, after complaining about having to leave an election campaign to take part in the mini-summit of nations in Europe’s eastern “migrant corridor.”

Read more …

“If we do not deliver some immediate and concrete actions on the ground in the next few days and weeks, I do believe that the European Union and Europe as a whole will start falling apart..”

Tensions Rise Between European Nations Over Refugee Crisis (Bloomberg)

European leaders clashed over how to manage the influx of hundreds of thousands of refugees forging through the region’s eastern flank as they warned that Europe is buckling under the strain of the crisis. While 11 leaders including German Chancellor Angela Merkel managed to come up with short-term fixes at a summit on Sunday, including the provision of emergency shelter for 100,000 refugees and a stepped-up system for their registration, the meeting laid bare tensions between nations that risk fraying the fragile fabric of cooperation in addressing the growing problem. “This is one of the greatest litmus tests that Europe has ever faced.” Merkel said after the gathering in Brussels. “We will need to take further steps to get through this litmus test.”

With winter approaching and more than a million migrants set to reach the European Union this year, national authorities have shut their borders and waved asylum seekers through to neighboring countries as they struggle to get a grip on Europe’s largest influx of refugees in seven decades. “We have made clear to everyone this evening that waving them through has to stop,” European Commission President Jean-Claude Juncker said. While it’s important to implement measures agreed on Sunday, “there will be no miracle cure.” The situation in the Western Balkans – the focus of the summit in Brussels – has worsened over the past few months, aggravating deep-seated distrust between nations that emerged from the violent breakup of the former Yugoslavia.

The main flow of migrants fleeing conflict-stricken nations changed from a route through southern Europe to one leading from Turkey to Greece and through countries including Croatia, Serbia and Slovenia. “If we do not deliver some immediate and concrete actions on the ground in the next few days and weeks, I do believe that the European Union and Europe as a whole will start falling apart,” Slovenian Prime Minister Miro Cerar told reporters before the meeting. Greece, which is at the front line for refugees arriving in Europe, agreed to provide temporary shelter for 30,000 refugees by the end of the year, with the UN High Commissioner for Refugees supporting a further 20,000 places in the country.

An additional 50,000 places will be established by the countries along the Western Balkan route, according to a statement issued after the gathering. Countries also agreed to work together and with Frontex, the EU border-management agency, to bolster frontier controls and cooperation, including between Turkey and Bulgaria and between Greece and Macedonia. Greece fended off “absurd proposals” at the meeting, including allowing countries to block migrants entering from neighboring countries and giving Frontex a new undertaking on the Greek frontier with Macedonia, Prime Minister Alexis Tsipras said. Tsipras signaled disappointment that Turkey wasn’t invited to the summit because it plays “the basic role, the key role” in the crisis.

Read more …

Sanity. It still does exist.

Greece Says Refugees Are Not Enemies, Refuses to Protect Borders From Them (WSJ)

Greece’s migration minister has rejected accusations by Germany and other European countries that Greece is failing to defend its borders against mass migration, insisting that the refugees and other migrants trekking to Europe constitute a humanitarian crisis, not a defense threat. “Greece can guard its borders perfectly and has been doing so for thousands of years, but against its enemies. The refugees are not our enemies,” Yiannis Mouzalas said in an interview. Greece is under pressure from other European governments to use its coast guard and navy to control the huge influx of migrants who are making their way, via the Aegean Sea and Greece’s territory, from the Middle East to Northern Europe, especially Germany.

At a European summit in Brussels on Sunday, leaders from Greece and other countries on the latest migration route through the Balkans are facing allegations from Germany, Hungary and others that they are passively allowing migrants to pass through. “In practice what lies behind the accusation is the desire to repel the migrants,” said Mr. Mouzalas. “Our job when they are in our territorial sea is to rescue them, not [let them] drown or repel them.” Countries in Southern and Central Europe have been struggling to cope with the arrival of more than half a million people this year, with the largest number reaching Europe via Turkey and Greece. Many are from war-torn Syria and are treated as refugees from mortal danger, while others come from as far as Pakistan and are seen as having weaker claims to asylum in Europe.

Last week alone, Greece received about 48,000 migrants and refugees on its shores, the highest number of weekly arrivals this year, the International Organization for Migration said Friday. European Union authorities want countries along the transit route to agree on a plan to stop allowing people through, to fingerprint everyone who enters their territory, to beef up border surveillance in Greece, and to deploy 400 border guards to Slovenia, the latest hot spot. Athens opposes an idea floated by European Commission President Jean-Claude Juncker to set up joint Turkish-Greek border patrols. Greece and Turkey have long-standing disputes over their territorial waters, which have led to military tension over the years.

“This was an unfortunate statement by Mr. Juncker,” Mr. Mouzalas said. “The joint patrols have never been on the table. They have no point anyway, as they wouldn’t help ease the situation.” He said an alternative could be to set up a European body to patrol Turkish waters, closer to where many migrants begin their trip, to stem the flow of people attempting the perilous journey to the Greek islands. Mr. Mouzalas said Turkey should have been invited to Sunday’s summit. “Turkey is the door and Greece is the corridor; Europe should not treat Greece as the door,” Mr. Mouzalas said.

Read more …

Nobody trusts anybody anymore.

European Trust: The Perfect Storm (Mungiu-Pippidi)

The EU is not a popular democracy – such was not, after all, the intention of its founding fathers. Jean Monnet recounts in his memoirs that the founding idea originated in the First World War and that the goal was to pool resources to enable the repulse of an enemy under a unified command – because coordination was failing to deliver under such conditions. It still fails. Ghita Ionescu, the founder of the London School of Economics journal Government and opposition wrote more than twenty years ago that the democratic deficit predated the EU, caused by the specialization of knowledge and increase in the power of experts on one hand, and on the other by the transnationalization of what had previously been national matters. Consequently, it became impossible for governments to act alone even after the “fullest consultation of their peoples”.

In 2004, the number of Europeans who believed that their voice counted in the EU was 39%. Ten years later, after the powers of the European Parliament have greatly increased, that figure has dropped to 29% (those who feel disempowered have increased from 52 to 66, an even greater difference). In other words, a majority always knew that the EU was not a popular democracy from the outset. Even in 2004, for every European who believed he had a voice in the EU two believed that they had none (Eurobarometer 2013a). Apart from Denmark, where an absolute majority believe that their voice counts in the EU (57% vs. 41%), in 26 countries people believe they have no influence in the EU in proportions that vary from 50% in Sweden and 51% in Belgium, up to 86% in both Cyprus and Greece – for obvious reasons.

But there is nothing new here, except, of course, the terrible constraints that the euro crisis has imposed on Greece, Cyprus and other countries, a tragedy caused by the complexity of an interdependent world which makes people less and less able to decide their own fate. In such complex situations, it is only the populists who offer simple solutions for how to empower voters. We do know what has caused the loss of trust: over two generations a significant question mark has arisen over whether the EU is the best vehicle to maximize social welfare for its various peoples. On one hand, there is the EU’s economic performance since the advent of the economic and growth crisis. On the other, there is loss of trust in European elites, perceived as demanding austerity from the people only to live a life of privilege themselves where taxes are concerned.

Read more …

“These rates are a function of oversupply of shipping capacity and of lackluster demand for shipping containers to distant corners of the world. They’ve been in trouble since February. “Trouble” is a euphemism. They relentlessly plunged.”

China Containerized Freight Index Collapses to Worst Level Ever (WolfStreet)

A week ago, we pointed out how China’s dropping exports and plunging imports – the “inevitable fallout from China’s unsustainable and poorly executed credit splurge,” according to Thomson Reuters – had collided with long-term bets by the shipping industry that has been counting on majestic endless growth. The industry has been adding capacity in quantum leaps, where “the scramble to order so-called ultra-large container vessels had turned into a stampede,” as the Journal of Commerce put it. So we said, “Pummeled by Lousy Global Demand and Rampant Overcapacity, China Containerized Freight Index Collapses to Worst Level Ever”. And now, the China Containerized Freight Index (CCFI) has dropped to an even worse level.

Unlike a lot of official data emerging from China, the index, which is operated by the Shanghai Shipping Exchange and sponsored by the Chinese Ministry of Communications, is raw, unvarnished, not seasonally adjusted, or otherwise beautified. It’s volatile and a reflection of reality, as measured by how much it costs, based on contractual and spot market rates, to ship containers from China to 14 major destinations around the world. These rates are a function of oversupply of shipping capacity and of lackluster demand for shipping containers to distant corners of the world. They’ve been in trouble since February. “Trouble” is a euphemism. They relentlessly plunged.

By early July, the index dropped below 800 for the first time in its history, which started in 1998 when the index was set at 1,000. It soon recovered to about 850. And just when bouts of hope were rising that the worst was over, it plunged again and hit even lower levels. The latest weekly reading dropped another 1.7% from the prior week to 752.21, the worst level ever. The CCFI is now 30% below where it had been in February this year and 25% below where it had been 17 years ago at its inception.

The Shanghai Containerized Freight Index (SCFI), also operated by the Shanghai Shipping Exchange, tracks spot rates (not contractual rates) of shipping containers from Shanghai to 15 major destinations around the world. It’s even more volatile than the CCFI. But being based on spot rates, it’s a good indicator where the CCFI is headed. For last week, the SCFI plunged 5.4% to a new record low of 537.73, down 46% from where it had been at its inception in 2009 when it was set at 1,000 – and down 52% from February:

Read more …

Spending is cratering in China too.

A China Twist: Why Are Malls Closing If Consumption Is Rising? (Reuters)

Major listed mall operators are also feeling the pain. Dalian Wanda, a big property developer, said in January it would close or restructure 30 of its retail venues and in August said more adjustments were underway. Malaysia-based Parkson, which operates more than 70 department stores in China, closed several of its stores in northern China last year following a 58% drop in China net profit in 2013. “As growth in retail sales slows because of the country’s lower GDP growth, and in cities where mall space is abundant, vacancy rates have risen substantially,” said Moody’s analyst Marie Lam in a research note. In its latest efforts to re-energize the economy, China’s central bank on Friday cut interest rates for the sixth time in less than a year.

Tim Condon, an economist at ING in Singapore warned that investors should not read China’s official retail figures as exclusively reflective of rising household consumption, noting that the data also capture some government purchases. [..] … the risk is that the frenetic pace of mall construction cascades into a bad-debt problem for banks if shoppers fail to match the zeal of property developers. China is currently the site of more than half the world’s shopping mall construction, according to CBRE, a real estate firm, even though it appears that many of these malls will not produce good returns for their investors.

A joint report by the China Chain Store Association and Deloitte showed that by the end of this year, the total number of China’s new malls is projected to reach 4,000, a jump of over 40% from 2011. Real estate analysts note that much of the surge in retail space construction came at the behest of local governments, who were rushing to push real estate development as part of attempts to stimulate the economy. The result has been malls built in haste and managed poorly. Not surprisingly, shoppers are voting with their feet. “If you build it and they’re not coming, that’s a non-performing loan,” said Condon of ING. “That’s the banks’ problem.”

Read more …

A process familiar to the west: “The evidence of recent years shows that China is getting less and less real GDP growth for every yuan of credit create..”

China’s Leaders Shift From Short-Term Stimulus to Five-Year Plan (Bloomberg)

China’s leaders gathering in Beijing this week to formulate the 13th five-year plan confront an era of sub-7% economic growth for the first time since Deng Xiaoping opened the nation to the outside world in the late 1970s. Old drivers such as manufacturing and residential construction are spluttering, and new areas like consumption, services and innovation aren’t picking up the slack quickly enough. While President Xi Jinping’s blueprint for 2016-2020 will seek to map out the structural change needed to propel the next leg in China’s march toward high-income status, a more immediate fix has been delivered with the sixth interest-rate cut in a year. “Defensive economic stimulus is needed to ensure that structural reforms maintain their momentum,” said Stephen Jen at hedge fund SLJ Macro Partners.

“If growth slows too much, the pace of structural reforms in China will also need to be curtailed. The government wants to conduct reforms before the macro conditions get worse.” Late Friday, China announced it would cut benchmark interest rates, stepping up the battle against deflationary pressures and easing the financing burden on indebted local governments and companies. It also lowered the amount of deposits banks must hold as reserves, adding liquidity that has been drained by intensifying capital outflows since August’s yuan devaluation. Underscoring the juggling act between reform and stimulus, Friday’s rate-cut announcement was accompanied by the scrapping of a ceiling on deposit rates.

[..] some critics argue administering more stimulus now is the wrong medicine and what’s needed are faster and deeper market-driven reforms. China’s sliding growth is mainly caused by too much easy credit channeled into over-investment, says Patrick Chovanec at Silvercrest Asset Management n New York. “The evidence of recent years shows that China is getting less and less real GDP growth for every yuan of credit created,” said Chovanec. “In other words, more easing won’t help, and could even hurt.” The cut to interest rates may only serve to give yet another lifeline to inefficient state companies, the entities most likely to borrow at the benchmark rate, said Andrew Polk at the Conference Board in Beijing. The risk is that these state companies add more industrial capacity with the funds, worsening deflation and tightening real monetary conditions for the rest of corporate China, he said.

Read more …

The relentless and unstoppable rise of bad loans.

China Banks Turn To Investors For More Capital As Bad Loans Pile Up (Reuters)

Mounting bad loans are running down Chinese banks’ capital buffers, forcing them to turn to investors for fresh funds despite raising a record amount last year. Commercial banks are issuing expensive preference shares as well as convertible and perpetual bonds to shore up their capital bases, even after 2014’s bumper issuance when lenders raced to meet new regulatory requirements. But with bad loans up 30% in the first half of 2015 according to China’s banking regulator, doubts are growing about the ability of some banks to withstand the economic slowdown. “China is facing a systemic credit crisis,” said Jim Antos, banking analyst at Mizuho Securities in Hong Kong. “Chinese banks, until mid 2014, were able to cope with deterioration of loans. It seems that has changed.”

Banks’ operating profit margins also are expected to worsen, following the central bank’s decision on Friday to cut interest rates for the sixth time in less than a year. China’s listed commercial lenders raised $57.6 billion (£37.6 billion) last year to bolster their core capital according to Thomson Reuters data. But they may need to raise an additional 553 billion yuan (£54.7 billion) if a slowdown in the economy pushes the ratio of non-performing loans (NPLs) from 1.5 to 4%, according to calculations by Barclays’ banking analyst Victor Wang. Huaxia Bank is the latest lender to get approval from the Chinese Banking Regulatory Commission (CBRC) to issue 20 billion yuan in preference shares.The economic downturn and structural adjustment have caused “overdue loans to increase quickly, increasing pressure on credit risk management of the entire system,” the official said.

Read more …

Lombard Street Research with a weird plea for a global consumer revival: “..now they can see that oil prices are staying low, consumers are starting to spend the windfall.” BS.

‘Deflationary Boom’ In Prospect As China Slows (FT)

The slowdown in Chinese growth, confirmed by last week’s third-quarter GDP report, is feeding fears that the world economy faces a prolonged period of stagnation, perhaps even a new crisis. In fact, China’s weakness is one of the reasons to be optimistic about global growth. Of course, there are many reasons to be pessimistic too. Many emerging markets are in deep trouble. Many asset prices are unsustainably high. Seven years after the financial crisis erupted, major central banks are still forced to keep monetary policy at emergency settings. And the world is short of genuine consumer demand. It is on this last score that China gives cautious grounds for confidence. Chinese growth of about 3-5% as the economy weans itself off wasteful investment is exactly what the world needs.

As the price of oil, copper and other commodities falls in response to China’s structural adjustment, demand deflates in countries that export energy and natural resources. Brazil and Russia, already deep in recession, will be among those watching anxiously for any economic policy announcements at this month’s plenary meeting of the ruling Chinese Communist party. At the same time, however, global rebalancing transfers income from commodity producers to western consumers. Households have largely chosen so far to set aside money saved on cheaper petrol and lower home heating bills. Economic growth in Europe and the US is below par. But now they can see that oil prices are staying low, consumers are starting to spend the windfall.

We capture these two divergent trends in our forecast of a “deflationary boom” in the world economy — with deflation referring to the step-down in demand in China, emerging markets and commodity-producing countries, and boom describing the step-up in household spending in the US, the eurozone and Britain. If China does manage to make the transition to consumer-driven growth, lower investment would mean less crowding-out of opportunities for profitable capital expenditure in advanced economies. Investment growth would follow the consumer revival. For this rosy scenario to materialise, however, either an unprecedented degree of international co-ordination is required or quite a few pieces of the global economic puzzle have to fall into place independently. The latter is what has been happening over the past year. Can it continue? Here are some signposts investors should keep an eye on.

Read more …

Self-defeating policies, in China as much as in the west.

Why China’s Interest Rate Cut May Be Bad News For The World Economy (Guardian)

So what’s the problem? China, Japan and the eurozone are all easing policy. The US is going to delay tightening policy. More stimulus equals stronger growth and fends off the threat of deflation. That’s got to be good, hasn’t it? Well, only up to a point. Problem number one is that by deliberately weakening their exchange rates, countries are stealing growth from each other. Central banks insist that this does not represent a return to the competitive devaluations and protectionism of the 1930s, but it is starting to look awfully like it. Problem number two is that the monetary stimulus is becoming less and less effective over time. There are two main channels through which QE operates. One is through the exchange rate, but the policy doesn’t work if all countries want a cheaper currency at once.

Then, as the weakness of global trade testifies, it is simply robbing Peter to pay Paul. The other channel is through long-term interest rates, which are linked to the price of bonds. When central banks buy bonds, they reduce the available supply and drive up the price. Interest rates (the yield) on bonds move in the opposite direction to the price, so a higher price means borrowing is cheaper for businesses, households and governments. But when bond yields are already at historic lows, it is hard to drive them much lower even with large dollops of QE. In Keynes’s immortal words, central banks are pushing on a piece of string. Nor is that the end of it. Charlie Bean, until recently deputy governor of the Bank of England, is the co-author of a new report that looks at the impact of persistently low interest rates.

It concludes there is a danger that periods when interest rates are stuck at zero are likely to become more frequent, resulting in a greater reliance on unconventional measures such as QE that are subject to diminishing returns. “Second, and possibly more importantly, a world of persistently low interest rates may be more prone to generating a leveraged ‘reach for yield’ by investors and speculative asset-price boom-busts.” The current vogue is for macro-prudential policies – attempts to prevent bubbles from developing in specific asset markets, such as housing. But the paper makes the reasonable point that the macro-prudential approach – yet to be tried in crisis conditions – might not work. There is, therefore, a risk that tighter monetary policy in the form of higher interest rates will have to deployed in order to deal with the problems that monetary policy has created in the first place.

Read more …

Pushing on an orchestra of strings.

Emerging Currencies’ Fate Looms Large In Rich World Rates Policy (Reuters)

The fate of emerging market currencies is looming ever larger in the outlook for interest rates in the advanced world, promising that their central banks will keep policies super loose for some time to come. Ever since China sprang a surprise depreciation of the yuan in August, the resulting decline of a whole host of emerging market (EM) currencies has produced a disinflationary pulse that the world is ill prepared to withstand. The danger was clearly much on the mind of ECB President Mario Draghi on Thursday when he all but guaranteed a further easing as soon as December.

“The risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties regarding developments in emerging market economies,” warned Draghi, as he sent the euro reeling to two-month lows. They were also cited as a reason the U.S. Federal Reserve skipped a chance to hike interest rates in September. In a recent much-discussed speech, Fed board member Lael Brainard put the deflationary pressures emanating from emerging markets at the center of a forceful case against a “premature” tightening in policy. Fuelling these worries has been a downdraft in emerging market currencies caused in part by worries that higher U.S. rates would suck much needed capital from countries already struggling with large foreign currency debts.

The scale of the shift can be seen in the Fed’s trade weighted U.S. dollar index for other important trading partners, which includes China, Brazil, Mexico and the like. The dollar index began to take off in mid-July and by the end of September had surged over 6% to an all-time high. The impact was clear in U.S. bond markets, where yields on 10-year Treasury notes fell from 2.43% in mid-July to just 2.06% by early October. Investors expectations for U.S. inflation in five years time, a benchmark closely watched by the Fed, sank from a peak of 2.47% in early July to hit an historic trough of 1.99% three months later. That in turn saw investors drastically scale back expectations on when and how fast the Fed might hike. In mid-July, Fed fund futures for December implied a rate of 37 basis points.

By early October it implied only 18 basis points. All of which threatens to become a self-fulfilling cycle where the fear of a Fed hike spurs a steep fall in emerging currencies which in turn stirs concerns about disinflation and prevents the Fed from moving at all. “It’s a negative feedback loop,” says Robert Rennie, global head of market strategy at Westpac in Sydney. “China first flipped the switch with its depreciation of the yuan and the risk of capital flight from EM has kept the pressure on,” he added. “It’s now certain the ECB will ease in December and the Fed will find it tough to hike in December.”

Read more …

Bootle’s a bit of an idiot, but Africa’s fall does deserve more attention.

Africa Is In Grave Danger From The Global Economic Slowdown (Telegraph)

Nowhere in the world is more at risk from the combination of Chinese economic slowdown, low commodity prices and imminent rises in US interest rates, than Africa. There is now a serious question over whether many African economies can achieve rapid growth in the years ahead or whether they are due to sink back into mediocre performance, thereby condemning their people to a continued low standard of living. The fact that this question now needs to be asked may come as a shock. Not long ago Africa was growing very strongly. Indeed, many good judges saw it as due to repeat the sort of economic take-off accomplished by several countries in east Asia a few decades previously. Yet, whereas five years ago the sub-Saharan African (SSA) growth rate was almost 7pc, last year it was down to less than 5pc.

Moreover, it looks as though this year’s performance will be even weaker, with growth dropping to 3pc. Nor is there any real prospect of a return to previous rapid growth rates. There is a suspicion in the minds of many investors that Africa’s recent growth surge was really just the outcome of the commodity boom. Accordingly, if we are in for a long period of commodity prices at about this level, then African growth prospects are pretty poor. Admittedly, there is considerable variation across countries. The worst hit are Nigeria, Zambia and Angola. The major economy that is doing best is Kenya. Meanwhile, SSA’s most developed economy, and the destination for much overseas investment, namely South Africa – where I was last week – seems to be mired in a phase of decidedly slow growth. This year it might manage 1.5pc.

But its medium-term prospects are pretty poor; its potential growth rate might only be 2pc. When you adjust for population growth, its potential growth of per capita GDP may only be 1.2pc per annum, which is pretty paltry compared to China – even after the recent slowdown. China’s importance to Africa is great – especially for South Africa, Angola, Congo and Zambia. But it can be exaggerated. Exports to China represent about 10pc of South Africa’s GDP. That is substantially lower than the UK’s exposure to the EU. In fact, China is Africa’s second largest export market. The largest is the EU, and by a considerable margin. Africa exports about 50pc more to the EU than it does to China. Accordingly, perhaps the most important factor bearing upon Africa’s economic future is what is going to happen to the euro-zone.

Read more …

Abenomics was always just a crazy desperate move with zero chance of succeeding. And it’s going to get a lot worse still.

Japan’s Struggling Economy Finds ‘Abenomics’ Is Not an Easy Fix (NY Times)

Japan’s economy has contracted so many times in the last few years that the meaning of recession has started to blur. If an economy is shrinking almost as often as it is growing, what does any single downturn say about its health? Now Japan appears to be faltering again. After a decline in the second quarter, there are signs that output may have slipped again in the third, driven down in part by a slowing Chinese economy. Economists expect any recession to be short and shallow, but the deeper lesson looks more troubling: Nearly three years after Prime Minister Shinzo Abe gained office on a pledge to end economic stagnation, a decisive break with the past still appears far off. “The potential growth rate is close to zero, so any small shock can put the economy into recession,” said Masamichi Adachi at JPMorgan Chase. “Growth expectations are anemic.”

As a result, some economists are betting that the Bank of Japan, which has been pumping vast amounts of money into the economy by buying up government debt, will pull the trigger on more stimulus at its next board meeting on Friday. The central bank’s aggressive intervention has been central to Mr. Abe’s policies, widely known as Abenomics. But events have conspired to blunt its impact. Last year, it was an ill-timed sales tax increase, which rattled Japanese consumers and dissuaded them from spending. Lately it has been the deceleration in China, whose factories have been important buyers of Japanese-made machinery. But the more fundamental problem, many specialists say, is that Japan’s economy simply doesn’t grow much in the first place.

Baseline growth is essentially zero. GDP is the same size it was in the mid-1990s, in part because the work force is shrinking. So where a faster-moving economy might simply lose momentum in response to headwinds, Japan’s goes into reverse. So far, Mr. Abe’s policies have done little to change the dynamic. “Overseas investors appear increasingly disillusioned with Abenomics,” Naohiko Baba at Goldman Sachs said last week. [..] Mr. Abe has continued to make ambitious promises. Last month, he set a goal of increasing Japan’s nominal economic output to 600 trillion yen by 2020 or soon after – an increase of about 20% from the current level. He gave little indication of how an economy that has not grown in two decades could expand by a fifth in just a few years.

Audacious pronouncements have been a hallmark of Abenomics from the start — part of what Mr. Kuroda has described as an effort to dispel Japan’s “deflationary mind-set.” But after three mostly lackluster years, its architects’ credibility is being questioned by many, including their natural supporters in the business elite. “I believe ¥600 trillion is an outrageous figure,” Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives, said after Mr. Abe announced his goal. “I see it as merely a political message.”

Read more …

Jaoan, US, Europe, all these forecasts are completely useless.

Reality Keeps Catching Up With BOJ’s Inflation Forecasts (Bloomberg)

The Bank of Japan will release updated inflation forecasts this Friday. These are an indicator of when, or if, the bank’s board members see Japan reaching the inflation target of 2%. If history is a guide, the forecasts will probably be cut again, with some people with knowledge of the board’s discussions seeing the possibility of a reduction in the estimates for this and next fiscal years. The bank has had to lower estimates for all four years from 2014, as the chart below shows. Japan’s central bank was the second worst inflation forecaster, according to a Bloomberg survey which compared it to the Bank of Canada, the Fed, the ECB, and the Bank of England. The BOJ’s GDP estimates were the least accurate. While Governor Haruhiko Kuroda says he sees the nation hitting that target sometime around the six months from April, the bank isn’t forecasting inflation that high for any full year through the fiscal year that ends in March 2018.

Read more …

Forgotten history. Europe’s full of it.

When Greeks Fled To Syria (Kath.)

Giorgos Taktikos was just 5 years old when he and his family began their long journey to the Sinai Desert by boarding a small boat in the middle of the night and leaving behind their native Chios. Today, at the age of 78, Taktikos is following history being written the other way round. As a former refugee, he is pained to observe the boatloads of people fleeing the Middle East and reaching Greek shores, while his mind races back to his own long and difficult journey into the unknown. A native of the Chiot village of Kourounia, Taktikos was one of over 30,000 Greeks who left several eastern Aegean islands during the German wartime occupation, some seeking refuge in Syria, others reaching South Africa, in an effort to escape hunger and war.

Boats crossing over, people drowning at sea, overflowing train wagons, refugee camps and deprivation – some things haven’t changed as far as the refugee journey goes. What has changed, however, is the destination: While people were striving to reach Syria back then, today it’s the other way round. “It’s hard to beat hunger and fear; refugee pain is tremendous,” said Taktikos. In the fall of 1942, hunger spread across occupied Greece: While there were severe food shortages in urban centers, the situation was even worse on the islands, given the British Royal Navy’s blockade of the Aegean and the Mediterranean region in general. Getting away was the only way out and for residents of the eastern Aegean, including Samos, Icaria, Chios, Lesvos and Limnos, this was made slightly easier given the islands’ proximity to Turkish shores.

“I was 5. There was plenty of poverty and hunger on the island. In November 1942, a time when it seemed the situation was about to get even worse, my father decided it was time for us to flee in order to survive. Along with two young men, we stole a boat which the Germans had requisitioned, and one night my my father, mother and younger sister, together with another two families, crossed over to Cesme. We were collected by Father Xenakis, an Orthodox priest who met refugees as they arrived and took them to an area where humanitarian organizations could look after them. The first thing he did when we arrived was to make sure the wooden boat was broken into little pieces, so as not to be detected by the Turkish coast guard, who would have forced us to get back on it and return to Greece.”

Read more …

Sep 152015
 
 September 15, 2015  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , , ,  6 Responses »


John Vachon Rain. Pittsburgh, Pennsylvania Jun 1941

China Stocks Sink Again: Shanghai Down 3.52% (Bloomberg)
China Sells Record FX In August, Shows Pressure After Devaluation (Reuters)
China Spending Surge Means Debts Will Only Get Larger (WSJ)
China Grabs Unused Funds To Spend On New Projects As Growth Slows (Reuters)
Brazil Downgrade Leaves Firms With $270 Billion Debt Hangover (Bloomberg)
Pimco, Fidelity Stung by Collapse of Petrobras’s 100-Year Bond (Bloomberg)
Deutsche Bank To Cut 23,000 Jobs, A Quarter Of Its Workforce (Reuters)
UniCredit, Italy’s Biggest Bank, Plans To Cut Around 10,000 Jobs (Reuters)
‘Syria Is Emptying’ (WaPo)
Refugees Confounded By Merkel’s Decision To Close German Borders (Guardian)
Thousands Of Refugees To Lose Right Of Asylum Under EU Plans (Guardian)
EU Plan To Share 120,000 Refugees Has Fallen Apart (FT)
Border-Free Europe Unravels As Migrant Crisis Hits Record Day (Reuters)
Europe Fortifies Borders as Germany Predicts 1 Million Refugees (Bloomberg)
EU Governments Set To Back New Internment Measures (Guardian)
Hungary Transports Refugees To Austria Before Border Clampdown (Guardian)
Cameron Invents The Humanitarian Offside Rule (Frankie Boyle)
US Officials Cover Up Housing Bubble’s Scummy Residue (David Dayen)
Defining Neoliberalism (Jeremy Smith)
One In Six Americans Go Hungry. We Can’t Succeed On An Empty Stomach (Guardian)

It just keeps going. Nobody in China trusts stocks anymore, because Beijing has failed to restore that trust.

China Stocks Sink Again: Shanghai Down 3.52% (Bloomberg)

China’s stocks slumped for a second day in thin turnover amid concern government measures to support the world’s second-largest equity market and economy are failing. The Shanghai Composite Index dropped 3.5% to 3,005.17 at the close, led by commodity producers and technology companies. About 14 stocks declined for each one that rose on the gauge, while volumes were 36% below the 30-day average. The index completed its biggest two-day loss in three weeks with a decline of 6.1%.

Mainland Chinese equity funds lost 44% of their value at the end of last month compared with July, data showed Monday, as unprecedented state measures to stop a $5 trillion selloff failed to avert redemption. Data this month showed five interest-rate cuts since November and plans to boost state spending have yet to revive an economy weighed down by overcapacity and producer-price deflation. Yuan positions at the central bank and financial institutions fell by the most on record in August, a sign that policy makers stepped up intervention to support the currency.

Read more …

Intervening in all asset markets at the same time…

China Sells Record FX In August, Shows Pressure After Devaluation (Reuters)

China’s central bank and commercial banks sold a net 723.8 billion yuan ($113.69 billion) of foreign exchange in August, by far the largest on record, highlighting how capital outflows intensified in the wake of the yuan’s devaluation last month. The previous largest outflow, in July, totaled 249.1 billion yuan ($39.13 billion). The figures are based on Reuters calculations using central bank data, the latest of which was released on Monday. The figures show the price China is paying to keep its currency from falling further in the face of concerns about the health of the economy and as financial markets anticipate a rise in U.S. interest rates. Shen Jianguang, an economist at Mizuho Securities in Hong Kong, said the figures suggest selling pressure on the yuan remains strong.

“It also shows that the central bank will continue to intervene in the FX market in the coming months as depreciation expectation is still there,” Shen said. Still, traders said the net outflow was within market forecasts. Some had expected a net outflow of $130 billion, said a senior trader at a Chinese commercial bank in Shanghai. This person declined to be identified. “Purchases are likely to fall from September on but uncertainties remain, including the yuan’s own volatility and the dollar’s performance in global markets in line with the Fed’s policy moves,” the trader said. China’s central bank, the People’s Bank of China, surprised global markets on Aug 11 by devaluing the yuan by nearly 3%.

Since the devaluation, China has scrambled to keep the yuan steady, running down its foreign exchange reserves by a record amount in August to stabilize the onshore rate. The central bank has instituted a raft of new policies aimed at discouraging speculation on further yuan depreciation and traders suspect it also intervened in offshore yuan markets. Authorities have also frantically tried to prevent a precipitous slide in equities markets from turning into a market crash with a flurry of policies to prop up prices and restore confidence.

Read more …

It starts to smell of desperation. But then, Xi and Li have nothing to lose but their heads.

China Spending Surge Means Debts Will Only Get Larger (WSJ)

China is falling back on infrastructure spending to stimulate its sputtering economy. The move may support growth, but it is also a setback to getting the country’s debt load under control. Government agencies have publicly confirmed a new willingness to spend on infrastructure in recent weeks. Already in August, infrastructure investment rose 21% from a year earlier, up from 15.8% growth in July, according to calculations by SocGen. That far outpaced total fixed-asset-investment growth, which clocked in at just 9.2%. What is less clear is where the money is coming from. In recent years, much of the infrastructure development has been funded chiefly by off-balance sheet local government financing platforms, which helped get around limits on public borrowing.

This avenue seemed to be cut off by a new budget law in late 2014, which ostensibly banned new borrowing by such financing vehicles. But it quickly became clear that this amounted to a kind of fiscal cliff for the economy. Beijing quietly backtracked, and is now allowing the platforms to keep borrowing for approved projects. Still, China will be eager to keep a lid on borrowing by provinces and towns. An official audit of total local government debt, released earlier this month, found it reached 24 trillion yuan ($3.8 trillion) at the end of 2014, up 34% over 18 months. Beijing doesn’t want to see that pace of growth continue. It is already working hard to clean up the last infrastructure spending boom with its 3.2 trillion yuan program to allow local government-linked high-cost loans to be swapped into lower interest bonds with longer durations.

But this merely reduces financing costs on previous projects. The amount that it frees up for new spending is minimal. So if the central government wants more infrastructure spending, it has to find another way. The plan appears to be to rely on government-controlled policy banks, including China Development Bank and the Agricultural Development Bank. These lenders can access loans directly from the central bank. For fresh funding, they have also issued over 1.8 trillion yuan ($280 billion) of bonds this year, up more than 70% from all of last year, according to Nomura.

Read more …

Something tells me those funds were already in use, for instance as collateral for the shadow banks.

China Grabs Unused Funds To Spend On New Projects As Growth Slows (Reuters)

Chinese authorities have seized up to 1 trillion yuan ($157 billion) from local governments who failed to use their budget allocations, sources said, as Beijing looks for ways to spend its way out of an economic slowdown. The exclusive Reuters report came after China’s stocks fell following data suggesting economic growth was running below the 2015 target level of about 7%, heightening concerns about the health of the world’s second largest economy. “China’s economy faces relatively big downward pressure, so investor sentiment remains weak,” said Gu Yongtao, strategist at Cinda Securities. Two sources close to the government said budget funds repossessed from local governments would be used to pay for other investments.

The huge underspend, linked to officials’ reluctance to splash out on big-ticket projects while authorities crack down on corruption, supports the argument of some economists that Chinese state investment has grown too slowly this year. “In the past, local governments had asked for the money. Money was given, but no one acted,” said one of the two sources. On Monday, China’s powerful economic planner, the National Development and Reform Commission (NDRC), said it had approved feasibility studies for two road projects worth a total of 6.2 billion yuan ($973.65 million). Last week, the NDRC gave the green light for railway, highway and bridge projects worth a combined $23 billion, in a sign authorities are focusing on infrastructure spending rather than deeper reforms to shore up growth in the short term.

Read more …

Brazil is in for a very deep fall.

Brazil Downgrade Leaves Firms With $270 Billion Debt Hangover (Bloomberg)

Brazilian companies that piled on $270 billion in international debt during the boom years are seeing their funding costs rise after the nation’s credit rating was cut to junk. The spread for five-year credit-default swaps to protect against a government default, one benchmark for setting what Brazilian companies must pay for external funding, has jumped 7.5% to 400 basis points since the downgrade, the highest since 2009. Adding to the pain, the dollar surged to a 13-year high, making principal and interest on international borrowing more costly for local firms. “Even very small, unknown companies issued international bonds when Brazil was considered one of the most promising economies after the 2008 financial crisis,” Salvatore Milanese at Pantalica Partners said in Sao Paulo. “Now many of them are facing the consequences.”

Standard & Poor’s last week lowered Brazil’s sovereign credit rating one level to BB+ and said it might cut it further in response to the administration’s inability to shore up fiscal accounts as the economy falters. President Dilma Rousseff has failed to win support for her initiatives amid an investigation into corruption at the state-controlled oil company, some of which allegedly occurred while she was its chairwoman, sending her popularity to a record low and generating calls for her impeachment. Federal, state and municipal governments oversaw only modest increases in external debt during the seven years Brazil had an investment-grade credit rating, increasing it 4.5% from December 2007 to March 2015, to $69 billion, according to central bank data. For banks and non-financial companies, the story is different: They more than doubled their dollar-denominated debt to $154 billion and $114.7 billion, respectively.

Read more …

Because 100-year bonds never looked stupid?

Pimco, Fidelity Stung by Collapse of Petrobras’s 100-Year Bond (Bloomberg)

When Petroleo Brasileiro SA sold 100-year bonds in June, the move was largely seen as a sign the corruption-tainted oil producer had put the worst of its problems behind it. For investors like Pimco, Fidelity and Capital Group – the three biggest holders of the securities – that turned out to be a costly miscalculation. Since the $2.5 billion offering, the bonds have tumbled 15%. That’s four times the average loss for emerging-market company debt. The plunge deepened last week, when the securities sank to a record-low 69.5 cents on the dollar after Petrobras, as the Brazilian company is known, had its credit rating cut to junk by Standard & Poor’s. The world’s most-indebted major oil producer was stripped of its investment grade by Moody’s Investors Service seven months earlier as a widening probe into alleged bribes paid to former executives at the state-controlled oil company caused it to delay reporting earnings.

“Everything was priced for perfection, and sadly, except for soccer players, Brazil seldom achieves perfection,” Russ Dallen, the head trader at Caracas Capital Markets, said from Miami. Pimco didn’t respond to e-mailed requests for comment. Fidelity and Capital Group declined to comment. Petrobras didn’t respond to an e-mail seeking comment on the performance of its bonds. The company has already borrowed enough to finance its projects for the medium term, it said in a statement Sept. 10. Yields on Petrobras’s 6.85% bonds, which mature in 2115, have soared 1.5 percentage points to a record 9.86% since they were issued on June 2, according to data compiled by Bloomberg.

Read more …

Of things to come.

Deutsche Bank To Cut 23,000 Jobs, A Quarter Of Its Workforce (Reuters)

Deutsche Bank aims to cut roughly 23,000 jobs, or about one quarter of total staff, through layoffs mainly in technology activities and by spinning off its PostBank division, financial sources said on Monday. That would bring the group’s workforce down to around 75,000 full-time positions under a reorganization being finalised by new Chief Executive John Cryan, who took control of Germany’s biggest bank in July with the promise to cut costs. Cryan presented preliminary details of the plan to members of the supervisory board at the weekend. Deutsche’s share price has suffered badly under stalled reforms and rising costs on top of fines and settlements that have pushed the bank down to the bottom of the valuation rankings of global investment banks. It has a price-book ratio of around 0.5, according to ThomsonReuters data.

The bank unveiled a broad restructuring plan in April but co-chief executives Anshu Jain and Juergen Fitschen quit shortly afterwards, handing over its execution to Cryan. “This is the first time ever that you had the feeling that somebody is talking straight,” said one of the sources. “But the problem is he has to deliver soon.” Deutsche is mainly reviewing cuts to the parts of its technology and back office operations that process transactions and work orders for staff who deal with clients. A significant number of the roughly 20,000 positions in that area will be reviewed for possible cuts, a financial source said. Back-office jobs in the group’s large investment banking division will be concentrated in London, New York and Frankfurt, the source said.

Read more …

No coincidence.

UniCredit, Italy’s Biggest Bank, Plans To Cut Around 10,000 Jobs (Reuters)

Italy’s biggest bank by assets, is planning to cut around 10,000 jobs, or 7% of its workforce, as it seeks to slash costs and boost profits, a source at the bank told Reuters on Monday. The planned cuts will be concentrated in Italy, Germany and Austria, several sources said, adding that they include 2,700 layoffs in Italy that have already been announced. A UniCredit spokesman declined comment beyond noting that the bank’s CEO Federico Ghizzoni had on Sept. 3 said there were no concrete numbers on potential lay-offs, after a report said it was considering eliminating 10,000 positions in coming years.

Ghizzoni is reworking a five-year strategic plan, unveiled only last year, that will aim to boost revenue and cut costs. The revised plan is expected to be announced in November. “The plans are for 10,000 job cuts,” the bank’s insider said, speaking on condition of anonymity. “They will be mainly in Italy, Austria and Germany.” UniCredit, which has 146,600 employees across 17 countries, is under pressure to boost its profits as low interest rates are expected to keep hurting its earnings in coming years.

Read more …

Why Putin wants to talk to Obama.

‘Syria Is Emptying’ (WaPo)

A new exodus of Syrians is fueling the extraordinary flow of migrants and refugees to Europe as Syria’s four-year-old war becomes the driving force behind the greatest migration of people to the continent since World War II. Syrians account for half of the 381,000 refugees and migrants who have sought asylum in Europe so far this year, which is in turn almost a doubling of the number in 2014 — making Syrians the main component of the influx. The continued surge through Europe prompted Hungary, Austria and Slovakia to tighten border controls Monday, a day after Germany projected that in excess of a million people could arrive by year’s end and began to impose restrictions on those entering the country.

How many more Syrians could be on the way is impossible to know, but as the flow continues, their number is rising. In July, the latest month for which figures are available, 78% of those who washed up on inflatable dinghies on the beaches of Greece were Syrian, according to the U.N. High Commissioner for Refugees. Some were already among the 4 million refugees who have sought sanctuary in neighboring countries, but many also are coming directly from Syria, constituting what Melissa Fleming of the UNHCR called a “new exodus” from the ravaged country. They are bypassing the refugee camps and heading straight for Europe, as the fallout from what President Barack Obama once called “someone else’s civil war” spills far beyond Syria’s borders.

More are on the way. Syrians are piled up on the streets of the Turkish port city of Izmir waiting for a place on one of the flimsy boats that will ferry them across the sea to Greece, and they say they have friends and family following behind. “Everyone I know is leaving,” said Mohammed, 30, who climbed three mountains to make his way across the Turkish border from the city of Aleppo with his pregnant wife, under fire from Turkish border guards. “It is as though all of Syria is emptying.” Analysts say it was inevitable it would come to this, that Syrians would eventually tire of waiting for a war of such exceptional brutality to end. At least 250,000 have been killed in four ferocious years of fighting, by chemical weapons, ballistic missiles and barrel bombings by government warplanes that are the biggest single killer of civilians, according to human rights groups.

Men on both sides die in the endless battles between the government and rebels for towns, villages and military bases that produce no clear victory. The Islamic State kills people in the areas it controls with beheadings and other brutal punishments. The United States is leading a bombing campaign against the Islamic State but has shown scant interest in solving the wider Syrian war, which seems destined only to escalate further with the deepening involvement of Russian troops. “It should surprise no one. Hopelessness abounds,” said Fred Hof, a former State Department official who is now with the Atlantic Council. “Why would any Syrian with an option to leave and the physical ability to do so elect to stay?”

Read more …

“Everybody is coming,” said Iyad, a Syrian student. “They are coming, coming, coming.”

Refugees Confounded By Merkel’s Decision To Close German Borders (Guardian)

Angela Merkel, Germany’s chancellor, has cut a chequered figure this summer: scorned for taking Greece to the wall, and praised for welcoming large numbers of Syrians to Germany. But nowhere and at no time has she been more of an enigma than she was in Vienna’s central station on Monday where crowds of refugees struggled to reconcile how the same “Mama Merkel” had opened Germany’s borders one week, and closed them again barely eight days later – leaving those at the station stranded. “She said she will bring big boats from Turkey to rescue Syrians!” said Maria, a Syrian who fled the bombs of Damascus six weeks ago. “And now why has she closed the border?” asked Maria’s daughter.

For a week, refugees had been able to freely board trains to Germany from Vienna – but Sunday’s developments returned the status quo to how it was in late August. Station staff said on Monday that the rail border had reopened at 7am, less than a day after Germany had stopped all inbound rail services. But the ticket machines would not let people book journeys to German destinations. And while some had managed to get fares from the ticket office, it was unclear to many people whether the border had reopened or not. Pacing around the concourse with her two children, Galbari al-Hussein saw the constant changes in border policy as a cruel game played at the expense of vulnerable refugees.

“We’ve travelled so far, thousands of kilometres, and now they’re closing the borders,” said Hussein, who reached Vienna barely a week after escaping Islamic State territory, hidden in an unfamiliar niqab. “Is it open, is it closed? It’s very unfair.” Among Syrians, there lingered the suspicion that their chances had been spoilt by people hoping to piggyback on the generosity shown by Germany to the victims of the Syrian civil war. “Not everyone here is Syrian,” said Josef, from Damascus, who disclosed his exact address in an attempt to prove his nationality. “People say they are Syrians, but they are from somewhere else. And that’s why this is happening..” [..] As rumours swirled, even non-Syrian refugees couldn’t help but wonder whether they were the real targets of the German border shenanigans. Hany, an Iraqi engineering student, smiled wistfully. “Germany is very good to Syrians,” he said. “It wants all the Syrians to come, but maybe not the Iraqis.”

There was one thing on which everyone could agree. Whatever Germany does or doesn’t do with its border, refugees will still keep fleeing to Europe. “Everybody is coming,” said Iyad, a Syrian student. “They are coming, coming, coming. My brother will leave Syria in two days.” Iyad’s friend Amal nodded in agreement. “The only people who will stay are those who don’t have any money,” said Amal. “People are selling their cars and homes to come here.”

Read more …

How to use a crisis.

Thousands Of Refugees To Lose Right Of Asylum Under EU Plans (Guardian)

European governments are aiming to deny the right of asylum to innumerable refugees by funding and building camps for them in Africa and elsewhere outside the European Union. Under plans endorsed in Brussels on Monday evening, EU interior ministers agreed that once the proposed system of refugee camps outside the union was up and running, asylum claims from people in the camps would be inadmissible in Europe. The emergency meeting of interior ministers was called to grapple with Europe’s worst modern refugee crisis. It broke up in acrimony amid failure to agree on a new system of binding quotas for refugees being shared across the EU and other decisions being deferred until next month.

The lacklustre response to a refugee emergency that is turning into a full-blown European crisis focussed on “Fortress Europe” policies aimed at excluding refugees and shifting the burden of responsibility on to third countries, either of transit or of origin. The ministers called for the establishment of refugee camps in Italy and Greece and for the detention of “irregular migrants” denied asylum and facing deportation but for whom “voluntary return” was not currently “practicable”. The most bruising battle was over whether Europe should adopt a new system of mandatory quotas for sharing refugees. The scheme, proposed by the European commission last week, is strongly supported by Germany which sought to impose the idea on the rejectionists mainly in eastern Europe.

Hungary’s hardline anti-immigration government said it would have no part of the scheme, from which it would benefit, while Thomas de Maizière, the German interior minister, complained that the agenda for the meeting was inadequate. The ministers agreed “in principle” to share 160,000 refugees across at least 22 countries, taking them from Greece, Hungary, and Italy, but delayed a formal decision until next month, made plain the scheme should be voluntary rather than binding and demanded ‘flexibility’. De Maizière, by contrast, called for precise definitions of how refugees would be shared. Luxembourg, chairing the meeting, signalled that there was a sufficient majority to impose the quotas, but that the meeting had balked at forcing a vote.

Read more …

They’ll pull aid funds from whoever won’t comply.

EU Plan To Share 120,000 Refugees Has Fallen Apart (FT)

EU efforts to agree a binding plan to share out 120,000 refugees fell apart after a minority of countries led by Czech Republic and Hungary objected to a heavily watered down proposal. After six hours of argument, member states failed to reach unanimous agreement on the plan, although a majority — including France and Germany — supported the scheme. Countries in favour of the plan will now try to force through a deal with a qualified majority at another meeting in October, setting the stage for a bitter diplomatic fight in the intervening period. Although qualified majority votes are acceptable under EU law, they are rarely used to force through decisions on politically sensitive topics against vocal opposition.

Hungary was supposed to be one of the beneficiaries of the scheme but has opposed it, arguing that it is not a front-line country and that it has only suffered a huge influx of migrants because Greece has failed to manage its borders. Officials also say that it would risk turning the country into a holding pen for migrants who do not want to stay there. French interior minister Bernard Cazeneuve criticised those countries opposed to the measures. “Europe is not Europe a la carte. If Europe wants to surmount this humanitarian challenge, it is necessary that all countries live up to their responsibilities.” The Czech Republic also refused to sign up to the proposals, saying that it would oppose efforts to introduce an automatic relocation scheme. Romania and Slovakia were also against the scheme.

Read more …

7,437 migrants recorded entering Hungary from Serbia yesterday. Times 365 equals 2.7 million.

Border-Free Europe Unravels As Migrant Crisis Hits Record Day (Reuters)

Two decades of frontier-free travel across Europe unraveled on Monday as countries re-established border controls in the face of an unprecedented influx of migrants, which broke the record for the most arrivals by land in a single day. Germany’s surprise decision to restore border controls on Sunday had a swift domino effect, prompting neighbors to impose checks at their own frontiers as thousands of refugees pressed north and west across the continent while Hungary sealed the main informal border crossing point into the European Union. A majority of EU interior ministers, meeting in Brussels, agreed in principle to share out 120,000 asylum seekers on top of some 40,000 distributed on a voluntary basis so far, EU president Juncker said.

But details of the deal, to be formalized on Oct. 8, were vague with several ex-Communist central European states still rejecting mandatory quotas. Austria said it would dispatch its military to help police carry out checks at the border with Hungary after thousands of migrants crossed on foot overnight, filling up emergency accommodation nearby, including tents at the frontier. Thousands more raced across the Balkans to enter Hungary before new rules take effect on Tuesday, which Budapest’s right-wing government says will bring a halt to the illegal flow of migrants across its territory. By 1400 GMT on Monday, police said 7,437 migrants had been recorded entering Hungary from Serbia, beating the previous day’s record of 5,809.

Then helmeted Hungarian police, some on horseback, closed off the main informal crossing point, backed by soldiers as a helicopter circled overhead. A goods wagon covered with razor wire was moved into place to block a railway track used by migrants to enter the EU’s Schengen zone of border-free travel. Hungary later declared the low-level airspace over its border fence closed but allowed a trickle of refugees to enter the country at an official crossing point. As the shockwaves rippled across Europe, Slovakia said it would impose controls on its borders with Hungary and Austria. The Netherlands announced it would make spot checks at its borders. Other EU states from Sweden to Poland said they were monitoring the situation to decide whether controls were needed.

“If Germany carries out border controls, Austria must put strengthened border controls in place,” Vice Chancellor Reinhold Mitterlehner told a joint news conference with Chancellor Werner Faymann. “We are doing that now.” The army would be deployed in a supporting role.

Read more …

How the end begins.

Europe Fortifies Borders as Germany Predicts 1 Million Refugees (Bloomberg)

One day after Germany curbed the freedom of movement in the region by temporarily reinstating border controls, the country’s vice chancellor estimated that as many as 1 million refugees may arrive by the end of the year as other nations moved to fortify their frontiers. The prediction from Sigmar Gabriel, who leads the Social Democrats, underscored how quickly the numbers fleeing to Germany are spiraling upward. The official government estimate, released just a few weeks ago, is for roughly 800,000 in 2015, nearly four times the 2014 figure.

European Union interior and justice ministers will try to bridge a divide over the region’s worst refugee crisis since World War II when they meet Monday in Brussels to hammer out an agreement over binding quotas redistributing 160,000 migrants who have flooded into Hungary, Greece and Italy. Eastern European countries including Poland and the Czech Republic have opposed such measures. Germany, which supports the EU proposal, on Sunday introduced the temporary controls on the southern border with Austria, where thousands of migrants have been crossing into the country. Austria responded Monday by sending 2,200 troops to its frontier with Hungary, while Slovakia reinstated checks along its border with both countries.

“Of course, the idea is not to prolong this, but it’s a short-term measure that should be in place for as short a time as possible,” Felix Braz, the justice minister of Luxembourg, which currently holds the rotating EU presidency — said in an interview. “A lot will depend on what comes out of Brussels this afternoon.” Germany’s move risks creating widespread disruption as governments weigh a further tightening of frontier controls across Europe.

Read more …

EU leaders are a much bigger threat to the union than refugees.

EU Governments Set To Back New Internment Measures (Guardian)

EU governments are expected to back radical new plans for the internment of “irregular migrants”, the creation of large new refugee camps in Italy and Greece and longer-term aims for the funding and building of refugee camps outside the EU to try to stop people coming to Europe. A crunch meeting of EU interior ministers in Brussels, called to grapple with Europe’s largest refugee crisis since the second world war, was also expected to water down demands from the European commission, strongly supported by Germany, for the obligatory sharing of refugees across at least 22 countries. A four-page draft statement, prepared on Monday morning by EU ambassadors before the ministers met, focused on “Fortress Europe” policies amid increasing confusion as a number of countries set up border controls in the Schengen free-travel area that embraces 26 countries.

The draft statement, obtained by the Guardian, said “reception facilities will be organised so as to temporarily accommodate people” in Greece and Italy while they are identified, registered, and finger-printed. Their asylum claims are to be processed quickly and those who fail are to be deported promptly, the ministers say in the draft statement. “It is crucial that robust mechanisms become operational immediately in Italy and Greece to ensure identification, registration and fingerprinting of migrants; to identify persons in need of international protection and support their relocation; and to identify irregular migrants to be returned.” The Europeans are to set up “rapid border intervention teams” to be deployed at “sensitive external borders”. Failed asylum seekers who are expected to try to move to another EU country from Greece or Italy can be interned, the statement says.

“When voluntary return is not practicable and other measures on return are inadequate to prevent secondary movements, detention measures … should be applied.” The European commission demanded last week that at least 22 EU countries accept a new system of quotas for refugees, with 160,000 redistributed from Greece, Italy and Hungary under a binding new system. Germany is insisting on the binding nature of the proposed scheme and its unilateral decision on Sunday to re-establish national border controls within the Schengen area was widely seen as an attempt to force those resisting mandatory quotas to yield. The resistance is strongest in eastern and central Europe.

Read more …

TEXT

Hungary Transports Refugees To Austria Before Border Clampdown (Guardian)

Hungary is transporting thousands of refugees by train and dumping them on the border with Austria, the UN refugee agency has said, as EU states scrambled to follow Germany’s lead and introduce new controls on their borders. Special trains were taking refugees on a four-hour journey from camps in southern Hungary directly to Austria, the UNHCR said. There are signs that Hungary’s prime minister, Viktor Orban, wants to empty refugee camps before a law comes into force on Tuesday criminalising the act of crossing or damaging a newly built border fence. At least three trains carrying 2,000 people left on Sunday from the Hungarian town of Röszke, the UNHCR’s regional representative Erno Simon said. He added: “During the night our colleagues saw police waking people up at the [Hungarian] border collection point.”

Austria said it was sending troops to its border to help with security. The numbers entering from Hungary had reached overwhelming levels, police said, with 14,000 arriving on Sunday and another 7,000 by mid-Monday, and more expected. Austria’s vice-chancellor, Reinhold Mittelehner, said: “If Germany carries out border controls, Austria must put strengthened border controls in place. We are doing that now.” Slovakia said it was introducing checks on its borders with Hungary and Austria and would deploy 220 extra officers. Polandd’s prime minister, Ewa Kopacz, said Warsaw would restore border controls in response to “outside threats”.

On Sunday Berlin announced new controls on its border with Austria and halted train traffic between Austria and Germany. Germany’s interior minister, Thomas de Maizière, said the measures were necessary because record numbers of refugees, many of them from Syria, had stretched the system to breaking point. The measures are likely to remain in place for weeks if not months, German officials have indicated. Police patrols have been set up on road crossings between Austria and Bavaria, leading to four-mile tailbacks on Monday. Similar measures will be rolled out in the federal state of Saxony, on the border with the Czech Republic.

Read more …

“I certainly don’t want to see Islamic State in a war with our troops because – let’s be honest – they are just impressionable young men who have been manipulated into a life of murder by those who teach hate, and Isis isn’t much better.“

Cameron Invents The Humanitarian Offside Rule (Frankie Boyle)

David Cameron visited a refugee camp in Lebanon on Monday. Our prime minister, a man who can normally muster all the moral authority of Roman Polanski’s penis, has discovered his soul. Amazing what a three-week break away from parliament can do. It only took David Cameron six years to finally come out and take a moral stand, and all it took was the death of one toddler. You may call the Tories’ glacial crawl towards respecting human life a political and personal train crash. I call it compassion. In Europe we have the stereotype that Africans view life cheaply, but we’ve spent much of the summer watching van loads of Syrians being washed in by the tide and all we worried about was whether this meant the beach might be closed during the October holidays.

There were Greek kids incorporating human remains into their sandcastles and yet the big story here was that the drinks trolley didn’t make it down the Eurostar. One dog locked in a car on a sunny day – Britain goes apeshit. Seventy-one dead migrants roasted in a truck – oh that reminds me, Bake Off’s on tonight. It seems we are naive about the workings of this modern culture, where people Skype each other masturbating before a first date, and forget that the general populace now don’t believe children are dying unless you show them a closeup picture of a dead child. The Kurdi family were trying to get from Turkey to Kos, so many people said, “Why would they want to leave Turkey? Turkey is nice!”

Turkey is nice if you’re a sunburnt Brit with a taste for overpriced kebabs, cheap jeans and waterslides. It’s not so nice for a member of their oppressed minority who speak a language that’s been banned by law. What we haven’t heard is that children get washed up on the shore at Bodrum every single day. What are Turkish journalists doing? Generally about two to four years’ hard labour. Of course there are many people who say we shouldn’t be helping refugees when there are homeless people here that we can do nothing to help first. Indeed Britain may have entirely forgotten how to be welcoming. We’ll probably welcome refugees by putting the word Syrian in the sidebar of xHamster. We are only taking people from camps – we don’t want refugees already in Europe as they cheated and didn’t wait to shout “What’s the Time Mr Wolf?” We don’t want any refugees who are already close to us, like there’s some kind of humanitarian offside rule.

Read more …

Fraudulent Foreclosure Documents

US Officials Cover Up Housing Bubble’s Scummy Residue (David Dayen)

Every day in America, mortgage companies attempt to foreclose on homeowners using false documents. It’s a byproduct of the mortgage securitization craze during the housing bubble, when loans were sliced and diced so haphazardly that the actual ownership was confused. When the bubble burst, lenders foreclosing on properties needed paperwork to prove their standing, but didn’t have it — leading mortgage industry employees to forge, fabricate and backdate millions of mortgage documents. This foreclosure fraud scandal was exposed in 2010, and acquired a name: “robo-signing.” But while some of the offenders paid fines over the past few years, nobody cleaned up the documents. This rot still exists inside the property records system all over the country, and those in a position of authority appear determined to pretend it doesn’t exist.

In two separate cases, activists have charged that officials and courts are hiding evidence of mortgage document irregularities that, if verified, could stop thousands of foreclosures in their tracks. Officials have delayed disclosure of this evidence, the activists believe, because it would be too messy, and it’s easier to bottle up the evidence than deal with the repercussions. “All they’re doing is making a mockery of our judicial system,” said Bill Paatalo, a private investigator and one of the activists. Like many other anti-foreclosure activists, Paatalo got involved with the issue through a case involving his own property — in Absarokee, Montana. Like many homeowner loans purchased during the housing bubble, Paatalo’s was packaged into a mortgage-backed security.

The process worked like this: The loans were eventually sold into a tax-exempt REMIC (Real Estate Mortgage Investment Conduit) trust; the REMIC trust received monthly mortgage payments from homeowners; and the payments were passed along to investors in the mortgage-backed securities. The trust where Paatalo’s mortgage ended up is known as “WaMu Mortgage Pass-Through Certificates Services 2007-OA3 Trust.” When he faced foreclosure, the trust, as the nominal owner of the mortgage, was the plaintiff. In doing research for his own trial, Paatalo discovered that all “foreign business trusts” established outside of Montana have to register with the Secretary of State in order to transact business, under Title 35-5-201 of the Montana code. Trustees must file an application, along with legal affidavits affirming its trust agreement and identifying all trustees, and pay a $70 filing fee. WaMu Mortgage Pass-Through Certificates Services 2007-OA3 Trust – based in Delaware — didn’t.

Read more …

“Neoliberalism’s ultimate purpose, and its finality, is that of transformation to a single global economy and society governed and disciplined by finance capital.”

Defining Neoliberalism (Jeremy Smith)

In a twitter exchange today, involving Duncan Weldon, Tony Yates, George Magnus, Jo Michell and PRIME’s Ann Pettifor, the question arose (not for the first time!) over the definition of “neoliberalism.” It is often argued that the term has no distinct or discernible meaning, and certainly Wikipedia’s entry for Neoliberalism only adds to confusion. Ann tweeted this: “puzzle over definition of “neoliberalism. Definition elastic? Insult? Help Twitter..” Well I’m not going to try and make my offer via twitter, because I can’t manage a decent definition in the allotted 140 characters. But I am convinced that neoliberalism does have a clear meaning – and offer the following as my contribution to the discussion:

Neoliberalism: The utopian politico-economic system and ideology, under constant and conscious construction by its “priesthood”, under which the interests of society are to be subordinated to the interests of actors in financial markets and the dominance of finance capital, minimally regulated and flowing unfettered across frontiers. Under this system, the role and remit of the state and public sphere, beyond protection and furtherance of those interests and that dominance, are to be reduced to their practical minimum. Neoliberalism’s ultimate purpose, and its finality, is that of transformation to a single global economy and society governed and disciplined by finance capital.

My definition owes much to Karl Polanyi’s approach. In “The Great Transformation” Polanyi wrote:

This paradox [of the need for a strong central executive under laissez-faire] was topped by another. While laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not. If ever there was conscious use of the executive in the service of a deliberate government-controlled policy, it was on the part of the Benthamites in the heroic period of laissez-faire. (p.141)

Polanyi also draws attention to the disastrous contribution of “economic liberalism at its height” in the 1920s. He argues (p.142):

The repayment of foreign loans and the return to stable currencies were recognized as the touchstones of rationality in politics; and no private suffering, no infringement of sovereignty was considered too great a sacrifice for the recovery of monetary integrity. The privations of the unemployed made jobless by deflation; the destitution of public servants dismissed without a pittance; even the relinquishment of national rights and the loss of constitutional liberties were judged a fair price to pay for the fulfilment of the requirements of sound budgets and sound currencies, these a priori of economic liberalism.

This nicely captures the consciousness of the creation of globalising “economic liberalism”, as well as – once programmed correctly – the way it rolled out the consequences automatically, via a kind of austerity algorithm. This coincides with what we see today in the way neoliberalism works. And that is why I call it both an ideology (or philosophy if you feel kinder) and a system.

Read more …

We just don’t care.

One In Six Americans Go Hungry. We Can’t Succeed On An Empty Stomach (Guardian)

As millions of kids head back to school this month, some of them are missing summer, but many are excited to once again receive regular meals. Many low-income children are able to get the food they need through the federal nutrition programs such as free school lunches. But, only half of these kids also get a nutritious school breakfast. And 75% of them struggle over the summer to get enough to eat. One child out of every five in the United States is fighting to learn, grow and prosper while combating the gnawing stress of hunger. In fact, kids make up nearly half of all people living in households struggling with hunger. That’s why lawmakers on Capitol Hill are currently working to reauthorize the laws that govern, among other things, whether or not more kids have access to summer meal programs.

Last month, a bipartisan group of six senators introduced the “Hunger Free Summer for Kids Act.” If the policies in this bill make it into law this year, it could mean as many as 6.5 million can get the nutrition they need during the summer holidays. These nutrition laws expire on September 30th, so Congress needs to act quickly. And we need to be doing more. Hunger impacts every American. According to the latest “food insecurity” numbers by the United States Department of Agriculture, 14% of all households struggle to have enough to eat. That’s 48 million of our friends, neighbors and fellow Americans. And that is one in six Americans — not just in the inner city, but in the suburbs, rural areas and every primary and battleground state across the country. These numbers show how many American households struggle to consistently provide all of its family members enough food for an active, healthy lifestyle. It could mean some days the cupboards are completely bare.

It could mean a mother is skipping meals to ensure food for her son at night. It could mean a family is choosing between food and medicine, or food and rent. It does mean there is never enough. Hunger has a devastating effect on the food insecure, but, it is not just those with empty bellies who suffer. Hunger impacts education, health and the economy at large. Children struggling with hunger struggle with schoolwork and tend to have lower test scores and are less likely to graduate. People are not getting the nutrition they need, and are at higher risk for expensive, avoidable health conditions, like diabetes, heart disease and asthma. As a nation, we spend billions on the fall-out from hunger, including avoidable health care costs and the rising cost of poor education outcomes, all while losing productivity in the workplace.

Read more …