Oct 032018
 
 October 3, 2018  Posted by at 9:30 am Finance Tagged with: , , , , , , , , , , , ,  


Paul Gauguin The ford 1901

 

Fed’s Powell Says US Outlook ‘Remarkably Positive’ (R.)
Another Market Volatility Surge Is Likely Ahead (Colombo)
White House Responds To “Misleading” NYTimes’ Trump Tax Fraud Story (ZH)
Italy Folds To Europe On Budget Deficit; Euro Surges (ZH)
Merkel’s End Could Spark EU Breakdown (Luongo)
Vancouver Home Sales Crash 44% As “For Sale” Inventory Soars (ZH)
Australia Banking Royal Commission Could Trigger House Price Collapse (ABC.au)
DMZ Demining Operations Lay Groundwork For Korean Peninsula Peace (YH)
Russia May Veto Greece-FYROM Name Deal at the UN (GR)
The Case For Paying Every American A Dividend On The Nation’s Wealth (MW)
Restaurants In Austin Banned From Throwing Away Food (Hill)
‘We Have Found Hell’: Trauma Runs Deep For Children At Dire Lesbos Camp (G.)

 

 

First, here’s Ted Koppel agreeing with me that Trump Sells Better Than Sex, and Stelter really doesn’t understand:

 

 

And then he closed the spigots…

Fed’s Powell Says US Outlook ‘Remarkably Positive’ (R.)

U.S. Federal Reserve Chairman Jerome Powell on Tuesday hailed a “remarkably positive outlook” for the U.S. economy that he feels is on the verge of a “historically rare” era of ultra-low unemployment and tame prices for the foreseeable future. It is a view, he said, based on how a changed economy is operating today, with businesses and households immunized by strong central bank policy from the inflationary psychology that caused unemployment, inflation and interest rates to swing wildly in the 1960s and 1970s. It is an outlook that includes an economic performance “unique in modern U.S. data,” with unemployment of below 4 percent expected for at least two more years and inflation remaining modest even as wages rise.

And it is an outlook he feels will even survive the Trump administration’s efforts to rewrite the global trading system, a policy shift Powell said may lead to one-time price hikes, but not to persistent changes in the annual rate of inflation going forward. “This forecast is not too good to be true,” Powell told the National Associate for Business Economics, but instead “is testament to the fact that we remain in extraordinary times.” “These developments amount to a better world for households and businesses which no longer experience or even fear the scourge of high and volatile inflation.”

Read more …

There can be no doubt.

Another Market Volatility Surge Is Likely Ahead (Colombo)

The U.S. stock market is climbing to record highs once again and volatility has calmed down dramatically from its panic-induced levels reached earlier this year. Traders have become complacent as they passively ride the stock market higher and bet on lower volatility again. While it may seem like all is well, several reliable indicators are warning that another powerful volatility surge is likely ahead.

The first indicator is the 10-year/2-year Treasury spread that is calculated by subtracting the 2-year Treasury note yield from the 10-year Treasury note yield. The 10-year/2-year Treasury spread is helpful for estimating when the next recession is likely to occur, as I explained in a recent Forbes piece. The chart below (which I recreated from a chart made by BofA’s Savita Subramanian) shows that the inverted 10-year/2-year Treasury spread leads the CBOE Volatility Index or VIX by approximately three years. If this historic relationship holds true, we are about to experience a whole lot more volatility over the next few years.

The next chart shows the positioning of the “smart money” and “dumb money” in the Volatility Index or VIX futures. The “smart money”, or commercial futures hedgers (who tend to be right at major market turning points), are building up another bullish position in VIX futures, just like they did one year ago ahead of the stock market correction and volatility spike. In addition, the “dumb money”, or large traders (who tend to be wrong at major turning points), have built up a large short position, like they did before the early-2018 volatility spike. The positioning of these groups of traders indicates that another volatility spike is likely ahead in the not-too-distant future.

Read more …

Decades old, started when Trump was a toddler, good luck. Of course they pay as little as they can, but once the IRS signs off on it…

White House Responds To “Misleading” NYTimes’ Trump Tax Fraud Story (ZH)

Update 2: The White House has finally responded to the NYTimes story…(via Sarah Sanders) “Fred Trump has been gone for nearly twenty years and it’s sad to witness this misleading attack against the Trump family by the failing New York Times. Many decades ago the IRS reviewed and signed off on these transactions. The New York Times’ and other media outlets’ credibility with the American people is at an all time low because they are consumed with attacking the president and his family 24/7 instead of reporting the news.

The truth is the market is at an all-time high, unemployment is at a fifty year low, taxes for families and businesses have been cut, wages are up, farmers and workers are empowered from better trade deals, and America’s military is stronger than ever, yet the New York Times can rarely find anything positive about the President and has tremendous record of success to report. Perhaps another apology from the New York Times, like the one they had to issue after they got the 2016 election so embarrassingly wrong, is in order.”

The NYT reported that Trump and his siblings set up a “sham” corporation to help disguise otherwise taxable income that came from gifts from their parents. The president also allegedly helped his father take improper tax deductions that amounted to millions of dollars and helped formulate strategy to undervalue his parents’ real estate holdings, with the Internal Revenue Service reportedly providing little pushback against the Trumps’ reported tactics. According to the leaked confidential filings, Trump’s parents left more than $1 billion to their children, which would have resulted in a roughly $550 million tax bill at the time.

However, the Trumps paid a total of $52.2 million on that source of income, according to the NYT report. To achieve this, the newspaper cited records that showed Trump helped undervalue his father’s real estate holdings, which led to a lower tax bill when he and his siblings inherited the properties. In total, Trump received the equivalent today of at least $413 million from his father’s real estate empire, based on questionable tax dealings starting when he was a toddler and continuing to this day. And, in what will attract the most attention, the newspaper wrote that Trump’s behavior amounted to fraud in some cases.

Read more …

I don’t think this one’s over yet.

Italy Folds To Europe On Budget Deficit; Euro Surges (ZH)

After two days of brutal punishment by the markets which sent Italian bond yields to 4 years highs and slammed the euro, the Italian government appears to have folded to pressure from Brussels (and the one place in the world where the bond vigilantes still operate, just ask Sylvio Berlusconi), and according to Corriere della Sera, Italy’s draft budget plan will pledge to cut the deficit to 2% in 2021, after Rome reversed a proposal to maintain a 2.4% shortfall in the face of pressure from the EU. As a result, while the 2019 deficit will still rise to 2.4% of GDP in 2019, it will decline by 0.2% to 2.2% in 2020, and another 0.2% the year after. In kneejerk reaction, futures lept to fresh session highs, Treasury yields jumped by 2bps to 3.07% and the EURUSD spiked 50 pips higher to 1.1590.

Italy is not out of the woods yet though: according to Mizuho, the sustainability of the euro’s rebound will depend on whether the EU sees Italy’s latest budget plan as appropriate. It could be that Italy has already made compromise with the EU, but hard to predict whether the euro’s rebound has more legs until we see a reaction from the EU: “It all boils down to the EU’s response”, and if the ongoing war of words is any indication, merely promising to trim the deficit in the next three years will hardly be smiled upon. Others were even more skeptical. According to bond fund manager Daintree Capital, “The euro’s definitely reacting to the headlines on Italian budget plans, and it will continue to do so for future headlines.” However, “anyone who believes a populist government is all of a sudden going to be particularly responsible in a fiscal sense, has a misguided view.”

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Merkel’s losing it.

Merkel’s End Could Spark EU Breakdown (Luongo)

I saw a recent poll from Die Welt which has Alternative for Germany (AfD) creep past Merkel’s Grand Coalition partner, the Social Democrats (SPD), and challenge the CDU itself. Because when you back out the Christian Social Union’s (CSU) total which runs between 8% and 9% AfD is now in a position to become the party with the highest backing in Germany. And this is happening on the eve of Bavarian State elections this month. [..] I’ve talked about AfD’s chances to achieve this result in the past in terms of them crossing the 16% Chasm. And it appears, that slowly, they are doing so. German politics, from what I understand, is not used to this kind of upheaval and certainly not these kinds of leadership challenges. Earlier this year Merkel barely survived a challenge by former CSU Leader Horst Seehofer over immigration.

So, where to things go from here? As Mercouris points out, Merkel has very skillfully gutted the landscape of the CDU to keep potential leaders from emerging within the party. The SPD is falling off a cliff having lost more than half of its support since the 2014 elections. And the CSU is primarily a Bavarian party so they don’t have the support of the entirety of Germany. This landscape is why we’ve seen the Greens rise to 15% as well as AfD’s rise. And that cannot be ignored. The hard left of German politics is now split and ineffectual. But, no party has emerged in this chaos to take the reins of power.

This is reminding me of Italy’s situation at the end of 2017 with no less than five parties polling in double digits. It’s a messy situation and it makes more sense in Germany that big shifts in voter preference would occur at a slower rate given the stability of German coalition governments since the modern state was founded after World War II. In other words Germans are loathe to make these kinds of changes. So, you know the situation must be bad if these numbers are changing this quickly. So, it shouldn’t be much of a surprise really to see this type of breakdown and the slow rise of AfD past the 16% chasm. It may be the riots in Chemnitz that finally begin pushing their poll numbers into the 20’s nationally.

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Glass half full: “”There’s more selection for home buyers to choose from today.”

Vancouver Home Sales Crash 44% As “For Sale” Inventory Soars (ZH)

What happens when prices rise so high that a chasm forms between bids and asks? The market grinds to a halt. That’s what happened in Vancouver housing in September, when according to the Real Estate Board of Vancouver (REBGV), residential property sales tumbled by 17.3% from August 2018, and a whopping 43.5% from one year ago. In fact, a total of only 1,595 transactions took place as both buyers and sellers continue to sit on their hands amid confusion whether the recent torrid price gains will continue or whether the housing bubble has burst. Sales of detached properties in July was just 508, a decrease of 40.4% from the 852 recorded in September 2017, and the 812 apartments sold was a 44% drop compared to the 1,451 sales in September 2017.

And no, it’s not seasonal: last month’s sales were a whopping 36.1% below the 10-year September sales average. The reason for the collapse in transactions: the formerly all too willing buyers, mostly Chinese oligarchs who would use Vancouver real estate as their offshore Swiss bank account, have disappeared. Meanwhile sellers are dumping properties in the market in hopes of a quick flip. “Fewer home sales are allowing listings to accumulate and prices to ease across the Metro Vancouver housing market,” Ashley Smith, REBGV president-elect said. “There’s more selection for home buyers to choose from today. Since spring, home listing totals have risen to levels we haven’t seen in our market in four years.”

Read more …

What would we do without our housing bubble?

Australia Banking Royal Commission Could Trigger House Price Collapse (ABC.au)

There is a lot riding on the policy recommendations from the banking royal commission, not least of which is the stability of the Australian property market, according to some respected analysts. Independent economist Saul Eslake said there was potential for the royal commission’s recommendations to have what economists refer to as “unintended consequences”. The unintended consequences Mr Eslake is referring to include a steep fall in house prices spurred on by a royal commission-inspired clampdown on bank lending. Capital Economics chief economist Paul Dales said while house price falls to date have been small, Australia could be in for a record housing decline, at least in its recent history.

“At the moment the trajectory is a bit worrying cause the house prices seem to be declining at a faster rate and, in our view at Capital Economics, this will eventually prove to be the largest downturn in Australia’s modern history,” he said. Mr Dales is forecasting a protracted slowdown in the housing market as a result of a crackdown in bank lending standards, the banking royal commission itself and rising interest rates. “There’s significant time delays with these things,” he said. “I would have thought over the next six to 12 months is where we would, if there was going to be a big pullback in lending, that’s when we would see it and then, thereafter as and when the royal commission makes any recommendations and the Government implements them, the next six to 12 months after that.

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Korea’s move on.

DMZ Demining Operations Lay Groundwork For Korean Peninsula Peace (YH)

After a 15-minute bumpy ride along a dusty, hilly path inside the Demilitarized Zone (DMZ), dozens of South Korean troops in full gear disembarked near a grisly site of intense battles during the 1950-53 Korean War. Accompanying them in the buffer zone separating the two Koreas was a phalanx of security guards, medical specialists and other personnel specializing in disposing of unidentified explosives and excavating war remains. They are part of the 120-member team tasked with removing landmines in the Arrowhead Ridge, or Hill 281 in Cheorwon, some 90 kilometers northeast of Seoul — a site that the two Koreas have designated for a joint project to retrieve war remains from April to October next year.

There were three key battles against communist forces on the notorious ridge from 1952-53. The remains of more than 200 South Korean soldiers and dozens of U.N. Command (UNC) forces, such as U.S. and French troops, are thought to be buried in it. “We have made preparations (for the landmine removal) for a long period and are well prepared now,” the commander in charge of the frontline areas told reporters on condition of anonymity on Tuesday, the second day of the demining work set to continue until Nov. 30. “We will not rush and will carry out our mission with the first and foremost priority placed on the safety of our troops,” he added.

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EU and NATO want to keep pushing, but how about democracy?

Russia May Veto Greece-FYROM Name Deal at the UN (GR)

Russia is implicitly threatening that it may block the Prespa agreement at the UN Security Council. In a statement on Monday, following the referendum in FYROM, the Russian foreign ministry says that the low turnout “means that the referendum cannot be recognised as valid.” It clearly indicates that the voters “chose to boycott the solutions imposed on Skopje and Athens.” The statement also blasts leading politicians from NATO and EU member states who participated in “large-scale propaganda campaign directly, freely interfering in the internal affairs of this Balkan state.” Despite the low turnout, Prime Minister Zoran Zaev vowed to push ahead with the name change on Monday.

The Russian foreign ministry condemned the move: “There is a clear drive to ensure Skopje’s entanglement in NATO despite the will of the Macedonian people.” Russia is traditionally wary of NATO’s enlargement in eastern Europe. The alliance’s 1999 bombings of its ally Serbia caused a major rift in Russia’s relations with the West at the time. Moscow says that a long-term solution can only be agreed upon by the two parties on their own, without any external interference, and only within the framework of the law and with broad public support.

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Inequality in Europe rises fast, too. Where are the breaking points?

The Case For Paying Every American A Dividend On The Nation’s Wealth (MW)

The newest research shows that unconditional cash transfers boost work productivity and quality of life, including better mental and physical health, and reduce crime. A study by the Roosevelt Institute in New York, a left-leaning think tank, concludes that giving $500 a month to every adult American could meaningfully grow the U.S. economy and address its widening wealth gap. (The top 1% of Americans now receive 20% of the national income, while those in the bottom 50% receive 13%; in 1980, the numbers were essentially reversed, at 11% and 20%, respectively, according to the 2018 World Inequality Report.)

Yet basic income in the U.S., characterized as a utopian solution by its true believers but as welfare, socialism or worse by its detractors, has gone nowhere. Basic income did enjoy a bit of a heyday in the U.S. in the 1960s and 1970s and was even embraced in conservative circles; free-market economist Milton Friedman went so far in 1962 as to propose a negative federal income tax that would guarantee a basic income to the poorest Americans while also incentivizing work. Other ideals of the era — the four-day workweek, the 30-hour workweek, the all but limitless vacation allotment — have fallen by the wayside, even as U.S. labor conditions have worsened.

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In France, this is a nation-wide law.

Restaurants In Austin Banned From Throwing Away Food (Hill)

Restaurants in Austin, Texas, will no longer be allowed to throw out food waste, the city announced this week. Under a new policy that began Monday, all food-permitted businesses in the city are required to keep organic material, such as food scraps and soiled paper products, from landfills. Businesses can dispose of their food waste by donating extra food, giving scraps to local farms for animals, or composting, the city government said in a press release announcing the policy.

The city’s Universal Recycling Ordinance also requires businesses to provide employees with training on organic waste diversion, and to post information about the plan. Official city data shows that 37 percent of material sent to landfills is organic and could have otherwise been donated or composted, the city said. Austin’s ordinance is the latest move by a major city to introduce eco-friendly policies. Dozens of cities and businesses nationwide have banned plastic straws and other single-use plastic items in an effort to cut down on waste.

Read more …

Welcome to Europe.

‘We Have Found Hell’: Trauma Runs Deep For Children At Dire Lesbos Camp (G.)

The drawings tell of trauma. Stormy seas dotted with terrified faces. Lifeless bodies of children floating among the waves. And planes dropping bombs, down on to homes and on to people. Eyes that weep blood. The pencil scrawls were made by children who are part of a growing phenomenon in the Moria refugee camp in Lesbos, Greece. All have attempted suicide or serious self-harm since they came to this place. Approximately 3,000 minors live in the Moria camp, which Médecins Sans Frontières (MSF) calls a giant open-air “mental asylum” owing to the overcrowding and dire sanitary conditions. Last Tuesday an adolescent attempted to hang himself from a pole. In August, a 10-year-old boy only just failed to take his own life.

The camp, among hills dotted with olive trees a few kilometres from the island’s capital town of Mytilene, is home to 9,000 asylum seekers living in a centre designed to hold one third of that number. Migrants live in groups of up to 30 people, crammed into tents or metal containers situated just centimetres apart. Rubbish, scattered everywhere, makes the air almost unbreathable. Most come from war-torn countries like Syria, Iraq and Afghanistan. They arrive in dinghies from the Turkish towns of Ayvalik or Canakkale. According to aid agencies, the controversial deal brokered between Brussels and Ankara aimed at stopping the flow of migrants to Europe via Turkey, combined with the refusal on the part of European countries to take in asylum seekers arriving in Greece, have transformed Lesbos into an Alcatraz, leaving people imprisoned on the island with no way out.

“Although the vast majority of migrants who arrive in Moria are traumatised, after having fled from violent conflicts in their home countries, conditions in the camp have exacerbated their trauma,” says Luca Fontana, field coordinator of MSF on the island. “After two years, some are still awaiting transferral, even if they know they could be deported to Turkey at a moment’s notice. I’ve worked in camps infested with Ebola in Sierra Leone and Guinea, but I guarantee you that this is the worst situation I’ve ever seen.”

Read more …

Jan 272018
 
 January 27, 2018  Posted by at 10:58 am Finance Tagged with: , , , , , , , , , , ,  


Grete Stern Bertolt Brecht 1934

 

Bankers, Policy Makers at Davos Revel in ‘Sweet Spot’ Economy (BBG)
IMF Chief Warns Trump’s Tax Cuts Could Destabilise Global Economy (G.)
China Set To Lose ‘Emerging Market’ Status As Growth Declines (F.)
This was 1987. Start Rebalancing – David Rosenberg (ZH)
What Could Possibly Go Wrong? (Lance Roberts)
Equity Allocations At Record Highs As Investor Cash Hits All Time Low (ZH)
Japanese Cryptocurrency Exchange Loses $535 Million To Hackers (CNBC)
How Bitcoin Regulation Will Happen, And What It Will Mean (Ind.)
Bombardier Gets Surprise Win After U.S. Rebuffs Boeing Trade Case (BBG)
Canada Illegally Subsidized Bombardier: Embraer (R.)
More Than Half Of New-Build Luxury London Flats Fail To Sell (G.)
Building More Homes Will Not Solve Britain’s Housing Crisis (Pettifor)
Brexit Saddles EU With A Huge Budget Problem (CNBC)
Deal With France ‘Could Bring Hundreds More Child Refugees To UK’ (G.)

 

 

Not much longer.

Bankers, Policy Makers at Davos Revel in ‘Sweet Spot’ Economy (BBG)

The global elites have rediscovered their animal spirits. As the World Economic Forum drew to a close in the Swiss ski resort, the overarching mood of the executives, policy makers and investors was that their economies are in fine shape and that stock markets have every reason to extend their run. “Let’s celebrate what could go right for the moment because we are in a sweet spot,” IMF Managing Director Christine Lagarde said on the closing panel discussion. The Standard & Poor’s 500 Index has gained about a quarter since the start of 2017 and the IMF is forecasting the strongest worldwide economic growth this year since a brief post-recession bounce in 2011. Some 57% of executives polled by PricewaterhouseCoopers saw the economy improving in 2018, about double the number of a year ago.

The rise of cryptocurrencies was evident in the Swiss town both in conference sessions and on the promenade where companies rent shopfronts to promote their wares. “The greatest worry I’ve heard over the past days in Davos is that there is not enough worry,” Mary Callahan Erdoes, JPMorgan asset-management unit CEO, said on the panel. “It’s O.K. to not be worried, to celebrate how we got here.” Erdoes thanked the policy makers on the stage for working “tirelessly” and “giving all of these government jobs such fabulous prestige and something that I know all of us now perhaps aspire to do.” “Wow,” said Bank of England Governor Mark Carney. “This is fantastic.” Such sentiment led delegates to declare that it was the most upbeat Davos gathering since before the financial crisis. Yet the giddiness also gave some investors pause as they warned against turning too exuberant.

Read more …

Lagarde gets what she wants and then turns against it. Cover all your bases.

IMF Chief Warns Trump’s Tax Cuts Could Destabilise Global Economy (G.)

Donald Trump’s huge tax cuts are a threat to the stability of the global economy, the managing director of the IMF has warned. Christine Lagarde singled out Trump’s tax reforms as one of three risks that could destabilise the current economic recovery, especially given the boom in stock markets in the past year. “While the US tax reforms certainly will have positive effects in the short term, for the US and other countries around, it might also lead to serious risks,” Lagarde told the World Economic Forum in Davos. “That has an impact on financial vulnerability, particularly given the high asset prices that we see around the world, and the easy financing that it still available,” she added. She was speaking shortly after the US president told Davos that his tax reforms had created “a big, beautiful waterfall” of pay rises for US workers, as American companies passed the tax cut on.

However, the IMF is concerned that cutting taxes will lead to a bigger US budget deficit, and that extra borrowing by the US Treasury will force up long-term American interest rates. As a result, it fears growth could be choked off in the longer term, making the stock market vulnerable to a sudden downward lurch. Lagarde cautioned against people becoming too complacent about the pick-up in global growth reported by the IMF at the start of the WEF’s annual meeting. The IMF raised its forecasts for global expansion to 3.9% this year and in 2019, reporting that all major economies – the US, EU and Japan – are doing better. “I don’t think that we’ve completed the job,” said Lagarde, who fears that the growing economic inequality in many countries is creating “fractures”. “Having growth is good, improving productive is good, but [policymakers should] make sure that the results of that growth are properly allocated,” said the IMF chief, adding that inequality is growing in many advanced economies, and very high in emerging markets.

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An emerging market that’s stopped emerging.

China Set To Lose ‘Emerging Market’ Status As Growth Declines (F.)

China has been considered an emerging market for over 25 years due to its rapid reform process. Generally speaking, emerging markets are defined as developing countries moving toward an open market economy. Unfortunately, if one takes a close look at growth levels and reform factors, China has shed some of the key characteristics of an emerging market, due to a sharp slowdown in the reform process, an increasingly state centered economy, and lower levels of true growth. China is an upper middle income country that enjoyed gangbusters growth through the 1990s and 2000s, but that is now suffering from a major economic slowdown that has no end in sight. One major reason for slowing growth is that market forces have been quashed by a a buildup in the state sector and mounting economic and financial risks that would result in economic collapse if the reform process is restarted.

Under President Xi Jinping, China’s economic policy has shifted toward enhancing the organization and financial sources of state owned enterprises, and away from liberalizing the currency and financial sector. Strides that were made toward internationalizing the RMB and bringing about a more market-based financial system have been reversed. A simultaneous over-reliance on easy credit has created plenty of risks in the financial sector that now prevent officials from even considering making the financial sector more market-based. Slow reform of the service sector and strong state presence in service subsectors like health and education have contributed to declining growth.

Read more …

When fear is gone, all that’s left is greed. No balance.

This was 1987. Start Rebalancing – David Rosenberg (ZH)

When discussing today’s unexpectedly weak Q4 GDP print, which came in at 2.6%, far below consensus and whisper estimates in the 3%+ range, and certainly both the Atlanta and NY Fed estimates, we pointed out the silver lining: personal spending and final sales, which surged 4.6% Q/Q (vs 2.2% in Q3), although even this number had a major caveat: “as we discussed previously, much of it was the result of a surge in credit card-funded spending while the personal savings rate dropped to levels last seen during the financial crisis.” Indeed, recall the stunning Gluskin Sheff chart we presented a month ago, which showed that 13-week annualized credit card balances in the U.S. had gone “completely vertical” in the last few months of 2017 which we said “should make for some great Christmas.”

Meanwhile, even more troubling was the ongoing collapse in the US personal savings rate, which last month tumbled to the lowest level since the financial crisis as US consumers drained what little was left of their savings to splurge on holiday purchases.

And while we highlighted and qualified two trends as key contributors to the spending surge in Q4 personal spending, Gluskin Sheff’s David Rosenberg – who is once again firmly in the bearish camp – did one better and quantified the impact. Not one to mince words, the former Merrill chief economist described what is going on as “The Twilight Zone Economy” for the following reason: “how many times in the past have we seen a 2.6% savings rate coincide with a 4.1% jobless rate? How about never…huge ETF flows driving equities higher, but these metrics are screaming ‘late cycle’.” He then proceeded to give “some haunting math” from the GDP number: “The savings rate fell from 3.3% to 2.6%. If it had stayed the same, real PCE would have been 0.8% (annualized) instead of 3.8% and GDP would have been 0.6% instead of 2.6%.”

[..] a more troubling development is that the conditions observed ahead of the Black Monday crash are becoming increasingly apparent. Here is Rosenberg’s stark assessment of where we stand: “Rising bond yields. Full employment. Fed tightening. Trade frictions. Weak dollar. Rising twin deficits, spurred by tax reform. Sound familiar? It should. This was 1987. Start rebalancing.”

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More 1987.

What Could Possibly Go Wrong? (Lance Roberts)

What goes up, eventually comes down. That is just reality. The bull market that began in 2009, has now entered the final stage of “capitulation” as investors throw caution to the wind and charge headlong into the markets with reckless regard for the consequences.

Of course, it isn’t surprising given the massive amounts of liquidity continually injected into the financial markets and global Central Banks have now figured out that continually rising financial markets solve much of the world’s ills. Simply, with enough liquidity, you can cover up bad (credit risks) by guaranteeing holders they will never default. It’s genius. It’s a “no lose” investment scheme. Unfortunately, we have seen this repeatedly in the past. In the 1980’s it was “Portfolio Insurance” – a “no lose” investment program that eventually erupted into the crash of 1987. But not before the market went into a parabolic advance first.

In the 1990’s – it was the dot.com phenomenon which was “obviously” a “no lose” proposition. Even after Alan Greenspan spoke of “irrational exuberance,” two years later the market went parabolic once again.

Then in 2006-2007, banks invented the CDO-squared, a collateralized derivative obligation based on other collateralized derivative obligations. It was a genius way to invest with “no risk” because the real estate market had never crashed in history.

Today, it is once again an absolute “certainty” that markets will rise from here as global Central Banks have it all under control. What possibly could go wrong?

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Leverage squared.

Equity Allocations At Record Highs As Investor Cash Hits All Time Low (ZH)

While Bank of America may or may not be right in its forecast that as a result of the market meltup, buying panic and sheer euphoria to get into stocks, which just pushed the bank’s proprietary “Bull and Bear” indicator to a level which on 11 out of 11 prior occasions always presaged a ~12% selloff…

… a market correction or worse is imminent, one thing that is indisputable is the funding status of the Private Clients served by BofA’s Global Wealth and Investment Management (GWIM) team. What it shows is that investor cash allocation has just dropped to a record low of just 10%…

… while investor equity exposure is rising at fastest pace in 10 years.

… and total equity allocations are back to record highs.

In other words: ‘bear capitulation’ as everyone is now long stocks in what BofA called a “non-stop euphoric cabaret.” When will this stop, or reverse? According to BofA, keep an eye on the dollar, which as long as it keeps sliding is supporting of risk assets, however the risk is once it bounces, to wit, the “US dollar key catalyst; note US-Europe FX spat sparked ’87 crash” and “higher US$ “pain trade” = risk-off coming weeks”

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Even if cryptos don’t have a security issue, they certainly appear to have one.

Japanese Cryptocurrency Exchange Loses $535 Million To Hackers (CNBC)

Hackers stole several hundred million dollars’ worth of a lesser-known cryptocurrency from a major Japanese exchange Friday. Coincheck said that around 523 million of the exchange’s NEM coins were sent to another account around 3 a.m. local time (1 p.m. ET Thursday), according to a Google translate of a Japanese transcript of the Friday press conference from Logmi. The exchange has about 6% of yen-bitcoin trading, ranking fourth by market share on CryptoCompare. The stolen NEM coins were worth about 58 billion yen at the time of detection, or roughly $534.8 million, according to the exchange. Coincheck subsequently restricted withdrawals of all currencies, including yen, and trading of cryptocurrencies other than bitcoin. Bloomberg first reported the hack. A CNBC email sent to Coincheck’s listed address bounced back.

Cryptocurrency NEM, which intends to help businesses handle data digitally, briefly fell more than 20% Friday before recovering to trade about 10% lower near 85 cents, according to CoinMarketCap. Most other major digital currencies, including bitcoin, traded little changed on the day. Coincheck management said in the press conference that it held the NEM coins in a “hot” wallet, referring to a method of storage that is linked to the internet. In contrast, leading U.S. exchange Coinbase says on its website that 98% of its digital currency holdings are offline, or in “cold” storage. The Japanese exchange said it did not appear that hackers had stolen other digital currencies.

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There will never be a global consensus. Just a lot of poorly understood laws.

How Bitcoin Regulation Will Happen, And What It Will Mean (Ind.)

Bitcoin has been surging and falling in recent weeks. And it seems mostly to come down to one thing: regulation. The lack of regulation is, for now, a large part of bitcoin and other cryptocurrencies’ intrigue: they seem to allow people to avoid the traditional restrictions in place in money and other assets. But they’re also part of their bad reputation, with the same anonymity and decentralisation allowing them to be used for crime. Many governments have suggested they could introduce such rules. But it’s still not clear what they’d look like, or how they’d arrive; here’s an attempt to predict what might be to come in that most unpredictable of markets. In recent weeks, bitcoin has plunged after the threat of regulation in South Korea.

But it was part of a much broader trend – countries around the world have already introduced new rules, and those that haven’t are talking about it. The price has mostly levelled out in recent weeks, after regulation brought volatility and a slowly sliding price. But there might be more disruption coming, as countries look towards regulation, worried about the activity and behaviour that bitcoin could be enabling. That was obvious as world leaders arrived in Davos and were asked their opinion. The event could be a preview of far more wide-ranging controls that could be introduced in March, when the G20 governments’ financial and economic leaders meet in Argentina – a number of the countries attending have specifically said they will focus on fixing regulation of cryptocurrencies at that meeting.

They include France and Germany, which are said to be working together on bitcoin regulation. Many other countries have called for the international community to work together to bring regulation to bitcoin. Davos has been a platform for various world leaders to give their opinion on bitcoin. And they all seem to agree on one thing. “My number-one focus on cryptocurrencies, whether that be digital currencies or bitcoin or other things, is that we want to make sure that they’re not used for illicit activities,” said Steven Mnuchin, Donald Trump’s most senior financial policymaker, told the World Economic Forum in Davos, Switzerland. “We encourage fintech and we encourage innovation, but we want to make sure all of our financial markets are safe,” Mnuchin said. “We want to make sure that the rest of the world – and many of the (Group of) 20 countries are already starting on this – have the same regulations.”

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Airplane makers wars are set to intensify.

Bombardier Gets Surprise Win After U.S. Rebuffs Boeing Trade Case (BBG)

Bombardier can start shipping C Series jets to Delta Air Lines after a surprise ruling by a U.S. trade panel that said the proposed imports won’t hurt American industry. U.S. companies and workers aren’t being harmed by sales of 100- to-150-seat aircraft from Canada, the International Trade Commission said Friday. The tribunal’s unanimous vote blocks a Commerce Department decision last month to impose duties of almost 300%. Friday’s vote deals a blow to Boeing, which said Bombardier sold the C Series in the U.S. at less than fair value while benefiting from government subsidies. The ruling also opens the door for Montreal-based Bombardier to woo new American customers while potentially easing U.S. trade tensions with Canada and the U.K., where the company builds wings for the aircraft. “I’m shocked,” said Chris Murray, an analyst in Toronto. “This clears the way for the jets being to delivered to Delta,” Murray said. “It also removes any concerns about potential future orders in the U.S.”

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Bombardier goes from one lawsuit to another. Should have stuck to making skidoos.

Canada Illegally Subsidized Bombardier: Embraer (R.)

Brazilian planemaker Embraer said on Friday that the U.S. Department of Commerce has shown that the Canadian government “heavily and illegally subsidized” Bombardier and its C Series aircraft, allowing the company to survive and distorting the aviation industry. The statement came just after Bombardier won an unexpected trade victory against U.S. planemaker Boeing when a U.S. agency rejected imposing hefty duties on sales of Bombardier’s new CSeries jet to American carriers.

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Oh well, there’s plenty homeless people.

More Than Half Of New-Build Luxury London Flats Fail To Sell (G.)

Developers have 420 towers in pipeline despite up to 15,000 high-end flats still on the market. More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”. The swanky flats, complete with private gyms, swimming pools and cinema rooms, are lying empty as hundreds of thousands of would-be first-time buyers struggle to find an affordable home. The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes.

Builders started work last year on 1,900 apartments priced at more than £1,500 per sq ft, but only 900 have sold, according to property data experts Molior London. A typical high-end three-bedroom apartment consists of around 2,000 sq ft, which works out at a sale price of £3m. There are an extra 14,000 unsold apartments on the market for between £1,000-£1,500 per sq ft. The average price per sq ft across the UK is £211. Molior says it would take at least three years to sell the glut of ultra-luxury flats if sales continue at their current rate and if no further new-builds are started. However, ambitious property developers have a further 420 residential towers (each at least 20 storeys high) in the pipeline, says New London Architecture and GL Hearn. Henry Pryor, a property buying agent, says the London luxury new-build market is “already overstuffed but we’re just building more of them”.

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Building more is the worst of all options. See above. But it’s alos the only option that lets the illusion last a bit longer.

Building More Homes Will Not Solve Britain’s Housing Crisis (Pettifor)

Everyone – from the government, to housing charities, to housebuilders – has bought into the conventional wisdom that the dysfunction that racks our housing market is a matter of demand and supply. We’re not building enough houses, so house prices have been sent rocketing, taking home-ownership out of reach for growing numbers of young people. But in reality, our housing problems are not a simple feature of supply and demand. Rather, our housing market has a bitcoin problem. What has bitcoin mania got in common with house prices, especially in the capital? For starters, both are speculative bubbles. Vast sums of money have been poured into finite supplies of bitcoins and London property. Both have consequently exploded in value, albeit over different time periods.

And so both have become financialised assets that deliver capital gains far in excess of people’s ability to earn income from work, or from investment in the real economy. And as with bitcoin, so with London property: speculators are convinced that prices will continue to rise for ever. It’s speculation in the property market that is fuelling stratospheric house price rises, not shortage of supply. When the “fuel” of private capital, mortgage credit and cash from the bank of mum and dad is supplemented by government subsidies and tax breaks, house prices rise. Moreover, wealthy global and non-resident buyers have funnelled more than £100bn into London property over recent years, making the problem even worse.

So, rather counterintuitively, building more houses is not the right prescription. House prices won’t fall until the tide of cash flowing into the market abates, for example by tightening mortgage credit, or shrinking the pool of buy-to-let investors. That may already be starting to happen as real incomes continue to fall, the Bank of England toughens up buy-to-let mortgages, and stamp duty rises are phased in for second properties. Despite this, the government pretends the real cause of unaffordable housing is a shortage of new builds. It uses this argument to provide cover for further taxpayer-funded subsidies and tax breaks that benefit its property-owning core voters, its close allies in the construction industry and property market, and its supporters in the City of London.

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Germany crony Holland wants to pay less toward Brexit because its economy is hit harder than others. It also wants the entire EU budget cut. Juncker wants to raise that budget and buy more Europe. This could blow up. Expect more heavy handedness from Brussels.

Brexit Saddles EU With A Huge Budget Problem (CNBC)

Brexit is leaving the EU with a big problem on its hands and a “very tough” negotiation ahead, European Commission Vice-President Jyrki Katainen told CNBC on Friday. The U.K. has been one of the main contributors to the European budget, but once it has left the bloc there will be a gap in the EU budget that will have to be worked out somehow, Katainen said. “It is certainly a problem and we have to address it,” he said at the World Economic Forum (WEF) in Davos, Switzerland. “If I should bet something, we need to adjust the budget to a certain extent but also we need fresh money from member states. We also have to look at how money is spent, how we could get more out of less.”

But many EU members do not want to pay more to compensate for the U.K.’s decision to leave the union. Denmark, for example, made it clear last year that it would not step up its financial commitment because of Brexit. Katainen told CNBC that one solution could be using more financial instruments, including equity investments, to finance European projects rather than direct financial contributions. “This is what we are planning or exploring at the moment… it’s going to be a very though negotiation,” he said.

The current EU budget is planned out until 2020. The European Commission is due to come up with proposals on the future of the budget in May. During a speech in September, EC President Jean-Claude Juncker said: “An important element will be the budgetary plans the commission will present in May 2018. Here again, we have a choice — either we pursue the European Union’s ambitions in the strict framework of the existing budget, or we increase the European Union’s budgetary capacity so that it might better reach its ambitions. I am for the second option.”

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Yeah, the ones they previously promised to take but never did.

Deal With France ‘Could Bring Hundreds More Child Refugees To UK’ (G.)

Charities working to bring unaccompanied refugee children to safety are optimistic that agreements signed by Theresa May and Emmanuel Macron could lead to hundreds more receiving permission to travel legally to the UK. Details emerging from last week’s summit show that officials agreed to extend an eligibility deadline so that children fleeing conflict and arriving in Europe before last Friday could be considered under the Dubs amendment, the scheme launched in 2016 under which the government agreed to offer a safe and legal route to refugee children travelling alone. Previously, refugee children had to have arrived in Europe before March 2016 to be considered for acceptance under the scheme. This deadline meant large numbers of vulnerable young people who had arrived in France, Germany and Italy more recently were not eligible.

Lord Dubs, the Labour peer who forced the government to commit to helping more young refugees in January 2016, welcomed the development. “We hope dozens more will be transferred, but it is crucial that they get a move on. In France they are sleeping under the trees in very bleak conditions.” Although the May-Macron agreement focused on France, concerns are growing for the large number of unaccompanied refugee children in Greece where there are currently 3,150 refugee children, travelling without families, and only 1,109 spaces in shelters, according to the charity Safe Passage, which has campaigned to bring more young refugees to the UK. The charity hopes that a further 250 could be brought to safety under the Dubs scheme. The government has committed to accommodating 480 refugee children under the scheme, but has so far only transferred about 220.

Campaigners hope the announcement could reduce the number of young refugees killed on roads outside Calais, after a spike in deaths in recent weeks among asylum seekers attempting to climb on to lorries in order to travel illegally to the UK. The UK government also agreed to speed up the time it spends considering applications from young refugees for transfer to the UK, committing to providing an answer in 10 days, and to transferring them within 15 days after that. George Gabriel, at Safe Passage, said: “For those who are awaiting family reunion, these changes will mean that there is a much lower incentive to make a dangerous journey to reunite with a loved one.”

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Nov 232017
 
 November 23, 2017  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , , , ,  


Roger Viollet Great Paris Flood, Avenue Daumesnil 1910

 

Fed Fears New Record High Credit Bubble – Danielle DiMartino Booth (USAW)
Global Debt Is Rising, Especially in Emerging Economies (St. Louis Fed)
Pressure on US Households Intensifies (DDMB)
Zombie Firms Roam Europe Because Banks Help Keep Them Undead
China Is Pumping A Lot Of Cash Into Its Economy To Calm Investors (CNBC)
Chinese Investors Eye Leverage to Juice U.S. CLO Returns (BBG)
China’s $3.4 Trillion Corporate Bond Market Faces Rocky 2018 (BBG)
Worst Growth In Decades Pushes UK To Inject £25bn Into Economy (Ind.)
Budget Shows Tories Are Unfit For Office – Corbyn (G.)
Facebook To Let Users See If They ‘Liked’ Russian Accounts (R.)
Putin Tell Russian Firms To Be Ready For War Production (Ind.)
PNG Police Move In On Closed Australia Refugee Camp On Manus (AFP)
Night Being Lost To Artificial Light (BBC)

 

 

“I don’t think any of us know what the implications are for a $50 trillion debt build since the great financial crisis (of 2008). It is impossible to say. We have never dealt with anything of this magnitude.”

Fed Fears New Record High Credit Bubble – Danielle DiMartino Booth (USAW)

Former Federal Reserve insider Danielle DiMartino Booth says the record high stock and bond prices make the Fed nervous because it’s fearful of popping this record high credit bubble. DiMartino Booth says, “The Fed’s biggest fear is they know darn well this much credit has built up in the background, and the ramifications of the un-wind for what has happened since the great financial crisis is even greater than what happened in 2008 and 2009. It’s global and pretty viral. So, the Fed has good reason to be fearful of what’s going to happen when the baby boomer generation and the pension funds in this country take a third body blow since 2000, and that’s why they are so very, very intimidated by the financial markets and so fearful of a correction.”

Why will the Fed not allow even a small correction in the markets? DiMartino Booth says, “Look back to last year when Deutsche Bank took the markets to DEFCON 1. Maybe you were paying attention and maybe you weren’t, but it certainly got the German government’s attention. They said the checkbook is open, and we will do whatever we need to do because we can’t quantify what will happen when a major bank gets into a distressed situation. I think what central banks worldwide fear is that there has been such a magnificent re-blowing of the credit bubble since 2007 and 2008 that they can’t tell you where the contagion is going to be. So, they have this great fear of a 2% or 3% or 10% (correction) and do not know what the daisy chain is going to look like and where the contagion is going to land.

It could be the Chinese bond market. It could be Italian insolvent banks or it might be Deutsche Bank, or whether it might be small or midsize U.S. commercial lenders. They can’t tell you where the systemic risk lies, and that’s where their fear is. This credit bubble is of their making.” In short, the Fed does not know what is going to happen, and according to DiMartino Booth, nobody does. DiMartino Booth contends, “I don’t think any of us know what the implications are for a $50 trillion debt build since the great financial crisis (of 2008). It is impossible to say. We have never dealt with anything of this magnitude.”

“2017 is the record for quantitative easing (money printing) globally. We have never, not even in the darkest days of the financial crisis, central banks have never injected as much money as they have into the markets. . . . I am not a gold bug, but we do know that in times of corrections that there is no place to hide in traditional asset classes that you can get at your Merrill Lynch brokerage. Gold and silver in the precious metals complex are the only places to hide and get true diversification and safety.”

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They do know what’s going on.

Global Debt Is Rising, Especially in Emerging Economies (St. Louis Fed)

The world has become used to cheap credit. And the increase in borrowing by emerging economies could pose a risk as monetary policy normalizes. In response to the most recent recession, central banks around the world decreased their main policy rates to almost zero, as seen in the figure below.

[..] The downward trend in short-term and long-term interest rates has made borrowing cheaper over time. As a result, global debt has increased substantially since 2007. According to Bank for International Settlements (BIS) data, total debt of the nonfinancial sector (that is, households, government and nonfinancial corporations) amounted to $145 trillion in the first quarter of 2017, an increase of 40% since the first quarter of 2007. Most of this increase has been driven by an increase in total debt in emerging economies, especially in China, as seen in the following figure.

Furthermore, emerging economies have borrowed heavily in foreign currency, mainly in U.S. dollars, shown in the figure below.

According to the BIS, total dollar-denominated debt outside the U.S. reached $10.7 trillion in the first quarter of 2017, and about a third of this debt is owed by the nonfinancial sector of emerging economies. Analysts have stressed that the rapid accumulation of debt in emerging economies could pose risks for the global economy in the presence of U.S. monetary policy normalization. Market expectations of a rapid increase in the policy rate and the reduction of the Federal Reserve’s balance sheet could lead to higher borrowing costs and an appreciation of the U.S. dollar. This, in turn, would increase the cost of refinancing debt in emerging economies. If these risks materialized, there could be an increase in the demand for safe assets, particularly U.S. Treasuries. This would lead to a decrease in long-term rates. In times of monetary normalization, the yield curve would flatten, and banks profitability could be eroded.

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After the storms…

Pressure on US Households Intensifies (DDMB)

The full effects of Hurricanes Harvey and Irma are rapidly showing up in the data. In September, according to Black Knight, the number of mortgages either past due or in foreclosure rose by 214,000, or 9%, compared with August. At 5.1%, the combined rate is far off the previous month’s 4.7% and the most recent low of 4.5% recorded in March 2007. October’s numbers have brought the picture more clearly into focus. More than 229,000 past-due mortgages are tied to the storms. Hurricane Irma accounted for 163,000 and Harvey, 66,000. To place the damage to households in context, before the storms, Florida and Texas ranked 22nd and 20th among non-current mortgage states. As of October, Florida has risen to second place and Texas is in fifth place.

The economy has also enjoyed a rush of car sales as sufficiently-collateralized and insured drivers immediately replaced vehicles destroyed by the storms. According to the latest retail data, car sales slowed to a 0.7% growth rate in October, far below September’s blistering 4.6-percent pace. Nonetheless, the next development could be a further deterioration in auto delinquencies attributed to storm victims. The most recent third-quarter data from the New York Fed suggest struggling households continue to buckle under the strains of their monthly payments. The delinquency rate for subprime loans originated by auto-finance companies, as opposed to banks, hit 9.7% in the three months ended in September.

With one in four auto loans outstanding going to subprime borrowers, the rate has been rising since 2013 and is at a seven-year high. What’s most notable is that these delinquency rates are being recorded outside recession, all but ensuring 2009’s peak of 10.9% will be breached in the next downturn. And while credit-card delinquencies are nowhere near their crisis-era double-digit peaks, the New York Fed noted that serious delinquencies have been on the rise for one year. The serious delinquency rate hit 4.6% in the third quarter, up from 4.4% the prior quarter. Adjusted for inflation, the growth of U.S. credit-card spending has outpaced that of incomes for 26 straight months.

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Anyone shorting Italy for real yet?

Zombie Firms Roam Europe Because Banks Help Keep Them Undead

So-called zombie firms – companies that would be out of business or painfully restructured in a competitive economy – have become a key issue for policy makers grappling with sluggish productivity growth in developed economies. The fear is that those “zombies” are sucking up capital that could otherwise go to more productive firms. A new study by the OECD helps explaining how banks favor the spread of zombie firms. It shows that weak companies tend to be connected to weak banks which prefer to roll over or restructure bad loans rather than declaring them delinquent and writing them off. The OECD’s research by Dan Andrews and Filippos Petroulakis lends new urgency to the ECB’s efforts to slash non-performing loans in the region.

Supervisors have asked for detailed plans of how NPLs will be cut and are mulling requiring banks to set aside more capital for soured loans. “In order to facilitate the unwinding of the zombie problem, it is essential that bank balance sheets are strong, underlining the need for fast recapitalizations after crises and other measures to reduce NPLs,” write the authors. “The zombie firm problem in Europe may at least partly stem from bank forbearance.” Weak productivity matters in an ageing continent like Europe, where a shrinking working population is expected to support an ever increasing number of retirees. This can’t happen unless technology and education make it possible to squeeze more and more output from labor and capital.

The OECD has been investigating the impact of living-dead companies for years. It argues that zombification leads to capital misallocation, as weak banks tend to steer less capital to healthier and more productive firms. This in turn leads to low productivity and returns, making it more difficult to get credit even for innovative companies. Andrews and Petroulakis also say that, in addition to forcing banks to work down their NPLs and bolster capital, efficient laws on insolvency are needed. It is not a coincidence that Italy – the European country with the largest NPL problem – overhauled its bankruptcy rules last month to make them quicker and more efficient.

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Mr. Xi, sir, it’s time to be careful.

China Is Pumping A Lot Of Cash Into Its Economy To Calm Investors (CNBC)

China has been pumping a lot of cash into its system to lift market sentiment, as the world’s second-largest economy walks a thin line between curbing debt and keeping everything running smoothly. Last week, the People’s Bank of China injected cash totaling 810 billion Chinese yuan ($122.4 billion) in five straight days of daily liquidity management operations. Those actions, which represented the largest weekly net increase since January, were in part a Beijing response to its 10-year sovereign bond yields spiking to multiyear highs, experts said. “Surging Chinese government bond yields hit the nerve of policymakers, so in order to further prevent a greater surge, they injected liquidity into the system to improve market sentiment,” said Ken Cheung, a foreign exchange strategist at Mizuho Bank who focuses on Chinese currencies and monetary policies.

Nomura analysts said last week in a note that the bond rout was due to fears of regulatory tightening from Beijing. Bond yields, which move inversely to prices, briefly hit 4% in China for the first time in three years. A rise in the benchmark government bond yield threatens to drive up overall borrowing costs — and potentially worsen the country’s debt situation. On Monday and Tuesday of this week, the PBOC injected a net 30 billion yuan ($4.5 billion), but it didn’t expand that money supply on Wednesday. Analysts said that pause may have been due to market sentiment seemingly stabilizing, but it may be short-lived. As Chinese 10-year yields are still near the psychologically important 4% level, Cheung told CNBC he expects more injections ahead if necessary, as Beijing needs to “maintain liquidity to please the market.”

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“It’s dangerous territory. Leveraging BB-rated bonds – is that a good idea?”

Chinese Investors Eye Leverage to Juice U.S. CLO Returns (BBG)

The last time Asian investors borrowed money to invest in structured-credit products – during the run-up to the financial crisis – it didn’t work out so well. Now, a new set of buyers from China are hoping things turn out differently. Instead of snapping up packages of risky derivatives tied to U.S. home loans, they’re buying collateralized loan obligations that bundle together corporate loans to highly leveraged companies. And while such CLOs weathered the last crisis relatively well, there’s already concern that these investors are being tempted to deploy leverage to amplify their returns. The problem is that even the riskiest pieces of CLOs can yield less than the 8 to 10% targets Chinese investors have grown accustomed to in their markets, according to Collin Chan, a CLO analyst at Bank of America Corp.

So CLOs, the junk-rated slices of which yield just 5.5 percentage points more than Libor, “may not be crazily attractive” to them, said Chan, whose team has trekked to China multiple times this year to pitch the products to investors there. On a recent trip to China, potential new investors expressed interest in the idea of applying leverage for the purchase of CLOs, even at the riskier BB level, Chan said. He estimates levered returns for the BB-rated CLO slice may be almost 20%. Leverage is employed using the repo financing market, where short-term loans allow investors to borrow money by lending securities. It’s the latest evidence of the search for yield that has engulfed credit markets and provided a significant boost for CLO sales this year. China and its many types of financial institutions now look like promising buyers for a product that in Asia has typically been bought by Japanese banks and Korean insurers.

“It wouldn’t be wise for the Chinese to use leverage at this stage,” said Asif Khan, head of CLO origination and distribution at MUFG. “It’s dangerous territory. Leveraging BB-rated bonds – is that a good idea? Any potential use of leverage by Chinese investors could pose potential risk in case of severe volatility.” [..] Chinese investors have yet to enter the CLO market en masse. However signs point to their growing participation. In some cases, investment banks and CLO managers have made as many as five trips to Asia this year, adding on special CLO-focused investor conferences in mainland China for the first time ever to raise the product’s profile. The demand to diversify into dollar assets has grown from a wide range of investors, despite Chinese-government capital controls limiting deployment of capital abroad.

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$3.4 trillion sounds low.

China’s $3.4 Trillion Corporate Bond Market Faces Rocky 2018 (BBG)

China’s deleveraging campaign is finally starting to bite in the nation’s corporate-bond market, a shift that will make 2018 a clearer test of policy makers’ appetites to let struggling companies fail. Yields on five-year top-rated local corporate notes have jumped about 33 basis points since the month began, to a three-year high of 5.3%, according to data compiled by clearing house ChinaBond. Government bonds, which have far greater liquidity, had already moved last month as the central bank warned further deleveraging was needed. With more than $1 trillion of local bonds maturing in 2018-19, it will become increasingly expensive for Chinese companies to roll over financing – and all the tougher for those in industries like coal that the nation’s leadership wants to shrink.

Two companies based in Inner Mongolia, a northern province that’s suffered from a debt-and-construction binge, missed bond payments on Tuesday, in a demonstration of the kind of pain that may come. In the long haul, that all may be good for China. Allowing more defaults could see its bond market become more like its overseas counterparts, with a greater differentiation in price. And that could mean it channels funds more productively. “The deleveraging campaign and the new rules on the asset management industry will further differentiate good and bad quality credits, and make the onshore credit market more efficient,” said Raymond Gui at Income Partners Asset Management. “Weaker companies will find it harder to roll over their debts because funding costs will stay high.” Gui predicts yields will keep climbing. The average for top-rated corporate bonds is already 2.2 percentage points above what investors demanded to hold them in October last year.

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More austerity.

Worst Growth In Decades Pushes UK To Inject £25bn Into Economy (Ind.)

Britain faces its worst period of economic growth in more than half a century after official data revealed a country hamstrung by feeble productivity and Brexit. Dismal figures released alongside Philip Hammond’s Budget led the Chancellor to announce a £25bn cash injection to strengthen the ailing economy. The major giveaway will see money head towards housebuilding, preparing Whitehall for Brexit, the NHS and boosting the tech sector. But despite the extra cash most government departments will still experience deep cuts over the next five years, as Mr Hammond struggles to get the public finances under control. Mr Hammond tried to put a positive sheen on progress towards reducing net debt and abolishing the deficit, but data suggested Britain would now fail to achieve a budget surplus before 2031.

Forecasts from the Office for Budget Responsibility indicated GDP would grow by 1.5% in 2017, down from the 2% forecast in March. The Government’s official financial auditor said growth would drop to 1.4% next year – as low as 1.3% in 2019 and 2020 – and then pick up to 1.5% in 2021 and 1.6% in 2022. The OBR said the main downward pressure on growth was a big fall in the UK’s projected productivity, intensifying public spending cuts and Brexit uncertainty. The body was established in 2010 by then-Chancellor George Osborne to end a system under which the Treasury produced its own economic growth estimates. The latest predictions are the gloomiest that the auditor has ever given, and they are also smaller than any produced by the Treasury since 1983. Institute for Fiscal Studies director Paul Johnson said the 1.4% average growth forecast over the period was “much worse than we have had over the last 60 or 70 years”.

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“.. the reality will be – a lot of people will be no better off. And the misery that many are in will be continuing.”

Budget Shows Tories Are Unfit For Office – Corbyn (G.)

In his response to the budget, Corbyn – it is the leader of the opposition who traditionally speaks rather than the shadow chancellor – said Hammond had completely failed to tackle a national crisis of stagnation and falling wages. “The test of a budget is how it affects the reality of people’s lives all around this country,” the Labour leader said. “And I believe as the days go ahead, and this budget unravels, the reality will be – a lot of people will be no better off. And the misery that many are in will be continuing.” Largely eschewing direct focus on Hammond’s specific announcements in favour of a broader critique of the government’s wider economic approach, Corbyn castigated Hammond for again missing deficit reduction targets, and for a continued spending squeeze on schools and the police.

Speaking about housing, Corbyn said rough sleeping had doubled since 2010, and that this Christmas 120,000 children would be living in temporary accommodation. “We need a large-scale publicly funded housebuilding programme, not this government’s accounting tricks and empty promises.” Summing up, he said: “We were promised a revolutionary budget. The reality is nothing has changed. People were looking for help from this budget. They have been let down. Let down by a government that, like the economy they’ve presided over, is weak and unstable and in need of urgent change. They call this budget ‘Fit for the Future’. The reality is this is a government no longer fit for office.”

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Mish commented on Twitter he’d be more interested in seeing which CIA propaganda sites he’d liked.

Question is: should we trust Facebook’s assessment of what is Russian and what not? I don’t think so.

Facebook To Let Users See If They ‘Liked’ Russian Accounts (R.)

Facebook said on Wednesday it would build a web page to allow users to see which Russian propaganda accounts they have liked or followed, after U.S. lawmakers demanded that the social network be more open about the reach of the accounts. U.S. lawmakers called the announcement a positive step. The web page, though, would fall short of their demands that Facebook individually notify users about Russian propaganda posts or ads they were exposed to. Facebook, Alphabet Inc’s Google and Twitter are facing a backlash after saying Russians used their services to anonymously spread divisive messages among Americans in the run-up to the 2016 U.S. elections. U.S. lawmakers have criticized the tech firms for not doing more to detect the alleged election meddling, which the Russian government denies involvement in.

Facebook says the propaganda came from the Internet Research Agency, a Russian organization that according to lawmakers and researchers employs hundreds of people to push pro-Kremlin content under phony social media accounts. As many as 126 million people could have been served posts on Facebook and 20 million on Instagram, the company says. Facebook has since deactivated the accounts. Facebook, in a statement, said it would let people see which pages or accounts they liked or followed between January 2015 and August 2017 that were affiliated with the Internet Research Agency. The tool will be available by the end of the year as “part of our ongoing effort to protect our platforms and the people who use them from bad actors who try to undermine our democracy,” Facebook said.

The web page will show only a list of accounts, not the posts or ads affiliated with them, according to a mock-up. U.S. lawmakers have separately published some posts. It was not clear if Facebook would eventually do more, such as sending individualized notifications to users.

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NATO is a real threat.

Putin Tell Russian Firms To Be Ready For War Production (Ind.)

Russian business should be prepared to switch to production to military needs at any time, said Vladimir Putin on Wednesday. The Russian president was speaking at a conference of military leaders in Sochi. “The ability of our economy to increase military production and services at a given time is one of the most important aspects of military security,” Mr Putin said. “To this end, all strategic, and simply large-scale enterprise should be ready, regardless of ownership.” A day earlier, the president had spoken of a need to catch up and overtake the West in military technology. “Our army and navy need to have the very best equipment — better than foreign equivalents,” he said. “If we want to win, we have to be better.”

Since the 2008 Georgian war, which was a difficult operation, the Russian military has undergone extensive modernisation. Ageing Soviet equipment has gone. There is a new testing regime. There are new command structures. The budget has also increased exponentially. This year, military expenses will cross 3 trillion roubles, or 3.3% of GDP. This would be a record were it not for one-off costs in 2016. Over the next two years, spending is forecast to be cut back slightly, to approximately 2.8% of GDP. Though that budget remains less than 30% of the combined Nato budget in Europe, many countries are increasing their military spending in response to the “Russian threat”. Nato military command has also been restructured — it says in response to Russian cyber and military threats.

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First thing that needs to happen is Australian media reporting on this. Then people must protest. New Zealand recently offered to take a whole group of these people, Australia declined. Many need medical treatment. Australia refuses.

PNG Police Move In On Closed Australia Refugee Camp On Manus (AFP)

Papua New Guinea police moved into the shuttered Australian refugee camp on the country’s Manus Island Thursday in the most aggressive push yet to force hundreds of men to leave, the Australian government and detainees said. The police operation was confirmed by Australia’s Immigration Minister Peter Dutton, who said Canberra was “very keen for people to move out of the Manus regional processing centre”. “I think it’s outrageous that people are still there,” he told Sydney commercial radio station 2GB. “We want people to move.” Iranian Behrouz Boochani tweeted from inside the camp earlier Thursday, writing that “police have started to break the shelters, water tanks and are saying ‘move, move'”.

“Navy soldiers are outside the prison camp. We are on high alert right now. We are under attack,” he said, adding that two refugees were in need of urgent medical treatment. Other refugees posted photos to social media sites showing police entering the camp, which Australia declared closed on October 31 after the PNG Supreme Court declared it unconstitutional. [..] Australia had shut off electricity and water supplies to the camp and demanded that some 600 asylum-seekers detained there move to three nearby transition centres. Around 400 of the asylum-seekers have refused to leave, saying they fear for their safety in a local population which opposes their presence on the island. They also say the three transition centres are not fully operational, with a lack of security, sufficient water or electricity.

[..] Canberra has strongly rejected calls to move the refugees to Australia and instead has tried to resettle them in third countries, including the United States. But so far, just 54 refugees have been accepted by Washington, with 24 flown to America in September. Despite widespread criticism, Canberra has defended its offshore processing policy as stopping deaths at sea after a spate of drownings.

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Oh, the lights will go out eventually…

Night Being Lost To Artificial Light (BBC)

A study of pictures of Earth by night has revealed that artificial light is growing brighter and more extensive every year. Between 2012 and 2016, the planet’s artificially lit outdoor area grew by more than 2% per year. Scientists say a “loss of night” in many countries is having negative consequences for “flora, fauna, and human well-being”. A team published the findings in the journal Science Advances. Their study used data from a Nasa satellite radiometer – a device designed specifically to measure the brightness of night-time light. It showed that changes in brightness over time varied greatly by country. Some of the world’s “brightest nations”, such as the US and Spain, remained the same. Most nations in South America, Africa and Asia grew brighter. Only a few countries showed a decrease in brightness, such as Yemen and Syria – both experiencing warfare.

The nocturnal satellite images – of glowing coastlines and spider-like city networks – look quite beautiful but artificial lighting has unintended consequences for human health and the environment. Lead researcher Christopher Kyba from the German Research Centre for Geoscience in Potsdam said that the introduction of artificial light was “one of the most dramatic physical changes human beings have made to our environment”. He and his colleagues had expected to see a decrease in brightness in wealthy cities and industrial areas as they switched from the orange glow of sodium lights to more energy-efficient LEDs; the light sensor on the satellite is not able to measure the bluer part of the spectrum of light that LEDs emit.

“I expected that in wealthy countries – like the US, UK, and Germany – we’d see overall decreases in light, especially in brightly lit areas,” he told BBC News. “Instead we see countries like the US staying the same and the UK and Germany becoming increasingly bright.” Since the satellite sensor does not “see” the bluer light that humans can see, the increases in brightness that we experience will be even greater than what the researchers were able to measure.


UK, Netherlands, Belgium

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Jul 012017
 
 July 1, 2017  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , , ,  


Fred Lyon Terrific Street, Barbary Coast, San Francisco 1947

 

Bill To Remove Trump From Office Picks Up Democratic Support (DM)
Bank of America: The Fed Is Preparing To Make The Rich Poorer (ZH)
Debt Is the Third Benjamin Franklin Certainty (Stockman)
UK Household Incomes Fall Most In 40 Years, Savings Rates Crash (Ind.)
China’s Opening Of Bond Market May Spark ‘Massive Demand’ From Foreigners (CNBC)
Judge Orders Illinois To Pay Billions More Toward Medicaid (CT)
Maine Governor Won’t Sign Latest Budget Proposal, Will Allow A Shutdown (BDN)
Connecticut Social Service Agencies Brace for Deep Cuts With No Budget (AP)
America’s Pension Bomb: Illinois Is Just the Start (BBG)
An Awful Lot Of Americans Are A Walking Illinois Now (Jim Kunstler)
US Says Its Warning Appears To Have Averted Syrian Chemical Attack (R.)
Make No Mistake, We Are Already at War in Syria (Giraldi)
Qatar Crisis: Armed Conflict And Protracted Dispute Grow More Likely (CNBC)
Oliver Stone: Edward Snowden Is The “Most American Of Patriots” (ZH)
Billionaires And Aristocrats Biggest Beneficiaries Of EU Farm Subsidies (TLE)
Juncker: EU To Discuss More Migrant Help For Greece And Italy (R.)

 

 

I thought they were kidding, Daily Mail after all. But there are more reports on this. In a nutshell: the people who support this are much less capable of doing THEIR jobs than Trump is of doing his. They’re 100% delusional. And they lack a very essential respect for the American system and the Office of the President.

But it’ll all just keep coming. This is on the same day that both the NYT and AP feel forced finally to state that their Russiagate/hacking reporting has been based on nothing at all.

Bill To Remove Trump From Office Picks Up Democratic Support (DM)

A Democratic congressman has proposed convening a special committee of psychiatrists and other doctors whose job would be to determine if President Donald Trump is fit to serve in the Oval Office. Maryland Rep. Jamie Raskin, who also teaches constitutional law at American University, has predictably failed to attract any Republicans to his banner. But the U.S. Constitution’s 25th Amendment does allow for a majority of the president’s cabinet, or ‘such other body as Congress may by law provide,’ to decide if an Oval Office occupant is unable to carry out his duties – and then to put it to a full congressional vote. Vice President Mike Pence would also have to agree, which could slow down the process – or speed it up if he wanted the levers of power for himself.

The 25th Amendment has been around since shortly after the John F. Kennedy assassination, but Congress has never formed its own committee in case it’s needed to judge a president’s mental health. Raskin’s bill would allow the four Republican and Democratic leaders of the House and Senate to each choose a psychiatrist and another doctor. Then each party would add a former statesman – like a retired president or vice president. The final group of 10 would meet and choose an 11th member, who would become the committee’s chairman. Once the group is officially seated, the House and Senate could direct it through a joint resolution to conduct an actual examination of the president ‘to determine whether the president is incapacitated, either mentally or physically,’ according to the Raskin bill.

And if the president refuses to participate, the bill dictates, that ‘shall be taken into consideration by the commission in reaching a conclusion.’ Under the 25th Amendment, such a committee – or the president’s cabinet – can notify Congress in writing that a sitting president is unfit. In either case the vice president must concur, and he would immediately become ‘acting president.’ Presidents have voluntarily transferred their powers to vice presidents in the past, including when they are put under anesthesia for medical procedures. In the case of Raskin’s plan, the Constitution holds that both houses of Congress would hold a vote within three weeks. If two-thirds majorities in the House and Senate agreed that the president couldn’t discharge his duties, he would be dismissed.

Raskin’s plan could have a fatal flaw, however: Legal scholars tend to agree that when the Constitution’s framers first provided for the replacement of a president with an ‘inability to discharge the Powers and Duties of the Office,’ they weren’t talking about mere eccentricities. And when the 25th Amendment was sent to the states for ratification in 1965, the Senate agreed that ‘inability’ meant that a president was ‘unable to make or communicate his decisions’ and suffered from a ‘mental debility’ rendering him ‘unable or unwilling to make any rational decision.’ So far two dozen members of the House, all Democrats, have signed on to cosponsor the bill. Texas Rep. Sheila Jackson Lee, a far-left liberal Democrat, claimed Friday in a Fox Business Channel interview that Congress can remove ‘incompetent’ presidents. ‘The 25th Amendment is utilized when a president is perceived to be incompetent or unable to do his or her job,’ she said.

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Interesting idea, but how valid?:“Fed/ECB are now tightening to make Wall St poorer” because it is “no longer politically acceptable to stoke Wall St bubble.”

Bank of America: The Fed Is Preparing To Make The Rich Poorer (ZH)

Remember when – for years and years after the grand, global QE experiment started – any suggestion that central bankers are the primary cause behind global wealth inequality, and thus directly responsible for such political outcomes as Brexit and Trump – was branded as a conspiracy theory by bloggers living in their parents’ basement? We do, because we were accused over and over of just that (our position on the Fed and other central banks should be familiar to all by now). Well, as of this morning, none other than the chief investment strategist at BofA, Michael Hartnett, is a basement dwelling, tinfoil hatter because in his latest Flow Show report, writes that “central banks have exacerbated inequality via Wall St inflation & Main St deflation.”

Of course we knew that, you knew that, and pretty much everyone else knew that, but those whose jobs depended on not admitting it, kept their mouths shut terrified of pointing out that the central banking emperor is not only naked, but an idiot. Well, the seal has been broken, and even the biggest cowards from within the financial establishment, most of whom can be found on financial twitter for some inexplicable reason, can speak up now. However, it’s what Hartnett said next that was more notable, namely that the “massive outperformance of deflation assets versus inflation assets shows central bank failure in War on Deflation…they have failed to boost wage expectations, inflation expectation, “animal spirits” on Main St.”

And, according to the Bank of American, now that central banks are in full reverse mode, there are “two ways to cure inequality…you can make the poor richer…or you can make the rich poorer…” So for anyone still confused, about what is taking place right now, the “Fed/ECB are now tightening to make Wall St poorer” because it is “no longer politically acceptable to stoke Wall St bubble.” Sooner or later the market will get it, and when it does, those who sell first will be happy. Everyone else will be stuck with a market that is locked limited down, with no position sales possible indefinitely, maybe in perpetuity.

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“..the nation effectively performed a leveraged buyout (LBO) on itself during the last forty years. And that did temporarily add to the appearance of prosperity.”

Debt Is the Third Benjamin Franklin Certainty (Stockman)

Once upon a time people used to have mortgage burning ceremonies when later in their working years the balance on the one-time loan they took out in their 30s to buy their castle was finally reduced to zero. And there was no such thing as student loans, and not only because students are inherently not credit worthy. College was paid for with family savings, summer jobs, work study and an austere life of four to a dorm room. No more. The essence of debt in the present era is that it is perpetually increased and rolled-over. It’s never reduced and paid-off. To be sure, much of mainstream opinion considers that reality unremarkable — even evidence of economic progress and enlightenment. Keynesians, Washington politicians and Wall Street gamblers would have it no other way because their entire modus operandi is based not just on ever more debt, but more importantly, on ever higher leverage.

The chart below not only proves the latter point, but documents that over the last four decades rising leverage has been insinuated into every nook and cranny of the U.S. economy. Nominal GDP (dark blue) grew by 6X from $3 trillion to $18 trillion, whereas total credit outstanding (light blue) soared by 13X from $5 trillion to $64 trillion. Consequently, the national leverage ratio rose from 1.5X in 1980 to 3.5X today. My point today is not to moralize, but to discuss the practical implications of the nation’s debt-topia for Ben Franklin’s other two certainties — death and (especially) taxes. There’s no doubt that the modus operandi of the American economy has been transformed by the trends displayed in the below chart. It so happened that the 1.5X ratio of total debt-to-income (GDP) at the beginning of the chart was not an aberration.

It had actually been a constant for 100 years — except for a couple of unusual years during the Great Depression. It was also linked with the greatest period of capitalist prosperity, economic growth and rising living standards in recorded history. By contrast, today’s 3.5X debt-to-income ratio has two clear implications. First, the nation effectively performed a leveraged buyout (LBO) on itself during the last forty years. And that did temporarily add to the appearance of prosperity. But it also means that the U.S. economy is now lugging two turns of extra debt compared to the historic norm. Mainstream opinion, of course, says “so what?” The U.S. economy is lugging $35 trillion of extra debt, that’s what. That’s right. In the absence of the 40-year leverage aberration since the late 1970s, the chart below would show about $29 trillion of credit market debt (public and private) outstanding, not $64 trillion.

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Just don’t blame this on Brexit. It’s a much longer trajectory. Britain has been living above its weight for a long time, and austerity has made that much worse.

UK Household Incomes Fall Most In 40 Years, Savings Rates Crash (Ind.)

The aggregate real disposable income of UK households has fallen for three quarters in a row for the first time since the 1970s, according to the Office for National Statistics. The ONS said that the inflation-adjusted compensation of the household sector fell 1.4% in the first three months of 2017, reflecting spiking inflation and weak pay growth. It was the biggest decline since the first quarter of 2013 and followed a 0.4% fall in Q4 2016 and a 0.3% slip in Q3 2016. Three consecutive quarters of contraction is the worst run for the series since 1976-77. The ONS also said that the aggregate household savings rate collapsed to just 1.7%, down from 3.3% in the final quarter of 2016, and the lowest on record, although it said one-off tax payment factors might have distorted the latest reading.

Nevertheless, weak pay growth means that households have had to resort to running down their savings and borrowing to support consumption, which has almost single-handedly powered the overall economy since last June’s Brexit vote. “This is not sustainable and fuels the belief that weakened consumer spending is likely to hold back the economy over the coming months,” said Howard Archer of the EY Item Club. “With consumer confidence declining and banks reporting that they intend to restrict the supply of secured credit, the saving rate is more likely to rise than fall ahead,” said Samuel Tombs of Pantheon.

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Those foreigners would have to sell somthing first, we presume. There goes the S&P?!

China’s Opening Of Bond Market May Spark ‘Massive Demand’ From Foreigners (CNBC)

China’s move to open up its fixed income market to foreign investors will eventually unleash “massive” demand for the mainland’s bonds, the chief executive of the company that operates Hong Kong’s stock exchange, told CNBC on Friday. In May, regulators in Hong Kong and on the mainland approved a “bond connect” program to allow investors operating in Hong Kong to trade Chinese bonds, called a “northbound” flow, with a “southbound” flow of Chinese investment into Hong Kong to be considered later. Authorities also won’t cap the amount that foreigners can invest in China. “I think this is a huge breakthrough,” HKEx CEO Charles Li told CNBC’s “Squawk Box” on the anniversary of Hong Kong’s handover to China.

Li said that while large investors are already able to access the mainland fixed income market though existing programs, the bond connect would be fundamentally different. “People are now finally able to do it and able to do it in a way that is familiar, that is similar to the way we trade U.S. dollar Treasurys or other international treasury fixed income instruments,” he said. “That is something so new. That the demand, underlying demand, the potent demand are massive.” He noted that with China’s yuan being included in the IMF’s Special Drawing Rights (SDR) basket in November 2015, some investors must include at least some renminbi assets on their balance sheets. Inclusion in the SDR means the renminbi is now officially recognized as a reserve currency. “That will require massive reallocation of capital but over quite a long period of time,” Li said, saying foreign investment into Chinese bonds was “at the beginning of the beginning.”

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Not all of this will come out as bad as it may look tomorrow morning, but down the line it’s all a toxic swamp. In the short term, deep cuts to social programs.

Judge Orders Illinois To Pay Billions More Toward Medicaid (CT)

A federal judge on Friday ordered Illinois to start paying $293 million in state money toward Medicaid bills every month and an additional $1 billion over the course of the next year, worsening a cash-flow problem caused by two years of budget-free spending by state government. U.S. District Judge Joan Lefkow’s ruling came after lawyers representing Medicaid patients and attorneys for the state were unable to agree on a plan to deal with bills and pay down a $3 billion backlog owed to health care providers. The ruling requires the state to start promptly paying all new Medicaid bills, which is estimated at about $586 million per month, and to pay down $2 billion of its bill backlog in payments spread out over the course of the coming fiscal year. The federal government pays half of those costs, so the bottom line for the state will be $293 million per month and $1 billion in backlogged bill payments over the next year.

Comptroller Susana Mendoza’s office earlier in the week had offered to pay an additional $150 million per month, but the plaintiffs rejected it, saying it wasn’t enough. The $150 million would have only cost the state $75 million because of the federal match, and Mendoza’s office said that was all the state could spare while meeting other demands. Now, Mendoza said Friday’s ruling would cause her to likely have to cut payments to the state’s pension funds, state payroll or payments to local governments. Payments to bond holders won’t be interrupted, she said. “As if the governor and legislators needed any more reason to compromise and settle on a comprehensive budget plan immediately, Friday’s ruling by the U.S. District Court takes the state’s finances from horrific to catastrophic,” Mendoza said in a statement. “A comprehensive budget plan must be passed immediately.”

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Maine beat Illinois to it! Partial shutdown started today.

Maine Governor Won’t Sign Latest Budget Proposal, Will Allow A Shutdown (BDN)

Gov. Paul LePage said Friday that he won’t sign a state budget package endorsed Thursday night by a special panel, ensuring a partial shutdown of state government at midnight. The Republican governor’s opposition to the budget deal would force Maine’s first state government shutdown since 1991, which could stretch 10 days if LePage holds a budget bill for the full time the Constitution allows before he must act. A budget would go to him tonight if the Legislature can muster two-thirds votes in both chambers, but even that was a big “if” on Friday. LePage hosted House Republicans for a Friday morning meeting where he reportedly implored them to oppose the budget deal negotiated by Senate President Mike Thibodeau, R-Winterport, and House Speaker Sara Gideon, D-Freeport.

LePage told reporters his major objections were the overall cost of the budget package – around $7.1 billion – and that it proposes raising the state’s lodging tax from 9% to 10.5% without income tax cuts. However, the budget package currently under consideration contains an income tax cut of 3% because it eliminates the surtax on income above $200,000 per year for education which was approved by voters last year. LePage said “on June 30” – the deadline for Maine’s next fiscal year – “they’re trying to put a gun to the governor’s head,” but it won’t work. “This budget they have has no prayer, and if they’re hell-bent on bringing this budget down, we will shut down at midnight tonight and we will talk to them in 10 days,” LePage said.

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Whack-a-state.

Connecticut Social Service Agencies Brace for Deep Cuts With No Budget (AP)

Nonprofit social service agencies prepared Friday to cut programs, close facilities and lay off staff after Gov. Dannel P. Malloy signed an order that slashes funding to maintain essential state services after lawmakers couldn’t come to terms on a budget before the end of the fiscal year. Barry Simon, president and CEO of Oak Hill, said his Hartford-based agency which serves people with developmental disabilities has decided to close four group homes and consolidate two others. Oak Hill was already losing money on those programs and anticipated the problem would be acerbated by the additional state reimbursement cuts in Malloy’s executive order. “Because of this situation, we’re pulling the trigger because it’s only going to get worse,” he said. Simon said 26 individuals live at the six affected group homes, some as long as 20 years. Most are being moved into other facilities.

Meanwhile, Oak Hill is scaling back day programs and employment services for people currently receiving services. And Simon said his agency cut off new admissions two months ago, in anticipation of the state budget impasse. Malloy called it “regrettable” he had to sign the executive order. When it became clear an agreement wasn’t possible on a new, two-year state budget before the fiscal year ended, the Democrat urged the General Assembly to pass a three-month “mini budget” he created. Malloy said it would be less draconian than the executive order and give lawmakers more time to reach a budget deal. While Democratic and Republican state Senate leaders supported Malloy’s mini budget, House leaders did not. Democratic House officials instead offered an eleventh-hour, two-year budget they said can be ready for a vote July 18. Malloy, however, was unenthusiastic about the proposal.

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A healthy pension fund today should really be over 100% funded- because of future demographic expectations. Only South Dakota’s complies.

America’s Pension Bomb: Illinois Is Just the Start (BBG)

We’ve been hearing it for years: America’s public pensions are a ticking time bomb. Well, at long last, the state of Illinois is about to expose just how big this blowup could be. As of the 2015 fiscal year, Illinois had promised its employees $199 billion in retirement benefits. Right now, it’s $119.1 billion short. That gap lies at the center of a years-in-the-making fiscal mess that’s threatening to drop the state’s credit rating to junk-bond status. But Illinois is hardly alone. Connecticut and New Jersey—states that, to most of the world, seem like oases of prosperity—are under growing financial strain, too. We’ve ranked the states by the size of their funding gap. The lower the funding ratio, the more money the state has to come up with to meet its pension obligations.

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“The American people, by and large, have no more idea how false and fragile the financial arrangements of the nation are than the average eight-year-old has about why the re-po squad is towing away Daddy’s Ford-F150.”

An Awful Lot Of Americans Are A Walking Illinois Now (Jim Kunstler)

The preview of coming attractions is currently playing out in Illinois — soon to be joined by Connecticut, California, Kentucky, and many other bankrupt states. Illinois is dead broke. It can’t pay the contractors who fix things like roads and storm drains, and supply food to its prisons. It’s over $200-billion deep in pension obligations that will never be honored. Its Medicaid system is a shambles. It doesn’t even have the cash-on-hand to pay lottery winners (what happened to all the cash paid into the lottery by the suckers who didn’t win, which is supposed to pay off the winners?). The state legislature hasn’t passed a budget in three years. The governor and the mayor of Chicago and everybody else nominally in charge have no idea what they’re going to do about it. Think the federal government is going to just step in and save the day there?

They’d have to bail out every other foundering state and that’s just not going to happen, especially with that same federal government about to run out of cash money itself, with no resolution of the debt ceiling controversy that might allow it to even pretend to borrow more money by issuing treasury bonds that are instantly bought by the Federal Reserve — which, of course, is not an official government agency but a private banking consortium contracted to manage the nation’s money. Do you begin to see the outlines of the clusterfuck rising like a bad moon over the harvest season of 2017? The American people, by and large, have no more idea how false and fragile the financial arrangements of the nation are than the average eight-year-old has about why the re-po squad is towing away Daddy’s Ford-F150.

We’re just doing what we always do: gittin’ our summer on. Breaking out the potato salad and the Bud Lites – at least those who have enough mojo left in their MasterCards to charge the party supplies. An awful lot of Americans must be maxed out, though, people who actually used to work at things and get paid for it. Each one of them is a walking Illinois now, facing each dawning day with a bigger load of problems, more things they can’t pay for, and moving closer to the dreadful day when everything is gone, every chattel, every knickknack, the very roof over their head, and most particularly the belief that they live in a fair and decent society.

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Absurd theater 2017. Because: “The intelligence that prompted the administration’s warning to Syria this week was “far from conclusive,” said a U.S. official familiar with it. “It did not come close to saying that a chemical weapons attack was coming,” the official said.”

But Nikki Haley says: “I would like to think that the president saved many innocent men, women and children.”

US Says Its Warning Appears To Have Averted Syrian Chemical Attack (R.)

U.S. Defense Secretary Jim Mattis said on Wednesday that the Syrian government of President Bashar al-Assad appeared so far to have heeded a warning this week from Washington not to carry out a chemical weapons attack. Russia, the Syrian government’s main backer in the country’s civil war, warned that it would respond proportionately if the United States took pre-emptive measures against Syrian forces to stop what the White House says could be a planned chemical attack. The White House said on Monday it appeared the Syrian military was preparing to conduct a chemical weapons attack and said that Assad and his forces would “pay a heavy price” if it did so. The warning was based on intelligence that indicated preparations for such a strike were under way at Syria’s Shayrat airfield, U.S. officials said.

“It appears that they took the warning seriously,” Mattis said. “They didn’t do it,” he told reporters flying with him to Brussels for a meeting of NATO defense ministers. He offered no evidence other than the fact that an attack had not taken place. Asked whether he believed Assad’s forces had called off any such strike completely, Mattis said: “I think you better ask Assad about that.” Washington accused Syrian forces of using the Shayrat airfield for a chemical weapons attack in April. Syria denies this. The intelligence that prompted the administration’s warning to Syria this week was “far from conclusive,” said a U.S. official familiar with it. “It did not come close to saying that a chemical weapons attack was coming,” the official said.

[..] Russian Foreign Minister Sergei Lavrov said on Wednesday that Moscow will respond if the United States takes measures against Syrian government forces. “We will react with dignity, in proportion to the real situation that may take place,” he said at a news conference in the city of Krasnodar. Lavrov said he hoped the United States was not preparing to use its intelligence assessments about the Syrian government’s intentions as a pretext to mount a “provocation” in Syria. [..] In Washington, the U.S. ambassador to the United Nations, Nikki Haley, credited Trump with saving Syrian lives. “Due to the president’s actions, we did not see an incident,” Haley told U.S. lawmakers. “I would like to think that the president saved many innocent men, women and children.”

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Suggestion: look at this through Russian eyes. They don’t think Trump is crazy, they think all of America is.

Make No Mistake, We Are Already at War in Syria (Giraldi)

Donald Trump has been in office for five months and it would appear that at least some of the outlines of his foreign policy are beginning to take shape, though that may be exaggeration as no one seems to be in charge. The “America First” slogan seemingly does not apply to what is developing, as actual U.S. interests do not appear to be driving what takes place, and there does not seem to be any overriding principle that shapes the responses to the many challenges confronting Washington worldwide. The two most important observations that one might make are both quite negative. First, lamentably, the promised détente with Russia has actually gone into reverse, with the relationship between the two countries at the lowest point since the time of the late, lamented Hillary Rodham Clinton as Secretary of State.

Second, we are already at war with Syria even though the media and Congress seem blissfully unaware of that fact. We are also making aggressive moves intended to create a casus belli for going to war with Iran, and are doubling down in Afghanistan with more troops on the way, so Donald Trump’s pledge to avoid pointless wars and nation-building were apparently little more than glib talking points intended to make Barack Obama look bad. The situation with Russia can be repaired as Vladimir Putin is a realist head of state of a country that is vulnerable and willing to work with Washington, but it will require an end to the constant vituperation being directed against Moscow by the media and the Democratic Party. That process could easily spin out for another year with all parties now agreeing that Russia intervened in our election even though no one has yet presented any evidence that Russia did anything at all.

Syria is more complicated. Senators Tim Kaine and Rand Paul have raised the alarm over American involvement in that country, declaring the U.S. military intervention to be illegal. Indeed it is, as it is a violation of the United Nations Charter and the American Constitution. No one has argued that Syria in any way threatens the United States, and the current policy is also an affront to common sense: like it or not Syria is a sovereign country in which we Americans have set up military bases and are supporting “rebels” (including jihadis and terrorists) who are seeking to overthrow the legitimate government. We have also established a so-called “de-confliction” zone in the southeast of the country to protect our proxies without the consent of the government in Damascus. All of that adds up to what is unambiguously unprovoked aggression, an act of war.

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Expect Russia to react to this too, and soon.

Qatar Crisis: Armed Conflict And Protracted Dispute Grow More Likely (CNBC)

A diplomatic crisis on the Arabian Peninsula is turning into a protracted standoff, and some analysts now say the risk of armed conflict is emerging. The dispute between Qatar, a major natural gas exporter, and its neighbors is now entering its fifth week. Saudi Arabia, the United Arab Emirates, Egypt and Bahrain cut diplomatic ties with Qatar and implemented a partial blockade on June 5 in a bid to bring the tiny Persian Gulf monarchy in line with Saudi-dominated foreign policy. Some analysts initially thought the parties would seek a resolution by the end of the Muslim holy month of Ramadan, but last week, the anti-Qatar alliance issued a series of harsh demands. “It’s escalated to a stage where it’s very difficult for both sides to back down,” Firas Modad, analyst at IHS Markit, told CNBC this week.

The demands include non-starters such as shutting down Al Jazeera news and closing a Turkish military base. The coalition also calls on Qatar to end its alleged ties to terrorist groups and political opposition figures in Gulf nations and Egypt. It demanded Qatar pay reparations and submit to compliance reviews going forward. Qatar has rejected the demands. That is likely to trigger a series of additional economic and political sanctions against the government in Doha, causing the impasse to stretch out for months, risk consultancy Eurasia Group concluded in a briefing this week. “The crisis will continue to escalate before the Qatari leadership ultimately adjusts its policy positions, or in a slightly less likely scenario, opts to cement an alliance with Turkey and closer ties with Iran,” Eurasia Group said.

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Or the Most Patriotic of Americans?

Oliver Stone: Edward Snowden Is The “Most American Of Patriots” (ZH)

Director Oliver Stone, who’s recently released series “The Putin Interviews” stirred up controversy among liberals who accused him of being a Russian propagandist, appeared on the Liberty Report with former Texas Congressman Ron Paul to discuss the documentary, his views about former NSA contractor Edward Snowden, and why the US’s aggressive approach to containing the purported threat posed by Russia has led to a breakdown in relations between the two powers. Stone said he’s been “interested” in Russia since being raised as a conservative in New York City, claiming that his father instilled a “fear” of Communism and Russians in him at a young age. In the early 1980s, Stone visited the country for the first time as a screenwriter with the idea of interviewing several dissidents. He has returned several times since.

In particular, Stone has become interested in the case of Snowden, whom he praised as “the most American of patriots.” “I was interested in Russia – I went back into the 2000s. The Snowden story occupied me. And of course, it’s so ironic that he the most American of patriots is living in Moscow because he has to. It’s the only country in the world that would give him asylum – in other words it’s the only country in the word that can deny the US what it wants which is Snowden.” “[Putin] explained to me that Russians wanted an extradition treaty with the US for years, but nothing doing, because there are a lot of Russian criminals in America who stole money from Russia. He did nothing wrong in Russian terms so they gave him asylum – now its 3 years 5 years whatever its going to be. I wish Ed well I really do.”

Stone also shared a story about watching the movie “Dr. Strangelove” with Putin, who he said was greatly moved. “I showed him the movie Dr. Strangelove…and he watched it very serious about it. He said this movie was very accurate of that time and it’s still accurate today.” Circling back to the issue of nuclear deterrents, Stone said he’s worried that rising tensions around the world could trigger a “nuclear confrontation.” “I’m saying I have reached that age when I am not really concerned about what happens to me but… it’s not just about the US, but about the whole planet and I feel a nuclear confrontation, an accident, could happen tomorrow. But you put ABMs in Poland and Romania – that’s a gigantic mistake.”

“An ABM can be converted overnight from a defensive missile to an offensive missile. They’re surrounded from the North the East and the West by US missiles and we don’t seem to realize it.” Stone says he’s “scared for America,” explaining that many US citizens prefer to blindly accept media spin that’s favorable to the US establishment, without questioning it, or trying to understand Russia’s point of view. “It’s a good thing I went through JFK when I was younger…there’s been a lot of controversy around my movies. I’m scared not for myself because I’m at that age, they can’t destroy me anymore, but I’m scared for America, I’m afraid they’ve lost their sense. I’m afraid there’s a lack of foresight and leadership.”

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EU farm budget is about €1 trillion. While Greece’s health care system and social programs are being murdered underpressure from the same EU.

Billionaires And Aristocrats Biggest Beneficiaries Of EU Farm Subsidies (TLE)

20% of the 100 largest payments under the European Union’s “direct” subsidy system now go to people or families on the Sunday Times Rich List. According to a new investigation by Energydesk billionaires and aristocrats last year scooped up an even greater proportion of the UK’s biggest farm subsidy payouts, with “basic payments” to the Top 100’s Rich List recipients totalling £11.2 million in 2016 – up from £10.6 million the previous year. Direct EU subsidies – now known as “basic payments” – have attracted criticism for largely rewarding landowners simply for owning land, rather than paying farmers to invest in environmental or other “public goods”. The National Trust – which itself received £1.6m in basic payments last year – said the system needed fundamental reform, even if it meant the trust getting less income for its land.

Richard Hebditch, the trust’s external affairs director, said: “Rather than being paid for how much land you happen to farm, a new model which delivers clear public benefit from the money being spent is within reach after Brexit. “Farmers should receive a fair market price for safe and sustainable supplies of food, with public funding paying for the crucial role of protecting vulnerable natural resources, caring for our heritage and landscape and helping address issues like flooding and climate change.” Ironically, the farm business owned by prominent Brexit-backing billionaire inventor Sir James Dyson is now the biggest for-profit recipient of direct EU farm subsidies in the UK. Beeswax Dyson Farming netted £1.6 million under the basic payment scheme last year – up from £1.4 million in 2015. According to the Rich List, Sir James and family are worth £7.8 billion, and he is a bigger landowner than the Queen, with holdings of around 25,000 acres.

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Nobody takes Juncker serious anymore.

Juncker: EU To Discuss More Migrant Help For Greece And Italy (R.)

The EU executive will discuss further measures with Italy and Greece in the coming week to help the Mediterranean states deal with irregular migrants, European Commission President Jean-Claude Juncker said on Friday. Asked at a news conference what, in particular, the Commission might do to help Italy, where arrivals from Libya are up a third on a year ago, Juncker said: “I will see with the Italian prime minister, with the Greek prime minister, during the coming week what further efforts the Commission can line up to relieve Italy and Greece in their difficult struggles.” He recalled that he had described both countries as “heroic” and said he had discussed the issue on Thursday at a meeting in Berlin with Italian Prime Minister Paolo Gentiloni and leaders of other big EU states which are members of the global G20.

“I said Italy and Greece … cannot be left alone in this refugee crises,’ Juncker told reporters in Tallinn, where he was meeting the Estonian government as it takes on the six-month presidency of European Union ministerial councils. He rejected any suggestion the Union had failed to help the countries where most refugees and migrants are arriving, noting EU funds allocated to Italy and Greece and border guard and other personnel sent to help process those arriving. The Commission on Thursday threw its weight behind a plea by Italy for fellow EU states to allow rescue boats carrying migrants to dock in their ports.

EU diplomats said they were looking at Italian concerns over how private charities are picking up people just off the Libyan coast. Some see that as encouraging more to take to the sea. The rescue organisations complain of unfair criticism. About 10,000 people have been rescued over the past three days. Italy has taken in 82,000 people so far this year. Voters dealt a blow to the ruling party in local elections last week, opting for groups promising a tougher line on immigration. The Commission has signalled readiness to give Italy more cash to help with increased arrivals, though officials and diplomats in Brussels are sceptical there would be any swift agreement for other EU states to take in the private boats.

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May 272017
 
 May 27, 2017  Posted by at 8:33 am Finance Tagged with: , , , , , , , , , ,  


Paul Klee Limits of the Mind 1927

 

Global Pension Underfunding To Grow To $400 Trillion Over Next 30 Years (ZH)
UK Retirement Age Could Hit 80 As Pensions Deficit Sets Off Time Bomb (Ind.)
President Trump’s Disastrous Budget Plan (John T. Harvey)
Trump Prepares “War Room”, “Big White House Changes”, Loss Of Twitter (ZH)
Trump’s Allies, Convicted of High Crimes Without a Trial (BBG)
Millennials Want to Buy Homes but Aren’t Saving for Down Payments (WSJ)
Australia Economy Hit By Spending Strike, Cyclone (AFR)
Theresa May Launches Strongest Attack Yet On Jeremy Corbyn (Tel.)
No Exit (Jim Kunstler)
Libyan Coastguard Opened Fire At Refugee Boats: NGOs (AlJ)
Hopes For Refugee Crisis Plan Fall Into Chasm Between G7 And Trump (G.)

 

 

Long time coming, we’ve been warning about this for as long as the Automatic Earth exists. It’s slow motion, but it’s certain.

Global Pension Underfunding To Grow To $400 Trillion Over Next 30 Years (ZH)

Of course, as we’ve argued before, the current pension underfunding levels are sure to only get worse over the coming decades as the world will have to contend with a wave of retiring Baby Boomers and a period of lackluster, volatile returns. So how bad could the global funding gap get? Unfortunately, the World Economic Forum (WEF) recently set out to solve that impossible math equation and it turns out the answer is about $400 trillion…give or take a couple trillion. Not surprisingly, the WEF attributed their terrifying conclusion to an ageing population, lack of savings, low expected growth rates and financially illiterate citizens.

• Long-term, low-growth environment: Over the past 10 years, long-term investment returns have been significantly lower than historic averages. Equities have performed 3%-5% below historic averages and bond returns have typically been 1%-3% lower. Low rates have grown future liabilities, and at the same time investment returns have been lower than expected and unable to make up the growing pension shortfall.

• Inadequate savings rates: To support a reasonable level of income in retirement, 10%-15% of an average annual salary needs to be saved. Today, individual savings rates in most countries are far lower. This is already presenting challenges where traditionally defined benefit structures would have provided a guaranteed pension benefit. Now, as workers look at their defined contribution retirement balances, with no guaranteed benefits, they are realizing that the retirement income their savings will provide will be much lower than expected.

• Low levels of financial literacy: Levels of financial literacy are very low worldwide. This represents a threat to pension systems which are more selfdirected and which rely more on private savings in addition to employer- or government-provided savings. Of course, ignoring that minor ~20 year increase in life expectancy over the past 60 years without raising retirement ages can take a toll on those present value calculations of future liabilities.

Oh, and turns out that politicians creating massive ponzi schemes to promise citizens that their government would take care of their financial needs in perpetuity, while never really bothering to explain the true costs of such programs, was probably a bad idea. But luckily these politicians are exempt from being prosecuted for their financial crimes…so taxpayers will just have to deal with picking up the $400 trillion tab.

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And once you’re 80 everyhting’s gone, spent.

UK Retirement Age Could Hit 80 As Pensions Deficit Sets Off Time Bomb (Ind.)

The UK has been told to prepare for a workforce of 80-year-olds as the world’s leading economies struggle to deal with a £54 trillion pensions time bomb. The amount could balloon to an astonishing £334 trillion by 2050 unless policymakers take urgent action, the World Economic Forum has warned. An ageing population, falling birth rates and poor access to pension products were the main sources of the widening gap between what people are saving and the amount they would have to put away to adequately fund their retirement, the WEF said. The projection is based on the OECD’s recommendation that people should have retirement income of around 70% of their salary.

On this measure, the UK’s shortfall is higher than £6.2 trillion and set to increase by around 4% per year, reaching more than £25 trillion by 2050. To avoid the looming crisis, governments need to to improve financial literacy and increase access to pensions in order to boost the amount people save, the WEF said. “Policymakers do need to be thinking now about how to integrate 75- and even 80-year-olds in the workplace,” Michael Drexler, head of financial and infrastructure systems for the WEF told The Financial Times. The WEF said life expectancy has risen rapidly since the 1950s, increasing by two years every decade on average. Babies born now can expect to live longer than 100 years, according to the WEF report.

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Nobody, Rep. or Dem., is interested in actually understanding the economy, they just want their favorite people to do well.

President Trump’s Disastrous Budget Plan (John T. Harvey)

Several months ago, I graded President Trump’s economics. The standard I used was the extent to which various policies drained or refilled the swamp, with the assumption that the former represented acts that helped the middle class (or aspirants thereto). I marked him with two swamp drainers (+2) and five swamp refillers (-5) for a net of -3. His newly-announced budget plan, however — where I had given him the benefit of the doubt and a +1–just switched to a -1. It is absolutely disastrous. As much as I complained about Obama’s, this may be worse. You can do a quick Google search and find plenty of line-by-line analyses to see where the cuts will come. I won’t bother with that. Instead, I want you to take a step back and just look at the simple logic involved. What is the macro impact of Trump’s newfound conviction that we need to reduce the public deficit?

1. It lowers our savings. Ignoring for the moment the foreign sector, there are only two main actors in our economy: the public sector and the private sector. The inescapable accounting logic is that if the public sector spends more than it earns, then the private sector must earn more than it spends. Or put another way, the government’s deficit is your surplus. Period. No alternate interpretation is possible. Now add in the fact that we already spend more for foreign products than they spend for ours and you see that not only does the private sector need the government’s deficit if it is going to have any net savings, but that deficit needs to be even larger than our net outflow to China, et al!

2. It reduces profits. Actually, this is really part of the above, but it gets a little more concrete. When the government cuts spending, this isn’t just a number of a ledger somewhere. It’s someone’s income: a fireman, a librarian, a Marine, a park ranger, a university physics professor working with grant money, etc., etc. As it stands today, those people are buying bread, milk, gas, movie tickets, apartment rentals, cars, and so on. Who is going to buy those items if we lay off those government workers? No one. In fact, it would then logically lead to even more layoffs as those businesses lost profits. So much for helping the entrepreneur.

3. It burdens current generations (and does nothing to help future ones). Probably the most fundamental fact about the debt is also the least understood one: it is impossible — IMPOSSIBLE — for the U.S. to be forced to default on debt in dollars. I have written on this point extensively and will not go on about it here. The bottom line is that default is off the table, it can’t happen. Hence, the only impact of cutting the deficit is the reduction in savings and profits (and employment) mentioned above.

And so, without even considering the micro impacts of the various cuts he has in mind, it’s bad news all around and Trump’s grade has dropped from -3 (+2 – 5) to a -5 (+1 – 6). Of course, for the rest of us the impact is somewhat more significant than getting a bad report card.

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Big changes were always going to happen. Losing Twitter, Spicer, Goldman alumni, Bannon, now maybe Kushner, no surprises there.

Trump Prepares “War Room”, “Big White House Changes”, Loss Of Twitter (ZH)

In lieu of the Friday night “Trump bombshell” deliverable from the NYT-WaPo complex, today it was Reuters’ and the Wall Street Journal’s turn to lay out the suspenseful weekend reads, previewing major potential upcoming changes to the Trump administration. First, according to Reuters, Trump’s top advisors are preparing to establish a “war room” to combat negative reports and mounting questions about communication between Russia. Steve Bannon and Trump’s son-in-law Jared Kushner, both senior advisors to the president, will be involved in the new messaging effort, which also aims to push Trump’s policy agenda and schedule more rallies with supporters. This “most aggressive effort yet” to push back against allegations involving Russia and his presidential campaign, will launch once Trump returns from his overseas trip.
\
[..] Second, in a separate but similar report from the WSJ, the paper writes that Trump is “actively discussing major changes” in the White House, including a shakeup of his senior team, after spending much of his free time during his overseas trip weighing the Russia investigation and the political crisis it poses for him. A flurry of meetings devoted to White House operations are scheduled for next week, officials said, and sparks are expected to fly. While this isn’t the first time a major shake up around Trump was announced as imminent, recalls Axios reporting two weeks ago that an “angry” Trump was planning a huge reboot, and that Priebus, Bannon and Spicer could be fired …

[..] The biggest change may be that Trump is about to lose his twitter privileges for good: One major change under consideration would vet the president’s social media posts through a team of lawyers, who would decide if any needed to be adjusted or curtailed. The idea, said one of Mr. Trump’s advisers, is to create a system so that tweets “don’t go from the president’s mind out to the universe.” Some of Mr. Trump’s tweets—from hinting that he may have taped conversations with Mr. Comey to suggesting without any evidence that former President Barack Obama wire-tapped Trump Tower—have opened him to criticism and at times confounded his communications team. Trump aides have long attempted to rein in his tweeting, and some saw any type of legal vetting as difficult to implement. “I would be shocked if he would agree to that,” said Barry Bennett, a former Trump campaign aide.

[..] most interesting is the alleged emerging tension between Trump and his Goldman advisors: “Some Trump advisers have also questioned the judgment of communications officials, citing as an example the rollout of a tax-plan outline in April that featured Goldman Sachs alumnae Steven Mnuchin, the Treasury secretary, and Gary Cohn, the National Economic Council director. “The left is automatically going to say the tax plan is tailored to the rich and to Wall Street. And we just gave them an image of the rich and of Wall Street,” one Trump former campaign official said. In an amusing tangent, the WSJ also points out that Trump’s return to Washington will mark the end of a period which, White House staffers said, “brought some relief from the hectic pace of the news surrounding the administration and the Russia investigation. Some noted that it gave them a rare time to eat dinner at home.”

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Peeking out of the echo chamber.

Trump’s Allies, Convicted of High Crimes Without a Trial (BBG)

Heard any good Mike Flynn jokes lately? How about this one from “Morning Joe,” this week? “When it comes to legal issues, he’s like Charmin. You just keep squeezing.” Maybe you’ve seen Stephen Colbert’s segment from February about Trump’s former national security adviser: “It’s funny ’cause it’s treason.” Don’t miss the exchange in the New Yorker last month with former acting attorney general Sally Yates. Reporter Ryan Lizza asked Yates about how she informed the White House counsel that Flynn had lied to his colleagues about his monitored conversations with the Russian ambassador. “You didn’t just text, ‘Heads-up, your N.S.A. might be a spy’?” Lizza asked. Yates quipped: “Is there an emoji for that?” Well it’s nice to see our elites are in such good humor about something so grave. If there truly was treason, it’s no joking matter.

If there was not, then this man’s name is being tarnished unfairly. Ha. Ha. After all, Flynn has yet to be charged with a crime. If there is evidence that he betrayed his country, it has yet to be presented. None of the many news stories about Flynn’s contacts with Russians and Turks has accused him of being disloyal to his country. And yet a decorated general has already been tried and convicted in the press. None of this would be happening without some very dirty business from the national security state. It’s a two-pronged campaign. First there are the whispers. Anonymous officials describe in detail elements of an ongoing investigation: intercepts of conversations between Russian officials about how they could influence Flynn during the transition; monitored phone calls about how Flynn had lied about his conversations with the Russian ambassador to his colleagues; how Flynn failed to disclose his payment from the Russian propaganda network on his official forms.

This prong of the campaign is at least factual, but the facts don’t speak for themselves. The second and more insidious element here is the innuendo. Yates never says Flynn was a spy for Russia. But her public remarks to Congress and the media appear designed to leave that impression. As she told Lizza, Flynn was “compromised by the Russians.” This sounds far more sinister than Flynn’s explanation when he left his post in February. Back then he said he had forgotten elements of his discussion with the Russian ambassador that covered a wide range of issues.

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They aren’t because they can’t. This is what feeding bubbles leads to. This is the Fed for you.

Millennials Want to Buy Homes but Aren’t Saving for Down Payments (WSJ)

Most millennials have saved virtually nothing for a down payment on a home, according to a new study, suggesting many will face steep obstacles to homeownership in the years ahead. Nearly 70% of young people ages 18 to 34 years old said they have saved less than $1,000 for a down payment, according to a survey by Apartment List, a rental listing company, expected to be released Friday. About 40% said they aren’t saving anything on a monthly basis. Even senior members of the group are falling short. Nearly 40% of older millennials, those age 25 to 34, who by historical measures should already own or be a few years away from homeownership, said they are saving nothing for a down payment each month.

The study helps illuminate a tension at the heart of the housing market. The vast majority—some 80%—of millennials said they eventually plan to buy a home. But 72% said the primary obstacle is that they can’t afford it. “It’s encouraging that millennials do want to buy homes. It suggests that they are delaying forming households but they’re not giving it up,” said Andrew Woo, director of data science and growth at Apartment List. “The biggest reason [they aren’t buying] is because of affordability.” Catie Peterson, a 22-year-old graphic designer in Fort Lauderdale, Fla., said she doesn’t expect to start saving for a down payment for another five years or so. “I barely have enough savings to cover my car if it were to break down,” she said.

Ms. Peterson said she pays $975 a month in rent for a small one-bedroom apartment, which is about one third of her paycheck, leaving little room to save. “Once I get settled in my career and settled in my family, I think buying a house would be reasonable,” she said. The reasons young people are falling behind include student loan debt, rising rents and the slow starts many got to their careers during the recession. Living in vibrant urban centers with ready access to restaurants, bars and entertainment might also make saving seem less urgent. Many are children of the affluent baby boomer generation and some expect their parents to give them a boost when the time comes. In all, about one-quarter of millennials ages 25 to 34 expect to receive help from friends or family, according to the survey. Still, three-quarters said they expect to receive less than $10,000, which might not be enough to close the gap.

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All the money that’s left is tied up in property.

Australia Economy Hit By Spending Strike, Cyclone (AFR)

Australia’s economy looks to have experienced its weakest start to a year since 2011 – narrowly skirting a contraction – as a growing consumer spending strike and a cyclone-driven slowdown in exports weighs on activity just as the government bets its budget strategy on a rebound. While the country is not at risk just yet of a technical recession – or two quarters of consecutive declines in gross domestic product – the economy looks set to continue in 2017 its whip-saw pattern of the past year. Combined with weak spending and a fall in shipments of iron ore and coal, as well as lower commodity prices, the first quarter is likely to have been weighed down by a sudden collapse in construction work – a sign that a regulatory squeeze on apartment lending may be starting to bite.

Weak retail spending, which this week saw the seventh retailer go under in recent months, sharply rising car loan delinquencies and falling new car sales all point toward a population clamping down on discretionary spending. ANZ Bank economists said next month’s national accounts may show the economy grew just 0.1% from the December quarter – raising the spectre of the second negative quarter in nine months after GDP shrank by 0.5% in the September quarter before rebounding by 1.1% in late 2016. Annual growth may have shuddered to just 1.5% in the opening months of the year from 2.4% last year. While they are in the minority, some analysts are starting to warn that the economy may have gone backwards, not just in the March quarter, but may be doing so in the current period.

[..] Commonwealth Bank of Australia senior economist Michael Workman cautioned that it was “too early to tell” if GDP would go negative. “There’s always a lot of worriers out there, and they’re very good for the market,” he said. But he isn’t one of them. “It could be as low as 0.1, but it’s too early to tell with any certainty.” ANZ senior economist Felicity Emmett said there was a growing realisation among households that low wage growth was here to stay. “That’s quite difficult for the household sector when they have very high levels of debt. In terms of the atmospherics, the business surveys do suggest quite positive, but the decline in consumer spending quite worrying.”

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Don’t be surprised if she loses.

Theresa May Launches Strongest Attack Yet On Jeremy Corbyn (Tel.)

Theresa May has accused Jeremy Corbyn of providing an “excuse for terrorism” in her strongest attack on the Labour leader to date. The Prime Minister said Mr Corbyn had suggested the Manchester suicide bombing and other terrorist attacks “are our own fault” by linking terrorism to British foreign policy. She also rounded on Mr Corbyn for the timing of his remarks – made in a campaign speech on Friday – just days after 22 children and adults were killed. In an interview with the BBC’s Andrew Neil, Mr Corbyn repeated his claim that terrorism was partly caused by “the consequences of our interventions in Afghanistan, in Iraq, in Libya”. The Labour leader also would not withdraw his previous description of NATO as a “Frankenstein” organisation, and refused six times to guarantee a replacement of Trident.

It came as senior Tories expressed concern that Mrs May’s message of “strong and stable” leadership is not cutting through with voters after one poll found her lead over Labour had been reduced to just five points. Mrs May on Friday night claimed a victory in the war on terror as she convinced leaders of the G7 countries to sign up to plans she has drawn up for a crackdown on Facebook and other social media sites being used as recruiting tools by Isil. She also struck a deal to make countries pick up British jihadis before they get home, after it emerged that Manchester bomber Salman Abedi stopped in Germany on his way back from Libya just days before the attack. [..] Mr Corbyn was criticised by figures from across the political spectrum for linking the Manchester attack to British foreign policy in Libya and elsewhere.

Boris Johnson, the Foreign Secretary, said his comments were “absolutely obscene”, while Andy Burnham, the new Labour Mayor of Manchester, said Mr Corbyn was wrong when he pointed to “the connections between wars our government has supported or fought in other countries and terrorism here at home”. Mrs May looked angry as she addressed Mr Corbyn’s speech during a press conference at the G7 summit in Sicily. She said: “I’m going to be very clear about what has been said today. “What has happened is I have been here at the G7 working with other international leaders to fight terrorism. “At the same time, Jeremy Corbyn has said that terror attacks in Britain are our own fault – and he has chosen to do that just a few days after one of the worst terrorist atrocities we have experienced in the United Kingdom.

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“Do you suppose that, in the hothouse of Washington, incoming foreign policy officers of Obama’s government had no conversations with foreign diplomats between the election of 2008 and Obama’s inauguration? The idea is laughable. ..”

No Exit (Jim Kunstler)

A most curious feature in the current low state of American politics is the delusional thinking at both ends of the political spectrum. Both factions have gone off the rails mentally, and the parties they represent race toward oblivion like Thelma and Louise in their beater car. More ominously, there are no new factions with a grip on reality even beginning to form anywhere in the background — as in the 1850s when the Whigs foundered and the party of Lincoln segued into power. To see the Democrats go on about “Russian collusion” you would think we were watching a rerun of the John Birch Society in its heyday. Americans who have done business in Russia as private citizens are being persecuted as though they were trading with the enemy in wartime. Newsflash: we are not at war with Russia, which, by the way, is no longer the Soviet Union.

It is one of many European countries that Americans are entitled to do business in — even in the case of General Mike Flynn accepting a $20,000 speaking fee from the RT news company. Has anyone noticed that Ben Bernanke routinely takes $200,000-plus speaking fees in many foreign countries whose interests are not identical to ours and no one is persecuting him. Likewise, the insane idea that it is malfeasant for high public officials to speak to Russian officials, or for the president to share sensitive strategic information with them, especially about genuine mutual enemies such as the various Islamic jihad armies. Since when is that beyond the pale? Well, since January of this year when the Democrat Party ordained that members of the Trump transition team were forbidden to speak to Russian diplomats at the highest level.

Do you suppose that, in the hothouse of Washington, incoming foreign policy officers of Obama’s government had no conversations with foreign diplomats between the election of 2008 and Obama’s inauguration? The idea is laughable. [..] The party of the right, the Republicans, have made themselves hostages to the marginal personality of Donald Trump, who prevailed over a cast of Republican empty suits in the pathetic and appalling primary contests of last spring. The Republican party has not demonstrated that it has the dimmest idea what is going on “out there” in the very flyover districts its minions and flunkies pretend to represent, or that they believe in anything not cynically calculated to bamboozle the economically immiserated classes left behind by their deliberate asset-stripping approach to the public interest.

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Libyan Coastguard gets EU funding.

Libyan Coastguard Opened Fire At Refugee Boats: NGOs (AlJ)

Libyan coastguard officers opened fire on two boats loaded with refugees while rescue attempts were under way in the Mediterranean Sea on Tuesday, according to nongovernmental organisations involved in the operations. The Libyan coastguard has rejected the accusations and demanded evidence. But those at the scene told Al Jazeera that at around noon, as rescue workers from four groups – French NGOs SOS Mediterranee and Doctors Without Borders (MSF), Italian NGO Save the Children and German NGO Jugend Rettet – were trying to save refugees, a speedboat equipped with four machine guns and bearing the emblem of the Libyan coastguard arrived at the scene.

The speedboat approached the rescue operation at high speed, creating large waves that made it difficult for the refugees to board rubber dinghies, the witnesses said. Shortly after, a series of gunshots could be heard coming from near the dinghies, Laura Garel, a communications officer on the SOS Mediterranee’s rescue vessel Aquarius, told Al Jazeera. Jugend Rettet. “For us the situation was critical,” said Jonas. “We are here to help, but were forced to stand idly by as to avoid getting hit by a bullet ourselves.” [..[ The Libyan coastguard denied Tuesday’s incident took place, calling the accusations “illogical”. Ayob Amr Ghasem, a Libyan navy spokesman, challenged the rescue groups to produce evidence of their claims. “Why would we have shot at boats if we are the ones that always save them?” Ghasem was quoted by the Italian ANSA news agency as saying.

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The EU tries to blame its refugee failings on Trump. Same for its CON21 climate disaster.

Hopes For Refugee Crisis Plan Fall Into Chasm Between G7 And Trump (G.)

Divisions between Donald Trump and other members of the G7 at the summit in Sicily have become so broad and deep that they may be forced to issue a brief leaders’ statement rather than a full communique, dashing Italian hopes of engineering a big step forward on migration and famine. With the US president apparently reluctant to compromise with European leaders over climate change, trade and migration, the European council president, Donald Tusk, was forced to admit on Friday that this would be the most challenging G7 summit in years and there was a risk of events spiralling out of control. A draft statement shown to the Guardian reveals Trump wants world leaders to make only a short reference to migration and to throw out a plan by the Italian hosts for a comprehensive five-page statement that acknowledges migrants’ rights, the factors driving refugees and their positive contribution.

The Italian plans – one on human movement and another on food security – were set to be the centrepiece of its summit diplomacy. Italy had chosen Taormina in Sicily as the venue to symbolise the world’s concern over the plight of refugees coming from the Middle East and Africa. It had hoped the summit would end on Saturday with a bold statement that the world, and not just individual nations, had a responsibility for the refugee crisis. Italy is expected to take in 200,000 refugees in 2017; more than 1,300 have drowned so far this year while trying to make the perilous crossing from north Africa. Trump’s negotiators brought a new brief text of the final communique to a pre-meeting of the G7 on 26 April and said they were vetoing the Italian “human mobility” plan, which had been the subject of careful negotiation for months.

The new text, offered by the US on a take-it-or-leave-it basis, acknowledges the human rights of migrants, but affirms “the sovereign rights of states to control their own borders and set clear limits on net migration levels as key elements of their national security”. It also asserts the need for refugees to be supported as close to their home countries as possible. Diplomatic sources said intense talks were under way to rescue some of the Italian agenda on migration. Italian officials, faced with little option, insisted the brief wording on migration in the draft represented a good compromise and said there was no problem with the Americans. The communique did reference the idea of “upstream” action on the issue – but also supporting legal pathways to return individuals to their country of origin. In a sign of the immediacy of the refugee crisis, the Libyan coastguard said as many as 20 boats had been spotted off the Libyan coast on Friday carrying thousands of migrants.

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May 012017
 
 May 1, 2017  Posted by at 9:29 am Finance Tagged with: , , , , , , , , , ,  


Walker Evans Air 1930s

 

40% of Americans Spend Up To Half Of Their Income Servicing Debt (MW)
Are American Debt Slaves Getting in Trouble Again? (WS)
Congress Agrees $1 Trillion Budget Deal – But No Money For Border Wall (G.)
Trump Tax Plan ‘Dead On Arrival’, Wall Street ‘Delusional’ – Stockman (CNBC)
Economics Is A Form Of Brain Damage (RWE)
Why The Reflation Trade Is About To Fizzle (ZH)
If Rates Ever Rise Above 3.5% “It Would Spark Massive Defaults” (ZH)
Toronto Is The King Of Risky Mortgage Debt (BD)
Canada’s Home Capital Distress and the Contagion Odds (BBG)
A Perspective on Electric Vehicles (Science Errors)
For A Treaty Democratizing Euro Area Governance (SE)
Macron Says EU Must Reform Or Face ‘Frexit’ (BBC)
Europe’s Youth Don’t Care To Vote—But They’re Ready To Join A Mass Revolt (Qz)
Schaeuble Says Greece Has Made Good Reform Progress (R.)

 

 

“..many consumers in the survey also said they’re spending up to 40% of their income on discretionary purchases such as entertainment, leisure, hobbies and travel. And a quarter said they are prone to “excessive” and “frivolous” spending.”

40% of Americans Spend Up To Half Of Their Income Servicing Debt (MW)

Americans are struggling to get out of the red. Some 40% of Americans with debt are spending up to half of their monthly income paying it back. And that may not even be enough to cover how much they owe. That’s according to a study on debt Thursday released by Northwestern Mutual, a life insurance and financial services company. The polling company Harris Poll surveyed more than 2,000 U.S. adults in February 2017 on behalf of Northwestern Mutual. The survey found that nearly half of Americans are carrying at least $25,000 in debt, with an average debt of $37,000, excluding mortgage payments. About one in 10 surveyed said their debt was more than $100,000. “It becomes an ongoing cycle and really hard to get out of, given that people are not prioritizing debt and saving for their future as the first part of their budget,” Rebekah Barsch at Northwestern Mutual said.

Debts that are investments in the future, including mortgages and student loans, can be beneficial in consumers’ long-term financial plans, Barsch added. But many consumers in the survey also said they’re spending up to 40% of their income on discretionary purchases such as entertainment, leisure, hobbies and travel. And a quarter said they are prone to “excessive” and “frivolous” spending. Previous studies have shown similar results. The Federal Reserve announced in early April that collective American credit-card debt had hit $1 trillion. And total household debt, including mortgages, auto loans, credit card debt and student loans, had hit nearly $12.6 trillion. Housing-related debt is down nearly $1 trillion since its 2008 peak, but auto loan balances are $367 billion higher since then and student loans are $671 billion higher, the Fed found.

Mortgages made up 67% of the debt total in 2016. As a result, about 21% of Americans aren’t saving any of their income, according to an April survey from personal finance site Bankrate.com. When asked why they aren’t saving more, 38% of people said they had too many expenses, about 16% said they simply “hadn’t gotten around to” saving, 16% said they didn’t have a good enough job and 13% said they were struggling with debt. The amount each individual or family should put toward their debt is different, Barsch said. She recommended automatically allocating the largest percentage of one’s paycheck possible to high-interest debt and putting discretionary spending at the bottom of the priority list.

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Same study, slightly different angle.

Are American Debt Slaves Getting in Trouble Again? (WS)

American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up? Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date. Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.

Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. So this is happening. Other worries about consumer debt in the US are piling up. The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Mortgage debt is still hanging in there, given the surge in home prices that make defaults unlikely. But of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.

The US economy is fueled by credit. Americans turning themselves into debt slaves makes it tick. Take it away, and what little growth there is – nearly zero in the first quarter – will dissipate into ambient air altogether. So it’s time to take the pulse of our American debt slaves In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves. Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt. Most of them expect to get out of debt before they die, but 14% expect to be in debt “for the rest of their lives.”

This debt adds stress. About 40% said that debt has a “substantial” or “moderate” impact on their financial security; and about as many consider debt a “high” or “moderate” source of anxiety. Given the rising defaults, this is likely to get worse. And what changes would most positively affect their financial situations? The top two: earning more money (29%) and getting rid of debt (26%). Alas, those two, for many people, are precisely the most elusive factors in the current economy. But there is a lot of irony in how Americans look at debt. The study asked them what they would do with a $2,000 windfall: 40% said they’d pay down debt. And this is the irony: they’d pay down their maxed out credit cards, but a few months later, their credit cards would be maxed out again, and thus that $2,000 would be consumed. Because the money always has to get spent.

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Just in time for recess?!

Congress Agrees $1 Trillion Budget Deal – But No Money For Border Wall (G.)

Negotiators have reached a bipartisan agreement on a spending package to keep the US federal government funded until the end of September, according to congressional aides. The House of Representatives and Senate must approve the deal before the end of Friday and send it to the president, Donald Trump, for his signature to avoid the first government shutdown since 2013. Congress is expected to vote early this week on the agreement that is likely to include increases for defense spending and border security. No money will be allocated for Trump’s pet project of a border wall with Mexico after he bowed to Democratic resistance to the plan. However, the deal will allocate an additional $1.5bn for border security, which one congressional aide described as “the most robust border security increase in roughly a decade”, and there was no language in the bill preventing Mexico from paying for the wall if it so desired.

A senior congressional aide told the Guardian that the deal increased defense spending by $12.5bn, with the possibility of $2.5bn more contingent on the White House presenting an anti-Isis plan to Congress. Trump had requested $30bn in increased defense spending. Democrats were pushing to protect funding for women’s healthcare provider Planned Parenthood and sought additional Medicaid money to help the poor in Puerto Rico get healthcare. Both of those goals were achieved. According to a senior congressional aide, the deal also protects other important Democratic priorities. The EPA’s budget is at 99% of current levels and includes increased infrastructure spending as well.

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Stockman won’t let go.

Trump Tax Plan ‘Dead On Arrival’, Wall Street ‘Delusional’ – Stockman (CNBC)

David Stockman has a stern message for investors: They’re living in a fantasy land about Trump. In a recent interview on CNBC’s “Futures Now,” the former director of the Office of Management and Budget under President Reagan said that “Wall Street is totally misreading Washington,” and President Trump’s promises of tax reform will be “dead before arrival.” The president is “essentially a 70-year old kid in a candy store who wants one of everything: More for defense, veterans, border walls, law enforcement, infrastructure and ‘phenomenal’ tax cuts, too—without the inconvenience of paying for any of it,” said Stockman. Of the proposed tax bill announced this week, he said, “It’s a wonderful fantasy…but there’s no way to pay for the $7.5 trillion cost of the main features.”

The White House announced a one-page tax reform plan on Wednesday, and some of the points Stockman highlighted include: Three tax brackets, double standard deduction and the reduction of corporate and non-corporate business taxes down to 15%. In a research note this week, Goldman Sachs pegged the cost of the tax plan to just under $5 trillion, when factoring in key changes such as repealing of the state and local tax, and a 35% top marginal rate instead of 33%. Goldman analysts expect the tax bill is “fairly likely” to become law, but warned progress could be slow. “I like [the tax plan] but you have to pay for it either with a new tax like the border adjustment tax, which is dead, or spending cuts which Trump has ruled off the table,” Stockman explained.

“What you have down there is a total fiscal calamity that is going to basically dominate Washington.” Stockman expects a “constant fiscal crisis and stalemate” in D.C., which will ultimately delay the “good stuff,” like a tax cut, from ever happening. Of Trump’s first 100 days in office, Stockman again referred to the White House as a “pop up store giving out candy before the 100th day to say they’ve accomplished something.” Adding, “this isn’t a serious plan, it can’t be done. And I think it’s only indicative of the huge trouble that’s brewing down there in the beltway.” [..] “I don’t know what the stock market is thinking but if they have faith in a giant fiscal stimulus and tax cut then it’s a delusional faith that’s going to be badly disappointed and I think fairly soon,” he added.”

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Suzuki -he’s 80 already?!- always got this.

Economics Is A Form Of Brain Damage (RWE)

Environmentalist David Suzuki hits the nail on the head. The number of ways that economic theory systematically blinds you to the realities of the world we live in is almost uncountable. When Henry George’s land tax became widely popular, economists “disappeared” land as a factor of production from economic theories, merging it illegitimately with capital. Money is made to “disappear” by using the quantity theory of money to claim that money is veil. This makes it impossible to understand how the mechanisms of creation of money ensure that the wealthy can get rich at the expense of the rest of us.

The parasitical nature of the finance industry has been covered up by the idea of “wealth creation” — when wild speculation doubles the price of stocks, financiers have created wealth, which is a socially valuable activity, instead of a fraud and deception. The ideas of cut-throat competition, survival of fittest, and social darwinism have been used to justify a large number of free market activities which harm the masses to make profits for the wealthy. There is no doubt that believing all of the textbook economic theories leads to serious brain damage, as I myself have experienced — the process of unlearning has been slow and painful. Here is the 2 minute video by David Suzuki:

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If you can’t properly define inflation, how could you possibly get this right? Inflation is a meaningless concept if you don’t take into account money velocity. And with falling money velocity because of maxed-out consumers, you will never get reflation.

Why The Reflation Trade Is About To Fizzle (ZH)

As SocGen writes in previewing tomorrow’s Headline and Core PCE deflators numbers, after spending nearly five years missing to the downside on the inflation target, the Fed finally achieved its goal as the yoy headline PCE deflator hit 2.1% in February. Unfortunately, Fed officials cannot take a victory lap, because they will be right back to missing the target again when the March figures are released. The data in hand from the PPI and CPI suggest that the headline PCE deflator likely fell by 0.164% in March, which would result in the yoy rate falling from 2.1% to 1.9% (1.885% un-rounded).

Energy prices – now virtually unchanged from a year ago – in the CPI fell by 3.2% last month, and these likely flowed through into the PCE as well. However, given the smaller weight of energy in the PCE gauge, the drop in energy prices will result in a smaller drag on the headline PCE index (almost a tenth less than in the CPI). Meanwhile, the CPI’s food index increased by 0.34% in March (that being said, the PCE food index is broader, and the food indexes in the PCE not present in the CPI have been a bit volatile of late). So aside from anniversarying the unchanged Y/Y base effect, here is what else SocGen expects from tomorrow’s anti-reflationary PCE prints: the core PCE deflator looks to have declined by 0.1% in March (-0.072% un-rounded). A reading in line with our forecast would lead the yoy core rate to fall from 1.8% in February to 1.6% in March, which would be the weakest print in nine months.

It’s not just energy however: recall that one of the biggest drivers behind the CPI miss earlier this month was the sharp drop in wireless telecom services in the CPI, which will now flow into the PCE and subtract around 0.075 percentage points (pp) from the monthly change in the core PCE (which is less than the 0.15 pp drag in the core CPI given the lower weight of this index in the core PCE). In other words, the core PCE would have been flat if not for the wireless telecom services index. Offsetting some of this drag will be a positive contribution from health care. Data from the PPI suggests that the health care index may have advanced by around 0.2% last month, marking its biggest rise in five months. Data within the Q1 GDP report suggests that the gain may be closer to 0.3% in March. In any case, core services prices in March look to have been essentially unchanged, while core goods prices may have fallen by 0.3%.

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The central banks have trapped themselves and will seek to make you pay for it. Expect a lot of “economic growth will fix it all” comments. But it won’t, we spend $10 to get $1 of growth already.

If Rates Ever Rise Above 3.5% “It Would Spark Massive Defaults” (ZH)

Earlier today in his weekly note, One River CIO Eric Peters explained that in their attempt to overturn the natural order of the global economic “ecosystem”, what central banks have done is “stunning, unprecedented… and arrogant”, and as a result it is only a matter of time before another “peak instability” moment emerges as “it stands to reason that our volatility-selling machine will break one day. We saw a glimpse of this in 2008-09. And yet, as Peters concedes in a follow up note, those same central bankers don’t have any other option but to kick the can because as the CIO notes, any attempt to break the current ultra-low rate regime would “spark massive defaults.”

Incidentally, those are the same defaults that should have happened during the “near systemic reset” of 2008/2009 but the Fed, in all its wisdom, decided to kick the can at the cost of trillions in global excess liquidity, and while it bought itself some time – in the process unleashing a global deflation wave thanks to zombie companies that should not exist yet do, and every day try to undercut each other on pricing – nearly ten years later it has discovered that it has no way out, for one simple reason: there is now too much accumulated debt. Here is Peters “modelling” out why the Fed is stuck with no way out:

“When debt expands constantly relative to GDP, there’s a limit to how high interest rates can rise without causing massive defaults,” said the Model. “There’s nothing inherently wrong with defaults, they can cleanse a system, but a rise in US defaults from today’s 2.5% to 6.0% would boost unemployment by 3%.” America’s economy is leveraged to the financial system, which includes non-capitalized liabilities; entitlements, pensions, healthcare. “US total debt/GDP is 300%, but if you include these non-capitalized liabilities, it’s more like 800%.” “These non-capitalized liabilities rise as both interest rates and economic growth decline,” continued the same Model. “Low growth produces less income, and low rates supply less investment returns on pensions. Which means companies need to set aside more money to pay the liabilities.” It’s a slow-moving economic death spiral.

“The Neo-Fisher Model posits that we can escape this trap by increasing interest rates. Which will raise investment returns, while simultaneously lifting growth. Fisher’s Model may be right, but it will never be tested in reality.” “In reality the world operates on monthly payments,” explained the same Model. “So if we tested the Fisher Model by raising interest rates meaningfully, we’d spark massive defaults.” Unemployment would jump dramatically. “Our central banking and political reaction function ensures that each rise in unemployment is followed by monetary stimulus.” In the 30yrs since Greenspan became Fed Chairman, borrowers have learned this lesson and responded by leveraging up. “And that’s why US interest rates will never rise sustainably above 3.5%.”

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Think Justin still sleeps at night? If so, he needs some wake-up lessons.

Toronto Is The King Of Risky Mortgage Debt (BD)

Canadian real estate values continue to soar, and a record number of buyers are piling into risky loans. According to the Bank of Canada (BoC), and the Ministry of Finance (MoF), high ratio mortgage borrowers are extending themselves to the limit. While we covered how concerning this trend has become in Toronto, it’s not just isolated to that city. It’s a trend that’s growing across all Canadian urban centers. People taking out high-ratio mortgages combined with incomes too low for the property value, is spreading across Canada. A high-ratio mortgage is defined as a mortgage where the buyer leaves less than a 20% downpayment. The BoC and MoF have both expressed concern when high-ratio mortgages are paired with high income-to-loan ratios. The amount of high risk buyers is increasing as markets reach dizzying heights, especially in urban areas.

Vulnerability isn’t just the buyer’s ability to keep devoting a high percentage of their income to carrying payments. Since the number of these buyers are accelerating as prices get higher, they’re at a greater risk during a correction (not even a crash). Something as small as a 5% drop in value and many of these mortgages would be underwater. If this happens it would mean already broke homeowners would have to pay to get rid of their home. Combine that with a higher interest rate at renewal, and you can imagine the mayhem that can unfold. High-ratio mortgages with low income levels is a growing trend in Canada, but Toronto and Vancouver take it to the next level. Across Canada, 18% of high risk mortgages have extremely low incomes for the homes they’re in, an increase of 38% over two years.

Despite Vancouver’s insanely high prices, Toronto still tops the risky business of subprime borrowers. Toronto takes the top spot with a 53% increase during the same period, bringing their total to 49%. Coming in second is Vancouver which had a 25% increase over the past two years, bringing their total to 39%. These two cities are moving much faster than the average for the country, and they’re getting to dangerously high levels. Although Toronto and Vancouver take the cake, this trend is also growing across Canada, albeit with a lower impact. Over the past 2 years, Calgary saw a 23% increase of high ratio mortgages with at risk-income ratios, totalling 32%. Montreal saw a 30% increase over the past two years, bringing their total to 13%. Ottawa-Gatineau saw a massive 62.5% increase, bringing their total to 13%.

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Complete delusion. Everywhere: “Canada’s financial system, deemed the world’s soundest by the World Economic Forum for eight straight years until 2016..” Over many of those years, this was already obviously happening.

Canada’s Home Capital Distress and the Contagion Odds (BBG)

The escalation of Home Capital’s distress last week has led one of its largest former investors to rethink – if only slightly – the prospects of troubles spreading through the rest of Canada. After the alternative-mortgage lender set up a C$2 billion ($1.5 billion) credit line to offset a run on deposits, Mawer Investment Management’s Jim Hall is recalculating the odds of a contagion widening across one of the world’s strongest financial systems. “The probability has gone from infinitesimal to possible — unlikely, but possible,” said Hall, CIOmoney manager, in an interview Saturday. “If depositors or bondholders start to lose faith in their banks, well then that becomes systemic.”

Mawer, which oversees more than C$40 billion in assets, sold about 2.8 million shares, or a 4.3% stake, in Home Capital in the past week, joining another money manager, QV Investors, in exiting its investment amid the imbroglio consuming the Toronto-based lender. Home Capital has been struggling since April 19, when Ontario’s securities regulator accused management of misleading investors over how the firm handled a review of mortgage brokers who falsified documents about borrowers’ income. Home Capital shares plunged 65% the following day, and the lender has since disclosed an accelerating pace of declines of its high-interest savings balances – deposits used to help fund its mortgage business.

For its part, Home Capital secured a loan to compensate for a drop in deposits and said it’s weighing a sale, hiring RBC Capital Markets and BMO Capital Markets to advise on financing and “strategic options.” Even if withdrawals continue, as expected, the new funding should mitigate it, the company said April 26. Canada’s banking regulator says it’s closely monitoring the situation and surveying other financial firms to assess their condition. “The assets look, at this point, still reasonably good,” Hall said, adding that Home Capital’s problem is a matter of confidence. “Confidence was lost in this company and the business model breaks apart. That’s the problem with banks.”

Canada’s financial system has lots of fire breaks, as Hall describes it, to prevent problems from spreading. “Even if a bank gets itself into a confidence issue, it can be effectively bailed out by another bank or by another financial institution or by ultimately the regulator,” Hall said. Bank failures in Canada’s financial system, deemed the world’s soundest by the World Economic Forum for eight straight years until 2016, are rare. Canadian banks sidestepped the worst of the 2008 financial crisis, having only a fraction of the $1.95 trillion of writedowns and losses suffered by financial firms worldwide.

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Posted by Tyler. No time stamp that I could see, but this is an eternal truth anyway.

A Perspective on Electric Vehicles (Science Errors)

An electric auto will convert 5-10% of the energy in natural gas into motion. A normal vehicle will convert 20-30% of the energy in gasoline into motion. That’s 3 or 4 times more energy recovered with an internal combustion vehicle than an electric vehicle. Electricity is a specialty product. It’s not appropriate for transportation. It looks cheap at this time, but that’s because it was designed for toasters, not transportation. Increase the amount of wiring and infrastructure by a factor of a thousand, and it’s not cheap. Electricity does not scale up properly to the transportation level due to its miniscule nature. Sure, a whole lot can be used for something, but at extraordinary expense and materials. Using electricity as an energy source requires two energy transformation steps, while using petroleum requires only one.

With electricity, the original energy, usually chemical energy, must be transformed into electrical energy; and then the electrical energy is transformed into the kinetic energy of motion. With an internal combustion engine, the only transformation step is the conversion of chemical energy to kinetic energy in the combustion chamber. The difference matters, because there is a lot of energy lost every time it is transformed or used. Electrical energy is harder to handle and loses more in handling. The use of electrical energy requires it to move into and out of the space medium (aether) through induction. Induction through the aether medium should be referred to as another form of energy, but physicists sandwich it into the category of electrical energy. Going into and out of the aether through induction loses a lot of energy.

Another problem with electricity is that it loses energy to heat production due to resistance in the wires. A short transmission line will have 20% loss built in, and a long line will have 50% loss built in. These losses are designed in, because reducing the loss by half would require twice as much metal in the wires. Wires have to be optimized for diameter and strength, which means doubling the metal would be doubling the number of transmission lines. High voltage transformers can get 90% efficiency with expensive designs, but household level voltages get 50% efficiency. Electric motors can get up to 60% efficiency, but only at optimum rpms and load. For autos, they average 25% efficiency. Gasoline engines get 25% efficiency with old-style carburetors and 30% with fuel injection, though additional loses can occur.

Applying this brilliant engineering to the problem yields this result: A natural gas electric generating turbine gets 40% efficiency. A high voltage transformer gets 90% efficiency. A household level transformer gets 50% efficiency. A short transmission line gets 20% loss, which is 80% efficiency. The total is 40% x 90% x 50% x 80% = 14.4% of the electrical energy recovered (85.6% lost) before getting to the vehicle and doing something similar to the gasoline engine in the vehicle.

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By Stéphanie Hennette, Thomas Piketty, Guillaume Sacriste and Antoine Vauchez. As I’ve said, I don’t believe the EU can be reformed, because no-one has the power to do it.

For A Treaty Democratizing Euro Area Governance (SE)

Over the last ten years of economic and financial crisis, a new centre of European power has taken shape: the ‘government’ of the Euro Area. The expression may seem badly chosen as it remains hard to identify the democratically accountable ‘institution’ which today implements European economic policies. We are indeed aiming at a moving and blurred target. Characterized by its informality and opacity, the central institution of that government, the Eurogroup of Finance Ministers of the Euro Area, operates outside the framework of the European treaties and is in no way accountable to the European Parliament, nor to national parliaments. Worse, the institutions that form the backbone of that government – from the ECB and the Commission to the Eurogroup and the European Council – operate following combinations that constantly vary from one policy to the other (Troika Memoranda, European Semester ‘budgetary recommendations’ and bank ‘evaluations’ under the Banking Union).

However scattered they may be, these different policies are truly ‘governed’, as a hard core emerged from the ever closer union of national and European economic and financial bureaucracies – French and German national treasuries, ECB executive board, senior economic officials from the European Commission. As matters stand, this is where the Euro Area is supposedly governed and where the proper political tasks of coordination, mediation and balancing among the current economic and social interests are carried out. In 2012, as he gave up reforming the Treaty on Stability, Coordination and Governance, a cornerstone of this Euro Area governance, François Hollande contributed to consolidating this new power structure. From then onwards, this European executive pole has only seen its competences expand.

Over a decade, its scope for intervention has become significant, ranging from ‘budgetary consolidation’ (austerity) policies to far-reaching coordination of national economic policies (Six Pack and Two Pack), the set-up of rescue plans for member states facing financial distress (Memorandum and Troika), the supervision of all private banks. Both mighty and elusive, the government of the Euro Area evolved in a blind spot of political controls, in some sort of democratic black hole. Who indeed controls the drafting process of Memoranda of Understanding, which impose significant structural reforms in return for the financial assistance of the European Stability Mechanism? Who scrutinizes the executive operations of the institutions making up the Troika?

Who monitors the decisions taken within the European Council of the Heads of State or Government of the Euro Area? Who knows exactly what is negotiated within the two core committees of the Eurogroup, i.e. the Economic Policy Committee and the Economic and Financial Committee? Neither national parliaments, which at best simply control their own executive, nor the European Parliament, which has carefully been sidelined from Euro Area governance. In view of its opacity and isolation, the many criticisms voiced against that Euro Area government seem well deserved, starting with Jürgen Habermas’ denunciation of a “post-democratic autocracy”.

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Pre-empting Le Pen.

Macron Says EU Must Reform Or Face ‘Frexit’ (BBC)

The front-runner in the French presidential election has told the BBC that the EU must reform or face the prospect of “Frexit”. Pro-EU centrist Emmanuel Macron made the comments as he and his far-right rival Marine Le Pen entered the last week of campaigning. French voters go to the polls on Sunday to decide between the pair. Ms Le Pen has capitalised on anti-EU feeling, and has promised a referendum on France’s membership. She won support in rural and former industrial areas by promising to retake control of France’s borders from the EU and slash immigration. “I’m a pro-European, I defended constantly during this election the European idea and European policies because I believe it’s extremely important for French people and for the place of our country in globalisation,” Mr Macron, leader of the recently created En Marche! movement, told the BBC.

“But at the same time we have to face the situation, to listen to our people, and to listen to the fact that they are extremely angry today, impatient and the dysfunction of the EU is no more sustainable. “So I do consider that my mandate, the day after, will be at the same time to reform in depth the European Union and our European project.” Mr Macron added that if he were to allow the EU to continue to function as it was would be a “betrayal”. “And I don’t want to do so,” he said. “Because the day after, we will have a Frexit or we will have [Ms Le Pen’s] National Front (FN) again.”

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What I would expect.

Europe’s Youth Don’t Care To Vote—But They’re Ready To Join A Mass Revolt (Qz)

Young Europeans are sick of the status quo in Europe. And they’re ready to take to the streets to bring about change, according to a recent survey. Around 580,000 respondents in 35 countries were asked the question: Would you actively participate in large-scale uprising against the generation in power if it happened in the next days or months? More than half of 18- to 34-year-olds said yes. The question was part of a European Union-sponsored survey, titled “Generation What?” The report went on to focus on respondents from 13 countries to better understand what young people are optimistic and frustrated about in Europe. Among these spotlighted countries, young people in Greece were particularly interested in joining a large-scale uprising against their government, with 67% answering yes to the question. Respondents in Greece were also more likely to believe politicians were corrupt and to have negative perceptions of the country’s financial sector.

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His ‘solution’ is self-defeating. More pension cuts and more taxes will cut more money velocity, hence more GDP. Which means Greece is less able to pay back anything at all.

Schaeuble Says Greece Has Made Good Reform Progress (R.)

German Finance Minister Wolfgang Schaeuble was quoted in a newspaper interview on Sunday saying that Greece has made strong progress towards introducing reforms that could lead to the imminent release of further financial support. “If the Greek government upholds all the agreements, European finance ministers could complete the review on May 22 and then soon after that release the next tranche,” Schaeuble told the Funke media group newspapers. Greece and its international creditors reached a preliminary agreement at a meeting of eurozone finance ministers in April to set up the next transfer of some €7 billion in aid. But the finance ministers will not release the tranche until the audit is completed.

“The longer it takes, the more uncertainty will be in the financial markets and economy,” Schaeuble added. He said the Greek government had promised to make further adjustments in pensions as well as improve tax collection. Asked why he was optimistic the aid could soon be released, Schaeuble said, “Because we negotiated in a very determined fashion and the Greek government said it would adjust the pensions more strongly to the economic situation. “That’s not easy – I know that. And it wants to improve the tax collection system so that tax revenues will rise again from 2020.”

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Mar 172016
 
 March 17, 2016  Posted by at 9:12 am Finance Tagged with: , , , , , , , , ,  


Christopher Helin Kissel military Highway Scout Kar at Multnomah Falls, Oregon 1918

US Lost 30% Of Manufacturing Jobs Between 1998 And 2016 (WaPo)
Rich Countries Have A $78 Trillion Pension Problem (CNBC)
The Budget That Wasn’t (Halligan)
Asia Cheers as Yellen Succumbs to Cry-Bullies (Barron’s)
China’s Exporters Struggle as Yuan Swings Disrupt Business (BBG)
China Banks Face Credit Risks From Ties To Wealth Management Products (CNBC)
America’s No. 1 Coal Miner to Seek Bankruptcy Protection (WSJ)
Energy Sector Defaults Could Start Falling Like Dominoes (MW)
Oil Investors See $7.4 Billion Vanish as Dividends Are Targeted (BBG)
Big-Oil Bailout Begins as Pemex’s Debt Spirals Down (WS)
Munich Re Rebels Against ECB With Plan To Store Cash In Vaults (BBG)
Netherlands Votes To Ban Weapons Exports To Saudi Arabia (Ind.)
Austria’s Highest Court Proclaims Asylum Cap Illegal (NE)
Huge Challenges Await EU’s Refugee Plan (FT)
EU Prepares To Scale Back Resettlement Of Syrian Refugees (Guardian)
Three Migrants Dead As 2,400 Rescued Off Libya (AFP)

Killing off your manufacturing base is the worst thing you can do.

US Lost 30% Of Manufacturing Jobs Between 1998 And 2016 (WaPo)

Thomaston, Ga. — Not so long ago, this rural town an hour outside Atlanta was a hotbed of textile manufacturing. In the late 1990s, there were six major mills here. Their machines spun children’s clothing for Carter’s, made tire cords for B.F. Goodrich and produced bed sheets for J.C. Penney, Sears and Walmart. In all, they employed about 4,000 workers. By 2001, all of those jobs were gone. What has happened here in the 15 years since then tracks the slow comeback of manufacturing in the United States. Two textile companies have come in, investing millions in new technology and adding about 280 jobs in this town where one-third of the residents still live below the poverty line. It is becoming more affordable to produce textiles in the United States as machines become more efficient, companies say.

Major firms are more willing to pay higher prices for domestically sourced products, and rising wages in China mean there is less of an advantage to making products overseas. Last week, there was new cause for celebration when Marriott International announced that all towels in its 3,000 U.S. hotels would be manufactured by Standard Textile in plants here and in Union, S.C., a move expected to bring $23 million worth of business and 150 jobs back to the United States. The hotelier joins a number of other companies, including Walmart, Apple and General Electric, that have pushed for more U.S.-made products in recent years. But manufacturing employment here is a small fraction of what it was. Although a company such as Standard Textile once might have employed close to 1,000 people, today it has a couple of hundred workers who oversee machines that spin, scour and weave cotton.

“We’ve had to redefine who we were because we were a mill town for so long,” said Kyle Fletcher, executive director of the Thomaston-Upton Industrial Development Authority. “We lost a lot of the middle class.” The United States lost 30% of its manufacturing jobs between 1998 and 2016, according to Federal Reserve data. As of February, the country had 12.3 million workers in the sector, down from 17.6 million in April 2008. In February 2010, that figure was 11.5 million. There are hints that manufacturing is returning to the United States in small ways: The nation’s quarterly output has climbed steadily since the end of the recession, growing 35% and adding 650,000 jobs since mid-2009, according to the Fed. But the glory days are gone, Fletcher said. About one-third of Thomaston’s 9,000 residents live below the poverty line, compared with 23% in 1999. Average income has dropped more than 20% since 1999, to $14,243 from $18,193, according to U.S. Census data.

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Pon Zi.

Rich Countries Have A $78 Trillion Pension Problem (CNBC)

Dreams of lengthy cruises and beach life may be just that, with 20 of the world’s biggest countries facing a pension shortfall worth $78 trillion, Citi said in a report sent on Wednesday. “Social security systems, national pension plans, private sector pensions, and individual retirement accounts are unfunded or underfunded across the globe,” pensions and insurance analysts at the bank said in the report. “Government services, corporate profits, or retirement benefits themselves will have to be reduced to make any part of the system work. This poses an enormous challenge to employers, employees, and policymakers all over the world.” The total value of unfunded or underfunded government pension liabilities for 20 countries belonging to the OECD – a group of largely wealthy countries — is $78 trillion, Citi said. (The countries studied include the U.K., France and Germany, plus several others in western and central Europe, the U.S., Japan, Canada, and Australia.)

The bank added that corporates also failed to consistently meet their pension obligations, with most U.S. and U.K. corporate pensions plans underfunded. Countries with large public pension systems in Europe appear to have the greatest problem. Citi noted that Germany, France, Italy, the U.K., Portugal and Spain had estimated public sector pension liabilities that topped 300% of GDP. Improvements in health care mean retirees need to string out their income for longer. Meanwhile, the increase in the retirement-age population versus the working population is straining government pension schemes. Several countries, including the U.K., France and Italy are gradually hiking retirement ages. Citi recommended that governments explicitly link the retirement age to expected longevity. It also advised that government-funded pensions should serve merely as a “safety net,” rather than the prime pension provider, and that corporate pensions should be “opt out” rather than “opt in” to encourage greater enrollment.

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Osborne’s not worried. He knew everyone would be talking about his sugar tax. Great diversion tactic.

The Budget That Wasn’t (Halligan)

George Osborne’s latest Budget pretended to be many things it wasn’t. The Chancellor talked repeatedly about “borrowing falling”, yet in the next three years, borrowing on our behalf goes sharply up. He warned about “financial instability” and “storm clouds” on the economic horizon, yet he’s relying on growth assumptions that are surely too optimistic. While barely mentioning the EU referendum, the Chancellor’s determination to avoid Brexit pervaded almost every paragraph of his 63-minute Commons statement. Far from being “a Budget for the next generation” – a phrase wielded 18 times – his policies were aimed at attracting as many “Remain” voters as he could, while doing as little as possible to upset those still undecided. Rather than a “long-term Budget” (19 mentions), the package was designed for the next three months, ahead of the EU vote that will decide Osborne’s political future.

What we’ve just seen, then, was possibly the most short-term “long-term budget” in history. Bound to get the chattering classes chuntering (“G&T slimline, anyone?”), Osborne’s flab-fighting “sugar levy” was cynically tactical, broadening his appeal among non-Conservatives, while diverting attention from the statistical sleight of hand at the heart of this Budget. “Borrowing continues to fall,” the Chancellor told us. Really? It’s astonishing that, a full eight years after the financial crisis, and after a surge in growth and employment, the UK is still borrowing more than £72bn a year. Government debt stands at £1,591bn, 50pc up since Osborne took office, more than £50,000 per person in full or part-time employment. The Government is spending £46bn annually on interest payments alone – more than on defence – and that’s with interest rates at historic lows.

As the debt and rates spiral upwards, that interest bill can only rise, all at the expense of spending on services. Instead of cutting borrowing on Wednesday, the Budget fine print shows that, over the next three years, we’ll be adding another £116bn to our national debt – more than £36bn up on the borrowing projections in last November’s Autumn Statement. We’ll probably end up borrowing even more, of course, than these already gargantuan numbers, not least if growth is lower than forecast. Since last November, some £5 trillion has been wiped off global stock markets. Morgan Stanley now warns clients of a 30pc chance of global recession over the next year. Many financiers privately judge the chance of a financial collapse to be far higher. “As one of the most open economies in the world, the UK isn’t immune to global slowdowns and shocks,” Osborne told the Commons. Yet, over each of the next six years, the Budget borrowing projections rest on growth of 2pc or more. While I obviously hope that happens, it amounts to a mighty optimistic assumption.

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“Yellen has surrendered after achieving victory.”

Asia Cheers as Yellen Succumbs to Cry-Bullies (Barron’s)

Well, here’s another nice mess you’ve gotten us into, Janet. U.S. Fed Chair Janet Yellen left rates unchanged this week, and confided after the Fed’s two-day policy meeting that, despite continuing improvement in the U.S. economy, weak global economic growth and turbulent markets had spooked the Fed into halving the number of times it expects to raise rates this year, to two from four. Yellen’s capitulation is already producing a predictable whoop of jubilation in Asian markets, as it confirms this column’s observation that the hot money crowd has succeeded in cry-bullying global central bankers into keeping the punchbowl of cheap cash full to overflowing. Stocks in Shanghai and Hong Kong rose by more than 1%, while Philippine stocks were up almost 2%.

While it’s often the case that Asian stocks move reflexively with those on Wall Street, today it’s all about the U.S. dollar, which fell 1% against the Japanese yen and about 0.7% against the Euro. Even though Tokyo stocks are up, the Fed’s move is bad news for Japan and Europe as well as their respective central bankers, Haruhiko Kuroda and Mario Draghi. As this column explained yesterday, both gentlemen are working furiously to use a negative interest-rate policy to weaken their currencies, boost inflation and revive economic growth. Hearing that Yellen won’t be riding to the rescue soon with another rate hike will come as bad news to them. But it’s excellent news for Asia’s smaller markets, since investors hunting for higher yields can no longer count on getting more bang for the buck out of Yellen.

Indonesia’s rupiah, which has risen 6% already this year, gained another 0.8% after the Fed’s announcement. Malaysia’s ringgit – what corruption scandal? – rose 1% and South Korea’s won soared by 2.5%. Don’t get too excited. While a more reluctant Fed extends the risk-on rally for Asian assets, it does not bode well for investors looking for fundamental value or an upturn in corporate profitability. For starters, the Fed is once again behind the market. Even as they’ve kicked and screamed after the Fed ended a 10-year, zero interest-rate policy by raising rates last December, sending Asian stocks down roughly 15% by mid-February, investors are starting to adjust to the reality that the U.S. economy is not sinking into recession. Jobs and inflation are improving and markets that early this year were predicting no rate hike until 2017 were yesterday betting on another hike as early as July. Yellen has surrendered after achieving victory.

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Will exporters force Beijing to devalue?

China’s Exporters Struggle as Yuan Swings Disrupt Business (BBG)

The yuan’s swings are becoming a headache for the Chinese companies that should have been the biggest beneficiaries of last year’s devaluation. In rare overt comments, exporters including Midea and TCL are expressing apprehension about the nation’s exchange-rate policy. Two said the increased volatility has made it difficult to manage costs because customers are choosing to place only short-term orders, while a third said the yuan was allowed to strengthen far too much in the past few years. “Overseas clients are taking into account losses that can be caused by exchange-rate swings and are placing shorter-term orders with smaller volumes, which creates difficulty for our operations,” said Yuan Liqun, VP at Midea, China’s biggest maker of household appliances by market share.

“The fluctuations last year were relatively significant. Companies can accept a market-based yuan that moves within a reasonable range.” Exports slumped 25% in February from a year earlier and a gauge of overseas orders contracted for the 17th month in a row, while the currency’s volatility held near the highest levels since August’s shock devaluation. This illustrates the challenge facing Premier Li Keqiang as he balances the need to nudge the exchange rate lower to help an economy growing at the slowest pace in 25 years, while trying to avoid a run that would create financial instability. The currency, which has plunged 4.8% since last year’s devaluation, climbed in September and October, and dropped in the following three months before rebounding in February. It has strengthened 0.5% in March so far, almost wiping out this year’s losses. The wild swings contributed to an estimated $1 trillion in capital outflows last year.

The yuan, which Royal Bank of Canada says is currently overvalued, will face renewed selling pressure once the Federal Reserve decides to raise borrowing costs again. The median forecast in a Bloomberg survey of economists is for a drop of 4.1% by the end of the year. Its decline against the dollar in 2015 – the most in 21 years – masked a sixth straight annual gain against the exchange rates of China’s main trading partners, according to a BIS index. This shows that there is more room for depreciation, according to Fuyao Glass Industry, which makes automobile windows and whose clients include BMW and Volkswagen. “The yuan is strong, so Chinese companies can’t go abroad and most exporters are making losses,” Cho Tak Wong, chairman of Fuqing, Fujian-based Fuyao, said in an interview over the weekend. “China should allow the yuan to weaken. If the currency doesn’t depreciate, exports will be negatively influenced and export-focused firms will suffer.”

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“There were around 23.5 trillion yuan ($3.60 trillion) worth of WMPs outstanding at the end of 2015, up from around 15 trillion yuan a year earlier..”

China Banks Face Credit Risks From Ties To Wealth Management Products (CNBC)

Chinese banks are starting to create a web of risk through their wealth management products (WMPs), raising concerns about the health of the financial system just as China’s economic growth has slowed to its weakest pace in 25 years. Retail investors are the majority of buyers of WMPs, which offer higher interest rates than a bank deposit. But it isn’t always clear what assets the funds are buying to finance those payouts. The industry publishes aggregated data on where WMPs tend to invest, but the disclosures of individual products can be vague. Overall, WMPs tend to invest in the industrial sector as well as industries related to local government and real estate, according to Fitch. All of these are segments of the economy suffering from overcapacity.

Most WMPs – as many as 74% – don’t carry the issuing bank’s guarantee that investors will be made whole at the end of the product’s term, which is usually less than six months, Fitch said. But even if the products fail to meet performance expectations, banks may choose to repay investors anyway to avoid the spectacle of mom and pop protesters in front of its branches – something that occurred outside a Hua Xia Bank branch near Shanghai in 2012, according to a Reuters report. When the WMP’s performance isn’t up to snuff, it can become a risk for more than just the issuing bank. “The fear is that investments are in industries that might not be generating cash so when they come due, the cash to repay investors might not be there.

There’s always pressure to roll them over,” Jack Yuan, associate director for financial institutions at Fitch, said last week. Additionally, some banks are investing in other banks’ WMPs – those investments are usually on banks’ balance sheets in a category called “investments classified as receivables,” Yuan noted. “There are a lot of interlinkages in the banking sector in terms of banks investing in other banks’ WMPs and calling on the interbank market for funding if they do go bad,” he said. “It’s going to be more and more difficult to resolve these if they do go bad.” There were around 23.5 trillion yuan ($3.60 trillion) worth of WMPs outstanding at the end of 2015, up from around 15 trillion yuan a year earlier, Fitch noted, with around 3,500 new ones offered each week.

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“Peabody’s share price has fallen to under $2.50 from more than $1,300 in 2008.”

America’s No. 1 Coal Miner to Seek Bankruptcy Protection (WSJ)

Peabody Energy, the U.S.’s biggest coal miner, Wednesday posted a going-concern notice in a regulatory filing, warning of possible bankruptcy. A chapter 11 filing by Peabody, which operates 26 mines in the U.S. and Australia, would be the latest in a wave of bankruptcies to hit top American coal producers, including Arch Coal, Alpha Natural Resources, Patriot Coal and Walter Energy, as they wrestle with low energy prices, new regulations, and the conversion of coal-fired power plants to natural gas. Punctuating Peabody’s woes, the Energy Information Administration Wednesday said that 2016 “will be the first year that natural gas-fired generation exceeds coal generation.”

The EIA said Americans would get 33% of their electricity from gas in 2016, and 32% from coal. As recently as 2008, coal fed half of U.S. electricity consumption. The weakening demand is hurting markets. Coal prices have fallen 62% since 2011, and 18% in the past year, according to the EIA. That drop is crushing companies like Peabody. The company has now lost money in nine straight quarters, and in 2015 posted a $2 billion deficit. As of Dec. 31, it had $6.3 billion in debt and $261.3 million in cash. Peabody, whose biggest mining operations are in Wyoming, has also been weighed down by its ill-timed acquisition of Australia’s Macarthur Coal for $5.1 billion in 2011. Prices have been declining ever since. Company shares, which have already lost more than 95% of their value in the past 12 months, fell 44% in midday trading.

Peabody’s share price has fallen to under $2.50 from more than $1,300 in 2008. On Wednesday, Peabody pointed to uncertainty around global coal fundamentals, economic growth concerns of some major coal-importing nations and the potential for additional regulatory requirements on coal producers as reasons for its notice. Because of operating problems and other financial problems, “we may not have sufficient liquidity to sustain operations and to continue as a going concern,” the St. Louis-based miner said in a filing with the SEC. “We may need to voluntarily seek protection under chapter 11 of the U.S. bankruptcy code.” Peabody said it had delayed an interest-rate payment on two loans, triggering a 30-day grace period. If the payments aren’t made within 30 days, an event of default would be declared.

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Oh yeah!

Energy Sector Defaults Could Start Falling Like Dominoes (MW)

Energy-sector bond defaults – and for some producers, bankruptcy risks – are piling up and coal liabilities aren’t the only culprit. Oil-and-gas producers, suffering with low crude prices after a shale revolution made the U.S. a viable energy producer, are smothered under their own junk bonds. Small- and medium-sized U.S.-based producers, especially those that expanded with the shale boom, are most vulnerable; any small blip in oil prices may not be high enough or fast enough to protect all producers. And just this week at least two more have warned about their near-term future. It’s a climate that’s driven some of this sector’s high-yield paper to trade at 30 cents on the dollar or less.

Peabody Energy said Wednesday it filed a “going concern” notice with regulators. Peabody has opted to exercise the 30-day grace period with respect to a $21.1 million interest payment due March 16 on its 6.50% notes due in September 2020, as well as a $50 million interest payment due March 16 on its 10% senior secured second lien notes due in March 2022. Costs and lost business to tougher coal regulation were cited. But Linn Energy – which on Tuesday filed its own “going concern” after missed interest payments now in a grace period — is primarily an oil-and-gas producer with shale interests in western U.S. states. If it files for bankruptcy protection, its $10 billion in debt would make it the largest U.S. oil company to do so since oil prices began their sharp decline in 2014.

In all, about 40 oil and gas producers have filed for bankruptcy protection globally since 2014, according to a February report from Deloitte. Crude traded to 12-year lows, below $30 a barrel, in February before a recent, mild rebound. Energy consulting firm Rystad Energy says smaller players typically need a minimum $50-a-barrel oil price to make a profit. Last week, Fitch said it’s raising its 2016 forecast for U.S. high-yield bond defaults to 6% from 4.5%, and said it expects energy and materials issuers to default on $70 billion of debt this year, including $40 billion for energy alone. The new rate of default is the highest that Fitch has ever forecast during a non-recessionary period, beating the 5.1% it forecast for 2000.

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Might as well sell then, right?

Oil Investors See $7.4 Billion Vanish as Dividends Are Targeted (BBG)

The check is not in the mail. Bludgeoned by falling energy prices, at least a dozen oil and natural gas companies have opted to cut dividends this year to preserve cash, cannibalizing payouts considered sacrosanct by many investors. The cost to shareholders: more than $7.4 billion in lost income, compared to what they would have received this year if the payouts remained the same. It’s another painful measure – along with tens of thousands of layoffs and more than $100 billion in canceled investments – of the toll taken on the industry by the worst oil and gas price slump in decades. The quarterly payments, prized by conservative shareholders as a source of steady income, are unlikely to be restored any time soon. “It really reinforces the necessity of having a margin of safety if you are buying a stock primarily for its dividend,” said Josh Peters, editor of Morningstar’s DividendInvestor newsletter.

“What we have found for some of the energy companies is that the margin of safety was either slim or nonexistent.” Kinder Morgan’s 75% dividend cut was the biggest, amounting to a $3.44 billion loss for shareholders over the course of 2016. The announcement from North America’s largest pipeline operator “came as a shock to some people and obviously was deplored by some people,” founder and Executive Chairman Richard Kinder told analysts at a Jan. 27 meeting. The move was necessary to help the Houston-based company keep its investment-grade credit rating while ensuring it has enough money to pay debts and grow, Kinder said. Since the Dec. 8 announcement, shares have risen about 20%, compared with a 3% gain for the Alerian MLP stock index, which tracks energy infrastructure companies.

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It’s a miracle Pemex still exists.

Big-Oil Bailout Begins as Pemex’s Debt Spirals Down (WS)

Pemex, Mexico’s state-owned oil giant, cannot seem to get a break these days. It notched up 13 straight quarters of rising losses. It now owes over $80 billion to international investors and banks. It needs to raise $23 billion this year to stay afloat. The cost of servicing that gargantuan debt mountain continues to rise. So it tries desperately to rein in its spending, without tackling — or even discussing — its endemic culture of corruption. In recent days, Pemex received a 15 billion peso ($840 million) lifeline from three of Mexico’s homegrown development banks, Banobras, Bancomext and Nafinsa, to help the firm pay back some of its smallest providers, consisting mainly of domestic SMEs. The loan was part of an arrangement cobbled together between the banks and the Mexican government.

By today’s standards the amount involved is pretty meager, but the operation was about more than just raising funds: it was meant to restore confidence among both investors and suppliers in the firm’s ability to repay its debts. “This sends a sign of stability and confidence to the sector, which has been very nervous” payments would not be made, explained Erik Legorreta, President of the Mexican Oil Industry Association, which represents around 3,000 service providers. “Members of the industry now have the confidence and certainty that the payments will be honored.” Not everyone agrees. Last week the U.S. credit rating agency Moody’s flagged concerns that the loan will significantly increase the three banks’ combined exposure to Pemex’s debt, calculated to grow from 44% to 62%.

“The three lenders now have high concentration risks with their 20 biggest creditors,” cautioned Moody’s, which already downgraded Pemex’s debt in November to Baa1, with a negative outlook. In its report last week, the agency piled on the pressure by warning that there’s “a high likelihood” that it will downgrade Pemex’s rating another notch in the coming weeks. What this all means is that rather than restoring investor confidence in Pemex, the loan operation has merely served to reinforce investors’ fears that lending to the debt-laden oil giant is fast becoming a very dangerous risk.

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We’ll see more of this.

Munich Re Rebels Against ECB With Plan To Store Cash In Vaults (BBG)

Munich Re is resorting to the corporate equivalent of stuffing notes under the mattress as the world’s second-biggest reinsurer seeks to avoid paying banks to hold its cash. The German company will store at least €10 million in two currencies so it won’t have to pay for the right to access the money at short notice, Chief Executive Officer Nikolaus von Bomhardsaid at a press conference in Munich on Wednesday. “We will also observe what others are doing to avoid paying negative interest rates,” he said. Institutional investors including insurers, savings banks and pension funds are debating whether to store cash in vaults as overnight deposit rates fall deeper below zero and negative yields dent investment returns. The costs associated with insurance and logistics may outweigh the benefits of taking this step.

Munich Re’s move comes after the ECB last week cut the rate on the deposit facility, which banks use to park excess funds, to minus 0.4%. Munich Re’s strategy, if followed by others, could undermine the ECB’s policy of imposing a sub-zero deposit rate to push down market credit costs and spur lending. Cash hoarding threatens to disrupt the transmission of that policy to the real economy. Munich Re wants to test how practical it would be to store banknotes having already kept some of its gold in vaults, von Bomhard said. This comes at a time when consumers are increasingly using credit cards and electronic banking to pay for transactions. Deutsche Bank CEO John Cryan in January predicted the disappearance of physical cash within a decade. Munich Re also said on Wednesday that it expects its profit to decline this year as falling prices for its products and low interest rates weigh on investment earnings.

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UK rules!

Netherlands Votes To Ban Weapons Exports To Saudi Arabia (Ind.)

The Dutch parliament has voted to ban arms exports to Saudi Arabia in protest against the kingdom’s humanitarian and rights violations. It sees the Netherlands become the first EU country to put in practice a motion by the European Parliament in February urging a bloc-wide Saudi arms embargo. The bill, voted through by Dutch MPs on Tuesday, quoted UN figures which suggest almost 6,000 people – half of them civilians – have been killed since Saudi-led troops entered the conflict in Yemen. It also cited the mass execution of 47 people, largely political dissidents, ordered by the Saudi judiciary on 2 January this year.

According to Reuters, the Dutch bill asks the government to implement a strict weapons embargo that includes dual-use exports which could potentially be used to violate human rights. The vote adds to the growing pressure on Britain, one of the main arms suppliers to Riyadh, to reconsider its stance. According to Campaign Against Arms Trade figures from the start of the year, the UK has sold more than £5.6 billion worth of weapons to the Saudi government under David Cameron. France is the other major European supplier of arms to the Saudi kingdom. Germany’s exports amounted to almost £140 million in the first six months of 2015, while figures for the Netherlands itself were not available.

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Has this changed their policy yet?

Austria’s Highest Court Proclaims Asylum Cap Illegal (NE)

Austria’s asylum cap to 37,500 refugees has been declared unlawful by the country’s Constitutional Court on Tuesday, March 15. While Chancellor Werner Faymann is calling on Germany to introduce its own cap, the president of Austria’s Constitutional Court, Gerhart Holzinger, stated that Austria is obliged to grand asylum to everyone that meets the legal requirements. Vienna allows 80 asylum seekers per day and allows 3,200 to transit to Germany. Meanwhile, the Austrian Defense Minister, Peter Doskozil, suggested on Tuesday that the EU should help the Former Yugoslav Republic of Macedonia (FYROM) – an EU candidate state – to secure its borders with Greece, an EU member state. Doskozil praised the government in Skopje for the work it has done “for the whole of the EU.” Austria’s Vice-President, Reinhold Mitterlehner, reiterated that “the Balkan route must stay closed.”

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How the EU sees this: “We have a week to build a Greek state..” Insane, but true. It smells like the efficiency goal of German camps 70 years ago. If you don’t put people first, you’re going to get it wrong.

Huge Challenges Await EU’s Refugee Plan (FT)

On paper the EU’s latest migration plan promises a straightforward solution to a crisis that has vexed European leaders for months. But in practice, it is anything but simple. By returning thousands of migrants to Turkey, Brussels and Berlin are hoping that others will become convinced the route is now impassable and join a formalised system instead. But its implementation poses an enormous administrative test, with little time to prepare. One of the EU’s weakest states, Greece, will be asked to play a central role. “We have a week to build a Greek state,” joked one senior EU official intimately involved with the planning. Frans Timmermans, the European Commission vice-president, acknowledged: “You don’t need to tell me that this is going to be very complicated in legal and logistical terms.” Here are five Herculean tasks ahead:

Preparing the ground — legally and literally Europe’s return plan violates Greek law. To address this, Greece must overhaul its asylum laws in a matter of days to enshrine Turkey as a “safe third country” to receive asylum seekers. The next step is harder: clearing the backlog. There are around 8,000 migrants on Greek islands, such as Lesbos and Chios. Officials say they ideally need to be moved before the so-called “X Day” -as early as Friday- when the returns policy officially begins. Yet Greek facilities are strained. Shelter is lacking on the mainland, where almost 40,000 migrants are already stranded. Mixing the groups — those who are trapped in Greece, awaiting relocation to Europe, and those who will be sent straight back to Turkey – could get ugly.

Creating a functioning asylum system in Greece “Unacceptable”, “degrading” and “unsanitary” were a few of the words used to describe Greece’s asylum system when the European Court of Human Rights banned other EU members from sending asylum seekers there in 2011. Yet the Greek system will now be the fulcrum of the EU’s deal with Turkey. Greece is the place where thousands of asylum seekers will land, be processed, housed and then returned to Turkey. This will require more manpower, particularly on the Aegean Islands. Everyone from judges -estimates range from 50 to 200- to a small army of Arabic or Pashto translators are required. “We’re far away from having the people, let alone trained people,” said one European official involved in preparations.

An asylum seeker’s claim is supposed to take a week to process, according to the EU plan. But the legal hoops are multiplying as Brussels attempts to guard against court challenges. This requires an assessment of each individual case and an interview. Applications must be dealt with fast – but not too fast. (In October, the European Commission criticised Budapest for rejecting applications in under an hour.) Most difficult is the appeals procedure, which must be heard by a judge. If Greece fails to jump through any of these legal hoops then judges in Greece, Luxembourg or Strasbourg could strike down the agreement. “That would bring the whole system to a halt,” said one senior EU official.

Managing unco-operative migrants So-called “hotspots” in Greece were first promised in September, yet these registration and sorting centres are only now taking shape. They can accommodate around 8,050 arrivals, according to the European Commission. Yet their role is about to change drastically. For a returns policy to work efficiently, hotspots must not simply register migrants but detain them. The centres will become containment facilities, according to EU plans, from which migrants who are about to be returned cannot escape. That requires more fences, more overnight shelter and more security guards. This is a horrible challenge. The UNHCR survey of Syrian refugees in February found almost half to be children. Some detainees will be desperate and angry at the prospect of return, having just risked their lives on a sea journey that possibly cost their life savings. The risk of disorder is high.

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Isn’t that a crazy headline, given that less than 1000 of 160,000 have actually been resettled?!

EU Prepares To Scale Back Resettlement Of Syrian Refugees (Guardian)

The EU is preparing to scale back the number of Syrian refugees offered resettlement in Europe, as part of a controversial pact being drawn up with Turkey. The bloc’s 28 leaders will hold a summit in Brussels on Thursday, before a meeting the Turkish prime minister, Ahmet Davutoglu on Friday, to hammer out the final details of a plan aimed at stemming the flow of refugees and migrants coming to Europe. The EU has pledged to resettle Syrian refugees currently in Turkey, but figures that emerged on Wednesday suggested only 72,000 places would be available, with uncertainty about the bloc’s commitment beyond this number. As the UNHCR stepped up calls for a coordinated approach to manage the number of people, European diplomats were scrambling to finalise a deal with Turkey.

Under a proposed “one-for-one” scheme, for every Syrian refugee in Turkey who is resettled in Europe, a Syrian in Greece would be sent back across the Aegean. The vast majority of refugees and migrants in Greece can also expect to be sent back to Turkey. When these broad principles were agreed at an EU-Turkey summit 10 days ago, the numbers were vague but details are now emerging. Of the 72,000 places identified by the Commission for Syrian refugees, 18,000 places would be available under a voluntary resettlement scheme agreed last year. A further 54,000 places may be available “if needed” under a separate scheme designed to spread asylum seekers more evenly around the bloc, although this would require a change to EU law.

Frans Timmermans, vice-president of the European commission, said the EU would continue to help after these places were used up. It pointed to “a coalition of the willing”, made up of EU member states including Germany and Austria, who have pledged to resettle Syrians once irregular arrivals had stopped. “When we succeed in breaking the pattern of irregular arrivals one-for-one will not become none-for-none,” Timmermans said. But the various EU schemes to rehouse refugees are painfully slow. A plan to find homes for 160,000 refugees has led to only 937 being resettled, according to the latest data. Several countries are concerned that the Turkey deal could mean large-scale resettlement of Syrians in Europe.

A senior EU official said there “cannot be an open-ended commitment on the EU side”. The numbers discussed indicate that the EU wants to scale back help in Europe offered to refugees. Syrians in Greece will go to the back of the queue for resettlement in Europe once they are returned to Turkey. “Priority will be given to Syrians who have not previously entered the EU irregularly,” states an unpublished draft. The commission argues the plan will kill the business model of people smugglers, as potential migrants will have no incentive to come to Europe if they think they will be turned away. But the UN’s human rights chief has warned that the EU risks compromising its human rights values if it cuts corners on asylum standards.

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As the Balkan borders close, refugees will use new routes and old ones. At an even higher risk.

Three Migrants Dead As 2,400 Rescued Off Libya (AFP)

More than 2,400 migrants and three corpses have been recovered from people smugglers’ boats off Libya since Tuesday, Italy’s coastguard said Wednesday. After several quiet weeks, the figures represent a pick-up in the flow of migrants attempting to reach Italy via Libya, a route through which around 330,000 people have made it to Europe since the start of 2014. Prior to the latest rescues, the UN refugee agency (UNHCR) had reported 9,500 people landing at Italian ports since the start of the year. This compares with more than 143,000 who have reached Greek islands by crossing the Aegean Sea since January 1.

With efforts underway to close the entry route through Greece, Italian authorities are wary of a surge in the number of migrants attempting to come through Libya. So far there has been no indication of that happening. Numbers arriving from Libya have always fluctuated in line with weather conditions in the Mediterranean and other factors. Arrivals were slightly down in 2015 compared with 2014 – a trend that may be related to the political chaos in Libya which might have deterred some migrants and has made it harder for those that do make the journey to find work there while awaiting boats to Italy.

Read more …


Merry St. Paddy’s

Apr 142015
 
 April 14, 2015  Posted by at 9:41 pm Finance Tagged with: , , , , , , , ,  


DPC French Market, New Orleans 1910

From southern Europe to the far north, matters are shifting, sometimes slowly, sometimes faster. There are moments when it seems all that goes on is the negotiations over the Greek dire financial situation and its bailout conditions, but even there nothing stands still. The Financial Times ran a story claiming Greece is about to default on is debt(s), and many a pundit jumped on that, but there was nothing new there. Of course they are considering such options, but they are looking at many others as well. That doesn’t prove anything, though.

Yanis Varoufakis’ publisher, Public Affairs Books, posted a promo for an upcoming book by the Greek Finance Minister, due out only in 2016, mind you, that reveals a few things that haven’t gotten much attention to date. It’s good to keep in mind that most of the book will have been written before Yanis joined the new Greek government on January 26, and not see it as a reaction to the negotiations that have played out after that date.

Varoufakis simply analyzes the structure of the EU and the eurozone, as well as the peculiar place the ECB has in both. Some may find what he writes provocative, but that’s beside the point. It’s not as if Europe is beyond analysis; indeed, such analysis is long overdue.

Indeed, it may well be the lack of it, and the idea in Brussels that it is exempt from scrutiny, even as institutions such as the ECB build billion dollar edifices as the Greek population goes hungry, that could be its downfall. It may be better to be critical and make necessary changes than to be hardheaded and precipitate your own downfall. Here’s the blurb for the book:

And The Weak Suffer What They Must
Europe’s Crisis and America’s Economic Future

“The strong do as they can and the weak suffer what they must.” —Thucydides

The fate of the global economy hangs in the balance, and Europe is doing its utmost to undermine it, to destabilize America, and to spawn new forms of authoritarianism. Europe has dragged the world into hideous morasses twice in the last one hundred years… it can do it again. Yanis Varoufakis, the newly elected Finance Minister of Greece, has a front-row seat, and shows the Eurozone to be a house of cards destined to fall without a radical change in direction. And, if the EU falls apart, he argues, the global economy will not be far behind.

Varoufakis shows how, once America abandoned Europe in 1971 from the dollar zone, Europe’s leaders decided to create a monetary union of 18 nations without control of their own money, without democratic accountability, and without a government to support the Central Bank.

This bizarre economic super-power was equipped with none of the shock absorbers necessary to contain a financial crisis, while its design ensured that, when it came, the crisis would be massive. When disaster hit in 2009, Europe turned against itself, humiliating millions of innocent citizens, driving populations to despair, and buttressing a form of bigotry unseen since WWII.

In the epic battle for Europe’s integrity and soul, the forces of reason and humanism will have to face down the new forms of authoritarianism. Europe’s crisis is pregnant with radically regressive forces that have the capacity to cause a humanitarian bloodbath while extinguishing the hope for shared prosperity for generations to come. The principle of the greatest austerity for the European economies suffering the greatest recessions would be quaint if it were not also the harbinger of misanthropy and racism.

Here, Varoufakis offers concrete policies that the rest of the world can take part in to intervene and help save Europe from impending catastrophe, and presents the ultimate case against austerity. With passionate, informative, and at times humorous prose, he warns that the implosion of an admittedly crisis-ridden and deeply irrational European capitalism should be avoided at all cost. Europe, he argues, is too important to be left to the Europeans.

How dire the situation is in Greece becomes obvious from the following article by documentary film maker Constantin Xekalos, posted on Beppe Grillo’s site. It makes you wonder how Europe dare let this happen. How it could possibly have insisted prior to the January elections that the Greeks should vote for the incumbent government, and how someone like Eurogroup head Dijsselbloem could ever have had the gall to point to “all the progress we’ve made”.

Greece, The Euro’s Greatest “Success”

Greece is a social disaster zone. 3 million people are without guaranteed healthcare, 600,000 children are living under the breadline and more than half of them are unable to meet their daily nutritional needs. 90% of families living in the poorer areas rely on food banks and feeding schemes for survival, and unemployment is approaching 30%, with youth unemployment approaching 60%. These are not just numbers, they are real people. In order to show their faces and tell their stories, writer and documentary film maker from Crete and now living in Florence, Constantin Xekalos, decided to make a documentary film entitled: “Greece, the Euro’s greatest success “. In today’s Passaparola he talks about this documentary film and about the suffering of the Greek people that he has encountered in his personal experience. Today it is all happening, but is Italy next?

The healthcare tragedy in Greece When we made this documentary it was said that 1/3 of the Greek population, (more than 3 million people,) were without any guaranteed healthcare. In the interim that number has grown. They have been abandoned. If you go to a hospital, obviously a public one, they will treat you and they will accept you if it is an emergency, but if you are admitted, you then have to pay. If you are unable to pay, they send the bill to the Receiver of Revenue’s office and they take it from there. If you have no money, they start with foreclosure, even your home , even if it is your only home!

This is crime against society that is totally unacceptable. In an advanced and so-called democratic Country that is part of the western world, things like this are totally inconceivable, absurd and unacceptable. I repeat, this is crime against society that we absolutely cannot accept! If you are ill, democracy guarantees the treatment you need, otherwise it should be called by some other name. When a child is not guaranteed the nutrition he/she needs, a mere helpless child, or elderly people that are no longer able to look after themselves, then that is no longer democracy. Some of the older Greeks were telling me that when the Germans were there during the occupation in the Second World War, the people lived exactly like they are living now.

The Greeks are dying of hunger 90% of Greek families living in the poorer areas are obliged to rely on food banks and feeding schemes in order to survive. Unfortunately there are many in this situation. We toured a number of Athens’ districts and in each and every district there is a square where good people, people who care about others and truly have a sense of community have rolled up their sleeves and, with the help of the Church, are providing meals for those who would otherwise have nothing to eat. Every district has its own square. I saw children passing out because of lack of food, but are too embarrassed to admit it. We simply cannot accept this kind of thing. It’s a crime when children go without food to eat. I will shout that from the rooftops until I burst and I hope that they lay charges against me: it is a crime when a child cannot get enough to eat!

The disappearance of the Greek middle-class Many good people found themselves unemployed from one day to the next, not through any fault of their own and not by choice, not lazy people as they would have us believe. They want to work but at this point there simply are no jobs any more. The social fabric is gone, there is no more middle-class, it is virtually nonexistent. All there is is an ever-shrinking oligarchy of very wealthy people and then the rest of the people who are becoming ever poorer. Very real poverty! Currently, and here I’m talking about the latest data from a month ago now, someone who does indeed find a job has to accept a salary of €300 a month . Take into account that Athens is a very expensive city to live in, even more so than Florence. I happen to live in Florence so this is just by way of example, but I was horrified at the thought. How on earth do these people manage to live? There is no way that they can live decently, there is no longer any dignity and therefore they cannot be free: they are destroying your soul as well as you body!

Over 50% of young people are unemployed Youth unemployment is now standing somewhere between 50% and 60% . The young people do whatever they can, they accept any kind of position, even things that not right and unfair, simply because necessity forces them to accept job offers that should not even be made. I saw jobs offered at €100 a month . This sort of thing is now happening here in Italy as well.

What all this will eventually lead to, inevitably so, becomes clear from the following. Anti-euro, anti-immigrant, anti-bailout and down the line anti anything to do with the failed European project. In Finland, of all places, the anti-euro party looks certain to get into the next government. Finland’s economy is in tatters, despite its AAA rating, and people increasingly choose to see the world through blinders.

Anti-Euro Finnish Party Gets Ready to Rule as Discontent Brews

The anti-euro The Finns party, which eight years ago got just 4% of the vote, is now dressing itself up for Cabinet seats as Finnish voters are set to oust the government after four years of economic failure. The Finns, whose support is based on equal parts of anti-euro, anti-immigrant and anti-establishment sentiment, have captured voters on the back of the euro-area’s economic crisis and a home-grown collapse of key industries. In the 2011 election, during the height of the euro crisis, it shocked the traditional parties by winning 19% of the vote. “We can’t be ignored, because a strong majority government won’t be possible without us,” Timo Soini, the party leader, said [..]

The country is struggling to emerge from a three-year recession after key industries such as its papermakers have buckled amid slumping demand and Nokia Oyj lost in the smartphone war, cutting thousands of jobs. The government has raised taxes and lowered spending, adding to unpopularity, and on top of that have been bailout costs for Greece and Portugal, among others, which have eroded finances for Finland, still top-rated at Fitch Ratings and Moody’s Investors Service. “Our stance will be very tight, no matter what,” Soini said. “Nothing is forcing Finland to participate in these bailout policies. If we don’t want to take part, we can refuse.”

Soini’s recipe for fixing the economy includes encouraging exports, backing entrepreneurship, investing in road infrastructure and cutting red tape. The party seeks to balance public finances through budget cuts of as much as €3 billion and higher taxes for the wealthy. The euro-skeptic group will probably join a three-party coalition. Polls predict more than 50 seats out of 200 for the opposition Center Party.

The Center Party backed bailouts and loans for Greece, Portugal and Ireland while in government in 2010 and 2011 and was then ousted. It has since opposed further help, alongside The Finns party. The Center Party and us will have a majority within the government, if it keeps the stance it has had,” Soini said. His group isn’t currently pushing for Finland to exit the euro. Still, “Finland should under no circumstances declare it will always and forever stay,” he said.

The party first negotiated joining government after the 2011 elections, after catapulting to third place with 39 lawmakers. Its opposition to euro-area bailouts in the height of the crisis meant the door to government was closed. In 2007, its five seats didn’t qualify for an invitation to join talks to form a ruling coalition. “We’ve grown, we’ve moved forward, we’ve stabilized,” Soini said. “It’s a key goal for us to consolidate our backing and be one of the big parties, so that we’re not just a one-vote wonder.”

Of course, there are worse options than the True Finns. You can get from anti-immigrant to downright extreme right wing, where Greece may be headed if Europe doesn’t adapt to Syriza’s view of what the eurozone might be.

The prevailing views amongst Europe’s richer nations, and its domestic banking sectors, don’t look promising. And when the European project crashes to a halt, things are not going be pretty. The wisest thing for Brussels to do may well be to try and dismantle itself as peacefully as it can. But Brussels is far too loaded with people seeking to hold on to the power they have gathered.

Still, there’s no denying they have held sway over rapidly deteriorating conditions on the ground (though they will prefer to lay the blame elsewhere), which will down the line lead to their own downfall. They better listen to Yanis now.

Oct 242014
 
 October 24, 2014  Posted by at 12:52 pm Finance Tagged with: , , , , , , , , , ,  


Jack Delano Family of Dennis Decosta, Portuguese Farm Security Administration client Dec 1940

The Zombie System: How Capitalism Has Gone Off the Rails (Spiegel)
Fed’s $4 Trillion Holdings Keep Boosting Growth Beyond End of QE (Bloomberg)
EU Tells Britain To Pay Extra €2.1 Billion Because It Does Well (FT)
EU Agrees To Budget Talks After £1.7 Billion Cash Demand On UK (BBC)
Renzi Vs Barroso Over EU’s Budget Letter (FT)
EU Agrees Target To Cut Greenhouse Gas Emissions by 40% in 2030 (FT)
German Lawmakers Rip ECB Over Corporate Bonds Report (Reuters)
ECB Tries for Third Time Lucky in European Stress Tests (Bloomberg)
World Faces $650 Billion Housing Problem (CNBC)
China’s Economic Growth May Slow Further, Data Show (MarketWatch)
China Local Debt Fix Hangs On Beijing’s Wishful Thinking (Reuters)
China Home-Price Drop Spreads as Easing Fails to Halt Slide (Bloomberg)
China Scores Cheap Oil 14,000 Miles Away as Glut Deepens (Bloomberg)
Saudi Arabia’s Risky Oil-Price Play (BW)
Eastern Europe Shivers Thinking About Winter Without Gas (Bloomberg)
Germany Inc. Scrutinized for Using Labor Like Paper Clips (Bloomberg)
Alabama Man Gets $1,000 In Police Settlement, His Lawyers Get $459,000 (Reuters)
Doctor With Ebola In Manhattan Hospital After Return From Guinea (Reuters)
Mali Becomes Sixth African Country To Report Ebola Case (Bloomberg)

Great, long, 4-part series from German Der Spiegel magazine.

The Zombie System: How Capitalism Has Gone Off the Rails (Spiegel)

Six years after the Lehman disaster, the industrialized world is suffering from Japan Syndrome. Growth is minimal, another crash may be brewing and the gulf between rich and poor continues to widen. Can the global economy reinvent itself?

[..] Politicians and business leaders everywhere are now calling for new growth initiatives, but the governments’ arsenals are empty. The billions spent on economic stimulus packages following the financial crisis have created mountains of debt in most industrialized countries and they now lack funds for new spending programs. Central banks are also running out of ammunition. They have pushed interest rates close to zero and have spent hundreds of billions to buy government bonds. Yet the vast amounts of money they are pumping into the financial sector isn’t making its way into the economy. Be it in Japan, Europe or the United States, companies are hardly investing in new machinery or factories anymore. Instead, prices are exploding on the global stock, real estate and bond markets, a dangerous boom driven by cheap money, not by sustainable growth. Experts with the Bank for International Settlements have already identified “worrisome signs” of an impending crash in many areas.

In addition to creating new risks, the West’s crisis policy is also exacerbating conflicts in the industrialized nations themselves. While workers’ wages are stagnating and traditional savings accounts are yielding almost nothing, the wealthier classes — those that derive most of their income by allowing their money to work for them — are profiting handsomely. According to the latest Global Wealth Report by the Boston Consulting Group, worldwide private wealth grew by about 15% last year, almost twice as fast as in the 12 months previous. The data expose a dangerous malfunction in capitalism’s engine room. Banks, mutual funds and investment firms used to ensure that citizens’ savings were transformed into technical advances, growth and new jobs. Today they organize the redistribution of social wealth from the bottom to the top. The middle class has also been negatively affected: For years, many average earners have seen their prosperity shrinking instead of growing.

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“Boosting growth”. Are we ever going to get real?

Fed’s $4 Trillion Holdings Keep Boosting Growth Beyond End of QE (Bloomberg)

Quantitative easing may turn out to be a gift that keeps on giving for the U.S. economy. As the Federal Reserve prepares to end its third round of bond buying next week, the central bank plans to hang on to the record $4.48 trillion balance sheet it has accumulated since announcing the first round of purchases in November 2008. That will continue to keep a lid on borrowing costs, helping the Fed lift inflation closer to its target and providing support to a five-year expansion facing headwinds abroad, from war in the Mideast to slowing growth in Europe and China. Holding bonds on the Fed’s balance sheet limits the supply of securities trading on the public markets, which helps keep prices up and yields lower than they otherwise would be. That provides stimulus to the economy just as a cut in the Fed’s benchmark interest rate would, according to Michael Gapen, a senior U.S. economist for Barclays in New York and former Fed Board section chief.

“Preserving it will continue to support the economy,” Gapen said. “The Fed message is we think we’ve done enough to generate momentum and keep the economy on the right track. Now we’re going to wait and see how things go.” The Federal Open Market Committee plans to end its purchases of Treasuries and mortgage bonds at the next meeting Oct. 28-29, according to minutes of the last gathering. Chair Janet Yellen opened the door to keeping a multi-trillion-dollar portfolio for years, saying a decision on when to stop reinvesting maturing bonds depends on financial conditions and the economic outlook. Shrinking the balance sheet to normal historical levels “could take to the end of the decade,” Yellen said at her press conference last month. Fed quantitative easing has provided the Treasury market with a steady and consistent buyer, helping to keep yields lower than they otherwise would be. The central bank is now the largest holder of U.S. government securities.

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Don’t even try to tell me you could have made this up: “The surcharge stems from the EU changing the way it calculates gross national income to include more hidden elements such as prostitution and illegal drugs.”

EU Tells Britain To Pay Extra €2.1 Billion Because It Does Well (FT)

Britain has been told to pay an extra €2.1 billion to the EU budget within weeks on account of its relative prosperity, a hefty surcharge that will further add to David Cameron’s domestic woes over Europe. To compensate for its economy performing better than other EU countries since 1995, the UK will have to make a top-up payment on December 1 representing almost a fifth of the country’s net contribution last year. France, meanwhile, will receive a €1 billion rebate, according to Brussels calculations seen by the Financial Times. The one-off bill will infuriate eurosceptic MPs at an awkward moment for the prime minister, who is wrestling with strong anti-EU currents in British politics that are buffeting his party and prompting a rethink of the UK’s place in Europe. Mr Cameron is determined to challenge the additional fee and last night met with Mark Rutte, the Netherlands premier, to discuss the issue. His country is also being required to make a top-up payment, though it is smaller than the UK’s.

A Downing Street source said: “It’s not acceptable to just change the fees for previous years and demand them back at a moment’s notice.” The source added: “The European Commission was not expecting this money and does not need this money and we will work with other countries similarly affected to do all we can to challenge this.” The surcharge stems from the EU changing the way it calculates gross national income to include more hidden elements such as prostitution and illegal drugs. [..] The surcharge comes on top of the net UK contribution to the EU budget, which was £8.6 billion in 2013. Britain faces by far the biggest top-up payment: the preliminary figures show that the Netherlands pays an extra €642 million, while Germany receives a rebate of €779 million, France €1 billion and Poland €316 million.

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It’s a shame the Anglo press make this about Britain. Holland pays far more extra per capita (more expensive hookers?), but what’s really fun is that Greece has to pay more too, and Italy. Let’s give the EU all the room they need to majestically screw this up.

EU Agrees To Budget Talks After £1.7 Billion Cash Demand On UK (BBC)

EU finance finance ministers have agreed to David Cameron’s call for emergency talks after the UK was told it must pay an extra £1.7bn. Mr Cameron interrupted a meeting of EU leaders in Brussels to express dismay at the demand for the UK to pay more into the EU’s coffers on 1 December. He told Commission boss Jose Manuel Barroso he had no idea of the impact it would have, Downing Street said. It will add about a fifth to the UK’s annual net EU contribution of £8.6bn. There has been anger across the political spectrum in the UK at the EU’s demand for additional money, which comes just weeks before the vital Rochester and Strood by-election, where UKIP is trying to take the seat from the Conservatives. EU leaders discussed the issue for an hour in Brussels on Friday, with Mr Cameron due to give a press conference later. Mr Cameron told Mr Barroso, who steps down next month, that the problem was not just press or public opinion but was about the amount of money being demanded.

The surcharge follows an annual review of the economic performance of EU member states since 1995, which showed Britain has done better than previously thought. Elements of the black economy – such as drugs and prostitution – have also been included in the calculations for the first time. The prime minister will do everything he can to show he’s coming out fighting over the EU budget demand. He has buttonholed Commission President Barroso. He has called for an emergency meeting. EU leaders have pondered the problem for a full hour in their meeting. The PM is proud of getting down the EU budget limit in 2013. He says it proves he can get his way in Brussels. Handing over £1.7bn to the EU would sting at any time. Doing it a few days after a crunch by-election scrap with UKIP would be agony. This could still go David Cameron’s way. If he can persuade the EU to tear up the bill, he can come out smiling. If he fails it will hurt the Conservatives badly.

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Nice side fight.

Renzi Vs Barroso Over EU’s Budget Letter (FT)

If you read the EU’s budget rules, it appears to be a cut and dried affair: if the European Commission has concerns that a eurozone country’s budget is in “particularly serious non-compliance” with deficit or debt limits, it has to inform the government of its concerns within one week of the budget’s submission. Such contact is the first step towards sending the budget back entirely for revision. As the FT was the first to report this week, the Commission decided to notify five countries – Italy, France, Austria, Slovenia and Malta – that their budgets may be problematic on Wednesday. Helpfully, the Italian government posted the “strictly confidential” letter it received from the Commission’s economic chief, Jyrki Katainen, on its website today.

But at day one of the EU summit in Brussels, the letter – and Italy’s decision to post it – suddenly became the subject of a very public tit-for-tat between José Manuel Barroso, the outgoing Commission president, and Matteo Renzi, the Italian prime minster. Barroso fired the first shot at a pre-summit news conference, expressing surprise and annoyance that Renzi’s government had decided to make the letter public. For good measure, he took a pop at the Italian press, which in recent days has been reporting that Barroso was the one pushing for a hard line against Rome, and implying he was motivated by his desire to score political points back home in Portugal, where he has long been rumoured as a potential presidential candidate after leaving the Commission:

The first thing I will say is this: If you look at the Italian press, if you look at most of what is reported about what I’ve said or what the Commission has said, most of this news is absolutely false, surreal, having nothing to do with reality. And if they coincide with reality, I think it’s by chance.

Aside from his swipe at Italian newspapers, Barroso was clearly annoyed at the Italian government, saying Katainen’s letter was intended to be private correspondence to begin talks over trying to get Italy’s budget back in line with EU rules:

Regarding the letter from vice-president Katainen yesterday, sent to his Italian colleague, the decision to publish it on the website of the ministry of finance is a unilateral decision by the Italian government. The Commission was not in favour of the publication because we are continuing consultations with various governments. These are informal consultations and in some cases they are quite technical, and we think it’s better to have this kind of consultations in an atmosphere of trust. But the Italian government contacted the Vice President Katainen telling him that he would publish the letter and of course we do not object to the publication, it is their right, but again, this is not true it is the Commission which pressed the government to publish the letter. If we wanted to publish it, the Commission could publish the letter itself.

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Hot air in every sense of the word.

EU Agrees Target To Cut Greenhouse Gas Emissions by 40% in 2030 (FT)

The EU has set the pace for a global climate agreement in Paris next year by overcoming resistance from eastern member states and agreeing a landmark target to cut greenhouse gas emissions. The 28-member bloc has been so riven by divisions over environmental policy in recent months that Brussels risked losing its status as the global leader in the fight against climate change. In the days before an EU summit on Thursday, countries as diverse as Portugal and Poland appeared liable to veto a deal on setting a new target for reducing emissions by 2030. Talks dragged on into the early hours of Friday morning before European leaders finally agreed to a cut of at least 40% from 1990 levels. Environmentalists have slammed this goal as the bare minimum required for the EU to play its role in containing global warming, but diplomats argue that it was the toughest target that could win broad political support across Europe.

“We have sent a strong signal to other big economies and all other countries: we have done our homework, now we urge you to follow Europe’s example,” said Connie Hedegaard, the EU’s climate commissioner. Green groups condemned the deal as a political fudge. Greenpeace had pushed for a cut of 55%. “It’s a deal that puts dirty industry interests ahead of citizens and the planet,” said Brook Riley of Friends of the Earth. The EU said that its 40% target would be reviewed after the UN’s Paris conference next year where a global deal on cutting emissions is expected. Some European countries had been fearful that the EU would set itself too high a target, which the U.S. and China would not follow.

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This fight ain’t over.

German Lawmakers Rip ECB Over Corporate Bonds Report (Reuters)

Senior lawmakers from Chancellor Angela Merkel’s conservative party heaped criticism on the European Central Bank on Wednesday following a Reuters report that it was considering the purchase of corporate bonds to spur growth. The report on Tuesday, citing several sources familiar with the central bank’s thinking, said the ECB could decide as soon as December to go ahead with corporate bond buys on the secondary market, with a view to starting the purchases early next year. ECB officials confirmed on Wednesday that buying corporate bonds was an option for the bank but said no final decision had been taken on whether to go ahead. “The Governing Council has taken no such decision,” an ECB spokesman said. The move would widen out the private-sector asset-buying program that it began on Monday in the hopes of encouraging more lending to businesses in the faltering euro zone economy.

“With its purchase programs, the ECB is taking unforeseeable risks onto its balance sheet,” said Norbert Barthle, a veteran lawmaker for Merkel’s Christian Democrats (CDU) who sits on the Bundestag’s budget committee. The ECB should focus on its main target of price stability and refrain from more “dubious measures” to boost the economy, Barthle warned. Hans Michelbach of the Christian Social Union (CSU), the Bavarian sister party of the CDU, said Draghi was endangering the stability of financial markets with his moves. “The ECB is turning itself into a bad bank for the euro zone’s crisis countries at an increasingly rapid pace,” said the senior conservative member of the finance committee. “The ECB needs a clear change of course.”

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It’ll be fun Sunday at noon EU time. Draft was just leaked that says 25 banks will fail. Numbers get bigger.

ECB Tries for Third Time Lucky in European Stress Tests (Bloomberg)

For the European Central Bank, success as the euro area’s financial supervisor may begin this weekend with a few failures. At noon in Frankfurt on Oct. 26, investors will learn which of the currency bloc’s 130 biggest banks fell short in the ECB’s year-long examination of their asset strength and ability to withstand economic turbulence. After two previous stress tests run by the European Banking Authority didn’t reveal problems at lenders that later failed, the ECB has staked its reputation on getting this exercise right. The two-part audit known as the Comprehensive Assessment forms one pillar of the ECB’s effort to move the euro zone forward after half a decade of financial turmoil by disclosing the extent of the damage. Since the beginning, ECB President Mario Draghi has said banks need to fail to prove the losses of the past have been dealt with.

“There will be enough for policy makers to declare victory, but the full picture will take longer to emerge because this thing is so complicated,” said Nicolas Veron, a fellow at the Bruegel research group in Brussels. “What you don’t want is to sound the all clear and then three to six months later, there’s an unpleasant surprise.” Bank-level data and an aggregate report on the Asset-Quality Review and stress test will be released on the ECB’s website at 12 p.m. Frankfurt time. The ECB stress test was conducted in tandem with the London-based EBA, which will release its results at the same time. The EBA’s sample largely overlaps the ECB’s, though it also contains banks from outside the euro area.

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The $650 billion is what people can’t afford to pay, but have to anyway.

World Faces $650 Billion Housing Problem (CNBC)

A staggering 330 million urban households around the world live in substandard housing or are so financially stretched by housing costs they forgo other basic needs like food and health care, according to McKinsey. Urban dwellers globally fork out $650 billion more per year on housing than they can afford, or around 1% of world gross domestic product (GDP), McKinsey estimated in a new report, highlighting the enormity of the affordability gap. More than two-thirds of the gap is concentrated in 100 large cities. In several low-income cities such as Lagos and Mumbai, the affordable housing gap can amount to as much as 10% of area GDP. McKinsey’s study looked at the cost of housing as a portion of household income in cities around the world to determine where urban residents were most under financial pressure For this study, it defined affordability as housing costs that consume no more than 30% of household income.

Based on current trends in urban migration and income growth, the affordable housing gap would grow to 440 million, or 1.6 billion people, within a decade. This trend will exact an enormous toll on society, the report warned. “For families lacking decent affordable housing, health outcomes are poorer, children do less well in school and tend to drop out earlier, unemployment and under-employment rates are higher, and financial inclusion is lower,” it said. McKinsey estimates that an investment of $9-$11 trillion would be required to replace today’s substandard housing and build additional units needed by 2025. Including land, the total cost could be $16 trillion. The belief that major cities no longer have land for affordable housing is a myth, it added. Even in cities such as New York there are many parcels of under-utilized or idle land—including government-owned land—that could support successful housing development, the report said.

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Bet you it’s already much lower than reported.

China’s Economic Growth May Slow Further, Data Show (MarketWatch)

September data suggest China’s economic growth may well slow further, the Conference Board said late Thursday, citing its Leading Economic Index. The index rose 0.9% in September, after a 0.7% gain in August, but a 1.3% rise in July, the association said. “The six-month growth rate of the Leading Economic Index has eased steadily throughout the third quarter, indicating increased downside risks to economic growth in the months ahead,” Conference Board China Center resident economist Andrew Polk said. “While activity in the property sector stabilized a bit, sharp weakening in demand for both bank credit and real estate point to sluggish private investment in the last quarter of 2014. Recent developments, therefore, confirm our long-term view of a soft fall of the economy,” Polk said.

Read more …

It’s the amounts of debt that are the problem, but Beijing wants to solve it by changing the kinds of debt.

China Local Debt Fix Hangs On Beijing’s Wishful Thinking (Reuters)

China is asserting control over once-chaotic local government financing by banning the use of opaque funding vehicles, but filling the gap with a huge expansion of the fledgling municipal bond market will raise a whole new set of problems. Chastened by promiscuous local investment in response to the 2008 global financial crisis, Beijing wants to restore discipline as part of its wider economic reforms, but the muni bond market, be deviled by price distortions and inadequate disclosure standards, is no quick fix. China’s State Council, the country’s cabinet-level political institution, prohibited local government financial vehicles (LGFVs) from raising funds on behalf of local authorities in a decree issued earlier this month. On Tuesday sources told Reuters the Ministry of Finance had circulated a draft document saying localities would be allowed to issue new muni bonds to pay off old debt.

“It’s not an isolated move – rather it’s part of a systematic approach to tackle the local debt issue,” said Bank of America-Merrill Lynch China strategist Tracy Tian. If the draft becomes law and localities are allowed to roll over a substantial portion of their estimated 18 trillion yuan ($3 trillion) of outstanding debt, the muni bond market would have to expand dramatically from the quota of just 109.2 billion yuan that Beijing has set for 2014. “We estimate that as much as 1 trillion yuan of new bonds may be issued to fill the financing gap in 2015,” wrote UBS economist Tao Wang in a research note this month. The market appears ill-equipped for such explosive growth. It got off to a dubious start in 2014, with impoverished and debt-ridden local governments able to issue bonds at yields below even the central government’s sovereign yield.

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It’ll be fine till panic selling starts. Then it will no longer be so fine.

China Home-Price Drop Spreads as Easing Fails to Halt Slide (Bloomberg)

China’s new-home prices fell in all but one city monitored by the government last month as the easing of property curbs failed to stem a market downturn amid tight credit. Prices dropped in 69 of the 70 cities in September from August, the National Bureau of Statistics said in a statement today, the most since January 2011 when the government changed the way it compiles the data. They fell in 68 cities in August. The central bank on Sept. 30 eased mortgage rules for homebuyers that have paid off existing loans, reversing course after a four-year campaign to contain home prices as Premier Li Keqiang seeks to prevent economic growth from drifting too far below the government’s 7.5% annual target. Home sales slumped 11% in the first nine months of this year.

“Prices will continue the downtrend for the rest of the year,” said Donald Yu, Shenzhen-based analyst at Guotai Junan Securities Co. “If sales in the fourth quarter fail to clear inventories as developers want, more price cuts are still likely in the first quarter of next year.” All but five of the 46 cities that imposed limits on home ownership since 2010 have removed or relaxed such restrictions amid the property downturn that has dented local revenues from land sales.

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Bit of ISIS oil with that, perhaps?

China Scores Cheap Oil 14,000 Miles Away as Glut Deepens (Bloomberg)

China is finding oil supplies 14,000 miles away, aided by the global rout in prices that’s left producers vying for new markets. PetroChina Co. said it bought Colombian crude for a northern refinery for the first time because it was good value. The transaction underscores how the world’s second-biggest oil consumer is benefiting as producers from the Middle East to Latin America vie for customers in Asia. Brent oil futures tumbled to the lowest level since 2010 as the highest U.S. output in almost 30 years cuts its consumption of foreign crude. OPEC’s biggest producers are reducing prices to defend their market share. China consumed the second-biggest amount of crude on record in September and imported the largest volume ever for that time of year, customs data show.

“China will just look to get the cheapest crude possible from whatever source it can,” Virendra Chauhan, a London-based analyst at Energy Aspects Ltd., said by phone Oct. 21. “I expect a lot more volumes flowing to China in particular.” The country’s crude imports rose 7.8 percent to 27.6 million tons, or 6.74 million barrels a day, in September from last year, the data show. The number of supertankers sailing toward China’s ports surged to a nine-month high last week, according to IHS Fairplay vessel-tracking signals compiled by Bloomberg as of Oct. 17.

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Lots of curious views and opinions on Saudi oil policy.

Saudi Arabia’s Risky Oil-Price Play (BW)

With the U.S. on track to become the world’s largest oil producer by next year, it’s become popular in Washington and on Wall Street to call America the new Saudi Arabia. Yet the real Saudi Arabia hasn’t relinquished its role as the producer with the most influence over oil prices. Its reserves of 266 billion barrels, ability to pump as many as 12.5 million barrels a day, and, most important, its low cost of extracting crude still make it a formidable rival to the U.S., whose shale wells are hard to exploit. “Saudi Arabia is the only one in the position of putting more oil on the market when they want to and cutting production when they want to,” says Edward Chow, a senior fellow at the Center for Strategic and International Studies in Washington. The Saudis are also the most powerful member of OPEC, the 12-member group that’s increasingly facing off against Russian, U.S., and Canadian production.

In September, despite a global oil glut developing largely because of China’s slowdown and the rapid increase in U.S. production, the Saudis boosted production half a percent, to 9.6 million barrels a day, lifting OPEC’s combined production to an 11-month high of almost 31 million barrels a day. Then, on Oct. 1, Saudi Arabia lowered prices by increasing the discount it offered its major Asian customers. The kingdom might just as easily have cut production to defend higher prices. Instead, the Saudis sent a strong signal that they were determined to protect their market share, especially in India and China, against Russian, Latin American, and African rivals. Iraq and Iran followed Saudi Arabia’s example. The news set off a bear market in oil: Brent crude, the international benchmark, fell from $115.71 a barrel on June 19 to $82.60 a barrel on Oct. 16, the lowest price in almost four years, as investors realized that the big oil states were not going to cut production.

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Better get ready to make that deal.

Eastern Europe Shivers Thinking About Winter Without Gas (Bloomberg)

As winter approaches, former Soviet satellite nations from Poland to Bulgaria are watching Russia and Ukraine’s stalled gas negotiations with growing trepidation. The lack of discernible progress is sending a collective shiver down the spine of Eastern Europe, which retains vivid memories of Russian energy cuts during unusually cold winters in 2006 and 2009. The ensuing shortages led to shuttered factories and a return to wood for heating and cooking in rural areas. Despite the two episodes, little has been done to diversify supplies within a region that remains highly dependent on energy delivery systems dating back to the Soviet era. “Parts of eastern Europe are still quite vulnerable this winter,” said Emily Stromquist, a Eurasia analyst in London. “The problem is that until recently the relations with Russia have generally been good, so perhaps there was no feeling of urgency to build quickly.”

If Moscow and Kiev don’t reach a compromise before winter and OAO Gazprom fails to restart supplies to its western neighbor, Ukraine may resort to siphoning off gas carried through its territory. As in 2009, that could prompt Russia to cut transit through Ukraine altogether, leaving parts of eastern Europe exposed to severe shortages. Poland, Hungary and especially the Balkan peninsula would be most affected. Connected to the old Soviet pipeline system that runs through Ukraine and Moldova, the Balkan countries rely on Russia for close to 100% of their needs. Moreover, they’re poorly connected with their neighbors and their underground storage isn’t sufficient to cover demand for the entire winter.

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German salaries: €48.40 ($61.27) per hour on average. This compares to €4.81 in Romania and €25.63 in the U.S.

Germany Inc. Scrutinized for Using Labor Like Paper Clips (Bloomberg)

Daimler AG is among German companies that have found a way to cut personnel costs in the high-wage country: buy labor like it’s paper clips. By purchasing certain tasks such as logistics services from subcontractors, businesses can legally keep these workers off the payroll and outside of wage agreements with unions. That’s led to growing ranks of contract workers who help boost profit at German companies by lowering labor costs. The downside is abuse of the system, which leaves some workers unprotected and even unpaid. That’s caught the attention of Labor Minister Andrea Nahles, who’s promising a crackdown, and forcing Germany Inc. to defend the practice. “We can’t pay everyone the high wage” in union deals, Wilfried Porth, Daimler’s personnel chief, said in an e-mail to Bloomberg News. “Our cost situation has deteriorated compared to the competition. We can’t afford that.”

Proponents argue hiring subcontractors to provide services keeps Germany, where labor costs in the auto industry are the highest in the world, competitive. Opponents say the widespread practice in industries that include shipbuilding, retail, logistics and construction undermines the German labor model of a partnership between employers and workers. Every third employee in the German auto industry is working either for a subcontractor or as a temporary laborer, according to a poll by IG Metall union published last November. Doing so has helped keep in check already high personnel costs, which amount to €48.40 ($61.27) per hour on average, according to the Berlin-based VDA auto industry group. This compares to €4.81 in Romania and €25.63 in the U.S.

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What a lovely example of a screwed up society. For all sorts of reasons.

Alabama Man Gets $1,000 In Police Settlement, His Lawyers Get $459,000 (Reuters)

An Alabama man who sued over being hit and kicked by police after leading them on a high-speed chase will get $1,000 in a settlement with the city of Birmingham, while his attorneys will take in $459,000, officials said Wednesday. The incident gained public attention with the release of a 2008 video of police officers punching and kicking Anthony Warren as he lay on the ground after leading them on a roughly 20-minute high-speed chase. Warren is serving a 20-year sentence for attempted murder stemming from his running over a police officer during the chase, in which he also hit a school bus and a patrol car before crashing and being ejected from his vehicle.

Under the terms of the settlement of Warren’s 2009 federal suit, in which he accused five Birmingham police officers of excessive force, his attorneys will receive $100,000 for expenses and $359,000 in fees, said Michael Choy, an attorney representing the officers on behalf of the city. The agreement was reached last month and approved on Tuesday by the Birmingham City Council. The city settled to avoid further litigation and the risk of a higher payout, Choy said.

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Riding the subway?!

Doctor With Ebola In Manhattan Hospital After Return From Guinea (Reuters)

A doctor who worked in West Africa with Ebola patients was in an isolation unit in New York on Friday after testing positive for the deadly virus, becoming the fourth person diagnosed with the disease in the United States and the first in its largest city. The worst Ebola outbreak on record has killed at least 4,900 people and perhaps as many as 15,000, mostly in Liberia, Sierra Leone and Guinea, according to World Health Organization figures. Only four Ebola cases have been diagnosed so far in the United States: Thomas Eric Duncan, who died on Oct. 8 at Texas Health Presbyterian Hospital in Dallas, two nurses who treated him there and the latest case, Dr. Craig Spencer. Spencer, 33, who worked for Doctors Without Borders, was taken to Bellevue Hospital on Thursday, six days after returning from Guinea, renewing public jitters about transmission of the disease in the United States and rattling financial markets. Three people who had close contact with Spencer were quarantined for observation – one of them, his fiancée, at the same hospital – but all were still healthy, officials said.

Mayor Bill de Blasio and Governor Andrew Cuomo sought to reassure New Yorkers they were safe, even though Spencer had ridden subways, taken a taxi and visited a bowling alley between his return from Guinea and the onset of his symptoms. “There is no reason for New Yorkers to be alarmed,” de Blasio said at a news conference at Bellevue. “Being on the same subway car or living near someone with Ebola does not in itself put someone at risk.” Health officials emphasized that the virus is not airborne but is spread only through direct contact with bodily fluids from an infected person who is showing symptoms. After taking his own temperature twice daily since his return, Spencer reported running a fever and experiencing gastrointestinal symptoms for the first time early on Thursday. He was then taken from his Manhattan apartment to Bellevue by a special team wearing protective gear, city officials said. He was not feeling sick and would not have been contagious before Thursday morning, city Health Commissioner Mary Travis Bassett said.

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“Others at risk are Benin, Cameroon, Central African Republic, Democratic Republic of Congo, Gambia, Ghana, Mauritania, Nigeria, South Sudan, and Togo.” Add Kenya.

Mali Becomes Sixth African Country To Report Ebola Case (Bloomberg)

Mali became the sixth West African country to report a case of Ebola, opening a new front in the international effort to prevent the outbreak of the deadly viral infection from spreading further. A 2-year-old girl who traveled from Kissidougou, Guinea, with her family to Mali was admitted to a hospital in Kayes yesterday, Malian President Ibrahim Boubacar Keita’s office said in a statement. Test results confirmed she had Ebola. Ebola has infected almost 10,000 people this year, mostly in Sierra Leone, Guinea and Liberia, killing about 4,900. Senegal and Nigeria, which also had cases, are now free of the virus. Disease trackers now must trace everyone the girl came in contact with and monitor them for signs of infection. Mali was one of four countries the World Health Organization said this month was at highest risk of Ebola among a group of African nations the agency said needed to be prepared for cases.

A WHO-led team has been in Mali this week helping to identify gaps in the country’s defenses. “The big issue is getting the response up in those countries so that you can prevent a travel-related case from becoming an outbreak,” Keiji Fukuda, the WHO’s assistant director-general for health security, said in a phone interview today. “We’re working with Mali to try to contain it in the same way that it was contained in Senegal and in Nigeria.” Mali, a nation of about 16.5 million people to the northeast of Guinea, is Africa’s third-largest gold producer. Ivory Coast, Senegal and Guinea Bissau also are at the top of the list of countries that need to be prepared for Ebola cases, the WHO said Oct. 10. Others at risk are Benin, Cameroon, Central African Republic, Democratic Republic of Congo, Gambia, Ghana, Mauritania, Nigeria, South Sudan, and Togo.

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Oct 222014
 
 October 22, 2014  Posted by at 10:47 am Finance Tagged with: , , , , , , , , , , ,  


Russell Lee Migrant family in trailer home near Edinburg, Texas Feb 1939

At Least 11 Banks To Fail European Stress Tests (Reuters)
All the Markets Need Is $200 Billion a Quarter From the Central Bankers (BW)
What Would It Take To Trigger The ‘Fed Put’? (MarketWatch)
Currency Wars Evolve With Goal of Avoiding, Exporting Deflation (Bloomberg)
Are Belgium, Finland And France The ‘New Periphery’ In Europe? (CNBC)
EU To Warn France And Italy On Budget Plans (FT)
US Shale Producers Cramming Wells in Risky Push to Extend Boom (Bloomberg)
Oil at $80 a Barrel Muffles Forecasts for US Shale Boom (Bloomberg)
How Wall Street Is Killing Big Oil (Oilprice.com)
Investors Pile Into Oil Funds at Fastest Pace in 2 Years (Bloomberg)
Markets Need To Accept Low Growth As ‘New Normal’ In China (Saxo)
China to Let World in on Gauge Showing State of Economy (Bloomberg)
UK Deficit Up 10% From Last Year, National Debt Rises £100 Billion (Guardian)
The Moral Economy Of Debt (Robert Skidelsky)
Fears Over Gas Supply As Russia-Ukraine Talks Fail (Reuters)
New York Fed Caught Sight of London Whale and Let Him Go (Bloomberg)
World’s Top-Ranked Pension Funds Probed for Hedge Fund Use (Bloomberg)
How To Start A War And Lose An Empire (Dmitry Orlov)
“Omenland” (James Howard Kunstler)
WHO: Ebola Serum In Weeks And Vaccine Tests In Africa By January (Guardian)

This could make a whole lot of people really nervous.

At Least 11 Banks To Fail European Stress Tests (Reuters)

At least 11 banks from six European countries are set to fail a region-wide financial health check this weekend, Spanish news agency Efe reported, citing several unidentified financial sources. The results of the stress tests on 130 banks by the European Central Bank are due to be unveiled on Sunday. Four banks in Greece, three Italian lenders and two Austrian ones are among those that preliminary data showed had failed the tests, Efe said. It gave no details of how much capital the banks would have to raise and said this could yet change as numbers could be revised at the last minute.

The euro fell on the report. Efe also identified a Cypriot bank and possibly one from Belgium and one from Portugal. The exercise is designed to see how banks would cope under various economic scenarios, including adverse ones, and is likely to reveal capital shortfalls at some entities. The ECB is carrying out the checks of how the biggest euro zone banks have valued their assets, and whether they have enough capital to weather another economic crash, before taking over as their supervisor on Nov. 4.

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Anyone still realize how insane that is, or are our brains completely numb and dumbed down by now?

All the Markets Need Is $200 Billion a Quarter From the Central Bankers (BW)

The central-bank put lives on. Policy makers deny its existence, yet investors still reckon that whenever stocks and other risk assets take a tumble, the authorities will be there with calming words or economic stimulus to ensure the losses are limited. A put option gives investors the right to sell their asset at a set price so the theory goes that central banks will ultimately provide a floor for falling asset markets to ensure they don’t take economies down with them. Last week as markets swooned again, it was St. Louis Federal Reserve President James Bullard and Bank of England Chief Economist Andrew Haldane who did the trick.

Bullard said the Fed should consider delaying the end of its bond-purchase program to halt a decline in inflation expectations, while Haldane said he’s less likely to vote for a U.K. rate increase than three months ago. “These comments left markets with the impression that the ‘central-bank put’ is still in place,” Morgan Stanley currency strategists led by Hans Redeker told clients in a report yesterday. Matt King, global head of credit strategy at Citigroup, and colleagues have put a price on how much liquidity central banks need to provide each quarter to stop markets from sliding. By estimating that zero stimulus would be consistent with a 10% quarterly drop in equities, they calculate it takes around $200 billion from central banks each quarter to keep markets from selling off.

With the Fed and counterparts peeling back their net liquidity injections from almost $1 trillion in 2012 toward that magic marker, King’s team said “a negative reaction in markets was long overdue.” “We think the markets’ weakness owes more to an almost belated reaction to a temporary lull in central bank stimulus than it does to any reduction in the effect of that stimulus in propping up asset prices,” they said in an Oct. 17 report to clients. Bank of America Merrill Lynch strategists said in a report today that another 10% decline in U.S. stocks might spark speculation of a fourth round of quantitative easing from the Fed. That would mimic how the Fed acted following equity declines of 11% in 2010 and 16% in 2011.

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It would seem that all it takes is for other central bankers failing to put in those $200 billion four times a year. But that still pre-supposes that the Fed’s first priority is to support the markets. Whereas I suggest it’s to support the big banks. And that’s not one and the same thing.

What Would It Take To Trigger The ‘Fed Put’? (MarketWatch)

Janet Yellen runs the Federal Reserve now, but that doesn’t mean that notions about what used to be known as the “Bernanke put,” named after her predecessor, Ben Bernanke, have expired. So far, there’s been little talk of a “Yellen put,” but the U.S. Federal Reserve still remains ready to bail out the markets if things get hairy, Bank of America Merrill Lynch analysts say. Actual financial puts give the holder the right but not the obligation to sell the underlying security at a set price, known as the strike price. Puts named after central bankers are figurative. They’re shorthand for the idea the Fed will rush in to rescue tanking markets, a notion denied by Alan Greenspan and Bernanke, but reinforced by the Fed’s aggressive actions following big market declines, most recently, during the 2008 crisis. The BofA Merrill analysts, in a Tuesday note, say recent market volatility shows that investors are now losing faith in what traders had dubbed the “Draghi put,” named after European Central Bank President Mario Draghi.

Investors are growing less certain the ECB will step in with a program of full-fledged quantitative easing of its own stave off deflationary pressures in the eurozone. “If this ECB option turns out to be worthless, the key question becomes how much protection does the Fed provide? In other words, approximately how big can an equity correction become before the Fed steps in again?” they write. They note that in 2010 and 2011, the Fed stepped in following equity corrections of 11% and 16%, respectively. Based on their assessment of last week’s market action, the analysts say it appears it would take a further 10% decline from the recent lows to trigger anticipation of what might be dubbed QE 4, or the fourth iteration of the U.S. central bank’s monetary stimulus measures.

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Everywhere but America.

Currency Wars Evolve With Goal of Avoiding, Exporting Deflation (Bloomberg)

Currency wars are back, though this time the goal is to steal inflation, not growth. Brazil Finance Minister Guido Mantega popularized the term “currency war” in 2010 to describe policies employed at the time by major central banks to boost the competitiveness of their economies through weaker currencies. Now, many see lower exchange rates as a way to avoid crippling deflation. Weak price growth is stifling economies from the euro region to Israel and Japan. Eight of the 10 currencies with the biggest forecasted declines through 2015 are from nations that are either in deflation or pursuing policies that weaken their exchange rates, data compiled by Bloomberg show.

“This beggar-thy-neighbor policy is not about rebalancing, not about growth,” David Bloom, the global head of currency strategy at HSBC which does business in 74 countries and territories, said in an Oct. 17 interview. “This is about deflation, exporting your deflationary problems to someone else.” Bloom puts it in these terms because, when one jurisdiction weakens its exchange rate, another’s gets stronger, making imported goods cheaper. Deflation is a both a consequence of, and contributor to, the global economic slowdown that’s pushing the euro region closer to recession and reducing demand for exports from countries such as China and New Zealand.

[..] Disinflationary pressures in the euro area are starting to spread to its neighbors and biggest trading partners. The currencies of Switzerland, Hungary, Denmark, the Czech Republic and Sweden are forecast to fall from 4% to more than 6% by the end of next year, estimates compiled by Bloomberg show, partly due to policy makers’ actions to stoke prices. “Deflation is spilling over to central and eastern Europe,” Simon Quijano-Evans, head of emerging-markets at Commerzbank, said yesterday by phone. “Weaker exchange rates will help” them tackle the issue, he said. Hungary and Switzerland entered deflation in the past two months, while Swedish central-bank Deputy Governor Per Jansson last week blamed his country’s falling prices partly on rate cuts the ECB used to boost its own inflation. A policy response may be necessary, he warned.

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Interesting development. Forgot to ‘reform’ the core.

Are Belgium, Finland And France The ‘New Periphery’ In Europe? (CNBC)

The improvement in competitiveness in southern euro zone nations has left some core countries such as Belgium and France lagging behind, posing the risk that they could become the “new periphery,” a new report warns. “A handful of core euro zone economies have registered pretty sharp increases in their unit labor costs (ULCs) over the past four years,” according to a report by Capital Economics published Monday. This was happening at the same time as those in many peripheral countries had been falling outright, it said. “While this process may help the peripheral economies regain relative competitiveness more rapidly, some core economies, including Belgium, now look at risk of falling behind, threatening to push the euro-zone’s periphery north,” Roger Bootle and Jonathan Loynes, managing director and chief European economist at Capital Economics respectively, said in their report. The report analysed changes in competitiveness in the euro zone by looking at unit labor costs (the average cost of labor to produce one unit of output) across the region.

On this metric it found that the southern peripheral economies comprised of Spain, Italy, Ireland and Portugal “have succeeded in cutting costs relative to the euro zone as a whole over the past few years.” However, in a handful of core economies, notably Belgium, Finland and France, ULCs have continued to rise, both in absolute terms and relative to the euro zone average. “In Belgium in particular, ULCs have risen sharply and are now the highest in the euro-zone. Belgium’s high costs already appear to be harming both investment and export growth, traditionally strong drivers of growth in the economy. And its current account has fallen into a sustained deficit for the first time in 30 years.” “All this suggests that Belgium’s recovery is unlikely to gather further pace [and] in contrast to governments in the south, we doubt that Belgian politicians will be prepared (or forced) to tackle these issues any time soon.” they added.

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Rome and Paris will stare them down.

EU To Warn France And Italy On Budget Plans (FT)

The European Commission will on Wednesday tell five euro zone countries, including France and Italy, that their budget plans risk breaching EU rules, say three officials briefed on the decision. The move comes a week after all euro zone countries submitted their budgets to Brussels for review as part of the EU’s new fiscal rules. Officially a request for more information, the commission’s move is the first step in a politically charged process of rejecting a euro zone nation’s budget and sending it back to national capitals for revision. A decision on rejection must be made by the end of the month. In addition to France and Italy, EU officials said similar requests will be sent to Austria, Slovenia and Malta. Simon O’Connor, a spokesman for Jyrki Katainen, the EU’s economic commissioner who is in charge of the evaluations, would not confirm the move. But he said it would not mean that Brussels had definitively decided to reject a country’s budget plan.

“Technical consultations with member states on the draft budget plans do not prejudge the outcome of our assessment,” O’Connor said. A formal request for revisions to the French and Italian budgets could prove politically explosive. Both governments are fending off rising anti-EU sentiment. Under the EU’s new budget rules, adopted at the height of the euro zone crisis, the commission is required to send a budget back to its government within two weeks of submission if it finds “particularly serious non-compliance” with EU budget rules. If the commission is contemplating such a move, the rules require it to notify the government in question within one week. Wednesday is the deadline for the one-week notification. EU officials said France and Italy may contravene different parts of the budget rules. France is required to get its deficit back under the EU ceiling of 3% of economic output by next year but its plan ignored that commitment, projecting a deficit of 4.3% of gross domestic product.

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Right. We all know that by sticking two straws in a glass of soda, you get out twice as much as with one. And sure, a shale play is not exactly like a glass of water, but still close enough. I think this is not about getting out more, but about getting the same amount out faster. Doesn’t sound like a terrible solid business model, but it’s not at all surprising either, given how the shale industry operates.

US Shale Producers Cramming Wells in Risky Push to Extend Boom (Bloomberg)

U.S. shale producers are cramming more wells into the juiciest spots of their oilfields in a move that may help keep the drilling boom going as prices plunge. The technique known as downspacing aims to pull more oil at less cost from each field, allowing companies to boost profit, attract more investment and arrange needed loans to continue drilling. Energy companies see closely-packed wells as their best chance to add billions more barrels of oil to U.S. production that’s already the highest in a quarter century. “We would be dealing with more than a decade of inventory,” said Manuj Nikhanj, co-head of energy research for ITG Investment Research in Calgary. “If you can go twice as tight, the multiplication effect is massive.”

To make downspacing work, the industry must first solve a problem that for decades has required producers to carefully distance their wells. Crowded wells may steal crude from each other without raising total production enough to make the extra drilling worthwhile. Too much of that cannibalization could propel the U.S. production revolution into a faster downturn. In the past, most wells were drilled vertically into conventional reservoirs, which act more like pools of oil or gas. Companies learned quickly that packing wells too closely together just drains the reservoirs faster without appreciably increasing production, like two straws in the same milkshake. Shale rock is different, acting more like an oil-soaked sponge.

Drilling sideways through the layers of shale taps more of the resource, while fracking is needed to crack the rock to allow oil and gas to flow more freely into the well. So far, early results from downspacing experiments by a handful of companies have been mixed. It’s “the billion-dollar question,” said Wood Mackenzie’s Jonathan Garrett, “Is downspacing allowing access to new resources, or is it drawing down the existing resources faster?” An analysis of a group of wells on the same lease in La Salle County, in the heart of Texas’s booming Eagle Ford formation, showed that closer spacing reduced the rate of return for drilling to 23% from a high of 62% for wells spaced further apart, according to a paper published in April by Society of Petroleum Engineers.

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A sordid tale indeed.

Oil at $80 a Barrel Muffles Forecasts for US Shale Boom (Bloomberg)

The bear market in oil has analysts reassessing the U.S. shale boom after five years of historic growth. The U.S. benchmark price dropped to $79.78 a barrel on Oct. 16, the lowest since June 2012. At that level, one-third of U.S. shale oil production would be uneconomic, analysts for New York-based Sanford Bernstein said in a report yesterday. Drillers would add fewer barrels to domestic output than the previous year for the first time since 2010, according to Macquarie, ITG Investment and PKVerleger. Horizontal drilling through shale accounts for as much as 55% of U.S. production and just about all the growth, according to Bloomberg Intelligence. The nternational Energy Agency predicted in November that the U.S. would pass Russia and Saudi Arabia to become the biggest producer in the world by 2015. Though some forecasts show oil rebounding or stabilizing, any slower increase in U.S. output would shake perceptions for the global market, said Vikas Dwivedi, an oil and gas economist in Houston for Sydney-based Macquarie.

“It would reshape the way everybody would think about oil,” Dwivedi said. Daily domestic production added a record 944,000 barrels last year and reached a 29-year high of 8.95 million barrels this month, according to the Energy Information Administration, the U.S. Department of Energy’s statistical arm. Output, much less growth, is difficult to maintain because shale wells deplete faster than conventional production. Oil production from shale drilling, which bores horizontally through hard rock, declines more than 80% in four years, more than three times faster than conventional, vertical wells, according to the IEA. New wells have to generate about 1.8 million barrels a day each year to keep production steady, Dwivedi said. At $80 a barrel, output would grow by 5%, down from a previous forecast of 12%, according to New York-based ITG. At $75 a barrel, growth would fall 56% to about 500,000 barrels a day, Dwivedi said. Closer to $70 a barrel, the growth rate would drop to zero, he said.

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why

This has been going on for a number of years. Exxon will go the way of IBM. Or maybe Rosneft can do a hostile take-over. That would be so funny.

How Wall Street Is Killing Big Oil (Oilprice.com)

Lee Raymond, the famously pugnacious oilman who led ExxonMobil between 1999 and 2005, liked to tell Wall Street analysts that covering the company would be boring. “You’ll just have to live with outstanding, consistent financial and operating performance,” he once boasted. For generations, Exxon and its Big Oil brethren, including Chevron, ConocoPhilipps, BP, Royal Dutch Shell and Total, dominated the global energy landscape, raking in enormous profits and delivering fat dividends to shareholders. Big Oil has long been an investor darling. Those days are over. Once reliable market beaters, Big Oil shares are lagging: Over the last five years, when the S&P 500 rose more than 80%, shares of Exxon and Shell rose just over 30%. The underperformance reflects oil majors’ inability to maintain steady cash flows and increase production in a world where much of the easy oil has already been found and project costs are rapidly escalating.

Last year, Exxon, Chevron and Shell failed to increase oil and gas production despite having spent US$500 billion over the previous five years, $120 billion in 2013 alone. Under pressure from investors, the world’s largest oil companies are now forced to cut capital expenditure and sell assets to boost cash flows. Big Oil is, in short, heading towards liquidation. And this process has set in motion a tectonic shift in the global energy balance of power away from western international oil companies, or IOCs, and towards state-owned national oil companies, NOCs, in emerging markets. Not only do the NOCs – companies like Saudi Aramco; Russia’s Gazprom and Rosneft; China’s CNOOC, CNPC and Sinopec; India’s ONGC; Venezuela’s PDVSA; and Brazil’s Petrobras – control approximately 90% of the world’s known petroleum reserves, they are also immune to the market pressures constraining Big Oil.

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Betting that the Saudi’s will blink. Hey, it’s a casino out there.

Investors Pile Into Oil Funds at Fastest Pace in 2 Years (Bloomberg)

Investors are putting money into funds that track oil prices at the fastest rate in two years, betting that crude will rebound from a bear market. The four biggest oil exchange-traded products listed in the U.S. have received a combined $334 million so far this month, the most since October 2012, according to data compiled by Bloomberg. Shares outstanding of the funds, including the United States Oil Fund (DBO) and ProShares Ultra Bloomberg Crude Oil, rose to 55 million yesterday, a nine-month high. “There are investors who love to catch a falling knife,” said Dave Nadig, chief investment officer of San Francisco-based ETF.com. “It’s pretty easy to look at what’s been going on in oil and say ‘well, it has to bottom out somewhere.’ There are plenty of investors out there who still believe that the long-term trend of oil has to be $100.” Money has flowed into the funds as West Texas Intermediate and Brent crudes, the benchmarks for U.S. and global oil trading, each plunged more than 20% from their June highs, meeting a common definition of a bear market.

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Wonder what the real number is at this point in time for China, the actual growth. Even 4% feels high.

Markets Need To Accept Low Growth As ‘New Normal’ In China (Saxo)

Pauline Loong, Managing Director of Asia-analytica, gives us her assessment of the latest Chinese GDP figures: “The worst quarterly GDP performance in almost six years has raised hopes of a bolder policy response from Beijing. But more aggressive measures in the coming months might still not provide the hoped-for catalyst on stock prices or deliver the boost needed for a return to market-moving growth rates.” Pauline says we need to “be realistic” about China’s GDP and get used to lower numbers. For example 6.9% could be the “new normal” next year. China’s official GDP target for 2014 remains 7.5%, a number which looks increasingly out of reach. In response, Beijing has been “micro managing” stimulus, in Pauline’s view, going from sector to sector and even telling banks what size of business to lend to. Pauline Loong warns that China’s gear change from export driven economy to consumer driven market will take longer than most may imagine, it’s worth bearing in mind that Chinese GDP per capita is only just above Iraq in global rankings.

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200 million migrant workers are missing from the official stats. That’s considerably more than the entire active US workforce. Remember, from the article above, that “Chinese GDP per capita is only just above Iraq in global rankings.”

China to Let World in on Gauge Showing State of Economy (Bloomberg)

Chinese Premier Li Keqiang has an insider’s knowledge on the strength of the world’s second-largest economy that helps him determine when stimulus is needed. He’s about to share part of the secret. Li has said several times this year that slower growth is tolerable as long as enough jobs are created, often referring to a survey-based unemployment indicator that’s different from the registered urban jobless rate released every quarter. The published gauge excludes migrant workers who aren’t registered with local authorities, estimated at more than 200 million. The more comprehensive jobless rate will be released “very soon,” Sheng Laiyun, spokesman for the National Bureau of Statistics, said in Beijing yesterday. “The quality of the indicator, for now, looks very good. So, we are using it internally for policy decision-making references.”

China’s leaders have eschewed across-the-board stimulus and interest-rate cuts even as growth cooled to the weakest pace in more than five years last quarter, sticking to limited steps such as easing home-purchase controls. Having access to better barometers like the new unemployment measure would help economists estimate how deep a slowdown in gross domestic product the government will tolerate. “The lack of good unemployment data is the main reason why China still focuses so much on GDP,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “In fact, the government is more concerned about employment and inflation, and that’s why they refrained from big stimulus.” Releasing the methodology, breakdown and samples for the new jobless rate in addition to the headline number, as the U.S. does, would also greatly help researchers, Zhu said.

He called China’s current registered unemployment rate “untrustworthy and unusable.” Sporadic revelations made by the government about the broader unemployment gauge, which surveys 31 cities, show about a 1 percentage-point divergence from the official rate this year. The surveyed rate fell for four straight months to 5.05% in June, the National Development and Reform Commission said on its website in July. In contrast, the official registered rate was 4.08% in the second quarter, unchanged from the previous three months. The new surveyed rate adopts a methodology following the guidance of the International Labour Organization, according to Cai Fang, vice director of the government-backed Chinese Academy of Social Sciences. “All eyes will be on it,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “It’s going to be really important, like that of the U.S.”

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The UK government is a joke.

UK Deficit Up 10% From Last Year, National Debt Rises £100 Billion (Guardian)

The chancellor’s plan to cut the deficit this year looks increasingly unrealistic after another jump in government borrowing in September pushed the deficit 10% higher in the first half of the year, lessening the chances of a pre-election giveaway at December’s autumn statement. Borrowing last month was £11.8bn, £1.6bn higher than in September 2013 and more than £1bn higher than City economists had forecast, official figures showed, as the tax take failed to keep pace with government spending despite the recovery in the economy. Tax receipts have disappointed over recent months partly due to unexpectedly weak pay growth and the increase in the personal allowance to £10,000. In the first six months of the tax year, between April and September, borrowing was £58bn, up £5.4bn on the first half of last year, according to the Office for National Statistics. Economists said it was looking increasingly likely George Osborne would miss his target of reducing the deficit by more than £12bn in 2014-15.

Alan Clarke, economist at Scotiabank, said that if the current trend continued, borrowing would come in about £10bn above the target. Howard Archer, chief UK economist at IHS Global Insight, said: “The chancellor is looking ever more unlikely to meet his fiscal targets for 2014/15. This means that Mr Osborne faces an awkward fiscal backdrop as he announces his autumn statement in December as the May 2015 general election draws ever nearer. This gives him little scope to announce any major sweeteners.” The Office for Budget Responsibility, the Treasury’s official forecaster, cautioned that although there was uncertainty over government borrowing in the second half of the fiscal year, tax receipts for the full year were likely to come in below forecast. “Factors such as weaker-than-expected wage growth, lower-than-expected residential property transactions and lower oil and gas revenues mean it is looking less likely that the full year receipts growth forecast will be met,” it said.

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How is this not a criminal practice: “The US student loan provider, Sallie Mae, sells repackaged debt for as little as 15 cents on the dollar.”

The Moral Economy Of Debt (Robert Skidelsky)

Every economic collapse brings a demand for debt forgiveness. The incomes needed to repay loans have evaporated, and assets posted as collateral have lost value. Creditors demand their pound of flesh; debtors clamour for relief. Consider Strike Debt, an offshoot of the Occupy movement, which calls itself “a nationwide movement of debt resisters fighting for economic justice and democratic freedom”. Its website argues that “with stagnant wages, systemic unemployment, and public service cuts” people are being forced into debt in order to obtain the most basic necessities of life, leading them to “surrender [their] futures to the banks”. One of Strike Debt’s initiatives, rolling jubilee, crowdsources funds to buy and extinguish debt, a process it calls collective refusal. The group’s progress has been impressive, raising more than $700,000 and extinguishing debt worth almost $18.6m. It is the existence of a secondary debt market that enables rolling jubilee to buy debt so cheaply.

Financial institutions that have come to doubt their borrowers’ ability to repay, sell the debt to third parties at knockdown prices, often for as little as five cents on the dollar. Buyers then attempt to profit by recouping some or all of the debt from the borrowers. The US student loan provider, Sallie Mae, sells repackaged debt for as little as 15 cents on the dollar. To draw attention to the often-nefarious practices of debt collectors, rolling jubilee recently cancelled student debt for 2,761 people enrolled at Everest College, a for-profit school whose parent company, Corinthian Colleges, is being sued by the US government for predatory lending. Everest’s loan portfolio was valued at almost $3.9m. Rolling jubilee bought it for $106,709.48, or about three cents on the dollar. But that is a drop in the ocean. In the US alone, students owe more than $1tn, or about 6% of GDP. And the student population is just one of many social groups that lives on debt.

Indeed, throughout the world, the economic downturn of 2008-09 increased the burden of private and public debt – to the point that the public-private distinction became blurred.In a recent speech in Chicago, Irish president Michael D Higgins explained how private debt became sovereign debt. He said: “As a consequence of the need to borrow so as to finance current expenditure and, above all, as a result of the blanket guarantee extended to the main Irish banks’ assets and liabilities, Ireland’s general government debt increased from 25% of GDP in 2007 to 124% in 2013.” The Irish government’s aim, of course, was to save the banking system. But the unintended consequence of the bailout was to shatter confidence in the government’s solvency.

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One day a deal is announced, the next it’s denied.

Fears Over Gas Supply As Russia-Ukraine Talks Fail (Reuters)

Russia and Ukraine failed to reach an accord on gas supplies for the coming winter in EU-brokered talks on Tuesday but agreed to meet again in Brussels in a week in the hope of ironing out problems over Kiev’s ability to pay. After a day of talks widely expected to be the final word, European Energy Commissioner Guenther Oettinger told a news conference the three parties agreed the price Ukraine would pay Russia’s Gazprom – $385 per thousand cubic metres – as long as it paid in advance for the deliveries. But Russian Energy Minister Alexander Novak said Moscow was still seeking assurances on how Kiev, which earlier in the day asked the EU for a further €2 billion ($2.55 billion) in credit, would find the money to pay Moscow for its energy.

Dependent on Western aid, Ukraine is in a weak position in relation to its former Soviet master in Moscow, though Russia’s reasons were unclear for wanting further assurances on finances, beyond an agreement to supply gas only for cash up front. Citing unpaid bills worth more than $5 billion, Russia cut off gas flows to Kiev in mid-June. The move added to East-West tensions sparked by Russia’s annexation of Ukraine’s Crimea and conflict in Russian-speaking eastern Ukraine. The two countries are fighting in an international court over the debt, but Oettinger noted that Ukraine had agreed to pay off $3.1 billion in two tranches this year to help unblock its access to gas over the winter. European Union states, many also dependent on Russian gas and locked in a trade war with Moscow over Ukraine, fear their own supplies could be disrupted if the issue is not resolved.

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Boy oh boy, what a surprise.

New York Fed Caught Sight of London Whale and Let Him Go (Bloomberg)

It seems pretty clear to me that JPMorgan’s London Whale episode, in which the bank’s Chief Investment Office lost $6.2 billion on poorly managed credit derivatives trades, was a huge win for U.S. banking regulators. Like, here is a rough model of banking regulation:

  1. Banks tend to be better at banking than banking regulators are, so they are unlikely to want to defer to the regulators’ judgment in most circumstances.
  2. You need the banks to buy into the regulation, and defer to the regulators, for the regulation to produce real broad-based risk reduction rather than mere check-the-box compliance efforts.
  3. One way to get the banks to buy into regulation is for them to fail catastrophically and realize that they’re not as good at their jobs as they thought they were.
  4. But catastrophic failure is precisely what, as a regulator, you want to prevent.
  5. Because it’s bad.
  6. But also because, if you allow a catastrophic failure, then you’re not a very good regulator either, so the failure provides no additional reason for a bank to listen to you.

So 2008 ushered in a new regulatory environment but at, you know, a certain cost, both to the world and to the regulators’ credibility.

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At east the Danes have not yet fully been taken over.

World’s Top-Ranked Pension Funds Probed for Hedge Fund Use (Bloomberg)

Denmark, home to the world’s top-ranked pension system, will toughen oversight of the $500 billion industry after regulators observed a surge in risk-taking linked in part to more widespread use of hedge funds. The Financial Supervisory Authority in Copenhagen will require pension funds to submit quarterly reports on their alternative investments to track their use of hedge funds, exposure to private equity and infrastructure projects. The decision follows funds’ failures to account adequately for risks in their investment strategies, according to an FSA report. The regulatory clampdown comes as Denmark deals with risks it says are inherent to a system due to be introduced across the European Union in 2016.

The new rules will allow pension funds to invest according to a so-called prudent person model, rather than setting outright limits. In Denmark, the approach has proven problematic for the only EU country to have adopted the model, said Jan Parner, the FSA’s deputy director general for pensions. “The funds are setting up for their release from the quantitative requirements, but the problem is, it’s not clear what a prudent investment is,” Parner said in an interview. “The challenge for European supervisors is to explain to the industry what prudent investments are before the opposite ends up on the balance sheets.” Denmark, which has almost two years of experience with the approach after its early adoption in 2012, says a lack of clear guidelines invites misinterpretation as firms try to inflate returns.

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Great Orlov piece on Unkraine, US, Russia, NATO.

How To Start A War And Lose An Empire (Dmitry Orlov)

A year and a half I wrote an essay on how the US chooses to view Russia, titled The Image of the Enemy. I was living in Russia at the time, and, after observing the American anti-Russian rhetoric and the Russian reaction to it, I made some observations that seemed important at the time. It turns out that I managed to spot an important trend, but given the quick pace of developments since then, these observations are now woefully out of date, and so here is an update. [..] … what a difference a year and a half has made! Ukraine, which was at that time collapsing at about the same steady pace as it had been ever since its independence two decades ago, is now truly a defunct state, with its economy in free-fall, one region gone and two more in open rebellion, much of the country terrorized by oligarch-funded death squads, and some American-anointed puppets nominally in charge but quaking in their boots about what’s coming next.

Syria and Iraq, which were then at a low simmer, have since erupted into full-blown war, with large parts of both now under the control of the Islamic Caliphate, which was formed with help from the US, was armed with US-made weapons via the Iraqis. Post-Qaddafi Libya seems to be working on establishing an Islamic Caliphate of its own. Against this backdrop of profound foreign US foreign policy failure, the US recently saw it fit to accuse Russia of having troops “on NATO’s doorstep,” as if this had nothing to do with the fact that NATO has expanded east, all the way to Russia’s borders. Unsurprisingly, US–Russia relations have now reached a point where the Russians saw it fit to issue a stern warning: further Western attempts at blackmailing them may result in a nuclear confrontation. The American behavior throughout this succession of defeats has been remarkably consistent, with the constant element being their flat refusal to deal with reality in any way, shape or form.

Just as before, in Syria the Americans are ever looking for moderate, pro-Western Islamists, who want to do what the Americans want (topple the government of Bashar al Assad) but will stop short of going on to destroy all the infidel invaders they can get their hands on. The fact that such moderate, pro-Western Islamists do not seem to exist does not affect American strategy in the region in any way. Similarly, in Ukraine, the fact that the heavy American investment in “freedom and democracy,” or “open society,” or what have you, has produced a government dominated by fascists and a civil war is, according to the Americans, just some Russian propaganda. Parading under the banner of Hitler’s Ukrainian SS division and anointing Nazi collaborators as national heroes is just not convincing enough for them. What do these Nazis have to do to prove that they are Nazis, build some ovens and roast some Jews? Just massacring people by setting fire to a building, as they did in Odessa, or shooting unarmed civilians in the back and tossing them into mass graves, as they did in Donetsk, doesn’t seem to work.

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And my main man Jim was in Sweden.

“Omenland” (James Howard Kunstler)

[..] too soon, I landed back in Newark Airport, Lord have mercy. I grabbed a taxi to the Newark train station to get to the Hudson River line out of New York City back upstate. Along the way on Route 21, I passed a graffiti on an overpass. It said “Omenland.” The anonymous genius who sprayed that there sure caught the US zeitgeist. Newark compares to Stockholm as an Ebola victim in the gutter compares to a supermodel at poolside. The scene in the Newark train station was like the barroom from Star Wars, a creature-feature extravaganza, intergalactic Mutt Central, wookies in hoodies with burning coals for eyes, ladies with pierced cheeks, crack-heads, winos, missing body part people, lopsided head people, and the scrofulous physical condition of the station is proof positive that Chris Christie is unqualified to be president. This is a gateway to New York, America’s greatest city, you understand, and it looks like the veritable checkpoint to the rectum of the universe. You know what occurred to me: maybe it is?

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Guess it’s better than nothing.

WHO: Ebola Serum In Weeks And Vaccine Tests In Africa By January (Guardian)

The World Health Organisation has announced it hopes to begin testing two experimental Ebola vaccines in west Africa by January and may have a blood serum treatment available for use in Liberia within two weeks. The UN’s health agency said it aimed to begin testing the two vaccines in the new year on more than 20,000 frontline health care workers and others in west Africa – a bigger rollout than previously envisioned. Dr Marie Paule Kieny, an assistant director general at the WHO, acknowledged there were many “ifs” remaining and “still a possibility that it [a vaccine] will fail”. But she sketched out a much broader experiment than was imagined only six months ago, saying the WHO hoped to dispense tens of thousands of doses in the first months of the new year. “These are quite large trials,” she said.

Kieny said in remarks reported by the BBC that a serum was also being developed for use in Liberia based on antibodies extracted from the blood of Ebola survivors. “There are partnerships which are starting to be put in place to have capacity in the three countries to safely extract plasma and make preparation that can be used for the treatment of infective patients. “The partnership which is moving the quickest will be in Liberia where we hope that in the coming weeks there will be facilities set up to collect the blood, treat the blood and be able to process it for use.” A WHO spokeswoman, Fadela Chaib, said the agency expected 20,000 vaccinations in January and similar numbers in the months afterwards using the trial products. An effective vaccine would still not in itself be enough to stop the outbreak but could protect the medical workers who are central to the effort. More than 200 of them have died of Ebola.

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