May 162017
 
 May 16, 2017  Posted by at 8:25 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Fred Stein Chinatown 1944

 

White House: Report Trump Shared Classified Info With Russians is ‘False’ (RT)
Trump’s Classified Disclosure Is Shocking But Legal (BBG)
The ‘Soft Coup’ of Russia-Gate (Robert Parry)
China’s Silk Road Vision: Cheap Funds, Heavy Debt, Growing Risk (R.)
China Banking Regulator Tightens Rules On WMPs, Flags More Curbs (R.)
New Zealand Housing Market Most at Risk of Bust – Goldman (BBG)
Snowden & Chomsky Lead Calls To Drop DOJ Case Against WikiLeaks (RT)
Large Hedge Funds Moved Out Of Financial Stocks In First Quarter (R.)
Ford To Cut North America, Asia Salaried Workers By 10% (R.)
How High Should Congress Let Flood Insurance Rates Rise? (USAT)
Macron Wins Merkel Backing For Bid To Shake Up Europe (AFP)
Germany Must Decide: Budget Rigour Or Europe’s Future (R.)
The Euro Area – A Simple Model Of Savings, Debt & Private Spending (Terzi)
Greek Economy Pays for Drawn-Out Talks With Return to Recession (BBG)

 

 

And here we are: The WaPo, left with almost zero credibility after so many anti-Trump and anti-Russia opinions more often than not disguised as factual reports, can only find a willing ear anymore inside its echo chamber. As usual, the WaPo article is based on anonymous sources. America is trapped inside it own narrative.

White House: Report Trump Shared Classified Info With Russians is ‘False’ (RT)

Multiple White House officials, including National Security Advisor H.R. McMaster, are refuting a Washington Post story claiming that President Donald Trump revealed highly classified information to Russian officials in the Oval Office last week. But some believe McMaster’s statement contained holes. On Monday evening, National Security Advisor McMaster called a report published earlier in the day by the Washington Post “false.” The report that went viral cited unverifiable sources, unnamed current and former US officials, who claimed that Trump disclosed to Russian Foreign Minister Sergey Lavrov and Ambassador to the US Sergey Kislyak “code-word information” relating to Islamic State during a May 10 meeting in the Oval Office at the White House.

The intelligence was reportedly from “a US partner through an intelligence-sharing arrangement” and not authorized to be shared with Russia, US allies or even within much of the US government. “I was in the room. It didn’t happen,” McMaster told reporters outside the White House. Deputy National Security Adviser Dina Powell also called the story “false” Monday. “The president only discussed the common threats that both countries faced,” Powell said. Secretary of State Rex Tillerson, who was also at the meeting, denied the allegation. McMaster told reporters that Trump did discuss civil aviation threats with Lavrov and Kislyak. [..] The Russian Embassy in DC had no comment on the media claim, according to a representative.

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Besides, the WaPo article doesn’t describe anything illegal. But it’ll take a while before that sinks in, if ever.

Trump’s Classified Disclosure Is Shocking But Legal (BBG)

Oh for the days when Donald Trump wasn’t taking the presidential daily brief – and didn’t know highly classified information that he could give to the Russians. But a bit bizarrely, Trump’s reported disclosure of Islamic State plans to two Russian officials during an Oval Office visit last week wasn’t illegal. If anyone else in the government, except possibly the vice president, had revealed such classified information that person would be going to prison. The president, however, has inherent constitutional authority to declassify information at will. And that means the federal laws that criminalize the disclosure of classified secrets don’t apply to him. If this doesn’t make much sense to you, I feel your pain.

To understand the legal structure of classification and declassification requires a brief journey into the constitutional law of separation of powers. That’s not always especially fun. But at this juncture in U.S. history, it’s essential. Not since Richard Nixon’s administration has separation of powers been so central to the fate of the republic. The authority to label facts or documents as classified rests with the president in his capacity as a commander in chief. Or at least that’s what the U.S. Supreme Court said in a 1988 case, Department of the Navy v. Egan. Justice Harry Blackmun, who wrote the opinion, said that the executive’s “authority to classify and control access to information bearing on national security … flows primarily from this constitutional investment of power in the President and exists quite apart from any explicit congressional grant.”

Blackmun’s idea that the president has an inherent right to decide who gets access to classified information seems to imply the converse: that the president has the inherent authority to declassify information, too. Although there’s no case on this point, scholars took that view during the years of the George W. Bush administration, when the president was thought to have declassified some information that was leaked to the news media by White House aide I. Lewis “Scooter” Libby. It makes sense. If it is up to the president to decide what can’t be disclosed, it should be up to him to decide what can be.

[..] If you’re following closely, you’ll have noticed an anomaly: The president can classify and declassify. But the president can’t send people to prison for disobeying his order. That requires a federal law passed by Congress, and a conviction before a judge. Thus, under the separation of powers, the president has inherent authority to fire his own employees for disclosing classified information, but lacks the power to punish them criminally without Congress and the courts. That law exists: 18 U.S. Code Section 798, if you care to look it up. It makes it a federal crime to communicate “classified information” to an “unauthorized person.” The catch is that the law defines classified information as information determined classified by a U.S. government agency, and similarly defines an unauthorized person as someone not determined authorized by the executive branch. That puts Trump in the clear insofar as he has an inherent authority to declare information unclassified.

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And Robert Parry can tell you why things like that WaPo ‘report’ get so blown up.

The ‘Soft Coup’ of Russia-Gate (Robert Parry)

I realize that many Democrats, liberals and progressives hate Donald Trump so much that they believe that any pretext is justified in taking him down, even if that plays into the hands of the neoconservatives and other warmongers. Many people who detest Trump view Russia-gate as the most likely path to achieve Trump’s impeachment, so this desirable end justifies whatever means. Some people have told me that they even believe that it is the responsibility of the major news media, the law enforcement and intelligence communities, and members of Congress to engage in a “soft coup” against Trump – also known as a “constitutional coup” or “deep state coup” – for the “good of the country.”

The argument is that it sometimes falls to these Establishment institutions to “correct” a mistake made by the American voters, in this case, the election of a largely unqualified individual as U.S. president. It is even viewed by some anti-Trump activists as a responsibility of “responsible” journalists, government officials and others to play this “guardian” role, to not simply “resist” Trump but to remove him. There are obvious counter-arguments to this view, particularly that it makes something of a sham of American democracy. It also imposes on journalists a need to violate the ethical responsibility to provide objective reporting, not taking sides in political disputes. But The New York Times and The Washington Post, in particular, have made it clear that they view Trump as a clear and present danger to the American system and thus have cast aside any pretense of neutrality.

The Times justifies its open hostility to the President as part of its duty to protect “the truth”; the Post has adopted a slogan aimed at Trump, “Democracy Dies in Darkness.” In other words, America’s two most influential political newspapers are effectively pushing for a “soft coup” under the guise of defending “democracy” and “truth.” But the obvious problem with a “soft coup” is that America’s democratic process, as imperfect as it has been and still is, has held this diverse country together since 1788 with the notable exception of the Civil War. If Americans believe that the Washington elites are removing an elected president – even one as buffoonish as Donald Trump – it could tear apart the fabric of national unity, which is already under extraordinary stress from intense partisanship.

That means that the “soft coup” would have to be carried out under the guise of a serious investigation into something grave enough to justify the President’s removal, a removal that could be accomplished by congressional impeachment, his forced resignation, or the application of Twenty-fifth Amendment, which allows the Vice President and a majority of the Cabinet to judge a President incapable of continuing in office. That is where Russia-gate comes in. The gauzy allegation that Trump and/or his advisers somehow colluded with Russian intelligence officials to rig the 2016 election would probably clear the threshold for an extreme action like removing a President. And, given the determination of many key figures in the Establishment to get rid of Trump, it should come as no surprise that no one seems to care that no actual government-verified evidence has been revealed publicly to support any of the Russia-gate allegations.

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China wants to own the new Silk Road, and to be the leader. The original one knew neither ownership nor leadership.

China’s Silk Road Vision: Cheap Funds, Heavy Debt, Growing Risk (R.)

Behind China’s trillion-dollar effort to build a modern Silk Road is a lending program of unprecedented breadth, one that will help build ports, roads and rail links, but could also leave some banks and many countries with quite a hangover. At the heart of that splurge are China’s two policy lenders, China Development Bank (CDB) and Export-Import Bank of China (EXIM), which have between them already provided $200 billion in loans throughout Asia, the Middle East and even Africa. They are due to extend at least $55 billion more, according to announcements made during a lavish two-day Belt and Road summit in Beijing, which ends on Monday. Thanks to cheaper funding, CDB and EXIM have helped to unblock what Chinese president Xi Jinping on Sunday called a ‘prominent challenge’ to the Silk Road: the funding bottleneck.

But as the Belt and Road project grows, so do the risks to policy banks, commercial lenders and borrowers, all of whom are tangled in projects with questionable business logic, bankers and analysts say. EXIM, seeking to contain risk, says it has imposed a debt ceiling for each country. CDB says it has applied strict limits on sovereign borrowers’ credit lines and controls the concentration of loans. “For some countries, if we give them too many loans, too much debt, then the sustainability of its debt is questionable,” Sun Ping, vice governor of EXIM, told reporters last week. For now, funds are cheap and plentiful, thanks to Beijing. Belt and Road infrastructure loans so far have been primarily negotiated government to government, with interest rates below those offered by commercial banks and extended repayment schedules, bankers and analysts said.

[..] 47 of China’s 102 central-government-owned conglomerates participated in 1,676 Belt and Road projects, according to government statistics. China Communications Construction alone has notched up $40 billion of contracts and built 10,320 kilometres of road, 95 deepwater ports, 10 airports, 152 bridges and 2,080 railways in Belt and Road countries. China’s central bank governor Zhou Xiaochuan is among those to warn that this reliance on cheap loans raises “risks and problems”, starting with moral hazard and unsustainability. China has been caught out before; it is owed $65 billion by Venezuela, now torn by crisis. “The jurisdictions where many of these loans are going are places that would have difficulty getting loans from Western commercial banks – their credit ratings are not very good, or the projects in question often are not commercially viable,” said Jack Yuan at Fitch in Shanghai. “The broader concern is that capital continues to be mis-allocated by Chinese banks.”

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We’ll believe it when the bankruptcies start accumulating.

China Banking Regulator Tightens Rules On WMPs, Flags More Curbs (R.)

China’s banking regulator is tightening disclosure rules on lenders’ wealth management products (WMP) as it tries to track risky lending practices in the shadow banking sector, the latest in a series of steps by Beijing aimed at defusing financial risks. The China Banking Regulatory Commission (CBRC) said in a notice late on Monday it plans to launch 46 new or revised rules this year, part of which targets risks related to shadowbanking activities. Authorities are trying to better regulate 30 trillion yuan ($4.35 trillion) of WMPs, much of it sitting off-balance sheet in the shadowbanking sector. The WMPS have been used to channel deposits into risky investments, often via many layers of asset management schemes to skirt lending and capital rules.

The CBRC will now require that banks report the underlying assets and liabilities of their WMPs, as well as all layers of investment schemes, on a weekly basis. Previously, banks were required to hand in less detailed information, and on a monthly basis. The new rules – published by a WMP management platform under CBRC – reflect regulators’ desire to have a full picture of banks’ activities, and could slow the growth of WMPs. In March, China’s newly appointment banking regulator Guo Shuqing, vowed to strengthen supervision of the lending sector, underscoring Beijing’s determination to fend off financial risks and push reforms this year. Separately, CBRC unveiled a long list of rules it aims to publish this year, many of these related to risk-management. The rules are to “ensure that (risk) does not become systemic,” CBRC said.

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Useless numbers from Goldman Sachs.

New Zealand Housing Market Most at Risk of Bust – Goldman (BBG)

New Zealand’s housing market is the most over-valued among the so-called G-10 economies and the most at risk of a correction, according to Goldman Sachs. In research published this week, the investment bank said there is about a 40% chance of a housing “bust” in New Zealand over the next two years, which it defines as house prices falling 5% or more after adjustment for inflation. The report looks at housing markets in the G-10 countries – those with the 10 most-traded currencies in the world – and finds they are most elevated in small, open economies such as New Zealand, where house prices have rocketed in recent years. In Auckland, the nation’s largest city, the average price has surged 91% since 2007 to more than NZ$1 million ($688,000).

Goldman compares house-price levels across economies using three standard metrics: the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation. “Using an average of these measures, house prices in New Zealand appear the most over-valued, followed by Canada, Sweden, Australia and Norway,” it said. “According to the model, the probability of a housing bust over the next five to eight quarters is the highest in Sweden and New Zealand at 35 to 40%.” A graph in the report shows that New Zealand’s probability of a housing bust is just above 40%, while Sweden’s is just above 35%. The risk of a bust in Australia is about 25%.

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Chelsea Manning is free as of tomorrow.

Snowden & Chomsky Lead Calls To Drop DOJ Case Against WikiLeaks (RT)

Former intelligence officers, journalists and artists are among more than 100 signatories of an open letter calling on President Trump to close the Grand Jury investigation into WikiLeaks and drop any planned charges against the whistleblower group.
The letter released Monday by the Courage Foundation includes NSA whistleblower Edward Snowden and renowned scholar and activist Noah Chomsky among the original signatories. A significant number of former personnel from US intelligence agencies are backing the letter. Among them are former senior NSA officials Thomas Drake, William Binney and Kirk Wiebe. Daniel Ellsberg, the former State and Defense Department official who released top secret Pentagon Papers in 1971 and retired FBI Special Agent and former Minneapolis Division Legal Counsel Coleen Rowley also signed the letter.

The plea to President Trump is in response to comments made by US Attorney General Jeff Sessions last month, in which he confirmed that the arrest of WikiLeaks founder Julian Assange was a “priority” for the US government. Fears are growing that charges including conspiracy, theft of government property and violating the Espionage Act are being considered against members of WikiLeaks. Several artists are also pushing the call for Trump to drop any proposed charges against the whistleblower organization. Among the big names are Oliver Stone, Ken Loach, Pamela Anderson, Patti Smith, PJ Harvey and Vivienne Westwood.

The letter acknowledges that the Obama administration prosecuted more whistleblowers than all previous presidents combined and opened a Grand Jury investigation into WikiLeaks that had no precedent. “It now appears the US is preparing to take the next step — prosecuting publishers who provide the “currency” of free speech, to paraphrase Thomas Jefferson,” the document states. “A threat to WikiLeaks’ work — which is publishing information protected under the First Amendment — is a threat to all free journalism. If the DOJ is able to convict a publisher for its journalistic work, all free journalism can be criminalized.”

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They know something you don’t.

Large Hedge Funds Moved Out Of Financial Stocks In First Quarter (R.)

Several big-name hedge fund investors trimmed their stakes in financial companies in the first quarter as hopes for immediate tax cuts and loosening of regulations after President Donald Trump’s victory in November began to fade. Adage Capital Management cut its position in Wells Fargo, which has come under fire for its sales practices, by 3.9 million shares, according to regulatory filings, while John Burbank’s Passport Capital cut its stake in the company by 947,000 shares. Third Point cut its stake in JPMorgan Chase by 28%, to 3.75 million shares, while Suvretta Capital Management sold all of its shares of Morgan Stanley, JPMorgan and Citigroup. Overall, financial companies in the S&P 500 were up 2.1% in the first quarter, compared with 5.5% for the index as a whole.

Financials significantly outperformed the broad market following Trump’s Nov. 8 election. Trump had pledged to do a “big number” on the landmark Dodd-Frank financial reform law, which raised banks’ capital requirements and restricted their ability to make speculative bets with customers’ money. The Treasury Department is still filling vacancies and will not be able to complete a review of the law by Trump’s June deadline, sources told Reuters. Quarterly disclosures of hedge fund managers’ stock holdings, in what are known as 13F filings with the U.S. Securities and Exchange Commission, are one of the few public ways of tracking what the managers are selling and buying. But relying on the filings to develop an investment strategy comes with some risk because the disclosures come out 45 days after the end of each quarter and may not reflect current positions.

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Lean and efficient, and losing sales.

Ford To Cut North America, Asia Salaried Workers By 10% (R.)

Ford plans to shrink its salaried workforce in North America and Asia by about 10% as it works to boost profits and its sliding stock price, a source familiar with the plan told Reuters on Monday. A person briefed on the plan said Ford plans to offer generous early retirement incentives to reduce its salaried headcount by Oct. 1, but does not plan cuts to its hourly workforce or its production. The move could put the U.S. automaker on a collision course with President Donald Trump, who has made boosting auto employment a top priority. Ford has about 30,000 salaried workers in the United States.

The cuts are part of a previously announced plan to slash costs by $3 billion, the person said, as U.S. new vehicles auto sales have shown signs of decline after seven years of consecutive growth since the end of the Great Recession. The Wall Street Journal reported Monday evening that Ford plans to cut 10% of its 200,000-person global workforce, but the person briefed on the plan disputed that figure. The source requested anonymity in order to be able to discuss the matter freely. Ford declined to comment on any job cuts but said it remains focused on its core strategies to “drive profitable growth”. “Reducing costs and becoming as lean and efficient as possible also remain part of that work,” it said in a statement. “We have not announced any new people efficiency actions, nor do we comment on speculation.”

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FEMA rules!

How High Should Congress Let Flood Insurance Rates Rise? (USAT)

Congress is considering dramatic changes to the National Flood Insurance Program, which has a $25 billion debt that its director says cannot be repaid. But as a Sept. 30 deadline looms for the program to be renewed, disagreements remain over how much homeowners should be forced to pay for flood insurance to make the program more solvent. If Congress can’t reach an agreement, a lapse in the Federal Emergency Management Agency’s legal authority to write new policies could disrupt real estate sales in flood-prone areas around the country.

Republican Sen. Bill Cassidy of Louisiana and Democratic Sen. Kirsten Gillibrand of New York are circulating draft legislation to renew the program, but it contains provisions – such as vouchers to help low-income homeowners keep the cost of premiums and fees from getting too high — that are not in a draft that Republicans on the House Financial Services Committee plan to release this week. Disputes also remain over how to address wrongdoing by insurance companies and affiliated contractors in the wake of Superstorm Sandy and last year’s floods in Louisiana, and whether older properties that flood repeatedly should still receive discounts. Many in Congress also want to encourage more private insurers to enter the market, but some warn the government could be left with only the riskiest properties.

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Macron has to focus on France. and will do so until well after Merkel is re-elected. Still, these new views could have prevented Brexit.

Macron Wins Merkel Backing For Bid To Shake Up Europe (AFP)

France’s new President Emmanuel Macron secured backing Monday from key ally Chancellor Angela Merkel for his bid to shake up Europe, despite scepticism in Berlin over his proposed reforms. Travelling to the German capital to meet the veteran leader in his first official trip abroad, Macron used the opportunity to call for a “historic reconstruction” of Europe. During his campaign, Macron had thrown up ideas on reforming the eurozone, noting that the currency bloc cannot go on as it is if it wanted to avoid falling prey to protest and populism. Among reforms he wants to see are setting up a separate budget for the 28-member group, as well as giving it its own parliament and finance minister. But the proposals have sent alarm bells ringing in Berlin, and initial relief about his victory against far-right leader Marine Le Pen had quickly given way to fears about his reform plans.

Finance Minister Wolfgang Schaeuble warned that such deep-reaching reforms would require treaty changes, which were “not realistic” at a time when Europe is hit by a surge of anti-euro populism. Saturday’s edition of weekly news magazine Der Spiegel featured a cover picture of Macron with the headline “expensive friend”. But at a joint press conference following their talks, Merkel adopted a conciliatory tone and offered what appeared to be a key concession. “From the German point of view, it’s possible to change the treaty if it makes sense,” she said. “If we can say why, what for, what the point is, then Germany will be ready.” Merkel’s approach underlined her view that it was crucial not only for France, but for Germany, to help Macron succeed – a point that she has repeatedly stressed.

Yet it remains to be seen if her approach would go down well in Germany, which is deeply adverse to shouldering burdens of eurozone laggards. Macron sought to bat away German fears on debt, saying he was opposed to mutualising “old debt” between eurozone countries. However, he signalled readiness to look at sharing future burdens. “I am not a promoter of the mutualisation of old debt” within the eurozone, said Macron after meeting Merkel, adding however that the joint financing of future projects should be considered. Underlining the concerns over Macron’s proposals, Germany’s biggest selling daily Bild warned ahead of the French leader’s meeting with Merkel that before seeking deeper EU integration, “France must once again be at the same level as Germany politically and economically”. “Only then can the EU be reformed or develop deeper integration,” it said.

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Ye olde ‘there is stil time’ delusion: there is still time to make Germany change its stance on the EU, in the same way that there is still time to save the planet. No, there isn’t, if you include the time it will take to turn around what has been the ‘normal’. You need a revolution, not a change.

Germany Must Decide: Budget Rigour Or Europe’s Future (R.)

After Emmanuel Macron’s victory in France’s presidential election, Germany must decide whether it wants to continue its single-minded focus on budget rigour or work with him to ensure the future of the European project, a German diplomat said. In an interview with Reuters hours before the new French president travels to Berlin to meet Chancellor Angela Merkel, Wolfgang Ischinger, chairman of the Munich Security Conference, pushed back against German politicians who have picked holes in Macron’s ideas for Europe since his election win. Among those are Finance Minister Wolfgang Schaeuble, who has come to personify Berlin’s focus on the “Schwarze Null”, or balanced budget. He has suggested Macron’s plans to create a budget and finance minister for the euro zone are unrealistic.

“My wish is that this issue is not used in the (German) election campaign, but that we have a serious discussion over the question: ‘What is more important to us? The Schwarze Null as a categoric imperative or the future of Europe?'” Ischinger said. “If compromises are necessary and make sense, then I would support compromise rather than categorical imperatives.” Mainstream parties in Germany applauded Macron’s victory over far-right leader Marine Le Pen earlier this month. But since then, conservative politicians and media have criticized his plans, suggesting they would lead to a “transfer union” in which German money would be used to pay for uncompetitive member states that are reluctant to reform. Schaeuble has suggested some of Macron’s more ambitious plans would require politically thorny changes to the EU treaty. But Ischinger, a former German ambassador to Britain and the United States, said much could be done on an intergovernmental basis.

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The illusion that the ECB can manage the EU economy.

The Euro Area – A Simple Model Of Savings, Debt & Private Spending (Terzi)

In 2010, with the first casualty (Greece) in the emergency room and the first economic adjustment programme (with financial package) approved, the Eurosystem eventually became an occasional buyer of government debt. Two years later, with three more casualties (Ireland, Portugal, and Spain) and a systemic collapse in sight, the ECB added the newly crafted Outright Monetary Transactions (OMT) to its toolbox. This meant that the ECB had formally become ready to be an unlimited, albeit conditional, outright buyer in the secondary market for Eurozone government debts. The introduction of OMTs was the way to restore systemic liquidity buffers in a monetary system that had become unsustainable, while remaining consistent with the monetary financing prohibition laid down in the Treaty.

As events during the crisis unfolded, and depending on the narrative about its causes, several different meanings have been attached to the notion of the Eurozone crisis. This has been seen, alternatively, as the unwinding of intra-euro lending and borrowing, the consequence of private credit bubbles, the product of unsustainable public debt, the failure of inadequately supervised banking and financial institutions, and, most notably, as a double-dip recession followed by an unusually weak expansion combined with a visibly inadequate policy (and political) response. Today, six years after the crisis erupted, and notwithstanding the modified ECB practice that saved the day, the Eurozone is still visibly failing to enact sustainable policies that can effectively restore economic prosperity.

Accordingly, there have been two distinct phases in the Eurozone crisis. Between 2010 and 2012 the monetary union was in jeopardy of undergoing an operational breakdown up until the change in the operational practice in the market for public sector securities, complemented by the banking union reform. Since 2012, the problems have been the continuing sluggishness of the real economy, the acute lack of demand, vulnerability to internal and external shocks, and, ultimately, the risk of a political implosion. While the ECB has successfully reclaimed one indispensable tool to operationally manage the euro, the deflationary bias of the euro area has not gone away. Effectively, Europe’s economic performance has been vastly disappointing ever since the launch of the euro.

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Greece has no way to escape recession, drawn out talks have nothing to do with it.

Greek Economy Pays for Drawn-Out Talks With Return to Recession (BBG)

Greece’s economy returned to recession in the first quarter as delays in concluding talks between the government and its creditors raised the specter of another debt drama. GDP contracted 0.1% in the first three months of the year after shrinking 1.2% in the previous quarter, the Hellenic Statistical Authority said in a statement on Monday. The seasonally adjusted contraction was 0.5% from a year earlier. Talks between creditors on easing the country’s debt load are accelerating after Greece and officials from the IMF and euro-area institutions ended a months-long impasse over the austerity measures the government needs to take. While that’s prompted a rally in Greek stocks and bonds this month, the delay has taken a toll on the economy. That cost led the government to cut its GDP growth forecast for this year to 1.8% from 2.7% on Saturday. The European Commission reduced its estimate to 2.1% last week.

Read more …

Jul 182016
 
 July 18, 2016  Posted by at 8:54 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Arthur Rothstein General store and railroad crossing, Atlanta, Ohio 1938

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

 

 

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

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

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

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

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

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

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

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

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

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Lookalike contest.

Goodbye Lenin, Hello Bernanke (ABC.au)

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

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

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

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

Stocks and Bonds Are on a Collision Course (DR)

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

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

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

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

Bubbles in Bond Land (David Stockman)

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

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

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

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Want to see a real housing crisis?

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

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

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

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

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

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

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

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

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

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

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

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

Boom to Bust (Salt)

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

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

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

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

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

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

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

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

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

MH-17: Russia Convicted By Propaganda (PCR)

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

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

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

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

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

Donald Trump’s Ghostwriter Tells All (New Yorker)

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

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

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

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

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

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

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

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

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Look away.

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

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

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

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May 132016
 
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Jack Delano AT&SF Railroad locomotive shops, San Bernardino, CA 1943

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

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

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

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

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

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

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China’s commodity casino starts to spread its losses…

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

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

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

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

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

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Never listen to people predicting black swans.

China Bubble Set To Rock Global Markets (CNBC)

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

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

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

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

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Yup. China again.

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

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

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

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

Read more …

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

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

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

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

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

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

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

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

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

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

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

Nassim Taleb Compares Monetary Policy to Novocaine (BBG)

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

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

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

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

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

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

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

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

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

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

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

IMF Under Pressure From Germany Over Greece (WSJ)

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

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

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

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

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

The German Current Account Surplus Requires Deficits Elsewhere (Harrison)

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

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

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

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In which the Economist is found short of ideas.

Ideas For Reducing The Debt Burden (Economist)

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

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

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

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

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

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

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

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

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

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

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

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

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Oh my, what a surprise.

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

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

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

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May 102016
 
 May 10, 2016  Posted by at 7:07 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Alfred Palmer Women as engine mechanics, Douglas Aircraft, Long Beach, CA 1942

The World’s Most Extreme Speculative Mania Unravels in China (BBG)
Iron Ore, Rebar Crash Into Bear Market (ZH)
A Debt Bust Looms For China (Economist)
The Cold, Hard Facts Raining on China’s Commodity Parade (BBG)
In Historic -150% Net Short, Carl Icahn Bets on Imminent Market Collapse (ZH)
Trump Says US Will Never Default Because It Prints the Money (WSJ)
Zombies-To-Be and the Walking Dead of Debt (Steve Keen)
The Recession’s Economic Trauma Has Left Enduring Scars (WSJ)
Japan Will Leave Banks to Carry Out Their Own Stress Tests (BBG)
Trumptopia (Jim Kunstler)
Rousseff Impeachment Vote Annulled, Throwing Brazil Legislature Into Chaos (G.)
85% Of Fort McMurray Has Been Saved, Says Alberta Premier (G.)
Growth Crisis Threatens European Social Fabric, Warns ECB VP (Tel.)
The Choice For Europe: Rescue Greece Or Create A Failed State (Paul Mason)
Official Analysis Suggests Tough Talks Over Greek Debt Relief (WSJ)
Refugees Freed From Detention Centers, Trapped In Limbo On Greek Islands (R.)

The comparison to the Tulip Craze sounds apt.

The World’s Most Extreme Speculative Mania Unravels in China (BBG)

From the Dutch tulip craze of 1637 to America’s dot-com bubble at the turn of the century, history is littered with speculative frenzies that ended badly for investors. But rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016. Over the span of just two wild months, daily turnover on the nation’s futures markets has jumped by the equivalent of $183 billion, outpacing the headiest days of last year’s Chinese stock bubble and making volumes on the Nasdaq exchange in 2000 look tame. What started as a logical bet – that China’s economic stimulus and industrial reforms would lead to shortages of construction materials – quickly morphed into a full-blown commodities frenzy with little bearing on reality.

As the nation’s army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu. Now, as Chinese authorities introduce trading curbs to prevent surging commodities from fueling inflation and undermining plans to shut down inefficient producers, speculators are retreating as fast as they poured in. It’s the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China’s policy makers flood the financial system with cash to stave off an economic hard landing. “You have far too much credit, money sloshing about, money looking for higher returns,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Even in commodities where you could have argued there is some reason for prices to rise, that gets quickly swamped by a nascent bull market and becomes an uncontrollable bubble.” In many ways, China’s financial landscape was ripe for another round of mania. New credit soared to a record in the first quarter, giving individuals and businesses plenty of cash to invest at a time when several of the country’s traditional sources of return looked unattractive. Government debt yields were hovering near record lows, while wealth-management products and company bonds had been rattled by a growing number of corporate defaults. Stocks were still too risky for many investors burned by last year’s crash, and moving money offshore had become harder as the government clamped down on capital outflows.

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Crazy stuff. And not done yet.

Iron Ore, Rebar Crash Into Bear Market (ZH)

Real demand for steel in China dropped at least 7% in April from the year before, according to Citigroup’s Tracy Liao estimates, so it should not be a total surprise that the frenzied speculative buying in Iron Ore, Rebar, and various other industrial metals in China has crashed back to reality as volumes plunge, dragging The Baltic Dry Freight Index with it as yet another government-manipulated 'signal' collapses into a miasma of malinvestment and unintended consequences. As The Wall Street Journal reports, to the extent that China’s industrial recovery explains why iron ore and steel prices have jumped this year, China’s latest trade data served as a reminder of how brittle this reason is.

China’s steel net exports rose 8.8% in April from a year before and 9.4% between January and April from a year ago. That raises the question: Why are mills exporting more steel when Shanghai front-month futures prices for rebar steel rocketed 48% between January and April, and signaled a potential rise in demand? [..]Real demand for steel in China dropped at least 7% in April from the year before, Citigroup’s Tracy Liao estimates, based on changes in exports and inventories. The drop was at least 5% between January and April from the year before.

That reinforces fears that easy money-fueled speculation is the prime mover of steel and iron ore prices today. That "Churn" is over…

 

Chinese futures prices in both commodities fell sharply again Monday.

 

With Iron Ore now down 22% from the meltup highs, entering a bear market…

 

And Steel Rebar down 25%, extending losses in the US session…

 

And The Baltic Dry Index now down 7 days in a row, down 14% from its "everything is fine in China" highs from 715 to 616 today…

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Even the Economist is waking up to what we’ve been saying for ages…

A Debt Bust Looms For China (Economist)

China was right to turn on the credit taps to prop up growth after the global financial crisis. It was wrong not to turn them off again. The country’s debt has increased just as quickly over the past two years as in the two years after the 2008 crunch. Its debt-to-GDP ratio has soared from 150% to nearly 260% over a decade, the kind of surge that is usually followed by a financial bust or an abrupt slowdown. China will not be an exception to that rule. Problem loans have doubled in two years and, officially, are already 5.5% of banks’ total lending. The reality is grimmer. Roughly two-fifths of new debt is swallowed by interest on existing loans; in 2014, 16% of the 1,000 biggest Chinese firms owed more in interest than they earned before tax. China requires more and more credit to generate less and less growth: it now takes nearly four yuan of new borrowing to generate one yuan of additional GDP, up from just over one yuan of credit before the financial crisis.

With the government’s connivance, debt levels can probably keep climbing for a while, perhaps even for a few more years. But not for ever. When the debt cycle turns, both asset prices and the real economy will be in for a shock. That won’t be fun for anyone. It is true that China has been fastidious in capping its external liabilities (it is a net creditor). Its dangers are home-made. But the damage from a big Chinese credit blow-up would still be immense. China is the world’s second-biggest economy; its banking sector is the biggest, with assets equivalent to 40% of global GDP. Its stockmarkets, even after last year’s crash, are together worth $6 trillion, second only to America’s. And its bond market, at $7.5 trillion, is the world’s third-biggest and growing fast. A mere 2% devaluation of the yuan last summer sent global stockmarkets crashing; a bigger bust would do far worse.

A mild economic slowdown caused trouble for commodity exporters around the world; a hard landing would be painful for all those who benefit from Chinese demand. Optimists have drawn comfort from two ideas. First, over three-plus decades of reform, China’s officials have consistently shown that once they identified problems, they had the will and skill to fix them. Second, control of the financial system—the state owns the major banks and most of their biggest debtors—gave them time to clean things up. Both these sources of comfort are fading away. This is a government not so much guiding events as struggling to keep up with them. In the past year alone, China has spent nearly $200 billion to prop up the stockmarket; $65 billion of bank loans have gone bad; financial frauds have cost investors at least $20 billion; and $600 billion of capital has left the country.

To help pump up growth, officials have inflated a property bubble. Debt is still expanding twice as fast as the economy. At the same time, the government’s grip on finance is slipping. Despite repeated efforts to restrain them, loosely regulated forms of lending are growing quickly: such “shadow assets” have increased by more than 30% annually over the past three years. In theory, shadow banks diversify sources of credit and spread risk away from the regular banks. In practice, the lines between the shadow and formal banking systems are badly blurred.

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Encourage speculation, then crack down on it. Credibility?!

The Cold, Hard Facts Raining on China’s Commodity Parade (BBG)

There’s nothing like facts to get in the way of a good yarn. Prices of everything from steel rebar to cotton are extending losses in China as a slew of bearish data hastens the reversal of a rally last month triggered by speculation that economic stimulus and industrial reforms would drive up demand and curb supplies. Steel futures in Shanghai fell the most since trading began in 2009 after inventories rose while iron ore in Dalian sank as much as 7.1%, extending its retreat from a 13-month high, after data showed Chinese port stockpiles expanded to the highest level in more than a year. Cotton on the Zhengzhou Commodity Exchange, which had surged to an 11-month high, slid 1.5% after China unloaded supply from its reserves. Copper lost 2.1% after the nation’s imports shrank from a record.

“Investors are looking at fundamentals more closely now,” Zhang Yu, a senior analyst with Yongan Futures, said by phone from Hangzhou. “While inventories were built up with the price surges, recent data couldn’t convince people that China’s real economy is bottoming and going to bring demand back.” The rally last month was accompanied by a surge in trading volumes, with as much as 1.7 trillion yuan ($261 billion) in commodity futures changing hands in a single day. That drew comparisons with 2015’s credit-driven stock market rally that preceded a $5 trillion rout, and prompted exchanges to raised transaction fees and margins amid orders from regulators to limit speculation.

As the exchanges stepped in, trading volumes shrank. About 20 million contracts of everything from eggs to steel changed hands on the Dalian Commodity Exchange, Zhengzhou Commodity Exchange and Shanghai Futures Exchange on Friday, down from a peak of 80.6 million contracts on April 22. “Bullish enthusiasm in Chinese commodities futures has been rapidly declining, especially after the exchanges pushed out massive measures to curb speculative trading,” Yu said.

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Where the smart money sits…

In Historic -150% Net Short, Carl Icahn Bets on Imminent Market Collapse (ZH)

Over the past year, based on his increasingly more dour media appearances, billionaire Carl Icahn had been getting progressively more bearish. At first, he was mostly pessimistic about junk bonds, saying last May that “what’s even more dangerous than the actual stock market is the high yield market.” As the year progressed his pessimism become more acute and in December he said that the “meltdown in high yield is just beginning.” It culminated in February when he said on CNBC that a “day of reckoning is coming.” Some skeptics thought that Icahn was simply trying to scare investors into selling so he could load up on risk assets at cheaper prices, however that line of thought was quickly squashed two weeks ago when Icahn announced to the shock of ever Apple fanboy that several years after his “no brainer” investment in AAPL, Icahn had officially liquidated his entire stake.

As it turns out, Icahn’s AAPL liquidation was just the appetizer of how truly bearish the legendary investor has become. [..] In the just disclosed 10-Q of Icahn’s investment vehicle, Icahn Enterprises LP in which the 80 year old holds a 90% stake, we find that as of March 31, Carl Icahn – who subsequently divested his entire long AAPL exposure – has been truly putting money, on the short side, where his mouth was in the past quarter. So much so that what on December 31, 2015 was a modest 25% net short, has since exploded into a gargantuan, and unprecedented for Icahn, 149% net short position.

[..] starting in Q3 and Q4, Icahn proceeded to wage into net short territory, with roughly -25% exposure, a number that has increased a record six-fold in just the last quarter! What is just as notable is the dramatic leverage involved on both sides of the flatline, but nothing compares to the near 3x equity leverage on the short side (this is not CDS). As a reminder, Icahn Enterprises used to be run as a hedge fund with outside investors, but Icahn returned outside money in 2011, leaving IEP and Icahn as the two dominant investors. According to Barron’s, the entire fund appears to be about $5.8 billion, with $4 billion coming from Icahn personally. Which means that this is a very substantial bet in dollar terms.

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There’s no bigger pleasure -and confirmation- than have Krugman criticize you.

Trump Says US Will Never Default Because It Prints the Money (WSJ)

Donald Trump fired back at critics Monday over what he claimed was a misrepresentation of his comments on debt of the U.S. government, saying he never advocated the U.S. default on its debt. “First of all, you never have to default because you print the money,” Mr. Trump said in a telephone interview with CNN that was reported on by Politico. In an interview with Fox Business’s Maria Bartiromo, Mr. Trump said that he had proposed that the U.S. government could buy back its own debt at a discount if interest rates rise. The price of earlier issued bonds often fall when interest rates rise. “Certainly I’m not talking about renegotiating with creditors,” Mr. Trump said. Mr. Trump was responding to a New York Times article that ran on Friday that examined a CNBC interview on the prior day.

The article stated that Mr. Trump said he “might reduce the national debt by persuading creditors to accept something less than full payment.” “I would borrow, knowing that if the economy crashed, you could make a deal,” Mr. Trump said in the CNBC interview. “And if the economy was good, it was good. So therefore, you can’t lose.” This provoked alarm from commentators who interpreted it as Mr. Trump saying he would attempt to force Treasury holders to accept less than payment in full. “The reaction from everyone who knows anything about finance or economics was a mix of amazed horror and horrified amazement,” New York Times columnist Paul Krugman wrote.

The market in U.S. Treasuries, which are considered to be among the safest assets in the world, appeared to brush off the report of Mr. Trump’s remarks. Yields on 10-year Treasuries were slightly lower Monday than they were a week earlier. “All I said was that if interest rates goes up, we’ll have a chance to buy back bonds, which is standard,” Mr. Trump said. Mr. Trump’s remarks Monday echo a point made by former Federal Reserve chairman Alan Greenspan a few years ago. “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default,” Mr. Greenspan said.

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Anything Steve is a must.

Zombies-To-Be and the Walking Dead of Debt (Steve Keen)

Using the dynamics of credit –which most other economists ignore– I explain why Japan, the USA and UK are among the “Walking Dead of Debt” and why China, Canada, Australia and South Korea are on their way to joining the Debt Zombies. This presentation is based on work I’m doing for a new 25000 word book for Polity Press entitled “Can we avoid another financial crisis?”, which should be published later this year.

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What official numbers seek to hide away. But we all know anyway.

The Recession’s Economic Trauma Has Left Enduring Scars (WSJ)

About one in six U.S. workers became unemployed during the recession years of 2007, 2008 and 2009. Today, nearly 14 million people are still searching for a job or stuck in part-time jobs because they can’t find full-time work. Even for the millions of Americans back at work, the effects of losing a job will linger, the research suggests. They will earn less for years to come. They will be less likely to own a home. Many will struggle with psychological problems. Their children will perform worse in school and may earn less in their own jobs. “The average effects are severe and very long lasting,” said Jennie Brand, a sociologist at University of California, Los Angeles. “There’s no quick recovery.”

U.S. economic output remains stubbornly below its potential level, as estimated by the Congressional Budget Office. And many people probably won’t be back on their feet by the time the next recession arrives. J.P. Morgan Chase & Co. economists recently predicted a new recession was more likely than not within three years. Anger about stagnant wages, among other things, has helped fuel the presidential runs of Donald Trump and Bernie Sanders. When the John J. Heldrich Center for Workforce Development at Rutgers University surveyed Americans after the recession about the causes of high unemployment, their top responses were cheap foreign labor, illegal immigrants and Wall Street bankers.

Labor Department data show 40 million layoffs and other involuntary discharges during the recession that began in December 2007 and ended in June 2009. The official unemployment rate peaked at 10%. Princeton University economist Henry Farber calculated that the rate of job loss from 2007 through 2009 was 16%. As in previous recessions, millions of Americans faced a phenomenon economists sometimes call wage scarring. People who lose a job, even during economic expansions, usually earn less money when they re-enter the workplace. They are out of work for a time and often take a pay cut as the price of returning to work at a new employer or even in a new career.

This time, the damage was exacerbated by the job market’s painfully slow recovery. Extended or repeated spells of unemployment mean more severe earnings losses, and recent years have seen an unusually large number of job seekers out of work for more than six months or stuck in part-time positions. “They had a much harder time finding a job, and in particular a full-time job, which immediately turns into an earnings decline,” Mr. Farber said.

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Better at making things up than the government.

Japan Will Leave Banks to Carry Out Their Own Stress Tests (BBG)

Japan’s financial regulator is stepping up oversight of its biggest banks while stopping well short of imposing the type of intrusive stress tests that have been adopted in the U.S. and Europe. Unlike the Federal Reserve and the Bank of England, which conduct annual examinations of the large banks they supervise, Japan’s Financial Services Agency has no plans to impose its own stress tests on the country’s lenders. Instead, it is looking for ways to verify the banks’ own reviews. “We’re considering if we can come up with a stress test-like setup,” Toshihide Endo, the director-general of the FSA’s supervisory bureau, said in an interview last month. “We don’t plan to impose external tests.”

Japan’s regulator has already signaled a different approach than overseas peers in the way it oversees the country’s banks, with FSA Commissioner Nobuchika Mori condemning a supervisory approach to bankers where the “sentiment of trust seems to have become a thing of the past.” Mitsubishi UFJ Financial Group Inc.’s President Nobuyuki Hirano cautioned global regulators against restricting the use of banks’ own methods for gauging operational risk, questioning the need for authorities to impose a standardized regime when they’re able to review internal models. Japanese taxpayers didn’t have to bail out lenders during the global financial crisis as the nation’s banks escaped the scale of losses incurred by overseas financial institutions.

The regulator may analyze big banks with international operations to see if they’re adequately reflecting risks such as oil price movements and the economic performance of emerging nations in their own stress tests, according to Endo. The FSA may start scrutinizing the stress tests of banks from as early as the second half of this year, he said. MUFG, Japan’s largest lender by market value, runs a number of stress tests on its balance sheet using different scenarios that include measures of interest and exchange rates, stock-market movements and economic growth, according to an e-mailed reply from spokesman Kazunobu Takahara. The impact from the different tests on the bank’s assets and profitability are then estimated, he said.

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Where does the economy meet politics? Does anybody know?

Trumptopia (Jim Kunstler)

For years, it was easy to see the political storm clouds gather over Europe with its fractious coalitions and its ancient babble of conflicts. Marine Le Pen’s Daddy, severe old Jean-Marie, was on the scene in France decades before Donald Trump ascended to glory on the noxious clouds of America’s crapified culture, attended by heavenly hosts of Kardashian angels and the cherub Honey BooBoo. For all the strains in recent American life, the two-party system had seemed as solid as the granite towers of the Brooklyn Bridge. Not even the estimable Teddy Roosevelt could blow up the system when he tried in 1912 — though his Progressive (“Bull Moose”) Party carried California, Pennsylvania, and Minnesota, and he far out-polled the incumbent Republican President Taft, who garnered a measly 8 electoral votes (Democrat Woodrow Wilson won).

Ross Perot made an impact in 1992 — he certainly had a good point about NAFTA and “the giant sucking sound” of jobs draining out of the USA. But his popinjay manner didn’t go over so well, and at the critical moment in the general election he lost his nerve and withdrew, only to foolishly re-enter weeks later. Then there was the Ralph Nader in 2000, whose egoistic crusade arguably put George W. Bush in the White House. Since then, the country see-sawed between the long tenures of two Deep State errand boys from each major party, putting both parties in such a bad odor that Trump now rises on their mephitic fumes. Which raises the question, of course: what exactly is this Deep State? Answer: A leviathan of symbiotic rackets producing maximum incompetence affecting adversely the majority of citizens.

It’s a blood-sucking beast of a hundred-thousand heads draining the USA of its dwindling vitality, lying about its intentions while it advertises the pietistic certainties of the Left and superstitious shibboleths of the Right, leaving a smoking hole in the middle where the practical problems of everyday life used to be worked out by practical means. The Deep State is also the sum of unintended consequences and diminishing returns of a late-stage, bureaucratic, techno-industrial economy cannibalizing itself to stay alive. One obvious conclusion is that this economy has got to change before there is nothing left to eat, and no political figure on the scene, including Trump and Bernie Sanders, has a plausible vision of where this takes us.

Both really just assume that the engine keeps chugging down the track of ever more material wealth that can be distributed differently. The truth is, there will be a lot less material wealth of the kind we’re used to, and a lot less capital representation in the things we call “money.” In fact, the scene at hand today is just a spectacle of the shrewdest and biggest rodents scarfing up the table-scraps of a 200-year-long banquet.

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“..a twist that would stretch the credibility of a House of Cards plot..”

Rousseff Impeachment Vote Annulled, Throwing Brazil Legislature Into Chaos (G.)

Brazil’s new lower house speaker has annulled last month’s impeachment vote against Dilma Rousseff in a twist that would stretch the credibility of a House of Cards plot. The surprise move, which comes just days before the upper house was due to consider the motion, throws the legislature into chaos and could provide a lifeline to the embattled president. Waldir Maranhao, who took over as acting speaker last week, said a new congressional vote would be needed as a result of procedural flaws in the previous session. Maranhao is no friend of the government, prompting speculation that he may be acting on behalf of his predecessor, Eduardo Cunha, who was removed from his post by the supreme court on the grounds that he was interfering in a corruption investigation into his alleged kickbacks from the state-run oil company, Petrobras.

For the moment, however, uncertainty reigns. After last month’s lower house vote, the impeachment process was passed to the senate, where a committee recommended on Friday that the leftist president be put on trial by the full chamber for breaking budget laws. In a news release, Maranhao said the impeachment process should be returned by the senate so that the lower house can vote again. It remained unclear whether his decision could be overruled by the supreme court, the senate or a majority in the house. Brazilian markets fell sharply after the surprising decision was announced. Rousseff, who denies wrongdoing, has been fighting for her political survival for several months as opposition congressmen have pushed aggressively for her ouster.

The full senate had been expected to vote to put Rousseff on trial Wednesday, which would immediately suspend her for the duration of a trial that could last six months. During that period the vice-president, Michel Temer, would replace her as acting president. With appeals and counter-appeals still possible, Rousseff gave a cautious response to the news. “It’s not official. I don’t know the consequences. We should be cautious,” she said, but repeated her determination to keep fighting.

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Had the impression it was worse.

85% Of Fort McMurray Has Been Saved, Says Alberta Premier (G.)

Overwhelming and heart-breaking was how Rachel Notley, the Alberta premier, described the destruction left behind in the wake of a wildfire that continues to rage out of control in northern Alberta. “I was very much struck by the power of the devastation of the fire,” Notley said after touring the city of Fort McMurray on Monday. “It was really quite overwhelming in some spots.” Last week more than 88,000 residents frantically evacuated the oilsands city after shifting winds brought a nearby forest fire to the city’s doorstep. The fire swept through the city in a seemingly random path, leaving behind piles of rubble and twisted metal, burned-out pick-up trucks and charred swing sets in some neighbourhoods. In others, homes sat untouched, their green lawns sharply contrasting with the grey of the city’s worst-hit areas.

Some 2,400 homes and buildings were destroyed or damaged by the fire, said Notley. For the tens of thousands of residents now scattered across the province, many of them wondering whether they have a home to return to, Notley had good news. Some 85% of the city – around 25,000 structures – had been saved. “The city was surrounded by an ocean of fire only a few days ago,” said Notley. “But Fort McMurray and the surrounding community have been saved and it will be rebuilt.” But she cautioned: “That of course doesn’t mean that there aren’t going to be some really heartbreaking images for some people to see when they come back.” The fire has not completely released its grip on the city, said Notley. “There are smouldering hotspots everywhere. Active fire suppression is continuing.”

The wildfire continues to grow in the region, albeit at a much slower pace. By Monday it had swelled to 204,000 hectares – an area more than 22 times the size of Manhattan – but winds were pushing it east, away from communities. It now sits some 25km from the neighbouring province of Saskatchewan. Cooler weather helped crews continue to keep the fire at bay, away from Fort McMurray, Anzac and the Suncor Energy oilsands facility. Currently more than 700 firefighters are battling against the blaze, with another 300 expected to arrive in the area shortly. “This fire is burning out of control out there, it still is, but we are holding the line where we need to, at least for today,” said Notley.

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People like this are so utterly clueless it’s frightening.

Growth Crisis Threatens European Social Fabric, Warns ECB VP (Tel.)

The fragile global recovery could be derailed unless governments step up efforts to support growth and strengthen the European banking system, two central bankers have warned. Vítor Constâncio, vice president of the ECB, said policy inaction combined with declining productivity and weak demographics could lead to a dangerous spiral of lower growth, higher debt and reduced job prospects. This could create unrest in countries already blighted by sky-high unemployment, he warned. The world also faced the prospect of permanently lower growth, Mr Constâncio told an audience at a City Week conference in London. If this materialised, this could result in weaker spending by households and businesses. “There would also very likely be societal implications, as lower economic growth would not be able to create enough jobs for citizens and may exacerbate income inequality,” he said.

Mr Constâncio described the eurozone recovery as “continued” and “moderate”, but said it remained “subject to fragilities”. “While I expect the recovery in the global economy to gather momentum as the headwinds eventually dissipate, there are many factors which could potentially derail it,” he said. Mr Constâncio stressed that the ECB’s massive stimulus package was working, adding that policymakers would “allow some time for the package of measures adopted in March” – including interest rate cuts and an increase in its monthly asset purchases to €80bn, from €60bn – to take effect. But the central banker said government fiscal stimulus and action to boost productivity and “complete Europe’s banking and markets union” would also be needed to boost growth.

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All good and well, but there are strong forces in Brussels and beyond that deliberately seek to create a failed state. And they’re at least half way there.

The Choice For Europe: Rescue Greece Or Create A Failed State (Paul Mason)

Between now and mid-June the European political elite must give its answer to an existential question. Will it honour the deal it made to rescue Greece last July; or will it push the radical left government into default – effectively creating a failed state in Europe? That this is primarily Europe’s dilemma, not Greece’s or the IMF’s, is clear after Monday’s Eurogroup. The IMF boss, Christine Lagarde, warned the Europeans that the fund will not participate in further bailouts without a substantial debt write-off. In turn, the Greek prime minister, Alexis Tsipras, forced through the last of the main austerity measures demanded by creditors: reforms to the pension system that will leave worse off everyone who is receiving more than €1,000 a month, and demand much higher contributions from workers in future.

However, by delaying their approval until now, the lenders have managed, once again, to push Greece towards bankruptcy. Although growth is better than predicted, tax receipts are still dire and bailout disbursements suspended. Worse, and more insidious, the months of callous inaction have pushed the mood in Greek society into a dangerous place. A population that, two years ago, started demanding and giving printed receipts as an act of collective moral renewal, has given up on them once again. The most popular graffiti tag has become “all this political shit”. The only thing that can end the crisis is debt restructuring. One way or another, Europe’s creditors – the taxpayers of Germany, France, the Netherlands etc – have to lose money.

It may be dressed up by extending repayment dates; or it may take the form of the “haircut”, whereby the treasuries of northern Europe – and the ECB – write down the value of the €350bn they have lent Greece. But it has to happen. And that means Germany’s politicians must change their minds. The old problem in Europe was a transnational freemarket economy with no democratic government; a central bank obliged by treaty to impose deflation; and a Germany willing to take the upside of the project – 4% unemployment versus 25% in Greece – but never to lead it. The new problem is different: when the EU overturned the will of the Greek people last year July, it became, effectively, a political entity based on force, not law.

Those applying the force were the German elite and a collection of east European countries who have in common weak democratic traditions, mafia-infested economies and rightwing electorates still traumatised by the Soviet era. Then, in a second act of force, by overturning the Dublin Treaty and letting nearly a million refugees come to Germany, Angela Merkel destroyed the coalition that had imposed the defeat on Greece. Eastern Europe has defied Merkel’s call for refugee quotas and answered her appeal for humanitarianism by putting razor wire at every border choke-point. So, now it’s no longer about austerity: there is a three-way battle for the soul of Europe; between a beleaguered centre that’s seeing its consent to govern drain away; a resurgent nationalist and racist right; and a modernised radical left. The Greek request for debt relief poses to the European centre the question: which side are you on?

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No, it’s true. A team of highly overly paid EU economists has issued a report that ‘analyzes’ (note the first 4 letters) among other things what Greek debt could be 44 years from now. Your challenge: to name something even more useless than that. Hint: paint does dry at some point….

Official Analysis Suggests Tough Talks Over Greek Debt Relief (WSJ)

Greece’s debt may rise to as much as 258.3% of GDP by 2060 or fall to as low as 62.6% of GDP, according to an official analysis of the country’s debt trajectory that heralds tough talks ahead on potential measures to ease Athens’ payment burden. The so-called debt sustainability analysis, or DSA, was drawn up by Greece’s European creditors and has been seen by The Wall Street Journal. The wide divergences in the debt predictions are due to different forecasts on how much Greece’s economy will grow in the coming decades and how much money it can put aside to pay down debt. Under all but the most optimistic scenarios, the document points to serious concerns over Greece’s ability to repay its debt, which stood at 176.9% of GDP at the end of last year.

The results of “this analysis point to serious concerns regarding the sustainability of Greece’s public debt in the long term,” the document says. The document was distributed to officials from eurozone finance ministries Monday morning and will form the basis for a first discussion on possible debt relief among the bloc’s finance ministers Monday afternoon. To reach a deal, the ministers will also have to bring on board the IMF, one of Greece’s biggest creditors. The IMF has consistently had more pessimistic forecasts for Greece’s debt ratio and demanded far-reaching measures to cut the country’s payment burden. Here it has clashed with Germany, which has opposed further debt relief.

“Today we will only have a first discussion on what, when, if and how the debt sustainability or debt relief measures could take place,” said Jeroen Dijsselbloem, the Dutch finance minister who presides over the group of ministers, on his way into Monday’s meeting. The debt sustainability analysis looks at four different scenarios for Greece’s economy and assesses how the country’s debt-to-GDP ratio will fare in each case for the decades up to 2060. The analysis shows that Greece’s debt could fall to as low 62.6% of GDP—almost in line with the currency union’s budget rules—in the most favorable scenario. But under the most pessimistic scenario, debt could rise to 258.3% of GDP by the end of 2060. Under the baseline scenario, which assumes that Greece will fully implement the terms of its bailout program, its debt will peak at 182.9% of GDP in 2016 and fall to 104.9% of GDP by 2060.

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Curiously blind how NGOs blame Greece for conditions, while it’s being squeezed dry by the Troika. As if when you work for Amnesty -and get paid for it-, you can’t figure out that Greece can’t even take care of Greeks.

Refugees Freed From Detention Centers, Trapped In Limbo On Greek Islands (R.)

Migrants and refugees are being freed from detention centres in Greece but remain trapped on its islands until their asylum requests are processed, exposing them to dire living conditions and even the risk of people smugglers, human rights groups say. At least 1,100 people have been released from centres on three islands and more will follow as their 25-day detention limit expires, police officials said. They are forbidden from travelling to the mainland, where most state-run shelters are. Some 8,000 people, many escaping the Syrian war, have arrived on boats from Turkey since March and are held under a European Union deal with Ankara designed to seal off the main route into Europe for over a million people since 2015.

Under the deal, those who do not seek asylum in Greece – and those who are rejected – will be sent back to Turkey. Asylum applications are piling up and rulings can take weeks. The United Nations refugee agency UNHCR said it was supporting government efforts to create new spaces. “All parties are working very hard to meet the needs of the human beings present on Greek islands,” said Chris Boian, a spokesman in Greece. Asked if those stranded on the islands were vulnerable to human traffickers offering to take them to the mainland, Boian said: “The risk does exist and that is the one reason UNHCR advocates full access to asylum and expansion of the asylum service and alternative legal entry channels (to Europe).”

Human rights groups said the government was not doing enough to provide asylum seekers with shelter and medical care while they wait. On Lesbos, many head to an open, municipality-run site. Those who can afford it check into hotels. Others sleep in the open. “Every country that asks people to wait in a certain place has to provide them with basic facilities. That’s not done by Greece,” said Amnesty International’s deputy Europe director, Gauri van Gulik. “It’s either – you’re in prison, or you can sleep rough on an island..”. A government spokesman, Giorgos Kyritis, said the government was doing its best to support refugees and migrants in Greece at the open reception centres, nearly all of which are on the mainland. “The government cannot afford to support these people financially on an individual basis. It’s doing whatever it can to support them in the context of its limited capabilities,” he said.

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 September 23, 2014  Posted by at 11:28 pm Finance Tagged with: , , , ,  5 Responses »
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Christopher Helin Service truck at Dodd warehouse, San Francisco 1919

Increasingly, the way the ‘booming recovery’ is presented to the public is so out there you could be pardoned for thinking someone is getting desperate. Like, really? Let’s start off with US housing. Here’s a few tidbits from a piece on Bloomberg today, and then we’ll compare that with something that’s 180º different, and I strongly suggest you be the judge. It’s not like you’ll be needing me to do the judging for you (not that you ever do, that’s not what I mean). I’ll give you a fair bit of quotes, just so you get a real good idea what exactly the picture is Bloomberg tries to paint here:

Housing to Outrun Capital Spending in Next Leg of US Growth

Residential investment grew at a 7.2% annualized rate in the second quarter and business outlays for equipment, structures and intellectual property rose at an 8.4% pace. Longer-run projections from Goldman Sachs show home construction will grow 10% to 15% by 2015-2016, while capital spending eases to about 5%. It’s a reminder of how “very different” this recovery is, Chief Economist Jan Hatzius said in an e-mailed response to questions.

“Normally, people think of housing as an early-cycle sector and capex as a late-cycle sector,” New-York based Hatzius said. “It is quite unusual for a housing recovery to lag a capital-spending recovery.” Given housing’s far-reaching ripple effects, an upturn in homebuilding would bring about a more viable expansion, and one that has a longer life, according to Ellen Zentner, a senior economist at Morgan Stanley in New York. Business outlays are more exposed to the ups and downs of global markets and tepid U.S. demand.

“Rather than waiting, waiting, waiting for an acceleration in capex, maybe modest growth is as good as it gets,” Zentner said. On the other hand, “we still have a lot of recovery left in housing.”

Homebuilding, which accounts for about 3% of gross domestic product compared with about 12% for capital spending, matters because of its “broader linkages that will feed back into the economy” to spur household spending, wealth, hiring, and confidence, said Michelle Meyer, senior U.S. economist at BofA.

So far, though, housing has yet to provide the “typical jolt,” she said. Residential investment has added 0.15% to GDP on average since the recovery began in June 2009. Business spending contributed 0.59 point. “It’ll be a bumpy housing recovery, but the path is higher,” Meyer said, citing tailwinds from improving employment, credit and historically low mortgage costs. “We just don’t have the housing stock we need to meet demand. Housing has by no means plateaued here.”

Companies will find reason to invest in the U.S. in the next decade, said Joe Carson, AllianceBernstein LP’s director of global economic research. The economy-wide spillover from the domestic energy boom is still nascent, state governments have a growing ability to fix aging infrastructure, and companies “will have to invest to grow” in order to boost profits, he said. All this will “unleash a powerful cycle” for business investment, helping stem the productivity slowdown that has restrained growth, Carson said.

The housing market probably has more potential. Beginning home construction has averaged a 976,000 annualized pace this year. Longer term, the demand for new houses may reach 1.5 million to 1.6 million a year, in part because millennials, those born after 1980, will start families and become more open to homeownership, according to Goldman Sachs analysts. Luxury-home builder Toll Brothers Inc. is hoping for better times ahead even as fragile consumer confidence and limited wage growth have led to “choppy seas and a sloppy boat ride” so far in this recovery, Robert Toll, the Horsham, Pennsylvania-based company’s chairman, said.

Based on trends over more than 40 years, “the industry should be building 50% more homes this year than its current pace to meet the increased population demographics,” Toll said on a Sept. 3 earnings call. “At some point, this pent-up demand will be released, which will add momentum to the entire housing market.”

That sounds boomy, doesn’t it? We’re preparing for lift-off, that’s what that says. But then Martin Andelman, aka Mandelman, had this a month ago on Aaron Krowne’s ML Implode site, h/t Dave Stockman. And then the picture changes, and looks, let’s say, somewhat different. Long quotes again, I’m sorry, but it’s because Mandelman is such a great writer.

Mortgage Originations Are Down by 60-70% Year-Over-Year… But Everything’s Okay

Mortgage originations for the first quarter of this year fell off a cliff. JPMorgan reported a decline of 71%, as I recall, and I think Citibank reported a drop of 66%. Now, the second quarter’s bloodletting has come in and the numbers are about the same… down more than 60% year-over-year, if memory serves and it often does. I’m not bothering to look any of these numbers up and doing this by memory because the details don’t matter… my point will be the same regardless of a few%age points in one direction or another on any given statistic. I’m close enough in all cases, anyway.

Forbes reported that the first quarter of 2014, “saw the lowest mortgage origination volumes since Q3 1997.” And the headline, “MBA Lowers Mortgage Originations Forecast”, came with a story explaining that “the updated refinance total is around 60% lower than 2013 refinance originations.” Even credit unions went straight into the tank this year, originating an annualized $42.6 billion in real estate loans in the first quarter, down from $102.9 billion in the first quarter of 2013, according to an Nation Credit Union Association (NCUA) press release.

Black Knight Financial Services released in March that loan originations were down 60% year-after-year, declining to the lowest level since November of 2008. And on August 12th, Origination News ran the headline: “The Refi Boom is Officially Over – And Won’t return Soon,” explaining that Freddie Mac has finally recognized that the refinancing boom that ended last summer… has ended… last summer… and that home sales this year have remained “lackluster.”

The Mortgage Bankers Association released its first 2014 forecast last October, predicting $1.2 trillion in total originations for the year, but those numbers were revised down in January and again in May. The current forecasts are for $1.01 trillion in total origination volume for the year. Last year total volume was $1.8 trillion, and $1.1 trillion of that volume came in the form of refis.

And finally, HARP origination volume has been down a staggering 70% year-over-year with only one third as many eligible loans remaining as compared with 2013. Estimates are that cash sales are running at 40% of sales, which combined with the data provided above, should tell you how few sales there actually are in the aggregate. My grandmother would say the mortgage industry is furchtbar, I would use a similar sounding word also beginning with the letter “F,” but we’d mean roughly the same thing.

Now, name another industry that’s ever seen year-over-year drops in sales volume like that. I’ve been trying to come up with one… maybe typewriter sales in 1996, 1987 or 1988? I don’t actually think there has ever been an industry that reported year-over-year declines in sales volume of 70%, and if there was, I’m betting the industry became the corporate equivalent of the Dodo bird sometime shortly after that.

In April of this year, the New York Times ran a story about, “Why the Housing Market is Still Stalling the Economy.” The author seemed to think housing is pretty darn important to our economic growth or malaise.

“Investment in residential property remains a smaller share of the overall economy than at any time since World War II, contributing less to growth than it did even in previous steep downturns in the early 1980s, when mortgage rates hit 20%, or the early 1990s, when hundreds of mortgage lenders failed.” “If building activity returned merely to its postwar average proportion of the economy, growth would jump this year to a booming, 1990s-like level of 4%… The additional building, renovating and selling of homes would add about 1.5 million jobs and knock about a%age point off the unemployment rate… That activity would close nearly 40% of the gap between America’s current weak economic state and full economic health.”

You don’t need to be any sort of economist to understand that people forming households would be a major driver of any country’s economic growth, right? I mean, all you’d have to do is look in my garage to figure out why that would be the case. If I weren’t married, I might not even own a full set of dishes. So, if household formation is running at 569,000 annually for the last 4-5 years, but was 1.35 million for the prior five years… well, how is everything okay?

So, the mortgage industry has seen originations fall in a single year by 60-70%, but the housing markets are okay, in fact they’re recovering all around us every day, and prices are up. Mortgage originations get more than cut in half over six months, but everything’s okay… GDP is still rising and the June jobs report was strong… because obviously the mortgage industry and housing doesn’t contribute to any of it. But that can’t be right, can it?

Any industry that experienced a 70% drop in sales would see bankruptcies popping like popcorn, but not this one. Not this industry… not mortgage originators. Somehow housing and mortgages have been painted with invisible ink, and can no longer be seen by anyone.

So there’s your US recovery, and as I said, you be the judge. Do we still have a lot of recovery left, or does a 60-70% drop in mortgage originations basically doom the industry?

Tokyo based Bill Pesek had a nice piece at Bloomberg of all places, about Australian real estate. He has Oz Treasurer Joe Hockey claim that “fundamentally, we don’t have enough supply to meet demand.” As if, fundamentally, nothing matters other than available ‘products’, as if available wealth or income don’t matter.

Irrational Exuberance Down Under

In “Australia: Boom to Bust,” Lindsay David sounds the alarm about an Australian housing bubble he argues makes the 12th-biggest economy a giant Lehman Brothers. His thesis can be boiled down to the number 9 – the ratio of home prices to income in Sydney. The multiple compares unfavorably with 7.3 in London, 6.2 in New York and 4.4 in Tokyo (Melbourne is 8.4).

Housing is one of the three pillars of the Australian economy, along with financial institutions and natural resources. Politicians and investors alike, David writes, don’t get “how deeply intertwined and connected” these sectors are and “how they can easily take each other down in a domino effect.” The most obvious trigger would be a Chinese crash that simultaneously hits bankers, miners and households hard.

I caught up with David last week in Sydney at a Bloomberg conference where I helped grill Treasurer Joe Hockey about these very topics. When I asked Hockey point blank whether Australia faced a huge property bubble, he dismissed the entire premise out of hand. “It is just an easy mantra for international commentators and for analysts based overseas to say, ‘Well, there’s a bit of a housing bubble emerging in Australia,’” Hockey retorted. “That is a rather lazy analysis because fundamentally we don’t have enough supply to meet demand.”

Two hours later, Australia’s central bank raised concerns about “speculative demand” that “could amplify the property price cycle and increase the potential for property prices to fall later.” [..]

There’s something dangerously wrong when Australia’s top economic official is blowing off fears of asset bubbles and heightened leverage. Hockey’s acerbic dismissal of the danger smacks of hubris. Home prices are seen rising between 8% and 12% in 2015 in Sydney and roughly 9% across Australia’s major cities. How can that make sense, in an already frothy market?

In a striking bit of serendipity, G-20 officials met in Australia over the weekend to chew over the very risks Hockey had just dismissed. The communique they issued concluded: “We are mindful of the potential for a build-up of excessive risk in financial markets, particularly in an environment of low interest rates and low-asset price volatility.”

Funny you should mention China (I’m sure you feel the same way). Obviously, there have been ‘rumors’ about challenges to Chinese growth for a while, but they get real now. China runs a lot of its industry on coal, but lately there’s not so much industry. Oh wait, let’s set this one up properly, with another one of Bloomberg’s happy pieces. And only then touch down on reality.

Manufacturing Rebound Relieves Growth Concerns in China

A Chinese manufacturing gauge unexpectedly increased this month, suggesting export demand is helping the economy withstand a property slump. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.5, matching the highest estimates in a Bloomberg News survey of analysts and up from August’s final reading of 50.2. Asian stocks pared declines, the Australian dollar rallied and copper advanced.

“We thought the weakness would continue, but there is a slight pickup, so this is definitely positive for the market,” said Lu Ting, Bank of America Corp.’s head of Greater China economics in Hong Kong. Robust export demand is helping China weather a property slump. China’s trade surplus climbed to a record in August as exports rose on the back of increased shipments to the U.S. and Europe. New-home prices fell in all except two of the 70 cities monitored by the government last month, the statistics bureau said last week, the most since January 2011, when the go

Isn’t that great? We’re saved! Only, there’s this:

Chinese Coal Industry Deepens Push For Output Cuts

An industry body representing China’s coal-mining industry has vowed to continue its push for output reductions in a bid to lift power-station coal prices by 20% from their trough, according to state media. Wang Xianzheng, the chairman of the China National Coal Association, told an annual meeting of the Coal Industry Committee of Technology at the weekend that more than 70% of the country’s coal miners were losing money and had cut salaries. About 30% of the industry’s miners had not been able to pay their employees on time and a further 20% had cut salaries by more than 10%, the Economic Information Daily, a Xinhua-affiliated newspaper, reported on Monday.

Due to weak economic conditions, coal output fell 1.44% year on year in the first eight months of this year to 2.52 billion tonnes, while sales dropped 1.62% to 2.4 billion tonnes, the association’s figures show. Coal inventory last month stayed above 300 million tonnes for a 33rd month. However, the coal price has rebounded “slightly” this month as imports and stocks fell. China’s main coal ports recorded an 8.3% year-on-year decline in inventory at the end of last month, and the national import volume fell 27.4% year on year to 18.86 million tonnes, the association’s figures showed.

And no, China hasn‘t switched to wind or solar all of a sudden. Coal drives China’s boom, or has so far at least, and now its coal industry is hitting pretty bad limits. Beijing is trying to keep he illusion of a 7.4% growth rate alive, but that’s not going to work with its main energy source with coal output actually falling (not just growing less fast), is it? And it’s not just coal either. China has the global Big Iron Ore industry trying to topple its domestic production. Which is not only a lovely set-up for a trade war, it’s also a sure sign of a collapsing economy.

Big Miners Struggle To Tame China With Iron Ore Glut

Plans by the world’s top iron ore miners to knock out high-cost rivals with a flood of cheap ore have had some success, but are meeting resistance where they had hoped to make the biggest inroads – in China. A large number of small, high-cost Chinese mines have been forced to shut by a collapse in global prices but, overall, domestic output is increasing as the big state-backed producers expand or consolidate. “Those mines that belong to steel mills or to central government enterprises – and those that were constructed relatively early and where resources are good – all have room for survival,” said Lian Minjie, general manager of Sinosteel Mining, a subsidiary of one of China’s biggest state trading firms, at an industry conference this month.

And:

Iron Ore Industry Heads For Brutal Shakeout As Prices Collapse

A bloodbath in iron-ore prices could get much uglier before things turn around. And it’s not all China’s fault, either. While Chinese demand, a major force in the market, has slowed, big iron ore producers, including Brazil’s Vale, BHP Billiton, Rio Tinto and Fortescue plan to boost production and shipments despite the glut. Australian producers BHP Billiton, Rio Tinto and Fortescue aim to boost output by 170 million tons this year, equal to around 7% of 2013 global supply and 11% of global production outside China, notes Capital Economics. Vale and Anglo-American are also looking to increase output, too. Why are they boosting production in the face of falling demand?

“It’s because their marginal cost of production is much lower than many of the smaller players globally; and because they operate in different segments, they can absorb a large hit in iron ore mining profitability that others cannot survive,” said Ben Ryan, an analyst at Hedgeye Risk Management, in an email. “They’re ultimately admitting we’re in a downtrend in raw minerals mining (iron ore, copper, and coal) and the announcement to increase production despite prices [being down] 40% year-to-date works to squeeze lower cost producers on the way down. The expectation for the global supply increase works with the apparent decrease in demand to push prices lower. Eventually enough producers get squeezed out of the market and this supply/demand dynamic bottoms out then reverses.”

If I were Washington, I’d be telling Big Iron to be careful about declaring war on China. But then that’s just me. For all I know, this is just what Capitol Hill wants.

The point I try to make is that most of what you read in the press is so far away from what is really happening, it’s taken on absurd proportions.

No, US housing is not doing fine, and it doesn’t have a lot of upside potential. It has none. And no, Australia is not going to be fine, with its one-dimensional dependency on China, And also no, China is not what even western media try to make it out to be, China is drowning in a sea of debt.

The whole global economy is still falling to bits, and you’re about to fall with it. That’s all I’m trying to point out to you. Debt is bringing us down, and because we have tried to prevent that from happening by issuing more debt, we will plunge that much deeper and faster. And that’s not just one of multiple possible options, it’s the only one.

US Begs For More Growth, But Europe Remains Unmoved (MarketWatch)

Not for the first time in recent years, U.S. calls for Europe to help bolster the world economy are likely to get short shrift. Jack Lew is the latest U.S. Treasury secretary to fall into the traditional transatlantic abyss of economic-policy misunderstanding. Lew’s references at the weekend G-20 finance ministers meeting in Cairns, Australia, to “philosophical differences with our friends in Europe” is a delicate way of urging countries with current-account surpluses, led by Germany, to agree to boost short-term demand to stimulate growth. Lew’s actions mirror the frustration over Europe felt by his predecessor Tim Geithner, who eventually abandoned any attempt to browbeat the Europeans because he realized his entreaties were counterproductive. Underlining the force behind the U.S. campaign, the OECD has significantly downgraded major countries’ growth forecasts. Last week it reduced its prediction for the U.S. GDP rise this year to 2.1% from 2.6% in its previous forecast in May, for the euro area to 0.8% from 1.2%, and for Japan to 0.9% from 1.2%.

For the U.K. and Canada, the downgrades were much smaller: to 3.1% from 3.2%, and to 2.3% from 2.5%, respectively. The OECD called recovery in the eurozone “disappointing, notably in the largest countries: Germany, France and Italy”. It said “confidence is again weakening” and demand was “anemic,” calling on the European Central Bank to take “more vigorous monetary stimulus.” Underlining the lack of demand in Europe’s biggest economy, German domestic forecasters say Germany is on track for a current-account surplus of around €200 billion this year, the highest ever, more than 7% of gross domestic product. According to the European Commission, current- account surpluses of above 6% of GDP are sources of regional and international economic imbalance, yet Germany has registered surpluses of this size for eight of the nine years since 2006, the sole exception being 2009, when the surplus was 5.9%.

German officials have hinted that, if growth continues to disappoint, some form of override to next year’s official-declared goal of a balanced budget may be in store. A combination of lower taxes and higher discretionary spending in areas like infrastructure could be Berlin’s response to growth prospects badly dented by sanctions on Russian trade, moribund eurozone activity and a significant slowdown among the large emerging-market economies. Yet, as always, Berlin will be dragged into stimulus only with great reluctance — with the result that anything the Germans do will inevitably be too little and too late to do much good. The outlook for significant ECB quantitative easing meanwhile remains bedeviled by deep-seated legal and ideological differences with Germany.

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Read my piece Sep 22.

Ready for Rate Riot? Emerging Markets Set to Follow Fed (Bloomberg)

Investors bracing for higher interest rates from the Federal Reserve in 2015 need to expand their horizons or risk being caught off-guard. Bank of America Merrill Lynch economists suggest 12 of the 16 inflation-targeting emerging-market central banks they monitor will raise rates in the next year, and many will do so by more than markets anticipate. Mexico, Thailand, Hungary, and Israel are among the most likely to surprise, economists Marcos Buscaglia and Ana Madeira said in a Sept. 12 report to clients. Following the Fed, even at the risk of crimping growth, would represent an effort to prevent a spike of inflation and keep attracting foreign cash. Capital flows into emerging-market economies averaged $1.1 trillion a year from 2010 to 2013, compared with $697 billion from 2003 to 2007, according to the International Monetary Fund. That helps explain why nine of the 16 central banks reduced their key rates this year and another three kept them on hold.

A potential sign of things to come when the Fed does start tightening the monetary spigot: The Washington-based Institute of International Finance estimates emerging markets attracted just $9 billion in portfolio investments in August, down from an average of $38 billion over the prior three months. Buscaglia and Madeira, who expect the Fed to move in June, say while investors anticipate tighter policy in Brazil and South Africa, there will also be more aggressive increases elsewhere. Only Poland will have easier credit by the end of next year and low inflation will keep the Czech Republic and South Korea on hold, the economists predict. Whether there will be a repeat of 2013’s “taper tantrum” will depend on the Fed’s pace, said Pablo Goldberg, senior strategist at BlackRock Inc. “If it moves very fast then that brings some stress,” he told reporters in London today.

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The Dollar Becomes The Market’s Crystal Ball On US Rates (CNBC)

Forget stocks and bonds; the currency market is looking into the future of monetary policy. The dollar index is sitting at the highest levels since summer 2010, coming off a 10th consecutive week of gains. Data from the Commodity Futures Trading Commission showed last week that hedge funds and other large speculators are holding a decidedly bullish $31.42 billion net long position. So why the sudden and sharp move higher for the U.S. currency, even as the Federal Reserve last week said it would keep interest rates low “for a considerable time”? Arguably, the currency and bond market may have been more focused on the so-called dot plot, which showed some Fed officials projecting interest rates will have to rise faster when the time comes next year. After Fed Chair Janet Yellen made her case, the dollar index shot up with bond yields, and equities soared to new highs.

What’s behind the dollar’s muscularity? Economists say the greenback’s new fans are reacting to growing confidence in the U.S. economy. “The strength is telling you something about how the FX market is assessing the relative economic outlook in the U.S.,” according to Gluskin Sheff’s chief economist, David Rosenberg. At the same time, interest rates in the U.S. have remained relatively stable. They have risen modestly, but have failed to match the dollar’s torrid gains. The 10-year note yield, for instance, is off the low of 2.33% seen at the end of August. “There is no doubt that the dollar has moved more substantially than U.S. interest rates,” said Jens Nordvig, managing director and head of fixed income research and global head of currency strategy at Nomura. “From a global perspective, there is a bit of a conundrum. Why is the dollar so strong, when rates are so relatively stable?” Nordvig asked.

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Prospects Of US Rate Hikes Fuel Market Division (CNBC)

The divergence in play for much of this year is a theme likely to dominate in the days and months ahead. The market is grappling with the Federal Reserve and prospects of higher interest rates along with weak growth globally, or, as Cameron Hinds, regional chief investment officer at Wells Fargo Private Bank, put it, “Two negative arguments off of two different themes.” Last week, the Federal Open Market Committee repeated a pledge to hold interest rates near zero for a “considerable time” once the Fed is done with its asset-purchase program next month. The central bank also hiked its median estimate for the federal funds rate at the end of next year to 1.375% versus 1.125% in June. “Bonds are saying they don’t believe Fed will raise as quickly as what they (FOMC members) are saying,” Hinds said. “The bond and equity markets are in somewhat of a tug of war, with both signaling different market views as to when rate rises could occur,” said Peter Cardillo, chief market economist at Rockwell Global Capital.

The divergence trend is conspicuous in both markets and economies, with strength in the U.S. and U.K. standing in contrast to softer growth in Europe, and central bank policies on markedly differing courses as a result. “The U.S. Federal Reserve’s latest estimate of interest rates suggested a sooner-than-anticipated move away from ultralow rates. At the same time, a ‘no’ vote in last week’s Scottish referendum cleared the way for a rate hike by the Bank of England,” Russ Koesterich, global chief investment strategist at BlackRock, said in a research note. The European Central Bank is contending with very different problems of how to expand its balance sheet and provide more monetary accommodation, while prospects for a Fed rate hike in 2015 are already having an impact in the U.S. bond market, with the short end of the Treasury curve rising along with the dollar, a scenario that has helped push commodity prices lower.

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Draghi Sees ECB Becoming More Active in Fight for Euro (Bloomberg)

Mario Draghi says he won’t sit back and wait for stimulus to reach the economy. The European Central Bank president said a planned asset-purchase program shows that policy makers will steer the size of the institution’s balance sheet to avert deflation. In comments in Brussels yesterday, he underlined the need for that approach to revive the 18-nation economy. The ECB is moving to a more “active and controlled management of our balance sheet,” Draghi said in his quarterly testimony to European lawmakers. “Unacceptably high unemployment and continued weak credit growth are likely to curb the strength of the recovery. The risks surrounding the expected expansion are clearly on the downside.” Even after cutting borrowing costs for banks to record lows and offering long-term loans, Draghi is struggling to persuade them to take more ECB cash to finance lending to the real economy. In contrast to other major central banks, the ECB’s assets have shrunk by a third since 2012.

Policy makers “are determined to take back control,” said Richard Barwell, senior economist at Royal Bank of Scotland Group Plc in London. “Draghi seems convinced of the case for a major purchase program. I think he is rather less concerned about the questions of what they buy and whether they call it quantitative easing or credit easing; he’s more focused on how much they buy.” Economic growth in the euro area came to a halt in the second quarter and Draghi said yesterday that recent indicators have given no indication that the “sharp decline” in economic activity in the region has stopped. Purchasing managers indexes by Markit Economics to be published today will probably show manufacturing and services activity failed to accelerate this month, according to Bloomberg surveys of economists.

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Blah Blah!

ECB’s Draghi Says Ready To Use More Unconventional Tools (Reuters)

The European Central Bank stands ready to use additional unconventional tools to spur inflation and growth in the euro zone, ECB President Mario Draghi said on Monday. Speaking to the economic and monetary affairs committee of the European parliament, Draghi said the euro zone central bank’s Governing Council “remains fully determined to counter risks to the medium-term outlook for inflation”. “Therefore, we stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation,” Draghi said. Lower than expected demand last week for the ECB’s first offering of new long-term loans to banks, part of a stimulus programme aimed increasing lending to companies within the bloc, has raised expectations the ECB will eventually have to undertake asset purchases with new money or quantitative easing.

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Buy Buy!

Germany Inc. Splurges on US Deals Offering Escape From Europe (Bloomberg)

German companies are embarking on their biggest-ever acquisition spree in the U.S., chasing deals that promise innovation, growth and an escape route from crisis-ridden Europe. Merck yesterday agreed to acquire medical equipment manufacturer Sigma-Aldrich for more than $16 billion, in what would be the biggest acquisition in its 346-year history. Hours earlier, Siemens said it would buy Dresser-Rand, a provider of energy equipment based in Houston, for $7.5 billion. In two deals last week, SAP agreed to buy Concur Technologies for $7.4 billion, and ZF Friedrichshafen bid $11.7 billion for TRW Automotive. So far this year, German firms have announced about $65 billion in U.S. deals – almost 18 times the $3.7 billion in the same period of 2013 – eclipsing the sixfold increase in U.S. acquisitions by European companies overall. Hamstrung by sanctions on Russia and unrest in the Middle East, the corporate giants of Europe’s largest economy are using takeovers to reshape strategies and buy into a U.S. recovery that’s outpacing the rest of the developed world.

“Uncertainty about the long-term economic outlook for Europe is motivating companies to seek locations abroad for future investments, and North America is still one of the key targets for that,” said Christoph Kaserer, a professor and head of the department of financial management and capital markets at Munich’s Technische Universitaet. “We’ve already seen a number of such deals and there’s more to come for sure.” Merck, based in Darmstadt, is purchasing St. Louis-based Sigma-Aldrich to expand in chemicals used in research labs and pharmaceutical manufacturing and reduce its dependence on drug development. The acquisition will accelerate the family-controlled company’s shift away from developing pharmaceuticals, at a time when its Serono biotechnology business has struggled to create new products. Siemens, which is simultaneously selling its 50% stake in a household-appliances joint venture with Robert Bosch GmbH, is buying Dresser-Rand to participate in the shale-gas boom that’s driving the U.S. recovery, and is yet to materialize in Europe.

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READ!

Why Aren’t The British Middle-Classes Staging A Revolution? (Telegraph)

Why aren’t the middle classes revolting? Words you probably never thought you’d read in the Telegraph. Words which, as a Gladstonian Liberal, I never thought I’d write. But seriously, why aren’t we seeing scenes reminiscent of Paris in 1968? Moscow in 1917? Boston in 1773? My current fury is occasioned by the Phones4U scandal (and it really is a scandal). Phones4U was bought by the private equity house, BC Partners, in 2011 for £200m. BC then borrowed £205m and, having saddled the company with vast amounts of debt, paid themselves a dividend of £223m. Crippled by debt, the company has now collapsed into administration. The people who crippled it have walked away with nearly £20m million, while 5,600 people face losing their jobs. The taxman may also be stiffed on £90m in unpaid VAT and PAYE. It’s like a version of 1987’s Wall Street on steroids, the difference being that Gordon Gecko wins at the end and everyone shrugs and says, “Well, it’s not ideal, but really we need guys like him.”

I’m not financially sophisticated enough to understand the labyrinthine ins and outs of private equity deals. But I don’t think I need to be. Here, my relative ignorance is actually a plus. You took a viable company, ran up ridiculous levels of debt, paid yourselves millions and then walked away, leaving unemployment and unpaid tax bills in your wake. What’s to understand? We should be calling for your heads on a plate. This column is supposed to be a “lifestyle” column, not a “business” column. So, you might ask yourself, why am I writing about conscience-free private equity deals? Well, it’s because, assuming that you’re part of the broad middle class who make up the vast majority of the Telegraph’s readership, this is the most important lifestyle issue you’ll ever face. Instead of shrugging and saying, “This is the world we live in” you should be on the streets, you should be calling for this sort of thing to be a jailable offence, and you should want to see these guys up in front of parliament (or, better yet, in stocks) explaining why they made around £3,500 for every person they put out of a job.

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Big Miners Struggle To Tame China With Iron Ore Glut (Reuters)

Plans by the world’s top iron ore miners to knock out high-cost rivals with a flood of cheap ore have had some success, but are meeting resistance where they had hoped to make the biggest inroads – in China. A large number of small, high-cost Chinese mines have been forced to shut by a collapse in global prices but, overall, domestic output is increasing as the big state-backed producers expand or consolidate. “Those mines that belong to steel mills or to central government enterprises – and those that were constructed relatively early and where resources are good – all have room for survival,” said Lian Minjie, general manager of Sinosteel Mining, a subsidiary of one of China’s biggest state trading firms, at an industry conference this month. After rapid expansion, global miners such as Rio Tinto and BHP Billiton had expected swathes of high-cost Chinese iron ore capacity to shut, helping to arrest a price decline of around 40% this year.

Iron ore ended last week at $81.70 a ton and Li Xinchuang, deputy secretary general of the China Iron and Steel Association, told a conference on Monday it could hover around $80 over the long term. Morgan Stanley has forecast a drop to $70 before a rally to $90 by year-end. Rio Tinto said this month it expected 125 million tons of capacity to be taken out around the world in 2014 and that 85 million tons had already been cut, notably in China, Indonesia, Iran, South Africa and Australia. Even so, output in China in the first eight months of 2014 rose 8.5% from a year before to a record 986 million tons, according to the National Bureau of Statistics. “Many mines aren’t closing down because they are part of the production chain of the big steel mills and they are usually located quite close to the steel production facilities,” said a manager with a private iron ore producer in southern China’s Hainan province.

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Iron Ore Industry Heads For Brutal Shakeout As Prices Collapse (The Tell)

A bloodbath in iron-ore prices could get much uglier before things turn around. And it’s not all China’s fault, either. While Chinese demand, a major force in the market, has slowed, big iron ore producers, including Brazil’s Vale, BHP Billiton, Rio Tinto and Fortescue plan to boost production and shipments despite the glut. Australian producers BHP Billiton, Rio Tinto and Fortescue aim to boost output by 170 million tons this year, equal to around 7% of 2013 global supply and 11% of global production outside China, notes Capital Economics. Vale and Anglo-American are also looking to increase output, too. Why are they boosting production in the face of falling demand? “It’s because their marginal cost of production is much lower than many of the smaller players globally; and because they operate in different segments, they can absorb a large hit in iron ore mining profitability that others cannot survive,” said Ben Ryan, an analyst at Hedgeye Risk Management, in an email.

“They’re ultimately admitting we’re in a downtrend in raw minerals mining (iron ore, copper, and coal) and the announcement to increase production despite prices [being down] 40% year-to-date works to squeeze lower cost producers on the way down. The expectation for the global supply increase works with the apparent decrease in demand to push prices lower. Eventually enough producers get squeezed out of the market and this supply/demand dynamic bottoms out then reverses.” The situation illustrates the very low cost base for the biggest producers. Caroline Bain, senior commodity analyst at Capital Economics, noted earlier this month that iron ore from Australia’s Pilbara region costs just $20 to $25 a ton to extract. Even with freight costs and royalties, the final cost come in at around $50 to $60 a ton, she calculates. That compares with an average production cost of around $110 a ton in China, she said.

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Money-Bleeding Chinese Coal Industry Deepens Push For Output Cuts (SCMP)

An industry body representing China’s coal-mining industry has vowed to continue its push for output reductions in a bid to lift power-station coal prices by 20% from their trough, according to state media. Wang Xianzheng, the chairman of the China National Coal Association, told an annual meeting of the Coal Industry Committee of Technology at the weekend that more than 70% of the country’s coal miners were losing money and had cut salaries. About 30% of the industry’s miners had not been able to pay their employees on time and a further 20% had cut salaries by more than 10%, the Economic Information Daily, a Xinhua-affiliated newspaper, reported on Monday.

Due to weak economic conditions, coal output fell 1.44% year on year in the first eight months of this year to 2.52 billion tonnes, while sales dropped 1.62% to 2.4 billion tonnes, the association’s figures show. Coal inventory last month stayed above 300 million tonnes for a 33rd month. However, the coal price has rebounded “slightly” this month as imports and stocks fell. China’s main coal ports recorded an 8.3% year-on-year decline in inventory at the end of last month, and the national import volume fell 27.4% year on year to 18.86 million tonnes, the association’s figures showed.

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Russia And China Forming Closer Ties: Total CFO (CNBC)

U.S. and European Union sanctions against Russia are having the unintended consequence of helping the nation form closer bonds with China, according to Patrick de la Chevardière, the chief financial officer of oil major Total. Since the annexation of Crimea back in March, and Moscow’s alleged backing of pro-Russian rebels in the east of Ukraine, the West has moved to stifle lending to the country with a series of penalties. These sanctions have changed the global landscape for the energy sector, Chevardière said. “Russia and China are close together. “As far as what I can see today, this is the result of what is currently happening,” he told CNBC on Tuesday. “It’s already changed the Russian position towards China; they are opening the door to China in their industry. They are selling gas and oil to China which was not the case three years ago.”

While this is not an immediate concern for Total, which owns a Russian subsidiary, it could hit Europe, which continues to rely on Russia for oil and gas despite growing tensions between the two regions. The sanctions have affected the oil major, making it difficult for the company to invest in Russia because of the rules regarding financing in U.S. dollars. Chevardière said this was not “peanuts” and had hit an important part of the business. It is currently trying to raise financing streams for future projects in the region, he added. This week, the French company announced plans to sell off more assets and overhaul exploration after it cut its 2017 oil output target to 2.8 million barrels of oil per day, from a previous 3 million per day.

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BlackRock Urges Changes in ‘Broken’ Corporate Bond Market (Bloomberg)

BlackRock, the world’s biggest money manager, said the marketplace for corporate bonds is “broken” and in need of fixes to improve liquidity. BlackRock, a major competitor in the bond market with $4.3 trillion in client assets, urged changes including unseating banks as the primary middlemen in the market and shifting transactions to electronic markets. Another solution BlackRock proposed: reducing the complexity of the bond market by encouraging corporations to issue debt with more standardized terms. Banks have retained their stranglehold on corporate debt trading despite years of effort by BlackRock and other large investors to eliminate their oligopoly. The top 10 dealers control more than 90% of trading, according to a Sept. 15 report from research firm Greenwich Associates. To BlackRock, the dangers of price gaps and scant liquidity have been masked in a benign, low interest-rate environment, and need to be addressed before market stress returns.

“These reforms would hasten the evolution from today’s outdated market structure to a modernized, ‘fit for purpose’ corporate bond market,’” according to the research paper by a group of six BlackRock managers, including Vice Chairman Barbara Novick and the head of trading, Richie Prager, posted on the New York-based firm’s website today. Rules issued in 2010 by the Basel Committee on Banking Supervision and the Dodd-Frank Act passed by Congress prompted Wall Street bond dealers to cut their inventories of the debt, even as the market has expanded. With their capacity to act as market makers greatly reduced, the old over-the-counter market has been rendered outdated, according to BlackRock.

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Barbarism Versus Stupidism (Jim Kunstler)

In my lifetime, the USA has not blundered into a more incoherent, feckless, and unfavorable foreign policy quandary than we see today. The US-led campaign to tilt Ukraine to Euroland and NATO — and away from the Russian-led Eurasian Customs Union — turned an “intelligence” fiasco into a strategic humiliation for the Obama White House. Notice that the story has vamoosed utterly from the American media headlines, even when the Russian Engineers’ Union issued a report last week asserting that the Malaysian Airlines Flight MH17 was most likely shot down by 30mm cannon fire from Ukrainian military aircraft. The USA State Department didn’t deign to refute it because doing so would have drawn attention to the fact that it was the only plausible explanation for what happened.

Likewise, the campaign to paint Vladimir Putin as Stalin-in-a-judo-robe never really reached take-off velocity, since by all appearances he was the most rational and cool-headed actor on the geopolitical stage, following logical and long-established national interests. If the West had just left Ukraine alone, and allowed it to join the Eurasian Customs Union, that basket-case nation would have been Russia’s economic ward. Now the US and the EU have to support it with billions in loans that will never be paid back. Meanwhile, our European allies have been snookered into a set of economic and financial sanctions against Russia that guarantees they’ll be starved for oil and gas supplies in the winter months ahead. Smooth move. So, the reason that all this has vanished from the news media is that it’s game-over in Ukraine. We busted it up, and can do more with it, and pretty soon the rump Ukraine region run out of Kiev will go crawling back to Russia begging for a little heating fuel.

Does any tattoo-free American adult outside the Kardashian-NFL mass hypnosis matrix feel confident about the trajectory of US policy regarding the so-called Islamic State (ISIS, ISIL)? First, there is the astonishing humiliation that this ragtag band of psychopaths managed to undo ten years, 4,500 US battle deaths, and $1+ trillion worth of nation-building effort in Iraq in a matter of a few weeks this summer. The US public does not seem to have groked the damage to our honor, self-confidence, and international standing in this debacle.

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Who cares?

Billionaires Are Hoarding Piles Of Cash (CNBC)

Billionaires are holding mountains of cash, offering the latest sign that the ultra-wealthy are nervous about putting more money into today’s markets. According to the new Billionaire Census from Wealth-X and UBS, the world’s billionaires are holding an average of $600 million in cash each—greater than the gross domestic product of Dominica. That marks a jump of $60 million from a year ago and translates into billionaires’ holding an average of 19% of their net worth in cash. “This increased liquidity signals that many billionaires are keeping their money on the sidelines and waiting for the optimal moment to make further investments,” the study said. Indeed, billionaires’ cash holdings far exceed their investments in real estate. Their real-estate holdings average $160 million per billionaire, or about one-fifth of their cash holdings.

Simon Smiles, chief investment officer for Ultra High Net Worth at UBS Wealth Management, said that the billionaire families and family offices he talks to are focused largely on the same question: What to do with all their cash. “The apparent safety of cash, reinforced by the painful psychological experience of the 2008-09 global financial crisis and the subsequent troubles within the European Monetary Union, likely reinforces the tendency to favor this cautious allocation strategy,” Smiles said in the report. But he said creeping inflation threatens to erode cash values, so he’s advising clients to take on “considered amounts of risk” with interest rate swaps, credit default swaps, or selling rates or foreign exchange derivatives. Yet in today’s increasingly frothy market environment, and after the hangover of 2009, today’s billionaires prefer a return of their assets rather than a return on assets. And in fact, they may be happy with a small loss rather than risk a larger one.

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Yes!

Texas Independence MUST Happen (Texas Nationalist Movement/CNBC)

If ever an epitaph were to be written for failed governments, businesses and ideologies it would be this — “It’ll never happen.” There are few phrases that adequately capture the human capacity for denial like this one. But there is one inescapable truth that is unfolding before the eyes of the world right now. “It” never happens — until “it” does. With Scotland’s independence referendum now over, the world has had a wake up call. In a country where 10 years ago, most Scots believed that a vote on independence would never happen in 2014 — it did. And it’s been happening around the world in places where the general consensus was that it would not or could not happen. At the end of WWII, there were 54 recognized countries on the globe. At the end of the 20th century, there were 192. And in the 21st century, the number has grown even larger. Attention is now on the number of nations where independence movements have been steadily, and often silently, growing for years. And no place is getting attention like Texas.

In Texas, as part of our work with the Texas Nationalist Movement, we’ve heard “it’ll never happen” more times than we can count. But, just like in the rest of the world, it is happening right now. Regardless of the incessant arguments from those opposed to Texas independence that center around “can’t” and “won’t,” Texans are coming to the realization that it “can,” it “will” and it “must.” Prior to the Scottish referendum becoming major global news, there were more websites, polls, blogs, and discussions dedicated to the issue of Texas independence than about Scottish independence. Texas independence sentiment has been steadily rising over the last decade. This was highlighted in a recent Reuters poll. The question was asked, “Do you support or oppose the idea of your state peacefully withdrawing from the USA and the federal government?” In Texas, the numbers were surprising to some. In a state where the majority of the electorate is comprised of Republicans and Independents, among those groups, 51% support the independence of Texas.

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