Jun 232017
 
 June 23, 2017  Posted by at 9:55 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Fred Lyon Embarcadero lunch San Francisco 1948

 

Americans Are Dying With An Average Of $61,500 In Debt (ZH)
34 Biggest Banks in US Clear First Hurdle In Fed’s Annual Stress Tests (R.)
Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries (WS)
Citizens Will Soon Turn Their Rage Towards Central Bankers (Albert Edwards)
UK Homelessness Surges 34% Under Tories Since 2010 (Ind.)
UK High Court Judges Tory Policy Causes ‘Real Misery For No Purpose’ (Ind.) /span>
Buy-to-Let Uk Property Sales Fall By Almost 50% In A Year (G.)
Canada’s Private Sector Debt Growing Faster Than Any Advanced Economy (PA)
Warren Buffett Becomes Lender Of Last Resort For Canada’s Home Capital (BBG)
EU Political Class Rides Roughshod over Citizens’ Concerns & Frustrations (DQ)
Dear Oliver: About Those Putin Interviews (RM)
Arab States Send Qatar 13 Demands To End Crisis (R.)
In Yemen’s Secret Prisons, UAE Tortures and US Interrogates

 

 

Double or nothing?!

Americans Are Dying With An Average Of $61,500 In Debt (ZH)

According to a recent study, the average total household debt in America is just over $132,500, broken down as per the chart below… and thanks to the Fed’s recent and ongoing rate increases, the repayment of said debt will become increasingly more difficult. So difficult, in fact, that most Americans will be saddled with a sizable chunk of it at the time of their death. Actually, most already are. According to December 2016 data from credit bureau Experian provided to credit.com, 73% of American consumers had outstanding debt when they were reported as dead. Those consumers carried an average total balance of $61,554, including mortgage debt. Without home loans, the average balance was $12,875. As credit.com reports, the data is based on Experian’s FileOne database, which includes 220 million consumers.

To determine the average debt people have when they die, Experian looked at consumers who, as of October 2016, were not deceased, but then showed as deceased as of December 2016. Among the 73% of consumers who had debt when they died, about 68% had credit card balances. The next most common kind of debt was mortgage debt (37%), followed by auto loans (25%), personal loans (12%) and student loans (6%). The breakdown of unpaid balances was as follows: credit cards, $4,531; auto loans, $17,111; personal loans, $14,793; and student loans, $25,391. And, as a reminder, debt doesn’t just disappear when someone dies.

What happens to that debt when you die, aside from it continuing to accrue interest until someone remembers to inform the creditors? “Debt belongs to the deceased person or that person’s estate,” said Darra L. Rayndon, an estate planning attorney with Clark Hill in Scottsdale, Arizona. If someone has enough assets to cover their debts, the creditors get paid, and beneficiaries receive whatever remains. But if there aren’t enough assets to satisfy debts, creditors lose out (they may get some, but not all, of what they’re owed). Family members do not then become responsible for the debt, as some people worry they might. That’s the general idea, but things are not always that straightforward. The type of debt you have, where you live and the value of your estate significantly affects the complexity of the situation. For example, federal student loan debt is eligible for cancellation upon a borrower’s death, but private student loan companies tend not to offer the same benefit. They can go after the borrower’s estate for payment.

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Let’s do a stress test that assumes the Fed is no longer around, see what happens.

34 Biggest Banks in US Clear First Hurdle In Fed’s Annual Stress Tests (R.)

The 34 largest U.S. banks have all cleared the first stage of an annual stress test, showing they would be able to maintain enough capital in an extreme recession to meet regulatory requirements, the Federal Reserve said on Thursday. Although the banks, including household names like JPMorgan Chase and Bank of America, would suffer $383 billion in loan losses in the Fed’s most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year’s level. “This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” said Fed Governor Jerome Powell, who leads banking regulation for the central bank. “This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.”

The Fed introduced the stress tests in the wake of the financial crisis to ensure the health of the banking industry, whose ability to lend is considered crucial to the health of the economy. Since the first test was conducted in 2009, big banks have seen losses abate, loan portfolios improve and profits grow. The banks that now undergo the exam have also strengthened their balance sheets by adding more than $750 billion in top-notch capital, the Fed said. Banks and their investors have been hoping the improvements would prompt the Fed to allow them to use more capital for stock buybacks and dividends, especially as the Trump administration is seeking to relax financial regulations. Wall Street analysts and trade groups quickly cheered the results on Thursday, saying regulators should feel comfortable easing tough rules put in place since the financial crisis. “We see today’s…stress test results as a positive for Trump administration efforts to deregulate the banks,” said Jaret Seiberg, a policy analyst with Cowen & Co.

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The biggest debts are still in mortgages. Falling home prices will hurt most.

Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries (WS)

The comforting news in the results from the Federal Reserve’s annual stress test is that the largest 34 bank holding companies would all survive a recession. Based on this glorious accomplishment, the clamoring has already started for regulators to allow these banks to pay bigger dividends and to blow more money on share buybacks, and for these regulators to slash regulation on these banks and make their life easier and riskier in general. We don’t want these banks to survive a recession in too good a condition apparently. And it would likely be better for Wall Street anyway if banks could lever up with risks so that a few of them would get bailed out during the next recession. Let’s remember, for the Fed’s no-holds-barred bailout-year 2009, Wall Street executives and employees were doused with record bonuses.

The Fed’s bailouts were good for them. And it has been good for them ever since. The less comforting news in the stress test is that credit card debt – generally the most expensive and risky debt for consumers – has now moved to the top of the Fed’s worry list in the “severely adverse scenario” of the stress test. The projected losses for the 34 largest banks – not counting the losses at the 4,997 smaller banks – are expected to hit $100 billion, up nearly 9% from the stress test a year ago. The projected losses rose for several reasons, including that credit card balances have grown by 5.6% from a year ago to over $1 trillion. The delinquency rate has risen to 2.4%. The Fed is also blaming looser lending standards. Sharing the top spot on the Fed’s worry list in the “severely adverse scenario” are Commercial & Industrial loans, whose balances are over twice as large, at $2.1 trillion, but whose projected losses are also pegged at $100 billion. In total, the “severely adverse scenario” sees $493 billion in losses for these 34 banks:

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“..investors, drunk with the liquor of loose money..”

Citizens Will Soon Turn Their Rage Towards Central Bankers (Albert Edwards)

Albert Edwards pwrites “Theft redux: the citizens will soon turn their rage towards Central Bankers.” The core of his argument is familiar: “While politics in the West reels from a decade of economic crisis and stagnation, asset prices continue to surge on the back of continued rapid growth in G3 QE. In an age of “radical uncertainty” how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty – unelected and virtually unaccountable central bankers? I expect central bank independence will be (and should be) the next casualty of the current political turmoil.” That’s just the beginning from Edwards, who appears to be getting increasingly angrier and more frustrated with a market that makes increasingly less sense: his fiery sermon continue with the following preview of the “inevitable catastrophe that lies ahead.”

“Evidence of the impact of monetary madness on assets prices is all around if we care to look. I read that a parking spot in Hong Kong was just sold for record HK$5.18 million ($664,200). What about the 3.5x oversubscribed 100 year Argentine government bond? Sure, everything has a market clearing price, even one of the most regular defaulters in history. But what concerned me most about the story was it was demand from investors (“reverse enquires”) that prompted the issue. Is it just me or can I hear echoes of the mechanics of the CDO crisis? But no one cares when the party is still raging and investors, drunk with the liquor of loose money, are blind to the inevitable catastrophe that lies ahead. There is a lot of anger out on the streets, as demonstrated most visibly in recent elections.

Even in France where investors feel comforted that a “moderate” has gained (absolute?) power, it is salutary to remember that the two establishment parties have just been decimated by a man who had never before stood for public office! This is perhaps even more radical than Trump’s anti-establishment victory under the Republican umbrella. The global political situation is incredibly fluid and unpredictable. While a furious electorate has turned its pent up anger on the establishment political parties, the target for their rage is misguided. I am not completely alone in thinking it is the unelected and virtually unaccountable central bankers who are primarily responsible for the poverty of working people and who will be ultimately held to account in the next crisis.

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In other news: ” Government-funded new social housing has fallen 97% since 2010″.

UK Homelessness Surges 34% Under Tories Since 2010 (Ind.)

The number of families being declared homeless has rocketed by more a third since the Conservatives took power in 2010, analysis of new official statistics by The Independent has revealed. Between April 2016 and March 2017, 59,100 families were declared homeless by local authorities in England – a rise of 34% on the same period in 2010-11. The statistics paint a bleak picture of the UK housing crisis and the impact a lack of decent, affordable homes is having on thousands of families. There has been a 60% increase in the number of families being housed in insecure temporary accommodation. In particular, bed and breakfast-type hotels are increasingly being used to house families for long periods of time as local councils struggle to find them proper homes to live in.

There are now 77,240 families in England currently living in temporary accommodation – up from 48,240 just six years ago. Of these, almost fourth-fifths (78%) are families with children, meaning there are currently 120,500 children living in insecure, temporary homes. Of those being housed temporarily, 6,590 households are living in B&Bs, including 3,010 families with children. Almost half have been living in this type of accommodation, which often sees families crammed into one room and forced to share limited bathroom and cooking facilities with strangers, for more than six weeks. This is illegal under the Homelessness (Suitability of Accommodation) Order 2003, which banned local authorities from housing families with children in B&Bs for more than a six-week period.

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The Tories are done. Someone should tell them.

UK High Court Judges Tory Policy Causes ‘Real Misery For No Purpose’ (Ind.)

Today, the High Court ruled that the benefits cap, one of the Tories’ flagship welfare policies, is unlawful, because it amounts to illegal discrimination against single parents with small children. It’s likely that the Government will be forced to alter or completely scrap their benefits cap, a policy that limits the total amount a household can receive in benefits to £23,000 in London and £20,000 elsewhere in the UK. High Court judge Justice Collins described the benefit cap as causing “real damage” to single parent families and said “real misery is being caused to no good purpose”. This is the fundamental truth at the heart of Tory welfare policy – misery without progress or reason.

Welfare reform as part of the coalition government’s austerity measures has driven thousands more people into poverty and in many tragic cases, some deaths occurred after individuals were declared fit to work. Austerity was not inevitable. It was an ideologically-motivated programme designed to force the poorest and most vulnerable in our society to shoulder the burden of a financial crisis that they had less than nothing to do with creating. Four claimants brought this case to court. Two of them had been made homeless as a result of domestic violence, and were trying to work as many hours as possible while taking care of children under the age of two. Imagine fleeing an abusive partner, seeking support from a domestic violence service that’s had its funding brutally slashed by the Tory government, trying to work and look after a small child, then having your benefits cut, again by the Tory government.

The claimants are not alone. The benefits cap has inflicted a massive amount of suffering, with 200,000 children from the very lowest income families affected, as their parents’ income has fallen drastically. In real terms, this means that these children’s lives have become even more difficult, and they weren’t easy to begin with. This means a colder house, less food to eat, more shame at school due to unwashed clothes, uniforms that are too small, worn-through shoes. It means stressed, unhappy and increasingly desperate parents, and in family, children can’t fail to pick up on this mood of misery. [..] In this wealthy, highly developed country, poverty is the single biggest threat to the wellbeing of children and families. Poverty affects a quarter of all children in Britain, a massive, disgraceful, inexcusable proportion. one in five parents are struggling to feed their children, and 50% of all parents living in food poverty have gone without meals in order to give their children more to eat.

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There goes the bubble. Look out below.

Buy-to-Let Uk Property Sales Fall By Almost 50% In A Year (G.)

The number of properties bought by landlords has almost halved in a year after a tax and regulatory clampdown, prompting a leading banking body to downgrade its forecasts for buy-to-let lending in 2017 and 2018. The Council of Mortgage Lenders said buy to let had had a weak start to 2017, with lending falling faster than expected as landlords withdrew from the market in response to major tax changes and tighter lending rules. The data follows a series of recent surveys and indices suggesting the housing market is running out of steam. However, the crackdown on buy to let may have helped young people trying to get a foot on the property ladder. CML said house purchase activity was being driven predominantly by first-time buyers, with their numbers up 8% in the 12 months to April.

Buy-to-let homebuying activity was “nearly half what it was a year ago” and had averaged around 6,000 purchases a month over the last 12 months, said the body, which represents banks and building societies. The number of landlord purchases involving a mortgage was 5,300 in April this year. This compared with 10,300 in February 2016 and 11,800 in July 2015. As a result, the CML has cut its forecast for buy-to-let lending from £38bn being lent in both 2017 and 2018 to £35bn in 2017 and £33bn in 2018. The organisation warned against hitting landlords with any further changes to taxation and lending rules, saying the figures “re-emphasise the case for avoiding further changes to the tax and regulatory framework until the effect of these already in train have been properly assessed”.

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Download report here: Addicted to Debt – Tracking Canada’s rapid accumulation of private sector debt .

Canada’s Private Sector Debt Growing Faster Than Any Advanced Economy (PA)

For the first time ever, Canada’s private sector is racking up debt faster than any other of the world’s 22 advanced economies, putting the country at risk of serious economic consequences, according to new research by the Canadian Centre for Policy Alternatives. A new report authored by CCPA Senior Economist David Macdonald reveals that Canada added $1 trillion in private sector debt over the past five years ($2016), with the corporate sector responsible for the majority of it. Economies can become dependent on debt in order to fuel economic and asset price growth. With both rapid private debt accumulation and a high private debt-to-GDP ratio, even a small change in debt growth rates, brought on by changes in interest rates for instance, could have a devastating impact on the larger economy.

“Private sector debt growth is one of the best predictors of economic crisis, and Canada is now the only advanced economy squarely in the debt ‘danger zone’ of having high private sector debt that continues to rise rapidly,” Macdonald says. The report identifies several areas of concern:
• Canada has never before led the advanced economies in private debt growth;
• The last time Canada was close to leading the world in private debt growth was the early 1990s, just as housing prices plummeted and then stagnated for a decade;
• The country’s private debt-to-GDP ratio has risen by a fifth since 2011, from 182% to 218%. The US ratio currently stands at 152%;
• The $315 billion increase in household debt since 2011 ($2016) is almost entirely attributable to the rise in mortgage debt related to rapid home prices increases;
• Corporate debt is less well studied, and rose $671 billion since 2011 ($2016), accounting for two thirds of private debt accumulation over that time;
• Corporate debt was largely spent on mergers and acquisitions as well as real estate purchases, neither of which make the country more productive.

“Canada’s economy has become addicted to binging on ever more private sector debt, and weaning us off it should be our primary public policy concern,” adds Macdonald, who recommends further study of corporate debt and consideration of a housing speculators’ tax to further reign in mortgage debt increases.

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Well, it can’t be because Buffett see a bright future in Canada’s housing market. So draw your own conclusion.

Warren Buffett Becomes Lender Of Last Resort For Canada’s Home Capital (BBG)

Warren Buffett has become the lender of last resort for Home Capital. The billionaire investor agreed to buy shares at a deep discount and provide a fresh credit line for the Canadian mortgage company, tapping a formula he used to prop up lenders from Goldman Sachs to Bank of America. Buffett’s Berkshire Hathaway Inc. will buy a 38% stake for about C$400 million ($300 million) and provide a C$2 billion credit line with an interest rate of 9% to backstop the embattled Toronto-based lender, Home Capital said late Wednesday in a statement. The interest on the one-year loan would net Berkshire at least C$180 million if it’s fully tapped.

“While the terms of the new credit line with Berkshire Hathaway remain harsh, we believe the purpose of this loan is to motivate Home Capital’s management to bolster their own funding sources,” said Hugo Chan at Kingsferry Capital in Shanghai, which owns shares in Home Capital. “This again shows Mr. Buffett’s masterful capital allocation skills,” said Chan, citing his investment motto: “be greedy when others are fearful.” The financial backing from Buffett sent the stock higher Thursday, though it comes at a cost, in keeping with his past bailouts of financial firms. Buffett has buoyed some of the biggest U.S. corporations in times of trouble, including a combined $8 billion injection to prop up Goldman Sachs and General Electric when credit markets froze during the 2008 financial crisis.

In the Home Capital deal, Buffett’s firm agreed to pay an average price of C$10 a share, a 33% discount to Wednesday’s closing price of C$14.94. Berkshire would become the largest shareholder in Home Capital, which has a market value of about C$1 billion. Home Capital surged 27% to C$19 in Toronto on Thursday. That gives Buffett a 90% return on paper for the equity investment, assuming the deal goes through.

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They always have, it’s an MO.

EU Political Class Rides Roughshod over Citizens’ Concerns & Frustrations (DQ)

Merkel has expressed a willingness to go along with two central French demands — the appointment of a Eurozone finance minister and the creation of a common budget — as long as certain conditions are met. “We can of course think about a Eurozone budget as long as it’s clear that this is really strengthening structures and achieving sensible results,” she said. [..] Back on the table is a proposal to upgrade the grossly unaccountable Luxembourg-based European Stability Mechanism (ESM) into a full-fledged European Monetary Fund. As we’ve noted before, creating a European Monetary Fund (EMF) would be an important statement of intent. If Europe’s core countries are truly set on taking the EU project to a whole new level, such as by pursuing the creation of an EU army, an EU border force (with full powers), fiscal union, and ultimately political union, some form of burden sharing will ultimately be necessary.

The establishment of a fully operational EMF could be an important move in that direction. The EMF would essentially act as a fiscal backdrop to the banking system, something the Eurozone has desperately needed ever since its creation. As Bruegel proposes, it would serve as a fiscal counterpart of the ECB to guarantee the financial stability of the euro area in the event of a sovereign or banking crisis, or a threat thereof — of which there are plenty these days, in particular emanating from Italy’s broken banking system. Naturally, the creation of an EMF would deal a further blow to the fading remnants of national sovereignty in Europe. But that’s a price that many (but certainly not all) of Europe’s elite is more than happy to pay; some would say that destroying national sovereignty was the ultimate goal of the EU all along.

In a survey of more than 10,000 EU citizens and 1,800 EU elites carried out by Chatham House, of the elites, 37% believe the EU should get more powers, 28% want to keep the status quo and 31% would prefer to return more powers to individual member countries. This enthusiasm for a more centralized, more powerful EU is not shared with equal enthusiasm by European citizens: 48% want powers returned to the individual member countries. Citizens, overall, do not feel they have benefited from European integration in the same way Europe’s elite does. Whereas 71% of elites report feeling they have gained something from the EU, the figure among the public is only 34%. Even more worrisome for national leaders, a clear majority of the public — 54% — feel that their country was a better place to live 20 years ago, before the euro existed.

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I’ve seen a few parts. Liked them quite a bit.

Dear Oliver: About Those Putin Interviews (RM)

Dear Mr. Stone: I have just finished watching all four episodes of The Putin Interviews. May I give you my critique? Overall, I felt that the series is Very Good but felt just short of Great. I will explain below what I feel could have made it Great. First, I want to tell you what I really loved about it. 1. You have an easy style. I felt as if Mr. Putin was at ease with you, and you with him. You have a warm command of the English language and can transmit your ideas into language in a very personable way — an art that is missing among so many American media people these days. I felt that you drew out a candid side of Putin, well, that is, as far as a man of his intellectual prowess and disciplined self-control will allow. 2. Best moment of the show: Sitting next to Vlad and watching Dr. Strangelove! Oh my goodness, most people would not even dream of adding such a thing to their bucket list.

3. I loved the walking tour of the President’s offices and the general background of the Kremlin architecture and decor. I pay attention to the daily, tweeted photos from the Kremlin’s official account. I have seen those desks and tables a million times in the photos. But now I have them all within a mental frame, thanks to your film. Question: I was burning to know why Vlad had a pair of scissors and multi-colored construction paper in the middle of his desk, did you happen to ask him, off-camera?

Where It Fell Short Mr. Stone, I hated that so much time was wasted talking about the contrived “Russia hacked the election” meme. Hillary might not know why she lost the election, but the rest of the nation does. When my father would get on a roll with his bad jokes, Mom would tell us kids: “Don’t encourage him.” Well, you too need to stop encouraging the MSM to keep breathing life into a dead meme.

You also wasted time re-hashing Crimea. “Read My Lips,” Vlad said, “the Crimeans ASKED, BEGGED, AND VOTED to rejoin Russia.” Good grief, when McCain’s and Nuland’s beloved neo-Nazi Svoboda party took illegal control of Ukraine, their first move was to try and make it illegal to speak Russian. Geez, half the people in Ukraine ARE Russian! Mr. Putin has exercised considerable restraint towards Ukraine.

Mr. Stone, I have been following the development of BRICS, the “Silk Road Project,” and the EEU (European Economic Union) for a half-decade now. I can’t have a conversation with my neighbors and friends about all of that here in America because not one of them has heard anything about it! You had a great opportunity to ask Mr. Putin to school us on the Sino-Russian version of a multi-polar world without war, but you totally blew it. I don’t think you ever asked Vlad about China, did you?

 

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Saudi Arabia accuses Qatar of supporting terrorism. Rich.

Arab States Send Qatar 13 Demands To End Crisis (R.)

Four Arab states boycotting Qatar over alleged support for terrorism have sent Doha a list of 13 demands including closing Al Jazeera television and reducing ties to their regional adversary Iran, an official of one of the four countries said. The demands aimed at ending the worst Gulf Arab crisis in years appear designed to quash a two decade-old foreign policy in which Qatar has punched well above its weight, striding the stage as a peace broker, often in conflicts in Muslim lands. Doha’s independent-minded approach, including a dovish line on Iran and support for Islamist groups, in particular the Muslim Brotherhood, has incensed some of its neighbors who see political Islamism as a threat to their dynastic rule.

The list, compiled by Saudi Arabia, the United Arab Emirates (UAE), Egypt and Bahrain, which cut economic, diplomatic and travel ties to Doha on June 5, also demands the closing of a Turkish military base in Qatar, the official told Reuters. Qatar must also announce it is severing ties with terrorist, ideological and sectarian organizations including the Muslim Brotherhood, Islamic State, al Qaeda, Hezbollah, and Jabhat Fateh al Sham, formerly al Qaeda’s branch in Syria, he said, and surrender all designated terrorists on its territory, The four Arab countries accuse Qatar of funding terrorism, fomenting regional instability and cozying up to revolutionary theocracy Iran. Qatar has denied the accusations.

[..] on Monday, Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani said Qatar would not negotiate with the four states unless they lifted their measures against Doha. The countries give Doha 10 days to comply, failing which the list becomes “void”, the official said without elaborating, suggesting the offer to end the dispute in return for the 13 steps would no longer be on the table.

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Bunch of sicko’s.

Edward Snowden on Twitter: “Biggest @AP scoop in a long time: US government behind UAE torture in Yemen, with some reportedly grilled alive.

In Yemen’s Secret Prisons, UAE Tortures and US Interrogates

Hundreds of men swept up in the hunt for al-Qaida militants have disappeared into a secret network of prisons in southern Yemen where abuse is routine and torture extreme — including the “grill,” in which the victim is tied to a spit like a roast and spun in a circle of fire, an Associated Press investigation has found. Senior American defense officials acknowledged Wednesday that U.S. forces have been involved in interrogations of detainees in Yemen but denied any participation in or knowledge of human rights abuses. Interrogating detainees who have been abused could violate international law, which prohibits complicity in torture. The AP documented at least 18 clandestine lockups across southern Yemen run by the United Arab Emirates or by Yemeni forces created and trained by the Gulf nation, drawing on accounts from former detainees, families of prisoners, civil rights lawyers and Yemeni military officials.

All are either hidden or off limits to Yemen’s government, which has been getting Emirati help in its civil war with rebels over the last two years. The secret prisons are inside military bases, ports, an airport, private villas and even a nightclub. Some detainees have been flown to an Emirati base across the Red Sea in Eritrea, according to Yemen Interior Minister Hussein Arab and others. Several U.S. defense officials, speaking on condition of anonymity to discuss the topic, told AP that American forces do participate in interrogations of detainees at locations in Yemen, provide questions for others to ask, and receive transcripts of interrogations from Emirati allies. They said U.S. senior military leaders were aware of allegations of torture at the prisons in Yemen, looked into them, but were satisfied that there had not been any abuse when U.S. forces were present.

“We always adhere to the highest standards of personal and professional conduct,” said chief Defense Department spokeswoman Dana White when presented with AP’s findings. “We would not turn a blind eye, because we are obligated to report any violations of human rights.” In a statement to the AP, the UAE’s government denied the allegations. “There are no secret detention centers and no torture of prisoners is done during interrogations.” Inside war-torn Yemen, however, lawyers and families say nearly 2,000 men have disappeared into the clandestine prisons, a number so high that it has triggered near-weekly protests among families seeking information about missing sons, brothers and fathers.

None of the dozens of people interviewed by AP contended that American interrogators were involved in the actual abuses. Nevertheless, obtaining intelligence that may have been extracted by torture inflicted by another party would violate the International Convention Against Torture and could qualify as war crimes, said Ryan Goodman, a law professor at New York University who served as special counsel to the Defense Department until last year

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May 282017
 
 May 28, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Fred Stein Little Italy New York 1943

 

Trump Tells ‘Confidants’ US Will Leave Paris Climate Deal (R.)
New Home Prices Are Over 50% Higher In Canada Than The US (BD)
Low Volatility Is Market’s Most Significant Danger (BBG)
Jeremy Corbyn Within Striking Distance Of No. 10 (Mirror)
Fourth Turning’s Neil Howe: We Are In The 1930s, “Winter Is Coming” (Mauldin)
We’re Dealing With a New Type of War Lie (Swanson)
Private Mercenary Firm Targeted Dakota Access Pipeline Movement (IC)
Once-in-a-Generation Hopes Of Cyprus Reunification Appear To Be Dashed (G.)
US-Led Syria Strikes Kill Scores Of Relatives Of IS Fighters (AFP)
10,000 Migrants Rescued, Dozens Drown Between Italy And Libya This Week (AFP)

 

 

It’ll take Europe a while to recover from Trump.

Trump Tells ‘Confidants’ US Will Leave Paris Climate Deal (R.)

U.S. President Donald Trump has told “confidants,” including the head of the Environmental Protection Agency Scott Pruitt, that he plans to leave a landmark international agreement on climate change, Axios news outlet reported on Saturday, citing three sources with direct knowledge. On Saturday, Trump said in a Twitter post he would make a decision on whether to support the Paris climate deal next week. A source who has been in contact with people involved in the decision told Reuters a couple of meetings were planned with chief executives of energy companies and big corporations and others about the climate agreement ahead of Trump’s expected announcement later in the week. It was unclear whether those meetings would still take place.

“I will make my final decision on the Paris Accord next week!” he tweeted on the final day of a G7 summit in Italy at which he refused to bow to pressure from allies to back the landmark 2015 agreement. The summit of G7 wealthy nations pitted Trump against the leaders of Germany, France, Britain, Italy, Canada and Japan on several issues, with European diplomats frustrated at having to revisit questions they had hoped were long settled. [..] Although he tweeted that he would make a decision next week, his apparent reluctance to embrace the first legally binding global climate deal that was signed by 195 countries clearly annoyed German Chancellor Angela Merkel. “The entire discussion about climate was very difficult, if not to say very dissatisfying,” she told reporters. “There are no indications whether the United States will stay in the Paris Agreement or not.”

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Is optimism your friend?

New Home Prices Are Over 50% Higher In Canada Than The US (BD)

The price of new homes is quickly diverging in Canada and the US. Data from the Canadian Housing and Mortgage Corporation (CMHC) show that new homes are selling for substantially more than the same time last year. Meanwhile south of the border, data from the US Bureau of Census show that new home prices are on the decline. This has lead to an even wider gap between the average price of a new home in Canada and the US. The price of a new home across Canada is up for the second month in a row. The average sale price in April was CA$751,881 (US$559,123). This represents an 11% increase from the same time last year, when measured in Canadian dollars. When compared in US dollars, that increase drops to a much more conservative 2.64%. Even after factoring in the loonie’s decreased buying power in Canada, new home prices still climbed.

American new home builders aren’t seeing such steep climbs in sale prices. Actually, they aren’t seeing climbs at all. The average price of a new home in the US was CA$495,271 (US$368,300). This represents a 3% decline from the same time last year, when measured in US dollars. In Canadian dollars, this was a 0.49% decline from the same time last year. Both forms of measurement show declining home prices in the US, curious since their economy is in a much better state than Canada right now. New homes are trading at substantially higher values in Canada than the US in April. The average new home in April 2017 was 51% higher in Canada than the US. The same time last year, prices in Canada were only 36% higher. It appears in a post-crash United States, new home buyers are taking much more conservative strides. In a hasn’t-crashed-in-decades Canada, new home buyers are optimistic about future values.

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When markets don’t function, i.e. there is no price discovery, why would there be volatility?

Low Volatility Is Market’s Most Significant Danger (BBG)

Of all the dangers in the world of finance, the enduring low level of market volatility is the most significant. How quiet is quiet? Recently, the six-month realized volatility for the S&P 500 dipped to 6.7 percent, lower than even the period leading up to the financial crisis of 2008-09. During the mid-’90s, volatility was as low as it is now, but the size, complexity and interlinkages of financial market exposures were far less significant. Now, fluctuations are severely muted, and thus send a false signal of safety to both investors and policy makers who misread the calm as an “all clear” sign, dismissing the events above as insufficiently relevant. The result is an inability to appreciate how quickly market conditions can change, especially as trading strategies that capitalize on quiet markets become vulnerable to unwind, serving to amplify a risk-off event.

[..] There is an important debate in markets now about the causes of low realized volatility. A decline in the correlation among stocks, a global economy on more stable footing and a decline in perceptions of systemic risk (a euro-zone unraveling, for example) are among the factors. We should appreciate the importance of money flows as well. According to ETF.com, the exchange-traded fund industry is on pace for $500 billion in new asset growth in 2017. These vehicles can provide cheap, liquid access to market risk exposures. They simply put the money received to work in passive fashion, without evaluating the risk/return trade-off. The flows themselves are a factor in the positive returns and the low volatility that, in turn, attract additional flows.

What results is a dangerous circularity. Recall the period of wonderful outcomes preceding the financial crisis. The demand for housing spurred price appreciation, which enabled mortgage credit to be supplied at increasingly generous terms. The most suspect credit cannot default if the value of the collateral keeps appreciating and, as a result, the supply of credit keeps expanding. The fear of missing out is also supremely powerful. The conservative individual becomes less so when he or she sees a neighbor flipping houses with success. Similarly, the conservative lender is forced to compete with more aggressive suppliers of credit. For lenders, not being accommodative enough during the go-go years can amount to an existential business question.

Today’s risks differ meaningfully from those of a decade ago. However, the excess amount of capital chasing opportunity at increasingly aggressive terms is similar. The competition to put money to work, then, like now, results in low volatility. Investors are in danger of misinterpreting this tranquility as conveying safety when crowded positioning is resulting in more, not less, risk. While spending money on hedging is especially difficult in a seemingly benign environment, investors should be actively vigilant to market risks, devoting time to an action plan that helps protect portfolio wealth against the inevitable return of volatility.

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Different polls have very different numbers.

Jeremy Corbyn Within Striking Distance Of No. 10 (Mirror)

In the first week of the General Election campaign our ComRes poll for the Sunday Mirror gave Theresa May a magic 50% of the vote. She looked unstoppable. Today’s ComRes poll shows Jeremy Corbyn has narrowed her lead to 12 points , six points up on two weeks ago. As the man who invented the Swingometer says he’s never seen swings like it. If the PM goes into polling day on June 8th with this kind of lead she would not be unhappy. It would give her an overall majority of 62. Not the landslide she wished for perhaps, but with enough MPs to get her own way every time. But we are still 11 days from polling day – and on present form that’s enough for Mr Corbyn to pick up another 12 points. And that puts him in striking distance of No10. Our survey puts the Conservatives on 46%, Labour on 34% and the Lib Dems down two points on 8%.

Ukip are unchanged in fourth place at 5%. But the most striking findings are that the Labour leader’s personal ratings are up in every category while Mrs May’s are down in all but one. Mrs May’s Dementia Tax on the elderly and her U-turn over how to pay for it has clearly boomeranged. The Manchester bombing appears to have had little effect on voting intention. Mrs May is still way ahead of Mr Corbyn as being best to deal with terrorism. But she’s five points down on two weeks ago. Only a fifth of voters say she is most likely to protect elderly people dependent on social care while Mr Corbyn scores 43%. Curiously the mess she made of the Dementia Tax has not damaged her among voters aged 65 plus with nearly seven in ten saying they will still vote for her. But Mr Corbyn is ahead in every age group until pollsters get to those 44 or older.

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“..what comes next will be an era in which there is a new order..”

Fourth Turning’s Neil Howe: We Are In The 1930s, “Winter Is Coming” (Mauldin)

From the Balkans to the US, walls are going up, not down, according to demographer and The Fourth Turning author Neil Howe. Speaking to a packed crowd at Mauldin Economics’ Strategic Investment Conference in Orlando, Howe said we are reliving many of the same trends and changes of the 1930s. “Worldwide, people are losing trust in institutions,” he said. “Trust in the military, small business, and police is still there. But trust in democracies, media, and politicians is dropping.” When was the last time we saw these changes and the rise of right-wing populism?” he asked. “The 1930s.” Howe’s statement is borne out of a June 2016 Gallup poll. When poll takers were asked how much confidence they had in institutions in American society, the results were troubling.

Just 15% said they had a “great deal” of confidence in the US Supreme Court. Banks trailed behind at 11%, followed by the criminal justice system (9%), newspapers (8%), and big business (6%). Meanwhile, just 16% expressed a “great deal” of confidence in the presidency, with that number plummeting to 3% for Congress. In his keynote, Howe shared his forecasting logic: “My method is to step back and realize one thing: There is something we know about the world in 20 years’ time. The people who live there will be all of us, 20 years older and playing a different role. I call this ‘looking along the generational diagonal.’ The critical thing to remember about the current crisis period is that what comes next will be an era in which there is a new order.

According to the Strauss-Howe generational theory, as this new order takes root, individualism declines and institutions are strengthened. “History is seasonal, and winter is coming,” Howe has said. But after winter, comes spring. As the American Revolution was followed by calm, as the Civil War was followed by reconstruction and a gilded age, and as the Great Depression and World War II were followed by an age of peace and prosperity, so too will this crisis period be followed by a calm, stable era. It’s simply a matter of time.

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Russiagate.

We’re Dealing With a New Type of War Lie (Swanson)

The “Russian interference in the 2016 United States elections” even exists as a factual event in Wikipedia, not as an allegation or a theory. But the factual nature of it is not so much asserted as brushed aside. Former CIA Director John Brennan, in the same Congressional testimony in which he took the principled stand “I don’t do evidence,” testified that “the fact that the Russians tried to influence resources and authority and power, and the fact that the Russians tried to influence that election so that the will of the American people was not going to be realized by that election, I find outrageous and something that we need to, with every last ounce of devotion to this country, resist and try to act to prevent further instances of that.” He provided no evidence. Activists have even planned “demonstrations to call for urgent investigations into Russian interference in the US election.”

They declare that “every day we learn more about the role Russian state-led hacking and information warfare played in the 2016 election.” (March for Truth.) Belief that Russia helped put Trump in the White House is steadily rising in the U.S. public. Anything commonly referred to as fact will gain credibility. People will assume that at some point someone actually established that it was a fact. Keeping the story in the news without evidence are articles about polling, about the opinions of celebrities, and about all kinds of tangentially related scandals, their investigations, and obstruction thereof. Most of the substance of most of the articles that lead off with reference to the “Russian influence on the election” is about White House officials having some sort of connections to the Russian government, or Russian businesses, or just Russians.

It’s as if an investigation of Iraqi WMD claims focused on Blackwater murders or whether Scooter Libby had taken lessons in Arabic, or whether the photo of Saddam Hussein and Donald Rumsfeld shaking hands was taken by an Iraqi. A general trend away from empirical evidence has been extensively noted and discussed. There is no more public evidence that Seth Rich (a Democratic National Committee staffer who was murdered last year) leaked Democratic emails than there is that the Russian government stole them. Yet both claims have passionate believers. Still, the claims about Russia are unique in their wide proliferation, broad acceptance, and status as something to be constantly referred to as though already established, constantly augmented by other Russia-related stories that add nothing to the central claim. This phenomenon, in my view, is as dangerous as any lies and fabrications coming out of the racist right.

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Blackwater 2.0

Private Mercenary Firm Targeted Dakota Access Pipeline Movement (IC)

A shadowy international mercenary and security firm known as TigerSwan targeted the movement opposed to the Dakota Access Pipeline with military-style counterterrorism measures, collaborating closely with police in at least five states, according to internal documents obtained by The Intercept. The documents provide the first detailed picture of how TigerSwan, which originated as a U.S. military and State Department contractor helping to execute the global war on terror, worked at the behest of its client Energy Transfer Partners, the company building the Dakota Access Pipeline, to respond to the indigenous-led movement that sought to stop the project. Internal TigerSwan communications describe the movement as “an ideologically driven insurgency with a strong religious component” and compare the anti-pipeline water protectors to jihadist fighters.

One report, dated February 27, 2017, states that since the movement “generally followed the jihadist insurgency model while active, we can expect the individuals who fought for and supported it to follow a post-insurgency model after its collapse.” Drawing comparisons with post-Soviet Afghanistan, the report warns, “While we can expect to see the continued spread of the anti-DAPL diaspora … aggressive intelligence preparation of the battlefield and active coordination between intelligence and security elements are now a proven method of defeating pipeline insurgencies.” More than 100 internal documents leaked to The Intercept by a TigerSwan contractor, as well as a set of over 1,000 documents obtained via public records requests, reveal that TigerSwan spearheaded a multifaceted private security operation characterized by sweeping and invasive surveillance of protesters.

As policing continues to be militarized and state legislatures around the country pass laws criminalizing protest, the fact that a private security firm retained by a Fortune 500 oil and gas company coordinated its efforts with local, state, and federal law enforcement to undermine the protest movement has profoundly anti-democratic implications. The leaked materials not only highlight TigerSwan’s militaristic approach to protecting its client’s interests but also the company’s profit-driven imperative to portray the nonviolent water protector movement as unpredictable and menacing enough to justify the continued need for extraordinary security measures. Energy Transfer Partners has continued to retain TigerSwan long after most of the anti-pipeline campers left North Dakota, and the most recent TigerSwan reports emphasize the threat of growing activism around other pipeline projects across the country.

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Not much use talking to Erdogan. He needs his strongman image to much at home.

Once-in-a-Generation Hopes Of Cyprus Reunification Appear To Be Dashed (G.)

The best hope yet of reuniting war-partitioned Cyprus has been dashed after reconciliation attempts were brought to an abrupt halt following two years of intense negotiations. The optimism engendered by talks seen as a once-in-a-generation opportunity to unite the Mediterranean island ended when the United Nations special envoy, Espen Barth Eide, announced that he was terminating negotiation efforts. “Without a prospect for common ground, there is no basis for continuing this shuttle diplomacy,” the Norwegian former foreign minister said in a short statement. Eide now enters the long list of diplomats who, for the best part of 50 years, have attempted to solve one of the world’s most intractable diplomatic disputes.

Split between the majority population of Greeks in the south and Turks in the north, Cyprus has been divided since 1974 when Ankara ordered troops to invade the island in response to an Athens-organised coup to unite it with Greece. In Nicos Anastasiades and Mustafa Akinci – the respective leaders of the island’s Greek and Turkish communities – the two sides had found men who were not only moderate and born in the same town – Limassol – but willing to make the sort of concessions necessary to find a solution. Both had got to the point of poring over maps outlining territorial adjustments in a envisaged bi-zonal, bi-communal federation. In January, the first international conference on Cyprus was held at the UN headquarters in Geneva with representatives from Greece, Turkey and Britain – the island’s three guarantor powers.

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Hundreds of people are collateral damage.

US-Led Syria Strikes Kill Scores Of Relatives Of IS Fighters (AFP)

Dozens of relatives of Islamic State group fighters were killed Friday in Syria in US-led strikes, regime or Russian raids, after the UN urged nations striking the jihadists to protect civilians. Raids by the US-led coalition have pounded IS positions across Iraq and Syria since the jihadist group claimed responsibility for the devastating bombing of a concert in Manchester on Monday. Scores of civilians, many of them families of IS members, have been killed in bombing raids in recent days on the eastern Syrian town of Mayadeen, held by IS since 2014. Early Friday, at least 80 relatives of IS fighters were killed in US-led coalition bombardment, according to the Syrian Observatory for Human Rights.

“The toll includes 33 children. They were families seeking refuge in the town’s municipal building,” said Observatory head Rami Abdel Rahman. “This is the highest toll for relatives of IS members in Syria,” he told AFP. Coalition strikes on the town killed 37 civilians on Thursday night after 15 had been killed on Wednesday, according to the Britain-based Observatory. The US military on Friday confirmed that it had struck “near Mayadeen” on May 25 and 26, but said it was “still assessing the results of those strikes”, according to Pentagon spokesman Eric Pahon. The US military insists that it takes every precaution to avoid hitting civilians, but the United Nations on Friday urged parties bombing IS to do more.

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No moral values left: “The G7 only managed to “reaffirm the sovereign rights of states to control their own borders and set clear limits on net migration levels.“

10,000 Migrants Rescued, Dozens Drown Between Italy And Libya This Week (AFP)

Nearly 10,000 migrants were rescued off the coasts of Italy and Libya this week, as the leaders of G7 gathered for a summit coincidentally held in Sicily. And at least 54 people have drowned in the Mediterranean since Tuesday. Large-scale rescue efforts off the Italian coast on Friday saved 2,200 migrants who risked their lives traveling in unworthy sea vessels to reach Italy. Italian coastguard and commercial boats delivered those rescued to reception centers in Italy. A further 1,200 people were rescued by Libyan ships and taken to Tripoli or Zawiya. Some 6,400 migrants were rescued from the Mediterranean between Tuesday and Thursday. The Italian coastguard also discovered another 10 bodies, bringing to 54 the total number of officially registered deaths this week, officials told AFP.

The biggest tragedy occurred on Wednesday, when 35 migrants drowned, including at least 10 children, after they fell off an overloaded vessel that was hit by a huge wave while being rescued by an aid boat. At least 1,400 people have drowned so far this year trying to make the perilous journey across the sea to Italy, according to UN figures, while more than 50,000 migrants reached Italian coasts, most of them through Libya. Italy has on numerous occasions said that it barely has enough resources to deal with the migrant influx from Libya. The situation has become an EU-wide concern in recent years, with Brussels facing mounting pressure from human rights groups over its handling of the migrant crisis in the Mediterranean.

G7 leaders, who met in Sicily, discussed providing greater assistance to African countries to persuade migrants to stay at home rather than make the dangerous journey across the Mediterranean. However, no concrete plan of action was agreed upon at the end of the two-day summit in Taormina. The G7 only managed to “reaffirm the sovereign rights of states to control their own borders and set clear limits on net migration levels.”

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May 252017
 
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Alfred Buckham Edinburgh c1920

 

Toronto Homeowners Are Suddenly in a Rush to Sell (BBG)
$100 Increase In Mortgage Payments Would Sink 75% Of Canadian Homeowners (CBC)
Average Asking Price for Homes in UK Hits Record High of £317,000 (G.)
The Great London Property Squeeze (Minton)
UK Police ‘Stop Passing Information To US’ Over Leaks Of Key Evidence (G.)
The Bubble That Could Break the World (Rickards)
A Bailout Is Coming In China, One Way Or Another (BBG)
China “National Team” Rescues Stocks As Downgrade Crushes Commodities (ZH)
China Says Credit Downgrade ‘Inappropriate’, ‘Exaggerates Difficulties’ (CNBC)
China’s Downgrade Could Lead To A Mountain Of Debt (BBG)
Chinese Banks Dominate Ranking Of World’s Biggest Public Companies (Ind.)
EU Declared Monsanto Weedkiller Safe After Intervention From EPA Official (G.)
Factory Farming Belongs In A Museum (G.)
Eurogroup Confronts Own Deficit: Governance (Pol.)
Podcast: Steve Keen’s Manifesto (OD)
No Greek Debt Relief Need If Primary Surplus Over 3% of GDP For 20 Years (R.)
Deadliest Month For Syria Civilians In US-Led Strikes (AFP)
30 Migrants, Most of Them Toddlers, Drown in Mediterranean (R.)

 

 

Getting out is getting harder. A crucial phase in any bubble.

Toronto Homeowners Are Suddenly in a Rush to Sell (BBG)

Toronto’s hot housing market has entered a new phase: jittery. After a double whammy of government intervention and the near-collapse of Home Capital Group Inc., sellers are rushing to list their homes to avoid missing out on the recent price gains. The new dynamic has buyers rethinking purchases and sellers asking why they aren’t attracting the bidding wars their neighbors saw just a few weeks ago in Canada’s largest city. “We are seeing people who paid those crazy prices over the last few months walking away from their deposits,” said Carissa Turnbull, a Royal LePage broker in the Toronto suburb of Oakville, who didn’t get a single visitor to an open house on the weekend. “They don’t want to close anymore.”

Home Capital may be achieving what so many policy measures failed to do: cool down a housing market that soared as much as 33% in March from a year earlier. The run on deposits at the Toronto-based mortgage lender has sparked concerns about contagion, and comes on top of a new Ontario tax on foreign buyers and federal government moves last year that make it harder to get a mortgage. “Definitely a perception change occurred from Home Capital,” said Shubha Dasgupta, owner of Toronto-based mortgage brokerage Capital Lending Centre. “It’s had a certain impact, but how to quantify that impact is yet to be determined.”

Early data from the Toronto Real Estate Board confirms the shift in sentiment. Listings soared 47% in the first two weeks of the month from the same period a year earlier, while unit sales dropped 16%. Full-month data will be released in early June. The average selling price was C$890,284 ($658,000) through May 14, up 17% from a year earlier, yet down 3.3% from the full month of April. The annual price gain is down from 25% in April and 33% in March. Toronto has seen yearly price growth every month since May 2009. The last time the city saw gains of less than 10% was in December 2015.

Brokers say some owners are taking their homes off the market because they were seeking the same high offers that were spreading across the region as recently as six weeks ago. “In less than one week we went from having 40 or 50 people coming to an open house to now, when you are lucky to get five people,” said Case Feenstra, an agent at Royal LePage Real Estate Services Loretta Phinney in Mississauga, Ontario. “Everyone went into hibernation.” Toronto real estate lawyer Mark Weisleder said some clients want out of transactions. “I’ve had situations where buyers are trying to try to find another buyer to take over their deal,” he said. “They are nervous whether they bought right at the top and prices may come down.”

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Tyler: “..given that the average house in Canada costs roughly $200,000 and carries a monthly mortgage payment of $1,000, that means that most Canadians couldn’t incur a $100 hike in their monthly mortgage payments “

$100 Increase In Mortgage Payments Would Sink 75% Of Canadian Homeowners (CBC)

Almost three quarters of Canadian homeowners would have difficulty paying their mortgage every month if their payments increased by as little as 10%, a new survey from Manulife Bank suggests. The bank polled 2,098 homeowners — between the ages of 20 to 69 with household incomes of $50,000 or higher — online in the first two weeks of February. Because they aren’t randomized samples, polling experts say online polls don’t have a margin of error, but the survey nonetheless highlights just how tight the budgets are for many Canadians. 14% of respondents to Manulife’s survey said they wouldn’t be able to withstand any increase in their monthly payments, while 38% of those polled said they could withstand a payment hike of between 1 and 5% before having difficulty.

An additional 20% said they could stomach a hike of between six and 10% before feeling the pinch. Add it all up, and that means 72% of homeowners polled couldn’t withstand a hike of just 10% from their current record lows. That’s a dangerous place to be with interest rates set to rise at some point. “What these people don’t realize is that we’re at record low interest rates today,” said Rick Lunny, president and CEO of Manulife Bank. If mortgage rates increase by as little as one percentage point, some borrowers could be facing a hike of 10% on their monthly bills. A bigger mortgage rate hike would bring more pain.

In the survey, 22% said they could handle a payment increase of between 11 to 30%, while the remaining 7% didn’t know or were unsure. Overall, nearly one quarter (24%) of Canadian homeowners polled said they haven’t been able to come up with enough money to pay a bill in the past year. And most are not in good shape to weather any sort of financial storm — just over half of those polled had $5,000 or less set aside to deal with a financial emergency, while one fifth of them have nothing saved for a rainy day. “When you put it into that context, they’re not really prepared for what is inevitable. Sooner or later, interest rates are going to rise,” Lunny said.

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You might have thought Brexit would have led to caution.

Average Asking Price for Homes in UK Hits Record High of £317,000 (G.)

Asking prices for UK homes hit a new record high over the past month as families in search of bigger properties brushed aside uncertainty caused by Brexit and June’s general election. Prices sought by sellers rose 1.2% in the four weeks to 13 May, pushing the average asking price to a fresh peak of £317,281, according to the property website Rightmove. Families with children under the age of 11 were twice as likely as the average person to be moving home, as they looked for bigger properties in school catchment areas. Asking prices for typical family homes – with three or four bedrooms but excluding detached properties – rose by 5.4% year-on-year over the last month, to £270,953.

Miles Shipside, a Rightmove director and housing market analyst, said such families were more willing to ignore any uncertainty caused by Brexit and the general election. “As well as that shrinking house feeling, parents with young children also have the pressures of travelling times to amenities as well as the weekday school commute. These have to be balanced against under-pressure finances, even more so when the sector with the property type that suits them best is seeing the biggest price jump. “What seems to be happening is that moving pressures are understandably taking priority over electioneering and Brexit worries. For many in this group, it seems that moving is definitely on their manifesto.”

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Bubble effects: the servant class the rich need can’t afford to live close enough to them.

An edited extract from Big Capital by Anna Minton, which will be published 1 June by Penguin.

The Great London Property Squeeze (Minton)

There is a direct link between the wealth of those at the top and the capital’s housing crisis – which affects not just those at the bottom but the majority of Londoners who struggle to buy properties, or pay extortionate rents. The 2008 financial crash created a new politics of space, in which people on low incomes are forced out of their homes by rising rent and the wealthy are encouraged to use property for profit. These trends are not limited to London. The same currents of global capital are also transforming San Francisco, New York and Vancouver, European cities from Berlin to Barcelona and towns and cities in the UK from Bristol and Manchester to Margate and Hastings. This isn’t gentrification, it’s another phenomenon entirely. Global capital is being allowed to reconfigure the country.

The major concern for the government and employers in London is that people who do not earn enough to meet extortionate rents will leave, hollowing out the city and threatening its labour market and culture. “We see this with employers saying they’re having a really hard time retaining professional level jobs, let alone cleaners. London is losing teachers – they’re commuting from Luton and they’re giving up – it’s having a massive knock-on effect,” Dilner said. The vacancy rate for nurses at London’s hospitals is 14-18%, according to a report from the King’s Fund thinktank, and the number of entrants to teacher training has fallen 16% since 2010, according to Ofsted. But it’s not just carers, nurses, teachers, artists and university lecturers who can’t afford to live in London. Fifty Thousand Homes is a business-led campaign group – including the RBS, the CBI and scores of London businesses – formed to push the housing crisis up the political agenda.

Its research shows that on current trends, customer services and sales staff at almost every level are being pushed out of the capital. Three-quarters of business owners believe that housing costs are a significant risk to London’s economic growth and 70% of Londoners aged 25 to 39 report that the cost of their rent or mortgage makes it difficult to work in the city. Vicky Spratt is a 28-year-old journalist who worked as a producer of political programmes at the BBC but left because she felt the issues affecting her generation, such as the housing crisis, were not being covered properly. “A lot of issues were dismissed by the older generation – it didn’t affect them. They all owned their own homes,” she told me. Spratt joined the digital lifestyle magazine The Debrief, aimed at twentysomething women, and began an online petition against lettings agents’ fees that gathered more than 250,000 signatures.

Spratt describes herself as a reluctant campaigner, but her circumstances pushed her into it. She currently pays £1,430 per month, not including bills, for a one-bedroom flat which she can afford because she shares with her boyfriend, but she used to live in a room “which was literally the size of a bed”. “The walls were very thin because it had originally been part of one room, which the landlord split into two. I noticed after about six weeks my mental health deteriorated. If I wasn’t in a relationship I would be looking at going back to that,” she said. Spratt earns enough to get a mortgage but, because rents are so high, not enough to save for the 20–30% deposit required. “The common thread for people my age is that we don’t own our own homes and potentially we never will. The housing crisis is older than me and it shocks me that nobody did anything about this, and I want it on the news agenda,” she said. “This is structural neglect. The buy-to-let boom and the unregulated market have a lot to answer for.”

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For some reason nobody blames the New York Times for publishing the info.

UK Police ‘Stop Passing Information To US’ Over Leaks Of Key Evidence (G.)

Police hunting the terror network behind the Manchester Arena bombing have stopped passing information to the US on the investigation as a major transatlantic row erupted over leaks of key evidence in the US, according to a report. Downing Street was not behind any decision by Greater Manchester police to stop sharing information with US intelligence, a Number 10 source said, stressing that it was important police operations were allowed to take independent decisions. “This is an operational matter for police,” a Number 10 spokesman said. The police and the Home Office refused to comment on the BBC report. The Guardian understands there is not a blanket ban on intelligence sharing between the US and the UK.

Relations between the US and UK security services, normally extremely close, have been put under strain by the scale of the leaks from US officials to the American media. Theresa May is expected to confront Donald Trump over the stream of leaks of crucial intelligence when she meets the US president at a Nato summit in Brussels on Thursday. British officials were infuriated on Wednesday when the New York Times published forensic photographs of sophisticated bomb parts that UK authorities fear could complicate the expanding investigation into the lethal blast in which six further arrests have been made in the UK and two more in Libya. It was the latest of a series of leaks to US journalists that appeared to come from inside the US intelligence community, passing on data that had been shared between the two countries as part of a long-standing security cooperation.

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“..today’s CAPE ratio is 182% of the median ratio of the past 137 years..”

The Bubble That Could Break the World (Rickards)

Before diving into the best way to play the current bubble dynamics to your advantage, let’s look at the evidence for whether a bubble exists in the first place… My preferred metric is the Shiller Cyclically Adjusted PE Ratio or CAPE. This particular PE ratio was invented by Nobel Prize-winning economist Robert Shiller of Yale University. CAPE has several design features that set it apart from the PE ratios touted on Wall Street. The first is that it uses a rolling ten-year earnings period. This smooths out fluctuations based on temporary psychological, geopolitical, and commodity-linked factors that should not bear on fundamental valuation. The second feature is that it is backward-looking only. This eliminates the rosy scenario forward-looking earnings projections favored by Wall Street.

The third feature is that that relevant data is available back to 1870, which allows for robust historical comparisons. The chart below shows the CAPE from 1870 to 2017. Two conclusions emerge immediately. The CAPE today is at the same level as in 1929 just before the crash that started the Great Depression. The second is that the CAPE is higher today than it was just before the Panic of 2008. Neither data point is definitive proof of a bubble. CAPE was much higher in 2000 when the dot.com bubble burst. Neither data point means that the market will crash tomorrow. But today’s CAPE ratio is 182% of the median ratio of the past 137 years. Given the mean-reverting nature of stock prices, the ratio is sending up storm warnings even if we cannot be sure exactly where and when the hurricane will come ashore.

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It’s starting to look like China cannot afford the bailout. It’s not just SOEs and LGFVs, it’s the entire banking system too, and Chinese banks are behemoths.

A Bailout Is Coming In China, One Way Or Another (BBG)

On Tuesday night, Moody’s downgraded China’s sovereign credit rating for the first time in 28 years. In doing so, the rating agency is acknowledging the dragon in the room: China will have to pay the price for its epic debt binge, whatever policymakers do from here. [..] “The downgrade,” the agency explained, “reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows.” The downgrade was slight, and China remains well within investment grade. Still, Moody’s concerns should wake up those investors who have decided, based on the apparent calm in Chinese stock and currency markets, that the country isn’t experiencing financial strain. What’s happening today may not look like the meltdowns suffered by South Korea or Indonesia in the 1990s.

But that might be only because the state retains so much more control in China. If officials hadn’t stepped in last year to curtail escalating outflows of capital, the picture would likely have looked much grimmer. This “crisis with Chinese characteristics” features all of the seeds of a much more serious downturn: still-rising debt, unrecognized bad loans and a government paying lip service to the severity of the problem. Brandon Emmerich of Granite Peak Advisory noted in a recent study that more and more new debt is being used to pay off old debt, and “a subset of zombie issuers borrowed to avoid default.” As he explains, “even as Chinese corporate bond yields have rebounded (in 2017) and issuance stalled, the proportion of bond volume issued to pay off old debt reached an all-time high – not the behavior of healthy firms taking advantage of a low-yield environment.”

Efforts to curtail credit will thus inflict serious pain on corporate China. And given that the economy remains largely dependent on debt for growth, deleveraging will also make it harder for such firms to expand and service their debt. The one-two punch could push more companies toward default, punishing bank balance sheets. What’s more, if Beijing policymakers respond by ramping up credit again, all they’ll do is delay the inevitable. Larger dollops of debt simply allow zombie companies to stay alive longer and add to the debt burden on the economy. Sooner or later, the government is going to have to bail out local governments and state-owned enterprises, and recapitalize the banks. The only question is how expensive repairing the financial sector will be for taxpayers once Chinese leaders realize the game is up. Looking at past banking crises, the tab could prove huge. South Korea’s cleanup after the 1997 crisis cost more than 30% of gross domestic product. Applying that to China suggests the cost would reach some $3.5 trillion.

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How much of China’s economy stands on its own feet?

China “National Team” Rescues Stocks As Downgrade Crushes Commodities (ZH)

Iron ore led a slump in industrial commodities after Moody’s Investor Service downgraded China’s credit rating and warned that the country’s debt position will worsen as its economic expansion slows. However, one glance at the divergence between industrial metals’ collapse and the sudden buying panic in Chinese stocks confirms what Asher Edelman noted yesterday about the US markets, China’s so-called “National Team” was clearly intervening… As Bloomberg reports, Iron ore futures on the Dalian Commodity Exchange fell as much as 5.6% to 452 yuan a metric ton, almost by the daily limit, before closing at 455.50 yuan, extending Tuesday’s 3% loss. Nickel led a broad slump among base metals, dropping as much as 2.4% to $9,125 a ton on the London Metal Exchange. Nickel stockpiles rose the most in more than a year.

In context, the overnight reversal in Chinese stocks is even more obvious… Moody’s move, downgrading China’s debt to A1 from Aa3, adds to concerns about the effects of a slowdown in the country’s economic growth, following on from downbeat manufacturing readings and weak commodity imports, Simona Gambarini, an analyst at Capital Economics, said. “We’re not particularly concerned about credit growth getting out of hand, but in regards to industrial metals, we have been negative on the outlook for some time on the basis that Chinese growth will slow.” Will The National Team be back tonight?

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They would, wouldn’t they? Isn’t it perhaps more accurate to say the downgrade is long overdue?

China Says Credit Downgrade ‘Inappropriate’, ‘Exaggerates Difficulties’ (CNBC)

China has rejected a move by Moody’s to lower its credit rating, saying the downgrade exaggerates the difficulties facing the economy and underestimates the government’s reform agenda. The country’s finance ministry claimed the credit rating agency used “inappropriate methodology” in its decision to lower long-term local and foreign currency issuer ratings from “Aa3” to “A1”. “Moody’s views that China’s non-financial debt will rise rapidly and the government would continue to maintain growth via stimulus measures are exaggerating difficulties facing the Chinese economy,” the finance ministry said in a statement Wednesday, translated by Reuters. It added that the moves are “underestimating the Chinese government’s ability to deepen supply-side structural reform and appropriately expand aggregate demand.”

Moody’s said that the downgrade reflects its expectation that China’s financial strength will “erode somewhat” over the coming years. The one-notch downgrade marks the first time Moody’s has lowered China’s credit rating in almost 30 years. It last downgraded the country in 1989. It comes as the government moves ahead with its ambitious reform agenda, which it hopes will move the country away from its traditional dependence on manufacturing and towards a services-led economy. Moody’s argues, however, that these aims will be hampered somewhat by the country’s “economy-wide debt”, which it says is set to rise as economic growth slows. Though the new rating will likely modestly increase the cost of borrowing for the Chinese government, it remains within the investment grade rating range.

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Not could, will. Actually the debt is already there.

China’s Downgrade Could Lead To A Mountain Of Debt (BBG)

China’s first credit rating downgrade by Moody’s since 1989 couldn’t have come at a worse time for the nation’s companies, which have never been more reliant on the overseas bond market for funding. While Chinese companies’ foreign-currency debt is only a fraction of the $9 trillion local bond market, China Inc. is on pace for record dollar bond sales this year after the authorities’ crackdown on financial leverage drove up borrowing costs at home. Overseas borrowing has also been part of the government’s strategy to encourage capital inflows in a bid to ease the depreciation pressure on the yuan. Airlines and shipping companies, which finance the costs of new aircraft and vessels with debt, are particularly vulnerable to higher borrowing costs, according to Corrine Png, CEO of Crucial Perspective in Singapore.

Khoon Goh, head of Asia research for Australia & New Zealand Bank, sees state-owned enterprises among firms feeling the biggest impact. Companies including State Grid and China Petroleum & Chemical raised $23 billion in bond sales in April, an increase of 141% from a year earlier. With additional $8.9 billion issuance so far in May, the sales this year totaled $69 billion, representing 71% of the record $98 billion in 2016. Moody’s lowered China’s rating to A1 from Aa3 on Wednesday, citing a worsening debt outlook. Moody’s also downgraded the ratings of 26 non-financial corporate and infrastructure government-related issuers by one level. China’s Finance Ministry blasted the move as “absolutely groundless,” saying the ratings company has underestimated the capability of the government to deepen reform and boost demand.

“The economy is dependent on policy stimulus and with that comes higher leverage,” Marie Diron, associate managing director, Moody’s Sovereign Risk Group, said. “Corporate debt is really the big part.” [..] For major Chinese airlines, every percentage-point increase in average borrowing costs can cut net profit by 5% to 9%, said Crucial Perspective’s Png. For shipping companies, cuts to net profit may reach 15% to 30%. Hainan Airlines, controlled by conglomerate HNA Group Co., plans to buy 19 Boeing aircraft, using the proceeds of a convertible bond sale of up to 15 billion yuan ($2.2 billion), according to a statement to the Shanghai Stock Exchange on May 19. HNA itself has been one of China’s most acquisitive companies, with more than $30 billion worth of announced and completed deals since 2016.

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After all of the above info on debt and bailouts, there’s this. What will save Chinese banks, does anyone think Beijing can afford to bail them out too?

Chinese Banks Dominate Ranking Of World’s Biggest Public Companies (Ind.)

Despite an explosive rise in the power and market capitalisation of technology firms over the last year, China’s banking giants have defended their dominance of Forbes magazine’s annual global ranking of the world’s biggest public companies. The list, released on Wednesday, places Industrial & Commercial Bank of China at the top for a fifth consecutive year, followed by compatriot China Construction Bank. Agricultural Bank of China and Bank of China – the other two that make up China’s “Big Four” of finance – slipped down the list but remained in the top 10, qualifying as public companies despite largely being owned by the state. Warren Buffett’s Berkshire Hathaway, which is the largest public company in the US, took third spot, followed by JPMorgan Chase in fifth.

Although Forbes in a separate list earlier this week named Apple the most valuable brand of 2017, the tech giant only managed to secure ninth spot in the overall list of the biggest public companies. Companies that made it into this year’s list faced a slew of pressures stemming from an unsteady geopolitical climate and slowing economies. But Forbes said that in aggregate the 2,000 companies analysed managed to come out stronger than last year, with increased sales, profits, assets and market values. “This list illustrates that in spite of headwinds, the world’s dominant companies remain a steady force in an unpredictable and challenging environment,” said Halah Touryalai of Forbes. She said that despite slowing GDP figures, companies in China and the US make up more than 40% of the 2017 and dominate the top ten.

Notable gainers this year included General Electric, at 14th from 68th place in 2016, Amazon, up to 83rd from 237th, Charter Communications, at 107th from 784th and Alibaba, at 140th from 174th in 2016. The US dominated the ranking with 565 companies, followed by China and Hong Kong with 263 companies, Japan with 229. The UK had 91 companies in the top 2,000. But one of the UK’s highest ranked companies last year, banking giant HSBC, fell to 48th spot from 14th in 2016, with Forbes citing “economic malaise, low interest rate, paying fines, ongoing regulatory expenses and your usual dose of political uncertainty”. Elsewhere Forbes said that low oil prices had continued to put pressure on companies in the energy sector, reflected in PetroChina falling 85 spots to 102nd place in this years’ ranking. Exxon Mobil slipped four spots to 13th while Chevron tumbled to just 359th from 28th.

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Think the EU is not corrupt?

EU Declared Monsanto Weedkiller Safe After Intervention From EPA Official (G.)

The European Food Safety Authority dismissed a study linking a Monsanto weedkiller to cancer after counsel from a US Environmental Protection Agency officer allegedly linked to the company. Jess Rowlands, the former head of the EPA’s cancer assessment review committee (CARC), who figures in more than 20 lawsuits and had previously told Monsanto he would try to block a US government inquiry into the issue, according to court documents. The core ingredient of Monsanto’s RoundUp brand is a chemical called glyphosate, for which the European commission last week proposed a new 10-year license. Doubts about its regulatory passage have been stirred by unsealed documents in an ongoing US lawsuit against Monsanto by sufferers of non-hodgkins lymphoma, who claim they contracted the illness from exposure to RoundUp.

“If I can kill this, I should get a medal,” Rowlands allegedly told a Monsanto official, Dan Jenkins, in an email about a US government inquiry into glyphosate in April 2015. In a separate internal email of that time, Jenkins, a regulatory affairs manager, said that Rowlands was about to retire and “could be useful as we move forward with [the] ongoing glyphosate defense”. Documents seen by the Guardian show that Rowlands took part in a teleconference with Efsa as an observer in September 2015. Six weeks later, Efsa adopted an argument Rowlands had used to reject a key 2001 study which found a causal link between exposure to glyphosate and increased tumour incidence in mice. Rowlands’ intervention was revealed in a letter sent by the head of Efsa’s pesticides unit, Jose Tarazona, to Peter Clausing, an industry toxicologist turned green campaigner.

In the missive, Tarazona said that “the observer from the US-EPA [Rowlands] informed participants during the teleconference about potential flaws in the Kumar (2001) study related to viral infections.” Efsa’s subsequent report said that the Kumar study “was reconsidered during the second experts’ teleconference as not acceptable due to viral infections”. Greenpeace said that news of an Efsa-Rowlands connection made a public inquiry vital. “Any meddling by Monsanto in regulatory safety assessments would be wholly unacceptable,” said spokeswoman Franziska Achterberg. “We urgently need a thorough investigation into the Efsa assessment before glyphosate can be considered for re-approval in Europe.”

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But the profits are huge.

Factory Farming Belongs In A Museum (G.)

We can feed an extra 4 billion people a year if we reject the bloated and wasteful factory farming systems that are endangering our planet’s biodiversity and wildlife, said farming campaigner Philip Lymbery on Monday night, launching a global campaign to Stop the Machine. At present, 35% of the world’s cereal harvest and most of its soya meal is fed to industrially reared animals rather than directly to humans. This is a “wasteful and inefficient practice” because the grain-fed animals contribute much less back in the form of milk, eggs and meat than they consume, according to Lymbery, the chief executive of Compassion in World Farming (CIWF). “The food industry seems to have been hijacked by the animal feed industry,” he said.

In recent years the developing world in particular has seen significant agricultural expansion. According to independent organisation Land Matrix, 40m hectares have been acquired globally for agricultural purposes in the last decade and a half, with nearly half of those acquisitions taking place in Africa. The impact of that expansion is still unclear, but meanwhile the world’s wildlife has halved in the past 40 years. “Ten thousand years ago humans and our livestock accounted for about 0.1% of the world’s large vertebrates,” said Tony Juniper, the former head of Friends of the Earth. “Now we make up about 96%. This is a timely and necessary debate, and an issue that is being debated more and more.” An exhibition at the Natural History Museum by the campaigners aims to draw explicit links between industrial farming and its impact on wildife.

The Sumatran elephant, for example, has been disastrously affected by the growing palm oil industry, with more than half of its habitat destroyed to create plantations, and elephant numbers falling rapidly. The old argument that we need factory farming if we are to feed the world doesn’t hold true, says Lymbery, who argues that ending the wasteful practice of feeding grain to animals would feed an extra 4 billion people. Putting cattle onto pasture and keeping poultry and pigs outside where they can forage, and supplementing that with waste food is far more efficient and healthy, he says. According to his calculations, based on figures from the UN’s Food and Agriculture Organisation (FAO), the total crop harvest for 2014 provided enough calories to feed more than 15 billion people (the world’s population is currently 7.5 billion), but waste and the animal feed industry means that much of that is going elsewhere.

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It confronts no such thing.

They actually argue that the Eurogroup can only function without transparency, checks and balances.

Eurogroup Confronts Own Deficit: Governance (Pol.)

For the past seven-plus years, as Greece’s debt crisis plays out in public in painful, blow-by-blow detail, the European body charged with its rescue has conducted its affairs away from prying eyes. Now there are growing calls to change the way the Eurogroup operates. Critics of the gathering of finance ministers from the 19 countries in the euro and officials from the ECB and European Commission accuse it of acting like a private club. They want greater transparency in keeping with the influence it wields over issues of vital importance to many of the eurozone’s 350 million citizens. “The euro crisis changed everything,” said Leo Hoffmann-Axthelm, an advocacy coordinator with the NGO Transparency International. “The Eurogroup should be institutionalized, with proper rules of procedure, document handling and a physical address with actual spokespeople. We can no longer be governed by an informal club.”

Although it can impose tough conditions for bailing out struggling member countries or rescuing banks, it publishes no official minutes, has no headquarters, and the people who function as its secretariat have other day jobs. Its public face is a eurozone finance minister, who works for no salary: The current president is Jeroen Dijsselbloem, a Dutch Socialist with conservative views on fiscal matters. Legally, it is governed by a single sentence in Article 137 of the EU treaty which says “arrangements for meetings between ministers of those Member States whose currency is the euro are laid down by the Protocol on the Euro Group.” Emily O’Reilly, the EU’s ombudsman, is among those calling for reform. While she credits Dijsselbloem for his efforts to peel back the curtain on Eurogroup proceedings, she said: “It is obviously difficult for Europeans to understand that the Eurogroup, whose decisions can have a significant impact on their lives, [isn’t] subject to the usual democratic checks and balances.”

Indeed, when a group of citizens from Cyprus who disagreed with the terms of the 2013 Cypriot bank bailout took their case to the European Court of Justice, the court’s response was that the Eurogroup is not “capable of producing legal effects with respect to third parties” because it is just a discussion forum. Last year, Dijsselbloem used the ECJ ruling to justify the Eurogroup avoiding standard EU transparency rules, though he did commit to individual transparency requests on an informal basis. But some of those who participate in Eurogroup meetings argue that its informality is precisely what makes it useful. The last thing they want is another bureaucratic EU institution, and if the Eurogroup were reformed out of existence, they say, a new version would pop up in its place, without the minimal accountability it currently offers in the form of meeting agendas and press conferences.

“It’s the informal nature of the Eurogroup that makes it possible to have an open exchange that you will not find in more formal bodies,” said Taneli Lahti, a former head of cabinet for European Commission Vice President Valdis Dombrovskis. “This is crucial for policymaking, negotiating, finding agreements and understanding each other.”

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Why government surpluses are the worst thing for an economy.

Podcast: Steve Keen’s Manifesto (OD)

The only times the US government ran a surplus, it was followed by the 1929 and 2008 crashes.

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First you make growth impossible be demanding surpluses till the cows come home, and then you demand growth.

No Greek Debt Relief Need If Primary Surplus Above 3% of GDP For 20 Years (R.)

Greece will not need any debt relief from euro zone governments if it keeps its primary surplus above 3% of GDP for 20 years, a confidential paper prepared by the euro zone bailout fund, the European Stability Mechanism (ESM), showed. The paper, obtained by Reuters, was prepared for euro zone finance ministers and IMF talks last Monday, which ended without an agreement due to diverging IMF and euro zone assumptions on future Greek growth and surpluses. A group of euro zone finance ministers led by Germany’s Wolfgang Schaeuble insists that the issue of whether Greece needs debt relief can only be decided when the latest bailout expires in mid-2018. The IMF says the need for a bailout is already clear now.

Under scenario A, the paper assumes no debt relief would be needed if Athens kept the primary surplus – the budget balance before debt servicing – at or above 3.5% of GDP until 2032 and above 3% until 2038. The ECB says such long periods of high surplus are not unprecedented: Finland, for example, had a primary surplus of 5.7% over 11 years in 1998-2008 and Denmark 5.3% over 26 years in 1983-2008. A second option under scenario A assumes Greece secures the maximum possible debt relief under a May 2016 agreement. Greece would then have to keep its primary surplus at 3.5% until 2022 but could then lower it to around 2% until mid-2030s and to 1.5% by 2048, giving an average of 2.2% in 2023-2060.

The paper says the maximum possible debt relief under consideration is an extension of average weighted loan maturities by 17.5 years from the current 32.5 years, with the last loans maturing in 2080. The ESM would also limit Greek loan repayments to 0.4% of Greek GDP until 2050 and cap the interest rate charged on the loans at 1% until 2050. Any interest payable in excess of that 1% would be deferred until 2050 and the deferred amount capitalized at the bailout fund’s cost of funding. The ESM would also buy back in 2019 the €13 billion that Greece owes the IMF as those loans are much more expensive than the euro zone’s. All this would keep Greece’s gross financing needs at 13% of GDP until 2060 and bring its debt-to-GDP ratio to 65.4% in 2060, from around 180% now.

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44 children.

Deadliest Month For Syria Civilians In US-Led Strikes (AFP)

US-led air strikes on Syria killed a total of 225 civilians over the past month, a monitor said on Tuesday, the highest 30-day toll since the campaign began in 2014. The Syrian Observatory for Human Rights said the civilian dead between April 23 and May 23 included 44 children and 36 women. The US-led air campaign against the Islamic State jihadist group in Syria began on September 23, 2014. “The past month of operations is the highest civilian toll since the coalition began bombing Syria,” Observatory head Rami Abdel Rahman told AFP. “There has been a very big escalation.” The previous deadliest 30-day period was between February 23 and March 23 this year, when 220 civilians were killed, Abdel Rahman said. The past month’s deaths brought the overall civilian toll from the coalition campaign to 1,481, among them 319 children, the Britain-based monitoring group said. Coalition bombing raids between April 23 and May 23 also killed 122 IS jihadists and eight fighters loyal to the Syrian government, the Observatory said.

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Well over 100 children.

30 Migrants, Most of Them Toddlers, Drown in Mediterranean (R.)

More than 30 migrants, mostly toddlers, drowned on Wednesday when about 200 people without life jackets fell from a boat into the sea off the Libyan coast before they could be hauled into waiting rescue boats. The boat was near a rescue vessel when it suddenly listed and many migrants tumbled into the Mediterranean, Italian Coast Guard commander Cosimo Nicastro told Reuters. “At least 20 dead bodies were spotted in the water,” he said. The rescue group MOAS, which also had a ship nearby, said it had already recovered more than 30 bodies. “Most are toddlers,” the group’s co-founder Chris Catrambone said on Twitter. The coast guard called in more ships to help with the rescue, saying about 1,700 people were packed into about 15 vessels in the area.

The transfer from these overloaded boats is risky because desperate migrants in them sometimes surge to the side nearest a rescue vessel and destabilise their flimsy craft, which then list dangerously or capsize. More than 1,300 people have died this year on the world’s most dangerous crossing for migrants fleeing poverty and war across Africa and the Middle East. Last Friday, more than 150 disappeared at sea, the International Organization for Migration (IOM) said on Tuesday, citing migrant testimony collected after they disembarked in Italy. In the past week, more than 7,000 migrants have been plucked from unsafe boats in international waters off the western coast of Libya, where people smugglers operate with impunity.

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May 092017
 
 May 9, 2017  Posted by at 8:13 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Pablo Picasso Self portrait 1938

 

Macron Is Not The Solution To Europe’s Top Existential Threat (CNBC)
“Europe’s Not Out Of The Woods With Macron Win” (ZH)
Commodities Send Ominous Signal On Global Economy (BBG)
Traders Are Fleeing the Options Market (WSJ)
The Debt-Bubble Landmine Obama Left For Trump (NYP)
Canadians Buy Record Number of New Cars With Record Amount of Financing (BD)
Majority of Consumers Now See Canadian Home Prices Rising (BBG)
Over 50% of Canadians $200 or Less Away From Not Being Able To Pay Bills (Gl.)
Quebec’s Finance Minister: Don’t Dawdle on NAFTA Overhaul (BBG)
Chinese Stocks Head For Longest Losing Streak In 3 Years (BBG)
How China Keeps Its Financial System From Collapsing (ZH)
Parts of Asia Will Grow Old Before Getting Rich, IMF Warns (BBG)
Italy Adds Bum Note To Macron’s Ode To Euro Zone Joy (R.)
The Rock-Star Appeal of Modern Monetary Theory (Nation)
To Bury Nuclear Waste, Dig Deeper Than Yucca Mountain (BBG)
Dangerous Times in the Aegean and Cyprus (K.)
New Refugee Center Planned On Chios As Tensions Simmer (K.)
Nearly 200 Missing, 11 Dead As Migrant Boats Sink Off Libya (AFP)
Hundreds Of Migrants Feared Dead In Mediterranean Over Weekend (R.)

 

 

Macron wants Eurobonds, anathema to Germany et al because they would allegedly “sharply reduce each euro zone government’s motivation to pursue sensible fiscal policies..”.

Many in Brussels want a banking union, anathema to quite a few countries. There is no democratic way that leads to such a union. It’s like handing the EU the keys to your country.

Macron Is Not The Solution To Europe’s Top Existential Threat (CNBC)

The future of the euro zone is dependent on a common commitment to solid government finances, says Commerzbank’s chief economist, and France’s new president-elect does not bring the bloc any closer to achieving this reality. The pro-EU and centrist candidate, Emmanuel Macron, stormed to victory against his far-right political rival, Marine Le Pen, on Sunday and is now poised to become France’s youngest ever premier. However, the former economy minister is in favor of joint bond issuance which, according to Jörg Krämer, would sharply reduce each euro zone government’s motivation to pursue sensible fiscal policies. “The EU can’t keep feeling its way from one election to the next. At some point an election might go the wrong way – and if that happens in a large country, the survival of the monetary union would be in jeopardy,” Krämer said in a note.

Commerzbank’s chief economist also warned the repeated near misses of anti-EU political leaders in several European elections in recent years would not last forever and suggested the monetary union’s survival now rests on the bloc’s ability to create a genuine banking union. “To lay these existential risks to rest, the euro zone at long last needs a common commitment to solid government finances. The monetary union’s long-term survival depends on it. But new French President Macron won’t bring this any closer to reality,” he added. Meanwhile, just one day after the pro-business and market-friendly candidate Macron secured his country’s presidential election, EC President Juncker publically lambasted high state spending in the euro zone’s second largest economy. “With France, we have a particular problem … The French spend too much money and they spend too much in the wrong places. This will not work over time,” Reuters reported him as saying in Berlin on Monday.

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Le Pen would have lost against anyone. But tons of Europeans still don’t like what the EU has become. All it takes is a candidate somewhere who’s not Le Pen or Wilders.

“Europe’s Not Out Of The Woods With Macron Win” (ZH)

It appears the chairmen of UBS have plenty to say on Europe.Following former UBS chairman Peter Kurer’s comments that “to the elites, the EU is a means to get rich quickly and export their problems,” UBS current chairman Axel Weber has warned bankers that Europe is not “out of the woods” from its political risks even after Emmanuel Macron’s reassuring victory in the French presidential election. Peter Kurer recently remarked on the end of the Euro…

“Following an unfortunate combination of wrong decisions at the top and the uncontrolled flourishing of a self-serving bureaucracy, the union has moved in a direction where it has become a prisoner of its own constructed reality. The EU was a great idea but it has been ridden to death. Back in 1992, almost half of Swiss voted to join the European Economic Area, including the traveller. If there was a vote today on joining the union, the latest polls say just 15% would vote yes. The EU had its chances. It squandered them, and maybe it will come to an end in the foreseeable future under the weight of its burdens: La messa e finita, andate in pace.”

And over the weekend speaking in Tokyo, as the FT reports, UBS Chairman Axel Weber said that political risk in Europe remained “actually quite high” even though “we’ve seen the centre hold in France” with Macron’s victory over far-right candidate Marine Le Pen, and even though all the signs were that the centre will also hold in the upcoming German location elections.

“That doesn’t mean Europe is out of the woods,” he told the International Institute of Finance’s spring meeting. “There is still Italy where it is very unclear that the centre will hold. And there is still Greece.” He continued: “Where you find some bright side….there are (also) some downside risks that are not really priced into the market but could derail (Europe).” “Brexit is a time bomb… and the countdown is on. It will be two years from now,” Mr Weber said. He added that “if the British really do leave the customs union and single market there could be a lot of volatility which could impact on the global economy”.

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How long can bubbles hold?

Commodities Send Ominous Signal On Global Economy (BBG)

By almost any measure last week was a bad one for commodities, as practically every part of the market lost value. West Texas Intermediate crude oil fell under $44 per barrel, Brent crude broke below $50 per barrel and copper tested $5,500 per metric ton. In China, coal and iron ore tumbled. Gold, the supposed ultimate haven, dropped to almost $1,225 per ounce. Last week’s purge capped a steady decline in prices since mid-April and, more broadly, since February based on the Bloomberg Commodities Index. Although much of the blame is being tied to rather high and growing inventory levels, a lack of real demand shouldn’t be discounted. The market is experiencing something greater than a technical correction or speculative positioning. It is signaling something ominous about the state of the global economy.

So while Friday saw a small recovery, it appears to be merely a “dead cat bounce” rather than a sign of any market bottom. Traders have reason to question global economic strength. They are concerned about fresh signs of an over-extended Chinese economy and an ongoing slowdown in developed markets faced with aging demographics. In the U.S., they question President Donald Trump’s infrastructure promises along with his administration’s relaxed standards in the mining and drilling sectors, whose commodities we already have too much of. OPEC’s output cuts have failed to do enough to stymie the global oil glut as U.S. drillers add to their rig counts. Such negative sentiment has carried through in the equity markets, particularly among commodity-producing nations such as Australia, Canada and Brazil.

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A liquidity problem. And a confidence one.

Traders Are Fleeing the Options Market (WSJ)

Falling volumes and spiraling costs are pushing trading firms out of U.S. options, raising concerns about fragility in a market that investors rely on to protect portfolios. Trading has dwindled in most areas of the market, and investors and traders are grappling with increasing fragmentation. Liquidity, the crucial ability to do trades without significantly moving prices, has deteriorated, according to interviews with market participants and data reviewed by The Wall Street Journal. Options on key indexes, exchange-traded funds and high-volume stocks dominate trading. Meanwhile, there is less activity in the rest of the listed U.S. options world. The stresses prompted at least six prominent options market makers to exit from the business since 2012. Market makers are firms willing to both buy and sell using automated programs.

Thomas Peterffy, a pioneer of electronic options trading, said in March that his firm, Interactive Brokers, would pull the plug on options market making. KCG Holdings announced its exit from retail options market making last year, while UBS and Credit Suisse have also left automated options market making. JP Morgan and Bank of America made similar decisions in 2014, according to people familiar with the matter. “Most market makers congregate in the highly traded products,” Mr. Peterffy said in an interview. “It’s difficult for a market maker to maintain hundreds of thousands of bids and offers all the time.” It is hard to pinpoint what triggered the trader exodus, but industry experts say as firms leave, liquidity gets further drained, which spurs more market makers to retrench.

The dangerous feedback loop could sap appetite for options, key derivative securities that investors use to manage risk in their portfolios. “We could ill afford to lose any more market makers at this junction,” said Alan Grigoletto, who previously worked at the Boston Options Exchange, and now runs Grigoletto Consulting while trading options in his retirement account. Data show the liquidity bifurcation. Index and ETF options volume rose in April by 28% and 4%, respectively, data from the Options Clearing Corporation show. Meanwhile, total equity options volume shrank by 10% from the prior year.

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The car loans issue keeps growing.

The Debt-Bubble Landmine Obama Left For Trump (NYP)

President Trump came in for much jeering when he told reporters he had “inherited a mess” from President Barack Obama. On the economy, though, Obama did indeed leave behind a hidden mess: a seemingly healthy jobs market dependent on cheap debt. When this debt bubble bursts, just as the last one did, the manufacturing jobs Trump wants to save will be in even greater peril. [..] who is borrowing for used cars – and at much higher interest rates – is a huge concern. People with not-great credit scores have always made up about a fifth of the auto-loan market. But the percentage of people borrowing even though they have really bad credit scores has surged, reports Bloomberg. It’s now a third of the subprime auto-bond market, up from just 5% seven years ago. A Standard & Poor’s analysis of just one big subprime auto bond tells the story.

Last week, a company called DriveTime, which sells used cars in 26 states to people with bad credit, was in the market to issue $442 million worth of bonds backed by auto loans. The average credit score of borrowers was 538 — indicating a history of serious default. And, as S&P notes, “today’s subprime customer appears to be . . . weaker . . . than that of several years ago,” because people who defaulted right after the housing crash at least had the excuse that they were caught up in a global bubble. These loans are for people who have no choice but to borrow to buy a car, and no bargaining power on the interest rate they pay: close to 20%. Even though the borrowers pay through the nose, they depend on cheap global credit. With interest rates still near record lows, lenders have to take ever more risk in a low-interest-rate environment to make a little money.

As for that risk: Delinquency rates are rising, with 4.32% of subprime borrowers in general at least 60 days late last year, up from 3.52 two years earlier, says S&P. The bigger risk here isn’t the risk to investors, though. The auto-loan market is still much smaller than the housing market, and the investment world hasn’t created trillions of dollars of derivative securities based on this market (at least not that we know of). And unlike with houses, no one ever expects the value of a car to increase with use. No, this bubble presents a much more direct risk to the economy — and manufacturing jobs. If people with terrible credit can’t borrow an average of nearly $18,000 to buy a used car (what the DriveTime customer pays), the market for used cars collapses. That, in turn, affects the market for new cars. Indeed, the US auto industry has seen sales decline this year, after clocking half a decade of record highs.

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Canadians do the subprime car thing too.

Canadians Buy Record Number of New Cars With Record Amount of Financing (BD)

Canadians aren’t just buying real estate, they’re also treating themselves to new cars. According to a new release from Statistics Canada, sales of new cars reached a record high for February. Great for automobile manufacturers, but not so great for the economy. Debt-fuelled financing makes this more of a warning sign than a boom-time trend. Sales of new motor vehicles across Canada rose to an all-time record for February. The month saw 125,284 sales – a 2.74% increase from the same time last year. The largest segment of sales were seen in Ontario, where 41% of them occurred. This is up slightly from 2016, where Ontario accounted for 39% of sales. Booming real estate prices, and massive numbers for car sales… Ontario better be facing the greatest economy its ever experienced, or it’s in trouble.

Consumers are purchasing more expensive vehicles too. Over $5 billion was spent on new vehicles for the month, bringing the average to $40,100 – up 3.4% from the same time last year. Ontario was below the average for the country, where the average price was $39,400. While prices are lower in Ontario, they’re not exactly budget vehicles either. The uptick in average sale price is due to longer financing terms for buyers. According to the Financial Consumer Agency of Canada (FCAC), Canadians are “increasingly purchasing more car than they can afford,” due to longer financing becoming fashionable. The agency notes that average leases have crept up 2 months, every year since 2010. According to the Bank of Canada (BoC), the average loan was 74 months as of 2015.

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The Canadian debt issue is turning into a total craze.

Majority of Consumers Now See Canadian Home Prices Rising (BBG)

Expectations for Canada’s housing market are heating up, with more than half of respondents in a weekly telephone survey predicting home prices will rise, the first time the measure has topped 50% in records dating back to 2008. The bullishness comes even as a run on deposits at Toronto-based mortgage lender Home Capital leads to heightened scrutiny of a market which policy makers have said is divorced from economic fundamentals. The broad Bloomberg Nanos Canadian Confidence Index fell to 59 in the week ended March 5. Some 50.1% of respondents said they expect local home prices to rise. The figure has climbed for six straight weeks and is higher than the average for the series of 37.1%. Thepercentage of people surveyed in the week ending May 5 who said local home prices will decline in the next six months slid to 10% from 10.7%.

“Consumer sentiment on real estate has gone from hot to hotter,” said Nanos Research Group Chairman Nik Nanos. Housing has led the world’s 10th largest economy over most of this decade as exporters have struggled. The latest burst of housing momentum has led policy makers to question whether it’s being led by supply and demand or by speculation. The Ontario Securities Commission opened hearings into whether Home Capital failed to properly disclose an internal probe into fraudulent mortgage applications, a shakeup in a nation lauded for having the world’s safest banks. The latest Toronto figures also showed prices up 25% in April from a year earlier, still close to the 30% March pace that Ontario Finance Minister Charles Sousa called unsustainable on April 20 when he imposed a foreign buyers tax. Those events haven’t led to more bets on a price decline either, and housing optimists now outnumber pessimists by a factor of five to one.

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So much in debt they can’t pay their bills. Maybe someone should take a look at Canadian inequality, too.

Over 50% of Canadians $200 or Less Away From Not Being Able To Pay Bills (Gl.)

More than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations, according to a recent Ipsos survey conducted on behalf of accounting firm MNP. “With such a small amount of wiggle room, any kind of unanticipated hardship, such as a job loss or even a car repair, could send an already struggling family into financial despair,” said Grant Bazian, president of MNP’s personal insolvency practice, which is one of the largest in Canada. For 10% of Canadians, the margin of error when it comes to household finances is even thinner, at $100 or less. But those with anything at all left at the end of the month were in better shape than many: A whopping 31% of respondents said they already don’t make enough to meet all their financial obligations.

Debt is causing Canadians a fair bit of stress, the polling suggests, but few appear to be on track to buff up their monthly financial cushion. Two-thirds of survey takers said they are “less than very confident” about their ability to create an emergency fund. Another hair-raising finding from the survey: Roughly 60% said they don’t have a firm grasp of how interest rates affect debt repayments. The statistic helps explain why many indebted Canadians end up taking on more debt and high-cost loans, said Bazian. “That’s how so many end up in an endless cycle of debt,” he noted. But the data also raises the question of whether Canadians understand the implications of an interest rate hike by the Bank of Canada (BoC). A decision by the BoC to start lifting its key policy rate from historic lows would raise the cost of carrying debt across the country.

The Bank uses interest rates, among other tools, to influence inflation and economic activity. Many economists believe it could start to raise rates in the first half of 2018, as economic growth picks up pace. Although the BoC will probably lift rates gradually and over time, the impact on Canadian wallets will be substantial. For example, as Global News has reported before, a onepercentage point rise in the BoC’s key interest rate would likely push up variable mortgage rates by a similar amount. A variable mortgage rate that’s currently set at 3%, for example, would go up to 4%, which represents a 33% increase in interest payments for the mortgage holder. That’s an extra $83 a month for every $100,000 in outstanding mortgage debt.

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Quebec has strong US trade ties.

Quebec’s Finance Minister: Don’t Dawdle on NAFTA Overhaul (BBG)

Quebec Finance Minister Carlos Leitao has a message for government officials considering a renegotiation of NAFTA: Time is of the essence. “If we are going to renegotiate Nafta, then let’s do it,” Leitao said in an interview Friday at Bloomberg headquarters in New York. “The worst case scenario would be if we spend years talking about renegotiating, but don’t actually do it and it just keeps hanging around and doesn’t get addressed. The longer it drags on, the bigger the real impact on investment.” Canadian Prime Minister Justin Trudeau is facing a lengthy trade battle with the U.S., which also includes calls for a new softwood lumber pact and Donald Trump’s complaints about Canada’s system of protectionist dairy quotas.

It’s all set to drag on as the president has yet to trigger a 90-day notice period to Congress to renegotiate Nafta. The last softwood lumber dispute lasted five years. “The problem with the uncertainty is we don’t know what kind of process we will have,” Leitao said. “Is this going to be along the same lines as the last Nafta negotiations? That was very systematic. There were panels on various issues. It’s that kind of certainty that we would like. The actual nuts and bolts will take time.” Leitao has good reason to be wary of protracted trade battles, with his most recent budget already predicting Quebec’s economic growth will lag behind the Canadian average. Output in Quebec will grow 1.7% this year before slowing to 1.6% in 2018, budget forecasts show. That’s less than the 2.2% and 2.3% forecast for all of Canada over the same period.

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Deleveraging.

Chinese Stocks Head For Longest Losing Streak In 3 Years (BBG)

Chinese stocks pared declines, with technical indicators signaling that a five-day slide may have been overdone. The Shanghai Composite Index was little changed at 3,077.78 as of 1:07 p.m. local time, after declining as much as 0.7% earlier in the day. Consumer shares were the worst performers on the CSI 300 gauge, while telecom companies led gains. The Hang Seng Index climbed 0.4%. An intensifying campaign to reduce leverage in the financial system pushed the Shanghai benchmark to a 2.4% loss in the five days through Monday. This drove the gauge’s relative strength index to below 30, a level that suggests to some traders that an asset is oversold.

The nation’s banking regulator said Monday that lenders should carry out collateral pressure tests at least once a year, while the Securities Times reported that some rural banks had suspended interbank businesses temporarily while officials conduct spot checks. “Some stocks appeared to be very cheap at current levels, and this triggered some bargain hunting,” said Banny Lam, head of research at CEB in Hong Kong. State-owned enterprises that dominate old growth industries, such as banks and commodity producers, have been among the hardest-hit by the deleveraging drive, while new-economy shares remain in favor among overseas investors. That’s led to a wide gap between the nation’s two main offshore gauges: the Hang Seng China Enterprises Index and the MSCI China Index.

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Much collateral doesn’t actually exist. Wealth management products, shadow banks, it’s all not much more than a mirage. It takes faith.

How China Keeps Its Financial System From Collapsing (ZH)

With “risk” in most of the developed world seemingly a long forgotten four-letter word, as seen by today’s plunge in the VIX to a level not seen in 34 years, traders hoping for some “risk event” have been confined to the recent turmoil in China, where overnight not only did trade data disappoint, with both imports and exports missing, but bond yields jumped to the highest level since 2015, dragging stocks lower even as the local commodity crash slammed iron ore and copper to new YTD lows.

While largely a “controlled” tightening, meant to contain China’s out-of-control shadow banking system, the recent gyrations in Chinese capital markets are starting to have a profound impact on local funding, resulting in a collapse in new bond issuance, and according to FT calculations, in April the number of aborted issues rose to 154, up from 94 in March, 32 in February and 31 in January.

As DB added, “local bond markets are practically shut for corporates. In fact, YTD issuance is down 40%+ yoy and net issuance has been negative in three out of the first four months this year. A number of issuers are being forced to cancel bond issuances (over RMB100 billion YTD) and there were reports (Bloomberg) of even CDB halting issuance (though subsequently denied). Some AA corporates are now issuing at north of 7%.” These signs of mounting stress in China’s $9.3 trillion bond market come less than a month after the country’s banking regulator, Guo Shuqing, was quoted as supporting a campaign to sort out chaotic practices, and threatening to resign if the banking system became “a complete mess”.

[..] whether or not China keels over and has a hard (or worse) landing, will depend on the PBOC; when (not if) the central bank gets involved, will depend on how soon China’s banks and various CD-funded financial institutions run out of collateral (whether it exists or not) to sell, such as iron ore, copper, precious metals, bonds and even stocks. This will hardly come as a surprise. As we showed last month, the only reason the Chinese banking system hasn’t imploded, is due to nearly CNY 10 trillion in central bank liquidity support for the local banks, just under 100% of China’s GDP.

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Europe too.

Parts of Asia Will Grow Old Before Getting Rich, IMF Warns (BBG)

Asia’s rapidly aging population means the region is shifting from being the biggest contributor to the global workforce to subtracting hundreds of millions of people from it, according to the International Monetary Fund. The reversal of the so-called “demographic dividend” will drag on global growth and also that in Asia, the world’s fastest growing region, the IMF warned in its annual outlook for the area. The population growth rate will fall to zero for Asia by 2050 – it’s already negative in Japan – and the share of the population who are working-age has already hit its peak, the IMF estimates. That means the ratio of the population aged 65 and older will be almost two and a half times the current level by 2050, and even higher in East Asia.

“The speed of aging is especially remarkable compared to the historical experience in Europe and the United States,” the IMF said. Per capita income in Asia relative to the U.S. remains at much lower levels than those achieved by mature advanced economies in the past. “Countries in Asia will have less time to adapt policies to a more aged society than many advanced economies had,” the fund wrote. “As such, parts of Asia risk becoming old before becoming rich.” For economic growth, the aging process could erode up to one percentage point from annual output over the next three decades in Japan, and between 0.5-0.75 percentage point in China, Hong Kong, South Korea and Thailand.

While some bright spots remain, such as India and Indonesia, demographics could subtract 0.1 of a percentage point from annual global growth over the next three decades, the IMF estimates. It also means Asia is at risk of falling into secular stagnation if an older population leads to excessive savings and low investment renders monetary policy ineffective. The demographic shift will also likely keep downward pressure on real interest rates and asset returns for most major countries in Asia, the IMF said. “Adapting to aging could be especially challenging for Asia, as populations living at relatively low per capita income levels in many parts of the region are rapidly becoming old,” the IMF said.

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It’s time to come clean on how bad Italy is really doing.

Italy Adds Bum Note To Macron’s Ode To Euro Zone Joy (R.)

Italy is adding a bum note to Emmanuel Macron’s ode to joy. While it’s encouraging that a Europhile will take the French presidency after Sunday’s vote, attention can now turn to Europe’s other crisis-in-waiting. Elections are coming in Italy, and there are more of the ingredients for a populist shock than in France. The economy has fared much worse since the creation of the euro zone, with growth averaging zero since 2001, according to the IMF. GDP per capita has fallen in that time. The IMF expects the unemployment rate to reach 11.7% this year, 2 percentage points higher than in France. Anti-EU forces are also spread widely across Italy’s messy political landscape. Stagnation has fuelled support for the 5-Star Movement, which could lead Italy out of the euro zone and currently polls just below 30%.

Mainstream parties are shaky. The left fragmented after former prime minister Matteo Renzi lost his referendum on constitutional reform in December. The right is an awkward alliance between ageing former premier Silvio Berlusconi and more radical anti-EU parties, like the Lega Nord. The risk is that 5-Star forms a coalition with the Lega after elections that must take place by May next year. The economy is picking up, but tighter monetary policy, as the European Central Bank reins in bond buying, could strangle the recovery, as could an overly stern fiscal policy. Italy needs to cut spending or increase taxes by 2percentage points to meet European targets through 2019. Job losses from the restructuring of banks and bankrupt national airline Alitalia could become a lightning rod for anti-EU sentiment.

Europe can help. Italy is likely to miss its fiscal targets anyway, but loosening bloc-wide budget rules to encourage investment and spread out cuts over a long period would cement the recovery. A strong France, aided by Macron’s victory, might persuade Germany to spend more, and give other countries freer rein. However, even if a political shock is avoided, the next election may produce a weak government with no mandate for taking tough decisions to boost growth. Italy could be bringing discord to the region for years.

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MMT must go mainstream.

The Rock-Star Appeal of Modern Monetary Theory (Nation)

To a layperson, MMT can seem dizzyingly complex, but at its core is the belief that most of us have the economy backward. Conventional wisdom holds that the government taxes individuals and companies in order to fund its own spending. But the government—which is ultimately the source of all dollars, taxed or untaxed—pays or spends first and taxes later. When it funds programs, it literally spends money into existence, injecting cash into the economy. Taxes exist in order to control inflation by reducing the money supply, and to ensure that dollars, as the only currency accepted for tax payments, remain in demand.

It follows that currency-issuing governments could (and, depending on how you lean politically, should) spend as much as they need to in order to guarantee full employment and other social goods. MMT’s adherents like to point out that the federal government never “runs out” of money to fund the military, but routinely invokes budget constraints to justify defunding social programs. Money, in other words, isn’t a scarce commodity like silver or gold. “To people who’ve worked in financial markets, who work at the Fed, this isn’t controversial at all,” says Galbraith, who, while not an adherent, can certainly be described as “MMT-friendly.”

The decisions about how to issue, lend, and spend money come down to politics, values, and convention, whether the goal is reducing inequality or boosting entrepreneurship. Inflation, MMT’s proponents contend, can be controlled through taxation, and only becomes a problem at full employment—and we’re a long way off from that, particularly if we include people who have given up looking for jobs or aren’t working as much as they’d like to among the officially “unemployed.” The point is that, once you shake off notions of artificial scarcity, MMT’s possibilities are endless. The state can guarantee a job to anyone who wants one, lowering unemployment and competing with the private sector for workers, raising standards and wages across the board.

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No matter how deep you dig, you can’t guarantee safety for a million years. That’s what’s halted Yucca Mountain. The Bloomberg editors don’t understand the issue either.

To Bury Nuclear Waste, Dig Deeper Than Yucca Mountain (BBG)

Energy Secretary Rick Perry is right to say the U.S. needs a long-term solution to its massive nuclear waste problem. It also makes sense for Perry and some members of Congress to see Yucca Mountain as part of that solution – though many Nevadans promise to make sure it won’t be. But even if Yucca can survive the political fight, it can’t be the only option for disposing of America’s spent nuclear fuel. More than 75,000 metric tons of the stuff are cooling in pools and casks at dozens of power-plant sites around the country. That’s already too much to fit in Yucca Mountain, and the total grows by more than 2,000 tons a year. Other strategies are needed, ideally ones that are less politically radioactive. Consider, for instance, the idea of sinking the waste into boreholes that reach three miles below ground – 15 times as deep as the proposed chambers inside Yucca. Such shafts could be drilled in states that, unlike Nevada, benefit from the use of clean, reliable nuclear power.

Boring into the Earth’s deep rock layers could provide the kind of bury-it-and-forget-it underground disposal necessary for material that will remain dangerous for hundreds of millennia. Local opposition can still be expected; in North and South Dakota, residents have shouted down some plans to dig test holes. That’s why a so-called consent-based strategy, identifying locations with both the appropriate geology and an agreeable population, is necessary. If hosting a waste site means more funding for local public works and services, more communities might be willing to accept one. (This proved to be the case in Carlsbad, New Mexico, home to a storage place for low-level waste from nuclear weapons.) A familiarity with nuclear power may also encourage acceptance, perhaps because there is a nuclear plant in the area employing people and providing power.

The same approach could also be used to locate six or seven centers where waste from several nuclear plants could be stored while it awaits burial. Such containment facilities could also include research centers – mini national laboratories where scientists could work out new ways of reprocessing fuel and perhaps conduct demonstration projects for reactors designed to use safer fuels. The one thing the U.S. should not do is continue to neglect the growing quantities of nuclear waste. Over the past few decades, electricity ratepayers have contributed more than $34 billion to a national fund to pay for a geologic disposal site. And because none yet exists, taxpayers are forking over billions more to enable nuclear-plant operators to manage interim storage. The political barriers to solving this problem may be high, but further delay – and an undue fixation on Yucca Mountain – won’t make them any easier to overcome.

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Turkey will provoke Greece at some point, and US and Europe had better prevent that from happening.

Dangerous Times in the Aegean and Cyprus (K.)

The concept of gray zones (the claim that the sovereignty of a number of islands and islets in the Aegean is undetermined) was a novel idea that Turkey came up with 20 years ago. At some point, Ankara reached the point of including the Greek island of Gavdos in its gray zones list. Whenever Athens made an official request regarding the islands or rocky outcrops that Turkey had on its list, the answer was always very vague: “Anything that is not clearly included the bilateral agreements that set out Greece’s borders with other countries.” At first, many people thought this was a bargaining chip that Ankara would trade as part of a grand bargain. They were wrong. The failure to settle differences between Greece and Turkey gave Ankara the opportunity to add more issues to the agenda.

Over time, these have become permanent and ever-expanding. Currently, Turkey considers significant parts of the Aegean to be gray zones. This includes islands that have been inhabited for decades. It is questioning Greek sovereignty through its actions, not just its words, by the frequent presence of naval vessels in Greek waters and overflights by fighter jets. Over the last few months, it has being doing this more systematically and openly. Greece’s approach has also changed. The doctrine that existed in the wake of the Imia crisis in 1996, when the two countries almost went to war, was based around not building up tension following various incidents and maintaining a low profile.

[..] A dangerous situation is also playing out in Cyprus. The Turks are trying to impose the concept of gray zones there as well. July (when a new round of drilling for hydrocarbons is due to begin off Cyprus) promises to be a difficult month. Ankara will attempt before then to intimidate the companies that plan to start drilling or try to obstruct them if they are not scared off by threats.

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Prison camps are no solution.

New Refugee Center Planned On Chios As Tensions Simmer (K.)

The exact site for the creation of a new so-called pre-departure camp for migrants and refugees on the island of Chios will be determined by May 20, authorities said on Monday. The new camp will come as tensions at overcrowded reception centers on the eastern Aegean island continue to simmer, with almost daily clashes between stranded migrants of different ethnicities. “The experience of Lesvos and Kos where such centers have been created is positive,” said Lieutenant General Zacharoula Tsirigoti of the Greek Police in a press briefing Monday on Chios. Pre-departure centers are deemed essential as they house refugees and migrants returning to Turkey. Tsirigoti added that building a new center on the island is a “one-way street” as locals – many of whom have campaigned for the immediate removal of all migrants and refugees from Chios – say the situation has reached breaking point and that the large police force on the island has been unable to cope.

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The season is just starting: “..the trend points to around 250,000 people arriving over the course of 2017”. There is no place for these people in Italy and Greece.

Nearly 200 Missing, 11 Dead As Migrant Boats Sink Off Libya (AFP)

Eleven migrants have died and nearly 200 are missing after two boats sank off the coast of Libya, UN agencies said Monday citing survivors, in the latest such tragedy. The first involved an inflatable craft which left Libya early Friday with 132 people on board, only to start deflating a few hours later, before overturning. Some 50 survivors were picked up by a Danish container ship, the Alexander Maersk, which was alerted to divert by Italian coastguards and dropped them off on Sunday in Pozzallo, southern Sicily. Representatives of the UN High Commissioner for Refugees (UNHCR) and the International Organization for Migration (IOM) were able to meet them on Monday to hear their accounts. Survivors told them that women and children were among those missing.

At the same time, the bodies of 10 women and one child were found Monday on a beach in Zawiya, 50 kilometres (31 miles) west of Tripoli, according to an official for the Libyan Red Crescent. Then on Sunday seven migrants – a woman and six men – were rescued by Libyan fishermen and coastguards off the coast of the Libyan capital. An IOM spokesman who met them said they had set out on a boat with at least 120 people on board, including about 30 women and nine children. In all more than 6,000 migrants were rescued Friday and Saturday in international waters off the coast of Libya and brought to Italy, while several hundred were rescued in Libyan waters and taken back to Libya.

The number of people leaving Libya in the hope of starting a new life in Europe is up nearly 50% this year compared with the opening months of 2016. With most departures coming in the warm summer months, the trend points to around 250,000 people arriving over the course of 2017. Some 500,000 migrants were registered in Italy in the three years spanning 2014-16.

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Europe’s reputation is tarnished for decades. But everyone thinks they can deflect responsibility. Time for skin in the game.

Hundreds Of Migrants Feared Dead In Mediterranean Over Weekend (R.)

More than 200 migrants are feared to have died in the Mediterranean over the weekend, according to testimony from survivors, and several bodies, including that of an infant, have washed up on a Libyan beach. About 7,500 people have been rescued off the coast of Libya since Thursday, the Italian and Libyan coastguards said. Two groups of survivors told the organizations that hundreds drowned when their rubber boats began to deflate before rescuers arrived. More than 60 are feared dead and three bodies were recovered on Saturday, survivors brought to Sicily on Sunday told Italian coastguards. The boat left Libya carrying about 120, they said. There was some discrepancy in the numbers. Based on its interviews with some of the survivors in Pozzallo, Italy, the U.N. refugee agency estimated the number of dead at more than 80.

Separately, Libya’s coastguard picked up seven survivors over the weekend who said they had been on a boat packed with 170 migrants. Aid agency International Medical Corps, which gave medical care to the survivors, also confirmed their account. “We rescued on Sunday seven illegal migrants – six men and a woman,” said Omar Koko, a coastguard commander in the western city of Zawiya. “According to these survivors, there were 170 on board the boat, which sank because of overloading.” Among those missing were more than 30 women and nine children, Koko said. Eleven bodies washed up on the shore west of Zawiya, said Mohanad Krima, a spokesman for the Red Crescent in Zawiya. “All the bodies are of female victims and there is a girl of less than one year old,” he said.

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May 032017
 
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Leonardo da Vinci A Copse of Trees 1508

 

Trump: US “Needs A Good Shutdown In September To Fix This Mess” (ZH)
Home Capital Fails to Draw Buyout Interest From Canada Banks (BBG)
Hot Air Hisses Out of US Auto Bubble (WS)
May’s Election Fighting Talk Fuels Brexit War of Words With EU (BBG)
Le Pen Wants A French National Currency Within Two Years After Election (R.)
Macron Victory Could Mark The Start Of Political Upheaval For France (CNBC)
Italy Is Europe’s Next Big Problem (BBG)
Soros At it Again – Trying to Overthrow Polish Government? (Martin Armstrong)
In Tense Encounter, Merkel Tells Putin Sanctions Must Remain (BBG)
‘It’s Very Important We Hear What Putin Has To Say’ – Oliver Stone (RT)
Adults in the Room – One Of The Greatest Political Memoirs Ever (Mason)
Greece, Creditors To Discuss Options For Debt Restructuring (CNBC)
Greece Will Avoid Default After Bailout Deal – But Faces More Austerity (G.)
Greek Poverty Deepens During Seven Years Of Austerity (AP)

 

 

September’s a long way away.

Trump: US “Needs A Good Shutdown In September To Fix This Mess” (ZH)

With Congress poised this week to approve a deal to fund the government through September, the first major bipartisan legislation of Trump’s presidency, after lengthy negotiations (which have appeared to signal numerous ‘folds’ by President Trump), apparently frustrated by the lack of tryannical powers that a simple majority grants him, President Trump has lashed out this morning at disagreeable Democrats, and in particular Senate Democrats. As a reminder, the proposed government funding deal does not include funding for Trump’s proposed wall along the U.S.-Mexico border or include language stripping federal money from so-called sanctuary cities, both of which the White House demanded at the outset of negotiations. In fact, as we reported yesterday, the bill has been seen widely as a victory for Democrats, something which has been panned by the conservative press.

While the White House also backed off a threat to withhold ObamaCare subsidy payments to insurance companies, Trump did secure increased military spending in the 2017 budget deal. According to the Hill, the comments are likely irk top Republican lawmakers, who have been frustrated by Trump’s repeated attempts to intervene in the legislative process. The businessman-turned-president, in turn, has vented frustration with the slow pace of work on Capitol Hill. “I’m disappointed that it doesn’t go quicker,” Trump told Fox News last week when asked about the Republican effort to repeal and replace ObamaCare. Commenting on Trump’s tweets, Citi asks rhetorically whether “this could be a case of cutting one’s nose to spit one’s face? – Potentially problematic when the nose in question is attached to the current administration… It seems counterintuitive that a sitting president would want a shutdown, unless he was to blame it on the opposition in order to force through reform/encourage a voter backlash.”

Bloomberg reports that “The message appeared to encourage the Republican-controlled Senate to change rules that now require 60 votes to end a filibuster of legislation. Republicans reduced the threshold to 51 votes for Supreme Court nominees this year and could do the same for legislation with a simple majority vote.” USD does not seem to have reacted to the President’s tweet (it can’t every time, after all), which may just be more political manoeuvring rather than a signal of intent. In any case, we’re not so sure there is such a thing as a “good” shutdown of the US government – and with what will be over $20 trillion in debt and a declining GDP by that time, one wonders which ratings agency will have the balls to downgrade the world’s reserve currency this time?

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“Someone will buy it for a dollar because they want to get the loan book [..] it goes for a lot less than it’s trading at today.”

Home Capital Fails to Draw Buyout Interest From Canada Banks (BBG)

Canadian banks and financial firms are so far showing little interest in buying Home Capital, vindicating short-sellers who say the embattled mortgage lender could be sold off piecemeal, driving the stock down further. “People in the industry would rather see these guys go out of business because the loans aren’t worth the risk, and they’re so leveraged,” said Marc Cohodes, a private investor and part-time chicken farmer in California who has been shorting the stock, or betting on declines, for more than two years. Home Capital’s rival Equitable joined a list of companies that have said they aren’t interested in taking over the struggling mortgage lender, which hired investment banks last week for a possible sale after the stock plunged by two-thirds amid a regulatory probe.

“The bottom line is no,” Equitable Chief Executive Officer Andrew Moor said on Monday. “We have some concerns based on what we’ve read about how they underwrote their loans and their internal controls.” Other banks have indicated that they aren’t interested. Canadian Western Bank CEO Chris Fowler said his Edmonton, Alberta-based lender, which has an alternative mortgage business, would not be a buyer for all of Home Capital. He added the bank will consider “selectively” acquiring loan portfolios. A Laurentian Bank of Canada spokeswoman said that for the lender to be interested in an acquisition it needs to be financially sound and a good strategic fit. Laurentian is active in the alternative lending space.

Canada’s biggest commercial banks, meanwhile, are unlikely to be interested because Home Capital’s mortgages are with customers who wouldn’t qualify for a loan with them, said Sumit Malhotra, an analyst at Bank of Nova Scotia, in a research note. They might be interested in the loan book, he added. [,,] Other short sellers agree with Cohodes. Jerome Hass at Lightwater in Toronto, said he wonders why anybody would buy Home Capital when they could just pick up the mortgages. “It’s got all this litigation against it, it’s going to have all these liabilities against it, so why not just take their loan book off their hands?” Hass said in an interview. “Someone will buy it for a dollar because they want to get the loan book, but I don’t see it going for much, and it goes for a lot less than it’s trading at today.”

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No purchasing power.

Hot Air Hisses out of US Auto Bubble (WS)

A 4.7% drop in sales, bad as it is, wouldn’t qualify for #carmageddon. These things happen. But here’s the thing: Automakers had shelled out $3,465 in incentives per new vehicle sold, on average, according to TrueCar estimates. A record for the month of April. It beat the prior record of $3,393, set in April 2009. It amounts to about 10% of suggested retail price, similar to March. The last period when incentive spending was at this level of MSRP was in 2009 as the industry and sales were collapsing. The #carmageddon point to watch: despite the 13.4% year-over-year surge in incentive spending to nearly $5 billion, total vehicle sales fell 4.7%! When these massive incentives fail to even slow the sales decline, serious problems lurk beneath the surface. This table shows the largest automakers, their year-over-year sales performance – the sea of red ink – along with average per-unit incentive spending and total incentive spending:

GM shelled out the most incentives on average per vehicle, in total $1.23 billion. In March, it had spent about $1.3 billion. At this rate, GM is spending just under $4 billion per quarter in incentives. By comparison, in its Q1 earnings, GM reported “North America” revenue of $29.3 billion. At this rate, it is spending about 13% of its North American revenues on US incentives. But it’s just not working out. Total sales dropped nearly 5.9%, to 244,200 units, with car sales plunging 12.5% and even truck sales falling 3.2%. A gruesome detail: Silverado-C/K pickup sales plunged 20% to 40,154 units. Total retail sales (not including fleet sales) fell 4% to 191,911 vehicles. GM ended the month with 100 days’ supply, up from the nail-biter level of 98 days at the end of March.

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The UK is so divided along multiple fault lines that May has nothing, unless she’s prepared to walk away.

May’s Election Fighting Talk Fuels Brexit War of Words With EU (BBG)

U.K. Prime Minister Theresa May vowed she won’t be pushed around in Brexit talks with the European Union as her war of words with Brussels escalates before negotiations even begin. The premier said European Commission President Jean-Claude Juncker is learning she can be “bloody difficult” after leaked details of a dinner meeting between the leaders alleged he was shocked by her approach to negotiating Brexit. May won a measure of support from several European government officials, who distanced themselves from Juncker’s apparent skepticism about the chances of a Brexit deal. The row blew up after details of the allegedly disastrous meal Juncker attended at May’s London residence last week were reported by a German newspaper.

“What we’ve seen recently is that at times these negotiations are going to be tough,” May told BBC television in an interview Tuesday. “During the Conservative Party leadership campaign, I was described by one of my colleagues as a bloody difficult woman. And I said at the time the next person to find that out will be Jean-Claude Juncker.” The clash between London and the European Commission comes as May seeks re-election on June 8 in a campaign defined by Brexit, and the argument won’t necessarily hurt her chances. While EU officials are concerned about such a public dispute ahead of negotiations, it could help May’s Tories convince voters the U.K. needs what she calls her “strong and stable leadership” for the Brexit talks.

May claims her main rival for power, opposition Labour party leader Jeremy Corbyn, would be too “weak” to succeed at the negotiating table. Germany’s Frankfurter Allgemeine Sonntagszeitung newspaper said on Sunday that Juncker left a dinner on April 26 “10 times more skeptical” of reaching a Brexit deal. In her interview on the campaign trail, May told the BBC she hopes to agree an accord that works for the U.K. and the EU, saying there’s “a lot of similarity” between her proposals and the bloc’s negotiating guidelines.

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Can a national currency exist alongside a European one?

Le Pen Wants A French National Currency Within Two Years After Election (R.)

Far-right presidential challenger Marine Le Pen said capital controls could be used if she won the election and there was a run on banks as she negotiated France’s exit from the European Union, but stressed they were unlikely to be needed. In an interview with Reuters ahead of Sunday’s decisive second round, Le Pen reaffirmed she wanted to take France out of the euro and said she hoped the French people would have a national currency in their pockets within two years. Le Pen said she wanted to replace the EU single currency with another, looser type of cooperation in the form of the ECU basket of currencies that preceded the euro. That would exist alongside a national currency.

“The objective is to transform the euro ‘single currency’ into a euro ‘common currency’, going back to the ancestor of the euro, the ECU, which was an accounting unit that did not stop each country from having each its own currency,” Le Pen said. Calling the euro a deadweight on the French economy, the National Front candidate said a new national currency would better protect French people’s savings. She accused the “establishment” of wanting to “frighten” voters into thinking otherwise. “I am convinced there won’t be any banking crisis,” Le Pen said when asked if French negotiations to quit the EU could trigger a run on French banks.

Asked if she would impose capital controls if savers nevertheless did rush to take their money out of banks, she said: “If there’s a run on banks, we could very well imagine such a solution for a few days, but I’m telling you it won’t happen.” Le Pen said she would launch negotiations over reforms of the EU immediately after winning, saying this would allow France to regain national sovereignty. The talks would include ditching the euro as well as regaining control of France’s borders and being able to decide French legislation alone, she said. Those negotiations could last six to eight months, she said, after which France would hold a referendum on its EU membership.

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Whatever happens in Sunday’s 2nd round, a mess is certain.

Macron Victory Could Mark The Start Of Political Upheaval For France (CNBC)

France’s political course is likely to remain far from certain even with a win for presumed victor Emmanuel Macron, as his inability to form a parliamentary majority threatens to undermine his authority both domestically and across Europe, political analysts have suggested. Sunday’s second round runoff will mark the start of a period of tension for the country as the successful candidate waits to see if they can garner a large enough parliamentary majority in June’s legislative election to enact change, Dominique Reynié, professor of political science at the Sciences Po institute in Paris, told CNBC Tuesday. “I’m not worried about Macron’s ability to win, but the question surrounds what kind of turnout he will achieve and what his ability to gain a majority in the June election will be,” explained Reynié.

Polls are currently pitching centrist Macron to gain anywhere from a 59% to a 64% lead on his far-right opponent Marine Le Pen. However, this lead will do little to boost Macron’s authority in government, Reynié suggests. The independent will have to gain significant support from other parties if he is to form a majority when France once again heads to the polls on June 11 and June 18 to elect the 577 members of its National Assembly. “It will all depend on his margin of victory. A 55 to 45% win for Macron would be a disaster. Even 60 to 40 is not at all a triumph; a 20% margin would be very difficult. “It would be a crisis. It is not normal and would be a problem both on the streets of France and for Europe,” said Reynié.

In the first round of voting, Macron’s En Marche!, or Onwards! party, achieved a majority in 240 constituencies versus Le Pen’s 216. However, Reynié says this is simply not enough. “The smaller Macron’s majority the harder it will be for him to win the general election in June. He needs support; it is not possible to have power as President without support. “This could cause parliament to be largely fragmented like in the first round, with discussions taking place in fractured groups. Macron will have to negotiate with MPs and will be fragile and unpopular.”

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Has been for years.

Italy Is Europe’s Next Big Problem (BBG)

Emmanuel Macron looks on course to become France’s new president, ending the threat of a euroskeptic at the Elysee. Even if Macron wins, though, it’ll be too soon to celebrate a new phase of stability in the euro zone. Across the Alps, an economic and political storm is brewing – and there’s no sign anyone can stop it. Italy’s economic problems are in many ways worse than France’s. Public debt stands at nearly 133% of gross domestic product; in France, it’s 96%. The last time Italy grew faster than France was in 1995. Both countries have struggled to stay competitive internationally – but French productivity has risen by roughly 15% since 2001, whereas Italy’s has stagnated.

Meanwhile Italian politics goes from bad to worse. The Five Star Movement, a populist force that wants to hold a referendum on Italy’s membership of the euro system, is riding high in the polls and currently neck and neck with the center-left Democratic Party. The general election, scheduled for next spring, is unlikely to produce a clear winner – and there’s even a small chance it may result in a Eurosceptic government, if the Five Stars were to win enough votes and form an alliance with the fiercely anti-euro Northern League. Europhiles in Italy are busily looking for an Italian Macron – someone who could offer a liberal remedy for Italy’s economic woes while fighting off the threat of “It-exit.” Investors would like that. In the autumn, the European Central Bank looks set to slow its purchases of government debt. The prospect of political instability in Rome could spook investors, raising doubts over the sustainability of Italy’s debt.

In many ways, Matteo Renzi, Italy’s former prime minister, who resigned after a heavy defeat in December’s constitutional referendum, would be the obvious choice. At 42, he is only three years older than Macron. He too has sought to modernize the left, even though he preferred to climb through the ranks of his party, rather than set up a new one as Macron did. The trouble is that Renzi looks increasingly like a spent force. He has just obtained a fresh mandate as party leader, but many Italians doubt his promises because he reneged on a pledge to quit politics if he lost the referendum. His message has also become muddled. He claims to be pro-EU, but never misses a chance to bash Brussels – for imposing fiscal austerity, especially. Why should voters opt for Renzi’s half-hearted euroskepticism when they can have the real thing?

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“Money does not give you the right to fund revolutions to recast the world in your image.”

Soros At it Again – Trying to Overthrow Polish Government? (Martin Armstrong)

QUESTION: Mr. Armstrong, I attended your March 1999 conference in Tokyo when I worked for ___ bank. I remember you called out Soros and crew and said they were trying to manipulate the yen for fiscal year end. You warned the Japanese how to defeat the Club. If I remember, he and his crew lost $1 billion when everyone in Tokyo followed your advice. Many assumed what they did to you 6 months later was retribution. Now he is at it in Poland funneling money he made from such trading in through Norway to create political unrest. What is it with this guy? Why does he play God?

ANSWER: Oh yes. I remember that event very clearly. That’s why they started calling me Mr. Yen because it was me and our clients against the Club and the Club lost. They were trying to push the yen down for the fiscal year-end roll of March 31st and then run it up into April 1st. They had our clients lock it in and that forced the manipulators out. That was a wild day – 3 big figures in a single day in an outside-reversal was a big move back then. I know the rumor was that Soros was in on that and the Club lost $1 billion. Not sure how much they lost on that one. It was the good-old fun days of confrontations. The Polish government wants to stop the distribution of Norwegian money flowing into Poland coming from Soros’ funded Batory Foundation, which manages over 800 million euros with a target of overthrowing the Polish government by 2020.

Since 2014, the Batory Foundation has distributed some 130 million zlotys (around 31.7 million euros) to various associations and organizations within Poland to change the government. According to Bloomberg, this includes organizations for the promotion of parliamentary democracy , but only if it agrees with Soros agenda. Effectively, Soros is trying to defeat ‘Catholic values’ in Poland which are supported by the population and government. [..] Soros has publicly stated he does not believe in God. Many who worked for him said they think he believes he is a god with the right to reshape the world in his image. So have many throughout history and they are responsible for the murder of countless millions. Money does not give you the right to fund revolutions to recast the world in your image.

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Merkel knows Putin can’t give in on Ukraine. Useless rhetoric.

In Tense Encounter, Merkel Tells Putin Sanctions Must Remain (BBG)

German Chancellor Angela Merkel told President Vladimir Putin that EU sanctions will have to remain on Russia as the two leaders clashed over Ukraine, human rights and election meddling at a chilly encounter in the Black Sea city of Sochi. Addressing a joint press conference with Putin after about two hours of talks on Tuesday, Merkel raised concerns about the rights of homosexuals in Chechnya and Russia’s role in the war in Syria. She devoted much of her time to the lack of progress in resolving the three-year-old conflict in Ukraine. While Putin sought to lay the blame on the Ukrainian government, the chancellor said that a cease-fire is required as part of the “arduous” so-called Minsk process for restoring peace in eastern Ukraine and appealed to him to make it happen.

“My goal remains to get to the point where we can lift EU sanctions, but there’s a link here,” Merkel told reporters on her first visit to Russia since May 2015. The peace process is “moving very slowly, we only make progress in small steps and constantly have setbacks.” Merkel, who met with President Donald Trump at the White House in March, is visiting Putin in her capacity as holder of the presidency of the Group of 20 nations. As well as Ukraine, Merkel and Putin discussed the civil war in Syria and the G-20 summit in Hamburg in July, when the Russian and U.S. presidents are scheduled to meet for the first time. Ukraine was the main flashpoint, with Putin reiterating his stance that the Russian-backed breakaway regions in southeastern Ukraine split off because of a “coup d’etat, an unconstitutional change of power in Kiev.”

Merkel noted the two leaders’ “different opinions” about the origins of the conflict in Ukraine, which spiraled after protests over a scrapped accord with the EU triggered the downfall of the Russian-backed government in 2014. “We don’t share this view,” Merkel said in the briefing, which dispensed with the usual pleasantries or leaders’ banter. “We think that the Ukrainian government came to power through democratic means.” Although she’s among Putin’s sternest critics, Merkel has sought to keep a channel open to the Russian leader even as she holds the line on EU sanctions, which are a response to Russia’s annexation of Crimea and backing for Ukrainian separatists. Hours before Putin was scheduled to speak by phone with Trump on Tuesday, he responded again to allegations of electoral interference, saying “we never interfere in the political life of other countries.”

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There are people with less bias on Putin. Just not in US or EU politics.

‘It’s Very Important We Hear What Putin Has To Say’ – Oliver Stone (RT)

The man behind three films about American presidents, Oliver Stone, says his upcoming feature about Russian President Vladimir Putin “opens up a whole viewpoint that we as Americans haven’t heard,” and could help prevent “a dangerous situation – on the brink of war.” Academy Award-winning director and revered documentary filmmaker Stone said in interview with the Sydney Morning Herald that his new film about Putin will be released soon. “It’s not a documentary as much as a question and answer session,” he said. “Mr. Putin is one of the most important leaders in the world and in so far as the United States has declared him an enemy – a great enemy – I think it’s very important we hear what he has to say.” The film will present Putin’s viewpoint of political events since he was first elected president of Russia in March 2000.

“It opens up a whole viewpoint that we as Americans haven’t heard,” Stone told the newspaper, adding that his crew went to see the indefatigable Russian leader four times over the course of two years. “I talked to him originally about the Snowden affair, which is in the film. And out of that grew, I think, a trust that he knew that I would not edit it so much,” he said, adding that Putin “talks pretty straight.” “I think we did him the justice of putting [his comments] into a Western narrative that could explain their viewpoint in the hopes that it will prevent continued misunderstanding and a dangerous situation – on the brink of war.” The 70-year-old director also commented the accusations of Russian influence on the US presidential elections.

“That’s a path that leads nowhere to my mind. That’s an internal war of politics in the US in which the Democratic Party has taken a suicide pact or something to blow him up; in other words, to completely de-legitimize him and in so doing blow up the US essentially. “What they’re doing is destroying the trust that exists between people and government. It’s a very dangerous position to make accusations you cannot prove,” he added. Stone also said he does not believe claims circulating in the mainstream media that Moscow allegedly passed some classified documents to WikiLeaks in a bid to influence the November US elections. “I hold Assange [WikiLeaks editor Julian Assange] in high regard in many issues of state. I take very seriously his statement that he received no information from Russia or any state actors,” Stone said.

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“.. it is French and German taxpayers who will pay the price when the Greek debt is inevitably written off.”

I should get the book later this week.

Adults in the Room – One Of The Greatest Political Memoirs Ever (Mason)

Varoufakis began on the outside – both of elite politics and the Greek far left – swerved to the inside, and then abruptly abandoned it, after he was sacked by his former ally, Greek prime minister Alexis Tsipras, in July 2015. He dramatises his intent throughout the crisis with a telling anecdote. He’s in Washington for a meeting with Larry Summers, the former US treasury secretary and Obama confidant. Summers asks him point blank: do you want to be on the inside or the outside? “Outsiders prioritise their freedom to speak their version of the truth. The price is that they are ignored by the insiders, who make the important decisions,” Summers warns. Elected politicians have little power; Wall Street and a network of hedge funds, billionaires and media owners have the real power, and the art of being in politics is to recognise this as a fact of life and achieve what you can without disrupting the system.

That was the offer. Varoufakis not only rejected it – by describing it in frank detail now, he is arming us against the stupidity of the left’s occasional fantasies that the system built by neoliberalism can somehow bend or compromise to our desire for social justice. In this book, then, Varoufakis gives one of the most accurate and detailed descriptions of modern power ever written – an achievement that outweighs his desire for self-justification during the Greek crisis. He explains, with a weariness born of nights in soulless hotels and harsh-lit briefing rooms, how the modern power network is built. Aris gets a loan from Zorba’s bank; Zorba writes off the loan but Zorba’s construction company gets a contract from Aris’s ministry. Aris’s son gets a job at Zorba’s TV station, which for some reason is always bankrupt and so can never pay tax – and so on.

“The key to such power networks is exclusion and opacity,” Varoufakis writes. As sensitive information is bartered, “two-person alliances forge links with other such alliances … involving conspirators who conspire de facto without being conscious conspirators”. In the process of telling this story, Varoufakis not only spills the beans but beans of the kind the Greeks call gigantes – fat ones, full of juice. The first revelation is that not only was Greece bankrupt in 2010 when the EU bailed it out, and that the bailout was designed to save the French and German banks, but that Angela Merkel and Nicolas Sarkozy knew this; and they knew it would be a disaster.

This charge is not new – it was levelled at the financial elite at the time by leftwing activists and rightwing economists. But Varoufakis substantiates it with quotes – some gleaned from the tapes of conversations and phone calls he was, unbeknown to the participants, making at the time. Even now, two years after the last Greek election, this is of more than academic interest. Greece remains burdened by billions of euros of debt it cannot pay. Because of the actions taken in 2010-11 – saving private banks by saddling north European states with massive debts – it is French and German taxpayers who will pay the price when the Greek debt is inevitably written off.

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Not going to happen until after the German fall election.

Greece, Creditors To Discuss Options For Debt Restructuring (CNBC)

Greece and its creditors are expected to discuss ways to restructure the country’s debt ahead of a meeting of euro zone finance ministers on May 22, a European official told CNBC on Tuesday. Athens agreed on Tuesday to introduce new laws on labor, energy reforms, pension cuts, and tax rises. This paves the way for a fresh disbursement of money from creditors in mid-June, but above all it allows Greece, its European creditors, and the IMF to consider how they will restructure the country’s debt. A European official who follows the bailout talks told CNBC that there isn’t a specific date for a solution to Greece’s debt but the first discussions on this issue will start soon. “From now until the Eurogroup meeting of May 22 there will be discussions to consider options for debt relief,” the official said.

Greece has to legislate the new reforms within two weeks. However, these new laws won’t take effect until 2019 and 2020 and will be dependent on the country’s economic performance. For example, among the new measures is the promise to cut pensions in 2019 and cut the tax-free threshold in 2020 to produce savings worth 2% of GDP. But if Athens exceeds its targets, it is allowed to offset the austerity measures and reduce taxes. During the first stages of talks on debt restructuring, the European Stability Mechanism, which is the euro zone’s permanent bailout fund, will produce a new debt sustainability analysis. Current economic forecasts indicate that Greece’s public debt stood at about 180% of GDP in 2016. The IMF will also be doing its debt sustainability analysis to include the recently-agreed measures.

The Fund wants an agreement on measures to make Greece’s debt more sustainable before deciding whether it is participating with its own money in the Greek bailout program. Dimitris Tzanakopoulos, spokesperson to the Greek government told reporters last month, that the IMF will make a “small” funding contribution that will not last for more than one year, so it ends at the same time as the current European program, which runs out in August of 2018. The IMF’s participation in the third bailout program to Greece is key for many euro countries, which perceive the fund’s involvement as giving credibility to the reform process in Greece. One of these countries is Germany, but the upcoming federal election might reduce Berlin’s room to restructure Greece’s debt.

“We will get some IMF participation, but no significant number,” Johannes Mayr, head of economic research at Bayern LB ,told CNBC via email. On the debt issue, “we need a compromise between the IMF and the EU/ESM (European Stability Mechanism), he said, “and this is realistic only after the German elections.” Neil Dwane, global strategist at Allianz Global Investors, added: “National governments, like Germany, would lose popularity if they wrote off Greek debt.” “I would expect more extend and pretend from the EU and the IMF,” he said via email.

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No Greek default, but nothing else either: again, until after the German fall election. And even then.

Greece Will Avoid Default After Bailout Deal – But Faces More Austerity (G.)

The long road to Greece emerging from its worst financial crisis in modern times reached another milestone on Tuesday as the country concluded a crucial compliance review that will allow it to avert default in July. At the cost of yet more painful austerity – in the form of extra pension cuts and tax increases – international creditors agreed to disburse €7.5bn (£6.3bn) in emergency loans to enable Athens to honour maturing debt repayments. More importantly, lenders accepted to set talks in motion on making Greece’s debt mountain more manageable – vital if the country is to gain access to the capital markets from which it has been almost completely exiled since 2009. [..] The deal ends more than six months of intense wrangling over the fiscal and structural reforms that Athens must implement in exchange for loans from its third, €86bn bailout programme.

Although the programme was outlined in 2015 when Greece came closest to crashing out of the eurozone and reverting to the drachma, the conditions attached to the lifeline remained open to negotiation. Discord most recently had focused on labour reforms and pensions – two issues that Tsakalotos, a British-trained Marxist economics professor, had felt especially strongly about. Under the agreement, the leftist-led government undertook to further slash pensions by 18% as of 2019. Pension payments have now been reduced 12 times since the start of the crisis, and cut by 40% in the past six years. With poorer out-of-work families often depending on them, news of a further drop was met with fury by union leaders, who immediately announced industrial action.

The two-party coalition led by the prime minister, Alexis Tsipras, also agreed to broaden the tax-free threshold by effectively dispensing with tax breaks as of 2020. Both measures are expected to produce savings worth €3.6bn or 2% of GDP. “It will be a very hot spring,” Odysseus Trivalas, acting president of the union of public sector employees, told the Guardian. “We have yet to see the details of this agreement but what we know is that it will mean further cuts. There will be a lot of strikes and a general 24-hour lockdown when the measures are brought to parliament for vote.”

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“On a corner of Monastiraki Square full of tourists and passers-by, a group of volunteers from the soup kitchen O Allos Anthropos (The Fellow Man) cook chicken with rice. In less than 20 minutes, 230 hot meals are delivered to people who waited more than an hour to get them.”

Greek Poverty Deepens During Seven Years Of Austerity (AP)

Over the past seven years, austerity has left visible scars in Greece’s capital. A walk around Athens reveals more homeless people than ever despite some signs of a rosier economic outlook. Thousands of shops, mostly small businesses, are shuttered here and across the country. In what used to be a busy shopping arcade, closed stores are padlocked against a backdrop of hanging Greek flags. Whole families can be seen lining up for free meals at a growing number of soup kitchens. “Every day we feed 400 to 500 people, and this number has increased even more in the past two years,” says Evangelia Konsta, organizer and sponsor of the meals offered by the Church of Greece in a run-down neighborhood in central Athens.

Yesterday, IMF and European negotiators bailout negotiators reached an agreement with Greece’s government to continue rescue funding in return for a painful new round of cuts and higher taxes over the next three years. High unemployment and a steady decline of living standards for most Greeks for seven consecutive years have had lasting effects. Greece has survived on international rescue loans since 2010, granted by the IMF and other countries using the euro currency in exchange for drastic cuts in public spending and benefits. Greece is now in its third bailout. A few steps away from the Church-run soup kitchen is a homeless shelter also run by the Church. Guests in its tiny rooms include one family with their young children and a retired nurse suffering from cancer who is still waiting to get her pension application approved.

Another shelter, the “Shelter of Love and Solidarity,” has a great view of the ancient Acropolis that’s barely noticed by the hundreds of homeless and poor who come twice a week to wash their clothes and take a hot bath. “The shelter is the best option for us because the government doesn’t really do anything for us,” says Ilias Kosmidis, 38, who has been sleeping on the street for the past two years. While waiting to wash their clothes, people at the shelter have developed friendships, and catch up on the news, including the French presidential election. Sofia Vitalaki and her husband Costas, both retired civil servants, have run the shelter since 1991. “It’s not just the food,” she says. “Most people want their dignity back and here we try to support them.”

On a corner of Monastiraki Square full of tourists and passers-by, a group of volunteers from the soup kitchen O Allos Anthropos (The Fellow Man) cook chicken with rice. In less than 20 minutes, 230 hot meals are delivered to people who waited more than an hour to get them. At the end of every month, it’s become a familiar sight outside banks: pensioners waiting in huge lines to collect their monthly checks. Few know how to use ATMs. While in line, they fret over how to make ends meet after years of cuts to their earnings, worrying about more austerity being planned. They won’t have long to wait till the next round of cuts. The government on Tuesday finalized its agreement with bailout lenders to ax pensions further, starting on January 1, 2019.

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May 022017
 
 May 2, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Grand Central Station NY WWII

 

Trump Weighs Breaking Up Wall Street Banks, Raising Gas Tax (BBG)
Life After Oil Makes Real Estate Canada’s New Economic Crutch (BBG)
How Did Home Capital Get Into Trouble? (BBG)
China Leverage Rising At ‘Alarming Pace’: Central Bank Official (R.)
UBS, BNP, RBS Get Subpoenas in US Treasuries Probe (BBG)
The US Health Care Industry Is Bound To Collapse Soon (NYP)
Exhaustion Gaps and the Fear of Missing Out (John Hussman)
Barack Obama Cashes In, But Harry Truman And Jimmy Carter Refused (IC)
The Sound of One Wing Flapping (Jim Kunstler)
Emmanuel Macron Has Taken French Voters For Granted. Now He Risks Defeat (G.)
How Juncker’s Downing Street Dinner Turned Sour (G.)
Greece Reaches Deal With Creditors To Pave Way For Bailout Talks (G.)
Greece: Any Better Times Or More Pitfalls Ahead? (LSE)

 

 

Don’t hold your breath for breaking up banks. Gas tax is more interesting: keep oil prices low and off you go. Could be a huge source of revenue, and Trump needs a few of those.

Trump Weighs Breaking Up Wall Street Banks, Raising Gas Tax (BBG)

President Donald Trump said he’s actively considering a breakup of giant Wall Street banks, giving a push to efforts to revive a Depression-era law separating consumer and investment banking. “I’m looking at that right now,” Trump said of breaking up banks in a 30-minute Oval Office interview with Bloomberg News. “There’s some people that want to go back to the old system, right? So we’re going to look at that.” Trump also said he’s open to increasing the U.S. gas tax to fund infrastructure development, in a further sign that policies unpopular with the Republican establishment are under consideration in the White House. He described higher gas taxes as acceptable to truckers – “I have one friend who’s a big trucker,” he said – as long as the proceeds are dedicated to improving U.S. highways.

During the presidential campaign, Trump called for a “21st century” version of the 1933 Glass-Steagall law that required the separation of consumer and investment banking. The 2016 Republican Party platform also backed restoring the legal barrier, which was repealed in 1999 under a financial deregulation signed by then-President Bill Clinton. A handful of lawmakers blame the repeal for contributing to the 2008 financial crisis, an argument that Wall Street flatly rejects. Trump couldn’t unilaterally restore the law; Congress would have to pass a new version. Trump officials, including Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn, have offered support for bringing back some version of Glass-Steagall, though they’ve offered scant details on an updated approach. Both Mnuchin and Cohn are former bankers who worked for Goldman Sachs.

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A deeply unstable economy.

Life After Oil Makes Real Estate Canada’s New Economic Crutch (BBG)

Two things happened last week that were a reminder of just how vital real estate has become to Canada’s economy. On Friday, Statistics Canada released GDP data that showed February was a banner month for sectors linked to housing. The real estate industry, residential construction, financial and legal services generated a combined 0.5% increase in output, the biggest one-month gain since 2014. Without those, the overall economy would have contracted slightly in February. A day earlier, the Ontario government released a budget that projects land transfer taxes will surpass C$3 billion ($2 billion) in the current fiscal year, from C$1.8 billion three years ago. For the province, it’s the difference between a balanced budget and a deficit.

Measures of housing’s contribution to the economy are imprecise, but estimates largely put the direct contribution in excess of 20%. It’s much more than that once you add all the indirect effects, with benefits spread widely from lawyer fees to government revenue and increased retail purchases through so-called wealth effects as rising home equity values prompt households to ramp up consumption. The big worry is that Canada has moved from a reliance on oil to a reliance on real estate. The influence of housing on the economy is so pervasive that it won’t take much of a slowdown to act as a major drag on the economy, said Mark Chandler, head of fixed-income research at RBC Capital Markets in Toronto.

“You don’t need a collapse in house prices, you don’t need housing starts to be cut in half for weaker real estate sector to have a significant effect on GDP and incomes,” Chandler said. RBC’s ballpark estimate is that a 10% decline in national home prices would knock a full percentage point off growth. A Toronto Dominion Bank report from 2015 found the housing wealth effect has been responsible for about one-fifth of all growth in consumption since 2001. “A lot of the strength we have seen in consumption is housing related,” said Brian DePratto, the economist who wrote the 2015 report. If you strip out the direct and indirect impact from housing on the economy, “you are talking about a much lower trend pace of growth.”

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Subprime.

How Did Home Capital Get Into Trouble? (BBG)

The world is suddenly paying attention to Home Capital, the tiny Canadian mortgage lender that’s on the ropes. The stock is plunging, it faces a run on deposits and regulators are probing management’s disclosure of fraudulent mortgages. Its troubles are raising questions: Is this an isolated case of a struggling mortgage company, or early signs of cracks forming in Canada’s red-hot housing market?

1. How did Home Capital get into trouble? It started in 2014 when the company, formed 31 years ago by Gerald Soloway, failed to screen a pile of questionable mortgages brought in by outside brokers. Some 45 brokers falsified income information on borrowers, prompting Home Capital to cut ties with them, leading to a drop in new business. This eventually led to an investigation by the Ontario Securities Commission, which said on April 19 that Home Capital had misled investors by not disclosing the fraud until five months after they became aware of the problem.

2. Will Home Capital fail? There are plenty of signs of stress. The stock has plunged almost 75% this year, cutting its market value to about C$515 million, from C$3.5 billion in 2014. Most pressing is the run on deposits. Customers pulled C$1.5 billion from high-interest savings accounts in four weeks, cutting the balances to C$500 million. The company has another C$13 billion in GICS. As these 30- and 60-day deposits come due, more withdrawals may follow. Without a deposit base, Home Capital can’t fund new mortgages. Home Capital hired investment bankers for a possible sale, though there is likely as much interest in the loan book as the company itself. Commercial banks may be interested, precluding any need for a government bailout. Financial regulators say they are watching closely.

3. Will this fallout spread to other lenders? Possibly. Home Capital competes with other companies in the so-called alternative mortgage space. They cater to small-business owners, new immigrants and other people who can’t get mortgages from the big commercial banks. It’s a niche segment but growing, accounting for almost 13% of the market. Unlike in the U.S. housing crash when loan defaults soared, there is little evidence of faulty loans so far. Home Capital’s delinquency rate, for example, was just 0.20% as of February. Still, shares of rivals First National and Equitable have been dragged lower by the Home Capital woes as investors fear contagion.

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Beijing sends a lot of signals, but it cannot make good on them without risking the economy, and everybody knows it. It’s all based on the idea that a centralized economy can be forced into a smooth descent, but that’s just a fallacy.

China Leverage Rising At ‘Alarming Pace’: Central Bank Official (R.)

China’s level of leverage is rising at an “alarming pace”, particularly in the finance sector, a senior central bank official said in a commentary, amid growing concern by the country’s senior leaders over financial security. The official Xinhua news agency on Monday cited Xu Zhong, head of the People’s Bank of China’s research bureau, as saying the country needed to deleverage at a “proper pace” to reduce financial sector debt and avoid systemic financial risk. “China’s overall leverage level is reasonable but is rising at an alarming pace, especially in the financial sector,” Xu said. The original commentary was published in business journal Caijing Magazine. Xu said high levels of stimulus spending from government paired with poor corporate management and financial supervision were key factors causing rising levels of leverage, Xinhua said.

He added the government should stick to “prudent and neutral” monetary policy, reduce emphasis on economic growth targets, and improve corporate governance so authorities did not have to step in so frequently to help companies out. “Financial security is achieved via reforms, not bail-outs,” Xinhua reported Xu as saying. Last week President Xi Jinping called for increased efforts to ward off systemic risks and help maintain financial security. Analysts say financial risk and asset bubbles pose a threat to the world’s second-largest economy if not handed well. Former Chinese finance minister Lou Jiwei also said last month that high leverage was the biggest risk facing China’s economy because debt has piled up despite government efforts to deleverage. The Bank for International Settlements warned last year that excessive credit growth in China is signaling an increasing risk of a banking crisis in the next three years.

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Well, maybe they’ll get serious because it’s about Treasuries this time, and foreign banks. Then again, these are primary dealers in Treasuries.

UBS, BNP, RBS Get Subpoenas in US Treasuries Probe (BBG)

Federal prosecutors have subpoenaed several banks as part of a criminal investigation into possible manipulation of the U.S. Treasuries market, according to people familiar with the matter. The Justice Department issued subpoenas last month to banks including UBS, BNP Paribas and the Royal Bank of Scotland seeking information on the $14 trillion market, said two people, who asked not to be named because the investigation is confidential. U.S. authorities have been examining the U.S. Treasuries market for roughly two years. In November 2015, Goldman Sachs disclosed that U.S. authorities had sought information related to its trading of when-issued securities, which are among the least transparent instruments in the world’s largest debt market. When-issued securities act as placeholders for bills, notes or bonds before they’re auctioned. The instruments change hands over the counter, with lifespans of just days. There’s scant public information on trading volumes or the market’s biggest players.

[..] The Justice Department in late 2015 asked about when-issued securities as part of broader requests for documents it sent to most or all of the roughly two dozen primary dealers in U.S. Treasuries, a person familiar with the matter told Bloomberg News at the time. UBS, BNP Paribas and RBS are primary dealers in U.S. Treasuries. Authorities haven’t accused any of the banks of wrongdoing. Trading of these instruments is also the subject of several lawsuits against primary dealers filed since July 2015. In them investors allege that traders at global banks colluded to artificially inflate the price of the when-issued securities, which allow the banks to sell U.S. debt before they own it. Then they bought the debt at auctions for an artificially suppressed price, unfairly profiting at investors’ expense, the lawsuits contend. The banks are scheduled to file motions to dismiss those lawsuits once the lead counsel for the plaintiffs is chosen.

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Increased health care spending presumably adds to GDP, so why worry?

The US Health Care Industry Is Bound To Collapse Soon (NYP)

As industry spending and debt servicing rage out of control, health care is ranked as the No. 1 US “systemic recession risk” in a new report. The sums at stake are staggering: Spending in the sector accounted for $3.3 trillion in 2015, and is 18% of the US economy today. The industry generates 16% of private sector jobs nationwide, up from 10% in 1990. US health care spending is forecast to grow by an average 5.6% annually in the coming decade, according to a report by the Center for Medicare and Medicaid Services (CMS), a projection based on no changes out of Washington and in the Affordable Care Care through 2025. Meanwhile, national spending on health care is forecast to outpace US GDP growth by 1.2%. CMS has estimated that spending will comprise 19.9% of GDP by 2025, up from 17.8% in 2015.

“There’s no question that rising health care costs are hurting our overall economy,” said New York-based financial adviser Michael Mondiello. “With consumer spending accounting for some 70% of economic activity, the more we spend on health care, the less we have to purchase other things like a vacation or to save for retirement.” [..] The first murmurs of early trouble may have been detected. “Companies in the health care sector are starting to lay people off,” said John Burns, CEO of John Burns Real Estate Consulting.. [..] “Health care companies borrowed too much money, and have grown their debt faster than their revenue, so you have to have a pullback.”

[..] In a report published by Burns, health care is identified as the largest systemic risk to the economy, of the three sectors Burns examined, which also included technology and automotive. The conventional wisdom points to US demographic trends, and an aging population, as supportive of the long-term strength, but the report shows industry growth has surpassed what is sustainable:
• Health care company debt is up 308% since 2009.
• The number of hospitals in health systems has expanded by 26% since 1999.
• The yearly medical costs for a family of four have jumped 189% since 2002, from $9,000 to $26,000.
“It could be like a Lehman Brothers scenario, where a couple of big health care companies take the economy down,” Burns told The Post.

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As usual, a long essay from John. A few bites:

Exhaustion Gaps and the Fear of Missing Out (John Hussman)

To offer a sense of the market return/risk profile that has typically been associated with exhaustion gaps at overvalued, overbought, overbullish extremes, the chart below shows the maximum gain and maximum loss in the market as measured from each instance to the subsequent bear market low. Multiple exhaustion gaps in the same market cycle are depicted separately. I recognize that my regular comments about the likelihood of the S&P 500 losing half or more of its value over the completion of this cycle may seem preposterous. A review of market history may help to understand these expectations, which are consistent with both the valuation evidence later in this comment, and with the outcomes that have typically completed prior speculative market cycles.

Two caveats are important here. First, given the simplicity of the conditions that define an exhaustion gap above, and their reliance on daily market behavior, it’s not clear that investors should wait for such gaps in future market cycles if other danger signs are already present. The best way to view these exhaustion gaps, I think, is that they represent points, late in a bull market cycle, where investors become overwhelmed by fear of missing out (FOMO), leaving a lopsided equilibrium where the remaining pool of potential buyers evaporates and the pool of potential sellers becomes saturated. Conversely, it seems likely that simple daily signals like the exhaustion gaps above could be misleading in the future, if more robust measures still indicate persistent risk-seeking among investors.

As a reminder of where market valuations stand, based on what actually works across market cycles, the chart below presents several of the most historically reliable equity valuation measures we track. We can form expectations about the likely range of market losses over the completion of this cycle by asking what amount of retreat would be required to bring these measures to either: a) the highest level of valuation reached at any previous bear market low, or b) the historical norm of each measure. Emphatically, these estimates do not assume that valuations will move below their historical norms at the next bear market low (as they did, in fact, as recently as the 2009 low). The smallest expected loss estimate comes in at -45.6%, while the largest loss estimate (taking each measure to its respective historical norm) is -62.1%. The average range of estimated market losses is -47.7% to -60.1%, while the median range is -45.6% to -62.0%.

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I think I already know which way Trump will lean.

Barack Obama Cashes In, But Harry Truman And Jimmy Carter Refused (IC)

It used to be the norm for presidents to retire to ordinary life after their stint in the White House — just ask Harry Truman. When the Democratic president was getting ready to leave the White House in 1953, he was approached by many employers. The Los Angeles Times noted that if he was “unemployed after he leaves the White House it won’t be for lack of job offers … but [he] has accepted none of them.” One of those job offers was from a Florida real estate developer, asking him to become a “chairman, officer, or stockholder, at a figure of not less than $100,000” — the sort of position that is commonplace today for ex-politicians. Presumably, had Truman taken the position, it would have been a good deal for both parties: the president’s prestige and connections would also enrich the company.

Truman declined. “I could never lend myself to any transaction, however respectable, that would commercialize on the prestige and dignity of the office of the presidency,” he wrote of his refusal to influence-peddle. Although he had access to a small pension from his military service, Truman had little financial support after leaving office. He moved back into his family home in Independence, Mo., and insisted on being treated like anyone else. He would tell people not to call him “Mr. President,” and settled on a fairly ordinary routine once he was back in Independence. He would take a morning walk through the town square. He kept an office nearby where he would answer mail from Americans. He chose to engage with just about anyone who walked into his office — not only people who wrote him big checks, or invited him onto their private yachts and private islands.

“Many people,” he once said, “feel that a president or an ex-president is partly theirs — they are right to some extent — and that they have a right to call upon him.” Indeed, his office number was even listed in a nearby telephone directory. He eventually agreed to write a memoir for Life magazine, but it was a lengthy project that provided far from luxurious stipends. Truman’s modest life post-presidency moved Congress in 1958 to establish a pension system that provides an annual cash payout as well as expenses for an office and staff. Gerald Ford nevertheless shattered precedent when he joined the boards of corporations such as 20th Century Fox, hit the paid speech circuit, and was made an honorary director by Citigroup.

But his successor, Jimmy Carter, who grew up in a modest home in Plains, Georgia, did not follow Ford’s example. He refused to become a professional paid speaker or join corporate boards. He moved back to Plains, and was welcomed home by a crowd of neighbors and supporters. He quickly made himself busy as a nonprofit founder and a volunteer diplomat. He did make money post-presidency — but by serving ordinary people, not elites. He wrote dozens of best-selling books bought by millions of people across the world — the post-presidency equivalent of small donors. Carter explained his thinking to the Guardian in 2011, telling them that his “favorite president, and the one I admired most, was Harry Truman. When Truman left office he took the same position. He didn’t serve on corporate boards. He didn’t make speeches around the world for a lot of money.”

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“Rest easy America… oh, and buy every dip.”

The Sound of One Wing Flapping (Jim Kunstler)

And suddenly the storms of early Trumptopia subside, or seem to. The surface of things turns eerily placid as the sweets of May sweep away the toils of an elongated mud season. Somebody stuffed Kim Jong Un back in his bunker with a carton of Kools and the Vin Diesel video library. France appears resigned to Hollandaise Lite in the refreshing form of boy wonder Macron. It’s been weeks since The New York Times complained about the Russians stealing Hillary’s turn as leader of the free world. We’re given to understand that Congress managed overnight to cook up a spending bill that will avert a Government shut-down until September. Rest easy America… oh, and buy every dip.

A calm surface is exactly what Black Swans like to land on, though by definition we will not know they’re out there until our reveries are broken by the sound of wings flapping. Some kind of dirty bird showed up on Canada’s thawing pond last week when that country’s biggest home loan lender suffered a 60 percent pukage of shareholder equity and had to be bailed out — not by the Canadian government directly, but by the Ontario Province’s Health Care Workers Pension Fund, a neat bit of hocus pocus that amounts to a one-year emergency loan at ten percent interest. If that’s a way for insolvent public employee pension plans to find enough “yield” to meet their obligations, then maybe that could be the magic bullet for the USA’s foundering pension funds.

The next time Citibank, Goldman Sachs, JP Morgan, and friends get a case of the Vapors, let them be bailed out by the Detroit School Bus Drivers’ Pension Fund at ten percent interest. That ought to work. And let Calpers take care of Wells Fargo. The situation across Western Civilization is as follows: virtually every major financial institution has become a check-kiting operation or a Ponzi scheme, and we’ve reached the point where they can only pretend to be rescued. Bailout or not, the Toronto-based Home Capital Group is still stuck with shit-loads of non-performing sub-prime mortgage loans — its specialty — and Canada’s spectacular real estate bubble has hardly begun to pop. The collateral is starting to turn, like dead meat in the May sunshine, and the odium will waft across the border.

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“It is truly astonishing that the man who inspired (as personal secretary) and implemented (as finance minister) the policies of President François Hollande could be branded as something radically new.”

Emmanuel Macron Has Taken French Voters For Granted. Now He Risks Defeat (G.)

The rise of Macron is characteristic of the age of spin doctors: it illustrates both their power and their limits. It is truly astonishing that the man who inspired (as personal secretary) and implemented (as finance minister) the policies of President François Hollande could be branded as something radically new. To achieve this feat, spin doctors resorted to celebrity-building in ways previously unknown in French political life. Macron was new because he was young and handsome, and because he had never been elected before. He appeared repeatedly on the front pages of Paris Match with his wife, whose name is chanted by his supporters at his rallies. In the final weeks of the campaign Macron was so careful not to expose the true nature of his programme (which amounts to little more than the unpopular liberalism-cum-austerity implemented by Hollande) that his speeches degenerated into vacuous exercises in cliche and tautology.

The strategy worked up to a point: he qualified for the second round. Yet its limits are also clear. Last spring, France saw nationwide protests against the labour laws that Macron had largely designed. The opposition was not only to their content, but also to the manner in which they were passed: the government bypassed a parliamentary vote. During these demonstrations police used high levels of violence, yet Macron never uttered a word to calm things down. He has already announced that he would resort to governing by decree if needed, and it is easy to anticipate increased social tensions by the autumn. To those who would oppose him, Macron would answer that he is implementing the programme on which he was elected. Theoretically, Macron should defeat Le Pen hands down. The problem is that the meaning of such a result would be unclear: how many would have voted for him, and how many against her?

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The EU can do what it wants with the UK, because whatever it is, the Brits will blame each other for anything that goes wrong. No need for divide and conquer, there’s a hopeless divide already; Brussels can focus on conquer.

How Juncker’s Downing Street Dinner Turned Sour (G.)

The meeting last Wednesday started with a kiss on the cheek, gratefully immortalised by the photographers on Downing Street’s pavement. It ended with a withering putdown: “I’m leaving Downing Street 10 times more sceptical than I was before,” Juncker told his host. It is said that the talks started pleasantly enough. During half of an hour of chit-chat in an anteroom, before taking their place at the dinner table, May told Juncker that she didn’t want just to talk Brexit during the evening but there were other matters of world affairs to discuss. “Like what?”, Juncker asked. In fact, little else seemed to be on the prime minister’s mind. Juncker did have a topic to raise though, and the issue at hand may just explain some of the current iciness between the two leaders.

That very morning the EU should have been shuffling around its money to deal with issues such as the migration crisis, which could not have been expected a few years ago when the bloc’s budget had been set. But on Monday morning Juncker had been made aware of an email from the UK’s permanent representative in Brussels explaining that because a general election had been announced, the British government couldn’t give its support to any changes in how the EU was going to spend its cash. Juncker smelled mischief – maybe it was a way to show the EU what trouble Britain could cause if it didn’t get its way? “What on earth is all this supposed to mean?” he is said to have asked May. Perhaps you won’t be able to talk about Brexit then, he queried, when May explained the rules of purdah, under which governments in an election are to avoid binding the hands of the next administration.

[..] it was the substance of the talks that were to cause Juncker the most unease. And it was Juncker’s despair that got to his colleagues. This was the man who through the trickiest of negotiations had always seen a path through. But when presented with May’s insistence that EU citizens in the UK would be treated in the future like any other foreign national, that trade talks needed to start before the issue of Britain’s divorce bill was settled or her claim that technically the UK owed nothing at all to the union, his lack of optimism for the future became clear. “Theresa May started by stating that the UK wanted to discuss first future arrangements, then article 50 stuff,” one source with knowledge of the dinner said.

“It felt to the EU side like she does not live on planet Mars but rather in a galaxy very far away.” She was “deluded” and appeared to be “living in a parallel universe”, Juncker told the German chancellor, Angela Merkel, in a phone call said to have taken place just moments after the delegation left Downing Street.

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Absolute insanity: “..pensions are to be cut by 9% on average..”

Greece Reaches Deal With Creditors To Pave Way For Bailout Talks (G.)

Greece has reached a preliminary deal with its creditors that should pave the way for long-awaited debt relief talks, the Greek finance minister said on Tuesday. “The negotiations are concluded,” Euclid Tsakalotos told reporters, according to state agency ANA. After overnight talks, Tsakalotos said a “preliminary technical agreement” had been achieved ahead of a 22 May meeting of eurozone finance ministers, which is required to approve the deal. Tsakalotos added he was “certain” that the agreement would enable Greece to secure debt relief measures from its creditors, which he has said is vital to spearhead recovery in the country’s struggling economy. A compromise is required to unblock a tranche of loans Greece needs for debt repayments of €7bn ($7.6bn) in July.

Under pressure from its creditors – the EU, ECB and the IMF – the government agreed earlier this month to adopt another €3.6bn in cuts in 2019 and 2020. Athens conceded fresh pension and tax break cuts in return for permission to spend an equivalent sum on poverty relief measures. A government source on Tuesday said pensions are to be cut by 9% on average, ANA said. The measures are to be approved by parliament by mid-May. However, prime minister Alexis Tsipras has said he will not apply these cuts without a clear pledge later this month on debt-easing measures for Greece. Athens also hopes to be finally allowed access to the ECB’s QE asset purchase programme, to help its return to bond markets.

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So many numbers it’s easy to forget this is about people.

Greece: Any Better Times Or More Pitfalls Ahead? (LSE)

In 2015, Greece, an EU state member since 1981 with a population of 10,846,979 people, recorded the highest level of GGD (General Government Gross Debt to GDP ratio) in the EU-28, at 176.9%. Concerning the volume index of GDP per capita in PPS (Purchasing Parity Standards) we find Greece’s GDP per capita dropped from 4% lower than the EU-28 average in 2004 to 29% lower in 2015. However, GDP is a measure of a country’s economic activity, and therefore it should not be considered a measure of a country’s well-being. If we take the AIC (Actual Individual Consumption) per capita in PPS (Purchasing Power Standard) as a better indicator to describe the material welfare of households, Greece showed an AIC index per capitalower by some 19% than the EU-28 average in 2015. Labour productivity per hour worked expressed in US $ (which means GDP per hour worked expressed in US $) was estimated among the lowest in the EU-28, at $32 in 2015.

Curiously, Greece has the highest average hours worked per year in the EU-28, at 2,042 hours, its average hourly labour cost is among the lowest in the EU-28, at €14.5, its average annual wages at US $25,211 and unemployment rate of 24.90%. 43% of pensioners live on €660/month on average, and many Greek pensioners are also supporting unemployed children and grandchildren. [..] Unemployment is a tragedy for Greece. The highest jobless rate was recorded in 2014, at 27.8%. The current level of unemployment, the highest in the EU, is about 24%. Unemployed workers between 45 and 64 years of age (currently almost one in three unemployed, around 347,400 people, whereof 280,000 are long-term unemployed, in 2009 they were one in five, or 99,000 people)- , and young unemployed people aged 15-24 (close to 50% of the total) are the most adversely affected demographics.

According to ELSTAT (Hellenic Statistical Authority) – GSEE (General Confederation of Greek Workers), nine out of ten Greeks without job do not receive unemployment benefits and 71.8-73.8% (around 807,000 people) of all unemployed (1,124,000 people) have been out of work for more than twelve months, while only 1.5% of them receive the 700 euro/month applicable to the long-term registered unemployed. In the last quarter report for 2016, ELSTAT shows that the amount of Greeks facing long-term unemployment has risen some 146% (from 327,700 to 807,000 people) over the 6-year period. Additionally, there are 350,000 Greek families without a single member working, and unemployment has led some 300,000 highly skilled professionals and workers to leave the country.

[..] According to a study carry out by the Cologne Institute of Economic Research, poverty rate in Greece increased by 40% from 2008 to 2015, the largest increase among EU countries. A new multidimensional poverty index was used to calculate poverty, which is not based on income alone but on other factors such as the deprivation of material goods, quality of education, underemployment and, access to healthcare. In 2015, according to Eurostat, more than one in three residents of Greece experienced conditions of poverty and/or social exclusion. The percentage of those within this group had risen from 29.1% in 2008 to 35.7% in 2015, or 3.8 million people. 21.4% of the Greek population are living below the national poverty line (with an income less than 60 % of the national average), 22.2 % are severely materially deprived,

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May 012017
 
 May 1, 2017  Posted by at 9:29 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Walker Evans Air 1930s

 

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

 

 

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

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

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

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

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

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Same study, slightly different angle.

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

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

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

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

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

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Just in time for recess?!

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

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

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

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Stockman won’t let go.

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

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

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

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

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

Economics Is A Form Of Brain Damage (RWE)

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

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

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

Why The Reflation Trade Is About To Fizzle (ZH)

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

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

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

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

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

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

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

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

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

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

Toronto Is The King Of Risky Mortgage Debt (BD)

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

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

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

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

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

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

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

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

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

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

A Perspective on Electric Vehicles (Science Errors)

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

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

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

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

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

For A Treaty Democratizing Euro Area Governance (SE)

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

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

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

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

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Pre-empting Le Pen.

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

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

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

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What I would expect.

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

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

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

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

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

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

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Apr 302017
 
 April 30, 2017  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Pablo Picasso Self portrait 1965

 

Are Canada’s Homes and Mortgages Worth Just 50 Cents on the Dollar? (WS)
US Congress Does Bare Minimum to Keep Government Open Next Week (BBG)
All the Plenary’s Men (BestEvidence)
The National Blues (Jim Kunstler)
‘Taxation Is Theft’ Meme Goes Mainstream (TAM)
Erdogan: Turkey and US Can Wipe Out ISIL in Raqqa (AlJ)
ISIS Suffers Heavy Casualties In Kurdish Fighters’ Advances In Raqqa (FNA)
Russia Backs China Call To Stop N. Korea Nuke Tests, US-S. Korea Drills (RT)
Brazil Paralyzed by Nationwide Strike, Driven by Corruption and Impunity (GG)
Mélenchon: France To Choose Between Extreme Right And Extreme Finance (IC)
Matteo Renzi Tries The Macron Approach (Pol.)
EU Throws Down Brexit Gauntlet to Britain as Talks Edge Closer (BBG)
Merkel Talks Tough on Migrants in Election Campaign Warm-Up (BBG)
PwC: Greece Must Reform Or Forget Recovery (K.)

 

 

“On April 28, HOOPP CEO Jim Keohane told BNN in an interview that “for every $1 we lend Home Capital, they’re going to provide us with $2 of mortgages as collateral. That’s where we get our protection from.” So the C$2 billion loan would be backed by C$4 billion in mortgages. In other words, in the eyes of Keohane, these mortgages might be actually worth, when push comes to shove, 50 cents on the dollar.”

Are Canada’s Homes and Mortgages Worth Just 50 Cents on the Dollar? (WS)

Home Capital is Canada’s biggest “alternative” mortgage lender. It’s not a bank – which today is part of its problem because it cannot create money to lend out; it has to obtain it first by attracting deposits and borrowing money through other channels. Through its subsidiary, Home Trust, it specializes in high-profit mortgages to risky borrowers, with dented credit or unreliable incomes who don’t qualify for mortgage insurance and were turned down by the banks. This includes subprime borrowers. Since revelations of liar loans surfaced in 2015, things have gone to heck. Now it’s experiencing a run on its deposits. Teetering at the abyss, it obtained a $2 billion bailout loan on Thursday. The terms are onerous. And on Friday, the crux of the deal emerged – the amount of mortgages it has to post as collateral. It’s a doozie.

It sheds some light on what insiders think mortgages and the homes that back them are worth when push comes to shove. A bone-chilling wake-up call for the Canadian housing and mortgage market. This is when the whole construct started falling apart: On July 15, 2015, Home Capital announced that originations of high-margin uninsured mortgages had plunged 16% and originations of lower-margin insured mortgages had plummeted 55%, and that it had axed an unspecified number of brokers. Shares plunged 25% in two days. On July 30, 2015, it disclosed, upon the urging of the Ontario Securities Commission, the results of an investigation that had been going on secretly since September 2014 into “falsification of income information.” Liar loans. It suspended 45 mortgage brokers who’d together originated in 2014 nearly C$1 billion in residential mortgages, or 12.5% of its total.

The scandal festered. Short sellers circled in formation. On April 26, 2017, Home Capital announced that it’s experiencing a run on its deposits. As of the end of March, its subsidiary Home Trust sat on about C$2 billion in high-interest savings accounts (HISA) it is offering to regular savers. But these folks were pulling their money out, it said, and the pace of the run was accelerating. It also disclosed that it was finalizing a $2 billion bailout loan from the Healthcare of Ontario Pension Plan (HOOPP) which has about $70 billion in assets. The loan would “have a material impact on earnings….” So an expensive loan.

Home Trust would pay a non-refundable commitment fee of $100 million; would be required to make an initial draw of $1 billion at an interest rate of 10%; and would pay a 2.5% standby fee on undrawn funds. So the initial $1 billion for the first 12 months would cost it $225 million in fees and interest, a juicy 22.5%! Once the credit line is fully utilized, the cost of the loan would drop to 15%. Its shares collapsed by 65%. On Friday, April 28, it announced that another C$290 million in deposits were yanked out on Thursday, after C$472 had been yanked out on Wednesday. Its HISA deposits were down to C$521 million, having plunged 75% since late March.y

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Kept the lights on for 100 days.

US Congress Does Bare Minimum to Keep Government Open Next Week (BBG)

Congress gave itself one more week to agree on a spending bill to fund the U.S. government through September, leading into President Donald Trump’s 100th day in office Saturday by keeping the lights on. The 382-30 House vote Friday was followed quickly by unanimous Senate passage of the stopgap spending bill hours before the shutdown deadline. Trump signed the bill Friday evening, according to a White House official. “We feel very good” that lawmakers will be able to pass a full spending bill next week, White House press secretary Sean Spicer told reporters earlier in the day. Leaders of both parties say they’re close to agreement on a broader spending plan after Republicans signaled they would accept Democratic demands that the Trump administration promise to continue paying Obamacare subsidies and to drop its bid for immediate funds for a wall on the Mexican border.

“You shouldn’t create artificial deadlines,” Alabama Republican Representative Gary Palmer said in support of the short-term measure. “If there are things we need to work through, we need to take the time to work through them.” Vermont Senator Patrick Leahy, the top Democrat on the Appropriations Committee, said both sides have made progress on issues including more funds for the National Institutes of Health, opioid funding for states, Pell college grants and money for transit. But he said the talks remain snagged over Republican demands for policy “riders.” “Let’s not govern by partisan manufactured crisis,” he said on the Senate floor. “Stop posturing,” he added as he called for a speedy resolution on the bill sometime next week. “This is no way to govern,” Leahy said before the Senate vote.

Sixteen House Republicans voted against Friday’s stopgap measure. The short-term fix to ward off a government shutdown – on a deadline set months ago – shows the stubborn dysfunction of Congress even with a unified Republican government. House GOP leaders on Thursday abandoned efforts to vote this week on their plan to repeal and replace Obamacare for lack of support in their party. A vote is still possible next week.

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Eye-opening to say the least. Make the coffee extra strong before viewing. Lots of ground gets covered, quickly. And don’t mothball those pitchforks and torches just yet.

All the Plenary’s Men (BestEvidence)

“The King can do no wrong.”
—William Blackstone, Commentaries on the Laws of England

“When the president does it, that means that it is not illegal.”
—Ex-President Richard Nixon, interview with David Frost

The question at bar is why the U.S. Department of Justice has failed to prosecute any too-big-to-fail banks or—more importantly—their bankers, even for admitted crimes. It’s a crucial question, because after eight straight years of unremitting prosecutorial failure, it looks very much as if a select group of top banks can, in fact, do no wrong. If that’s the case, then our constitutional republic isn’t merely in trouble. It’s dead. A person or group of people who satisfy Blackstone’s criterion for ultimate sovereign power—the power to commit crimes with impunity—can’t exist in a nation where the law reigns supreme. And yet here we are a decade after the financial crisis began in earnest, and not one TBTF bank executive has gone to jail.

Legally, the TBTF banks are indistinguishable from the King, since the power to commit crimes with impunity swallows all other sovereign powers; such a power isn’t even supposed to exist in the U.S., and yet it does. Moreover, since there can’t be two kings in a kingdom, the entire U.S. government, from the president on down, is just one of the King’s men under this formulation of power. The real job of the U.S. government, then, isn’t to represent the will of the people at all, it’s to do the King’s bidding. A nation that isn’t governed by law is governed by instead by a king—it’s one or the other—and the president’s inferiority to such an above-the-law sovereign was confirmed over 40 years ago with Nixon’s ouster. The president, unlike the King, answers to the law (despite Nixon’s opinion).

Now, you may say that while the TBTF banks might arguably have the de facto power of the King, that’s a far cry from wielding such power formally (i.e., having de jure criminal immunity). The reply to that objection is set forth in this film, “All the Plenary’s Men,” which is a sequel to “The Veneer of Justice in a Kingdom of Crime.” Another objection, raised by the DOJ itself, is that it HAS prosecuted TBTF bankers, citing cases like that of Raj Rajaratnam. These cases, however, in fact reveal the DOJ acting on behalf of the criminal global banking cartel. On that score, the DOJ’s abysmal track record is by now so extensive and so thorough that it’s possible to spot legal patterns in the DOJ’s protracted miscarriage of justice, and, as you’re about to see, those patterns are very deeply disturbing indeed.

What’s been going on cuts right past a garden variety constitutional crisis like Watergate straight to a crisis of sovereignty. The backdrop for all of this is HSBC’s exoneration in December of 2012 for laundering money for drug dealers and terrorists, about which the House Financial Services Committee issued a report in July of 2016. Whether it was due to the political circus in town at the time, or to the Republican authorship of that report (albeit without dissent), it didn’t get nearly the scrutiny it deserved. You see, prosecutors working on the HSBC case were actually going to indict the bank, but they got overruled, and HSBC and its team of criminals skated. The story of how exactly that reversal came about reveals, if not the King himself, then certainly many of the King’s top men.

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“It concentrates the mind, as Samuel Johnson once remarked, like waiting to be hanged.”

The National Blues (Jim Kunstler)

You can read it in the bodies of the people in the new town square, i.e. the supermarket: people prematurely old, fattened and sickened by bad food made to look and taste irresistible to con those sunk in despair, a deadly consolation for lives otherwise filled by empty hours, trash television, addictive computer games, and their own family melodramas concocted to give some narrative meaning to lives otherwise bereft of event or effort. These are people who have suffered their economic and social roles in life to be stolen from them. They do not work at things that matter. They have no prospects for a better life — and, anyway, the sheer notion of that has been reduced to absurd fantasies of Kardashian luxury, i.e. maximum comfort with no purpose other than to enable self-dramatization. And nothing dramatizes a desperate life like a drug habit. It concentrates the mind, as Samuel Johnson once remarked, like waiting to be hanged.

[..] The eerie thing about reading the landscape of despair is that you can see the ghosts of purpose and meaning in it. Before 1970, there were at least five factories in my little town, all designed originally to run on the water power (or hydro-electric) of the Battenkill River, a tributary of the nearby Hudson. The ruins of these enterprises are still there, the red brick walls with the roofs caved in, the twisted chain-link fence that no longer has anything to protect, the broken masonry mill-races. The ghosts of commerce are also plainly visible in the bones of Main Street. These were businesses owned by people who lived in town, who employed other people who lived in town, who often bought and sold things grown or made in and around town.

Every level of this activity occupied people and gave purpose and meaning to their lives, even if the work associated with it was sometimes hard. Altogether, it formed a rich network of interdependence, of networked human lives and family histories. What galls me is how casually the country accepts the forces that it has enabled to wreck these relationships. None of the news reports or “studies” done about opioid addiction will challenge or even mention the deadly logic of Wal Mart and operations like it that systematically destroyed local retail economies (and the lives entailed in them.) The news media would have you believe that we still value “bargain shopping” above all other social dynamics. In the end, we don’t know what we’re talking about.

I’ve maintained for many years that it will probably require the collapse of the current arrangements for the nation to reacquire a reality-based sense of purpose and meaning. I’m kind of glad to see national chain retail failing, one less major bad thing in American life. Trump was just a crude symptom of the sore-beset public’s longing for a new disposition of things. He’ll be swept away in the collapse of the rackets, including the real estate racket that he built his career on. Once the collapse gets underway in earnest, starting with the most toxic racket of all, contemporary finance, there will be a lot to do. The day may dawn in America when people are too busy to resort to opioids, and actually derive some satisfaction from the busy-ness that occupies them.

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Funny but true.

‘Taxation Is Theft’ Meme Goes Mainstream (TAM)

The month of April is a nightmare for anyone with a conscience, as we only have until “tax day” — which usually falls on April 15 — to give the taxman what he says he deserves. So if you pay taxes to Uncle Sam and you’re also aware you’re paying for mass murder in the Middle East and in U.S. streets due to the drug war, you should also feel sick to your stomach as you write that check. To a restaurant customer, this may have served as enough incentive to remind his server that taxation is always immoral — but he didn’t stop there. Last week, a customer at a Missouri restaurant gave the waitress a “personal gift” instead of a tip, writing the now popular line “Taxation is theft” in the tip section of the receipt. In a second note, the fiscally conscious customer added: “This is not a tip. This is a personal gift and not subject to federal or state income taxes.”

With major progressive news outlets like ATTN: reporting on this story, left-leaning reporters started to debate wages in the food and service industries, discussing the fact that tips end up being factored as wages, meaning they are always taxable. But as that discussion developed, reporters were quick to realize that when personal gifts are in the mix, the taxman can’t take part of those earnings away. After all, a gift would have to exceed $13,000 to be subject to taxation, meaning that even if the customer had spent hundreds, the “personal gift” would not amount to anything close to the requirements stipulated by the IRS.

With that, ladies and gentlemen, it becomes easier to not only tip with class, but also with substance, giving your waiter a lesson on what’s moral and how to legally go around the rules to make sure they enjoy their full tip — not just the percentage deemed to be fit by the federal government. As this story becomes part of the popular movement ignited by libertarians, expect to see more progressive news outlets becoming familiarized with the actual concept of taxation. What’s left for us to find out is if they are going to change their tune and start attacking people like this customer when the two-party pendulum swings once again and a fully Democratic slate takes over Washington. Are they going to remain consistent in discussing taxation from the point of view of the worker, or are they going to side with the leech? Only time will tell.

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From separate map picked up on Twitter: “When ISIS was winning Turkey was just watching. Now when ISIS is getting defeated by Kurds, Turkey starts attacking Kurds. Turkey = ISIS.”

Erdogan: Turkey and US Can Wipe Out ISIL in Raqqa (AlJ)

Turkish President Recep Tayyip Erdogan said on Saturday if Ankara and Washington were to join forces they could turn the Syrian city of Raqqa into a “graveyard” for Islamic State of Iraq and the Levant (ISIL). Erdogan also suggested he could launch cross-border operations against Kurdish rebels at any time, just days after the military carried out air strikes in Syria and Iraq, drawing concern from the United States. “America, the coalition, and Turkey can join hands and turn Raqqa into a graveyard for [ISIL],” Erdogan told a business summit in Istanbul. “They [ISIL] will look for a place to hide.” Erdogan’s comments come ahead of a meeting with US President Donald Trump on May 16 – their first face-to-face summit since the real estate mogul and reality TV star took office in January.

Ankara is hopeful about a relationship with Washington under Trump after ties frayed in the final years of Barack Obama’s administration, which limited cooperation between the NATO allies. The two countries have bitterly disagreed over the role of the Kurdish People’s Protection Units (YPG) in Syria. Turkey views the YPG as the Syrian extension of the Kurdish PKK group, which has waged a deadly insurgency against the Turkish state since 1984. But the US is concerned that Turkey’s military operations in Syria are more focused on preventing Syrian Kurds from forming an autonomous region in northern Syria, along Turkey’s border, that could embolden Turkey’s own Kurdish minority.


@Furiouskurd: When ISIS was winning Turkey was just watching. Now when ISIS is getting defeated by Kurds, Turkey starts attacking Kurds. Turkey = ISIS.

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As the only party involved, the Kurds fight for their own land. And they have liberated lots of prisoners, women, children.

ISIS Suffers Heavy Casualties In Kurdish Fighters’ Advances In Raqqa (FNA)

The Kurdish-led Syrian Democratic Forces (SDF) continued the anti-ISIL Euphrates Rage Operation in Western Raqqa and managed to drive the terrorists out of more neighborhoods in al-Tabaqa city, killing over 40 of them. The SDF engaged in heavy fighting with ISIL in al-Tabaqa city and managed to take control of the neighborhoods of al-Nababeleh, al-Zahra and al-Wahab, killing 23 militants. In the meantime, the Kurdish fighters managed to push ISIL back from al-Wahabah and Radio Station in al-Tabaqa, killing 20 militants and capturing 10 others. In relevant developments in the province on Tuesday, the SDF stormed ISIL’s defense lines and took full control over the villages and settlements of Kabash al-Sharqi, Um al-Tonok, Rayan, Tishrin farm, Mosheirehe al-Shamaliyeh, Mosheirefeh al-Janoubiyeh, al-Rahiyat, Beir Jarbou, Jarwa, al-Hattash, Hazimeh, Khalwa Abideh, Holo Abd, Abareh, al-Kaleteh, Sukriyeh and Zohra, inflicting major losses on ISIL.

The Kurdish forces also won back a key neighborhood in the Southern sector of Tabaqa city following a large advance on its Western urban. In the meantime, the SDF managed to seize control over the Alexandria suburb, and now the Kurds have swept through the adjacent Wahab neighborhood. Kurdish forces also secured the island of Jazirat al-Ayd, a few kilometers North of Lake Assad. According to latest reports, around 40% of Tabaqa city has been brought under Kurdish control with just a few hundred ISIL militants left in its Northern sector and around the city center.

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‘..double suspension..’

Russia Backs China Call To Stop N. Korea Nuke Tests, US-S. Korea Drills (RT)

Russia has supported a Chinese initiative in the UNSC intended to stabilize the situation on the Korean peninsula. It calls on the North to refrain from missile and nuclear testing, while the US and South Korea should halt military drills in the area.
“Members of the [UN] Security Council have unanimously called upon DPRK [Democratic People’s Republic of Korea] to stop missile and nuclear tests and to fulfil UNSC resolutions,” the Russian Foreign Ministry said in a statement on Saturday following a United Nations Security Council (UNSC) session held in New York earlier on Friday. The UNSC called for a political and diplomatic solution to the nuclear crisis on the Korean Peninsula, the ministry added.

“In this context, the Russian Federation supported a Chinese proposal for a ‘double suspension’ (Pyongyang is to stop missile and nuclear tests and the US and South Korean militaries are to halt drills near North Korea) as a starting point for political negotiations.” However, the council was not able to agree on a common solution, the ministry added. The UNSC session was joined by Russian Deputy Foreign Minister Gennady Gatilov, who urged Washington and Seoul to reconsider their decision to station a THAAD anti-missile system on the Korean Peninsula, warning that it will serve as a “destabilizing factor” in the region.

Gatilov said the Terminal High Altitude Area Defense (THAAD) had been deployed “in line with the vicious logic of creating a global missile shield,” while warning that it is also undermining the security and deterrent capacities of adjacent states, such as China, thus threatening “the existing military balance in the region.” “It is not only we who perceived this step very negatively. We are once again urging both the United States and the Republic of Korea to reconsider its expediency, and other regional states not to yield to the temptation of joining such destabilizing efforts,” the deputy foreign minister said. Ahead of the UNSC session, Chinese Foreign Minister Wang Yi told reporters that a peaceful solution to the Korean crisis is the “only right choice.” “Peaceful settlement of the nuclear issue on the Korean Peninsula through dialogue and negotiations represents the only right choice that is practical and viable,” Wang said.

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Very few Brazil politicians are not involved in one scam or another.

Brazil Paralyzed by Nationwide Strike, Driven by Corruption and Impunity (GG)

Just over one year ago, Brazil’s elected President, Dilma Rousseff, was impeached – ostensibly due to budgetary lawbreaking – and replaced with her centrist Vice President, Michel Temer. Since then, virtually every aspect of the nation’s political and economic crisis – especially corruption – has worsened. Temer’s approval ratings have collapsed to single digits. His closest political allies – the same officials who engineered Dilma’s impeachment and installed him in the presidency – recently became the official targets of a sprawling criminal investigation. The President himself has been implicated by new revelations, saved only by the legal immunity he enjoys. It’s almost impossible to imagine a presidency imploding more completely and rapidly than the unelected one imposed by elites on the Brazilian population in the wake of Dilma’s impeachment.

The disgust validly generated by all of these failures finally exploded this week. A nationwide strike, and tumultuous protests in numerous cities, today has paralyzed much of the country, shutting roads, airports and schools. It is the largest strike to hit Brazil in at least two decades. The protests were largely peaceful, but some random violence emerged. The proximate cause of the anger is a set of “reforms” that the Temer government is ushering in that will limit the rights of workers, raise their retirement age by several years, and cut various pension and social security benefits. These austerity measures are being imposed at a time of great suffering, with the unemployment rate rising dramatically and social improvements of the last decade, which raised millions of people out of poverty, unravelling.

[..] During the past three years, Brazilians have been subjected to one revelation after the next of extreme corruption pervading the country’s political and economic class. Scores of corporate executives and long-time party leaders are imprisoned. They include the head of the Brazilian construction giant Odebrecht, the House Speaker who presided over Dilma’s impeachment, and the former governor of the state of Rio de Janeiro. The current House Speaker, and Senate President, and nine of Temer’s ministers are now targets of criminal investigations for bribery and money laundering, as are numerous governors.

In sum, the vast bulk of the top-shelf political and economic elite have proven to be radically corrupt. Billions upon billions of dollars have been stolen from the Brazilian public. Recently released recordings from the judicial confessions of Marcelo Odebrecht, scion of one of Brazil’s richest families, depict a country ruled almost entirely through bribes and criminality, regardless of the ideology or party of political leaders. And yet, even in the wake of this oozing and incomparable elite corruption, the price that is being paid falls overwhelmingly on the victims – ordinary Brazilians – while the culprits prosper.

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Melenchon seeks to hold on to his voters for the June parliamentary elections.

Mélenchon: France To Choose Between Extreme Right And Extreme Finance (IC)

The leader of a far-left movement who won nearly 20% of the vote in the first round of France’s presidential election, Jean-Luc Mélenchon, told his seven million voters in a YouTube address on Friday that he would not tell them how to vote in the final-round run-off next weekend. As for himself, Mélenchon said that he would cast a ballot, and that it would not be for Marine Le Pen, the candidate of the far-right National Front, who courted his voters in a video of her own on Friday. But Mélenchon also refused to say, like the leaders of other parties across the political spectrum – and celebrities including the French soccer legend Zinedine Zidane – that he would vote for Le Pen’s centrist rival, the former banker Emmanuel Macron, to stop the far-right from gaining power.

Instead, Mélenchon predicted that forcing France to choose between a candidate of “the extreme right” and one of “extreme finance” would led to a political crisis, and left open the possibility that he would submit a blank ballot, a form of protest vote permitted under French electoral law. (Mélenchon’s platform included provisions for voting to be made mandatory, and for blank ballots to be recognized under law.) The appeal for unity, to construct a barrage, or dam, against the rising tide of the far-right, Mélenchon said, was, in fact, a disguised attempt to force voters like him, who profoundly disagree with Macron’s economic policies, to endorse his project. Amid fears that widespread abstention and protest votes for neither candidate could lower the threshold for Le Pen to win with 50% of the valid votes cast, Mélenchon’s refusal to join the sort of united front against Le Pen that led to her father’s defeat in 2002 caused anxiety to spike.

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Chameleons and parrots are us.

Matteo Renzi Tries The Macron Approach (Pol.)

Matteo Renzi toned down the EU-critical rhetoric of his final months as Italian prime minister during his visit to Brussels on Friday to drum up support for his bid to be restored as head of the Democratic Party (PD) in its primaries this weekend. With aides suggesting on social media that French presidential hopeful Emmanuel Macron’s pro-EU stance, which helped him beat Euroskeptic Marine Le Pen in the election’s first round, could be a boost for Renzi, he talked about “Angela, François and I” when referring to German Chancellor Angela Merkel and French President François Hollande. Renzi even stood in front of a display showing the EU flag, and felt the need to explain why, in the run-up to his failed constitutional referendum that cost him the prime ministership last December, he had removed the EU flag from behind his desk.

“It wasn’t anger, it was calculated gesture,” Renzi told PD followers at a hotel near the European Parliament, adding that it was in response to the European Commission demanding Italian action on its budget deficit when it had been hit by an earthquake. The Italian and international media have speculated about the similarities between Renzi and Macron, with Renzi’s slogan for the PD primary this Sunday — In Cammino (“on the way”) — almost a direct translation of the name of Macron’s centrist political movement, En Marche. One close Renzi aide, Giuliano Da Empoli, wrote on Facebook the day after Macron’s first-round victory on April 23 that the French result “shows that one can be at the same time a convinced pro-European and a harsh critic of the status quo.”

That was the tone Renzi tried to strike in Brussels on Friday, repeating his line that the EU “needs radical change” and taking a dig at Germany for its trade surplus, while warning about the dangers of populism. “With the radicals you win the primary elections but then you lose the elections,” he told the audience. In the French campaign, which comes to a head with the second-round vote on May 7, the candidate closest to Renzi’s Democratic Party was Benoît Hamon, who won the ruling Socialist Party’s primaries but took only 6% of the vote on election night. That must resonate for Renzi, who wants to regain control of the PD to prepare a bid for a new term as prime minister in elections due early next year.

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“Nobody has united here against the U.K.,” German Chancellor Angela Merkel told reporters..” She’s right, all everyone’s done is side WITH Germany. Without a word.

EU Throws Down Brexit Gauntlet to Britain as Talks Edge Closer (BBG)

European Union governments threw down the gauntlet to the U.K. ahead of Brexit talks, listing demands Prime Minister Theresa May must satisfy before they will discuss the trade deal she wants and urging her to be more realistic in her expectations. Any doubts about the scale of the task facing Britain in withdrawing from the EU after four decades were laid to rest at a Brussels summit of the region’s leaders on Saturday. A tough negotiating stance was endorsed unanimously, within minutes and to applause. The U.K. responded by saying it’s bracing for a confrontation. The complexity comes down to the fact that a departure from the world’s biggest trading bloc has never been done and was never supposed to happen. The EU is striving to ensure the U.K. is worse off outside it than inside, not least to avoid setting a precedent.

After agreeing to the terms of separation, then it’s a matter of getting down to the business of what a future relationship might look like. “Nobody has united here against the U.K.,” German Chancellor Angela Merkel told reporters as she left the meeting. “The British people have made a decision, which we will have to respect. But we remaining 27 now get together in order to speak with one voice.” The Brexit discussions will begin soon after the U.K.’s June election, which May called in part to strengthen her mandate going into talks. The first orders of business will be guaranteeing the rights of 3 million EU citizens living in the Britain and calculating a financial settlement one leader said would be at least €40 billion euros ($44 billion). Only once “sufficient progress’’ is made on those thorny topics and reinforcing the border between the two Irelands will the EU’s attention turn to trade. That looks unlikely to happen before December.

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Merkel tries to deflect the blame for what’s gone wrong, blames local officials for sweeping things under the carpet. Yeah, she would never have had any reason to do just that herself. Plus, she blames ‘Europe’s haphazard policing of its outer borders’, something for which no-one carries more responsibility than … Merkel, the de facto boss of the EU. Mutti Merkel’s just another politician going wherever the wind blows.

Merkel Talks Tough on Migrants in Election Campaign Warm-Up (BBG)

German Chancellor Angela Merkel is talking tough on migrants and crime as she hits the campaign trail for two state elections next month, giving a foretaste of her bid for a fourth term in September. Merkel’s hardened rhetoric was on display in North Rhine-Westphalia, Germany’s most populous state, where her Christian Democratic Union is seeking to end seven years of Social Democratic rule on May 14. On Friday, she’s campaigning east of Hamburg in Schleswig-Holstein, where two polls this week suggest her party has a slim lead over the SPD ahead of a regional vote on May 7. At a CDU rally in the rural Westphalian town of Beverungen, Merkel reaffirmed her push to return migrants who don’t qualify for asylum and attacked the state’s Social Democrat-led government as soft on crime.

She said local officials “tried to sweep under the carpet” lapses in policing around mass sexual assaults on women in Cologne on New Year’s Eve in 2015, an incident that stoked an anti-immigration backlash. “The opportunity for improvement was there,” Merkel told the crowd on Thursday. “Things didn’t get better, so it’s time for a change.” As polls suggest that both Germany’s anti-immigration AfD party and her Social Democratic challenger Martin Schulz are in retreat for now, Merkel is using the opening to rally her CDU behind traditional themes of public safety. At a security conference this week, she said Europe’s haphazard policing of its outer borders compares unfavorably to U.S. immigration checks and must be strengthened.

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PricewaterhouseCoopers gets the first half right: as I’ve said numerous times, Greece cannot recover under present conditions imposed by the Troika. But then PwC loses the thread. Pity but predictable.

PwC: Greece Must Reform Or Forget Recovery (K.)

The extent of the destruction the Greek economy has suffered in the last few years, also undermining the effort to restructure it, becomes clear when comparing specific data, not on a quarterly or annual basis, but over the longer term. The country remains in a vicious cycle of recession, the economy will not grow by more than 1% this year, and any positive signs have proved temporary or insufficient to alter the overall picture. According to “Economic Outlook for Greece 2017-2018,” a study by PricewaterhouseCoopers (PwC), investment in the country’s economy dropped from €60 billion in 2010 to €20 billion last year. Investments are showing no signs of sustainable recovery as savings remain in the red and banks continue to deleverage their financial reports.

Consumption has been in constant decline, with a small recovery last year followed by a fresh drop in recent months. The average disposable income has gone down primarily due to the increased taxation and hikes in social security contributions, while the capital controls remain and banks are dependent on emergency liquidity assistance (ELA) for their financing. PwC notes that disposable incomes are unlikely to grow significantly anytime soon. There are just a few domestic investments that could fuel a recovery and no significant funding for investments is expected from abroad. At the same time it will be hard for fiscal performance to post a significant improvement without any deep structural reforms, including in the social security system.

The banks’ lack of liquidity, the delayed repayment of the state’s dues to its suppliers and the capital controls are likely to persist. PwC further argues that despite the delays in the second bailout review, Greece could avoid any unforeseeable tension and political events and achieve some growth, but not any greater than 1%, and the same challenges will remain next year too. An exit from the vicious cycle, says PwC, will require not only a change in the Greek debt’s sustainability terms, but also a drastic acceleration of structural reforms and the boosting of competitiveness and growth.

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Apr 272017
 
 April 27, 2017  Posted by at 8:41 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Pablo Picasso Self portrait with palette 1906

 

The Destruction Of Greece – “Only A Down Payment” According To The IMF (Bilbo)
Greek Supermarkets Report Dramatic Recession (K.)
US Student Loan Implosion (PolCal)
If Mortgage Rates Rise, What Happens to Canada’s House Price Bubble? (WS)
Canada’s Housing Bubble Explodes As Biggest Lender Crashes (ZH)
Canada’s Housing Watchdog Warns of ‘Problematic Conditions’ (BI)
It’s Tough Being Canada These Days (BBG)
Trump Tells Canada, Mexico, He Won’t Terminate NAFTA Treaty Yet (R.)
Trump Tax Plan Would Raise US Debt by $5.5 Trillion, 20% of 2027 GDP (CRFB)
What Happened Last Time US Companies Got A Break On Overseas Profits (CNBC)
New Zealand Plans Spending Splurge to Keep ‘Growing Like Sydney’ (BBG)
Russian Spokeswoman On ‘Ridiculous’ Airstrikes In Syria, Fake News (Y!)
German Court Upholds Greek Teacher’s Case Against Pay Cut (AP)

 

 

Excellent lenghty takedown by Bill Mitchell.

The Destruction Of Greece – “Only A Down Payment” According To The IMF (Bilbo)

With Greece still wallowing in the depths of recession, it is clear that the IMF hasn’t finished with the destruction of that formerly independent nation. The destruction to date (27% contraction and increased poverty) are considered by the IMF to be “only a down payment” on what Greece has to do so satisfy the Troika. At what point do people start to realise that the on-going costs of this austerity dwarf the significant costs that would accompany exit? And the Troika is not done with Greece yet. They intend to screw it down even further. And the costs of remaining in the dysfunctional monetary union escalate by the day. At some point, the Greeks will realise they have been dudded. What is left is anyone’s guess – but it won’t be pretty. The destruction of Greece is “only a down payment” according to the IMF – keep that mentality in mind when you are working out whether Greece should remain obedient or tell them all to f*ck off and regain their currency independence and restore prosperity.

[..] The ‘event’ that brought Greece to heal in June 2015 was the ECB decision to starve the Greek banks of liquidity – in total violation of its charter to maintain financial stability within its jurisdiction. How many Greek people lost income over that blackmail? How many took their own lives? How many plunged into mental illness? Did the IMF come up with a measure of their sordid part in all that? And now Thomsen is back – threatening and haranguing a subservient polity in Greece who call themselves Socialists but have done more damage to their own nation by taking the obedience option that the conservatives could have ever dreamed of doing. The Troika are now claiming (largely at the behest of the IMF) that if Greece cuts further it will receive debt relief.

Why the Greeks are worried about their external debt is beyond me. Why not just refuse to pay it and let the debtors (largely the ECB these days as a result of the deals done with the previous bailouts (which insulated the private German and French banks from exposure) sort out the implications of that? Why not threaten Brussels with default (redenomination) and exit if they don’t allow the Greek government to expand its fiscal deficit to stimulate growth – along the lines of Spain, which only is growing because its fiscal position is in violation with the fiscal rules – conveniently ignored by Brussels as it wanted the PP government returned? Why not demand that the ECB include Greek government debt in its QE program – thereby ‘funding’ the deficit. If not, we leave!

Then the bullies would be on call and the compromises would come thick and fast. But the spinelessness of the Greek polity combined with the sociopathological joy of the Troika in bringing this rogue nation to heel will ensure no such confrontation occurs and Greece will continue to wallow at the bottom of the Eurozone. It is forecast that Greece currently needs an injection of around “€100 billion in emergency bailout cash” to stay afloat for a while. This would further add to its “already massive debt burden, that could also deepen the budget cuts and economic overhauls required to get Athens’ balance sheets back into the black and prolong what has already been a near decadelong ordeal for the country.” And the costs of staying in – huge and getting bigger.

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A “dramatic drop in consumption of basic commodities such as milk and bread..”

Greek Supermarkets Report Dramatic Recession (K.)

The supermarket sector in Greece is experiencing a deep recession ranging from 8 to 15% year-on-year across its categories, according to the marketing and strategic planning director of AB Vassilopoulos, Zeta Cheimonidou. Her statements at a corporate event confirmed the general mood in the industry and data compiled by researchers surveying the sector. Cheimonidou went on to estimate that 2017 will see a 4 to 5% decline in supermarket turnover compared with 2016. “The market is experiencing a much steeper decline than last year. There is a very deep recession,” Cheimonidou stated, although she added that it would be safer to wait and see how demand evolves up until the end of May before drawing any conclusions for the entire year.

If proven correct, her estimate for a 4% drop in turnover will come on the back of a major decline in 2016 compared to 2015, which, depending on the surveying company, ranges from 4.5 to 6.5%. In its recent annual general meeting, the Hellenic Food Industry Federation (SEVT) noted the dramatic drop in consumption of basic commodities such as milk and bread, while a senior market research company official told Kathimerini that “our clients, suppliers and retailers, were crying in the first quarter.”

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Congress wil have to address this soon.

US Student Loan Implosion (PolCal)

The Consumer Federation of America recently put out a press release that reports that they’ve found that 1.1 million student loan borrowers in the United States have gone 270 or more days without making payments on their Federal Direct Student Loans, with more than $137 billion worth of the loans issued by the U.S. government now qualifying as being in default by that standard. Data from the CFA’s press release has made the rounds among multiple news outlets, but we have a pretty basic question: Are those big numbers? They certainly seem like big numbers, what with all the millions and billions being thrown about, but how do these numbers fit into the bigger U.S. government-issued student loan story? Let’s start with the biggest numbers, where we discover that $137 billion worth of Federal Direct Student Loans are in default, against the larger total of $1.3 trillion worth of Federal Direct Student Loans that have been issued through the end of December 2016.

Here, we calculate that the percentage of student loans that have gone 270 or more days without having had a payment made upon them represents about 11% of the total amount borrowed. That means that some 1.1 million people whose student loans require that they make some sort of scheduled payment went more than 9 months without making any. To tell if that’s a big number or not requires that we put that number into some kind of context. Here, we’ll draw on the U.S. Federal Reserve’s data for the delinquency rates on loans and leases issued by all commercial banks in the U.S., where for the fourth quarter of 2016, we find that the total delinquency rate is 2.04%. That value had previously peaked at 7.4% back in the first quarter of 2010, following the bottoming of the Great Recession.

But another important thing to consider is that delinquency rate would include all private-sector issued loans and leases that have payments that are past due, including those that have gone without payment for much less than 270 days. That figure tells us that the default rate of 11% for Federal Direct Student Loans is, to put it in Trumpian terms, “Yuge!” [..] The average student loan balance in the U.S. is $30,650. For Americans who haven’t defaulted on their student loans, that average figure drops to $28,150. But for Americans who have defaulted on their payments to their U.S. government creditor, the average balance on their Federal Direct Student Loan is $124,545.

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If you were not scared yet…

If Mortgage Rates Rise, What Happens to Canada’s House Price Bubble? (WS)

Housing affordability is a function of down payment, monthly payment, and household income. With home prices skyrocketing while household incomes were lagging far behind, low mortgage rates were the grease that kept it going. But what happens when mortgage rates begin to tick up? A “payment shock.” “An increase in interest rates of 100 bps [1 percentage point] on a 5 year term would represent a rise of C$388 for the monthly mortgage payment in the Vancouver market (+9% to C$4,669) and C$239 in Toronto (+7% to C$3,692). With housing affordability problem in these markets being already acute, we doubt current home prices could resist such an interest rate hike.”

This chart via NBF Economics and Strategy shows by how much monthly mortgage payments would rise if mortgage rates ticked up just 1 percentage point. Note the impact on monthly payments for homes in Toronto (Ontario) and Victoria and Vancouver (British Columbia):

So just how big is the Canadian housing bubble? The chart below by NBF Economics and Strategy compares US home prices (Case-Shiller 20-City index) to Canadian home prices (Teranet-National Bank 26-city index). Both indices are based on similar methodologies of comparing pairs of sales of the same home over time. The shaded areas denote recessions in Canada. The brief dip during the last recession in Canada pales against the multi-year housing bust in the US:

Like so many other assets classes in central-bank nirvana, this one too has reached ludicrous levels. But there’s a difference. People don’t live in stocks, bonds, classic cars, or art, and these asset bubbles have less impact on the real economy. But people do have to live in homes. Now that the results are clearer than daylight, central banks and governments worry about the consequences: Bubbles don’t just plateau. Now they wonder, belatedly, how to get out of it without bringing the whole construct down. The fact that a 1-percentage point increase in mortgage rates poses existential questions for some of the hottest markets shows how far policy makers have painted themselves into a corner.

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“Home Capital shares dropped by 61% in Toronto..”

Canada’s Housing Bubble Explodes As Biggest Lender Crashes (ZH)

Call it Canada’s “New Century” moment. We first introduced readers to the company we said was the “tip of the iceberg in Canada’s magnificent housing bubble” nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.

Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice. As part of this inevitable outcome, one which presages the company’s eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday.

Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable fell 17%, Street Capital fell 13%, while First National declined 7.6%. In short, the Canadian mortgage bubble has finally burst. refundable commitment fee of C$100 million, while standby fee on undrawn funds is 2.5%. The initial draw must be C$1 billion. The loan has an effective – and very much distressed – interest rate of 22.5% on the first C$1 billion, declining to 15% if fully utilized, according to a note from Jaeme Gloyn, an analyst at National Bank of Canada. Home Capital said the credit line is intended to “mitigate” a sharp drop in Home Trust’s high-interest savings account balances, which sank by $591 million from March 28 to April 24, at which point the total balance was $1.4 billion. Home Capital warned on Wednesday that further outflows are anticipated. Translated: what until last night was a depositor bank jog just became a sprint.

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Dangerous shoptalk: “..overvaluation has been downgraded to moderate from a previously strong assessment..”

Canada’s Housing Watchdog Warns of ‘Problematic Conditions’ (BI)

Canada’s housing watchdog maintained its view that there is “strong evidence of problematic conditions” in the market that some economists have classified as being in a bubble. The market is characterized by imbalances, defined as when demand and prices are far from their historical averages, Canada Mortgage and Housing Corporation said in second-quarter report. “While the overall assessment of problematic conditions remains strong for Canada, overvaluation has been downgraded to moderate from a previously strong assessment,” CMHC said.

“Careful analysis by geography shows that local differences continue to divide the Canadian housing market into several markets: centers in the East are showing weak evidence of overvaluation, while centres in Southern Ontario and the West are showing moderate to strong evidence of overvaluation,” it added. In Victoria, for example, the CMHC determined that overvaluation had accelerated from “moderate” to “strong.” The Teranet and National Bank of Canada house-price index showed a 24.8% gain year-on-year in March. It jumped 12.2% for Vancouver. Separately on Wednesday, shares of Canada’s home lenders fell after Home Capital Group said it obtained a $1.5 billion credit line to cope with falling deposits. Home Capital shares plunged by more than 60%.

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“George Washington used to complain about British lumber coming in from Canada..”

It’s Tough Being Canada These Days (BBG)

It’s tough being Canada these days. There’s no other way, really, to explain why the Trump administration announced on Tuesday that it was imposing tariffs on exports of Canadian softwood lumber – tariffs that will cost the Canadian lumber industry $1 billion annually. The Canadian dairy industry is also in Trump’s crosshairs, as he made plain in a threatening tweet Tuesday morning. Trump spent much of his campaign railing about China’s “unfair” trade practices, and all the “American jobs” that have migrated to Mexico. But now that he’s president, he’s apparently been made to understand that slapping tariffs on Chinese goods could lead to a catastrophic trade war. And any moves that might destabilize Mexico would have negative consequences for the U.S.

Ah, but hit Canada with a tariff, and you get all of the political upside of looking tough with no downside. This is not just because Canadians are nice. It’s because the Canadian economy is more U.S.-dependent than any other. “20% of Canada’s GDP relies on the U.S.,” said Laura Dawson, the director of the Canada Institute at the Wilson Center. “And 70% of Canada’s exports go to the U.S.” Even if Canada wanted to retaliate, what exactly could it do? Stop the Ford plants in Canada from shipping cars to Ford in Detroit? A rational administration would never let these minor disputes get in the way of a smooth-functioning economic relationship with Canada. To start with, there’s the fact that Canada is the staunchest U.S. ally, which you would think would count for something.

And the U.S. benefits enormously from trade with Canada, which buys 18% of all American exports, more than any other country. Last year, Canada’s trade surplus with the U.S. was a minuscule $11.2 billion. The integration of the two economies has been beneficial to both. Nor are the two disputes anything new. The American lumber industry has been complaining about Canadian softwood lumber since pretty much forever. “George Washington used to complain about British lumber coming in from Canada,” Dawson said with a chuckle. The basic allegation is that most timberland in Canada is owned by its provinces, which sell logging rights at below-market prices. The U.S. views this as a government subsidy, a notion Canada rejects. Although Americans and the Canadians have never been able to put this dispute to rest, they have been able to negotiate a truce on three separate occasions since the early 1980s.

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Advisers can’t agree.

Trump Tells Canada, Mexico, He Won’t Terminate NAFTA Treaty Yet (R.)

U.S. President Donald Trump told the leaders of Canada and Mexico on Wednesday that he will not terminate the NAFTA treaty at this stage, but will move quickly to begin renegotiating it with them, a White House said. The announcement came after White House officials disclosed that Trump and his advisers had been considering issuing an executive order to withdraw the United States from the trade pact with Canada and Mexico, one of the world’s biggest trading blocs. The White House said Trump spoke by telephone with Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau and that he would hold back from a speedy termination of NAFTA, in what was described as a “pleasant and productive” conversation.

“President Trump agreed not to terminate NAFTA at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries,” a White House statement said. “It is my privilege to bring NAFTA up to date through renegotiation. It is an honor to deal with both President Peña Nieto and Prime Minister Trudeau, and I believe that the end result will make all three countries stronger and better,” Trump was quoted as saying in the statement. The Mexican and Canadian currencies rebounded in Asian trading after Trump said the U.S. would stay in NAFTA for now. The U.S. dollar dropped 0.6% on its Canadian counterpart and 1% on the peso.

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This is not going to be easy to pass.

Trump Tax Plan Would Raise US Debt by $5.5 Trillion, 20% of 2027 GDP (CRFB)

The White House released principles and a framework for tax reform today. We applaud the President’s focus on tax reform, but the plan includes far more detail on how the Administration would cut taxes than on how they would pay for those cuts. Based on what we know so far, the plan could cost $3 to $7 trillion over a decade– our base-case estimate is $5.5 trillion in revenue loss over a decade. Without adequate offsets, tax reform could drive up the federal debt, harming economic growth instead of boosting it. The framework proposes a number of specific changes including: consolidating and reducing individual income tax rates to 10, 25, and 35%; doubling the standard deduction; cutting the business tax rate to 15% on both corporations and pass-through businesses; repealing the Alternative Minimum Tax (AMT) and estate tax; repealing the 3.8% investment surtax from the Affordable Care Act (“Obamacare”); moving to a territorial tax system; and imposing a one-time tax on money held overseas.

The plan also includes some vaguer proposals, including “providing tax relief for families with child and dependent care expenses” and eliminating “targeted tax breaks that mainly benefit the wealthiest taxpayers.” Although the framework itself is vague on the latter, at their press conference Secretary of the Treasury Steven Mnuchin and National Economic Director Gary Cohn seemed to imply it meant repealing all individual deductions unrelated to savings, charitable giving, or mortgage interest (revenue would come mostly from repealing the state and local tax deduction). Even with the detailed portions of the plan, there are not enough parameters specified to provide a certain revenue estimate of the tax plan. But making some assumptions based on prior proposals, our best rough estimate suggests the specified parts of the plan would cost $5.5 trillion. Assuming tax break limits only apply only to higher earners, that cost could be as high as $7 trillion; assuming credits and exclusions are eliminated as well as deductions, it would cost $3 trillion.

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“..as much as 91 cents on the dollar went to share repurchases, even though that, along with compensation increases, was an expressly prohibited use by Congress.”

What Happened Last Time US Companies Got A Break On Overseas Profits (CNBC)

The Trump administration wants to give companies a break on profits earned overseas and brought back to the United States — a program that’s been tried before to little effect. Current estimates put the total stockpile that U.S firms are holding abroad so as to avoid U.S. taxes at somewhere in the $2.5 trillion range. Back in 2004, Congress approved a plan to “repatriate” such overseas funds that companies could bring back home at a reduced rate. The program was part of the American Jobs Creation Act. The hope then, as now, was that companies would shovel that money back into the economy in the form of investment and job creation. It didn’t quite work out that way. Contrary to the intent, the benefits skewed toward a select few companies in a select few industries.

Rather than use the money for hiring and capital purchases, companies plowed the cash into share buybacks and dividends, and many of the biggest beneficiaries actually cut American jobs in the years after the repatriation. “While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment,” the Congressional Research Service, Congress’ nonpartisan think tank, said in a report. The CRS cited a series of reports into the benefits of repatriation, with a common theme that the 2004 program was “an ineffective means of increasing economic growth.” In the 2004 case, 9,700 companies were eligible to take part in a tax holiday that would bring the overseas cash back at a rate of 5.25%, well below the 35% rate for profits earned abroad.

Of that group, 843 firms participated. They brought home $312 billion in qualified earnings, or about one-third of the total cash held overseas, according to the CRS. That translated into total deductions of $265 billion. [..] In the 2005-06 time frame, Pfizer, which repatriated $37 billion, slashed 10,000 jobs. Merck, which brought back $15.9 billion, cut 7,000 jobs, and HP pared its employment rolls by 14,500 after repatriating $14.5 billion. Most of the money went to repairing balance sheets and rewarding shareholders, according to the CRS. According to one study cited, as much as 91 cents on the dollar went to share repurchases, even though that, along with compensation increases, was an expressly prohibited use by Congress.

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Once was a nice country.

New Zealand Plans Spending Splurge to Keep ‘Growing Like Sydney’ (BBG)

New Zealand’s government announced plans to substantially increase infrastructure spending to help sustain economic growth and cope with a swelling population. In its May 25 budget, the government will allocate NZ$11 billion ($7.6 billion) in additional spending on infrastructure like schools, roads, hospitals and housing between 2017 and 2020, Finance Minister Steven Joyce said in a speech in Wellington Thursday. When added to already-planned investments, a total of around NZ$23 billion would be spent over the four-year period, representing “the biggest addition to the government’s capital stock in decades,” he said. New Zealand’s economy is among the fastest-growing in the developed world, expanding at around 3% a year, and the government predicts rising budget surpluses.

Growth is being driven in part by record immigration and fewer New Zealanders seeking work abroad, which is straining infrastructure. “As a country we are now growing a bit like South-East Queensland or Sydney, when in the past we were used to growing in fits and starts,” Joyce said. “That’s great because we used to send our kids to South-East Queensland and Sydney to work, and now they come back here.” Details of the first tranche of spending would be unveiled in the budget, and Joyce said the government wants to make greater use of public-private partnerships and joint ventures to boost infrastructure further.

[..] The government will aim to cut net debt to 10-15% of GDP by 2025, from an estimated 24.3% at June 30 this year. Its current target is to reduce net debt to 20% of GDP by 2020. Joyce said the government borrowed heavily to help the country through the global financial crisis and a devastating earthquake in Christchurch in 2011. “Shocks can come along at any time, and sometimes they come in pairs,” he said. “We are a geologically young country, and we are also a small country in an often turbulent world – so there are plenty of shocks ahead of us.”

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“I just want any example of Russia spreading fake news, just show me one example.. I can present you tons, dozens, billions of examples of Western media spreading false news about Russia..”

Russian Spokeswoman On ‘Ridiculous’ Airstrikes In Syria, Fake News (Y!)

Recent U.S. airstrikes against Syria were “ridiculous,” according to Russian Foreign Ministry spokesperson Maria Zakharova. In a blunt, at times contentious, interview with Yahoo Global News Anchor Katie Couric, Zakharova called the strikes “unacceptable” and said they violated international law and made no military or political sense. “They brought the situation nowhere,” she said. She went on to say that the goal of the West to oust Syrian President Bashar Assad is “not a way out, it is a dead end.” When pressed on whether Assad was responsible for the chemical attacks that led to the U.S. military action, she said, “Our decisions should be based on real evidence,” detailing Russia’s desire to have independent investigators determine blame.

She pointed to U.S. claims in 2003 that Iraq had weapons of mass destruction, which later turned out to be false. “That was the worst thing that happened to the Security Council, to the United States, to the Middle East region,” Zakharova said. The wide-ranging, exclusive conversation began with Zakharova objecting to Couric’s characterization of the Russian government as a “regime.” “I think if a president is elected by the people of his country, it’s not about being a regime, it’s about being a democracy,” she said. Zakharova said that relations between the U.S. and Russia began to deteriorate during the Obama administration, in part because of what she called “fake news” reports about her country that were disseminated during those years.

“What I’m facing today is, the main role of the media is to separate people (in order) to divide the world into separate parts. I think it’s dangerous.” She dismissed claims from American and European intelligence officials that, in actuality, Russia is disseminating fake news to achieve its geopolitical goals. “I just want any example of Russia spreading fake news, just show me one example,” she said. “I can present you tons, dozens, billions of examples of Western media spreading false news about Russia,” she told Couric.

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Germany forces Greece to take measures that are illegal under German law. Both are -equal- members of an economic union.

German Court Upholds Greek Teacher’s Case Against Pay Cut (AP)

A German federal court has upheld a complaint by a teacher at a Greek school in Germany against a pay cut that the Greek government imposed at the height of the country’s financial crisis. The teacher, a Greek citizen, works at a Greek government-run school in Nuremberg but his contract is subject to German law. He sued after his pay was cut in 2010. A lower court granted his demand for some €20,000 ($21,780) in extra pay for Oct. 2010-Dec. 2012 — the amount by which his salary was lowered. The Federal Labor Court said Wednesday it has rejected a Greek appeal against that ruling. It ruled that Greek austerity legislation isn’t directly applicable on German territory and that Greece doesn’t have legal immunity over the labor contract.

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Apr 252017
 
 April 25, 2017  Posted by at 7:59 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Pablo Picasso Self portrait 1972

 

Trump Slaps 20% Duty on Canada Lumber, Intensifying Trade Fight (BBG)
Trump Summons Entire Senate To White House Briefing On North Korea (G.)
Trump Advisers To Lay Out Tax Plan For Top Republicans Tuesday (BBG)
The Oil Market Has One Big Problem: People Aren’t Buying Enough Gas (CNBC)
Canadians’ Confidence In Housing Hits Record High (HPoC)
Housing’s Echo Bubble Now Exceeds the 2006-07 Bubble Peak (CHSmith)
Bubble, Bubble, Toil And Trouble: Ultra-Low Mortgage Rates Are Dangerous (G.)
Rising Defaults In China Reveal Hidden Debt (BBG)
China Markets Reel as $1.7 Trillion in Shadow Funds Unwinds (BBG)
Naked Selfies Used As Collateral For Chinese Loans (AFP)
Italy Is the Euro-Area’s Swaps Loser Facing $9 Billion Bill (BBG)
Ontario To Pay Guaranteed Incomes To The Poor (AFP)
Kim Dotcom Wants FBI Director Comey Questioned By New Zealand Police (IBT)
At Least 16 Refugees Drown as Boat Sinks off Greece’s Lesbos (R.)

 

 

They’ve been doing this forever: “..the fight is the “longest-running battle since the Trojan War.”

Trump Slaps 20% Duty on Canada Lumber, Intensifying Trade Fight (BBG)

U.S. President Donald Trump intensified a trade dispute with Canada, slapping tariffs of up to 24% on imported softwood lumber in a move that drew swift criticism from the Canadian government, which vowed to sue if needed. Trump announced the new tariff at a White House gathering of conservative journalists, shortly before the Commerce Department said it would impose countervailing duties ranging from 3% to 24.1% on Canadian lumber producers including West Fraser Timber. “We’re going to be putting a 20% tax on softwood lumber coming in – tariff on softwood coming into the United States from Canada,” Trump said Monday, according to a tweet by Charlie Spiering at Breitbart News. A White House official confirmed the comment.

The step escalates an economic battle among neighboring countries that normally have one of the friendliest international relationships in the world. U.S. Commerce Secretary Wilbur Ross amplified Trump’s remarks in a statement afterward that also referenced a fight over a new Canadian milk policy that U.S. producers say violates Nafta. “It has been a bad week for U.S.-Canada trade relations,” Ross said, adding “it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States.” He said the Commerce Department “determined a need” because of unfair Canadian subsidies to the lumber industry to impose “countervailing duties of roughly one billion dollars.” In a dig at NAFTA, which Trump has said he wants to renegotiate, Ross added, “This is not our idea of a properly functioning Free Trade Agreement.”

[..] The so-called countervailing duties, which counter what the U.S. considers Canadian subsidies, came in below some analyst expectations. CIBC analyst Hamir Patel forecast the initial combined countervailing and anti-dumping duties could reach 45 to 55%, he said in an April 23 note. The U.S. may also apply anti-dumping duties if it determines Canadian firms are selling for below costs. That decision is expected in June. “It definitely could’ve been a heck of a lot worse,” Kevin Mason at ERA Forest Products Research said by phone. “I think a lot of people were bracing for a higher duty.”

[..] Most of the softwood in Canada is owned by provincial governments, which set prices to cut trees on their land, while in the U.S. it’s generally harvested from private property. The fees charged by Canadian governments are below market rates, creating an unfair advantage, U.S. producers say. Canada disputes that. Robert Lighthizer, Trump’s nominee to be the next U.S. Trade Representative, said at his confirmation hearing last month that he views the lumber dispute as the top trade issue between the U.S. and Canada. Oregon Democratic Senator Ron Wyden told Lighthizer the fight is the “longest-running battle since the Trojan War.”

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Huffin’-and-a-puffin’.

Trump Summons Entire Senate To White House Briefing On North Korea (G.)

The entire US Senate will go to the White House on Wednesday to be briefed by senior administration officials about the brewing confrontation with North Korea. The unusual briefing underlines the urgency with which the Trump administration is treating the threat posed by Pyongyang’s continuing development of nuclear weapons and missile technology. It follows a lunch meeting Trump held with ambassadors from UN member states on the security council on Monday where he emphasised US resolve to stop North Korea’s progress. “The status quo in North Korea is unacceptable and the council must be prepared to impose additional and stronger sanctions on North Korean nuclear and ballistic missile programs,” Trump said at the meeting. “North Korea is a big world problem, and it’s a problem we have to finally solve.”

On Friday the US secretary of state, Rex Tillerson, is due to chair a security council foreign ministers’ meeting on the issue in New York, at which the state department said he would call once more for the full implementation of existing UN sanctions or new measures in the event of further nuclear or missile tests. “This meeting will give the security council the opportunity to discuss ways to maximise the impact of existing security council measures and to show their resolve to response further provocations with appropriate new measures,” said Mark Toner, state department spokesman. Senators are to be briefed by the defence secretary, James Mattis, and Tillerson on Wednesday. Such briefings for the entire senate are not unprecedented but it is very rare for them to take place in the White House, which does not have large secure facilities for such classified sessions as Congress.

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Not going to be easy. Trump’s too desperate to get a deal done.

Trump Advisers To Lay Out Tax Plan For Top Republicans Tuesday (BBG)

President Donald Trump will call for cutting taxes for individuals and lowering the corporate rate to 15% to fulfill a promise he made during his campaign, according to a White House official. The president on Wednesday plans to make public the broad outlines of what he wants to change in the tax code, though the details likely will be left until later negotiations among congressional leaders and officials from Treasury. Trump’s top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin will brief House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the leaders of congressional tax-writing committees – House Ways and Means Committee Chairman Kevin Brady and Senate Finance Committee Chairman Orrin Hatch.

While Trump and Ryan broadly agree on sharply cutting individual income and corporate taxes, there are areas of disagreement between the two. On the campaign, Trump called for a corporate tax rate of 15%; Ryan wants 20%, and he has warned that cutting it an additional 5 percentage points could prevent the ultimate tax plan from being revenue neutral. Without Democratic support, a plan would have to be revenue neutral to meet the criteria set by lawmakers to make tax changes permanent. “I’m not sure he’s going to be able to get away with that,” Hatch told reporters Monday. “You can’t very well balance the budget that way.”

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Demand goes down because people have less money to spend. All the rest is humbug.

The Oil Market Has One Big Problem: People Aren’t Buying Enough Gas (CNBC)

Lackluster gasoline demand is once again raising concerns that the oil market won’t be able to escape the doldrums. Demand for U.S. gasoline has recovered since January, but remained below 2016 levels throughout much of this year. Now, analysts are worried weak consumption will cause gasoline stockpiles to keep building and eventually result in weaker crude oil demand and pricing. U.S. gasoline futures were down more than 1% on Monday, reflecting demand concerns as refiners emerge from the winter maintenance season and prepare to turn out more fuel. Meanwhile, U.S. crude settled 39 cents lower at $49.23, extending last week’s deep losses. “As gas prices drop, that creates an undertow for the entire crude oil market,” said Tom Kloza, global head of energy analysis at Oil Price Information Service.

Part of the problem is a tough comparison with extraordinarily low gasoline prices last year. The national average gasoline price on Monday was nearly 28 cents above last year’s level, according to GasBuddy.com. “I’m in the camp that says last year was a little bit of the anomaly,” Kloza said. “Gas was so cheap that we drove a little bit more almost capriciously. This year, I just don’t think it’s going to happen.” In a troubling sign, the nation’s gasoline station operators have reported at industry conferences that their sales are down 1.5 to 2% this year, according to Andy Lipow, president of Lipow Oil Associates. “When you hear retailers telling you that their demand is down you’ve got to be a believer,” he told CNBC. Lipow said he fears that trend will carry through for the balance of 2017. Demand is certain to rise as the summer driving season ramps up, but Lipow sees stockpiles remaining relatively high.

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Stark raving madness. A housing market that is rising at ‘only’ 9.5% per year is labeled ‘rational’.

Canadians’ Confidence In Housing Hits Record High (HPoC)

The experts are getting louder in their warnings that a housing bubble has formed in some parts of Canada, but Canadians don’t seem worried. In fact, confidence in the housing market hit a record high in the latest weekly Bloomberg-Nanos index — even as respondents turned negative on their own personal finances. The survey found 48.5% of Canadians expect house prices to rise in the next six months, the highest level recorded in the survey since 2008. Fewer than 11% expect to see house prices decrease. “Bullish sentiment on real estate in Canada continues to drive consumer confidence,” pollster Nik Nanos said in a statement. “Household expectations have improved by roughly 10% since the start of the year as the effects of the oil price shock have stabilized and the focus has moved toward rising property values,” Bloomberg economist Robert Lawrie said.

“In recent weeks, however, consumer sentiment regarding personal finances began drifting lower, with extended household balance sheets perhaps the next focus of concern for policymakers.” High debt levels are precisely why many market observers are growing concerned about Canada’s priciest housing markets, namely the Toronto and Vancouver regions. House prices in Toronto jumped 33% in March from a year earlier, to an average of $916,567. While Vancouver’s house prices have moderated over the past six months, they remain elevated, with the benchmark price at $919,300 in March.

National Bank of Canada, which co-publishes the Teranet house price index, warned recently that “irrational exuberance” may be setting into some Canadian housing markets, noting that more than half of Canada’s regional markets are seeing price growth above 10% annually. With mortgages ballooning, Canadian household debt has repeatedly hit record highs in recent years, and now stands at $1.67 of debt for every dollar of disposable income. Those elevated debt levels are the main reason one why the Bank for International Settlements (BIS), a Geneva-based “central bank of central banks,” warned recently that Canada has the second-highest risk of a financial crisis, behind only China.

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Essential and repeated here a 1000 times: “Bubbles have a habit of overshooting on the downside when they finally burst.”

Housing’s Echo Bubble Now Exceeds the 2006-07 Bubble Peak (CHSmith)

A funny thing often occurs after a mania-fueled asset bubble pops: an echo-bubble inflates a few years later, as monetary authorities and all the institutions that depend on rising asset valuations go all-in to reflate the crushed asset class. Take a quick look at the Case-Shiller Home Price Index charts for San Francisco, Seattle and Portland, OR. Each now exceeds its previous Housing Bubble #1 peak:

It seems housing bubbles take about 5 to 6 years to reach their bubble peaks, and about half that time to retrace much or all of the gains. Bubbles have a habit of overshooting on the downside when they finally burst. The Federal Reserve acted quickly in 2009-10 to re-inflate the housing bubble by lowering interest rates to near-zero and buying over $1 trillion of mortgage-backed securities. When bubbles are followed by echo-bubbles, the bursting of the second bubble tends to signal the end of the speculative cycle in that asset class. There is no fundamental reason why housing could not round-trip to levels below the 2011 post-bubble #1 trough.

Consider the fundamentals of China’s remarkable housing bubble. The consensus view is: sure, China’s housing prices could fall modestly, but since Chinese households buy homes with cash or large down payments, this decline won’t trigger a banking crisis like America’s housing bubble did in 2008. The problem isn’t a banking crisis; it’s a loss of household wealth, the reversal of the wealth effect and the decimation of local government budgets and the construction sector. China is uniquely dependent on housing and real estate development. This makes it uniquely vulnerable to any slowdown in construction and sales of new housing. About 15% of China’s GDP is housing-related. This is extraordinarily high. In the 2003-08 housing bubble, housing’s share of U.S. GDP barely cracked 5%. Of even greater concern, local governments in China depend on land development sales for roughly 2/3 of their revenues.

If you need some evidence that the echo-bubble in housing is global, take a look at this chart of Sweden’s housing bubble. Oops, did I say bubble? I meant “normal market in action.”

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“..we may be in the latter stages of a bubble. As prices rise further and further out of reach, lenders need to find more and more ingenious tricks to keep rich people pumping their cash into an overheated market. The punch bowl has to keep going round, or the party stops.”

Bubble, Bubble, Toil And Trouble: Ultra-Low Mortgage Rates Are Dangerous (G.)

Between autumn 1977 and Christmas 1979, interest rates rose from 5% to 17%. If you were a young boomer whose biggest cost was a variable rate mortgage, that would have hurt. In 2009, by contrast, interest rates were cut to a record low of 0.5%, and stayed there for the better part of a decade. When eventually they did move again, it was down. You don’t know you’re born. Except, of course, you do – because, if you’re reading this and you’re under 40, there’s a pretty good chance you’re still stuck paying rent. Yes, interest rates are low; no, this is not particularly helpful. Even if you do have a mortgage, it’s probably a fixed rate one because, let’s be honest, those rates are going up again one day. But not, it seems, today. The Yorkshire Building Society has just launched a new mortgage that charges an interest rate of just 0.89%. “We are very pleased to offer borrowers the lowest mortgage rate ever available,” said a spokesman.

“The cost of funding has fallen in recent weeks and, as a financially strong building society with no external shareholders to satisfy, we have the ability to pass this on to borrowers.” (“We used to dream of mortgages at under 1%,” say the boomers.) So does that means that owning a home is now cheaper than it’s ever been? Well, no, of course not. For one thing, this isn’t a fixed rate deal. It’s actually a (bear with me on this) two-year-long discount of 3.85% to the standard variable rate (SVR) of 4.74%. That means it’s very, very unfixed indeed: a normal tracker mortgage moves in response to Bank of England rates; an SVR one moves in response to the lender’s whims. Accepting this mortgage means placing a bet that the Yorkshire Building Society will be nice to you. It also comes with an unusually high arrangement fee of £1,495, but this shouldn’t bother you, because you probably can’t get that rate anyway. To even be considered, you need a deposit worth 35% of the value of your home.

[..] But there’s another, more sinister, reading of the recent rash of ultra-low mortgage rates: it suggests we may be in the latter stages of a bubble. As prices rise further and further out of reach, lenders need to find more and more ingenious tricks to keep rich people pumping their cash into an overheated market. The punch bowl has to keep going round, or the party stops. But bubbles tend to burst. Prices can’t rise forever: one day, interest rates must surely rise. When the inevitable happens, there is a danger that those who took advantage of this deal may find their equity wiped out – and the rate they’re paying will shoot through the roof.

That would obviously be very sad for those who are affected; for those shut out of home ownership, though, it may be no bad thing. That’s because nine years of record-low interest rates have probably contributed to the fact that house prices have soared out of reach; and higher prices have meant increasingly unattainable deposits. A rise in interest rates could, paradoxically, make housing more affordable.

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Companies guaranteeing each other’s crappy debt. What could go wrong? Problem is, Beijing had let them do it for years.

Rising Defaults In China Reveal Hidden Debt (BBG)

Rising defaults in China are unearthing hidden debt at companies across the country. Small firms that can’t get loans by themselves have been winning banks over by getting other companies to guarantee their borrowings. The companies making those pledges exclude them from their balance sheets, leaving creditors in the dark. Borrowers often extend the guarantees for each other, raising the risk that failures could ricochet, at a time when increasing borrowing costs have already added to strains. China’s banking regulator has ordered checks of such cross-guaranteed loans, Caixin reported Friday. Scrutiny is mounting after a corn oil producer in the eastern province of Shandong said last month it had guaranteed debt of a neighboring aluminum product manufacturer which is now stuck in a cash crunch.

Just days before that, a local government financing vehicle in China’s southwest had to repay an auto parts maker’s loans it had guaranteed after the latter defaulted. “Disclosure of such guarantees isn’t timely,” said Qiu Xinhong at Shenzhen-based First State Cinda. “Sometimes, it’s like a buried mine and you don’t know when the risks will explode.” This debt minefield could be big. The amount of loan guarantees at privately held firms in China is equivalent to 11% of their equity, and at LGFVs is 18%, according to Citic Securities. The load is even heavier at weaker borrowers. About 44% of issuers rated lower than AA- have a ratio of more than 30%, according to Everbright Securities. The phenomenon is less common in the U.S. because banks don’t require such guarantees to offer loans, according to Fitch Ratings.

“If companies in the same region offer a huge amount of guarantees for each other’s debt, it would form a guarantee web and deepen interconnections among the companies,” said Gang Meng, director of rating at Golden Credit Rating International Co. in Beijing. “If one company has to repay debt for its guaranteed company, risks would quickly ripple to other companies in the web, which will result in a butterfly effect.” [..] Guarantors don’t mark the pledges on their balance sheets and often disclose them only on an annual basis. Such shadow debts pose rising risks after central bank tightening pushed up onshore corporate bond yields to two-year highs and defaults on local notes surged to a record.

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The distinction between state banks and shadows has become very murky.

China Markets Reel as $1.7 Trillion in Shadow Funds Unwinds (BBG)

A $1.7 trillion source of inflows into Chinese markets has suddenly switched into reverse, roiling the nation’s money management industry and sending local bonds and stocks to their biggest losses of the year. The turbulence has centered on so-called entrusted investments – funds that Chinese banks farm out to external asset managers. After years of funneling money into such investments, banks are now pulling back in response to a series of regulatory guidelines over the past three weeks that put a spotlight on the risks. Critics have blamed entrusted managers for adding leverage to China’s financial system and reducing transparency.

The banks’ withdrawals helped erase $315 billion of stock market value over the past six days and sent bond yields to the highest level in nearly two years, highlighting the challenge for Chinese authorities as they try to rein in shadow banking activity without destabilizing financial markets. While the government has plenty of firepower to prop up asset prices if it wants to, forecasters at Australia & New Zealand Banking predict the selloff will deepen this year. “We are seeing an exodus of funds,” said He Qian at HFT Investment Management, which oversaw about 189 billion yuan ($27.5 billion) as of last year. He was one of about half-a-dozen asset managers and analysts who said banks have started scaling back their entrusted investments.

The arrangements have become an important part of China’s shadow finance system. When banks sell wealth-management products – the ubiquitous savings vehicles that offer higher yields than deposits – the firms sometimes farm out client money to entrusted managers such as hedge funds and mutual funds. The managers invest the cash in bonds, stocks and other securities, hoping to generate enough income to cover the banks’ promised returns to WMP clients – plus some extra for themselves.

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You better look good than feel good.

Naked Selfies Used As Collateral For Chinese Loans (AFP)

Hundreds of photos and videos of naked women used as collateral for loans on a Chinese online lending service have leaked onto the web, highlighting regulatory problems in the fast-growing peer-to-peer marketplace. A 10-gigabyte file posted on the internet exposed the personal details of more than 160 young women who were asked to provide the explicit material to secure money through online lending platform Jiedaibao. Launched by JD Capital in 2015, Jiedaibao allows lenders to operate anonymously but requires borrowers to reveal their real names when making transactions. Loan amounts and interest rates can be customised to meet the needs of users – often people who have a hard time accessing loans through more traditional financial institutions, like banks.

Interest on the “nude loans” reached an astonishing 30% a week, according to the Global Times newspaper. Lenders told female borrowers that if they failed to repay the loans, their nude photos would be sent to their families and friends, whose information was also required for some transactions, the article said. Material in the file put on the web last Wednesday showed some borrowers also promised to repay loans with sexual favours, according to screen captures posted on social media websites. In a statement on its official Twitter-like Weibo account, Jiedaibao said it had tracked down the accounts of several borrowers through photos and ID information circulated online and had frozen the suspected lenders’ accounts. “The ‘nude loans’ deals were mainly initiated and completed offline, and Jiedaibao only played the role of a money transfer platform in the deals,” the statement said.

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Derivatives used this way are instruments of massive wealth destruction. Why use different rates for each side of the deal? “..the Italian Treasury “usually pays a flow anchored to a fixed rate, while receiving one indexed to the 6-month Euribor rate..”

Italy Is the Euro-Area’s Swaps Loser Facing $9 Billion Bill (BBG)

Derivatives burdened Italy’s public debt again last year for a record amount of €8.3 billion ($9 billion), making the country the biggest swaps loser in the euro region. Losses related to swaps held by the nation added €4.25 billion to the country’s debt while net liabilities’ burden totaled €4.07 billion, based on data released Monday by EU statistics office Eurostat. In the 2012-2016 period, the burden totaled €29.6 billion, also a euro-area record. Italy’s derivative-related losses and net liabilities were higher than those for the whole euro region combined both in 2016 and in the five-year period as some countries actually saw the swaps helping to alleviate their debts. Governments across the euro region have used derivatives to manage their debt-financing costs and to hedge against sudden changes in rates and excessive exchange-rate volatility.

Those deals have sometimes backfired with the effect of pushing nations’ debts even higher. In the existing interest-rate swaps the Italian Treasury “usually pays a flow anchored to a fixed rate, while receiving one indexed to the 6-month Euribor rate,” the government said earlier this month in an annex to its annual Economic and Financial Document. Since starting from November 2015, the Euribor stayed negative and the impact on the flow indexed to that rate was that the Treasury had to pay money to its counterparts, instead of being paid by them, the document also said. Italy’s public debt rose last year to €2.2 trillion, or 132.6% of the country’s GDP, Eurostat said in a separate report on Monday.

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it’s important to get it right.

Ontario To Pay Guaranteed Incomes To The Poor (AFP)

Ontario has launched a pilot program to provide a guaranteed basic income to a few thousand people to test its effects on recipients and public finances, the Canadian province announced on Monday. Provincial premier Kathleen Wynne said the program would provide a “basic income” for three years to 4,000 people living under the poverty line. “We want to find out whether a basic income makes a positive impact in people’s lives,” Ms Wynne said, adding that “everyone should benefit from Ontario’s economic growth.” Income support payments will be as high as Can$16,989 (£9,800) a year for an individual, or Can$24,027 for a couple, plus an additional Can$6,000 for the disabled.

The figures will be reduced for those holding part-time jobs – they will receive 50 cents less for each dollar earned. As a concrete example, a single person with a yearly salary of Can$10,000 will receive an additional payment of Can$11,989. The 4,000 participants, aged 18 to 65, have been chosen at random in three cities: Hamilton and Lindsay in the Toronto suburbs and Thunder Bay in the province’s west. The province estimates the cost of the program at Can$50 million a year. Ontario is the most heavily populated Canadian province, with 38% of the country’s 36.5 million inhabitants. 13% of Ontario residents live below the poverty line, according to Statistics Canada.

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What the FBI did has already been declared illegal in New Zealand courts.

Kim Dotcom Wants FBI Director Comey Questioned By New Zealand Police (IBT)

FBI Director James Comey is currently in New Zealand and if Kim Dotcom has his way, Comey could find himself being questioned by the New Zealand police. The internet entrepreneur, who is wanted by the United States on multiple charges including fraud and copyright infringement, filed a complaint with the police Tuesday against the FBI director for what Dotcom called theft of his data by the agency. The alleged theft happened when the police raided Dotcom’s home Jan. 20, 2012, as part of investigations instigated by the U.S. The charges against him are based on the now-defunct website Megaupload that he operated, where users could share content with each other.

Some of that content was illegal to share, but according to New Zealand laws, internet service providers are not held responsible for the actions of their users. In his complaint Tuesday, Dotcom’s lawyer urged the police to urgently question Comey, who is in New Zealand for a conference. The grounds for the complaint are that the FBI received copies of data that was taken from Dotcom’s home during the 2012 raid, an act which courts in the country have held to be illegal, according to the complaint.

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The value you put on someone else’s life inevitably becomes the value of your own life.

At Least 16 Refugees Drown as Boat Sinks off Greece’s Lesbos (R.)

At least 16 people, including two children, drowned after an inflatable boat carrying refugees and migrants sank off Greece’s Lesbos island, authorities said on Monday. They are believed to be the first confirmed deaths in Greek waters this year of migrants or refugees making the short but dangerous crossing from Turkey on overcrowded rubber dinghies. Nine bodies were recovered in Greek territory and another seven in Turkish waters, Greek and Turkish coastguard officials said. Two survivors have been rescued. The two women, one of whom is pregnant, told the United Nations refugee agency UNHCR that 20 to 25 people were on board when the dinghy capsized around 1900 GMT on Sunday. The women are from Cameroon and the Democratic Republic of Congo.

Though fewer than 10 nautical miles separate Lesbos from Turkish shores, hundreds of people have drowned trying to make the crossing since Europe’s refugee crisis began in 2015. In that year, Lesbos was the main gateway into the European Union for nearly a million Syrians, Iraqis and Afghans. But a deal in March 2016 between the EU and Ankara has largely closed that route. Just over 4,800 people have crossed to Greece from Turkey this year, according to UNHCR data. An average of 20 arrive on Greek islands each day. “The number of people crossing the Aegean to Greece has dropped drastically over the past year, but this tragic incident shows that the dangers and the risk of losing one’s life remains very real,” said Philippe Leclerc, UNHCR Greece representative.

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