Oct 142017
 
 October 14, 2017  Posted by at 9:12 am Finance Tagged with: , , , , , , , , ,  2 Responses »


Georgia O’Keeffe Manhattan 1932

 

Central Bankers Use Moment of Calm to Debate How to Fight the Next Crisis (DJ)
BOJ’s Kuroda Says No Signs Of Excesses Building In Markets (R.)
What Keeps Poor Americans From Moving (Atlantic)
Prepare for a Chinese Maxi-Devaluation (Rickards)
The Cost of Missing the Market Boom Is Skyrocketing (BBG)
Are You Better Off Than You Were 17 Years Ago? (CH Smith)
As Crisis At Kobe Steel Deepens, CEO Says Cheating Engulfs 500 Firms (R.)
Worse Than Big Tobacco: How Big Pharma Fuels the Opioid Epidemic (Parramore)
Tesla Fired Hundreds Of Employees In Past Week (R.)
No-Deal Brexit: It’s Already Too Late (FCFT)
‘They Have To Pay’, EU’s Juncker Says Of Britain (R.)
EU Intervention In Catalonia Would Cause Chaos – Juncker (G.)
Blade Runner 2049: Not The Future (Kunstler)

 

 

This really is the firefighter setting his own house on fire so he can play the hero. There’s often talk of central bankers taking away the punch bowl, but we need to take away the punch bowl from them. Urgently.

Central Bankers Use Moment of Calm to Debate How to Fight the Next Crisis (DJ)

Central bankers, basking in a moment of synchronized growth and a global economy less dependent on easy-money policies, are thinking about what they will do when the next economic meltdown happens. ECB President Mario Draghi said Thursday that central banks might need to reuse some of the weapons employed to fight the last war, most notably negative interest rates. Federal Reserve and ECB officials, who are gathered in Washington for the fall meetings of the IMF and World Bank, are using a tranquil period to debate the type of monetary policies central banks might pursue. The world’s two most influential central banks signaled no shifts in strategy – in the Fed’s case, to raise rates gradually and shrink its bond portfolio, and in the ECB’s, to announce a slowdown of its bond-purchase program as soon as its next policy meeting on Oct. 26.

But while current policies are stepping away from the bond-purchase programs known as quantitative easing, central bankers are opening the door for a future that could include more negative interest rates and periods of higher inflation following recession. The discussions are still largely hypothetical. Ever since the global financial crisis of 2007-09, central bankers have wished for more moments when they could gather in calm and openly spitball monetary policy ideas without the risk of derailing recovery. That moment has finally arrived. Mr. Draghi said that negative interest rates, an untested policy for the ECB until 2014, had been a success, and that the decision to push the ECB’s target rate into negative territory hadn’t hurt bank profitability as critics suggested it would.

“We haven’t seen the distortions that people were foreseeing,” Mr. Draghi said at the Peterson Institute for International Economics in Washington. “We haven’t seen bank profitability going down; in fact, it is going up.” Mr. Draghi reiterated that the ECB would maintain its negative target rate “well past” the time it steps back from its bond-purchase program, underscoring growing comfort in the negative-rate strategy. And while Mr. Draghi endorsed negative rates, current and former Fed officials engaged in an unusually open discussion about changing the target for 2% inflation. That discussion was kicked off by former Federal Reserve Chairman Ben Bernanke, who presented a paper Thursday morning at the Peterson Institute arguing the Fed could overshoot its target for 2% inflation to make up for periods of recession in which inflation ran too low.

Read more …

And this is just pure insanity.

BOJ’s Kuroda Says No Signs Of Excesses Building In Markets (R.)

Bank of Japan Governor Haruhiko Kuroda said on Friday he did not see any signs of bubbles or excesses building up in U.S., European and Japanese markets as a result of heavy money printing by their central banks. Kuroda also dismissed some analysts’ criticism that the BOJ’s purchases of exchange-traded funds (ETF) were distorting financial markets or dominating Japan’s stock market. “I don’t think we have a very big share” of Japan’s total stock market capitalisation, he told reporters after attending the Group of 20 finance leaders’ gathering. The IMF painted a rosy picture of the global economy in its World Economic Outlook earlier this week, but warned that prolonged easy monetary policy could be sowing the seeds of excessive risk-taking.

Kuroda said that while policymakers should not be complacent about their economies, he did not see huge risks materializing as a result of their policies. Although major central banks deployed massive stimulus programmes to battle the global financial crisis, they have always scrutinized whether their policies were causing excessive risk-taking, he said. “I don’t think we’re seeing excesses building up and emerging as a big risk,” Kuroda said, adding that recent rises in global stock prices reflected strong corporate profits in Japan, the United States and Europe. He added that Japan’s economy was on track for a steady recovery that will likely gradually push up inflation and wages. “I don’t see any big risk for Japan’s economy. But there could be external risks, such as geopolitical ones, so we’re watching developments carefully,” he said.

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Bubbles shape (distort) the space around them. It’s like a miniature version of Einstein’s gravitational waves.

What Keeps Poor Americans From Moving (Atlantic)

Seccora Jaimes knows that she is not living in the land of opportunity. Her hometown has one of the highest unemployment rates in the nation, at 9.1%. Jaimes, 34, recently got laid off from the beauty school where she taught cosmetology, and hasn’t yet found another job. Her daughter, 17, wants the family to move to Los Angeles, so that she can attend one of the nation’s top police academies. Jaimes’s husband, who works in warehousing, would make much more money in Los Angeles, she told me. But one thing is stopping them: The cost of housing. “I don’t know if we could find a place out there that’s reasonable for us, that we could start any job and be okay,” she told me. Indeed, the average rent for a two-bedroom apartment in Merced, in California’s Central Valley, is $750. In Los Angeles, it’s $2,710.

America used to be a place where moving one’s family and one’s life in search of greater opportunities was common. During the Gold Rush, the Depression, and the postwar expansion West millions of Americans left their hometowns for places where they could earn more and provide a better life for their children. But mobility has fallen in recent years. While 3.6% of the population moved to a different state between 1952 and 1953, that number had fallen to 2.7% between 1992 and 1993, and to 1.5% between 2015 and 2016. (The share of people who move at all, even within the same county, has fallen too, from 20% in 1947 to 11.2% today.) Of course, it wasn’t simply “moving” that mattered—it was that they moved to specific areas that were growing.

When farming jobs were plentiful in the Midwest, for example, people moved there—in 1900, states including Iowa and Missouri were more populous than California. Black men who moved from to the North from the South earned at least 100% more than those who stayed, according to work by Leah Platt Boustan, an economist at Princeton. Additionally, for most of the 20th century, both janitors and lawyers could earn a lot more living in the tri-state area of New York, New Jersey, and Connecticut than they could living in the Deep South, so many people moved, according to Peter Ganong, an economist at the University of Chicago. With less labor supply in the regions that they left, wages would then increase there, and fall in the regions they were moving to, as the supply of workers increased.

As a result, for more than 100 years, the average incomes of different regions were getting closer and closer together, something economists call regional income convergence. Wages in poorer cities were growing 1.4% faster than wages in richer cities for much of the 20th century, according to Elisa Giannnone, a post-doctoral fellow at Princeton. But over the past 30 years, that regional income convergence has slowed. Economists say that is happening because net migration—the tendency of large numbers of people to move to a specific place—is waning, meaning that the supply of workers isn’t increasing fast enough in the rich areas to bring wages down, and isn’t falling fast enough in the poor areas to bring wages up.

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Well argued.

Prepare for a Chinese Maxi-Devaluation (Rickards)

In August 2015, China engineered a sudden shock devaluation of the yuan. The dollar gained 3% against the yuan in two days as China devalued. The results were disastrous. U.S. stocks fell 11% in a few weeks. There was a real threat of global financial contagion and a full-blown liquidity crisis. A crisis was averted by Fed jawboning, and a decision to put off the “liftoff” in U.S. interest rates from September 2015 to the following December. China conducted another devaluation from November to December 2015. This time China did not execute a sneak attack, but did the devaluation in baby steps. This was stealth devaluation. The results were just as disastrous as the prior August. U.S. stocks fell 11% from January 1, 2016 to February 10. 2016. Again, a greater crisis was averted only by a Fed decision to delay planned U.S. interest rate hikes in March and June 2016. The impact these two prior devaluations had on the exchange rate is shown in the chart below.


Major moves in the dollar/yuan cross exchange rate (USD/CNY) have had powerful impacts on global markets. The August 2015 surprise yuan devaluation sent U.S. stocks reeling. Another slower devaluation did the same in early 2016. A stronger yuan in 2017 coincided with the Trump stock rally. A new devaluation is now underway and U.S. stocks may suffer again.

[..] China escaped the impossible trinity in 2015 by devaluing their currency. China escaped the impossible trinity again in 2017 using a hat trick of partially closing the capital account, raising interest rates, and allowing the yuan to appreciate against the dollar thereby breaking the exchange rate peg. The problem for China is that these solutions are all non-sustainable. China cannot keep the capital account closed without damaging badly needed capital inflows. Who will invest in China if you can’t get your money out? China also cannot maintain high interest rates because the interest costs will bankrupt insolvent state owned enterprises and lead to an increase in unemployment, which is socially destabilizing. China cannot maintain a strong yuan because that damages exports, hurts export-related jobs, and causes deflation to be imported through lower import prices. An artificially inflated currency also drains the foreign exchange reserves needed to maintain the peg.

[..] Both Trump and Xi are readying a “gloves off” approach to a trade war and renewed currency war. A maxi-devaluation of the yuan is Xi’s most potent weapon. Finally, China’s internal contradictions are catching up with it. China has to confront an insolvent banking system, a real estate bubble, and a $1 trillion wealth management product Ponzi scheme that is starting to fall apart. A much weaker yuan would give China some policy space in terms of using its reserves to paper over some of these problems. Less dramatic devaluations of the yuan led to U.S. stock market crashes. What does a new maxi-devaluation portend for U.S. stocks?

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See my article yesterday: The Curious Case of Missing the Market Boom .

The Cost of Missing the Market Boom Is Skyrocketing (BBG)

Skepticism in global equity markets is getting expensive. From Japan to Brazil and the U.S. as well as places like Greece and Ukraine, an epic year in equities is defying naysayers and rewarding anyone who staked a claim on corporate ownership. Records are falling, with about a quarter of national equity benchmarks at or within 2% of an all-time high. “You’ve heard people being bearish for eight years. They were wrong,” said Jeffrey Saut, chief investment strategist at St. Petersburg, Florida-based Raymond James Financial Inc., which oversees $500 billion. “The proof is in the returns.” To put this year’s gains in perspective, the value of global equities is now 3 1/2 times that at the financial crisis bottom in March 2009.

Aided by an 8% drop in the U.S. currency, the dollar-denominated capitalization of worldwide shares appreciated in 2017 by an amount – $20 trillion – that is comparable to the total value of all equities nine years ago. And yet skeptics still abound, pointing to stretched valuations or policy uncertainty from Washington to Brussels. Those concerns are nothing new, but heeding to them is proving an especially costly mistake. Clinging to such concerns means discounting a harmonized recovery in the global economy that’s virtually without precedent — and set to pick up steam, according to the IMF. At the same time, inflation remains tepid, enabling major central banks to maintain accommodative stances. “When policy is easy and growth is strong, this is an environment more conducive for people paying up for valuations,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley.

“The markets are up in line with what the earnings have done, and stronger earnings helped drive a higher level of enthusiasm and a higher level of risk taking.” The numbers are impressive: more than 85% of the 95 benchmark indexes tracked by Bloomberg worldwide are up this year, on course for the broadest gain since the bull market started. Emerging markets have surged 31%, developed nations are up 16%. Big companies are becoming huge, from Apple to Alibaba. Technology megacaps occupy all top six spots in the ranks of the world’s largest companies by market capitalization for the first time ever. Up 39% this year, the $1 trillion those firms added in value equals the combined worth of the world’s six-biggest companies at the bear market bottom in 2009. Apple, priced at $810 billion, is good for the total value of the 400 smallest companies in the S&P 500.

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“If we define “winning the war” by counting dead bodies, then the dead bodies pile up like cordwood.”

Are You Better Off Than You Were 17 Years Ago? (CH Smith)

If we use GDP as a broad measure of prosperity, we are 160% better off than we were in 1980 and 35% better off than we were in 2000. Other common metrics such as per capita (per person) income and total household wealth reflect similarly hefty gains. But are we really 35% better off than we were 17 years ago, or 160% better off than we were 37 years ago? Or do these statistics mask a pervasive erosion in our well-being? As I explained in my book Why Our Status Quo Failed and Is Beyond Reform, we optimize what we measure, meaning that once a metric and benchmark have been selected as meaningful, we strive to manage that metric to get the desired result. Optimizing what we measure has all sorts of perverse consequences. If we define “winning the war” by counting dead bodies, then the dead bodies pile up like cordwood.

If we define “health” as low cholesterol levels, then we pass statins out like candy. If test scores define “a good education,” then we teach to the tests. We tend to measure what’s easily measured (and supports the status quo) and ignore what isn’t easily measured (and calls the status quo into question). So we measure GDP, household wealth, median incomes, longevity, the number of students graduating with college diplomas, and so on, because all of these metrics are straightforward. We don’t measure well-being, our sense of security, our faith in a better future (i.e. hope), experiential knowledge that’s relevant to adapting to fast-changing circumstances, the social cohesion of our communities and similar difficult-to-quantify relationships. Relationships, well-being and internal states of awareness are not units of measurement.

While GDP has soared since 1980, many people feel that life has become much worse, not much better: many people feel less financially secure, more pressured at work, more stressed by not-enough-time-in-the-day, less healthy and less wealthy, regardless of their dollar-denominated “wealth.” Many people recall that a single paycheck could support an entire household in 1980, something that is no longer true for all but the most highly paid workers who also live in locales with a modest cost of living.

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How on earth is it possible these people still have jobs?

As Crisis At Kobe Steel Deepens, CEO Says Cheating Engulfs 500 Firms (R.)

The cheating crisis engulfing Kobe Steel just got bigger. Chief Executive Hiroya Kawasaki on Friday revealed that about 500 companies had received its falsely certified products, more than double its earlier count, confirming widespread wrongdoing at the steelmaker that has sent a chill along global supply chains. The scale of the misconduct at Japan’s third-largest steelmaker pummeled its shares as investors, worried about the financial impact and legal fallout, wiped about $1.8 billion off its market value this week. As the company revealed tampering of more products, the crisis has rippled through supply chains across the world in a body blow to Japan’s reputation as a high-quality manufacturing destination. A contrite Kawasaki told a briefing the firm plans to pay customers’ costs for any affected products.

“There has been no specific requests, but we are prepared to shoulder such costs after consultations,” he said, adding the products with tampered documentation account for about 4% of the sales in the affected businesses. Yoshihiko Katsukawa, a managing executive officer, told reporters that 500 companies were now known to be affected by the tampering. Kobe Steel initially said 200 firms were affected when it admitted at the weekend it had falsified data about the quality of aluminum and copper products used in cars, aircraft, space rockets and defense equipment. Asked if he plans to step down, Kawasaki said: “My biggest task right now is to help our customers make safety checks and to craft prevention measures.”

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“The manufacturers can now exploit their monopoly positions, created by the patents, by marketing their drugs for conditions for which they never got regulatory approval.”

Worse Than Big Tobacco: How Big Pharma Fuels the Opioid Epidemic (Parramore)

Once again, an out-of-control industry is threatening public health on a mammoth scale Over a 40-year career, Philadelphia attorney Daniel Berger has obtained millions in settlements for investors and consumers hurt by a rogues’ gallery of corporate wrongdoers, from Exxon to R.J. Reynolds Tobacco. But when it comes to what America’s prescription drug makers have done to drive one of the ghastliest addiction crises in the country’s history, he confesses amazement. “I used to think that there was nothing more reprehensible than what the tobacco industry did in suppressing what it knew about the adverse effects of an addictive and dangerous product,” says Berger. “But I was wrong. The drug makers are worse than Big Tobacco.”

The U.S. prescription drug industry has opened a new frontier in public havoc, manipulating markets and deceptively marketing opioid drugs that are known to addict and even kill. It’s a national emergency that claims 90 lives per day. Berger lays much of the blame at the feet of companies that have played every dirty trick imaginable to convince doctors to overprescribe medication that can transform fresh-faced teens and mild-mannered adults into zombified junkies. So how have they gotten away with it? The prescription drug industry is a strange beast, born of perverse thinking about markets and economics, explains Berger. In a normal market, you shop around to find the best price and quality on something you want or need—a toaster, a new car. Businesses then compete to supply what you’re looking for.

You’ve got choices: If the price is too high, you refuse to buy, or you wait until the market offers something better. It’s the supposed beauty of supply and demand. But the prescription drug “market” operates nothing like that. Drug makers game the patent and regulatory systems to create monopolies over every single one of their products. Berger explains that when drug makers get patent approval for brand-name pharmaceuticals, the patents create market exclusivity for those products—protecting them from competition from both generics and brand-name drugs that treat the same condition. The manufacturers can now exploit their monopoly positions, created by the patents, by marketing their drugs for conditions for which they never got regulatory approval. This dramatically increases sales. They can also charge very high prices because if you’re in pain or dying, you’ll pay virtually anything.

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How much longer?

Tesla Fired Hundreds Of Employees In Past Week (R.)

Luxury electric vehicle maker Tesla fired about 400 employees this week, including associates, team leaders and supervisors, a former employee told Reuters on Friday. The dismissals were a result of a company-wide annual review, Tesla said in an emailed statement, without confirming the number of employees leaving the company. “It’s about 400 people ranging from associates to team leaders to supervisors. We don’t know how high up it went,” said the former employee, who worked on the assembly line and did not want to be identified.

Though Tesla cited performance as the reason for the firings, the source told Reuters he was fired in spite of never having been given a bad review. The Palo Alto, California-based company said earlier in the month that “production bottlenecks” had left Tesla behind its planned ramp-up for the new Model 3 mass-market sedan. The company delivered 220 Model 3 sedans and produced 260 during the third quarter. In July, it began production of the Model 3, which starts at $35,000 – half the starting price of the Model S. Mercury News had earlier reported about the firing of hundreds of employees by Tesla in the past week.

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Behind closed doors, the EU is already talking to Jeremy Corbyn. But that’s too late too.

No-Deal Brexit: It’s Already Too Late (FCFT)

As things stand at the moment, eighteen months from now the UK will leave the EU without any agreement on trade regulation or tariffs, either with the EU or any of the other countries with which it currently has trade agreements. The arrangements which assure the smooth running of 60 percent of our goods trade will disappear. Once we are outside the regulatory framework, many products, particularly in highly regulated areas like agriculture and pharmaceuticals, will no longer be accredited for sale in Europe. Aeroplanes will be unable to fly to and from the EU to the UK. Those goods which can still legally be traded with the EU will face lengthy customs checks. Integrated supply chains and just-in-time manufacturing processes will be severely disrupted and, in some cases, damaged beyond repair. Unless politicians do something, that’s where we are heading.

International trade and commerce doesn’t just happen. It is facilitated by a framework of agreements on tariffs, quotas and regulations. Without these, trade is either very expensive or, in some cases, simply illegal. Therefore, if the UK were to leave the EU without concluding a trade deal, things wouldn’t simply stay the same. They would be very different and very damaging. Of course, it would be disruptive for the rest of the EU too, although it is much easier to find new suppliers and customers in a bloc of 27 countries than it is in a stand alone country with no trade deals. Even so, most of us have assumed that common sense will prevail at some point. No-one in their right mind would let such a thing happen so surely both sides will do what is necessary to between now and March 2019 to avoid it.

Incredibly, though, our government, egged on by ideologues on its own back benches, has been talking up the prospect of a no-deal Brexit, apparently as a negotiating ploy to make the EU realise that we are serious about walking away. Almost as soon as the no-deal idea was suggested, Phillip Hammond said that he was not willing to set aside any money to fund it. In any organisation, that’s a sure-fire sign of a project that’s going nowhere. If the finance director won’t even stump up the cash for the planning phase, you might as well forget the whole thing. Mr Hammond said that he would wait until “the very last moment” before committing any money to prepare for a no-deal scenario. Which means it’s not going to happen because the very last moment passed some time ago, most probably before we even had the referendum.

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“They have to pay, they have to pay, not in an impossible way.”

‘They Have To Pay’, EU’s Juncker Says Of Britain (R.)

Britain must commit to paying what it owes to the European Union before talks can begin about a future relationship with the bloc after Brexit, European Commission President Jean-Claude Juncker said on Friday. “The British are discovering, as we are, day after day new problems. That’s the reason why this process will take longer than initially thought,” Juncker said in a speech to students in his native Luxembourg. “We cannot find for the time being a real compromise as far as the remaining financial commitments of the UK are concerned. As we are not able to do this we will not be able to say in the European Council in October that now we can move to the second phase of negotiations,” Juncker said. “They have to pay, they have to pay, not in an impossible way. I‘m not in a revenge mood. I‘m not hating the British.” The EU has told Britain that a summit next week will conclude that insufficient progress has been made in talks for Brussels to open negotiations on a future trade deal.

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Summary: EU countries can use whatever force they want against their European citizens. Because anything else would threaten Brussels.

EU Intervention In Catalonia Would Cause Chaos – Juncker (G.)

The president of the European commission has spoken of his regret at Spain’s failure to follow his advice and do more to head off the crisis in Catalonia, but claimed that any EU intervention on the issue now would only cause “a lot more chaos”. Speaking to students in Luxembourg on Friday, Jean-Claude Juncker said he had told the Spanish prime minister, Mariano Rajoy, that his government needed to act to stop the Catalan situation spinning out of control, but that the advice had gone unheeded. “For some time now I asked the Spanish prime minister to take initiatives so that Catalonia wouldn’t run amok,” he said. “A lot of things were not done.” Juncker said that while he wished to see Europe remain united, his hands were tied when it came to Catalan independence.

“People have to undertake their responsibility,” he said. “I would like to explain why the commission doesn’t get involved in that. A lot of people say: ‘Juncker should get involved in that.’ “We do not do it because if we do … it will create a lot more chaos in the EU. We cannot do anything. We cannot get involved in that.” Juncker said that while he often acted as a negotiator and facilitator between member states, the commission could not mediate if calls to do so came only from one side – in this case, the Catalan government. Rajoy has rejected calls for mediation, pointing out that the recent Catalan independence referendum was held in defiance of the Spanish constitution and the country’s constitutional court. “There is no possible mediation between democratic law and disobedience or illegality,” he said on Wednesday.

Despite his refusal to intervene, however, Juncker warned the international community that the political crisis in Spain could not be ignored. “OK, nobody is shooting anyone in Catalonia – not yet at least. But we shouldn’t understate that matter, though,” he added. he commission president also spoke more generally about the fragmentation of national identities within Europe, saying he feared that if Catalonia became independent, other regions would follow. “I am very concerned because the life in communities seems to be so difficult,” he said. “Everybody tries to find their own in their own way and they think that their identity cannot live in parallel to other people’s identity. “But if you allow – and it is not up to us of course – but if Catalonia is to become independent, other people will do the same. I don’t like that. I don’t like to have a euro in 15 years that will be 100 different states. It is difficult enough with 17 states. With many more states it will be impossible.”

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“The people who deliver that way of life, and profit from it, are every bit as sincerely wishful about it as the underpaid and overfed schnooks moiling in the discount aisles. ”

Blade Runner 2049: Not The Future (Kunstler)

The original Mad Max was little more than an extended car chase — though apparently all that people remember about it is the desolate desert landscape and Mel Gibson’s leather jumpsuit. As the series wore on, both the vehicles and the staged chases became more spectacularly grandiose, until, in the latest edition, the movie was solely about Charlize Theron driving a truck. I always wondered where Mel got new air filters and radiator hoses, not to mention where he gassed up. In a world that broken, of course, there would be no supply and manufacturing chains. So, of course, Blade Runner 2049 opens with a shot of the detective played by Ryan Gosling in his flying car, zooming over a landscape that looks more like a computer motherboard than actual earthly terrain.

As the movie goes on, he gets in and out of his flying car more often than a San Fernando soccer mom on her daily rounds. That actually tells us something more significant than all the grim monotone trappings of the production design, namely, that we can’t imagine any kind of future — or any human society for that matter — that is not centered on cars. But isn’t that exactly why we’ve invested so much hope and expectation (and public subsidies) in the activities of Elon Musk? After all, the Master Wish in this culture of wishful thinking is the wish to be able to keep driving to Wal Mart forever. It’s the ultimate fantasy of a shallow “consumer” society. The people who deliver that way of life, and profit from it, are every bit as sincerely wishful about it as the underpaid and overfed schnooks moiling in the discount aisles.

In the dark corners of so-called postmodern mythology, there really is no human life, or human future, without cars. This points to the central fallacy of this Sci-fi genre: that technology can defeat nature and still exist. This is where our techno-narcissism comes in fast and furious. The Blade Runner movies take place in and around a Los Angeles filled with mega-structures pulsating with holographic advertisements. Where does the energy come from to construct all this stuff? Supposedly from something Mr. Musk dreams up that we haven’t heard about yet. Frankly, I don’t believe that such a miracle is in the offing.

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Oct 112017
 
 October 11, 2017  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  10 Responses »


Georgia O’Keeffe New York night 1929

 

Stock Record Ride ‘Has Reached Epic Proportions’ – Morgan Stanley (MW)
Janet Yellen Has Finally Come To Her Senses – Somewhat (Crudele)
Nobel Economist Thaler Says He’s Nervous About Stock Market (BBG)
Catalans Call Time Out on Independence Bid, Seek Spain Talks (BBG)
China Debt-for-Equity Swaps Turn Out More Like Debt-for-Debt (BBG)
Chinese Investors Keep Pouring Money Into Australian Housing (BBG)
Kobe Steel Shares Plunge As Data Fabrication Concerns Deepen (R.)
51 Eurozone Banks Vulnerable To Rate Shocks – ECB (R.)
Russian Central Bank To Ban Websites Offering Crypto-Currencies (R.)
Fukushima Court Rules Tepco, Government Liable Over 2011 Disaster (R.)
10% of New York City Public School Students Were Homeless Last Year (NYT)
The European Union Is Doomed to Fail (FEE)
How Labour Could Lead The Global Economy Out Of The 20th Century (G.)
I Will Make A Film Based On Adults in the Room (Costa Gavras)
Self-Harm, Suicide Attempts Rise In Greek Refugee Camps (Reuters)

 

 

You don’t say.

Stock Record Ride ‘Has Reached Epic Proportions’ – Morgan Stanley (MW)

Wall Street isn’t just in a bull market, it’s in an “epic” one. That is according to Morgan Stanley, which on Tuesday wrote that the equity market rally “has reached epic proportions.” “We say this not as hyperbole, but based on a quantitative perspective,” the investment bank explained. “Dispersions in valuations and growth rates are among the lowest in the last 40 years; stocks are at their most idiosyncratic since 2001; and equity hedge fund beta is at its highest since March 2008.” Simply from the perspective of price moves, the “epicness” of recent trading activity should come as no surprise to investors. The Dow DJIA, S&P 500 SPX, Nasdaq COMP, and Russell 2000 RUT have all hit repeated records this year alone, notching dozens of all-time highs. Those gains have been widespread and “perpetual,” to use Morgan Stanley’s description.

Only two of the 11 primary S&P 500 sectors are in negative territory for the year, and for broader indexes, even mild pullbacks of 3% have basically been nonexistent for months. Volatility is near record lows. Beta refers to a measure of an assets tendency to fluctuate compared against a benchmark like the S&P 500. [..] “While investors have at times appeared reluctant to embrace the recent rally, there is evidence from last month that risk appetites are increasing,” Morgan Stanley wrote. The investment bank noted that cyclical sectors, which are more closely correlated to the pace of economic growth, have been outperforming defensive ones, just as small-capitalization stocks have outperforming larger companies. “Momentum is now strongly correlated with high beta globally, and the presence of this cohort of investors could produce continued risk-seeking behavior,” wrote the team of analysts, led by Brian Hayes, an equity strategist.

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“The big question is whether Yellen was just misreading the data or whether the data she was reading were wrong.”

Janet Yellen Has Finally Come To Her Senses – Somewhat (Crudele)

I’ve been telling you for years that the employment data produced by the US government were misleading people into thinking the economy was performing better than it really was. Now Federal Reserve Chair Janet Yellen — finally! — agrees. Yellen, speaking before the National Association of Business Economics on Sept. 26, said, “My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective or even the fundamental forces driving inflation.” That’s what she said. Internet news sites picked up that statement, but none of the major newspapers did. And the story behind Yellen’s admission and its importance would be way over the heads of TV news anchors — so they ignored it as well.

Yet Yellen’s statement is important as heck. It means that the Fed has been screwing up in thinking that the US economy was, as Yellen has often said, near full employment. But here’s the kicker — Yellen has been overestimating the strength of the job market and underestimating the amount of inflation in the economy. The big question is whether Yellen was just misreading the data or whether the data she was reading were wrong. There will need to be years of investigation to determine that, but I’ll give you a clue now. Anyone who lives in the real world knows that the unemployment rate is far higher than the 4.2% that the Labor Department reports. And that the job growth each year — as I’ve been harping on — is mostly driven by guesstimates and adjustments made by government statisticians who apparently don’t live in the real world.

And, of course, the economy has been creating crappy-paying, benefit-lacking jobs that don’t come close to replacing the higher-quality employment that went bye-bye after the last recession. Last Friday, Labor said the jobless rate dipped in September to 4.2% from 4.4% in August — and its number crunchers also reported that 33,000 jobs were lost last month. It blamed the hurricanes. The experts were expecting the US economy to have added 100,000 new jobs despite the storms. Labor also announced that it revised August’s figures lower — from growth of 189,000 jobs to just 138,000. So instead of being reasonably good, August was blah, with nary a hurricane to blame.

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An award for not understanding?! If you ask me, the very fact that someone gets an award for ‘finding out’ that human behavior affects economies, says all you need to know about economics.

Nobel Economist Thaler Says He’s Nervous About Stock Market (BBG)

A buoyant and complacent stock market is worrying Richard H. Thaler, the University of Chicago professor who this week won the Nobel Prize in economics. “We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler said, speaking by phone on Bloomberg TV. “I admit to not understanding it.” The S&P 500 index has been reaching repeated records since President Donald Trump’s election last November amid steady growth in the U.S. economy and labor market, as well as expectations for lower taxes, though policy action in Washington has been limited. Thaler, who has made a career of studying irrational and temptation-driven actions among economic actors and won the Nobel for such contributions to behavioral economics, expressed misgivings about the low volatility and continued optimism among investors.

“I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked,” Thaler said, “Nothing seems to spook the market” and if the gains are based on tax-reform expectations, “surely investors should have lost confidence that that was going to happen.” The economist said that he didn’t know “where anyone would get confidence” that tax reform is going to happen. “The Republican leadership does not seem to be interested in anything remotely bipartisan, and they need unanimity within their caucus, which they don’t have,” Thaler said. “And the president’s strategy of systematically insulting the votes he needs doesn’t seem to be optimizing anything I can think of, but maybe he’s a deeper thinker than me.”

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Schrödinger’s State. On Wikipedia, someone last night put Catalonia at no. 1 on the List of Shortest-Lived States. At 8 seconds, which is how long the applause lasted when Puigdemont said he had the mandate, only to say right after that he would hold off on executing the mandate. Wikipedia took it down.

Catalans Call Time Out on Independence Bid, Seek Spain Talks (BBG)

Catalan President Carles Puigdemont said that he’ll seek talks with the government in Madrid over the future of his region in Spain, rowing back from an immediate declaration of independence that threatened to turn a constitutional crisis into an economic one. Addressing the regional parliament in Barcelona on Tuesday evening after days of tension in Catalonia, Puigdemont said the result of an Oct. 1 referendum had given him the mandate to pursue independence, but he would hold off for “weeks” for dialogue on the way forward with Prime Minister Mariano Rajoy’s administration. Rajoy convened an extraordinary meeting of his cabinet in Madrid on Wednesday at 9 a.m. to discuss his next move, and is due to address the Spanish Parliament on the crisis in Catalonia later in the day.

“Today Mr. Puigdemont has plunged Catalonia into the highest level of uncertainty,” Spain’s Deputy Prime Minister Soraya Saenz de Santamaria told reporters in Madrid late on Tuesday. “Neither Mr. Puigdemont nor anyone else can draw conclusions from a law that doesn’t exist, from a referendum that hasn’t taken place and from the wishes of the Catalan people which it’s trying to take over.” Pressure has piled on Puigdemont as the Spanish government and Catalan business leaders demand that he desist from pitching the region further down a path to independence that they warn would wreck the economy and tear apart Spain’s social fabric. Rajoy has consistently ruled out talks until the Catalans drop the threat of a declaration of independence that is illegal under Spanish law.

“Today I assume the mandate for Catalonia to become an independent state in the form of a republic,” Puigdemont said to cheers from the packed assembly, with Catalan police deployed around the parliament perimeter. “We propose the suspension of the effects of the declaration of independence for a few weeks, to open a period of dialogue.”

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When equity is debt.

China Debt-for-Equity Swaps Turn Out More Like Debt-for-Debt (BBG)

A key Chinese initiative to rein in the world’s largest corporate-debt load has been a program swapping some loans into equity stakes. As the initiative gets going, however, it’s becoming clear the debt isn’t really going away. In a late-summer notice, central government officials said that new bonds should be used to finance the swaps, effectively moving the debt off the balance sheets of the original lenders onto those buying the new debt. The first such deal came last month, according to China Lianhe Credit Rating Co., a domestic rating firm. Shaanxi Coal and Chemical Industry Group Co., a troubled old-line industrial company, was targeted for a debt-for-equity swap. Then the Shaanxi provincial government in northwest China set up an asset-management company to raise new debt to pay off the existing lending that was designated to be swapped for an equity stake.

One criticism of the debt-for-equity initiative, which was launched a year ago, is that it keeps afloat struggling enterprises, leaving excess capacity intact and pulling down productivity. The Shaanxi example shows a further weakness: while the company won’t need to service debt any more, the new asset-management unit will – without any new source of revenue having been generated. “If the funding comes from debt, it’s really not solving the issue here because the capital is not permanent capital,” Christopher Lee, managing director of corporate ratings at S&P Global Ratings in Hong Kong. “In fact, you are adding more debt just to refinance the debt that was going to be swapped.”

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Australia lives off its bubble. It’s all that’s left.

Chinese Investors Keep Pouring Money Into Australian Housing (BBG)

Property-hungry Chinese investors have shrugged off the impact of tighter capital controls and continue to pour money into Australian housing. Foreign buyers are acquiring about a quarter of new housing supply in New South Wales, and China accounts for about 90% of that demand, according to Credit Suisse analysis of tax office data. Foreigners are buying 17% of new housing in Victoria, and 8% in Queensland, Credit Suisse said. While local property agents say higher state taxes on foreigners are deterring buyers, Credit Suisse isn’t so sure they will have a big impact on prices.

They point to even-higher taxes in other global cities, the relative cheapness of Australian property compared to Chinese cities, and the growing stock of wealth in China. “Local incomes are becoming less relevant in determining the outlook for house prices and regional wealth is becoming more relevant,’’ Credit Suisse analysts Hasan Tevfik and Peter Liu said in the report. “We see no evidence of a slowdown in foreign demand because of the stronger capital controls introduced by Chinese authorities.” That’s not good news for locals already struggling to break into the booming housing market.

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WHy would anyone still want to buy a car or plane made with Kobe metals? Imagine the lawsuits if accidents happen.

Kobe Steel Shares Plunge As Data Fabrication Concerns Deepen (R.)

Kobe Steel shares tumbled a further 16% on Wednesday after it admitted it may have fabricated data on iron powder products and media reported the possible sale of its real estate business. The latest disclosure comes after Japan’s No.3 steelmaker said on the weekend it had falsified data to show that its aluminum and copper products had met customer specifications, and suggests the problems could be widespread. Japanese manufacturers were thrown into turmoil by the revelation, with implications for materials used in cars, aircraft and possibly a space rocket and defense equipment.

Shares in Kobe Steel were down 15.73% at 900 yen as of 0114 GMT on Wednesday, underperforming the broader market which was steady. They fell 22% the previous day. A Kobe Steel spokesman confirmed a report on Wednesday in the Yomiuri newspaper saying the firm may have fabricated data on iron powder products used in components such as automotive gears. He said the company was investigating the issue. The Nikkei business daily meanwhile reported that Kobe Steel intended to put its real estate business on the block in an effort to shore up already shaky finances now threatened by the data falsification scandal.

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And that’s after all those trillions in support.

51 Eurozone Banks Vulnerable To Rate Shocks – ECB (R.)

Fifty-one large euro zone banks are leaving themselves exposed to a sudden change in interest rates and may need to aside more capital against that risk, the European Central Bank said on Monday. The ECB is preparing to start dialing back its monetary stimulus after years of ultra-low interest rates and massive bond purchases, paving the ground for rate hikes further down the line. After simulating scenarios ranging from a sudden monetary tightening to the kind of lending freeze that followed Lehman Brothers’ collapse, the ECB found that most of the 111 euro zone banks it tested are well prepared for interest rates shocks. But it cautioned it needed “intense discussions” with 51 of them after finding they may be making themselves vulnerable via large bets on derivative instruments and overly aggressive models for calculating risk.

A hike in interest rates could mean the banks suddenly need more capital. “What we need to do is have intense discussions and check with the banks if they’re aware of the… risk and if they have enough capital if things go wrong,” Korbinian Ibel, a senior supervisor at the ECB, said. Results of the test, which started in February, are incorporated into the ECB’s guidance on how much capital each lender on its watch should hold. Ibel said the 51 banks may, in principle, see their capital demands rise by up to 25 basis points, although any decision would depend on the individual circumstances of each firm. Similarly, the remaining 60 banks could see their guidance reduced by the same amount.

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Crypto makes it too easy for money to leave a country.

Russian Central Bank To Ban Websites Offering Crypto-Currencies (R.)

Russia will block access to websites of exchanges that offer crypto-currencies such as Bitcoin, Russian Central Bank First Deputy Governor Sergei Shvetsov said on Tuesday. He called them “dubious”. Russian financial authorities initially treated any sort of money issued by non-state approved institutions as illegal, saying they could be used to launder money. Later the authorities accepted the globally booming market of crypto-currencies but want to either control the turnover or to limit access to the market “We cannot stand apart. We cannot give direct and easy access to such dubious instruments for retail (investors),” Shvetsov said, referring to households.

Speaking at a conference on financial market derivatives, Shvetsov said the central bank sees rising interest in crypto-currencies because of high returns from buying into such instruments. He warned, however, that crypto-currencies gradually transform into high-yielding assets from being a mean of payment. “We think that for our citizens, for businesses the usage of such crypto-currencies as an investment object carries unreasonably high risks,” he said. Russian authorities said earlier this year they would like to regulate the use of crypto-currencies by Russian citizens and companies.

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$4 million? That’s the damage?

Fukushima Court Rules Tepco, Government Liable Over 2011 Disaster (R.)

A district court in Fukushima prefecture on Tuesday ruled that Tokyo Electric Power and the Japanese government were liable for damages totaling about 500 million yen ($4.44 million) in the largest class action lawsuit brought over the 2011 nuclear disaster, Kyodo news agency said. A group of about 3,800 people, mostly in Fukushima prefecture, filed the class action suit, marking the biggest number of plaintiffs out of about 30 similar class action lawsuits filed across the nation. This is the second court ruling that fixed the government’s responsibility after a Maebashi district court decision in March.

All the three district court decisions so far have ordered Tepco to pay damages. Only the Chiba court decision last month did not find the government liable for compensation. The plaintiffs in Fukushima case have called on defendants for reinstating the levels of radioactivity at their homes before the disaster, but the court rejected the request, Kyodo said. Tepco has long been criticized for ignoring the threat posed by natural disasters to the Fukushima plant and the company and the government were lambasted for their handling of the crisis.

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Incredible. You’d expect to see this in Bombay perhaps, or Lagos.

10% of New York City Public School Students Were Homeless Last Year (NYT)

The number of homeless students in the New York City public school system rose again last year, according to state data released on Tuesday. The increase pushed the city over a sober milestone: One in every 10 public school students was homeless at some point during the 2016-17 school year. More than 111,500 students in New York City schools were homeless during the last academic year, a 6% increase over the year before and enough people to populate a small city. Of the overall figure, 104,000 students attended regular district public schools, while the rest were in charter schools. Statewide, 148,000 students were homeless, or about 5% of the state’s public school population.

The data was released by the New York State Technical and Education Assistance Center for Homeless Students, a project of Advocates for Children of New York funded by the state Education Department. The plight of homeless students is part of the entrenched and growing problem of homelessness confronting New York City and Mayor Bill de Blasio, who is pushing a controversial plan to expand the city’s shelter system. After rising steadily for about five years, the number of homeless students reported to the state shot up in the 2015-16 school year, reaching nearly 100,000 children, and in the last school year the numbers crossed that threshold. The count this year is the highest since the state began keeping records.

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Not great title for interesting article.

The European Union Is Doomed to Fail (FEE)

Have you ever heard of Deutsch Jahrndorf? No? I don’t blame you. The tiny Austrian village, which is situated four miles from the Danube, is utterly unremarkable, except for the fact that it sits on the border of three countries. To the east is Slovakia. To the south lies Hungary. As such, within shouting distance of one another, live three peoples speaking completely unintelligible languages. Austria belongs to the West Germanic language group, Hungary to Finno-Ugric and Slovakia to West Slavic. I thought about the exquisitely rich tapestry of European languages, cultures, customs, and nationalities as I watched the sad spectacle of Spanish riot police and Catalan separatists confronting one another on the streets of Barcelona. How on earth can the European Union unite that which history forced asunder?

The European Union, French President Emmanuel Macron has recently declared to almost universal acclaim, needs more unity, including the creation of “a eurozone budget managed by a eurozone parliament and a eurozone finance minister”. The need for the centralization of power in Brussels is, apparently, the lesson that the EU establishment has learned from the outcome of the British referendum on EU membership. Meanwhile, in Catalonia, millions of people have set their sights on independence from Spain. Foremost among their complaints is that the Catalan budget is influenced by Madrid. Independence, the Catalans feel, will rectify a grave injustice occasioned by the French capture of Barcelona in 1714. The conqueror, Duke of Anjou, became the first Bourbon king of Spain under the name of Philip V. His descendant, Philip VI, is on the throne today. In Europe, ancient lineages last as long as ancient resentments.

Therein lies the conundrum of European unification. On the one hand, people throughout much of Europe desire greater autonomy. Madrid has the vexing problem of the Basque Country to worry about as well as Catalonia. In Italy, Padania and South Tyrol in the North don’t feel like they have very much in common with the Mezzogiorno in the South. Corsica does not want to be French and Britain has only recently revisited a territorial arrangement that dates back to 1707. On the other hand, every separatist movement in Europe declares its support for the project of European unification. But, how likely is it that people annoyed by Madrid, Rome, Paris, and London will be happy to have their affairs decided upon in Brussels? Will the Catalans, resentful of subsidizing farmers in Andalusia, quietly have no problem with subsidizing Polish peasants in Lower Silesia?

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Monbiot has some nice ideas, but underestimates the degree to which our societies profit from carbon. And why bring in Labour?

How Labour Could Lead The Global Economy Out Of The 20th Century (G.)

We are still living in the long 20th century. We are stuck with its redundant technologies: the internal combustion engine, thermal power plants, factory farms. We are stuck with its redundant politics: unfair electoral systems, their capture by funders and lobbyists, the failure to temper representation with real participation. And we are stuck with its redundant economics: neoliberalism, and the Keynesianism still proposed by its opponents. While the latter system worked very well for 30 years or more, it is hard to see how it can take us through this century, not least because the growth it seeks to sustain smacks headlong into the environmental crisis. Sustained economic growth on a planet that is not growing means crashing through environmental limits: this is what we are witnessing, worldwide, today.

A recent paper in Nature puts our current chances of keeping global heating to less than 1.5C at just 1%, and less than 2C at only 5%. Why? Because while the carbon intensity of economic activity is expected to decline by 1.9% a year, global per capita GDP is expected to grow by 1.8%. Almost all investment in renewables and efficiency is cancelled out. The index that was supposed to measure our prosperity, instead measures our progress towards ruin. But the great rupture that began in 2008 offers a chance to change all this. The challenge now is to ensure that the new political movements threatening established power in Britain and elsewhere create the space not for old ideas (such as 20th-century Keynesianism) but for a new politics, built on new economic and social foundations.

There may be a case for one last hurrah for the old model: a technological shift that resembles the second world war’s military Keynesianism. In 1941 the US turned the entire civilian economy around on a dime: within months, car manufacturers were producing planes, tanks and ammunition. A determined government could do something similar in response to climate breakdown: a sudden transformation, replacing our fossil economy. But having effected such a conversion, it should, I believe, then begin the switch to a different economic model.

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Featuring Dwayne Johnson? All we need then is a ferret to play Dijsselbloem.

I Will Make A Film Based On Adults in the Room (Costa Gavras)

When the crisis began, the tragedy that the Greek people are still living through, I began to gather material and information in an attempt to make sense of the reasons and the people – published, filmic and oral. However, what I was missing were the goings on behind the closed doors, where the representatives of the European Union and the Greek people met. On 16th July 2015, just after his resignation, I sent a text message to Yanis Varoufakis, whom I did not know personally. In that message I wrote: “Reading your interview in the New Statesman, I believe I found what I have been looking for a long time: the subject for a film, a piece of fiction, about a Europe governed by a group of cynical people disconnected from human, political and cultural concerns – obsessed with numbers and them alone.”

Soon, the arrangements were made and Michele, my wife, and I visited Yanis and Danae in Greece a few weeks later. Meanwhile I read two of his books, The Global Minotaur (London: Zed Books, 2011,2015) and the manuscript of a book he was completing at that time entitled And The Weak Suffer What They Must? (London: The Bodley Head, 2016). I was impressed by the quality and originality of their content, as well as the prose. When we met we had long conversations, in the context of which he let me know that he was about to begin writing his own account of his tenure as Greece’s finance minister, a tale of being an outsider in politics, of the negotiations in the Eurogroup – that illegitimate but ultra powerful EU body. I asked to read the manuscript. He agreed and began sending it to me chapter by chapter, as the book was being written.

Immediately I was convinced by the text’s seriousness and the accuracy of the description of the behaviour of each of the tragedy’s protagonists. Reading it saddened me, and I found myself often angered, indeed enraged, by the violence and the indifference of Eurogroup members, especially the German side, to the drama and unsustainable situation in which the people of Greece lived, and live. I decided to make a film out of this tragedy. Yanis Varoufakis gave me the rights to his book and absolute freedom to adapt it.

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Words fail.

Self-Harm, Suicide Attempts Rise In Greek Refugee Camps (Reuters)

A mental health emergency is unfolding in migrant camps on Greece’s islands, fueled by poor living conditions, neglect and violence, Doctors Without Borders (MSF) said Tuesday. Medical staff have seen a sharp increase in people trying to get help after attempting suicide, harming themselves or suffering psychotic episodes, the humanitarian organization said in a report. More than 13,000 migrants and refugees, mostly Syrians and Iraqis fleeing years of war, are living in five camps on Greek islands close to Turkey, government figures show. Four of those camps are holding two to three times as many people as they were designed for. “Every day our teams treat patients who tell us that they would prefer to have died in their country than be trapped here,” said Jayne Grimes, manager of MSF’s mental health activities on Samos.

The organization said six or seven new patients had visited its clinic on the nearby island of Lesvos each week over the summer following suicide attempts, self-harm or psychotic episodes, 50% more than the previous three months. Violence which many experienced on the journey or in Greece was one factor aggravating mental distress, MSF said. “I know I need to find hope, but when the night falls and I see where I am, I feel like I’m going crazy,” it quoted a Syrian man as saying. The 25-year-old said he was haunted by the images of people dying of hunger in front of him in the long-besieged town of Madaya. “I still remember the taste of the leaves and the smell of death,” he said. On Samos, more than 3,000 people are crammed into facilities designed to hold 700, and about 400 live in the woods. In one Lesvos camp, about 1,500 people are in makeshift shelters or tents without flooring or heating, the UN refugee agency says.

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Oct 102017
 
 October 10, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , ,  1 Response »


Camille Pissarro Rue Saint-Lazare, Paris 1897

 

Britain Can’t Cope With A Fall In House Prices (Ind.)
A Remarkable Run for Stocks Gets More Extraordinary (BBG)
Bill Gross Blames Fed For ‘Fake Markets’ (R.)
ECB’s Knot Warns of Market Correction as Risk May Be Underpriced (BBG)
Catalan President To Declare “Gradual Independence” On Tuesday (ZH)
Dear Catalans – A Message From The Chairman (Ren.)
The Rise and Fall of Emmanuel Macron (Steve Keen)
Kobe Steel Faked Data For Metals Used In Planes And Cars (BBG)
Prepare For No-Deal Brexit, Theresa May Warns Britain (Ind.)
The Rising Of Britain’s ‘New Politics’ (John Pilger)
Saudi Arabia In Huge Arms Deals With US AND Russia (N.au)
India Had The Most Confident Consumers. Then Their Cash Disappeared (BBG)
The Big Amazon Subsidy is Doomed (WS)
No Joy in Trumpville (Kunstler)

 

 

Britain and many other countries. Their economies are propped up by bubbles.

Britain Can’t Cope With A Fall In House Prices (Ind.)

[..] most properties in the UK still belong to households. Families, by and large, don’t need to sell. So what would falling property prices mean for them? First, many pension funds and investment bonds rely on UK property to generate income for their beneficiaries. Second, we have what economists call the wealth effect. Economists have long associated consumers’ perceived real estate wealth with spending behaviour: if you believe your house is worth a lot, you feel financially secure. And then you allow yourself to save less and spend more. Just consider the rising number of people who plan to subsidise their retirement with wealth generated by their homes. If their assumed valuations start to look shaky, these people will spend less to build up their savings. The pain would be felt by many: about 64% of households in England are owner-occupiers.

The wealth effect is important in most developed economies but even more so in the UK which relies on ever-rising levels of consumer spending for its growth. A 10% fall in the value of dwellings in the UK would correspond to a loss of wealth equivalent to more than the value of all the cars exported from the UK in a decade. The climate of economic uncertainty, reduced consumption and falling real estate values brings an additional problem for the UK. Britain has long had a trade deficit, but it has also benefited from positive foreign direct investment. The current account itself has been in the red for nearly 20 years now but the hundreds of billions of inward foreign investment channelled to UK property over the same period meant that this deficit remained manageable – just about.

According to the Bank of England, overseas companies have accounted for roughly half of all UK commercial real estate transactions since 2013. If international investors expect prices to fall in any sustained way, the inflow of money would stop and many would sell up. Why buy or hold an asset just at the start of what might be a long decline? This would not only put pressure on real estate prices but would affect UK GDP, reduce government revenues and worsen the UK current account position. The credit rating of the UK would come under more pressure, and trillions of UK government debt would cost more to refinance. Then the UK government deficit would deteriorate further, taxes might rise to cover for this and the domino effect would be in full cry, spreading to all sectors of the economy, similar to events in Greece.

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Bloated. No heartbeat.

A Remarkable Run for Stocks Gets More Extraordinary (BBG)

With a 2% gain in September, the S&P 500 Index has set a record: positive returns in each of the first 10 months of the year. There’s never been a full calendar year when this has happened every month. Going back to November 2016, the index has ripped off 12 consecutive monthly gains. The S&P hasn’t had a down quarter since the third quarter of 2015, a streak of eight in a row without a loss. Since the start of 2013, 18 of the past 19 quarters have been positive. And it’s not like stocks are melting up either. They are going up slowly as volatility is slowly going down. Not only have stocks been consistently profitable recently, but they have done so with remarkably low volatility. This year, there has yet to be a 2% move up or down on the S&P 500.

For a frame of reference, in 2009, there were 55 separate 2% up or down days and there were 35 in 2011. The annualized volatility of daily returns on stocks since 1928 has been 18.7%. For 2017, that number is 7%, a little more than one-third of the long-term average. The average absolute daily price change this year on the S&P 500 is just 31 basis points. If the year ended right now, that would be the lowest daily price change on record since 1965. The worst peak-to-trough drawdown is just 2.8% this year. Over the past 100 years, the average intrayear drawdown in stocks has been around 16%. The shallowest calendar-year peak-to-trough drawdown was in 1995, when the worst loss in stocks was just 3.3% for the year.

So investors in U.S. stocks have had double-digit gains three-quarters of the way through the year, with increases every month, nonexistent volatility, and nothing even approaching a 5% correction. It’s looking like a record-breaking year in terms of a calm market. As far as investing in stocks goes, this year has been about as good as it gets – so far. It’s worth remembering that stocks are cyclical, even if those cycles don’t run on set schedules. The following shows the historical drawdown profile of the S&P 500 going back to just before the Great Depression:

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There are no investors: “There is no real advantage in the global marketplace. Everything is so tight, it is hard to pick a winner from a group that is fake.”

Bill Gross Blames Fed For ‘Fake Markets’ (R.)

Influential bond investor Bill Gross of Janus Henderson Investors said on Monday that financial markets are artificially compressed and capitalism distorted because of the U.S. Federal Reserve’s loose monetary policy. “I think we have fake markets,” Gross said at a Janus Henderson event. Investors should brace for higher Treasury bond yields as the Fed begins to unwind its quantitative easing program but yields will edge up “only gradually,” he said. Gross, who oversees the $2.1 billion Janus Henderson Global Unconstrained Bond Fund, said the Fed’s loose monetary policy had resulted in investors chasing yield and thus producing tight corporate spreads everywhere around the globe.

“Even China and South Korea – perfect examples of the risk trade – are at very narrow (corporate spread) levels. There is no real advantage in the global marketplace. Everything is so tight, it is hard to pick a winner from a group that is fake.” Gross reiterated his warning that Fed Chair Janet Yellen and other global policy makers should not rely on historical models such as the Taylor Rule and the Phillips curve “in an era of extraordinary monetary policy.” Economists John Taylor and A.W. Phillips devised models for guiding interest-rate policy based, respectively, on inflation and the unemployment rate. Those models disregard the importance of private credit in the economy, according to Gross.

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In complete denial of what they have wrought.

ECB’s Knot Warns of Market Correction as Risk May Be Underpriced (BBG)

Financial markets may be underpricing global risks, leaving them vulnerable to a major correction, according to European Central Bank Governing Council member Klaas Knot warned. As global stocks surge, measures of volatility suggest unprecedented calm even as crises around the world – including the Catalan separatists in Spain, Turkey’s diplomatic row with the U.S., North Korea’s missile tests and the danger of a hard Brexit – make political headlines. “It increasingly feels uncomfortable to have low volatility in the markets on the one hand while on the other hand there are risks in the global economy,” said Knot, who is also the president of the Dutch Central Bank.

Similarly, a sooner-than-expected normalization of U.S. monetary policy – where financial markets see a slower pace of rate hikes than what the Federal Reserve communicates – would quickly turn investor sentiment, the DNB wrote in a report on financial stability which Knot presented in Amsterdam on Monday. That makes the “risk of sharp market corrections real,” it said. Still, Knot said there’s “no one within the context of the ECB already talking about an increase of interest rates. Rates will “stay low for a long time.” In the run-up to the next policy decision on Oct. 26, ECB officials are showing differing preferences for the way forward with quantitative easing, which is set to run at €60 billion a month and total almost €2.3 trillion by the end of December.

Executive Board member Peter Praet, who crafts the policy proposals, said last week that calm markets may allow the final stages of the bond-buying plan to be dragged out. “The program has achieved what realistically could be expected from it,” Knot said about QE, adding that it supported growth, reduced investment costs and ended deflationary risks.

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Talk!

Catalan President To Declare “Gradual Independence” On Tuesday (ZH)

In the latest twist ahead of tomorrow’s much anticipated “next step” announcement to be made by the Catalan secessionists, which is still to be formalized, Spain’s EFE newswire reports that Catalonian President Carles Puigdemont has reportedly drafted a declaration of “gradual independence”, that will be “gradually effective” and which will plan to start a constituent process. The declaration, which will cap what El Periodico dubbed “the most critical moment for Catalonia” will allegedly insist on Catalonia’s wish to negotiate with central government and the need for mediation, although in an indication that Puigdemont may be back tracking from his hard-line “binary” stance, EFE adds that the Declaration won’t lead to parliamentary vote, and as such may be non-binding. The news is the latest development in a fast-paced day, in which as we reported earlier this morning, the ruling People’s Party issued a thinly veiled death threat to the President of Catalonia.

“Let’s hope that nothing is declared tomorrow because perhaps the person who makes the decalartion will end up like the person who made the declaration 83 years ago.” Additionally, perhaps as a Plan B, Catalan secessionists opened a second-front in their campaign against the government in Madrid, urging the opposition Socialists to forge a coalition to oust Spanish Prime Minister Mariano Rajoy, Bloomberg reported and added that while the Socialists have so far refused to sign up to the plan, the Catalan groups pushing it have already persuaded the populist Podemos party to back and accept a Socialist-only government. Should the Socialists get on board, the alliance would have 172 seats in the 350-strong chamber and would look to add the Basque Nationalists to form a majority. Rajoy heads a minority administration with 134 deputies and can be toppled with a no-confidence motion.

Meanwhile, as reported overnight, Catalan secessionist leader Carles Puigdemont faced increased pressure on Monday to abandon plans to declare independence from Spain, with France and Germany expressing support for the country’s unity. The Madrid government, grappling with Spain’s biggest political crisis since an attempted military coup in 1981, said it would respond immediately to any such unilateral declaration.

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But then there’s this.

Dear Catalans – A Message From The Chairman (Ren.)

Dear Catalans, I must confess that I feel rather like St. Paul must have felt when he wrote to the Corinthians – the need to address an entire region is a grave affair. But the matter I must address today is of great importance to our community of nations: Enough is enough. We need to get a few things cleared up before this regrettable idea of independence goes any further. There are a number of things that have been rather opaque since we set up the EU. This was deliberate – there was simply no reason for you to know until now. There should never have been any need to disclose this information, and indeed there wouldn’t have been, were it not for those tiresome Brits setting such a terrible example for everyone last year. We must resolve this matter quickly so that we can all get back to the business of being one big happy family again. Here’s what you need to know: We ‘own’ Spain, and Spain ‘owns’ you.

Since you have seen reason to doubt the binding nature of this arrangement, perhaps I should explain to you how it works: Catalonia is a wholly owned subsidiary of Spain – this is all covered in the constitution, and is totally binding, although you may not have realised that when you voted upon it. 1) It was democratic you see – one simply must read the small print, but of course one never does, does one? 2) Spain is a subsidiary of the EU – this is all covered by EU treaty, which of course is also binding, as has been explained on a number of occasions by our Head of European Political Operations, dear Jean-Claude. The following points may be difficult for you to understand, because we’ve never had to explain the structure beyond this point.

3) The EU is not owned by anyone, but of course ‘ownership’ and ‘control’ are really the same thing, but without all the legal drudgery that has become so tiresome of late. 4) The EU is controlled by the monetary system that we put in place. I am not referring to the euro, which is simply the local mechanism for this region. I am referring to the banking system, which over-arches everything. The banks are the organisations that loan the money into existence in the first place. You didn’t know that did you? Don’t worry, very few people do…and that’s worked very well until now. This is how it works: a) Governments don’t actually buy anything with taxes. They spend money that the banks loan to them by buying their IOUs, AKA sovereign bonds. b) When governments eventually get round to collecting taxes they use them to cancel some of their IOUs, plus they pay interest on all of them – naturally.

c) Since all politicians inevitably make promises that they can’t afford in order to get elected – a practice that we encourage by funding both sides – there is never enough taxation collected to fully redeem the IOUs, and there never will be. Why not? Because of the 8th wonder of the world – compound interest! Governments across the globe are paying the banks interest on interest on interest on money that they could have just printed for themselves in the first place!

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Major demo’s all over France today. Macron plans to fire 100,000+ civil servants.

The Rise and Fall of Emmanuel Macron (Steve Keen)

Since his election, Macron’s popularity has plunged faster than any French president in history. Attempts to explain this decline have focused on his pompous approach to governance—literally professing to want to govern like Jupiter. But there is a deeper cause. He has misdiagnosed the origins of the French economic malaise, and therefore his Jovian economic thunderbolts will do more harm than good. It’s easy to show the blatant errors in the president’s perspective by merely looking at the data. Macron’s economic agenda cites an excessively large public sector as the fundamental cause of France’s malaise, and the main ‘Evidence for the Prosecution’ is the towering level of government debt: as of March 2017, this was 111% of GDP, almost twice the 60% of GDP maximum allowed by the Maastricht Treaty.

But private liabilities are worse still: 187% of GDP. So, why does Macron, in common with politicians of almost all stripes, not worry about this far higher level of debt? The reason is that, given he was schooled in mainstream economics for his Master’s degree at ENA (École Nationale d’administration), Macron accepts the argument that private debt doesn’t matter. It’s just a “pure redistribution”, to quote Ben Bernanke, which “absent implausibly large differences in marginal spending propensities” between savers and lenders, “should have no significant macroeconomic effects.” This comforting belief is sharply contradicted by the data for countries which, like France, have a private debt ratio well in excess of 100% of GDP. If Bernanke’s assumption were correct, there would be little or no correlation between credit (the annual change in private debt) and unemployment.

However, in his home country of the USA, the relationship between credit and unemployment since 1990 is minus 0.91: meaning rising credit reduces unemployment, and falling credit increases it. In France’s case, the correlation is lower but still substantial at minus 0.62, when according to mainstream economics, it should be close to zero. So credit matters, not merely because savers are much less likely to consume than debtors, but because bank credit creates new money. Since this new cash is spent by the borrowers, it adds to aggregate demand. And falling credit over time—which France has generally been experiencing since the early 1970s—therefore implies rising unemployment.

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This could spiral out of control. Why would any company take the risk of deadly incidents, instead of demanding recalls?

Kobe Steel Faked Data For Metals Used In Planes And Cars (BBG)

Kobe Steel unleashed an industrial scandal that reverberated across Asia’s second-largest economy after saying its staff falsified data related to strength and durability of some aluminum and copper products used in aircraft, cars and maybe even a space rocket. The Japanese company’s stock ended 22% lower in Tokyo as customers including Toyota, Honda and Subaru said they had used materials from Kobe Steel that were subject to falsification. Boeing, which gets some parts from Subaru, said there’s nothing to date that raises any safety concerns. Rival aluminum makers gained. Kobe Steel’s admission raises fresh concern about the integrity of Japanese manufacturers, and follows Takata misleading automakers about the safety of its air bags, and last week’s recall by Nissan of cars after regulators discovered unauthorized inspectors approved vehicle quality.

Kobe Steel said on Sunday the products were delivered to more than 200 companies but didn’t disclose customer names, with the falsification intended to make the metals look as if they met client quality standards. Chief Executive Officer Hiroya Kawasaki is now leading a committee to probe quality issues. The fabrication of figures was found at all four of Kobe Steel’s local aluminum plants in conduct that was systematic, and for some items the practice dated back some 10 years ago, Executive Vice President Naoto Umehara said on Sunday. Toyota said it has found Kobe Steel materials, for which the supplier falsified data, in hoods, doors and peripheral areas. “We are rapidly working to identify which vehicle models might be subject to this situation and what components were used,” Toyota spokesman Takashi Ogawa said. “We recognize that this breach of compliance principles on the part of a supplier is a grave issue.”

Kobe Steel said it discovered the falsification in inspections on products shipped from September 2016 to August 2017, adding there haven’t been any reports of safety issues. The products account for 4% of shipments of aluminum and copper parts as well as castings and forgings. “The incident is serious,” said Takeshi Irisawa at Tachibana Securities. “At the moment, the impact is unclear but if this leads to recalls, the cost would be huge. There’s a possibility that the company would have to shoulder the cost of a recall in addition to the cost for replacement.”

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We might be in for some crazy surprises in the UK. They’ve lost the script.

Prepare For No-Deal Brexit, Theresa May Warns Britain (Ind.)

Theresa May has warned the British public to prepare for crashing out of the EU with no deal, setting out emergency plans to avoid border meltdown for businesses and travellers. As hopes of an agreement appeared to fade at home and abroad, the Prime Minister – for the first time – set out detailed “steps to minimise disruption” on Brexit day in 2019. They included plans for huge inland lorry parks to cope with the lengthy new customs checks that will be needed – to avoid ports becoming traffic-choked. The move came as Ms May admitted she expected the deadlocked negotiations to drag on for another year before any possible breakthrough. At Westminster, Brexiteer Tories exploited the Prime Minister’s weakness – after last week’s attempted coup – to demand that Chancellor Philip Hammond, and other voices of compromise, be sidelined.

Bernard Jenkin attacked the EU for “refusing to discuss the long term relationship between the EU and the UK”, asking the Prime Minister: “When does she call time?” Meanwhile, in Brussels, Ms May’s insistence that she would make no further compromises in the talks – she told the EU “the ball’s in their court” – was firmly rebuffed. “There has been, so far, no solution found on step one, which is the divorce proceedings, so the ball is entirely in the UK’s court for the rest to happen,” said Margaritis Schinas, the European Commission’s chief spokesman. Laying bare the impasse, Brexit Secretary David Davis did not attend the first day of the resumed talks, although he is expected to be in Brussels on Tuesday.

In the Commons, the Prime Minister continued to insist that “real and tangible progress” towards an agreement had been made since her high-profile speech in Florence last month. But she also made clear that new policy papers on trade and customs were intended to show Britain could operate as an “independent trading nation” – even if no trade deal was reached.

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Always Pilger.

The Rising Of Britain’s ‘New Politics’ (John Pilger)

Delegates to the recent Labour Party conference in Brighton seemed not to notice a video playing. The world’s third biggest arms manufacturer, BAE Systems, supplier to Saudi Arabia, was promoting guns, bombs, missiles, naval ships and fighter aircraft. It seemed a perfidious symbol of a party in which millions of Britons now invest their political hopes. Once the preserve of Tony Blair, it is now led by Jeremy Corbyn, whose career has been very different and is rare in British establishment politics. Addressing the conference, the campaigner Naomi Klein described the rise of Corbyn as “part of a global phenomenon. We saw it in Bernie Sanders’ historic campaign in the US primaries, powered by millennials who know that safe centrist politics offers them no kind of safe future.”

In fact, at the end of the US primary elections last year, Sanders led his followers into the arms of Hillary Clinton, a liberal warmonger from a long tradition in the Democratic Party. As President Obama’s Secretary of State, Clinton presided over the invasion of Libya in 2011, which led to a stampede of refugees to Europe. She gloated at the gruesome murder of Libya’s president. Two years earlier, Clinton signed off on a coup that overthrew the democratically elected president of Honduras. That she has been invited to Wales on 14 October to be given an honorary doctorate by the University of Swansea because she is “synonymous with human rights” is unfathomable. Like Clinton, Sanders is a cold-warrior and “anti-communist” obsessive with a proprietorial view of the world beyond the United States.

He supported Bill Clinton’s and Tony Blair’s illegal assault on Yugoslavia in 1998 and the invasions of Afghanistan, Syria and Libya, as well as Barack Obama’s campaign of terrorism by drone. He backs the provocation of Russia and agrees that the whistleblower Edward Snowden should stand trial. He has called the late Hugo Chavez – a social democrat who won multiple elections – “a dead communist dictator”. While Sanders is a familiar American liberal politician, Corbyn may be a phenomenon, with his indefatigable support for the victims of American and British imperial adventures and for popular resistance movements. [..] And yet, now Corbyn is closer to power than he might have ever imagined, his foreign policy remains a secret. By secret, I mean there has been rhetoric and little else. “We must put our values at the heart of our foreign policy,” he said at the Labour conference. But what are these “values”?

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Stop!

Saudi Arabia In Huge Arms Deals With US AND Russia (N.au)

Saudi Arabia has been quietly planning to build its own military empire and over the last week, it’s announced how it plans to do so. With Donald Trump and Vladimir Putin’s help. Despite increasing criticism over the United States’ military sales to Saudi Arabia, the US State Department has paved the way for the potential purchase of controversial — and expensive — military equipment. On Saturday, the US State Department announced the approval to sell Saudi Arabia 44 THAAD anti-missile defence systems, 360 interceptor missiles, 16 mobile fire-control and communication stations and seven THAAD radars at an estimated price tag of $US15 billion, according to a press release from the Pentagon’s Defence Security Cooperation Agency.

The sale, supplied by Lockheed Martin and Raytheon – also includes 43 trucks, generators, electrical power units, communications equipment, tools, test and maintenance equipment and “personnel training and training equipment”. The department said the sale of the equipment to the Saudi people would help provide a balance to a relatively unstable environment in the Gulf and to help the US forces enlarge its allied grip on the region. “THAAD’s exo-atmospheric, hit-to-kill capability will add an upper-tier to Saudi Arabia’s layered missile defence architecture.” Meanwhile, King Salman of Saudi Arabia has entered into a preliminary agreement to purchase Russia’s S-400 surface-to-air missile defence system, he announced in Moscow last week. The king has been visiting Russian President Vladimir Putin in talks over oil and Syria, Saudi’s al Arabiya television reported. It is the first visit of a Saudi monarch to visit Mr Putin. It is expected the sale will beef-up security in the nuclear-hungry Middle East.

The US sale has not yet “concluded”, it confirmed. US Congress has 30 days to object. The THAAD – Terminal High Altitude Area Defence – missile system is used to defend against incoming missile attacks and “is one of the most capable defensive missile batteries in the US arsenal and comes equipped with an advanced radar system”, according to AFP. “This sale furthers US national security and foreign policy interests, and supports the long-term security of Saudi Arabia and the Gulf region in the face of Iranian and other regional threats,” the State Department said in a statement.

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“Manufacturing jobs are forecast to fall about 30% this year..”

India Had The Most Confident Consumers. Then Their Cash Disappeared (BBG)

Consumption was India’s big story. Its 1.3 billion population was expected to guzzle everything from iron to iPhones, driving global growth and cheering investors such as Apple and Goldman Sachs. For a while everything seemed smooth. Indians were the world’s most confident consumers and the $2 trillion economy was the fastest-growing big market. Then, last November, Prime Minister Narendra Modi voided 86% of currency in circulation, worsening a slowdown that had started earlier in the year. Climbing global oil prices and a tightening Federal Reserve could also complicate domestic policy making. “There are a number of uncertainties which are clouding the short-term outlook of the Indian economy,” said Kaushik Das, Mumbai-based chief economist at Deutsche Bank. “Risk of policy error remains high.”

Indians fell off the top of Mastercard’s Asia Consumer Confidence Index in the first half of 2017, and a report from the nation’s central bank last week confirmed the bleak outlook. About 27% of Indians surveyed said incomes have fallen, pushing overall sentiment into the “pessimistic zone.” Employment “has been the biggest cause of worry,” the Reserve Bank of India said. Government data show food price deflation, hurting rural incomes, and supply of new houses in India’s top eight cities falling 33% January-September, hit by a demand slowdown. Convincing Indians to consume would first require assuring them they’ll have a job. It won’t be easy for Modi to do so. Manufacturing jobs are forecast to fall about 30% this year and broader surveys show the hiring outlook is near a 12-year low. There was an absolute decline in employment between March 2014 and 2016, “perhaps happening for the first time in independent India”.

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Politics can’t and won’t keep up.

The Big Amazon Subsidy is Doomed (WS)

Amazon battled states for years to avoid having to collect sales taxes. Walmart was on the other side of the fight, along with state revenue offices. Walmart had to add sales taxes to all its sales in California, whether online or brick-and-mortar, which at the time ranged from 7.25% to 9.75% depending on location. For shoppers, that price difference was reason enough to switch to Amazon. It was in essence a massive taxpayer subsidy for Amazon. But Amazon lost that battle and started charging sales taxes in California in September, 2012. State after state followed. By early 2017, Amazon was charging sales taxes in all 45 states that have state-wide sales taxes and in Washington DC.

Still, even in 2016, online retailers dodged paying $17.2 billion in sales taxes on out-of-state sales, according to the National Conference of State Legislatures. For them, it’s a massive price advantage that other retailers didn’t get. The fight over sales taxes is based on a Supreme Court case of 1992 – Quill Corp. v. North Dakota – that barred states from forcing companies to collect sales taxes if they didn’t have physical facilities in those states, such as stores or warehouses. For Amazon, this got increasingly complicated as it is building out its distribution network, with warehouses and facilities around the country. So now Amazon is collecting sales taxes. Problem solved? Nope.

Amazon only collects sales taxes on sales of inventory that it owns (first-party sales). But Amazon is also a platform that sells merchandise owned by other sellers (third-party sales). About half of the goods sold on the Amazon platform fall into this category. Amazon leaves sales tax collections to the 2 million merchants on its platform. But they claim that it’s not their job to collect sales taxes, and most of them don’t collect them. Hence, third-party sales still get the taxpayer subsidy. Amazon isn’t the only out-of-state retailer or platform. It’s just the biggest one. eBay and many others are impacted by it too. Legally, this remains murky. But states and brick-and-mortar retailers are fighting to get the subsidy scrapped. “It’s a fairness issue,” Minnesota Senator Roger Chamberlain told Bloomberg. “Right now, there’s an unlevel playing field that disadvantages brick-and-mortar stores.”

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“History is a trickster.”

No Joy in Trumpville (Kunstler)

I took advantage of the calm before the storm, to pay a visit on Saturday to my hometown, Trumpville, a.k.a. Manhattan. My college buddy had a son who was acting in an off-Broadway play (closing night, so don’t bother asking). The city I knew as a kid — which, frankly, I never liked very much — seemed as lost and far away as Peter Stuyvesant’s quaint Dutch colonial outpost did to me in 1962. That lost city of my childhood was one in which a boy could breeze right into the Metropolitan Museum of Art on a weekday afternoon — my school was one block away from it — without the least hindrance. The place was free. There was no “donation” shakedown at the entrance. And hardly anyone was there. Do you know why? Answer: because most of the adults on the island were at work. It was a mostly middle-class city back then.

I know. It’s hard to believe, given the more recent developments in American life — the salient one being the extreme and perverse financialization of the economy. That is actually what you see manifested on-the-ground (and up-in-the-air) when you visit New York these days. To be specific, what I saw sitting on a bench along the High Line — a walking trail built on an old railroad trestle through the former Meatpacking District into Chelsea — was all the wealth of the flyover states funneled into a few square miles of land on the edge of the Atlantic Ocean. As I watched the endless stream of tourists and hipsters stride by in their selfie raptures, I pictured the various downtowns of the Midwest I’ve visited over the years — St Louis, Kansas City, Minneapolis, Detroit, Akron, Dayton, Cleveland, Louisville, Tulsa, and many more — and remembered the incredible desolation of their centers.

There was no one there, certainly no tourists or hipsters, really no activity to speak of. They were ghost cities. The net effect of financialization has been the asset-stripping of every other place in America for the benefit of a very few cities on the coasts, and especially the financial engineers within them. Thus, the ironic rise of New Yorker Trump as the avatar and supposed savior of all those people “out there” in their dying hometowns and beyond. And their tremendously bitter enmity against the “blue” coastal elites, of which Trump is a nonpareil exemplar. History is a trickster.

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Oct 092017
 
 October 9, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , , ,  3 Responses »


Joan Miro The tilled field 1924

 

CEO Stock Buybacks Parasitize the Economy (Ralph Nader)
The Economy Is Humming. Bankers Are Cheering. What Could Go Wrong? (NYT)
Flatliners (NT)
Schäuble: Another Financial Crisis Is Coming Due To Spiraling Global Debt (ZH)
EU Plan To Prevent Bank Runs Could Backfire, Create Panic (BBG)
Hackers And Fraudsters Are Causing Cryptocurrency Chaos (Ind.)
Is This The Geopolitical Shift Of The Century? (OP)
Tensions Rise As US, Turkey Halt Visitor Visas, Send Lira Tumbling (BBG)
Sanctions Against Russia Have Cost European Union €30 Billion (RT)
Spain is the Blueprint for How All Governments Will Act (Martin Armstrong)
Catalans Call for Talks as Spain Enters Crunch Week (BBG)
Greece Foreclosures Target Seems Unattainable (K.)
Nearly There, But Never Further Away (FP)

 

 

And the parasite is killing its host.

CEO Stock Buybacks Parasitize the Economy (Ralph Nader)

The monster of economic waste—over $7 trillion of dictated stock buybacks since 2003 by the self-enriching CEOs of large corporations—started with a little noticed change in 1982 by the Securities and Exchange Commission (SEC) under President Ronald Reagan. That was when SEC Chairman John Shad, a former Wall Street CEO, redefined unlawful ‘stock manipulation’ to exclude stock buybacks. Then after Clinton pushed through congress a $1 million cap on CEO pay that could be deductible, CEO compensation consultants wanted much of CEO pay to reflect the price of the company’s stock. The stock buyback mania was unleashed. Its core was not to benefit shareholders (other than perhaps hedge fund speculators) by improving the earnings per share ratio. Its real motivation was to increase CEO pay no matter how badly such burning out of shareholder dollars hurt the company, its workers and the overall pace of economic growth.

In a massive conflict of interest between greedy top corporate executives and their own company, CEO-driven stock buybacks extract capital from corporations instead of contributing capital for corporate needs, as the capitalist theory would dictate. Yes, due to the malicious, toady SEC “business judgement” rule, CEOs can take trillions of dollars away from productive pursuits without even having to ask the companies’ owners—the shareholders—for approval. What could competent management have done with this treasure trove of shareholder money which came originally from consumer purchases? They could have invested more in research and development, in productive plant and equipment, in raising worker pay (and thereby consumer demand), in shoring up shaky pension fund reserves, or increasing dividends to shareholders.

The leading expert on this subject—economics professor William Lazonick of the University of Massachusetts—wrote a widely read article in 2013 in the Harvard Business Review titled “Profits Without Prosperity” documenting the intricate ways CEOs use buybacks to escalate their pay up to 300 to 500 times (averaging over $10,000 an hour plus lavish benefits) the average pay of their workers. This compared to only 30 times the average pay gap in 1978. This has led to increasing inequality and stagnant middle class wages. [..] In a review of 64 companies, including major retailers such as JC Penny and Macy’s, these firms spent more dollars in stock buybacks “than their businesses are currently worth in market value”! [..] The scholars concluded that “Buybacks are a way of disinvesting – we call it ‘committing corporate suicide’..

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How much time do I have?

The Economy Is Humming. Bankers Are Cheering. What Could Go Wrong? (NYT)

For decades, the global economy has been defined by dissonance. There has been the Japanese recession. The financial crises in the United States and Europe. And drama in emerging markets throughout. But as central bankers, finance ministers and money managers descend on Washington this week for the fall meetings of the IMF, they will confront an unusual reality: global markets and economies rising in unison. Never mind political turmoil, populist uprisings and threats of nuclear war. From Wall Street to Washington, economists have been upgrading their forecasts for the global economy this year, with the consensus now pointing to an expansion of more than 3% — up noticeably from 2.6% in 2016. Economists from the IMF are likely to follow suit when the fund releases its biannual report on the global economy on Tuesday.

The rosy numbers are noteworthy. But what’s more startling is that virtually every major developed and emerging economy is growing simultaneously, the first time this has happened in 10 years. “In terms of positive cycles, it is difficult to find very many precedents here,” said Brian Coulton, the chief economist at Fitch, the debt ratings agency. “It is the strongest growth we have seen since 2010.” In Japan, a reform-minded government and aggressive action by the central bank have pushed growth to 1.5% — up from 0.3% three years ago. In Europe, strong domestic demand in Germany and robust recoveries in countries like Spain, Portugal and Italy are expected to spur 2.2% growth in the eurozone. That would be more than double its average annual growth in the previous five years.

Aggressive infrastructure spending by China; bold economic reforms by countries including Brazil, Indonesia and India; and rising commodities prices (helping countries such as Russia) have spurred growth in emerging markets. And in the United States, despite doubts about President Trump’s ability to pass a major tax bill, the economy and financial markets chug along. In fact, one of the few large economies not following an upward path is Britain, whose pending exit from the European Union is taking a toll. Having grown at an average annual pace of just over 2% from 2012 to 2016, the British economy is expanding just 1.5% this year. [..] “We are in a boom today, but we should not forget that the financial system is still relatively unstable,” said Jim Reid, a credit strategist at Deutsche Bank.

Mr. Reid, who spices up his market analyses by regaling clients with pop songs on the piano, recently published a detailed study on what he expects will be the causes of the next global financial crisis. Pick your poison: an abrupt slowdown in China, the rise of populism, debt problems in Japan or an ugly outcome to Britain’s move to leave the European Union. His overriding worry, though, is that investors and policy makers aren’t prepared for what will happen when global central banks put a halt to their easy-money policies. Since the 2008 crisis, Mr. Reid noted, central banks have accumulated more than $14 trillion in assets — an amount that exceeds the annual output of China by $3 trillion. What happens when the central banks all start to sell? “This is unprecedented,” Mr. Reid said. “And no one knows what the outcome will be.”

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Compressed volatility.

Flatliners (NT)

We find ourselves in a very unique point in history and in a world dominated by false narratives. It is a challenge to keep an analytical grip on reality, but I’ll try to tie a few threads together here to put everything in a macro context. Firstly the underlying base reality: Free money, easy money, whatever you want to call it, permeates everything we see in financial markets. Indeed I would argue price appreciation has been paid for with unprecedented and, in my view, unsustainable volatility compression. A couple of charts really highlight this. Most clearly perhaps is the precise trend line tagging we can observe in the correlated picture of price appreciation and volatility compression since the February 2016 lows:

The $VIX’s corollary, the inverse $XIV, embarked on an explosive near one way journey since the US election coinciding with over $2 trillion central bank intervention in just the first 9 months of 2017:

And it has continued to this day and just made another all time high this past week on a massive negative divergence. It is the magnitude of this volatility compression that explains the current trading environment we find ourselves in. Aside from the obvious artificial liquidity avalanche we’ve had speculated about the driver of all this and the answer may simply be the promise of even more free money, specifically tax cuts. As some of you may recall from my analysis over the past year I’ve been very clear that math ultimately will bring out truth in any narrative. In this case that notion that tax cuts pay for themselves is a fantasy. It always has been. Can it result in a short term bump in spending or even growth? Yes it is possible, especially if structured right.

But any historical analysis will show you that tax cuts, especially already coming from a relatively low base, will just add to debt via larger deficits. Recently the White House budget director finally acknowledged this very reality: “a tax plan that doesn’t add to the deficit won’t spur growth” My criticism has been that all this marketing talk is simply a lie and will structurally put the country further at risk of trillion dollar deficits and a massive debt explosion that is already baked in even without tax cuts.

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But he makes no attempt to apologize?!

Schäuble: Another Financial Crisis Is Coming Due To Spiraling Global Debt (ZH)

Schauble warned that the world was in danger of “encouraging new bubbles to form”. “Economists all over the world are concerned about the increased risks arising from the accumulation of more and more liquidity and the growth of public and private debt. I myself am concerned about this, too,” he said echoing the concern voiced just one day earlier by IMF head Christine Lagarde, said the world was enjoying its best growth spurt since the start of the decade, but warned of “threats on the horizon” from “high levels of debt in many countries to rapid credit expansion in China, to excessive risk-taking in financial markets”. Schäuble also echoed the latest warning from the BIS, which last month said that the world had become so used to cheap credit that higher interest rates could derail the global economic recovery.

Meanwhile, Schäuble defended austerity, saying the word was, “strictly speaking, an Anglo-Saxon way of describing a solid financial policy which doesn’t necessarily see more, or higher deficits as a good thing.” The soon to be former finance minister also took a pot shot at the UK: “The UK always made fun of Rhineland capitalism,” he said, contrasting Germany’s consensus-driven, social market model with Anglo-American free markets and deregulation. “[But] we have seen that the tools of the social market economy were more effective at dealing with the [financial] crisis…than in the places where the crisis arose.”

Of course, Germany’s success – almost entirely a function of the common currency which has effectively kept the Deutsche Mark from soaring – has come at the expense of crisis after crisis among Europe’s southern states. Unfortunately it has resulted in an entire generation of unemployed youth in countries like Greece, Italy and Spain. Still, in keeping with his dour image, Schäuble’s last words were pessimistic: “We have to ensure that we will be resilient enough if we ever face a new economic crisis,” he added. “We won’t always have such positive economic times as we have now” concluded the jolly 75-year-old. Perhaps Wolfi is worrying too much: after all, according to Janet Yellen, “we will not see another crisis in our lifetime.” And if we do, well central banks are primed and ready to injects trillions more to keep the artificial “recovery” and market “all time highs” can kicked just a little bit further.

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They’ll screw this one up, too.

EU Plan To Prevent Bank Runs Could Backfire, Create Panic (BBG)

Three years since their banking union began to take shape, European Union regulators are seeking fresh powers to deal with lenders in trouble. Their plan would let them stop withdrawals from a failing bank for a few days while they address the problem, with the aim of preventing a run. But this approach could easily have the opposite effect, spreading panic to the whole financial system. There’s a better way. Instead of freezing bank accounts, EU governments should enable regulators to keep a bank going while they restructure it and search for a new owner. This will require EU governments to commit additional resources for the task. The ECB and the euro zone’s Single Resolution Board have been calling for the power to freeze bank accounts – a so-called moratorium – since the swift resolution of Banco Popular in June.

They succeeded in winding down the troubled Spanish lender by selling it to rival Banco Santander, but had to do it on a weekday night with a run on deposits in progress. The regulators say that next time it might be impossible to find a buyer overnight. A moratorium would relieve that pressure and perhaps allow them to sell the bank at a better price. This approach would mirror an arrangement which is currently in place in Germany, and it’s superficially appealing: Closing a bank would certainly stop a run. But it could also have unintended consequences. Depositors may run from a bank in trouble sooner — fearing that if they wait too long they may not be able to withdraw their money. It could also lead depositors to empty their accounts as soon as the bank re-opens. Most dangerous of all, freezing accounts in one bank could spread panic to the rest of the system, as other depositors fear the same will happen to them.

The idea also puts international cooperation on bank resolution at risk. The EU regulators’ plan threatens to disrupt measures put in place after the bankruptcy of Lehman Brothers in 2008. Bank of England economists recently warned in a working paper that adopting the new moratorium might prompt banks to back out of the existing arrangements for handling financial emergencies.

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An extensive look at crypto. Much better than the headline makes you think.

Hackers And Fraudsters Are Causing Cryptocurrency Chaos (Ind.)

Cryptocurrencies were supposed to offer a secure, digital way to conduct financial transactions but they have been dogged by doubts. Concerns have largely focused on their astronomical gains in value and the likelihood of painful price crashes. Equally perilous, though, are the exchanges where virtual currencies are bought, sold and stored. These exchanges, which match buyers and sellers and sometimes hold traders’ funds, have become magnets for fraud and mires of technological dysfunction, posing an underappreciated risk to anyone who trades digital coins. Huge sums are at stake. As the prices of bitcoin and other virtual currencies have soared this year – bitcoin has quadrupled – legions of investors and speculators have turned to online exchanges.

Billions of dollars’ worth of bitcoins and other cryptocurrencies, which aren’t backed by any governments or central banks, are now traded on exchanges every day. “These are new assets. No one really knows what to make of them,” said David L Yermack, chairman of the finance department at New York University’s Stern School of Business. “If you’re a consumer, there’s nothing to protect you.” Regulators and governments are still debating how to handle cryptocurrencies, and Mr Yermack says the US Congress will ultimately have to take action. Some of the freewheeling exchanges are plagued with poor security and lack investor protections common in more regulated financial markets. Some Chinese exchanges have falsely inflated their trading volume to lure new customers, according to former employees.

There have been at least three dozen heists of cryptocurrency exchanges since 2011; many of the hacked exchanges later shut down. More than 980,000 bitcoins have been stolen, which today would be worth about $4bn. Few have been recovered. Burned investors have been left at the mercy of exchanges as to whether they will receive any compensation. Nearly 25,000 customers of Mt. Gox, once the world’s largest bitcoin exchange, are still waiting for compensation more than three years after its collapse into bankruptcy in Japan. The exchange said it lost about 650,000 bitcoins. Claims approved by the bankruptcy trustee total more than $400m.

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Not without China, no.

Is This The Geopolitical Shift Of The Century? (OP)

The geopolitical reality in the Middle East is changing dramatically. The impact of the Arab Spring, the retraction of the U.S. military, and diminishing economic influence on the Arab world – as displayed during the Obama Administration – are facts. The emergence of a Russian-Iranian-Turkish triangle is the new reality. The Western hegemony in the MENA region has ended, and not in a shy way, but with a long list of military conflicts and destabilization. The first visit of a Saudi king to Russia shows the growing power of Russia in the Middle East. It also shows that not only Arab countries such as Saudi Arabia and the UAE, but also Egypt and Libya, are more likely to consider Moscow as a strategic ally.

King Salman’s visit to Moscow could herald not only several multibillion business deals, but could be the first real step towards a new regional geopolitical and military alliance between OPEC leader Saudi Arabia and Russia. This cooperation will not only have severe consequences for Western interests but also could partly undermine or reshape the position of OPEC at the same time. Russian president Vladimir Putin is currently hosting a large Saudi delegation, led by King Salman and supported by Saudi minister of energy Khalid Al Falih. Moscow’s open attitude to Saudi Arabia—a lifetime Washington ally and strong opponent of the growing Iran power projections in the Arab world—show that Putin understands the current pivotal changes in the Middle East.

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Direct result of Turkey’s deal with Russia on Syria.

Tensions Rise As US, Turkey Halt Visitor Visas, Send Lira Tumbling (BBG)

The U.S. and Turkey each suspended visa services for citizens looking to visit the other country, a sharp escalation of a diplomatic spat that sent the lira down more than 6% against the U.S. dollar. The moves followed the Oct. 4 arrest of a Turkish national who works at the U.S. consulate in Istanbul for alleged involvement in the July 2016 coup attempt against President Recep Tayyip Erdogan. Hours after the Trump administration halted visa services in Turkey on Sunday, Erdogan’s government responded in kind, even repeating verbatim much of the U.S. statement. Both sides said “recent events” had forced them to “reassess the commitment” of the other to the security of mission facilities and personnel.

Only two weeks ago, U.S. President Donald Trump had heaped praise on Erdogan when they met on the sidelines of the United Nations General Assembly in New York, saying the Turkish leader “is becoming a friend of mine” and “frankly, he’s getting high marks.” The U.S. on Thursday called charges against the man “wholly without merit,” saying it was “deeply disturbed” by the arrest and “by leaks from Turkish government sources seemingly aimed at trying the employee in the media rather than a court of law.” Turkey responded by saying the arrested Turkish citizen wasn’t part of the U.S. Consulate’s staff but a “local employee.” The lira was at 3.7323 per dollar as of 10:37 a.m. in Singapore on Monday, down more than 3% from Friday’s close, and touched as low as 3.8533. The currency is heading for a seventh day of declines, the longest stretch since May 2016.

Relations between Turkey, a NATO member, and some Western countries soured after the failed 2016 coup. Erdogan has accused U.S.-based Turkish preacher Fethullah Gulen of organizing the attempted overthrow, and has become increasingly impatient with the U.S. for not turning him over. “I would expect that there will be some sort of de-escalation at the leadership level – Trump and Erdogan will speak or meet,” said Murat Yurtbilir, who specializes in Turkish affairs at the Australian National University. “But the underlying problems won’t go away: the Gulen issue, Turkey’s slow switch toward Russia’s policy in Syria and the economy. ”

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But but but….

Sanctions Against Russia Have Cost European Union €30 Billion (RT)

New research by the Austrian Institute of Economic Research (WIFO) suggests the EU’s economic sanctions against Russia introduced three years ago have cost European countries billions of euro. The survey, which was conducted at the request of the European Parliament and published on Friday, showed EU exports to Russia declining annually by 15.7% since 2014. Up to 40% of that decrease was due to sanctions, it said. As a result of the penalties, Russia has lost its place as EU’s fourth largest trading partner and currently ranks fifth behind the US, Switzerland, China, and Turkey. WIFO calculated EU exports to Russia nosedived from €120 billion four years ago to €72 billion in 2016. According to the research, Cyprus was hit most as exports to Russia plunged 34.5% over the past two years. Greece suffered a 23.2% fall; Croatia’s exports were down 21%.

Austrian exports to Russia dropped by almost ten% or by €1 billion, WIFO said. Poland and the UK have lost €3 billion each. The researchers said the impact of sanctions was most damaging during the first year, as “not much progress has been made in switching trade flows to other countries.” EU sanctions against Russia were introduced in 2014 over the country’s alleged involvement in the conflict in eastern Ukraine. The penalties targeted Russia’s financial, energy, and defense sectors, along with some government officials, businessmen, and public figures. Moscow responded by imposing an embargo on agricultural produce and food and raw materials on countries that joined the anti-Russian sanctions. Since then the sides have repeatedly broadened and extended the restrictive measures.

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“You can always write a law and claim it is unconstitutional to separate. That does not make it legal, moral, or ethical.”

Moreover, it contradicts the UN Charter.

Spain is the Blueprint for How All Governments Will Act (Martin Armstrong)

What is going on in Spain is the blueprint what what other governments will do. The Spanish people themselves outside of Catalonia are deeply divided. Many see this as offensive and others see the government as offensive. We are looking at the breakup of the USA as well and do not forget the civil war to prevent separatists in America. The real issue is that people ban together for creating society and civilization and then government abuses its power and the process of decline begins. This is throughout history and it really does not matter what culture or country. It is all the same. Spain’s Constitutional Court, the puppet of Rajoy, on Thursday ordered the suspension of Monday’s session of the regional Catalan parliament. Rajoy is demonstrating that government will not tolerate losing power.

You can always write a law and claim it is unconstitutional to separate. That does not make it legal, moral, or ethical. Reuters reported: “The suspension order further aggravated one of the biggest crises to hit Spain since the establishment of democracy on the 1975 death of General Francisco Franco. But Spanish markets rose on perceptions the order might ward off, at least for now, an outright independence declaration.” The structure of the EU in attempting to federalize Europe required a single federal debt. That is what they failed to do so you ended up with a half-baked cake. This is why we have the problems in Europe as we do. But make no mistake about it, this is a political problem and what happens in Europe will be a contagion as it was in 1931. This will eventually cause major problems politically in the States as well.

Justice Scalia I greatly admired. However, his letter on the separatist movement in the USA said that the civil war decided there was no right to separate. I disagree with that opinion, but that is my opinion. There are those who object to my writing about Catalonia from the Madrid side. They create a list of hateful names directed at me personally and then say I know nothing of Spain. They are making the same mistake as government. They assume that government and Rajoy is Spain. The people are the sovereign of Spain – not Rajoy nor his Constitutional Court. If you cannot see that government is supposed to be “elected” by the people, they are not to be the ruler of the people as some monarch, they you have missed the entire point of history. You can hate me all you want, but it is your life you are surrendering to government and that of your posterity. We have a choice. We either understand that government when unchecked will go too far and surrender as sheep, or we stand up and try to make the future better for our posterity.

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Someone better intervene.

Catalans Call for Talks as Spain Enters Crunch Week (BBG)

A senior member of the Catalan administration called for dialogue with Spain, warning that all of Europe faces economic damage unless a resolution is found to his region’s standoff with the central government in Madrid. After a weekend of mass demonstrations in favor of Spanish unity, Raul Romeva, foreign affairs chief for the separatist government in Barcelona, insisted that the door was open for talks if Prime Minister Mariano Rajoy would grasp the chance of dialogue. “We need two to tango, we need the other side to be at the table,” Romeva said in an interview in Barcelona on Sunday. “We’re always going to be at the negotiation table, but to start negotiations we need the other party to negotiate with.”

The hint of an olive branch came as both sides hurtle toward crunch time in a dispute that threatens the breakup of Spain. Catalan President Carles Puigdemont has vowed to press ahead with his independence drive in a declaration due as soon as Tuesday, while Rajoy pledged that “national unity will be maintained” by using all instruments available to him. “The risk of this getting a lot worse, with correspondingly bad market development for Spanish assets, is still too great for my risk appetite,” said Erik Nielsen, chief economist at UniCredit. He predicted at least another week of pressure on Spanish and Catalan debt and assets before “things will eventually normalize.”

[..] Romeva invoked the crisis in the euro area that sent yields soaring on Spanish government debt and curbed access to finance, warning that the economic fallout of any worsening of the situation won’t be limited to Catalonia. “This simply won’t affect the Catalan economy, it’s going to affect the Spanish economy, it’s going to affect the European economy,” Romeva said. He blamed Madrid for causing the political uncertainty that’s prompted a stampede for the exit. “What causes uncertainty is the incapability of the political central state – or the Spanish state – to provide a political solution,” he said.

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Since Greece entered the bailout mechanism, foreclosures are down by 89%. Good.

Greece Foreclosures Target Seems Unattainable (K.)

Foreclosures, which have been practically frozen for the last eight years, represent the credit system’s Achilles’ heel. The impact from the paralysis of the auction system is already obvious in banks’ financial results on the reduction of nonperforming loans and threatens to undermine the target set for containing nonperforming exposures (NPEs). The ECB’s Single Supervisory Mechanism (SSM) has asked Greek lenders to bring down their NPEs by €11.5 billion through liquidations (property auctions) up to 2019. Meeting this target requires foreclosures worth €5.5 billion per year while takings from auctions have been poor.

The foreclosures scheduled for this year only concern 5,600 properties, worth €1.1 billion. This is the smallest number of auctions in recent years, given that 2016 (when auctions were held for 4,800 properties) was practically wasted due to protracted strikes by Greece’s lawyers and notaries. This year’s figures actually concern mostly auctions demanded by the state or private lenders, while banks have only instigated few auctions, mainly concerning commercial or industrial properties. For comparison purposes, one has to see the statistics from 2009, before Greece entered the bailout mechanism, when foreclosures numbered 52,000 and their value reached €4.2 billion. This means an 89% drop since then.

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I’ve said it before: the EU is the mafia.

Nearly There, But Never Further Away (FP)

The guard forced the migrants to kneel and began barking orders in Arabic, a language that few of the once-hopeful souls who had traveled to Libya from sub-Saharan Africa spoke. A gaunt, elderly man in ripped jeans and a tattered T-shirt failed to comply. The guard, wearing a crisp new uniform emblazoned with the insignia of Libya’s anti-illegal immigration police division, raised his wooden club and brought it down hard on the man’s back, driving him face down into the ground with the first blow. It was early May, three weeks after the staff at the Triq al-Sikka migrant detention center in the Libyan capital of Tripoli had received human rights training from the International Organization for Migration (IOM). The guard struck the elderly man again on the back and clubbed the back of his legs.

Then he moved methodically down the line of kneeling migrants, beating each man as if he were responsible for his fellow prisoner’s infraction. Cries of pain echoed through the barren, warehouse-like facility, where more than 100 half-starved migrants were locked away in crowded cells. Some had been there for months, enduring regular beatings and surviving on a few handfuls of macaroni and a single packet of juice each day. Others had recently been rounded up off the streets in raids targeting black African migrants. Soon after the beatings began, other guards at the facility noticed my presence and quickly ushered me into a waiting area outside the well-appointed office of Col. Mohamed Beshr, the urbane head of Libya’s anti-illegal immigration police.

Beshr is a key player in recent joint EU-Libyan efforts to halt migration to Europe, including intercepting migrants at sea and detaining them on land. He has welcomed high-level European diplomats and U.N. representatives to the Triq al-Sikka facility, and his office is filled with certificates from workshops run by IOM, the European Union, and Britain’s development agency. Yet Beshr seemed frustrated by my questions about the abuses openly taking place at the detention center he oversaw. To hear him tell it, his European partners cared about only one thing, even if they wouldn’t say it: preventing migrants from showing up on Italy’s shores. “Are they looking for a real solution to this humanitarian crisis?” Beshr asked, smirking and raising his eyebrows. “Or do they just want us to be the place where migrants are stopped?”

Eighteen months after the EU unveiled its controversial plan to curb illegal migration through Libya — now the primary point of departure for sub-Saharan Africans crossing the Mediterranean Sea to Europe — migrants have become a commodity to be captured, sold, traded, and leveraged. Regardless of their immigration status, they are hunted down by militias loyal to Libya’s U.N.-backed government, caged in overcrowded prisons, and sold on open markets that human rights advocates have likened to slave auctions. They have been tortured, raped, and killed — abuses that are sometimes broadcast online by the abusers themselves as they attempt to extract ransoms from migrants’ families.

The detention-industrial complex that has taken hold in war-torn Libya is not purely the result of a breakdown in order or the work of militias run amok in a state of anarchy. Visits to five different detention centers and interviews with dozens of Libyan militia leaders, government officials, migrants, and local NGO officials indicate that it is the consequence of hundreds of millions of dollars in pledged and anticipated support from European nations as they try to stem the flow of unwanted migrants toward their shores.

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Oct 082017
 
 October 8, 2017  Posted by at 8:19 am Finance Tagged with: , , , , , , , ,  5 Responses »


Georgia O’Keeffe Street of New York II 1926

 

Bleak Legacy Of The Greek Crisis (K.)
The Truth Is Catching Up With Tesla (WSJ)
DOD, HUD Defrauded US Taxpayers Of $21 Trillion From 1998 To 2015 (MPN)
1.34 Million Chinese Officials Have Been Punished For Graft Since 2013 (R.)
The Coming Pension Storm May Be The End Of Europe As We Know It (Mauldin)
Uncle Sam’s Unfunded Promises (Mauldin)
How I Learnt To Loathe England (Joris Luyendijk)
Imperialism Still Stops Britain From Grasping How It Looks To The World (PM)
Federal Police Stay, No Talks & No Independent Catalonia – Spanish PM (RT)
Splits In EU Could See Bloc Topple: Polish President (PAP)
Antibiotic Apocalypse (G.)
Want To Avert The Apocalypse? Take Lessons From Costa Rica (G.)

 

 

From the Read and Weep department.

Bleak Legacy Of The Greek Crisis (K.)

Quarterly figures released by Greece’s statistical authority (ELSTAT) last week point to a range of interesting, albeit worrying, trends. Beyond the economy (the surpluses, the debt and the gross domestic product, which appears to be on the slow path of recovery after a decade of constant decline), ELSTAT’s “Greece in Numbers” survey highlights a multitude of structural shortcomings and widespread impoverishment that are undermining the country’s long-term prospects. Demographic trends are among ELSTAT’s most alarming findings. According to the survey, Greece’s dependency ratio – which acts as an indicator of the balance between the working population and older people typically supported by it – has increased from 51.8 in 2011 to 55.2 in 2015 (most recent data).

Meanwhile, the aging index, or the proportion of persons aged 60 years and above per 100 persons under the age of 15, rose from 132.9 in 2011 to 145.5 in 2015. Over the same period, the fertility index dropped from 1.5 to 1.3. (2.1 live births per woman is considered the replacement level in developed countries). Greece had a negative birth to death ratio every year in the past five years, as the deficit rose from 16,297 in 2012 to 29,365 in 2015 (the number last year declined to 25,894). In 2016, moreover, the Greek unemployment rate was 23.5% of the workforce (1.195 million people) – the lowest in five years. However, jobless numbers remain extremely high, with the highest figure being recorded in 2013 at 1.33 million unemployed persons, or 27.5% of the workforce.

ELSTAT data on long-term unemployment expose another dramatic dimension of the crisis, as the rate of people out of work for 12 months or more climbed from 59.1% in 2012 to 72% in 2016. The overwhelming majority of these people receive no state benefits. The belt-tightening imposed by the country’s lingering recession is confirmed by data on average monthly household spending on goods and services. Spending has plunged from 1,824.02 euros in 2011 to 1,419.57 euros in 2015. Meanwhile, annual household expenditure on health (which tends to be inelastic) dipped from 114.58 euros to 107.06 euros over the same period. However, annual spending on food has seen a sharp decline from 355.05 euros to 293.30 euros, while spending on hotels, cafes and restaurants has also dropped from 189.11 euros to 141.05 euros.

ELSTAT figures also show a spike in the share of the population that is deprived of at least three out of nine material necessities due to financial difficulties – the ability to pay unexpected expenses, to take a one-week annual holiday away from home, to enjoy a meal involving meat, chicken or fish every second day, to have adequate heating for their home, to purchase durable goods like a washing machine, color television, telephone or car, to cover payment arrears for the mortgage or rent, utility bills, hire purchase installments or other loan payments. This figure rose from 28.4% in 2011 to 38.5% last year (42.3% among persons aged up to 17 years old).

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Jim Kunstler not long ago published a book entitled World Made by Hand. Turns out Tesla’s are made by hand. There’s poetic justice in there somewhere.

The Truth Is Catching Up With Tesla (WSJ)

New revelations about Tesla’s production of the highly anticipated Model 3 sedan should shock, but not surprise, investors. The Wall Street Journal reported Friday that Tesla has recently been building major portions of the Model 3 by hand. This comes less than a week after Tesla announced it fell short of its third-quarter production guidance of 1,500 cars by more than 80%. At the time, Tesla attributed the shortfall to “production bottlenecks.” On Friday, Tesla said it would postpone its launch event for a new truck to November to deal with Model 3 issues and to help provide assistance to Puerto Rico. Tesla Chief Executive Elon Musk is known as a risk-taker, which has endeared him to Wall Street analysts and investors alike.

There is a fine line, however, between setting aggressive goals and misleading shareholders. Tesla is inching closer to that line. Tesla was making three Model 3s on an average day in the third quarter. Mr. Musk should have known in August, when production guidance was reiterated, that the company wasn’t going to produce 1,500 Model 3s by the end of September. There are other examples. At the Model 3 launch event in July, he told reporters that Tesla had received more than 500,000 customer deposits for the car. Five days later, after a series of questions from The Wall Street Journal, Mr. Musk revised that number to 455,000 on a conference call with investors. The earlier, higher figure he quoted had been “just a guess.”

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Creative accounting gone berserk.

DOD, HUD Defrauded US Taxpayers Of $21 Trillion From 1998 To 2015 (MPN)

Last year, a Reuters article brought renewed scrutiny to the budgeting practices of the U.S. Department of Defense (DOD), specifically the U.S. Army, after it was revealed that the department had “lost” $6.5 trillion in 2015 due to “wrongful budget adjustments.” Nearly half of that massive sum, $2.8 trillion, was lost in just one quarter. Reuters noted that the Army “lacked the receipts and invoices to support those numbers [the adjustments] or simply made them up” in order to “create an illusion that its books are balanced.” Officially, the DOD has acknowledged that its financial statements for 2015 were “materially misstated.” However, this was hardly the first time the department had been caught falsifying its accounting or the first time the department had mishandled massive sums of taxpayer money.

The cumulative effect of this mishandling of funds is the subject of a new report authored by Dr. Mark Skidmore, a professor of economics at Michigan State University, and Catherine Austin Fitts, former assistant secretary of housing. Their findings are shocking. The report, which examined in great detail the budgets of both the DOD and the Department of Housing and Urban Development (HUD), found that between 1998 and 2015 these two departments alone lost over $21 trillion in taxpayer funds. The funds lost were a direct result of “unsupported journal voucher adjustments” made to the departments’ budgets. According to the Office of the Comptroller, “unsupported journal voucher adjustments” are defined as “summary-level accounting adjustments made when balances between systems cannot be reconciled.

Often these journal vouchers are unsupported, meaning they lack supporting documentation to justify the adjustment [receipts, etc.] or are not tied to specific accounting transactions.” The report notes that, in both the private and public sectors, the presence of such adjustments is considered “a red flag” for potential fraud. The amount of money lost is truly staggering. As co-author Fitts noted in an interview with USA Watchdog, the amount unaccounted for over this 17 year period amounts to “$65,000 for every man, woman and child resident in America.” By comparison, the cost per taxpayer of all U.S. wars waged since 9/11 has been $7,500 per taxpayer. The sum is also enough to cover the entire U.S. national debt, which broke $20 trillion less than a month ago, and still have funds left over. What’s more, the actual amount of funds lost — measured at $21 trillion – is likely to be much higher, as the researchers were unable to recover data for every year over the period, meaning the assessment is incomplete.

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Corruption rules the world.

1.34 Million Chinese Officials Have Been Punished For Graft Since 2013 (R.)

China’s anti-graft watchdog said roughly 1.34 million lower-ranking officials have been punished since 2013 under President Xi Jinping’s anti-corruption drive. Xi, who is preparing for a major Communist Party leadership conference later this month, has made an anti-graft campaign targeting “tigers and flies,” both high and low ranking officials, a core policy priority during his five-year term. China is preparing for the 19th Congress later this month, a twice-a-decade leadership event where Xi is expected to consolidate power and promote his policy positions.

Those punished for graft since 2013 include 648,000 village-level officials and most crimes were related to small scale corruption, said the Central Commission for Discipline Inspection (CCDI) on Sunday. While much of the country’s anti-graft drive has targeted lower ranking village and county officials, several high-ranking figures have been taken down. In August the head of the anti-graft committee for China’s Ministry of Finance was himself put under investigation for suspected graft.

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John Mauldin is doing a series on pensions. He covered the US a few weeks ago, this is a chapter from his analysis of Europe.

The Coming Pension Storm May Be The End Of Europe As We Know It (Mauldin)

Switzerland and the UK have mandatory retirement pre-funding with private management and modest public safety nets, as do Denmark, the Netherlands, Sweden, Poland, and Hungary. Not that all of these countries don’t have problems, but even with their problems, these European nations are far better off than some others. The European nations noted above have nowhere near the crisis potential that the next group does: France, Belgium, Germany, Austria, and Spain. They are all pay-as-you-go countries (PAYG). That means they have nothing saved in the public coffers for future pension obligations, and the money has to come out of the general budget each year. The crisis for these countries is quite predictable, because the number of retirees is growing even as the number of workers paying into the national coffers is falling.

Let’s look at some details. Spain was hit hard in the financial crisis but has bounced back more vigorously than some of its Mediterranean peers did, such as Greece. That’s also true of its national pension plan, which actually had a surplus until recently. Unfortunately, the government chose to “borrow” some of that surplus for other purposes, and it will soon turn into a sizable deficit. Just as in the US, Spain’s program is called Social Security, but in fact it is neither social nor secure. Both the US and Spanish governments have raided supposedly sacrosanct retirement schemes, and both allow their governments to use those savings for whatever the political winds favor.

The Spanish reserve fund at one time had €66 billion and is now estimated to be completely depleted by the end of this year or early in 2018. The cause? There are 1.1 million more pensioners than there were just 10 years ago. And as the Baby Boom generation retires, there will be even more pensioners and fewer workers to support them. A 25% unemployment rate among younger workers doesn’t help contributions to the system, either. Overall, public pension plans in the pay-as-you-go countries would now replace about 60% of retirees’ salaries. Plus, several of these countries let people retire at less than 60 years old. In most countries, fewer than 25% of workers contribute to pension plans. That rate would have to double in the next 30 years to make programs sustainable. Sell that to younger workers.

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Here’s Mauldin on US pensions etc. I added a graph which shows that individuals save less just as Uncle Sam loses control of promises made.

Uncle Sam’s Unfunded Promises (Mauldin)

I have to warn you: You may be hopping mad when you finish reading this. In the United States we have two national programs to care for the elderly. Social Security provides a small pension, and Medicare covers medical expenses. All workers pay taxes that supposedly fund the benefits we may someday receive. That’s actually not true, as we will see in a little bit. Neither of these programs is comprehensive. Living on Social Security benefits alone is a pretty meager existence. Medicare has deductibles and copayments that can add up quickly. Both programs assume people have their own savings and other resources. Nevertheless, the programs are crucial to millions of retirees, many of whom work well past 65 just to keep up with their routine expenses. This chart from my friend John Burns shows the growing trend among generations to work past age 65. Having turned 68 a few days ago, I guess I’m contributing a bit to the trend:

Limited though Social Security and Medicare are, we attribute one huge benefit to them: They’re guaranteed. Uncle Sam will always pay them – he promised. And to his credit, Uncle Sam is trying hard to keep his end of the deal. In fact, he’s running up debt to do so. Actually, a massive amount of debt. Federal debt as a percentage of GDP has almost doubled since the turn of the century. The big jump occurred during the 2007–2009 recession, but the debt has kept growing since then. That’s a consequence of both higher spending and lower GDP growth. In theory, Social Security and Medicare don’t count here. Their funding goes into separate trust funds. But in reality, the Treasury borrows from the trust funds, so they simply hold more government debt.

The Treasury Department tracks all this, and you can read about it on their website, updated daily. Presently it looks like this: • Debt held by the public: $14.4 trillion • Intragovernmental holdings (the trust funds): $5.4 trillion • Total public debt: $19.8 trillion. Total GDP is roughly $19.3 trillion, so the federal debt is about equal to one full year of the entire nation’s collective economic output. In fact, it’s even more when you consider that GDP counts government spending as “production,” even when Uncle Sam spends borrowed money. Of course, that total does not count the $3 trillion-plus of state and local debt, which in almost every other country of the world is included in their national debt numbers. Including state and local debt in US figures would take our debt-to-GDP above 115%. And rising.

An old statute requires the Treasury to issue an annual financial statement, similar to a corporation’s annual report. The FY 2016 edition is 274 enlightening pages that the government hopes none of us will read. Among the many tidbits, it contains a table on page 63 that reveals the net present value of the US government’s 75-year future liability for Social Security and Medicare. That amount exceeds the net present value of the tax revenue designated to pay those benefits by $46.7 trillion. Yes, trillions. Where will this $46.7 trillion come from? We don’t know. Future Congresses will have to find it somewhere. This is the fabled “unfunded liability” you hear about from deficit hawks. Similar promises exist to military and civil service retirees and assorted smaller groups, too. Trying to add them up quickly becomes an exercise in absurdity.

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Must read. Dutch anthropologist Joris wrote about the City for the Guardian. You’d almost wish this had been his topic instead for those 5 years.

How I Learnt To Loathe England (Joris Luyendijk)

When I came to live in London with my family in 2011 I did not have to think of a work or residency permit. My children quickly found an excellent state primary school, and after a handful of calls we enjoyed free healthcare, and the right to vote in local elections. The only real bureaucratic hassle we encountered that warm summer concerned a permit to park. It all seemed so smooth compared to earlier moves to the United States, Egypt, Lebanon and Israel/Palestine. Then again, this time we were moving in with our cousins—weren’t we? We had arrived as fellow Europeans, but when we left this summer to return to the Netherlands we felt more like foreigners: people tolerated as long as they behave. At best we were “European Union nationals” whose rights would be subject to negotiations—bargaining chips in the eyes of politicians.

As we sailed from Harwich, it occurred to me that our departure would be counted by Theresa May as five more strikes towards her goal of “bringing down net immigration to the tens of thousands.” The Dutch and the British have a lot in common, at first sight. Sea-faring nations with a long and guilty history of colonial occupation and slavery, they are pro free-trade and have large financial service industries—RBS may even move its headquarters to Amsterdam. Both tend to view American power as benign; the Netherlands joined the occupations of Afghanistan and Iraq. Shell, Unilever and Elsevier are just three examples of remarkably successful Anglo-Dutch joint ventures. I say “remarkably” because I’ve learned that in important respects, there is no culture more alien to the Dutch than the English (I focus on England as I’ve no experience with Wales, Scotland or Northern Ireland).

Echoing the Calvinist insistence on “being true to oneself,” the Dutch are almost compulsively truthful. Most consider politeness a cowardly form of hypocrisy. Bluntness is a virtue; insincerity and backhandedness are cardinal sins. So let me try to be as Dutch as I can, and say that I left the UK feeling disappointed, hurt and immensely worried. We did not leave because of Brexit. My wife and I are both Dutch and we want our children to grow roots in the country where we came of age. We loved our time in London and have all met people who we hope will become our friends for life. But by the time the referendum came, I had become very much in favour of the UK leaving the EU. The worrying conditions that gave rise to the result—the class divide and the class fixation, as well as an unhinged press, combine to produce a national psychology that makes Britain a country you simply don’t want in your club.

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Also from Prospect magazine, like the previous article.

Imperialism Still Stops Britain From Grasping How It Looks To The World (PM)

Amongst politicians as well as writers, a passing reference to fallen empires could invoke the aura of national decline far more efficiently than any statistic. As the 1950s gave way to the 60s, decolonisation picked up pace, and Ian Macleod, the pragmatic Colonial Secretary, did not stand in the way. But he did—perhaps ruefully—recall how the vanishing empire had once brought “consolation” to “this bright little, tight little island.” What was at stake was not any specific longing for a particular colonial enclave, but a generalised feeling of relegation to the confined spaces of England. Many a contemporary British observer advocated “going into Europe” as the only way to break this cycle of confusion and self-hatred. It took three attempts, with first Harold Macmillan and then Wilson being given the “Non” before Edward Heath finally secured entry in 1973.

With a bold commitment to a new corporate enterprise, it was hoped Britain’s lost latitude could at last be restored. Any material prosperity at stake seemed almost incidental to the emotional shock therapy that lay in store. The deed was done with little regard for the future of Australian butter or New Zealand lamb, but these were sentimental hankerings that most in Britain could happily do without. More recently, however, the tables have turned. The once liberating tonic of “Europe” has come to be seen as the cause of Britain’s confinement. What the likes of Hartley would have made of the current fetish for “Global Britain” leaves little to the imagination. Despite the passing of nearly 60 years, concerns about the proper scale of Britain not only permeate the airwaves but also play directly into political decision-making.

Take the overwhelming support for Trident in the House of Commons, for example, and the widespread belief, which defies publicly-available information about how its maintenance entirely depends on US goodwill, that it constitutes an “independent” nuclear deterrent. Consider, too, the endlessly-repeated claim, earnestly mouthed by ministers of all stripes as a self-evident truth, that the UK must somehow “punch above its weight on the world stage.” And consider, most pressingly, the suggestion that the rest of the world will be excited by the chance to haggle a bespoke British trade deal, despite ample indications to the contrary and the obvious perils of jeopardising access to the world’s largest single market for such risky returns.

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Main protests this weekend are aimed at getting parties to talk. Can Rajoy continue to resist that? Will Merkel let him?

Federal Police Stay, No Talks & No Independent Catalonia – Spanish PM (RT)

Madrid will use all legal means to stop Catalonia’s secession, PM Mariano Rajoy said, ruling out talks with separatists and vowing to keep federal police in the region, where 800 people were injured in a crackdown on last week’s independence referendum. In an interview with El Pais newspaper on Saturday, Spanish Prime Minister Rajoy indicated that he is not going to back down from his tough stance on Catalonia’s independence, reiterating that until the regional government abandons its intention to proclaim independence, no talks can take place. “As long as it does not go back to legality, I certainly will not negotiate,” Rajoy said, adding that while the Spanish government appreciates proposals to mediate between the national and Catalan governments, it will have to reject them.

“I would like to say one thing about mediation: we do not need mediators. What we need is that whoever is breaking the law and whoever has put themselves above the law rectifies their position,” the PM said. Rajoy further said that the national government will do whatever it takes to ensure that an independent Catalonia never happens. “We are going to prevent independence from occurring. That is why I can tell you with absolute frankness that it will not happen,” he said, adding that Madrid is within its rights to “take any decisions that the laws allow us,” depending on the way the crisis unravels. One of the actions that the Spanish government is considering taking if necessary is the enforcement of Article 155 of the Spanish Constitution, which enables the prime minister to dissolve the Catalonian government and call for snap local elections.

“I do not rule out anything that the law says,” Rajoy said of the option, adding that there is “no risk at all” that Spain will disintegrate. “Spain will not be divided and national unity will be maintained. We will use all the instruments that the legislation gives us,” he said. [..] The Catalonia dispute should be considered a challenge not only to Spain but also to the “great European project,” Rajoy argued, calling it “the battle of Europe.” “The battle of European values is under way and we have to win it,” he said, drawing parallels between such challenges to the European project from populist and separatist sentiments that have been gaining traction in Europe recently.

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January 1 2018, Bulgaria takes over EU presidency. They don’t want any immigrants.

Splits In EU Could See Bloc Topple: Polish President (PAP)

Poland does not agree to the European Union ordering countries to accept “forcibly relocated” migrants, President Andrzej Duda has said, warning that splits in the bloc could bring about its collapse. After Thursday’s talks with his Bulgarian counterpart in Warsaw, Duda said the European Union’s rules of unity mean “we work together … we do not try to force other countries into acting against their will and against their people”. “Which is why we do not agree to being dictated to, against the Polish people’s will, as regards the quota system, as regards forcible relocation of people to Poland,” Duda added.

In September 2015, when an earlier government was in power in Warsaw, EU leaders agreed that each country would accept a number of migrants over two years to alleviate the pressure on Greece and Italy, which have seen the arrival of tens of thousands of people from the Middle East. EU leaders agreed to relocate a total of about 160,000 migrants of more than two million people who arrived in Europe since 2015. But after coming to power in 2015, Poland’s conservative Law and Justice party, from which Duda hails, refused to honour that commitment. Poland now faces action from Brussels, which has threatened possible sanctions.

Speaking at a press conference after his meeting with Bulgarian President Rumen Radev, Duda said the future of the European Union was the main topic of talks, as Bulgaria prepares to take over the rotating presidency over the bloc at the beginning of next year. He added that Poland and Bulgaria had “the same position” on Europe’s migration crisis. Duda said that both countries want “preventative action”, which means protecting the European Union’s borders and sending aid to refugees and potential migrants “close to their countries”.

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Standard hospital procedures will become impossible.

“The world will face the same risks as it did before Alexander Fleming discovered penicillin in 1928.”

Antibiotic Apocalypse (G.)

Scientists attending a recent meeting of the American Society for Microbiology reported they had uncovered a highly disturbing trend. They revealed that bacteria containing a gene known as mcr-1 – which confers resistance to the antibiotic colistin – had spread round the world at an alarming rate since its original discovery 18 months earlier. In one area of China, it was found that 25% of hospital patients now carried the gene. Colistin is known as the “antibiotic of last resort”. In many parts of the world doctors have turned to its use because patients were no longer responding to any other antimicrobial agent. Now resistance to its use is spreading across the globe. In the words of England’s chief medical officer, Sally Davies: “The world is facing an antibiotic apocalypse.”

Unless action is taken to halt the practices that have allowed antimicrobial resistance to spread and ways are found to develop new types of antibiotics, we could return to the days when routine operations, simple wounds or straightforward infections could pose real threats to life, she warns. That terrifying prospect will be the focus of a major international conference to be held in Berlin this week. Organised by the UK government, the Wellcome Trust, the UN and several other national governments, the meeting will be attended by scientists, health officers, pharmaceutical chiefs and politicians. Its task is to try to accelerate measures to halt the spread of drug resistance, which now threatens to remove many of the major weapons currently deployed by doctors in their war against disease.

The arithmetic is stark and disturbing, as the conference organisers make clear. At present about 700,000 people a year die from drug-resistant infections. However, this global figure is growing relentlessly and could reach 10 million a year by 2050. The danger, say scientists, is one of the greatest that humanity has faced in recent times. In a drug-resistant world, many aspects of modern medicine would simply become impossible. An example is provided by transplant surgery. During operations, patients’ immune systems have to be suppressed to stop them rejecting a new organ, leaving them prey to infections. So doctors use immunosuppressant cancer drugs. In future, however, these may no longer be effective.

Or take the example of more standard operations, such as abdominal surgery or the removal of a patient’s appendix. Without antibiotics to protect them during these procedures, people will die of peritonitis or other infections. The world will face the same risks as it did before Alexander Fleming discovered penicillin in 1928. [..] “In the Ganges during pilgrimage season, there are levels of antibiotics in the river that we try to achieve in the bloodstream of patients,” says Davies. “That is very, very disturbing.”

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What are we waiting for?

Want To Avert The Apocalypse? Take Lessons From Costa Rica (G.)

A beautiful Central American country known for its lush rainforests and stunning beaches, Costa Rica proves that achieving high levels of human wellbeing has very little to do with GDP and almost everything to do with something very different. Every few years the New Economics Foundation publishes the Happy Planet Index – a measure of progress that looks at life expectancy, wellbeing and equality rather than the narrow metric of GDP, and plots these measures against ecological impact. Costa Rica tops the list of countries every time. With a life expectancy of 79.1 years and levels of wellbeing in the top 7% of the world, Costa Rica matches many Scandinavian nations in these areas and neatly outperforms the United States. And it manages all of this with a GDP per capita of only $10,000, less than one fifth that of the US.

In this sense, Costa Rica is the most efficient economy on earth: it produces high standards of living with low GDP and minimal pressure on the environment. How do they do it? Professors Martínez-Franzoni and Sánchez-Ancochea argue that it’s all down to Costa Rica’s commitment to universalism: the principle that everyone – regardless of income – should have equal access to generous, high-quality social services as a basic right. A series of progressive governments started rolling out healthcare, education and social security in the 1940s and expanded these to the whole population from the 50s onward, after abolishing the military and freeing up more resources for social spending. Costa Rica wasn’t alone in this effort, of course.

Progressive governments elsewhere in Latin America made similar moves, but in nearly every case the US violently intervened to stop them for fear that “communist” ideas might scupper American interests in the region. Costa Rica escaped this fate by outwardly claiming to be anti-communist and – horribly – allowing US-backed forces to use the country as a base in the contra war against Nicaragua. The upshot is that Costa Rica is one of only a few countries in the global south that enjoys robust universalism. It’s not perfect, however. Relatively high levels of income inequality make the economy less efficient than it otherwise might be. But the country’s achievements are still impressive. On the back of universal social policy, Costa Rica surpassed the US in life expectancy in the late 80s, when its GDP per capita was a mere tenth of America’s.

Today, Costa Rica is a thorn in the side of orthodox economics. The conventional wisdom holds that high GDP is essential for longevity: “wealthier is healthier”, as former World Bank chief economist Larry Summers put it in a famous paper. But Costa Rica shows that we can achieve human progress without much GDP at all, and therefore without triggering ecological collapse. In fact, the part of Costa Rica where people live the longest, happiest lives – the Nicoya Peninsula – is also the poorest, in terms of GDP per capita. Researchers have concluded that Nicoyans do so well not in spite of their “poverty”, but because of it – because their communities, environment and relationships haven’t been ploughed over by industrial expansion.

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Oct 072017
 
 October 7, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , ,  4 Responses »


Vincent van Gogh Landscape at twilight 1890

 

BLS Caught Fabricating Wage Data (ZH)
Tropical Storm Nate Heads Into The Heart Of US Offshore Oil Industry (CNBC)
It’s ‘Crunch Time’ For Australian Households (BI)
JPMorgan Paid Fine for 2008 Mortgage Crisis With .. Phony Mortgages (N.)
EU Official Warns War a Possibility in Catalonia (VoA)
Spain Apologizes, Tone Softens In Catalonia Independence Crisis (R.)
OECD New Approaches to Economic Challenges (Steve Keen)
Mainstream Economists Live In A Parallel Universe (Ren.)
Light It Up (Jim Kunstler)
Russiagate Is More Fiction Than Fact (Nation)
Your Local Bank Could Be the Central Bank (BBG)
US Escalates Trade Dispute With UK And Canada Over Bombardier (G.)
Canada Will Pay Compensation To Thousands Of Indigenous ‘Stolen Children’ (R.)
FDP Chief Says Schaeuble ‘Not Tough Enough’ On Greece (K.)
Greece’s Ruling Syriza Party Falls Apart (K.)
Overcrowded Greek Refugee Camps Ill-Prepared For Winter: UNHCR (R.)

 

 

And loses 33,000 jobs while unemployment falls?! And 935,000 full time jobs are added. Time to stop paying any attention to the B(L)S. You can’t trust it.

BLS Caught Fabricating Wage Data (ZH)

[..] the BLS reported that the annual increase in Average Weekly Earnings was a whopping 2.9%, above the 2.5% expected, and above the 2.5% reported last month. On the surface this was a great number, as the 2.9% annual increase – whether distorted by hurricanes or not – was the highest since the financial crisis. However, a problem emerges when one looks just one month prior, at the revised August data. What one sees here, as Andrew Zatlin of South Bay Research first noted, is that while the Total Private Average Weekly Earnings line posted another solid increase of 0.2% month over month, an upward revision from the previous month’s 0.1%, when one looks at the components, it become clear that the BLS fabricated the numbers, and may simply hard-coded its spreadsheet with the intention of goalseeking a specific number.

Presenting Exhibit 1: Table B-3 in today’s jobs report. What it shows is that whereas there was a sequential decline in the Average Weekly Earnings for Goods Producing and Private Service-producing industries which are the only two sub-components of the Total Private Line (and are circled in red on the table below) of -0.8% and -0.1% respectively, the BLS also reported that somehow, the total of these two declines was a 0.2% increase! Another way of showing the July to August data: • Goods-Producing Weekly Earnings declined -0.8% from $1,118.68 to $1,109.92 • Private Service-Providing Weekly Earnings declined -0.1% from $868.80 to $868.18 • And yet, Total Private Hourly Earnings rose 0.2% from $907.82 to $909.19. What the above shows is, in a word, impossible: one can not have the two subcomponents of a sum-total decline, while the total increases. The math does not work.

This, as Zatlin notes, undermines not only the labor inflation narrative, but it puts into question the rest of the overall labor data, and whether there are other politically-motivated, goalseeked “spreadsheet” errors. We have sent an email to the BLS seeking an explanation for the above data fabrication, meanwhile here is what likely happened: a big, juicy fat-finger error, whether on purpose or otherwise because if one looks at the finalized July weekly earnings of $907.82, it’s precisely the same as what the August preliminary wage number was as released last month, also $907.82. For the excel fans out there, it means that the August totals were simply hard coded when the BLS shifted cells in the spreadsheet, becoming July.

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Will probably be a Cat 2-3 hurricane by then.

Tropical Storm Nate Heads Into The Heart Of US Offshore Oil Industry (CNBC)

As Tropical Storm Nate continued on its course toward the Gulf of Mexico on Friday, energy companies shut down offshore oil and gas platforms, while Louisiana braced for a potential hurricane. Nate is forecast to strengthen as it enters the Gulf and develop into a hurricane by the time it reaches the northern Gulf Coast on Saturday evening, the National Hurricane Center said Friday. Hurricane and storm surge watches are in effect for southeastern Louisiana, including New Orleans, through the Mississippi-Alabama border. The Gulf is home to nearly one-fifth of all U.S. oil output. Drillers who pump crude from offshore platforms have lately produced at record levels above 1.7 million barrels a day. The region already had to contend with Hurricane Harvey in August.

“The major difference between Harvey and Nate is that the trajectory of Nate brings it right through the heart of the U.S. Gulf of Mexico oil and gas producing region,” said Andy Lipow, president of Lipow Oil Associates. BP and Chevron are ceasing production on all platforms in the Gulf of Mexico, Reuters reported. Royal Dutch Shell and Anadarko Petroleum dialed back activity, while Exxon Mobil, Statoil and others are withdrawing workers. If Nate develops into a Category 2 or 3 hurricane, it could impact up to 80% of the Gulf’s output, Lipow forecast. The storm also has the potential to affect about 15% of U.S. refining capacity in the New Orleans area, Mississippi and Alabama. The region’s biggest refineries include Exxon Mobil’s Baton Rouge facility and Marathon Petroleum’s Garyville, Louisiana, plant, both capable of turning out more than 500,000 barrels a day.

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A whole nation full of debt slaves in denial. And not the only nation either.

It’s ‘Crunch Time’ For Australian Households (BI)

Australian households are in a vulnerable financial position, especially those who have taken out a mortgage. And in an era of weak incomes growth, soaring energy prices and high levels of indebtedness, with the prospect of higher interest rates on the way, many intend to cut discretionary spending in anticipation of even tighter household budgets. That’s the finding of the latest AlphaWise survey conducted by Morgan Stanley, which paints an unsettling picture on the outlook for not only Australia’s retail sector, but also the broader economy. Yes, the weakness in retail sales over the past two months may soon become entrenched. The “crunch time” for Australian households, as Morgan Stanley puts it, has begun. “In early June, we expressed the view that the Australian consumer faces a domestic cash flow and credit crunch,” the bank wrote in a note released this week.

“Income growth has not recovered, ‘cost of living’ inflation is re-accelerating and ‘macro-prudential’-related tightening of credit conditions is extending from housing into consumer finance.” In order to test how households may respond to higher interest rates, whether as a result of macroprudential measures to slow investor and interest-only housing credit growth or official moves from the Reserve Bank of Australia (RBA), Morgan Stanley conducted a national survey of 1,836 mortgagors to identify household conditions during late July and early August. Australia’s 2016 census found that 34.5% of households were currently paying off a mortgage. Morgan Stanley says the survey was designed to provide insight into the health of the household balance sheet, including their spending intentions as a result of higher mortgage rates. The news was not good.

“Findings from the AlphaWise survey confirm the stresses in the consumer sector we have been highlighting for some time now,” it says. “Most households have minimal buffers against a shock to their income, and expect to respond to higher debt servicing costs by drawing down on savings and cutting back on expenditure. “Other sectors of the economy may be able to offset some of the headline weakness, but the concentrated exposure of the household sector and economy to an extended housing market is posing an increasingly important structural and cyclical risk to consumer spending.” Of those households surveyed, 54% said they intended to cut back on expenditure in response to higher interest rates, with a further 25% planning to draw down on their savings to cope with higher servicing costs, a pattern that has been seen in Australia’s savings ratio which fell to a post-GFC low in the June quarter.

Somewhat alarmingly, 40% of those surveyed indicated that they did not save at all over the past year, particularly among low-income households. [..] “Only around 13% of respondents expect to be able to save more in the next 12 months..”

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Read the whole thing. It’s completely insane.

JPMorgan Paid Fine for 2008 Mortgage Crisis With .. Phony Mortgages (N.)

You know the old joke: How do you make a killing on Wall Street and never risk a loss? Easy—use other people’s money. Jamie Dimon and his underlings at JPMorgan Chase have perfected this dark art at America’s largest bank, which boasts a balance sheet one-eighth the size of the entire US economy. After JPMorgan’s deceitful activities in the housing market helped trigger the 2008 financial crash that cost millions of Americans their jobs, homes, and life savings, punishment was in order. Among a vast array of misconduct, JPMorgan engaged in the routine use of “robo-signing,” which allowed bank employees to automatically sign hundreds, even thousands, of foreclosure documents per day without verifying their contents.

But in the United States, white-collar criminals rarely go to prison; instead, they negotiate settlements. Thus, on February 9, 2012, US Attorney General Eric Holder announced the National Mortgage Settlement, which fined JPMorgan Chase and four other mega-banks a total of $25 billion. JPMorgan’s share of the settlement was $5.3 billion, but only $1.1 billion had to be paid in cash; the other $4.2 billion was to come in the form of financial relief for homeowners in danger of losing their homes to foreclosure. The settlement called for JPMorgan to reduce the amounts owed, modify the loan terms, and take other steps to help distressed Americans keep their homes. A separate 2013 settlement against the bank for deceiving mortgage investors included another $4 billion in consumer relief.

A Nation investigation can now reveal how JPMorgan met part of its $8.2 billion settlement burden: by using other people’s money. Here’s how the alleged scam worked. JPMorgan moved to forgive the mortgages of tens of thousands of homeowners; the feds, in turn, credited these canceled loans against the penalties due under the 2012 and 2013 settlements. But here’s the rub: In many instances, JPMorgan was forgiving loans on properties it no longer owned. The alleged fraud is described in internal JPMorgan documents, public records, testimony from homeowners and investors burned in the scam, and other evidence presented in a blockbuster lawsuit against JPMorgan, now being heard in US District Court in New York City.

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Big demos today against Catalans.

EU Official Warns War a Possibility in Catalonia (VoA)

The team captain of Spain’s storied football club Barcelona, which has become a focal point of secessionist Catalan sentiment, is urging politicians in Madrid and the Catalan capital to start negotiating about the future of Spain’s restive northeast province. “Before we do ourselves more damage, those in charge must open dialogue with each other. Do it for all of us. We deserve to live in peace,” Andrés Iniesta wrote on his Facebook page, apologizing at the same time for weighing in on “situations that are complex.” His appeal came as a top EU official Thursday warned that the separatist dispute, exacerbated by Catalan secessionists holding an illegal independence referendum Sunday, risks escalating into armed conflict.

“The position is very, very alarming. Civil war is conceivable there, in the middle of Europe,” Gunther Oettinger, the Germany EU commissioner said at an event in Munich. Oettinger and the EU Commission, the European bloc’s governing body, which fears Catalan independence might stir up separatism elsewhere in Europe, have also urged the authorities in Madrid and Barcelona to start negotiations and to avoid further provocations. But there are little signs of that happening. Both sides appear to be standing firm in Spain’s worst constitutional crisis since an attempted coup in 1981. [..] Nationalist sentiment is deepening fast: in Madrid observers have noted more buildings are sporting the Spanish national flag. Spaniards have long harbored an historical fear of dismemberment – Catalan nationalist sentiment was a key factor behind the Spanish civil war of the 1930s.

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Wonder how long that holds.

Spain Apologizes, Tone Softens In Catalonia Independence Crisis (R.)

Spain apologized on Friday for a violent police crackdown on Catalonia’s independence referendum, in a conciliatory gesture as both sides looked for a way out of the nation’s worst political crisis since it became a democracy four decades ago. Spain’s representative in northeast Catalonia, which accounts for a fifth of the national economy, made the apology just as Catalonia’s secessionist leader appeared to inch away from a plan to declare independence as early as Monday. “When I see these images, and more so when I know people have been hit, pushed and even one person who was hospitalized, I can’t help but regret it and apologize on behalf of the officers that intervened,” Enric Millo said in a television interview.

[..] Moments earlier, a Catalan parliament spokeswoman said the regional government’s leader, Carles Puigdemont, had asked to address lawmakers on Tuesday, in timing that appeared at odds with earlier plans to move an independence motion on Monday. Puigdemont wanted to speak on the “political situation”. The softer tone contrasted with remarks earlier on Friday from Catalonia’s head of foreign affairs who told BBC radio it would go ahead with an independence debate in the regional parliament. Spanish Prime Minister Mariano Rajoy has offered all-party political talks to find a solution, opening the door to a deal giving Catalonia more autonomy. But he has ruled out independence and rejected a Catalan proposal for international mediation.

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Steve in the lion’s den. “The OECD was one of the formal economic policy groups that wildly misinterpreted the economic data of 2007..”

OECD New Approaches to Economic Challenges (Steve Keen)

This is one of the highlights so far of my life as a rebel economist: giving an invited talk at the OECD. The OECD was one of the formal economic policy groups that wildly misinterpreted the economic data of 2007, believing that it heralded “sustained growth in OECD economies … underpinned by strong job creation and falling unemployment.” Five years later, they established the New Approaches to Economic Challenges (NAEC) initiative, and they’re trying to expand the horizons of economics beyond the narrow and fallacious confines of Neoclassical economics. Being invited to speak there, and getting such a positive reception from OECD Ambassadors, confirmed my belief that if change is to come in economics, it will come from formal economic bodies (the OECD, IMF, Central Banks and Treasuries) rather than university departments.

Formal bodies have to wear the consequences of being wrong about the economy, whereas Neoclassical-dominated university departments can retreat into isolation when the real world fails to conform to their fantasies about it. Nothing is certain however. The desire to fall back into ideologically comfortable but practically false ways of thinking about the economic system is strong. Groups like NAEC within the OECD need support, and they themselves need to support the young students in Rethinking Economics, who are far more amenable to a new paradigm than their hidebound academic instructors in the major Universities.

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“Neoclassical economists are not experts on money but experts in finding reasons to believe you can model capitalism as though money banks and debt don’t exist. “And then you give them the right to control the banking system.”

Mainstream Economists Live In A Parallel Universe (Ren.)

Neoclassical economic theory claims that the human being is a rational self-serving profit maximising unit. It claims to prove the market can handle anything. Classical economists model the economy based on the concept of rational consumers maximising utility and firms maximising profits. Their vision of the world claims that equilibrium is reached and the world functions best if there is no government, no trade unions and no monopolies. Professor Keen says mainstream economist change reality to fit their model. University campuses used to be about education, challenging people exposing them to ideas they didn’t necessarily have in the first instance. But Professor Keen says economics actually leads away from this possibility. “Economics starts by inculcating a view of how you should think about the economy that rules out a whole range of alternatives,” he said.

“It rules out thinking about the sort of work that I do, working from the top down, looking at the overall economy and modelling that way. They say ‘no, you’ve got to start from the isolated individual and you have to talk about individuals for maximising utility’. We’re talking about them as consumers or firms who are maximising profits. “In their mind that is the definition of a perfectly functioning system, but it is not the definition of the world in which we live. “Once you’ve got the mathematical structure of trying to do that, you have a very hard time treating anything else as a sensible analysis of capitalism. They rule out a whole lot of other ways of thinking.”

[..] “Imagine capitalism with no banks, no debt, and no money,” says Professor Keen. “You’re getting pretty close to being a neoclassical economist.” “Neoclassical economists are not experts on money but experts in finding reasons to believe you can model capitalism as though money banks and debt don’t exist. “And then you give them the right to control the banking system.”

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“..with half of the flyover population in an opiate daze, and chain-stores shuttering to the tune of 10,000 this year, and car leases expiring into a car market dependent on liar loans bundled into janky securities, and the debt problem festering away like a something dead under the floor boards.”

Light It Up (Jim Kunstler)

Grinning like Wonderland’s Cheshire Cat, the Golden Golem of Greatness pronounced this interval of fine fall weather “the calm before the storm.” Hmmmm. Talk about cryptic. This was less than a week after he verbally smacked down Secretary of State Rex Tillerson for “wasting his time” trying to diplomatically reach “Little Rocket Man… “ whereby Rex riposted, calling the President a “moron.” Ordinarily — say, during the past 220-odd years of this nation’s existence — talk like that would prompt a resignation (though, there are no other instances of talk like that). illerson must think that for the good of the country he can’t resign, and God knows what kind of desperate notes are being swapped around between the State Department and the Pentagon.

[..] We are entering a slot of time where an awful lot of things might go wrong. What gets me is seeing the stock markets make new record highs every other day, whether Puerto Rico is destroyed overnight or hundreds of people are shot in a Las Vegas parking lot — and notwithstanding the overall phony-baloney condition of the American economy, with half of the flyover population in an opiate daze, and chain-stores shuttering to the tune of 10,000 this year, and car leases expiring into a car market dependent on liar loans bundled into janky securities, and the debt problem festering away like a something dead under the floor boards. Some kind of financial accident with a this-sucker-is-going-down flavor feels like it’s waiting to happen.

I don’t think Trump was referring to that either, but what if it came down around the same moment that we decided to light up North Korea? Or, alternately, if Rex Tillerson, Mike Pence, and a score of other senior politicos decide that its time for Trump to go? The president is looking mighty friendless these days, and more than a little reckless. I mean, for the good of the country, ladies and gentlemen, what are they waiting for? Will his generals defend him? Nah. Fuggedabowdit. I wonder what the code-name for their action will be. Operation Moron Overboard? The whole spectacle is starting to look like a Coen Brothers movie. When the time comes, I hope they will make the documentary about these strange days of October, 2017.

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But it will just keep going.

Russiagate Is More Fiction Than Fact (Nation)

In the electrified aftermath of the election, aides to Hillary Clinton and Obama pored over polling numbers and turnout data, looking for clues to explain what they saw as an unnatural turn of events. One of the theories to emerge from their post-mortem was that Russian operatives who were directed by the Kremlin to support Trump may have taken advantage of Facebook and other social media platforms to direct their messages to American voters in key demographic areas in order to increase enthusiasm for Trump and suppress support for Clinton. These former advisers didn’t have hard evidence that Russian trolls were using Facebook to micro-target voters in swing districts—at least not yet—but they shared their theories with the House and Senate intelligence committees, which launched parallel investigations into Russia’s role in the presidential campaign in January.

The theories paid off. A personal visit in May by Democratic Senator Mark Warner, vice-chair of the Senate Intelligence Committee, “spurred the company to make some changes in how it conducted its internal investigation.” Facebook’s announcement in August of finding 3,000 “likely” Russian ads is now an ongoing “scandal” that has dragged the company before Congressional committees. Other election threats loom. A recent front-page New York Times article linking Russian cyber operations to voting irregularities across the United States is headlined, “Russian Election Hacking Efforts, Wider Than Previously Known, Draw Little Scrutiny.” But read on and you’ll discover that there is no evidence of “Russian election hacking,” only evidence-free accusations of it.

Voting problems in Durham, North Carolina, “felt like tampering, or some kind of cyberattack,” election monitor Susan Greenhalgh says, and “months later…questions still linger about what happened that day in Durham as well as other counties in North Carolina, Virginia, Georgia and Arizona.” There is one caveat: “There are plenty of other reasons for such breakdowns—local officials blamed human error and software malfunctions—and no clear-cut evidence of digital sabotage has emerged, much less a Russian role in it.” The evidence-free concern over Russian hacking expanded in late September when the Department of Homeland Security informed 21 states that they had been targeted by Russian cyber-operations during the 2016 election. But three states have already dismissed the DHS claims, including California, which announced that after seeking “further information, it became clear that DHS’s conclusions were wrong.” Recent elections in France and Germany saw similar fears of Russian hacking and disinformation—and similar results.

In France, a hack targeting the campaign of election winner Emmanuel Macron ended up having “no trace,” of Russian involvement, and “was so generic and simple that it could have been practically anyone,” the head of French cyber-security quietly explained after the vote. Germany faced an even more puzzling outcome: Nothing happened. “The apparent absence of a robust Russian campaign to sabotage the German vote has become a mystery among officials and experts who had warned of a likely onslaught,” the Post reported in an article headlined “As Germans prepare to vote, a mystery grows: Where are the Russians?” The mystery was so profound that The New York Times also explored it days later: “German Election Mystery: Why No Russian Meddling?”

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RIpping apart the blockchain.

Your Local Bank Could Be the Central Bank (BBG)

In practice it is difficult to envisage a sustainable digital currency that would not be accessible to all; cryptocurrencies are increasingly attractive to the general public. As for privacy, a decentralized ledger, on top of the security advantage it brings, makes the anonymity attached to cash transactions technically possible, and is thus nothing new. The BIS acknowledges as much: While it may look odd for a central bank to issue a cryptocurrency that provides anonymity, this is precisely what it does with physical currency, i.e. cash. Perhaps a key difference is that, with a retail CBCC, the provision of anonymity becomes a conscious decision.

Some might argue that an anonymous payment network would run against the current trend in anti-money-laundering regulation, where the origin of invested cash is carefully vetted to avoid criminal or tax evasion activities. Technically, there is nothing to prevent central bank digital currencies from being fully traceable. Even a decentralized ledger (where transactions are recorded digitally across many computers) only provides the potential for anonymity but does not guarantee it. But if there is no desire for anonymity, then there would be no need for the ledger to be decentralized. The logical outcome would be for central banks themselves to offer retail services, taking deposits from the general public. The BIS considers this possibility:

“We argue that the main benefit that a consumer-facing retail CBCC would offer, over the provision of public access to (centralized) central bank accounts, is that the former would have the potential to provide the anonymity of cash. In particular, peer-to-peer transfers allow anonymity vis-à-vis any third party. If third-party anonymity is not of sufficient importance to the public, then many of the alleged benefits of retail CBCCs can be achieved by giving broad access to accounts at the central bank.” A central bank e-minting monopoly would fundamentally change the structure of the banking system, leading to an increased monetary basis and seigniorage. Any temptation to abuse the enhanced minting monopolies would be reduced not by new technology but by the competitive alternatives offered by other countries’ digital currencies, or even, if necessary, old-fashioned valuable commodities.

The introduction of CBBCs that are traceable would also bring about a revolutionary transformation of the financial system architecture. This is, quite obviously, the opposite of the libertarian ideology underpinning the original cryptocurrencies. It would also accelerate the dismantling of the banking system as we know it. With central banks offering retail services, commercial banks would lose deposits, and with it their ability to lend. It would curtail or end the role of the money multiplier – whereby banks lend more than they receive in deposits, thus increasing the overall money supply – in the economy, and so necessitate massive monetary creation to maintain levels of liquidity in the market. Lending would increasingly be made by regulated specialized funds.

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Strange and ugly.

US Escalates Trade Dispute With UK And Canada Over Bombardier (G.)

The US has escalated its trade dispute with Britain and Canada by announcing plans to slap a further 80% duty on the export of planes built by Bombardier. The move follows complaints by Boeing that Canadian-owned Bombardier, which employs more than 4,000 people in Belfast, had dumped its C Series jets at “absurdly low” prices. Bombardier is facing a planned 220% tariff as part of a separate investigation, the US Department of Commerce confirmed. A second levy of 80% is also being applied to Bombardier’s sales to the US after a preliminary finding that the jets were sold below cost price to Delta Air Lines in 2016. Boeing claimed that 75 aircraft were sold at nearly £10.6m below cost price. Bombardier dismissed the claim as “absurd”. The company is due to begin delivering a blockbuster order for up to 125 new jets to Atlanta-based Delta next year.

The US commerce secretary, Wilbur Ross, said: “The United States is committed to free, fair and reciprocal trade with Canada, but this is not our idea of a properly functioning trading relationship. We will continue to verify the accuracy of this decision, while doing everything in our power to stand up for American companies and their workers.” [..] The proposed duties would not take effect unless affirmed by the US International Trade Commission (ITC) early next year. To win its case before the ITC, Boeing must prove it was harmed by Bombardier’s sales, despite not using one of its own jets to compete for the Delta order. Bombardier said it was confident that the ITC would find Boeing had not been harmed, calling the Department of Commerce decision a case of “egregious overreach”. Delta said the decision was preliminary and it was confident the ITC “will conclude that no US manufacturer is at risk” from Bombardier’s plane.

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Australia next?! US?

Canada Will Pay Compensation To Thousands Of Indigenous ‘Stolen Children’ (R.)

Canada will pay up to C$750m in compensation to thousands of aboriginals who were forcibly removed as children from their families decades ago, promising to end “a terrible legacy”. The move is the latest attempt by the Liberal government of the prime minister, Justin Trudeau, to repair ties with Canada’s often-marginalised indigenous population, which says it has been the victim of systemic racism for centuries. In the so-called “Sixties Scoop”, welfare authorities took about 20,000 aboriginal children from their homes between the 1960s and 1980s and placed them in foster care or allowed them to be adopted by non-indigenous families. The compensation package is designed to settle many of the lawsuits launched by survivors, who say the forced removal deprived them of their heritage and led to mental disorders, substance abuse and suicide.

“Language and culture, apology, healing – these are essential elements to begin to right the wrong of this dark and painful chapter,” said Carolyn Bennett, the federal minister in charge of relations with the indigenous population. Canada’s 1.4 million aboriginals, who make up about 4% of the population, experience higher levels of poverty and incarceration and have a lower life expectancy than other Canadians. They are often victims of violent crime and addiction. Indigenous activists complain Trudeau has broken repeated promises to improve their lives since taking office in late 2015. He reshuffled his cabinet in August to put more emphasis on helping aboriginal people. Bennett, at times fighting back tears, told a news conference she had heard “truly heartbreaking stories” about loss of identity and alienation.

Marcia Brown Martel, an aboriginal chief who led the campaign for compensation, lamented the “stealing of children” and noted some of those involved lived as far away as New Zealand. “Think of it as a puzzle, a great big puzzle. Pieces, people are missing,” she told reporters. [..] Trudeau and other Canadian leaders have already apologized for the many abuses committed over a 150-year period when 150,000 aboriginal children were forcibly separated from their parents and sent to church-run residential schools. In 2015, an official report said the schools were an attempt to end the existence of aboriginals as distinct legal, social, cultural, religious and racial entities in Canada.

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A look at the future.

FDP Chief Says Schaeuble ‘Not Tough Enough’ On Greece (K.)

The leader of Germany’s Free Democrats (FDP), Christian Lindner, seen as a likely successor at the finance ministry if his pro-business party enters a coalition with Chancellor Angela Merkel’s Christian Democrats (CDU), has criticized outgoing Finance Minister Wolfgang Schaeuble for not being tough enough on Greece. “Mr Schaeuble did not manage to impose himself over the chancellor in many questions of European policy. Just remember the third aid package for Greece, which he originally did not want to do,” Lindner told German daily Handelsblatt in an interview Friday. The 38-year-old politician managed to lead the FDP back into parliament after a four-year absence on the back of a pledge to limit financial perils from the eurozone and an illiberal assault on Merkel’s open-doors refugee policy.

In the same interview, Lindner called for the creation of an insolvency law for eurozone states, while arguing that countries should be able to leave the common currency area while remaining in the European Union. In May, the FDP chief said that Greece should leave the euro temporarily until its economy was back on track. If the Greek debt is not sustainable as the IMF claims, Lindner said at the time, then it has to be restructured – and this cannot take place within the eurozone. Lindner avoided to say if his party would push to take over the Finance Ministry. “For us a change in fiscal policy is more important than a new minister,” said Lindner, who also expressed doubts about the prospects of a three-way alliance between CDU, FDP and the Greens, known as the “Jamaica coalition.”

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Due to lack of identity.

Greece’s Ruling Syriza Party Falls Apart (K.)

An overwhelming majority of SYRIZA’s “Socialist Trend” faction under MEP Costas Chrysogonos have voted to part ways with the ruling leftists over differences in policy. In a ballot held on Friday, the proposal was backed by 1,678, or 82.6%, of the faction’s 2,032 members. Only 31 wanted to stay with SYRIZA. Officials said the faction will take steps to transform into an independent political grouping. They added that more details will be announced next week. Representatives of the faction also accused SYRIZA of turning into “a true replica of the centralized mainstream parties.”

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“..four of the five island camps are hosting two or three times as many people as they were designed for..”

Overcrowded Greek Refugee Camps Ill-Prepared For Winter: UNHCR (R.)

Greece must speed up winter preparations at refugee camps on islands in the Aegean Sea where there has been a sharp rise in arrivals, the United Nations refugee agency said on Friday. Nearly 5,000 refugees, mostly Syrian or Iraqi families, crossed from Turkey in September – a quarter of all arrivals this year, UNHCR data shows. While that is a fraction of the nearly 1 million who arrived in 2015 – due to a European Union deal with Turkey to block that route – four of the five island camps are hosting two or three times as many people as they were designed for. “UNHCR urges action on the islands to ease overcrowding, improve shelter, and stock and distribute appropriate and sufficient aid items,” said Philippe Leclerc, UNHCR representative in Greece.

In the Moria camp on the island of Lesbos, one of the main entry points, more than 1,500 people are in makeshift shelters or tents without insulation, flooring or heating, UNHCR said. They include pregnant women, people with disabilities, and very young children. On nearby Samos, about 400 people are living in “very difficult” conditions and another 300, including families and lone children, are sleeping in tents in the woods due to a lack of space in the camp, UNHCR said. More than 3,000 people on Samos are crammed into facilities designed to hold 700. In January, refugees in Greece suffered sub-zero temperatures when an icy spell gripped parts of the country and scores of summer tents were weighed down by snow. More than 60,000 refugees and migrants have been trapped in Greece since Balkan countries along the northward overland route to western Europe sealed their borders in March 2016.

UNHCR has been gradually reducing its involvement on the islands since national institutions took over most services in August.

Read more …

Oct 062017
 


Jean Renoir Les Grands Boulevards 1875

 

China’s Economic Boom Is About To Be Cut Short By Peak Oil (Ahmed)
A Volatility Trap Is Inflating Market Bubbles (BBG)
China Is In ‘Lock-down’ Ahead Of Its Most Important Meeting In Years (CNBC)
Bitcoin’s Rise Happened in Shadows of Finance. Now Banks Want In (BBG)
HSBC Traders Used Code Words to Trigger Front-Running (BBG)
US Rounds On Britain Over Food Quotas As Post-Brexit Trade Woes Deepen (Pol.)
Few Tears Are Being Shed In Quebec Over The Energy East Pipeline’s Demise (BBG)
Onshore Fracking To Begin In UK ‘Within Weeks’ (Ind.)
Catalan Separatists Squeezed Further as Spain Tightens Its Grip (BBG)
Apple Gave Uber ‘Unprecedented’ Access To Secret iPhone Backdoor (BI)
Tropical Storm Nate Kills 22 In Central America, Heads For US (R.)
Pesticides That Pose Threat To Humans And Bees Found In Honey (Ind.)
Tiny Pacific Island Nation Of Niue Creates Huge Marine Sanctuary (AFP)

 

 

From China’s government.

China’s Economic Boom Is About To Be Cut Short By Peak Oil (Ahmed)

A new scientific study led by the China University of Petroleum in Beijing, funded by the Chinese government, concludes that China is about to experience a peak in its total oil production as early as next year. Without finding an alternative source of ‘new abundant energy resources’ , the study warns, the 2018 peak in China’s combined conventional and unconventional oil will undermine continuing economic growth and ‘challenge the sustainable development of Chinese society’. This also has major implications for the prospect of a 2018 oil squeeze – as China scales its domestic oil peak, rising demand will impact world oil markets in a way most forecasters aren’t anticipating, contributing to a potential supply squeeze. That could happen in 2018 proper, or in the early years that follow.

There are various scenarios that follow from here – China could: shift to reducing its massive demand for energy, a tall order in itself given population growth projections and rising consumption; accelerate a renewable energy transition; or militarise the South China Sea for more deepwater oil and gas. Right now, China appears to be incoherently pursuing all three strategies, with varying rates of success. But one thing is clear – China’s decisions on how it addresses its coming post-peak future will impact regional and global political and energy security for the foreseeable future. The study was published on 19 September by Springer’s peer-reviewed Petroleum Science journal, which is supported by China’s three major oil corporations, the China National Petroleum Corporation (CNPC), China Petroleum Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC).

Since 1978, China has experienced an average annual economic growth rate of 9.8%, and is now the world’s second largest economy after the United States. The new study points out, however, that this economic growth has been enabled by “high energy consumption.” In the same period of meteoric economic growth, China’s total energy consumption has grown on average by 5.8% annually, mostly from fossil fuels. In 2014, oil, gas and coal accounted for fully 90% of China’s total energy consumption, with the remainder supplied from renewable energy sources. After 2018, however, China’s oil production is predicted to begin declining, and the widening supply-demand gap could endanger both China’s energy security and continued economic growth.

Read more …

“Zombie companies that would otherwise fail continue to be in business, refinancing at near-zero interest rates in bond markets.”

A Volatility Trap Is Inflating Market Bubbles (BBG)

A number of markets show not only elevated valuations, but also irrational behavior on the part of investors, including a suspension of traditional valuation models, an increase in trading volumes or “flipping” in the hopes of quick gains, and financial engineering. Potential bubbles can be found in emerging-market debt, technology stocks, U.S. high yield bonds, some sovereign debt, cryptocurrencies, properties — even art and collectibles. It is becoming clearer to economists and central bankers that even though we may be experiencing a long phase of growth, stretching the cycle with monetary stimulus inspired by crisis-era toolkits may be bringing several collateral effects. These include not only asset bubbles, but also a worsening of wealth inequality and a misallocation of resources.

Persistent low interest rates in the past have helped to roll forward an increasing amount of private and public debt to future generations, but this is no longer working. Economic fundamentals are different from the post-war period. Technology is deflationary. Demographics are no longer a tailwind, as there are fewer young people able to carry a higher debt burden in the future. The generation of so-called millennials is the first that will likely be poorer than their parents in the post-war period. Productivity is low as the economy suffers from hysteresis: a financial boom-bust cycle that can leave large swathes of the workforce out of the job market. The longer the debt cycle, the longer companies and workers develop business and skills in leverage-heavy sectors (e.g. finance, real estate, energy), the deeper the scars when the bust comes.

Often the misallocation is so large that low rates are necessary to keep people in their jobs: Zombie companies that would otherwise fail continue to be in business, refinancing at near-zero interest rates in bond markets.

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Xi will need drastic measures to tackle the debt disaster. But it may well be too late already.

China Is In ‘Lock-down’ Ahead Of Its Most Important Meeting In Years (CNBC)

Although the Chinese will head back to work and school on Monday, their country is expected to remain in a holding pattern ahead of a pivotal Communist Party Congress set to start later this month. “Commentators and markets rightly assume that the authorities are consumed by this transition and that all other policy matters are on the back-burner or in lock-down until after the Congress,” Freya Beamish, Pantheon Macroeconomics’ chief Asia economist, wrote in a recent note. The once-in-five-years meeting will usher in leadership changes that are likely to see incumbent President Xi Jinping extend his term and consolidate power. The coming years of Xi rule will be critical for the world’s second-largest economy as it grapples with the fallout from three decades of unbridled growth.

As Xi — the most powerful Chinese leader in decades — embarks on a new era, the meeting will review “faulty” outcomes from the economic reforms and review if China needs a new direction, said independent economist, Andy Xie. China undertook a series of market reforms in the last three decades that propelled the Communist country to the spot of the world’s second largest economy. Market watchers, however, are concerned about the nation’s debt-fueled growth, industrial overcapacity and capital outflows that may potentially spur a global economic crisis. The Communist Party has been working to steer outbound merger and acquisition activities over the last year, but major initiatives have slowed ahead of the Congress. That push is likely to pick up again in the fourth quarter, said Chunshek Chan, Dealogic’s global M&A research head.

No matter the macroeconomic concerns, the only thing on Beijing’s mind at this time is consolidating power in the country, Xie said: “It’s much more important now to strengthen the control of the Communist Party than anything else.” “The key is to have the Communist Party as a coherent organization to control everything in the society — that seems to be the case. The people at the top worry about the stability. Stability is always number one in China,” added Xie.

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“What are they going to do if bitcoin drops for a given client and they’ve given that client a ton of leverage on margin, and that client only has assets in bitcoin?”

Bitcoin’s Rise Happened in Shadows of Finance. Now Banks Want In (BBG)

At first, bitcoin was a way to make payments without banks. Now, with more than $100 billion stashed in digital currencies, banks are debating whether and how to get in on the action. Goldman Sachs CEO Lloyd Blankfein tweeted Tuesday that his firm is examining the cryptocurrency. Other global investment banks are looking into facilitating trades of bitcoin and other cryptocurrencies, according to industry consultants. Bitcoin has surged more than 300 percent this year, drawing the attention of hedge funds and wealthy individuals. “They’re clearly receiving interest from their clients, both from retail investors and on the institutional side,” said Axel Pierron, managing director of bank consultant Opimas. “It’s highly volatile, it’s highly illiquid when you need to trade large volumes, so they see the opportunity for a new asset class which would require the capability of a broker-dealer.”

But bitcoin presents Wall Street with a conundrum: How do banks that are required by law to prevent money-laundering handle a currency that’s not issued by a government and that keeps its users anonymous? The debate has played out in the open recently, with JPMorgan CEO Jamie Dimon and BlackRock CEO Larry Fink saying that bitcoin was mostly used by criminals, while Morgan Stanley chief James Gorman took a more measured stance, saying it was “more than just a fad.” On Wednesday, UBS Chairman Axel Weber, a former president of Germany’s central bank, said he was skeptical about bitcoin’s future because “it’s not secured by underlying assets.” There’s even tension within some banks. On the same day Dimon trashed bitcoin, calling it a “fraud,” his firm’s private bank hosted a panel stocked with cryptocurrency investors.

Handling bitcoin would invite scrutiny from every major U.S. regulator, according to Joshua Satten, director of emerging technologies at Sapient Consulting. “From the perspective of the U.S. Treasury, do you classify it as an asset class or a currency?” Satten said. “If banks are starting to manage and hold bitcoin for their clients, you would have the OCC and the FDIC looking at how they classify the assets on their balance sheet and how they state the assets for the portfolio of a client.” And banks need to avoid antagonizing governments that are increasingly concerned about this area. For instance, China is cracking down by shutting cryptocurrency exchanges. Then there’s the risk that stems from its high volatility and lack of correlation to other major assets. “What are they going to do if bitcoin drops for a given client and they’ve given that client a ton of leverage on margin, and that client only has assets in bitcoin?” Satten said.

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Greed.

HSBC Traders Used Code Words to Trigger Front-Running (BBG)

A group of HSBC currency traders in London and New York feverishly jumped ahead of a $3.5 billion client order after they were tipped off using the code words “my watch is off,” a U.S. prosecutor told a federal judge. The buying frenzy was launched after Mark Johnson, HSBC’s former global head of foreign exchange who the bank chose to lead the transaction, alerted the traders via phone call that was recorded, the prosecutor said Thursday in Brooklyn, New York. Johnson is on trial for fraud. After the trial recessed for the day, prosecutor Carol Sipperly told U.S. District Judge Nicholas Garaufis that the government wants the jury to hear the recordings on Friday, in which Johnson can be heard tipping off a trader in Hong Kong, a signal that she said eventually reached others on both sides of the Atlantic.

Prosecutors say Johnson and Stuart Scott, the bank’s former head of currency trading in Europe, along with these other traders, bought pounds before the transaction, collectively making the bank $8 million in illicit profit. Sipperly said the call involved Johnson, who was in New York that day, speaking to Scott who was in London, just before the Dec. 7, 2011, transaction for its client, Cairn Energy. “We actually have Mark Johnson telling Stuart Scott ‘Tell Ed my watch will be off,’” she said. “We have communications where the word ‘watch’ is used, and then within seconds, 20 seconds of ‘my watch is off,’ we have all that trading that’s been described. The word is instrumental in getting the information to the traders when it comes to their early front-running trades.”

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Things are getting messy.

US Rounds On Britain Over Food Quotas As Post-Brexit Trade Woes Deepen (Pol.)

The U.S. and other international trade heavyweights have dashed Prime Minister Theresa May’s hopes of a smooth Brexit by rejecting one of her core plans for reintegrating into global trade networks. Washington’s slap-down of Britain is the second big trade reality check for May in less than a fortnight. Only last week, the U.K.’s increasingly fragile position in trade disputes was exposed by the country’s inability to prevent new, ultra-high tariffs from the U.S. that could hit thousands of jobs in a plane factory in Northern Ireland. In a fast-developing second trade spat, Washington has teamed up with Brazil, Argentina, Canada, New Zealand, Uruguay and Thailand to reject Britain’s proposed import arrangements for crucial agricultural goods such as meat, sugar and grains after Brexit.

The fact that the U.K.’s opponents include the U.S., Canada and New Zealand is a significant setback because Britain is trying to style its former colonies as natural strategic and commercial allies after it has quit the EU. Since August, Britain and the EU have repeatedly insisted that they had reached an agreement on the terms under which Britain would buy in food from around the world after Brexit. Brussels currently negotiates all these quotas and tariffs on behalf of Britain and the 27 other EU countries jointly, but London will need to take independent control of these policies from March 2019. That creates a dilemma over how to divide up the EU’s current quota arrangements with other countries — agreed at the World Trade Organization — between the U.K. and the remaining 27. These tariff-rate quotas allow countries outside the EU to export certain goods into the bloc with reduced duties, but only up to a maximum limit.

The argument from Britain and the EU is that the rest of the world will be “no worse off” after Brexit — a key legal defense in trade disputes — if the EU’s quotas are simply reduced, and Britain takes a share of them. British Trade Minister Liam Fox told POLITICO in an interview that Britain had agreed to take a portion of the EU’s quotas based on the U.K.’s average consumption over the last three years. America and the six other big food exporters, however, wrote an unusually sharply worded letter of complaint dated September 26 to the U.K. and EU representatives at the World Trade Organization over the terms of such an arrangement. “We cannot accept such an agreement,” reads the letter, seen by POLITICO. The seven countries dispute the legal defense that the proposed post-Brexit arrangement would leave them “no worse off.”

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Transporting oil across thousands of miles just so you can sell it to Europe. Insane.

Few Tears Are Being Shed In Quebec Over The Energy East Pipeline’s Demise (BBG)

TransCanada had applied to build Energy East three years ago, seeking to open access for Western Canadian oil producers to the Atlantic Ocean for exports to Europe. It faced intense opposition in Quebec, where Premier Philippe Couillard said the C$15.7 billion ($12.5 billion) line posed a significant risk to its freshwater resources. Quebec has long required that TransCanada meet seven conditions before allowing construction of the pipeline. Among other demands, Quebec insisted that the project be subject to an environmental assessment and that TransCanada must guarantee an emergency plan in case of a spill, consult with communities including aboriginal groups along the route and ensure the project doesn’t reduce the province’s gas supply. Last month, TransCanada asked Canadian regulators for a 30-day suspension on its applications for the Energy East and Eastern Mainline projects, adding to doubt about the future of two major pipelines that the nation’s energy producers had hoped for.

The latest delay meant the writing was on the wall, Quebec Energy and Natural Resources Minister Pierre Arcand said Thursday. “We’re not the promoters of the project. The promoter made a commercial decision,” Arcand told reporters at the provincial legislature. “When they decided to suspend the project about one month ago, I thought we were inevitably going to go toward this decision.” Energy East “was supposed to cross more than 700 bodies of water,” Quebec Environment Minister David Heurtel said separately in Quebec City. “This is a project that raised a lot of questions. We were still in the process of getting answers to our questions” from the company, he said. TransCanada’s decision “is great news,” Jean-Francois Lisée, head of the separatist Parti Quebecois, the official opposition in the provincial legislature, said in Quebec City. “Quebec’s territorial integrity is no longer threatened.”

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Feels like the Middle Ages.

Onshore Fracking To Begin In UK ‘Within Weeks’ (Ind.)

Fracking for shale gas will begin in the UK within weeks, the company undertaking it for the first time has announced. Third Energy said it plans to complete five fracks in North Yorkshire before the end of 2017. The controversial technique involves injecting liquid into underground rock at high pressures in order to create cracks that release trapped gas. This is then collected and used to generate electricity. Fracking has been vocally opposed by environmental campaigners but permits to use the technique have been approved by government ministers. Alan Linn, Third Energy’s technical director, said the final sign-off needed for fracking to begin was ‘imminent’.

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Vote count to be published today?!

Catalan Separatists Squeezed Further as Spain Tightens Its Grip (BBG)

Spanish Prime Minister Mariano Rajoy convenes his cabinet on Friday as the financial and political squeeze on the separatist government in Catalonia tightens. After a week of political drama that rocked financial markets, Rajoy will meet with his ministers in Madrid as events 600 kilometers (370 miles) to the northeast in the Catalan capital Barcelona threaten to spiral still further out of control. The region’s president, Carles Puigdemont, risks economic damage and European isolation if he pushes ahead with plans to declare Catalan independence based on a referendum that breached Spain’s constitution. CaixaBank, the symbol of the region’s financial strength, may follow Banc Sabadell in abandoning Catalonia when its board meets Friday.

For his part, Rajoy and his minority government will be loathe to risk a repeat of Sunday’s scenes of police beating peaceful voters that drew international condemnation and inflamed the separatist cause. With options to quell an increasingly bitter constitutional dispute fast running out, events may come to a head on Monday. That’s when Puigdemont had sought to evaluate the result of the independence vote at a session of the regional parliament – until it was suspended by the Spanish Constitutional Court. That means Rajoy may again have to send in the police to enforce a court ruling, and Puigdemont must decide if he’s ready to again defy the law. “There will be some formula for the Catalan Parliament to convene and hold its meeting as planned,” Jordi Sanchez, who heads the most powerful group among the separatists, known as the Catalan National Assembly, said in an interview in Barcelona. “There will be a plenary session.”

As anti-independence organizers plan rallies for this weekend in Madrid and in Barcelona, Catalan separatist are seeking to avoid an immediate declaration of independence. There’s a divide in the movement’s leadership, with most leaders keen to delay that leap into the unknown to create more time for a negotiated settlement, according to two people familiar with their plans. Puigdemont’s mainstream separatist group is concerned that a move toward independence would send the economy into a tailspin, the people said. But following Sunday’s illegal referendum on secession – which the regional government said won the support of 90%t of 2.3 million voters – hardliners from the anarchist party CUP are demanding a quick break with Spain.

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What a surprise. Apple is an Uber investor.

Apple Gave Uber ‘Unprecedented’ Access To Secret iPhone Backdoor (BI)

Uber’s iPhone app has a secret backdoor to powerful Apple features, allowing the ride-hailing service to potentially record a user’s screen and access other personal information without their knowledge. The existence of Uber’s access to special iPhone functions is not disclosed in any consumer-facing information included with Uber’s app, despite giving the company direct access to features so powerful that Apple almost always keeps them off limits to outside companies. Although there is no evidence that Uber used this access to take advantage of the iPhone features, the revelation of the app’s access to privileged Apple code raises important questions for a company already under investigation for a variety of controversial business practices.

Uber told Business Insider the code was not currently being used and was essentially a vestige from an earlier version of its Apple Watch app, but it set off alarm bells among experts. “Granting such a sensitive entitlement to a third-party is unprecedented as far as I can tell, no other app developers have been able to convince Apple to grant them entitlements they’ve needed to let their apps utilize certain privileged system functionality,” Will Strafach, a security researcher who discovered the situation, told Business Insider. [..] Apple became an Uber investor through its investment in Chinese ride-hailing company Didi Chuxing. In 2016, Didi merged with Uber’s Chinese subsidiary.

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It ain’t over.

Tropical Storm Nate Kills 22 In Central America, Heads For US (R.)

Tropical Storm Nate has killed at least 22 people in Central America as it battered the region with heavy rain while heading toward Mexico’s Caribbean resorts and the US Gulf Coast where it could strike as a hurricane this weekend. Several offshore oil rigs in the Gulf of Mexico were evacuated and others had shut production ahead of the storm. In Nicaragua, at least 11 people died, seven others were reported missing and thousands had to evacuate homes because of flooding, according to the country’s vice president, Rosario Murillo. Emergency officials in Costa Rica reported that at least eight people were had been killed, including two children. Another 17 people were missing, while more than 7,000 had to take refuge from Nate in shelters.

Two youths also drowned in Honduras due to the sudden swell in a river, while a man was killed in a mud slide in El Salvador and another person was missing, emergency services said. “Sometimes we think we think we can cross a river and the hardest thing to understand is that we must wait,” Nicaragua’s Murillo told state radio, warning people to avoid dangerous waters. “It’s better to be late than not to get there at all.“ Costa Rica’s government declared a state of emergency, closing schools and all other non-essential services. Highways in the country were closed due to mud slides and power outages were also reported in parts of country, where more than 3,500 police were deployed. The National Hurricane Centre said Nate could produce as much as 51 cm (20 inches) in some areas of Nicaragua, where schools were also closed. Nate is predicted to strengthen into a Category 1 hurricane by the time it hits the US Gulf Coast on Sunday, NHC spokesman Dennis Feltgen said.

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Slow motion mass suicide.

Pesticides That Pose Threat To Humans And Bees Found In Honey (Ind.)

Three-quarters of the honey produced around the world contains nerve agent pesticides that can harm bees and pose a potential health hazard to humans, a study has shown. Scientists who tested 198 honey samples from every continent except Antarctica discovered that 75% were laced with at least one of the neonicotinoid chemicals. More than two-fifths contained two or more varieties of the pesticides and 10% held residues from four or five. Environmental campaigners responded by demanding a “complete and permanent” ban preventing any further use of neonicotinoids on farm crops in Europe. Experts called the findings “alarming”, “sobering” and a “serious environmental concern” while stressing that the pesticide residue levels found in honey generally fell well below the safe limits for human consumption.

However, one leading British scientist warned that it was impossible to predict what the long term effects of consuming honey containing tiny amounts of the chemicals might be. Dave Goulson, Professor of Biology at the University of Sussex, said: “Beyond doubt … anyone regularly eating honey is likely to be getting a small dose of mixed neurotoxins. “In terms of acute toxicity, this certainly won’t kill them and is unlikely to do measurable harm. What we don’t know is whether there are long-term, chronic effects from life-time exposure to a cocktail of these and other pesticides in our honey and most other foods.”

[..] The new research published in the journal Science could not have come at a more sensitive time in Europe. EC policymakers are right now discussing whether to make the ban permanent and more wide ranging. A total ban would have a huge impact on cereal growers in the UK. For the study, an international team of European researchers tested almost 200 honey samples from around the world for residues left by five different neonicotinoids. [..] While in most cases the levels were well below the EU safety limits for human consumption, there were exceptions. Honey from both Germany and Poland exceeded maximum residue levels (MRLs) for combined neonicotinoids while samples from Japan reached 45% of the limits.

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“This commitment is not a sacrifice, it is an investment in the certainty and stability of our children’s future..”

“..the palm-dotted island’s name in the local language means “Behold, the Coconut”..

Tiny Pacific Island Nation Of Niue Creates Huge Marine Sanctuary (AFP)

The tiny Pacific island nation of Niue on Friday announced the creation of a huge marine sanctuary, saying it wanted to stop overfishing and preserve the environment for future generations. While Niue’s landmass is only 260 square kilometres (100 square miles), its remote location about 2,400 kilometres northeast of New Zealand means it lays claim to vast tracts of ocean. The government said that 40% of its exclusive economic zone, about 127,000 square kilometres representing an area roughly the size of Greece, would be set aside for the marine sanctuary. Premier Toke Talagi said his government wanted to stop the depletion of fish stocks and give the ocean space to heal to protect the environment for the next generation.

“This commitment is not a sacrifice, it is an investment in the certainty and stability of our children’s future,” he said. “We simply cannot be the generation of leaders who have taken more than they have given to this planet and left behind a debt that our children cannot pay.” Known locally as “The Rock”, Niue was settled by Polynesian seafarers more than 1,000 years ago and the palm-dotted island’s name in the local language means “behold, the coconut”. The British explorer captain James Cook tried to land there three times in 1774 but was deterred by fearsome warriors, eventually giving up to set sail for more welcoming shores and naming Niue “Savage Island”.

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Oct 052017
 
 October 5, 2017  Posted by at 8:41 am Finance Tagged with: , , , , , , , , ,  5 Responses »


Juan Gris Guitar on a chair 1913

 

S&P 500 Poised To Lose $10 Trillion In Value (Pal.)
The Sum of All Fears: China Shadow Banking Hits $40 Trillion (DT)
EU Parliament Defends ‘Proportionate Force’ in Catalonia (RT)
Catalonia Chaos Begins to Squeeze Spain’s Financial Markets (DQ)
ECB To Banks: Set Aside More Cash For Bad Debt Amid €1 Trillion Problem (G.)
Investors Are Too Inured to Markets’ Repeated Records (DDMB)
Puerto Rico’s Debt Is Quietly Sitting in Mom and Pop Mutual Funds (Martens)
The Cost Of Not Understanding Sovereign Currencies (Bill Black)
Whose Bright Idea Was RussiaGate? (PCR)
Who Really Holds Power at the Fed (BBG)
Court Orders Trump Administration Reinstate Obama Emissions Rule (AP)
US Honeybee Queen Life Expectancy Halves In 10 Years (NatGeo)
Ancient Bristlecone Pine Forests Overwhelmed By Climate Change (LAT)
60% Of Global Biodiversity Loss Is Down To Meat-Based Diets (G.)
Are Space, Time, And Gravity All Just Illusions? (F.)

 

 

Just so you know.

S&P 500 Poised To Lose $10 Trillion In Value (Pal.)

The last two recessions were devastating for the S&P 500. The dot-com bubble during March 2000 to October 2002 saw the Index drop -49%, while the Global Credit Crisis from October 2007 to March 2009 saw an even greater drop of -57%. Since then, the S&P 500 has been on fire, gaining 250% and breaking record highs almost daily. As the old adage goes, “the bigger they are, the harder they fall”. If the S&P loses 57% in the next market crash, that would represent $10 trillion in value lost, and would take the Index down to 1,077. As the more cyclical sectors begin to decline, portfolio managers will begin to reallocate capital to more attractive sectors. As we noted in our previous write-up, Gold Stocks To Explode When The S&P Implodes, in the current bull market, the S&P is up 247%, while gold stocks are down -30%.

If the pattern holds, the succeeding bear market in the S&P will trigger a major gold rally, which we predict will continue into the next S&P bull. Portfolio managers will look for undervalued stocks in sectors considered safe havens. Gold stocks check all the boxes and a surge of capital will soon find its way into them. Using the materials sector as proxy to gold stocks, we saw in each of the last two bears the weighting of the sector increase. The total value drop was also less in terms of percentage compared to the overall market. We calculate inflows of $206 billion in 2000-2002, and $270 billion in 2007-2009. If the coming drop follows that of the recent recession, we can expect an inflow of at least $440 billion into gold stocks. That is a lot of money on the sidelines. And when it begins to pour in, gold stocks will explode.

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I’ve warned a thousand times on China’s shadow system. This is excellent from ‘Deep Throat’. As I’ve suggested, the shadow system is now bigger than the official one.

The Sum of All Fears: China Shadow Banking Hits $40 Trillion (DT)

Unfortunately, per the People’s Bank of China (PBOC), Shadow Bank lending has reversed course abruptly and skyrocketed since the 2015 McKinsey report. Nobody really knows how big China’s Shadow Bank ecosystem is, but the PBOC recently offered a rather shocking guess in their 2017 Financial Stability Report (pg.48). China’s Off-Balance-Sheet, un-regulated, “Shadow” loans have grown to nearly US $37 Trillion (RMB 252.3 Trillion) and have surpassed China’s US$34 Trillion, “On-Balance Sheet” bank assets as of the close of 2016. They also restated the 2015 numbers, increasing the 2015 figures to US$ 28 Trillion (RMB 189 Trillion), roughly doubling the 2015 figure.

Keep in mind, the PBOC estimating Non-Bank Shadow loans is a bit like the local Sheriff estimating “unreported financial crime”. He doesn’t have authority over the mechanics of the activity, lacks enforcement resources and therefore can’t do much about preventing the crime(s). Even if he had authority and resource, he’d have a hard time zeroing in on the metric….criminals generally don’t respond to surveys or self-report their schemes. Moreover, the Sheriff would have an incentive to under-estimate the problem and hope everything works out, since, at some point, someone is going to be held accountable. As history shows, and Chinese Bankers are well aware of this, financial scoundrels are normally exiled to horrific disgrace on a private tropical island with access to boatloads of Cayman Islands money…..so it goes.

Again, based solely on the usual, limited transparency inherent in PBOC reporting (good things are trumpeted and bad things are swept under the rug), a disclosure like this would indicate that the problem is potentially much larger than they are letting on. In the 2017 Financial Stability Report (an oxymoron if I’ve ever heard one) the PBOC restates the Shadow Bank Assets for 2014 and 2015 (as shown by the dotted line in the chart below). To my knowledge, no other major economy has ever experienced an acceleration anywhere near these levels of Non-Bank, Shadow debt relative to GDP, much less restated it in a gigantic “ooppps….our bad” buried in a couple of paragraphs in the bowels of a report. In China….they do things big. The bigger the better. The two Charts below, prepared by Capital Economics illustrate that we’ve apparently entered uncharted waters.

Although the fiercely independent citizens, politicians and bankers of Hong Kong and Singapore might disagree, we can generalize that the leverage in those economies (tall bars on the left of the chart) is inextricably linked to the Chinese financial system. If there were ever a potential “ground-zero” for a default-induced financial contagion Shang-Hong-apore would be it. Moreover, when we examine the PBOC/CE Charts above, it wouldn’t be much of a reach to conclude that Shadow/Non-Bank Credit has become an absolutely essential tool for keeping all of the financial balls in the air. [..] Jahangir Aziz and Haibin Zhu from JP Morgan said the debts of the state-owned entities (SOEs) have alone reached 90pc of GDP or $13.3 trillion. Nearly 60pc of new credit this year is being used to repay old loans. It takes four times as much new credit to generate a given amount of extra of GDP as it did a decade ago.

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The EU leadership doesn’t give a shit what Europeans think of them (they’re not elected). Wave bye bye.

EU Parliament Defends ‘Proportionate Force’ in Catalonia (RT)

EU member states have the right to use “proportionate” force to defend the rule of law, Frans Timmermans, European Commission First Vice President, said three days after hundreds were injured by Spanish police trying to stop an independence vote in Catalonia. “It is a duty for any government to uphold the rule of law, and this sometimes requires the proportionate use of force,” Timmermans told the European Parliament in Strasbourg during a debate on Catalonia. “Respect for the rule of law is not optional – it’s fundamental,” he said. An independence referendum was held in the relatively prosperous Spanish region of Catalonia on Sunday, despite Madrid labeling it “unconstitutional.” A brutal mass police crackdown during the vote saw over 800 people, including women and the elderly, injured in Barcelona and elsewhere across the region.

“If the law does not give you what you want, you can oppose the law, you can work to change the law, but you cannot ignore the law,” Timmermans said. For the EU, “it is fundamental that the constitutions of every one of our member states are upheld and respected,” he added. According to Timmermans, the Catalan regional government “has chosen to ignore the law in organizing the referendum of last Sunday.” The leader of the largest European Parliament group, the European People’s Party, Manfred Weber, has also decried the Catalan referendum as invalid during the debate. “Who leaves Spain, leaves the European Union,” including the eurozone and the single market, Webber warned the Catalan authorities.

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“..the Rajoy administration dispatched two military convoys to Barcelona today to beef up its coercive capabilities in the city..”

Catalonia Chaos Begins to Squeeze Spain’s Financial Markets (DQ)

Spain’s biggest political crisis of a generation, which has led to the complete breakdown of communication and understanding between its government in Madrid and the separatist region of Catalonia, is finally beginning to take its toll on the country’s financial markets. Spain’s benchmark index, the Ibex 35, slumped nearly 3% following its worst day of trading since the Brexit vote last June. Spain’s 10-year risk premium — the differential between the yield on its 10-year bonds and the yield on Germany’s 10-year bonds — soared to 129 basis points. And that’s despite the fact that the ECB continues to buy Spanish debt hand over fist. But it is the banks that have borne the brunt of the pain this week. On Monday, the first trading day after the independence referendum, they lost €4.84 billion in market value.

Over the past five trading days, shares of the two biggest Catalan-based banks, Caixabank and Banco de Sabadell, have plunged respectively, 9% and 13%. So tense is the situation that the CEOs of each bank felt compelled to release a statement today reassuring customers that they have all the means and tools necessary to protect their interests. Their contingency plans include the option of abandoning their base of operations in Catalonia and moving elsewhere — to Madrid in the case of Sabadell and Mallorca in the case of Caixabank. But it wasn’t just Catalan banks that were caught up in today’s rout. Important Spanish banks with somewhat less exposure to Catalonia also saw their shares plunge.

Santander, Spain’s only global systemically important bank, was down 3.8% on the day’s trading; BBVA, Spain’s second bank which has important operations in Catalonia after acquiring the failed saving bank Catalunya Caixa in 2015, fell 3.6%; and Bankia was also down 3.6%. Standard & Poor’s today put Catalonia’s credit rating — at B+/B, it’s already deep into junk — on review for a downgrade of one notch or more, “if we believed that escalating political tensions between Catalonia’s government and Spain’s central government could put in question the full and timely refinancing of Catalonia’s short-term debt instruments or undermine the effectiveness of the central government’s financial support to Catalonia.” The threat of default moves a step closer.

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$1 trillion and now they start counting?!

ECB To Banks: Set Aside More Cash For Bad Debt Amid €1 Trillion Problem (G.)

The ECB is attempting to put a lid on the near €1tn of bad debts stored in eurozone banks by asking lenders to be more prudent about the way they handle new customers falling behind on repayments. The Frankfurt-based institution issued guidance on Wednesday intended to stop a new pile of problem debts being built up inside eurozone banks by setting out how much cash it wanted lenders to set aside for bad debts incurred from January 2018. The measures are not applicable to the existing €1tn of bad debts, which are largely a legacy of Europe’s financial problems in the aftermath of the 2008 crash and languishing on the balance sheets of banks in countries such as Greece, Cyprus and Italy. The ECB wants lenders to set aside 100% of the value of an unsecured loan within two years and gives lenders seven years to put aside the full amount of a secured loan, such as a mortgage.

The aim is to set a formal guideline for how to tackle problem loans – known as non-performing loans (NPLs) – in contrast to the current situation where there are a variety of approaches across eurozone countries. Policymakers are concerned that bad debts inside banks not only weaken lenders but also make it difficult for them to grant more loans, which in turn can impede economic growth. But they are sensitive to announcing new measures that would make banks more cautious about issuing new loans or push up the cost of borrowing. Sharon Donnery, deputy governor of the Central Bank of Ireland, who presented the latest plan by the ECB to tackle bad debts, said: “We want to prevent a build-up of insufficiently covered NPLs in the future.” The new measures are not applicable to the existing stock of bad debts for which lenders have set aside 45% of the value of their problem loans, so if the new rules had been applied it could have led to multibillion-euro provisions for lenders.

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Who did that headline?

Investors Are Too Inured to Markets’ Repeated Records (DDMB)

After several boom-and-bust cycles it’s clear many investors have exhausted the term “bubble.” Instead, they will recall this cycle with another word: “record.” The question is: Will the memories be tinged with regret? The answer is an unequivocal “yes.” The stock market closes at a fresh high with such frequency it no longer triggers news flashes. The mirror image of these daily records is found in volatility, which has cascaded to record lows. The bond market, though, is where the real action has been since 2011. If the current pace of sales persists through the final quarter of this year, 2017 will mark the seventh consecutive year of record U.S. corporate bond issuance. In exchange, investors are extending issuers record lax lending terms and receiving near-record low returns. It is no longer uncommon for bonds to price at yields that are beneath an issuer’s leverage as gauged by debt as a multiple of earnings.

Moreover, three-quarters of loans sold into the $1 trillion leveraged loan market are of the “covenant-lite” variety, meaning they do not give investors protection against issuers loading themselves up with debt. Buyers have responded by pushing leveraged loan volumes up by more than half this year compared with 2016; issuance is on pace to surpass 2007’s record $534 billion. And while it isn’t at record lows, the yield spread over comparable Treasury bonds that investors receive for investment grade-rated credits has only been lower 20% of the time since 2000. In the case of high-yield credit, the spread has only been lower 14% of the time in the past 17 years.

The differentiating factor in the years 2004 through 2007, when spreads were at their tightest on record, is the relative dearth of securitization, a process by which pools of loans were divvied up into tranches engineered to disperse risk. Investors learned the hard way as the credit crisis unfolded that these “collateralized” vehicles did not perform as well as the underwriters advertised. And yet, while there’s no question the collateralized mortgage obligation, or CMO, hasn’t even flirted with a comeback, the same cannot be said of its cousin, the collateralized loan obligation. In September, CLO issuance volumes surpassed $82 billion, well past the $75 billion high end of what analysts had been forecasting for the full year. Volumes are running at twice last year’s pace and could easily surpass 2007’s record $89 billion level.

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Tax-free is not risk-free.

Puerto Rico’s Debt Is Quietly Sitting in Mom and Pop Mutual Funds (Martens)

There was likely a collective gasp at OppenheimerFunds Inc. yesterday when President Donald Trump made another of those market-moving pronouncements, telling Fox News that Puerto Rico’s debt would have to be wiped out. The President’s remarks suggested he thought the losers would be Wall Street banks. The President stated: “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” The reality is that a large percentage of Puerto Rico’s debt is held in tax-free municipal bonds and municipal bond mutual funds, owned not by Wall Street banks or tycoons, but by mom and pop investors seeking tax-free income.

(As a result of Congressional legislation, the interest on municipal bonds issued by the Commonwealth of Puerto Rico, its political subdivisions and public corporations, is not subject to Federal, state or local taxes. This has made the individual bonds and mutual funds particularly attractive in places like New York City and to residents of New York counties with high local taxes.) According to a semi-annual report made last month at the Securities and Exchange Commission, Oppenheimer Rochester Fund Municipals, a popular tax-free fund held by many New York investors, was sitting on a boatload of Puerto Rico municipal bonds as of June 30, 2017. The SEC filing shows over 100 different Puerto Rico bonds, issued by the Commonwealth and numerous other Puerto Rico issuers like the Puerto Rico Electric Power Authority and the Puerto Rico Sales Tax Financing Corp. (The fund, of course, holds a widely diversified portfolio of other bonds as well.)

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MMT.

The Cost Of Not Understanding Sovereign Currencies (Bill Black)

Jared Bernstein, Senior Fellow at the Centre on Budget and Policy Priorities and former chief economist to former Vice President Joe Biden, recently published an op ed in the New York Times entitled ‘Do Republicans Really Care About the Deficit?’. Republican elites, of course, have not really cared about federal budget deficits for decades. That is a good thing that Democrats should embrace in a bipartisan spirit. Bernstein, of course, is correct that the Republicans are hypocrites about federal budget deficits, pretending to care about them when the Democrats hold power and displaying their lack of any real care when Republicans hold power and the context is tax cuts for the wealthy.

Democrats display a similar hypocrisy. Even Democrats like Bernstein who know that the Republicans proposed expansion of the federal budget deficit through tax cuts is not a real economic problem are primed to attack Republican hypocrisy by falsely asserting that the Republican deficits would harm the Nation. Democrats should embrace honesty as the best policy and stop embracing the politically attractive pose of claiming to be the Party that “really cares” about the federal budget deficit. That politically attractive pose is not simply dishonest and financially illiterate, it is also a trap. The Republican and New Democrat deficit strategy is to force Democrats to make an endless series of “Sophie’s choices.” Choose which excellent program to kill in order to save (temporarily) another from the chopping block because we supposedly cannot afford to provide both.

Then repeat the process. The Republicans and New Democrats constantly, and falsely, claim that the federal government cannot afford to provide medical care availability that is routinely provided in most of Europe and Canada. It is a pure myth that the United States cannot afford to provide the safety net of Social Security, Medicare, and Medicaid. We need to start with first principles. In a nation with a sovereign currency like the United States, federal tax revenues do not fund federal expenditures. If that sentence, which is indisputably correct, strikes you as bizarre then it is a measure of the force of the propaganda you have been fed throughout your life. Today would be an excellent day to free yourself from the hold of that destructive lie.

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“There is nothing more reckless and irresponsible than convincing a nuclear power that you are going to attack. ”

Whose Bright Idea Was RussiaGate? (PCR)

The answer to the question in the title of this article is that Russiagate was created by CIA director John Brennan.The CIA started what is called Russiagate in order to prevent Trump from being able to normalize relations with Russia. The CIA and the military/security complex need an enemy in order to justify their huge budgets and unaccountable power. Russia has been assigned that role. The Democrats joined in as a way of attacking Trump. They hoped to have him tarnished as cooperating with Russia to steal the presidential election from Hillary and to have him impeached. I don’t think the Democrats have considered the consequence of further worsening the relations between the US and Russia.

Public Russia bashing pre-dates Trump. It has been going on privately in neoconservative circles for years, but appeared publicly during the Obama regime when Russia blocked Washington’s plans to invade Syria and to bomb Iran. Russia bashing became more intense when Washington’s coup in Ukraine failed to deliver Crimea. Washington had intended for the new Ukrainian regime to evict the Russians from their naval base on the Black Sea. This goal was frustrated when Crimea voted to rejoin Russia. The neoconservative ideology of US world hegemony requires the principal goal of US foreign policy to be to prevent the rise of other countries that can serve as a restraint on US unilateralism. This is the main basis for the hostility of US foreign policy toward Russia, and of course there also is the material interests of the military/security complex.

Russia bashing is much larger than merely Russiagate. The danger lies in Washington convincing Russia that Washington is planning a surprise attack on Russia. With US and NATO bases on Russia’s borders, efforts to arm Ukraine and to include Ukraine and Georgia in NATO provide more evidence that Washington is surrounding Russia for attack. There is nothing more reckless and irresponsible than convincing a nuclear power that you are going to attack. Washington is fully aware that there was no Russian interference in the presidential election or in the state elections. The military/security complex, the neoconservatives, and the Democratic Party are merely using the accusations to serve their own agendas. These selfish agendas are a dire threat to life on earth.

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Lots of changes.

Who Really Holds Power at the Fed (BBG)

To the casual observer, the Federal Open Market Committee September meeting in Washington might have looked like any other. But when San Francisco’s John Williams, Minneapolis’s Neel Kashkari, and the other regional Fed presidents took their seats at the big oval table, an historical anomaly glared back from the other side. In a rare alignment of events, the five voting presidents outweighed Board of Governors voters, who include Federal Reserve Chair Janet Yellen. It’s a gap that opened up earlier this year and which looks poised to persist, at least for the near future. This matters. There are 12 Fed presidents, chosen for five-year terms by their regional boards. The seven governors are appointed by the U.S. president and confirmed by the Senate for staggered 14-year terms.

Because of the retirement of Daniel Tarullo, the governor informally tasked with heading financial regulation, the Fed board has been down to four voters since May, and with Vice Chairman Stanley Fischer leaving, it’s possible the number could be down to three by the next FOMC meeting. It looks likely that Randal Quarles, Trump’s first nominee, could be confirmed before that, holding the Governors steady at four. The regional contingent, meanwhile, remains near full force, with only the Richmond Fed currently looking for a new president. At a time when the current occupant of the Oval Office could choose at least four new governors, the power of the regional presidents amounts to a stabilizing backbone and bastion of independence in an era of transition at the Fed. Yellen, Lael Brainard, and Jerome Powell are the holdouts on the board in Washington, and President Trump isn’t expected to reappoint Yellen when her term ends in February.

Thus it could fall to the Fed’s arcane system, born of populist angst, to protect monetary policy from massive upheaval. The current state of affairs underscores how this uniquely American setup, erected in stages beginning in the years before World War I, remains relevant a century later, even though many of the functional duties of the world’s most powerful central bank have changed. “The regional banks are a bizarre set of entities,” says Aaron Klein, a Brookings Institution fellow who studies the central bank. “In some ways the mission of the regional system is to bring in diverse viewpoints that challenge the political board.”

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“Prior to the rule, an estimated $100m in taxpayer-owned natural gas was wasted each year from oil and gas wells operating on public lands in New Mexico..”

Court Orders Trump Administration Reinstate Obama Emissions Rule (AP)

Rebuffing the Trump administration, a federal judge on Wednesday ordered the Interior Department to reinstate an Obama-era regulation aimed at restricting harmful methane emissions from oil and gas production on federal lands. The order by a judge in San Francisco came as the Interior Department moved to delay the rule until 2019, saying it was too burdensome to industry. The action followed an earlier effort by the department to postpone part of the rule set to take effect next year. US Magistrate Judge Elizabeth Laporte of the northern district of California said the department had failed to give a “reasoned explanation” for the changes and had not offered details why an earlier analysis by the Obama administration was faulty. She ordered the entire rule reinstated immediately.

The rule, finalized last November, forces energy companies to capture methane that’s burnt off or “flared” at drilling sites on public lands during production because it pollutes the environment. An estimated $330m a year in methane is wasted through leaks or intentional releases on federal lands, enough to power about 5m homes a year. Methane, the primary component of natural gas, is a leading contributor to global warming. It is far more potent at trapping heat than carbon dioxide but does not stay in the air as long. [..] Democratic senator Tom Udall from New Mexico said the methane rule provides badly needed revenue to states such as New Mexico for public education and other services.

Prior to the rule, an estimated $100m in taxpayer-owned natural gas was wasted each year from oil and gas wells operating on public lands in New Mexico, Udall said, adding that the rule has helped to reduce dangerous air pollution across the west, including a methane cloud the size of Delaware that hangs over the Four Corners region of New Mexico, Utah, Arizona and Colorado.

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What Happens If the Honeybees Disappear?

US Honeybee Queen Life Expectancy Halves In 10 Years (NatGeo)

A honeybee queen, when all is right in her world, should live for two to three years. But in the United States, beekeepers have seen that life span drop by more than half over the past decade, and researchers are trying to determine why. It’s one of many questions surrounding the mystery of honeybee mortality, a disturbing phenomenon that’s linked to a mix of factors, including parasites, pesticides, and habitat loss. Aside from making a delicious natural sweetener, honeybees—which are not native to the U.S.—also provide a crucial service to agriculture: pollination. From apples to almonds, many crops would suffer without honeybees. And while about 90% of beekeepers in this country are hobbyists, the majority of hives belong to large-scale, commercial operations, says North Carolina State University entomologist David Tarpy.

Colony collapse in general could be devastating to food production. So scientists are looking for alternatives. Most honeybees in the U.S. today are of Italian heritage and vulnerable to a pest called the varroa mite. But Russian bees are more resistant to it, and backyard beekeepers have had success with them. The problem, says Tarpy, is that Russian honeybees don’t make as much honey as their Italian counterparts and “aren’t as amenable” to the migratory nature of pollinating large-scale farms. Another option, says wildlife biologist Sam Droege of the U.S. Geological Survey, is to embrace the thousands of North American wild bee species, which are excellent pollinators, rarely sting, and are typically the size of a grain of rice. The drawback for some people is that none of the wild bee species produce honey. But, says Droege, “we can always get honey from other countries.”

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I’ve always been in awe of 5000 year old trees. They ‘saw’ the pyramids being built.

Ancient Bristlecone Pine Forests Overwhelmed By Climate Change (LAT)

For thousands of years, wind-whipped, twisted bristlecone pines have been clinging to existence on the arid, stony crests of eastern California’s White Mountains, in conditions inhospitable to most other life. Their growth rings provide a year-by-year account of the struggle to survive: It’s a tortuous cycle of dying off almost entirely, leaving only a few strips of bark that then continue to grow diagonally skyward or sideways along the ground. But the world’s oldest trees may never have experienced temperature increases as rapid as those of recent decades. The climatic changes have triggered a struggle for dominance, in very slow motion, between the ancient bristlecones and the younger limber pines that have been able to charge up-slope as conditions become warmer and wetter.

Scientists know that bristlecone pines will remain standing for centuries to come. But how will they cope with the intrusion of limber pines competing for sunlight, moisture, nutrients and room to grow? Which plants and animals will be first to adapt to niches in the increasingly diverse forests at elevations above 11,000 feet? [..] average ambient temperatures have risen nearly 2 degrees Fahrenheit in the last century, altering the precarious balance of life in the region long dominated by ancient bristlecone pines — regarded as symbols of longevity, strength and perseverance. “Whenever conditions change, there are winners and losers. And in this case, we won’t know the ultimate outcome for several thousand years,” Smithers said. “But some bristlecone pine forests could face a reduction in range if they’re crowded out … by limber pines moving into their turf.”

Bristlecone pines — named for their bottlebrush-like branches with short needles — are found in other parts of the semiarid Great Basin, which extends from California’s Sierra Nevada east to the Rockies. But the ones found in the White Mountains are the oldest. The slow growers are only about 25 feet tall and expand about 1 inch in diameter every 100 years. One of the oldest of the bunch is Methuselah, at about 4,768 years old. Its precise location is carefully guarded to avert vandalism.

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Animal feed.

60% Of Global Biodiversity Loss Is Down To Meat-Based Diets (G.)

The ongoing global appetite for meat is having a devastating impact on the environment driven by the production of crop-based feed for animals, a new report has warned. The vast scale of growing crops such as soy to rear chickens, pigs and other animals puts an enormous strain on natural resources leading to the wide-scale loss of land and species, according to the study from the conservation charity WWF. Intensive and industrial animal farming also results in less nutritious food, it reveals, highlighting that six intensively reared chickens today have the same amount of omega-3 as found in just one chicken in the 1970s.

The study entitled Appetite for Destruction launches on Thursday at the 2017 Extinction and Livestock Conference in London, in conjunction with Compassion in World Farming (CIFW), and warns of the vast amount of land needed to grow the crops used for animal feed and cites some of the world’s most vulnerable areas such as the Amazon, Congo Basin and the Himalayas. The report and conference come against a backdrop of alarming revelations of industrial farming. Last week a Guardian/ITV investigation showed chicken factory staff in the UK changing crucial food safety information. Protein-rich soy is now produced in such huge quantities that the average European consumes approximately 61kg each year, largely indirectly by eating animal products such as chicken, pork, salmon, cheese, milk and eggs.

In 2010, the British livestock industry needed an area the size of Yorkshire to produce the soy used in feed. But if global demand for meat grows as expected, the report says, soy production would need to increase by nearly 80% by 2050. “The world is consuming more animal protein than it needs and this is having a devastating effect on wildlife,” said Duncan Williamson, WWF food policy manager. “A staggering 60% of global biodiversity loss is down to the food we eat. We know a lot of people are aware that a meat-based diet has an impact on water and land, as well as causing greenhouse gas emissions, but few know the biggest issue of all comes from the crop-based feed the animals eat.”

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Author Ethan Siegel ends up being disappointed.

Are Space, Time, And Gravity All Just Illusions? (F.)

The Universe, as we know it, has a fundamental flaw staring us right in our faces, letting us know that our knowledge is incomplete. The four fundamental forces are described by two different and mutually incompatible frameworks: General Relativity for gravitation, and Quantum Field Theory for the electromagnetic and nuclear forces. Einstein’s theory on its own is just fine, describing how matter-and-energy relate to the curvature of space-and-time. Quantum field theories on their own are fine as well, describing how particles interact and experience forces. But where gravitational fields are strongest, and on the smallest of scales, we have no way of describing nature. The physics of our greatest theories breaks down. Under conventional circumstances, quantum field theory calculations are done in flat space, where spacetime isn’t curved.

We can do them in the curved space described by Einstein’s theory of gravity as well, although the calculations are far more difficult. This semi-classical approach gets us far, but it doesn’t get us everywhere. In particular, there are a few strong-field situations where we simply cannot obtain sensible answers using our current theories: • What happens to the gravitational field of an electron when it passes through a double slit? • What happens to the information of the particles that form a black hole, if the black hole’s eventual state is thermal radiation? • And what is the behavior of a gravitational field/force at and around a singularity? These questions all go unanswered without a quantum theory of gravity. The assumption we normally make is that there is a quantum theory of gravity, and we just haven’t found it yet.

Perhaps it’s string theory; perhaps it’s an alternative approach like loop quantum gravity, causal dynamical triangulations, or asymptotic safety. But since 2009, a new, exciting, and assumption-challenging approach has taken the scene by storm: the idea that gravity itself isn’t a real, fundamental force, but an illusory, emergent one. Pioneered by Erik Verlinde, the idea is that gravity emerges from a more fundamental phenomenon in the Universe, and that phenomenon is entropy. Sound waves emerge from molecular interactions; atoms emerge from quarks, gluons and electrons and the strong and electromagnetic interactions; planetary systems emerge from gravitation in General Relativity. But in the idea of entropic gravity — as well as some other scenarios (like qbits) — gravitation or even space and time themselves might emerge from other entities in a similar fashion.

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Oct 042017
 
 October 4, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  7 Responses »


Pablo Picasso Vue de Notre-Dame de Paris 1945

 

Why Greece Took The Fall For A European Banking Crisis (Ren.)
The Fed is a Slave to the S&P 500 (Albert Edwards)
Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder (ZH)
Trump Says Puerto Rico’s Debt Will Have To Be Wiped Out (BBG)
White House To Request $29 Billion For Hurricane Relief (R.)
White House: A Tax Plan That Doesn’t Add To The Deficit Won’t Spur Growth (BBG)
IMF Warns That Using Consumer Debt To Fuel Growth Risks Crisis (G.)
IMF Warns That Australia’s Household Debt Hangover Will Hurt (Aus.)
A Debt Bomb Is Growing Down Under (Satyajit Das)
The End of Empire (Chris Hedges)
‘What In God’s Name Were You Thinking?’ Senators Grill Wells Fargo CEO (MW)
King Felipe: Catalonia Authorities Have ‘Scorned’ All Spaniards (G.)
Spain Rules Out Mediator In Catalan Crisis (Pol.)
Goodbye – And Good Riddance – To Livestock Farming (G.)

 

 

“If Greece continues to participate in the EU, democracy is doomed”

Claire Connelly’s damning version of the events. Please read the whole thing.

Why Greece Took The Fall For A European Banking Crisis (Ren.)

The Greek financial crisis was actually a French and German banking crisis for which Greece took the fall, the result of decades of irresponsible spending and lending. When Greece joined the Euro it went on a spending spree, building roads, airports, new subway systems, infrastructure and a state-of-the-art military arsenal all built and provided by German companies. Companies which, incidentally, have been accused of bribing Greek politicians to secure military and civilian government contracts. Siemens allegedly paid €100 million to Greek officials to secure a contract to upgrade Athens’s telecommunications infrastructure for the 2004 Olympic Games. The Euro was designed to limit competition between the industries of member nations while shifting deficits and surpluses around the continent. Greece’s deficits are Germany’s surplus, and so on.

Had Greece still been using the Drachma, it had a chance of keeping its deficits in check, because it could decide on its own how to set interest rates and tax currency, but when replaced with the Euro, French and German loans caused its deficits to explode and it had no option but to accept the terms of its creditors, even though they knew the debt had no chance of being repaid. Banks – having been bankrupted by the 2008 Global Financial Crisis – stopped lending, and Greece, unable to rollover its debt, became insolvent. As a result, the three French banks which had issued loans to its European nations faced peripheral losses twice the size of its economy. More to the point, the French and German banks didn’t want the debts to be repaid. But they also didn’t want countries like Italy, Spain, Portugal and Ireland to default.

France’s top three banks had loaned €627 billion to Italy, Spain and Portugal and €102 billion to Greece and were staring down a 30 to 1 leverage ratio, meaning that if it lost only 3.33% of its loans to defaults, its capital would be wiped out and banking regulators would be forced to shut the banks down. And if Greece defaulted on its debt, the banks were concerned Spain, Italy, Portugal and Ireland would follow, resulting in a 19% loss of French debt assets, far and above the 3% that would lead to its insolvency. The three French banks needed a €562 billion bailout, but unlike the US which can shift its losses to its central bank, the Federal Reserve, France a) had no such central bank to shift its losses to, having dismantled it in favour of the European Central Bank, and b) the ECB was prohibited upon its formation to shift bad debts onto its books.

Likewise, Germany’s banks also went bust and required a €406 billion bailout – which it received – but it was barely enough to cover its US-based toxic derivative trades which led to the crisis in the first place, let alone what they had leant to their European neighbours. The banks came back begging, mere months after being cut a €406 billion cheque by the German government. “Greece’s bankruptcy would force the French state to borrow six time its total annual tax revenues just to hand it over to three idiotic banks,” former Greek finance minister, Yanis Varoufakis wrote in his expose of the ‘bailout’ negotiations, Adults In The Room. Had the markets found out this secret, interest rates would have skyrocketed and €1.29 trillion of French government debt would have gone bad and the country bankrupted, and the EU with it.

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Edwards likes Kevin Warsh, frontrunner for Fed chief….

The Fed is a Slave to the S&P 500 (Albert Edwards)

I was the first speaker and afterward I enjoyed listening to every other speaker at the two-day event. Most notable of the outside economics speakers were Paul Volcker, Larry Summers, and most significantly for me, ex Fed-Governor Kevin Warsh. Much to my own regret, I had never familiarised myself with the views of Governor Warsh, who was at the Fed from 2006-11, and played a key role in navigating the Fed through the crisis. He got a rousing reception from the BCA audience as he talked a lot of sense – in particular on how the Yellen Fed has lost its way and current policy is deeply flawed. He explained that the Fed has been “captured” by a groupthink of academics led by the ‘Secular Stagnation’ ideas of his friend, Larry Summers.

Rather than admitting they are wrong, this group, who failed to predict the current economic malaise, have constructed this theory to explain why ever more stimulus is required. In particular, Warsh warned that the Fed had become the slave of the S&P. Summers’ relaxed view on the debt build-up, particularly visible in the corporate sector, is in sharp contrast with our own view that this looks set to wreck the US economy. The problem with Summers’ analysis in my view is that it is the higher debt that is being used to push up asset values (via share buybacks), just as it did during the housing bubble in 2005-7. And by pushing asset values well beyond fundamentals you build debt structures on false asset values, which only become apparent when the asset bubble bursts. And am I in any way reassured that the Fed sees no bubbles? No, I am not. These dudes will never identify an asset bubble – at least before the event!

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… bur Warsh might endanger easy money policies, and make the dollar stronger.

Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder (ZH)

[..] we can cross out economist Glenn Hubbard and U.S. Bancorp Chairman Richard Davis, both of whom have been floated as possible candidates, although Trump has no intention of interviewing them. A potential wildcard is Stanford economist John Taylor, a favorite of fiscal conservatives, who is also said to be under consideration. It has also been previously reported that Trump has spoken to Yellen, Cohn, Warsh and Powell about the Fed post, although there is no frontrunner at the moment. According to Bloomberg, “the latest developments show that Trump is closer to making a final selection than previously known.” Last Friday, Trump said that he is “two or three weeks away from announcing his nominee” for the post overseeing the nation’s central bank.

Meanwhile, speaking at the Vanity Fair New Establishment Summit on Tuesday in Los Angeles, Jeffrey Gundlach – who accurately predicted Trump’s presidency – predicted that Neel Kashkari would be picked as next Fed chair. “I actually have a very non-consensus point of view. I think it’s going to be Neel Kashkari… He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win.” The Bond King said that Trump needs someone who will keep rates low in order to keep his populist reputation and help his base voters and that’s why he’ll pick Kashkari. “A stronger dollar is not good for achieving that agenda,” he said. Gundlach also is confident that Yellen would not get reappointed: “I think there is no chance that she wants to be chairwoman, nor do I think the president wants her to be,” said the manager of $109 billion.

Judging by the latest PredictIt odds, if Gundlach is right, and if he is willing to bet some money on it, he could make a killing, as Kashkari does not even have a contract. As to the current ranking, Warsh remains in top spot with 38% odds, although following today’s Politico news, Powell surged to second place with 31% odds, and now following the Bloomberg report, John Taylor finds himself in third spot with 20% odds, above both Gary Cohn in 4th and Janet Yellen who has tumbled to 5th with just 13% odds of being reappointed.

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“I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” Wonder how it would be done. And what does it mean for Texas, Florida debt?

Trump Says Puerto Rico’s Debt Will Have To Be Wiped Out (BBG)

President Donald Trump suggested that the government debt accumulated by bankrupt Puerto Rico would need to be wiped clean to help the island recover from the devastation caused by Hurricane Maria. “We are going to work something out. We have to look at their whole debt structure,” Trump said during an interview on Fox News Tuesday. “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be – you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” Puerto Rico is dealing with an immediate humanitarian disaster made worse by the long-term debt crisis that led it to declare a form of bankruptcy this year.

The island’s government for decades had been plagued by budget deficits caused by wasteful spending, and borrowed $74 billion. Much of that went to operations. The commonwealth’s budget is under the control of a federally appointed oversight board, a panel that the U.S. Congress created to wield broad sway over the territory’s finances. The panel approves the island’s budget and is meant to help make unpalatable decisions such as closing schools and cracking down on tax evasion. Trump paid a four-and-a-half-hour visit to the island earlier Tuesday, greeting local officials and offering consolation to residents who have been without power and, in many cases, drinking water since the storm struck on Sept. 20. Some in Puerto Rico’s government already are estimating reconstruction costs will be as high as $60 billion.

Prices of the U.S. territory’s bonds have plunged to record lows, signaling investors expect that there will be even less money available to repay its $74 billion of debt. Puerto Rico has little financial ability to navigate the disaster on its own, leaving the recovery heavily dependent on how much aid comes from Washington. It began defaulting on its debts two years ago, seeking to avoid draconian budget cuts officials said would deal another blow to an already shrinking economy. With nearly half of its 3.4 million residents living in poverty, the government filed for bankruptcy protection in May.

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Are they going to fight over this?

White House To Request $29 Billion For Hurricane Relief (R.)

The White House is preparing a $29 billion disaster aid request to send to the U.S. Congress after hurricanes hit Puerto Rico, Texas and Florida, a White House official said on Tuesday. The request is expected to come on Wednesday. It will combine nearly $13 billion in new relief for hurricane victims with $16 billion for the government-backed flood insurance program, the White House official told Reuters. The White House wants Congress to forgive $16 billion of the debt that the National Flood Insurance Program, which insures about 5 million homes and businesses, has racked up.

The request comes as the program is close to running out of money, congressional aides said. The program had racked up nearly $25 billion in debt before this season’s major hurricanes. The Trump administration is also proposing more than a dozen reforms including new means testing and an extreme-loss repetition provision, aides said. Some homes insured under the program have gotten payments repeatedly from the program after multiple storms. The flood insurance money is aimed primarily for areas impacted by Hurricanes Harvey and Irma, which struck Texas and Florida, aides said.

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Don’t think the GOP will like this.

White House: A Tax Plan That Doesn’t Add To The Deficit Won’t Spur Growth (BBG)

The White House is showing “softness” on ending a $1.3 trillion federal tax deduction filers get for their state and local taxes, Senator Bob Corker said Monday, warning that it raises questions about the GOP’s “intestinal fortitude” and could imperil a tax overhaul. The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such “pay-fors,” Congress might have to settle for only temporary tax cuts. Corker, who insists he won’t vote for a tax bill that adds a penny to the deficit, said in an interview that he’s concerned about the early signals from the White House. On Friday – two days after the tax framework was rolled out – National Economic Council Director Gary Cohn said that ending the state and local tax break was negotiable.

“That’s the easiest one,” said Corker, a Tennessee Republican. “Some of the others are actually more offensive and produce lesser amounts of money.” The budget rules that Senate leaders plan to use to pass the legislation require that any changes that boost the federal deficit would have to expire in time. But the nine-page framework released Wednesday provided few details on revenue raisers. It calls for eliminating deductions, but doesn’t specify them. By showing its willingness to negotiate on one such deduction, the White House appears to be charting a rocky path. “As a general matter in tax reform you have to acknowledge that you cannot negotiate with everybody’s single pay-for,” said Doug Holtz-Eakin, who runs the American Action Forum, a conservative group that’s working with GOP leaders on taxes. “If you do that for everything, you don’t get tax reform.”

Ending the state and local deduction, which Trump’s aides proposed in April, faces resistance from Republican lawmakers in high-tax states like New York and New Jersey. The same day Cohn commented on the state tax break, tax-writing chiefs Senator Orrin Hatch and Representative Kevin Brady dismissed a study that found ending personal exemptions, another one of the few offsets set forth, could raise taxes for some middle-class families. Their response: The committees haven’t made decisions about which tax breaks to end. Asked if the state tax break and personal exemptions were negotiable, Brady reiterated Monday the bill is a work-in-progress. “We’re continuing to work on the final design of the tax reform plan that we’ll have ready after the budget is completed,” he said.

White House Budget Director Mick Mulvaney is signaling similar flexibility, saying on CNN Sunday that decisions about deductions remain up in the air as “the bill is not finished yet.” He took it a step further on Fox News Sunday, by adding that a tax plan that doesn’t add to the deficit won’t spur growth. “I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3% economic growth.”

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Just-in-time politics.

IMF Warns That Using Consumer Debt To Fuel Growth Risks Crisis (G.)

The IMF has issued a warning to governments that rely on debt-fuelled consumer spending to boost economic growth, telling them they run the risk of another major financial collapse. In a report before the IMF’s annual meeting in Washington next week, it said analysis of consumer spending and levels of household debt showed that economies benefited in the first two to three years when households raised their levels of borrowing, but then risks began to mount. Once growth becomes dependent on household debt, it can be a matter of two to three years before a financial crash, the IMF said in its annual report on the global financial system. The study follows a series of warnings about rising levels of household debt in the UK from financial regulators and debt charities.

In a blogpost accompanying the report, one of the authors, Nico Valckx, warned: “Debt greases the wheels of the economy. It allows individuals to make big investments today – like buying a house or going to college – by pledging some of their future earnings. That’s all fine in theory. But as the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous.” He added: “Higher debt is associated with significantly higher unemployment up to four years ahead. And a one percentage point increase in debt raises the odds of a future banking crisis by about one percentage point. That’s a significant increase, when you consider that the probability of a crisis is 3.5%, even without any increase in debt.”

Earlier this year the IMF cut its forecast for the UK’s GDP growth in 2017 by 0.3 percentage points to 1.7% and it is expected to reduce its prediction further next week when its global outlook is published. The uncertainty created by the Brexit vote and negotiations to leave are likely to be blamed, along with a reliance on consumer spending, which has slowed this year. The Bank of England, which regulates the banking sector, said last month that the UK’s banks could incur £30bn of losses on their lending on credit cards, personal loans and for car finance if interest rates and unemployment rose sharply. The debt charity Stepchange has warned that 6.5 million people have used credit to pay for basic items such as food after a change in their circumstances. And MPs have called for an independent commission to examine the effects of rising household debt levels in the UK.

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Same IMF report, specifically for Australia.

IMF Warns That Australia’s Household Debt Hangover Will Hurt (Aus.)

Rapid growth in household debt works as a short-term sugar hit to the economy but leaves a long hangover with reduced growth, higher unemployment and the risk of a banking crisis, the International Monetary Fund has warned. The fund identifies Australia as one of the countries most exposed, with household debts rising to more than 100% of GDP compared with an advanced- country average of 63%. “In the short term, an increase in the household debt-to-GDP ratio is typically associated with higher economic growth and lower unemployment, but the effects are reversed in three to five years, the IMF says in its latest review of global financial stability. Moreover, higher growth in household debt is associated with a greater probability of banking crises.

Reserve Bank governor Philip Lowe yesterday repeated his concern that housing debt has been outpacing the slow growth in household incomes and is now limiting growth in household spending. “Slow growth in real wages and high levels of household debt are likely to constrain growth in household spending,” he said. Announcing that the bank was keeping its benchmark cash rate at the record low of 1.5%, where it has now been sitting since August 2016, he said risks in the housing market were being contained by banking regulator the Australian Prudential Regulation Authority, which had tightened supervision of real estate lending.

The IMF’s research shows that on average, a 5 percentage point rise in household debt to GDP over a three-year period foreshadows weaker growth in GDP, which would be 1.25 percentage points lower in three years’ time. Reserve Bank statistics on household balance sheets show that total debts have risen from 123% of GDP to 137% over the past five years, or a 14 percentage point increase.

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And Das has some more on the land of Oz.

A Debt Bomb Is Growing Down Under (Satyajit Das)

Australia’s record of 26 years without a recession flatters to deceive. The gaudy numbers mask serious flaws in the country’s economic model. First and most obviously, the Australian economy is still far too dependent on “houses and holes.” During part of the typical business cycle, national income and prosperity are driven by exports of commodities – primarily iron ore, liquefied natural gas and coal – that come out of holes in the ground. At other times, low interest rates and easy credit boost house prices, propping up economic activity. These two forces have combined with one of the highest population growth rates in the developed world (around 1.5% annually, driven mostly by immigration) to prop up headline growth. Yet a significant portion of housing activity is speculative. Going by measures such as price-to-rent or price-to-disposable income, Australia’s property market looks substantially overvalued.

Meanwhile, GDP per capita has been largely stagnant since 2008. Australia’s manufacturing industry, once a significant employer and an important part of the economy, has increasingly been hollowed out. The country’s cost structure is high. Improvements in productivity have, as elsewhere, been lackluster. Infrastructure is aging and unable to cope with the demands of a rising population, especially in major cities. Australia stands at 21st place in the 2017 Global Competitiveness Report. It ranks 15th in the World Bank’s ease of doing business list. Attempts to diversify the economy have had mixed results. Tourism and service exports, mainly of education and health services, have expanded significantly. But they’re nowhere near replacing the revenues brought in by mineral exports.

Second, a debt bomb is growing Down Under. Australia’s total non-financial debt is over 250% of GDP, up around 50% since 2010. Household debt is currently over 120% of GDP, among the highest proportions in the world. The ratio of household debt to income has nearly quintupled since the 1980s, reaching an all-time high of 194%. Stagnant real incomes have contributed to the problem, as have high home prices and the associated mortgage debt. Despite record-low interest rates, around 12% of income is now devoted to servicing all this debt. That’s a third more than in 1989-90, when interest rates neared 20%.

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“..a motley collection of imbeciles, con artists, thieves, opportunists and warmongering generals. And to be clear, I am speaking about Democrats, too.”

The End of Empire (Chris Hedges)

The American empire is coming to an end. The U.S. economy is being drained by wars in the Middle East and vast military expansion around the globe. It is burdened by growing deficits, along with the devastating effects of deindustrialization and global trade agreements. Our democracy has been captured and destroyed by corporations that steadily demand more tax cuts, more deregulation and impunity from prosecution for massive acts of financial fraud, all the while looting trillions from the U.S. treasury in the form of bailouts. The nation has lost the power and respect needed to induce allies in Europe, Latin America, Asia and Africa to do its bidding. Add to this the mounting destruction caused by climate change and you have a recipe for an emerging dystopia.

Overseeing this descent at the highest levels of the federal and state governments is a motley collection of imbeciles, con artists, thieves, opportunists and warmongering generals. And to be clear, I am speaking about Democrats, too. The empire will limp along, steadily losing influence until the dollar is dropped as the world’s reserve currency, plunging the United States into a crippling depression and instantly forcing a massive contraction of its military machine. Short of a sudden and widespread popular revolt, which does not seem likely, the death spiral appears unstoppable, meaning the United States as we know it will no longer exist within a decade or, at most, two.

The global vacuum we leave behind will be filled by China, already establishing itself as an economic and military juggernaut, or perhaps there will be a multipolar world carved up among Russia, China, India, Brazil, Turkey, South Africa and a few other states. Or maybe the void will be filled, as the historian Alfred W. McCoy writes in his book “In the Shadows of the American Century: The Rise and Decline of US Global Power,” by “a coalition of transnational corporations, multilateral military forces like NATO, and an international financial leadership self-selected at Davos and Bilderberg” that will “forge a supranational nexus to supersede any nation or empire.”

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“We serve one out of every three Americans, we have 270,000 team members,” Sloan began, before Schatz cut him off. “So you’re too big?” Schatz asked.

‘What In God’s Name Were You Thinking?’ Senators Grill Wells Fargo CEO (MW)

The chief executive of Wells Fargo & Co. on Tuesday faced senators unimpressed with the bank’s claims of progress in rectifying a massive scandal that lasted years and ensnared millions of customers. “My task is to make sure nothing like this happens again at Wells,” CEO Tim Sloan, a former CFO who was elevated after the ouster of John Stumpf last fall, told the Senate Banking Committee. Sloan outlined steps Wells had taken to address the management structure that incentivized opening accounts for customers fraudulently, and to make affected customers whole. But most legislators said those actions – and Sloan’s testimony – fell far short. The hearing marked one year since regulators settled with Wells over the opening of 2 million phony accounts – and since then, additional wrongdoing has emerged.

In July, the New York Times broke the news that Wells had charged hundreds of thousands of customers for auto insurance they didn’t request or require – a practice that in many cases resulted in overdrawn accounts, fees, and car repossessions. Just days later, the bank told regulators that the number of unauthorized accounts should be revised much higher, to 3.5 million. On Tuesday, Sloan was asked whether the actual count of fraudulent accounts could be even higher than that. He told legislators that he was confident 3.5 million would be the final tally—and more than one noted that Stumpf had said the same thing, a year before. But many senators, it seemed, hadn’t even made peace with the revelations already reported.

“What in God’s name were you thinking?” said Senator John Kennedy, a Louisiana Republican. “I’m not against large, I’m against dumb. I’m against a business practice which has Wells Fargo first and customers second,” he added. Senator Elizabeth Warren, the populist Massachusetts Democrat, was even more blunt. “At best you were incompetent, at worst you were complicit. And either way you should be fired,” she told Sloan. Warren has previously called for removal of the entire board of directors, and urged Federal Reserve Chairwoman Janet Yellen to oust the board in her capacity as a regulator, if Wells doesn’t do it voluntarily. Yellen has said that the bank’s actions were “egregious and unacceptable” and has hinted at further penalties or enforcement actions.

“Why shouldn’t the OCC (Office of the Comptroller of the Currency) simply revoke your charter?” Brian Schatz, a Hawaii Democrat, asked Sloan. “We serve one out of every three Americans, we have 270,000 team members,” Sloan began, before Schatz cut him off. “So you’re too big?” Schatz asked.

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The King represents the old Franco interests. He’s being used to turn Spaniards against Catalans.

King Felipe: Catalonia Authorities Have ‘Scorned’ All Spaniards (G.)

King Felipe of Spain has accused the Catalan authorities of attempting to break “the unity of Spain” and warned that their push for independence could risk the country’s social and economic stability. In a rare and strongly worded television address on Tuesday evening, he said the Catalan government’s behaviour had “eroded the harmony and co-existence within Catalan society itself, managing, unfortunately, to divide it”. Speaking two days after the regional government’s unilateral independence referendum, in which 90% of participants opted to secede from Spain, he described Catalan society as “fractured” but said Spain would remain united. The king made no mention of the violence that marred the referendum when Spanish police officers raided polling stations, beat would-be voters and fired rubber bullets at crowds.

Instead, he focused on the actions of the government of the Catalan president, Carles Puigdemont. “These authorities have scorned the attachments and feelings of solidarity that have united and will unite all Spaniards,” he said. “Their irresponsible conduct could even jeopardise the economic and social stability of Catalonia and all of Spain. He described the regional government actions as “an unacceptable attempt” to take over Catalan institutions, adding that they had placed themselves outside both democracy and the law. “They have tried to break the unity of Spain and its national sovereignty, which is the right of all Spaniards to democratically decide their lives together,” he said.

“Given all that – and faced with this extremely grave situation, which requires the firm commitment of all to the common interest – it is the responsibility of the legitimate state powers to ensure constitutional order and the normal functioning of the institution, the validity of the rule of law and the self-government of Catalonia, based on the constitution and its statute of autonomy.”

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The EU is making mistakes that will threaten its existence.

Spain Rules Out Mediator In Catalan Crisis (Pol.)

The Spanish government Tuesday dismissed calls to bring in a mediator between Madrid and the government of Catalonia in the wake of Sunday’s controversial independence vote. Spanish European Affairs Minister Jorge Toledo told POLITICO that no third-party mediator would be acceptable to Madrid, and that any dialogue must be bilateral. “You can change the law, you can oppose it, but you cannot disobey it,” Toledo said. The comments are a further sign of Madrid’s opposition to providing any sort of encouragement or reward to Catalan separatists as a result of Sunday’s violent clashes, which they blame on the Catalan government.

The European Commission Monday called for “all relevant players to now move very swiftly from confrontation to dialogue.” European Council President Donald Tusk on Monday “appealed for finding ways to avoid further escalation and use of force.” Ahead of Sunday’s vote Amadeu Altafaj, Catalonia’s representative in Brussels, told POLITICO’s EU Confidential podcast that he welcomed the idea of a third-party mediator and that “ideally it would have happened some time ago.”

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It’s World Animal Day.

Goodbye – And Good Riddance – To Livestock Farming (G.)

What will future generations, looking back on our age, see as its monstrosities? We think of slavery, the subjugation of women, judicial torture, the murder of heretics, imperial conquest and genocide, the first world war and the rise of fascism, and ask ourselves how people could have failed to see the horror of what they did. What madness of our times will revolt our descendants? There are plenty to choose from. But one of them, I believe, will be the mass incarceration of animals, to enable us to eat their flesh or eggs or drink their milk. While we call ourselves animal lovers, and lavish kindness on our dogs and cats, we inflict brutal deprivations on billions of animals that are just as capable of suffering. The hypocrisy is so rank that future generations will marvel at how we could have failed to see it.

The shift will occur with the advent of cheap artificial meat. Technological change has often helped to catalyse ethical change. The $300m deal China signed last month to buy lab-grown meat marks the beginning of the end of livestock farming. But it won’t happen quickly: the great suffering is likely to continue for many years. The answer, we are told by celebrity chefs and food writers, is to keep livestock outdoors: eat free-range beef or lamb, not battery pork. But all this does is to swap one disaster – mass cruelty – for another: mass destruction. Almost all forms of animal farming cause environmental damage, but none more so than keeping them outdoors. The reason is inefficiency. Grazing is not just slightly inefficient, it is stupendously wasteful. Roughly twice as much of the world’s surface is used for grazing as for growing crops, yet animals fed entirely on pasture produce just one gram out of the 81g of protein consumed per person per day.

A paper in Science of the Total Environment reports that “livestock production is the single largest driver of habitat loss”. Grazing livestock are a fully automated system for ecological destruction: you need only release them on to the land and they do the rest, browsing out tree seedlings, simplifying complex ecosystems. Their keepers augment this assault by slaughtering large predators. In the UK, for example, sheep supply around 1% of our diet in terms of calories. Yet they occupy around 4m hectares of the uplands. This is more or less equivalent to all the land under crops in this country, and more than twice the area of the built environment (1.7m hectares). The rich mosaic of rainforest and other habitats that once covered our hills has been erased, the wildlife reduced to a handful of hardy species. The damage caused is out of all proportion to the meat produced.

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Oct 032017
 
 October 3, 2017  Posted by at 9:28 am Finance Tagged with: , , , , , , , ,  12 Responses »


Fan Ho Obsession 1964

 

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)
The Pricing of Risk is Kaput (WS)
Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)
What You Are Not Being Told About The Economy – Steve Keen (RT)
An Accountant Smells a Rat in Our Global Credit Bubble (WS)
26 Recession-Free Years Hide a Darker Picture for Australia (BBG) >
Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)
Fall of the Great Pumpkin (Jim Kunstler)
Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)
Catalonia Set For General Strike Over Independence Poll Violence (AFP)
100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

 

 

 

 

A point I made again recentlly “It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.”

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)

It would be a dangerous bet to say interest rates are going to stay low forever, but I don’t see many people taking that bet. And you see, even if interest rates were to stay where they are, that would argue for P/E ratios to stay where they are. And if they do, then stocks will only appreciate at the same rate as earnings, which is not really fast; there would be no multiple expansion. This market is not built on some euphoric view of the future, but mainly on the unwillingness to accept zero or negative returns on cash and safe instruments. It’s based on the view that there is no alternative: people are afraid to be out of the market. But then again, a perceived lack of alternatives is not a good argument for chasing yield and taking big risks. That’s why I think this is the time to turn cautious.

It’s not smart, but people think that’s what they have to do now. You remember Chuck Prince, the CEO of Citigroup, who in July of 2007 said «when the liquidity dries up, this will end badly, but as long as the music is playing, you have to dance?» What does that even mean? People always say they’ll stay in the market, thinking it has further to go, but if it starts to turn down they will get out. Maybe that’s what people are thinking in today’s stock market: «It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.

[..] I see a lot of worries. One example: What’s going to happen when central banks start unwinding their balance sheets? We have no clue. There is no historical precedent for the measures they used to stimulate the economies in the past years, so we don’t know what will happen when they unwind them. If QE was stimulative, won’t the unwinding of it be the opposite of stimulative? I don’t know where the money came from for the QE programs, and I don’t know where the money will go to next. We don’t know what it will mean for interest rates and inflation.

Another worry is the low economic growth, combined with politics. All these right-wing populist movements – what are the implications of that? This is not imaginary. Where will the person with a low education level get a job in ten or twenty years, when all the cars are self-driving and all the stores have no clerks? I don’t know what the solution is. But I see a lack of political leadership around the world. Another worry concerns our pension systems. In the US and in other countries, defined benefit systems are hundreds of billions of dollars in the red. What’s going to happen to the people who expect to get their promised retirement payments? But today, nobody’s talking about the problems in our pension systems.

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“..when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.”

The Pricing of Risk is Kaput (WS)

US Treasury Securities with longer maturities fell this morning, with the 10-year Treasury yield rising above 2.37% early on and currently trading at 2.34%. This is still low by historical standards, and it’s still in denial of the Fed’s monetary tightening: Four rate hikes since it started this cycle, and the QE unwind has commenced as of today. But it cannot hold a candle to the Draghi-engineered negative-yield absurdity still unfolding in the Eurozone. The average yield of junk bonds denominated in euros hit a new all-time record low at the close on Friday of 2.30%. Let that sink in a moment. These euro corporate bonds are rated below investment grade. Companies, unlike the US, cannot print their own money to prevent default.

There is little liquidity in the junk bond market, and selling these bonds when push comes to shove can be hard or impossible. The reason they’re called “junk” is because of their high risk of default. And yet, prices of these junk bonds have been inflated by the ECB’s policies to such a degree that their yield, which falls as prices rise, is now lower than that of 10-year US Treasury securities that are considered the most liquid securities with the least credit risk out there. The average yield of the euro junk bonds is based on a basket of below-investment-grade corporate bonds denominated in euros. Issuers include junk-rated American companies with European subsidiaries – in which case these bonds are called “reverse Yankees.”

They include the riskiest bonds. Plenty of them will default. Losses will be painful. Investors know this. It’s not a secret. But they don’t mind. They’re institutional investors plowing other people’s money into these bonds, and they don’t need to mind, but they have to buy these bonds because that’s their job. This chart, based on BofA Merrill Lynch Euro High Yield Index Effective Yield via the St. Louis Fed, shows that the average euro junk bond yield is on the way to what? Zero?

During the peak of the Financial Crisis, the average junk bond yield hit 25%. During the dog days of the euro debt crisis in the summer of 2012, when Draghi pronounced the magic words that he’d do “whatever it takes,” these bonds yielded about 9%. The yield dropped below 5% in October 2013, for the first time ever. This juxtaposition of the already low 10-year US Treasury yield and the even lower euro junk bond yield creates one of the most fascinating WTF-charts for our amusement at central-bank absurdist policies – and we’d be laughing at these bond investors gone nuts, if it weren’t so serious:

.. this is Draghi’s ultimate accomplishment in his nutty bailiwick: The total destruction of the market’s risk-pricing mechanism at the expense of other people’s money – this includes pension funds and life insurance companies that play a large role in Europe’s private pension system. They have to buy corporate bonds. Their beneficiaries that paid into the systems will have to bear the costs in future years. And then there’s the comforting thought that when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.

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“..when we had the taper tantrum they hadn’t even done anything yet, they’d just threatened to taper..”

Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)

Market veteran Art Cashin, the head of NYSE floor operations for UBS, made an interesting observation earlier today just minutes before the close, as US stocks headed for another record finish after shrugging off the worst mass shooting in US history. Asked by CNBC’s Kelly Evans to explain how US stocks have continued to outperform while the 10-year Treasury yield has remained anchored below 2.5%, Cashin acknowledged that, during a career that’s spanned more than six decades, he’s never seen anything like today’s market. “I’ve been doing this for over 50 years and I’ve never seen anything like it so it is rather odd.” And given global stocks’ strong performance this year, with markets weathering a series of political crises, natural disasters, terror attacks and other nominally destabilizing events (with a little help from central banks, of course) – Cashin says the outlook isn’t as dire as some would believe.

“Right now, Europe’s doing all right emerging markets are okay, and maybe they’re not going to take away the punchbowl that quickly – so we’ll see,” Cashin said. In September, the Fed suggested that while it would likely raise interest rates more quickly than previously believed during the coming quarters, median forecasts for the Fed funds rate in 2019, as well as the longer-run median target, declined compared with a set of forecasts released in July. Looking ahead to the fourth quarter, the most pressing questions that investors should be asking themselves is ‘is this the quarter where tapering – or the expectation of further tapering – finally triggers a market correction.

“What’s really going to be interesting to watch in this final quarter, is will there be an impact of quantitative tightening. As Peter Boockvar points out…it’s only going to be a token amount. But when we had the taper tantrum they hadn’t even done anything yet they’d just threatened to taper. When asked what it would take to spark a meaningful correction in stocks, Cashin said he expects investors will take notice once the 10-year yield climbs above 3%. “I think we’ve got to get a bit higher. Probably up around 3% you start to get everybody’s attention and you’ll start to hear that in the conversation more and more.”

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Are you rational? Economics is not.

What You Are Not Being Told About The Economy – Steve Keen (RT)

As Karl Marx’s ‘Das Kapital’ turns 150 and the global financial crisis enters its tenth year, we ask why it is that we are still no closer to creating an economy that actually works. Perhaps more importantly, why do mainstream economists continue to miss the fundamental drivers of financial instability? Host Ross Ashcroft talks about what’s next for the global economy with Professor Steve Keen, an economist who correctly predicted the financial crisis and the author of ‘Debunking Economics.’

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“Economists can’t see it. They can’t model money and credit. ”

An Accountant Smells a Rat in Our Global Credit Bubble (WS)

Twenty years ago Doug Noland was so worried about imbalances surrounding the dot.com boom that he began to title his weekly reports “The Credit Bubble Bulletin. Years later, he warned the world about the impending 2008 crisis. However a coming implosion, he says, could be the biggest yet. “We are in a global finance bubble, which I call the grand-daddy of all bubbles,” said Noland. “Economists can’t see it. They can’t model money and credit. However, to those outside the system, the facts are increasingly clear.” Noland points to inflating real estate, bond and equity prices as key causes for concern. According to the Federal Reserve’s September Z.1 Flow of Funds report, the value of US equities jumped $1.5 trillion during the second quarter to $42.2 trillion, a record 219% of GDP.

Noland may be right. A report by the International Institute of Finance released in June estimated that global government, business and personal debts totaled $217 trillion earlier this year. That’s more than three times (327%) higher than global economic output. Adding to the complexity is the fact that not all debts are fully recorded. For example, according to a World Economic Forum study, the world’s six largest pension saving systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to experience a $224 trillion funding shortfall by 2050. Noland’s warnings come during a time of exceptional public trust in governments, central banks, regulators and other institutions. Market volatility is trending at near record lows. In June, Federal Reserve Chair Janet Yellen spoke for many when she said that she did not see a financial crisis occurring “in our lifetimes.”

So why would Noland, who during his day job runs a tactical short book at McAlvany Wealth Management, see things that government, academic, and central bank economists don’t? One possibility is because Noland, who studied accounting and finance in college and began his career as a CPA at Price Waterhouse, is not an economist. He is thus not burdened with the “dismal science’s” limitations. Although Noland eventually completed an MBA and some doctoral studies, he was never forced to buy into the econometrics groupthink that plagues the profession. Noland is thus free to incorporate historical, financial, geographical and other data into his analyses. Another possible reason is that Noland (unlike almost all professional economists who missed both major market implosions/recessions of the last two decades) doesn’t hide it when he makes a bad call.

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But Australians won’t believe it until it hits them in the head.

26 Recession-Free Years Hide a Darker Picture for Australia (BBG)

The global crown for the longest stretch of uninterrupted economic growth is within sight for Australia. But it’s limping to the line as policy paralysis weighs on the nation’s prospects. Twenty-six years without recession have put Australia within two years of overtaking the Netherlands’ record growth streak and government, central bank and economist forecasts all suggest it’ll take the mantle. After all, the economy has a head start with 2.5% growth virtually baked in – 1.5% from population gains that are among the developed world’s quickest and 1% from resource exports feeding Asia’s giant economies. Yet the reliance on rapid immigration is straining infrastructure, while mining profits fuel riches for stakeholders but do little for the vast majority of Australians living in major cities.

Meantime, wages are barely growing, households carry some of the world’s heaviest debt loads, and productivity gains from the economic reforms of the 1980s and early 1990s have petered out. There’s been no major economic reform since the turn of the century, with just about every attempt reversed or cannibalized by toxic politics. And the impact is starting to show. Just when the economy needs growth drivers outside of mining, a slide in global rankings for innovation and education suggest living standards could decline. The miracle economy that shrugged off the global recession is turning mediocre. “Now that we don’t have the benefit of the mining boom, there’s nothing really that replaces it in terms of driving economic activity,” said Jeremy Lawson, chief economist at Aberdeen Standard Investments in Edinburgh and a former Reserve Bank of Australia economist.

“The really big task of governments over the next 5 to 10 years is to deal with these big structural issues that Australia is facing. Potential growth is relatively weak.” A decade of political infighting has seen the nation change prime ministers five times since 2007 and sidelined substantive policy debate. Meanwhile, attempts at reform have been held hostage by populists and single-issue parties who’ve harnessed voter frustration with mainstream politicians to take the balance of power in parliament’s upper house. That political dysfunction is threatening the nation’s prospects. A policy vacuum around energy has seen electricity prices surge to among the highest in the world, despite Australia holding some of the largest coal and gas reserves on the planet.

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“The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years. ”

Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)

Vladimir Putin is doing his part to keep the upswing in gold alive. Since the Russian president went on a geopolitical offensive in Ukraine in 2014, the haven asset had its first annual gain in four years in 2016 and is on track for another in 2017. A beneficiary of economic and political perils from North Korea to Brexit, it’s among the top-performing commodities this year. Meanwhile, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data. In the second quarter alone, it accounted for 38pc of all gold purchased by central banks. The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.

It’s one of a handful of central banks to keep the faith as global demand for the precious metal fell to a two-year low in the second quarter. But what may matter most is that gold is as geopolitics-proof an investment as any in the age of sanctions and a deepening rift with the US. “Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government,” said Matthew Turner, metals analyst at Macquarie Group in London. “This might appeal given Russia has faced financial sanctions.” Besides being the largest official buyer of gold, Russia is also among the world’s three biggest producers, with the central bank purchasing from domestic miners through commercial banks and not in the open market. Since starting to accelerate bullion purchases in 2007, Russia’s holdings have more than quadrupled to 1,556 tonnes at the end of June, just behind China and more than Turkey, India and Mexico combined, bringing its share in Russia’s $427bn (€361bn) reserves to near 17pc.

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“Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.”

Fall of the Great Pumpkin (Jim Kunstler)

Welcome to the witching month when America’s entropy-fueled death-wish expresses itself with as much Halloween jollity and merriment as the old Christmas spirit of yore. The outdoor displays alone take on a Babylonian scale, thanks to the plastic factories of China. I saw a half-life-size T-Rex skeleton for sale at a garden shop last week surrounded by an entire crew of moldering corpse Pirates of the Caribbean in full costume ho-ho-ho-ing among the jack-o-lanterns. What homeowner in this sore-beset floundering economy of three-job gig-workers can shell out four thousand bucks to decorate his lawn like the set of a zombie movie? The overnight news sure took on that Halloween tang as the nation woke up to what is probably a national record for a civilian mad-shooter incident.

So far, fifty dead and two hundred wounded at the Las Vegas at the Route 91 Harvest Festival (one up in fatalities from last year’s Florida Pulse nightclub massacre, and way more injured this time). The incident will live in infamy for maybe a day and a half in the US media. Stand by today as there will be calls far and wide, by personas masquerading as political leaders, for measures to make sure something like this never happens again. That’s rich, isn’t it? Meanwhile, the same six a.m. headlines declared that S &P futures were up in the overnight markets. Nothing can faze this mad bull, apparently. Except maybe the $90 trillion combined derivatives books of CitiBank, JP Morgan, and Goldman Sachs, who have gone back whole hog into manufacturing the same kind of hallucinatory collateralized debt obligations (giant sacks of non-performing loans) that gave Wall Street a heart attack in the fall of 2008.

Europe’s quaint doings must seem dull compared to the suicidal potlatch of life in the USA, but, believe me, it’s a big deal when the Spanish authorities start cracking the heads of Catalonian grandmothers for nothing more than casting a ballot. The video scenes of mayhem at the Barcelona polls looked like something out of the 1968 Prague uprising. And now that the Catalonia secession referendum passed with a 90% “yes” vote, it’s hard to imagine that a good deal more violent mischief will not follow. So far, the European Union stands dumbly on the sidelines. (For details, read the excellent Raul Ilargi Meijer column on today’s TheAutomaticEarth.)

[..] Finally — well, who know what else may pop up now — there is the matter of Puerto Rico. Halloween there is not like New England, with our nippy fall mornings, steaming mugs of hot cider, and quickening fall color. It will remain 90-degrees-plus down there in the fetid, stinking ruins, with lots of still-standing water, broken communications, shattered supply lines, and very little electricity. FEMA and the US Military may be doing all they can now, but they must be on watch for the ominous blossoming of tropical disease epidemics. The story there is far from over. Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.

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Catalonia wants to talk. But it will no longer accept many of the things it would have before Sunday.

Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)

In Madrid, Barcelona, Bilbao and beyond, the question is the same: Now what? Sunday’s vote for independence in Catalonia, one of Spain’s most populous and prosperous regions, has thrust the country into its gravest political crisis since the days of the dictator Francisco Franco. Few see an easy way out. The results of the referendum give Prime Minister Mariano Rajoy stark choices – try to deal a blow to the independence movement by suspending Catalonia’s semi-autonomous status, or meet the secessionists halfway and start talks with Catalan President Carles Puigdemont. Puigdemont said the vote, rejected by the central government as illegal, justifies a unilateral declaration of independence. That could come by the end of the week, if the regional parliament agrees.

The European Union refused to recognize the rebel region’s bid, but Spanish bonds and stocks fell Monday as the risks of a breakaway rose. The clash puts Rajoy in a tight corner. Head of a minority government that relies on support from regional parties to rule, he has pledged to protect Spain’s territorial integrity. His main ally in parliament, Ciudadanos party leader Albert Rivera, called on the prime minister to invoke a never-before-used article of the 1978 constitution and pull Catalonia’s special regional standing, which gives it certain administrative powers. “It’s the moment to act with calm but with firmness,” said Rivera, who is Catalan, after meeting with Rajoy on Monday. Rivera said an independence declaration may be 72 hours away and suggested invoking Article 155 would cut off any attempt to make such a move.

But Pedro Sanchez, head of the main Socialist opposition party, said after his own meeting with Rajoy that the central government should hold talks with the secessionists. While Sanchez made no mention of Article 155 in the statement he issued, socialists in Catalonia said the party wouldn’t support the prime minister taking that step. That means Rajoy will have little political cover if he opts to suspend Catalan self-government – the most powerful card he has left. The crisis has already caused him problems: Last week, he had to withdraw plans to present his 2018 budget after allies in the Basque PNV party withheld their support as they criticized his position on Catalonia.

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The Guardia Civil will have to leave Catalonia at some point. And what then?

Catalonia Set For General Strike Over Independence Poll Violence (AFP)

Large numbers of Catalans are expected to observe a general strike on Tuesday to condemn police violence at a banned weekend referendum on independence, as Madrid comes under growing international pressure to resolve its worst political crisis in decades. Flights and train services could be disrupted as well as port operations, after unions called for the stoppage to “vigorously condemn” the police response to the poll, in which Catalonia’s leader said 90% of voters backed independence from Spain. Barcelona’s public universities are expected to join the strike, as is the contemporary art museum, football club FC Barcelona and the Sagrada Familia, the basilica designed by Antoni Gaudi and one of the city’s most popular tourist sites. “I am convinced that this strike will be widely followed,” Catalan leader Carles Puigdemont said ahead of the protest.

The central government has vowed to stop the wealthy northeastern region, which accounts for a fifth of Spain’s GDP, breaking away from Spain and has dismissed Sunday’s poll as unconstitutional and a “farce”. Violent scenes played out in towns and cities across the region on Sunday as riot police moved in on polling stations to stop people from casting their ballots, in some cases charging with batons and firing rubber bullets to disperse crowds. UN rights chief Zeid Ra’ad Al Hussein said he was “very disturbed” by the unrest while EU President Donald Tusk urged Madrid to avoid “further use of violence”. The European Parliament will hold a special debate on Wednesday on the issue. “We call on all relevant players to now move very swiftly from confrontation to dialogue. Violence can never be an instrument in politics,” European Commission spokesman Margaritis Schinas said, breaking weeks of virtual EU silence on the Catalan issue.

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“Florida Gov. Rick Scott has declared a state of emergency in Florida..”

100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

As mayors of cities with large Puerto Rican populations continue to advocate for federal assistance to help with the resettlement of hundreds of thousands of Puerto Ricans who are expected to temporarily seek shelter with friends and families in the US, Florida Gov. Rick Scott has declared a state of emergency in Florida, allowing state agencies to take extraordinary measures to assist families that will soon be arriving in droves to cities like Orlando and Miami, both of which feature large Puerto Rican populations. The Orlando Sentinel reports that Scott announced that disaster relief centers will be set up at Orlando International Airport and in Miami to help those seeking refuge in Florida. “Puerto Rico is absolutely devastated and so many families have lost everything,” Scott said in a released statement.

“Our goal is to make sure that while [Puerto Rican] Governor [Ricardo] Rosselló is working to rebuild Puerto Rico, any families displaced by Maria that come to Florida are welcomed and offered every available resource from the state.” The relief center at OIA, and two others at Miami International Airport and the Port of Miami, open Tuesday, according to a release from Scott’s office, just days after Puerto Rican airports reopened following the devastation caused by Hurricane Maria. [..] Scott’s emergency order will allow state agencies broad autonomy to waive regulations and do whatever is necessary to help Puerto Ricans. Importantly, it could also help bring more federal funding to help the state cope with aid efforts.

State lawmakers have said they expect at least 100,000 Puerto Ricans to flee to Florida because of Maria, forcing the state to step up its education, housing and job-placement offerings. It’s expected that some of those displaced by the storm could resettle permanently, as the reconstruction effort in Puerto Rico is expected to take months, if not years. State Rep. Carlos Guillermo Smith, D-Orlando, said the Legislature should hold a special session, as he estimates hundreds of thousands of Puerto Ricans are coming to Florida. The 2018 regular session starts in January. “FL needs 2 deal w/humanitarian crisis + over 100K Boricuas who’ll seek refuge here right now, not in Jan.,” he tweeted.

We now wait to hear from New York Gov. Andrew Cuomo and New York City Mayor Bill De Blasio. NYC officials have said more than 100,000 Puerto Ricans could arrive in NYC alone.

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