Oct 132017
 
 October 13, 2017  Posted by at 7:45 pm Finance Tagged with: , , , , , , , ,  7 Responses »
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Rembrandt Old man with a beard 1630

 

“The Cost of Missing the Market Boom is Skyrocketing”, says a Bloomberg headline today. That must be the scariest headline I’ve seen in quite a while. For starters, it’s misleading, because people who ‘missed’ the boom haven’t lost anything other than virtual wealth, which is also the only thing those who haven’t ‘missed’ it, have acquired.

Well, sure, unless they sell their stocks. But a large majority of them won’t, because then they would ‘miss’ out on the market boom… Some aspects of psychology don’t require years of study. Is that what behavioral economics is all about?

And it’s not just the headline, the entire article is scary as all hell. It reads way more like a piece of pure and undiluted stockbroker propaganda that it does resemble actual objective journalism, which Bloomberg would like to tell you it delivers. And it makes its point using some pretty dubious claims to boot:

 

The Cost of Missing the Market Boom Is Skyrocketing

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.

If equity markets in places like Greece and Ukraine, ravaged by -in that order- financial and/or actual warfare, are booming, you don’t need to fire too many neurons to understand something’s amiss. Some of their companies may be doing okay, but not their entire economies. Their boom must be a warning sign, not some bullish signal. That makes no sense. Stocks in Aleppo may be thriving too, but…

“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, 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.

If markets crash by, pick a number, 20-30-50% next week, will Mr. Saut still claim “The proof is in the returns”? I doubt it. Though this time he might be right. As for the ‘value’ of global equities being 250% (give or take) higher than in March 2009, does that mean those who were -or still are- bearish were wrong? Or is there some remote chance that the equities are part of a giant planetwide bubble?

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.

$20 trillion. That’s a lot of dough. It’s what all equities in the world combined were ‘worth’ 9 years ago. It’s also, oh irony, awfully close to the total increase in central bank balance sheets, through QE etc. Might the two be related in any way?

 

 

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.

‘Harmonized recovery’ is a priceless find. But you have to feel for anyone who believes it. And it’s obviously over the top ironic that central banks are said to be ‘enabled’ to keep rates low precisely because they fail to both understand and raise inflation. Let’s call it the perks of failure.

“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.”

Oh boy. He actually said that? What have earnings done? He hasn’t read any of the warnings on P/E (price/earnings) for the (US) market in general –“the Shiller P/E Cyclically Adjusted P/E, or CAPE, ratio, which is based on the S&P 500’s average inflation-adjusted earnings from the previous 10 years, is above 30 when its average is 16.8”– or for individual companies (tech) in particular?

The CAPE ratio has been higher than it is now only twice in history: right before the Great Depression and during the dotcom bubble, when tech companies didn’t even have to be able to fog a mirror to attract billions in ‘capital’. And the chief cross-asset strategist at Morgan Stanley says markets are in line with earnings? Again, oh boy.

No, it’s not earnings that “..helped drive a higher level of enthusiasm and a higher level of risk taking.” Cheap money did that. Central banks did that. As they were destroying fixed capital, savings, pensions.

 

 

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.

Look, emerging markets and developed economies have borrowed up the wazoo. Because they could. Often in US dollars. That may cause a -temporary- gain in stock markets, but it casts a dark spell over the reality of these markets. If it’s that obvious that a substantial part of your happy news comes from debt, there’s very little reason to celebrate.

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.

To cast those exact same words in a whole different light, no, Apple is not ‘good for the total value of the 400 smallest companies in the S&P 500’. Yes, you can argue that Apple’s ‘value’ has lifted other stocks too, but this has happened in a time of zero price discovery AND near zero interest rates. That means people have no way to figure out if a company is actually doing well, so it’s safer to park their cash in Apple.

Ergo: Apple, and the FANGs in general, take valuable money out of the stock market. At the same time that they, companies with P/E earnings ratios to the moon and back, buy back their stocks at blinding speeds. So yeah, Apple may be ‘good’ for the total value of the 400 smallest companies in the S&P 500, but at the same time it’s not good for that value at all. It’s killing companies by sucking up potential productive investment.

And Apple’s just an example. Silicon Valley as a whole is a scourge upon America’s economy, hoovering away even the cheapest and easiest money and redirecting it to questionable start-up projects with very questionable P/E ratios. But then, that’s what you get without price discovery.

 

 

Overall, U.S. corporate earnings are expected to rise 11% this year, on track to be the best profit growth since 2010. And after years of disappointments, European profits are set to climb 14% in 2017, Bloomberg data show. The expectations for both regions are roughly in line with forecasts made at the beginning of the year, defying the usual pattern of analysts downgrading their estimates as the months go by.

Come on, the European Central Bank has been buying bonds and securities at a rate of €60 billion a month for years now. How can it be any wonder that officially stock markets are up 14%? Maybe we should be surprised it’s not 114%. Maybe the one main point in all of this is that the ECB is still buying at that rate, and thereby signaling things are still as bad as when they started doing it.

Meanwhile, Asia is home to some of the world’s steepest rallies, led by Hong Kong stocks that are up 29% this year. Shares in Tokyo also hit fresh decade highs this week, bolstered by investor confidence before the local corporate earnings season and a snap election this month. “Asia will benefit from continued improving regional growth, stable macroeconomic conditions and undemanding valuations,” said BNP Paribas Asset Management’s head of Asia Pacific equities Arthur Kwong. Any pullback in Asian equities after the year-to-date rally presents a buying opportunity for long-term investors, he wrote in a note.

In Japan, so-called investor confidence is based solely on the Bank of Japan continuing to purchase anything that’s not bolted down. In China, the central bank buys the kitchen sink as well. How, knowing that, can you harp on about increased investor confidence? As if central banks taking over entire economies either isn’t happening, or makes no difference to economies? Buying opportunity?

Global economic growth has been robust in most places, with Europe finally joining the party and the euro-area economy on track for its best year since at least 2010. The region’s steady recovery has eclipsed worries about populism, which a few years ago would have been enough to derail any stock market rally.

No, global economic growth has not been ‘robust’. Stock market growth perhaps has been, but that’s only due to QE and buybacks. Still, stock markets are not the economy.

“I’ve never been so optimistic about the global economy,” said Vincent Juvyns, global market strategist at J.P. Morgan Asset Management. “Ten years after the financial crisis, Europe is recovering and we have synchronized economic growth around the world. Even if we get it wrong on a country or two, it doesn’t change the big picture, which is positive for the equity markets.”

Oh man. And at that exact moment the ECB announces it wants to cut its QE purchase in half by next year.

Nowhere is the shifting sentiment more pronounced than in Europe, where global investors began the year with a election calendar looming like a sword of Damocles. Ten months later, the Euro Stoxx 50 Index is up 10%, Italy’s FTSE MIB Index is up 17% and Germany’s DAX Index is up 13%. The rally is even stronger when priced in U.S. dollars, with the Euro Stoxx 50 up 23% since the start of the year.

Sure, whatever. I don’t want to kill your dream, and I don’t have to. The dream will kill itself. You’ll hear a monumental ‘POP’ go off, and then you’re back in reality.

 

 

Note: Rembrandt painted the portrait above when he was just 23-24 years old.

 

 

Sep 192017
 
 September 19, 2017  Posted by at 12:52 pm Finance Tagged with: , , , , , , , , ,  11 Responses »
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Wynn Bullock Child on a Forest Road 1958

 

A few days ago, former Reagan Budget Director and -apparently- permabear (aka perennial bear) David Stockman did an interview (see below) with Stuart Varney at Fox -a permabull?!-, who started off with ‘the stock rally goes on’ despite a London terror attack and the North Korea missile situation. His first statement to Stockman was something in the vein of “if I had listened to you at any time after the past 2-3 years, I’d have lost a fortune..” Stockman shot back with (paraphrased): “if you’d have listened to me in 2000, 2004, you’d have dodged a bullet”, and at some point later “get out of bonds, get out of stocks, it’s a dangerous casino.” Familiar territory for most of you.

I happen to think Stockman is right, and if anything, he doesn’t go far enough, strong enough. What that makes me I don’t know, what’s deeper and longer than perennial or perma? But it’s Varney’s assumption that he would have lost a fortune that triggered me this time around. Because it’s an assumption built on an assumption, and pretty soon it’s assumptions all the way down.

First, that fortune is not real, unless and until he sells the stocks and bonds he made it with. If he has, that would indicate that he doesn’t believe in the market anymore, which is not very likely for a permabull to do. So Varney probably still has his paper ‘fortune’. I’m using him as an example, of course, of all the permabulls and others who hold such paper.

Presumably, they often also think they have made a fortune, and presumably they also think that means they are smart. But that begs a question: how can it be smart to put one’s money into paper that is ‘worth’ what it is today ONLY because the world’s central banks have been handed the power to save the ailing banks that own them with many trillions of freshly printed QE? And no, there can be no doubt of that.

And there are plenty other data that tell the story. The world’s central banks have blown giant bubbles all over the place. That’s where the bulls’ “fortunes” come from. They are bubble fortunes. It has nothing to do with being smart. And of course, as I’ve said many times before, there are no investors left to begin with, because you can’t be an investor if there are no functioning markets, and for a market to function you need price discovery.

Which is exactly what central banks have killed. No-one has one iota of a clue what anything is really worth, what the difference between ‘price’ and ‘value’ is. Stockman at one point suggests people should hold on to Microsoft, but does he really believe that Bill Gates will remain standing when everyone around him crashes? That tech stocks are immune to the impending crash for some reason? If true, that would seem to indicate that tech stocks represent real value while -virtually- no others do. Hard to believe.

Please allow me to insert a graph. This one is from Tyler Durden the other day, and it paints a clear picture as much as it raises a big question. It suggests that until December 2016 the S&P and the ‘real economy’ were in lockstep. I think not. But one thing’s for sure: ever since January, i.e. the Trump presidency, the gaping gap between the two has grown so fast it’s almost funny.

 

 

Not that I would for one moment wish to blame Trump for that; he’s merely caught up in a wave much larger than an election or a White House residency. What is happening to the US -and global- economy goes back decades, not months. Which makes the graph puzzling, too, obviously. Just ask the new-fangled platoons of waiters and greeters with multiple jobs in America. And/or the 50-60-70% who can’t afford a $500 emergency bill, the 97 million who live paycheck to paycheck.. America’s already crashing, it’s just a matter of waiting for the markets to catch up with America’s reality. That’s what price discovery is about. Here’s another, similar, graph. Note: I don’t really want to go and find the best graphs, we’ve posted and re-posted so many of them it would feel like an insult to everyone involved.

 

 

But I digress. This was to be about Stuart Varney and the platoons and legions of permabulls out there. As I said, many of them, make that most, will feel they’ve made their fortune because they’re smart. Even if riding a Yellen and Draghi and Abenomics wave has zilch to do with intelligence. But there’s another side to that supposed smartness. And Stockman is on to it.

The large majority of people who think they got rich because they’re smart will also lose their ‘fortunes’ because they think they’re smart. It is inevitable, it’s a mathematical certainty. And not only because the central banks are discussing various forms of tapering. It’s a certainty because those who think they’re smart will hold on to their ‘assets’ too long. Because the markets will become much less liquid. Because the doors through which people will have to pass to escape the fire are too narrow to let them all though at the same time.

Fortunes built on central banks largesses are virtual. You have to sell your assets to make them real. But the same mechanics that blew the bubbles in housing, stocks, bonds et al also keep people from selling them. Until it’s too late. It may seem easier to sell stocks and bonds than homes, and it is, but in a crash it’s harder than one might think. And prices can come down very rapidly in very little time.

So perhaps the right way to look at this is to tell yourself you were not smart at all when you made that fortune, but now you’re going to smarten up. There will be a few people who do that, but only a few. Most will feel confident that they can see the crash coming in time to get out. Because they’re smart enough. After all, they just made a fortune, right?

It’s not just individuals. Pension funds have been accumulating huge portfolios in ever riskier ‘assets’. Which of them will be able to react fast enough if things start unraveling? And for the lucky few that will, what are they going to buy with the money? Bonds, stocks? Gold perhaps? Crypto? Everyone at once?

Don’t let’s forget that one of the main characteristics -and its consequences- of the everything bubble the central banks granted us is far too often overlooked: leverage. Low interest rates have made borrowing stupidly cheap, and so everyone has borrowed. As soon as things start crashing, there will be margin calls, lines of credit will be withdrawn, people and institutions will have to panic sell (everything including crypto) just to try to stay somewhat afloat, it’s all very predictable and we’ve seen it all before.

But yes, you’re right. The rally continues. And we can’t know what will trigger the downfall, nor can we pinpoint the timing. Still, it should be enough to know that it’s coming. Alas, for many it is not. They’re blinded by the light. But even that light is not real. It’s entirely virtual.

 

 

 

 

 

Aug 292017
 
 August 29, 2017  Posted by at 8:15 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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MC Escher Still life and street 1937

 

China Is Going To Hit A Wall (FuW)
Nomi Prins: Big Bank Concentration and Counterparty Risk Expands (DR)
China’s Central Bank Is Working Hard to Stand Still (BBG)
Pundits And Politicians Are Tacitly Admitting They Lied About Russia (M.)
The Media Is the Villain – for Creating a World Dumb Enough for Trump (Taibbi)
The 5 Steps to World Domination (CHS)
Pure Rubbish? What The Buffett Indicator Is Really Predicting (Roberts)
When the Butterfly Flaps Its Wings (Jim Kunstler)
France, Germany, Italy, Spain Agree on Plan to Stem Migration Flows (BBG)
Debt Cut For Greece Not On Agenda For Now, Schaeuble Says (R.)
Chastised by EU, a Resentful Greece Embraces China’s Cash and Interests (NYT)
Kenya Gets World’s Toughest Plastic Bag Ban: 4 Years Jail Or $40,000 Fine (R.)

 

 

How much longer?

China Is Going To Hit A Wall (FuW)

Anne Stevenson-Yang, co-founder and research director at J Capital, warns that the monster bubble in the Chinese housing market is ripe to pop and that the Chinese currency will crash. There have been warnings about a bubble in China’s housing market for some time now. How hot is the real estate market? So far this year has been crazy, particularly in the area around Beijing. Just a few weeks ago I was in this little rustbelt city called Zhuozhou in the Hebei province where the steel mills are. It’s a very unpleasant place to spend time. It’s very polluted, there’s nothing to do, the food is bad and the landscape is awful. It’s just no place you want to be and yet property prices have doubled, tripled and in some places even quadrupled in a year.

What’s fueling this boom? It’s like in every property bubble: People build these stories. In Florida for example, the idea in the housing bubble was that all Americans are going to retire there. Florida has nice beaches, it’s warm and Americans are getting older, so everybody’s going to retire there. In China, the idea is that all these areas 200 miles outside of Beijing are going to be bedrooms for the working class of Beijing. So they’re going to build subways, schools, hospitals and other public facilities there and the prices are going to go up. The story goes that all these people who can’t afford to live in Beijing but work there are going to live in places like Zhuozhou instead and that they are going to take the high speed rail into Beijing. Everybody is speculating like mad but in the end nobody wants to live there.

And how are such ghost towns financed? There is probably no company that is more representative of the investment bubble than Evergrande. It’s the biggest pyramid scheme the world has yet seen. Evergrande is highly leveraged and has like 270 projects all over the country. I have been easily to 40 of them yet I have only seen one that was fully occupied. Many of these projects are megalomaniac visions and totally empty. Yet you go to these places and you see their sales room filled with young buyers. When I open my eyes I see crumbling stone and empty jungles or deserts. What they see is a future with wealthy Europeanized people strolling on modern paths. It’s just amazing. It’s a mass illusion and Evergrande more than any of these developers plays to this illusion by building developments that are specifically positioned for the investor, not to live there but to buy for some future appreciation in price.

How long can these crazy times last? I’ve been wondering that for years now. In a few places, property bubbles already have popped but the government keeps information from going out. Back in 2011 for instance, there was a property bust in the region of Ordos where most of China’s coal is. Prices dropped like 50% but if you looked at the official statistics they may have dropped 4%. Another place was in Wenzhou which is a place in China’s Zhejiang province where there is a lot of private money. After the bubble popped the central government had to go in and had to create a bailout fund. But nobody ever got information about it. In fact, all the newspapers put out information about how actually Wenzhou is fine. So will China’s housing frenzy ever come to an end at all? China is going to hit a wall. They’re not positioned to take the political pain that’s entailed by just stopping with all that madness.

So there will be a bust but it’s very hard to say exactly how long it takes. Basically, there are two paths. One of them is you break public confidence in some way. For that to happen you have to have a bank failure, a well-known investment product that doesn’t pay or some property developer that goes bust. You’ve had that locally in all sorts of places but you have to have a really big bust that everyone is aware of. And what would be the other path? The other thing that eventually has to happen is that the Chinese currency has to devalue. The reason why the developers can just keep on selling is because they keep getting refinanced. All the refinancing means that China has to keep on expanding the money supply and when you keep on expanding the money supply you have too much money and the value of the money declines. Obviously it’s not quite that simple but that’s basically what’s going on.

Read more …

Nomi is asked the same question: how much longer? She thinks it could be a few years yet.

Nomi Prins: Big Bank Concentration and Counterparty Risk Expands (DR)

Prins notes, “As we learned from the global financial crisis, the Federal Reserve has done a lousy job at regulating the risks that were coming into the financial system from the major private banks.” “Not only did it do a bad job at detecting risks, it did the opposite and deflected concerns from those highlighting the risks. From the standpoint of monetary policy, looking ten years out, its pursuit of policy with absolutely no limitation from the outside (printing money, buying securities) was a failure.” “If the Federal Reserve policies were able to make a real impact, we wouldn’t have needed them to go on for ten years following the financial crisis. What we are seeing right now is that there is no particular end in sight. The fact that there is no jurisdiction that can instruct the Fed what to do, where it is currently working under unconventional policy for artificial markets, has created more risk instead of less.”

“If we were to create an external benchmark that at the very least pulls them into some coordinated approach, that would be a better way of maintaining stability. Whether that is a standard currency approach or whatever that might be.” When speaking on how long the central banks might be able to stall and what tools in the face of another crisis Nomi Prins elaborates on her most recent research. “There has been collusion and collaboration amongst the G7 central banks. They have been ensuring that central banks like the Federal Reserve and others coordinate in their policy consortium moves. In effect we have seen a consistent global zero % interest rate policy and ongoing quantitative easing policy be unveiled, even if some banks reduce their engagement. That’s why we have been able to perpetuate this system for so long.”

“This is not one individual central bank but a coordinated, collusive approach. Can that continue? The guidance, as well as the actions of the central banks has indicated there could be multiple years of this to come. Because there is no external limitation on their policy and there’s no voting them out I’d say this could go on for at least a few more years. For the most part the people in power are going to stay in power. Even in the case of the U.S, if we were to see Janet Yellen leave and Gary Cohn step in at the Fed, I’d expect we would see much of the same.”

Read more …

Control illusion.

China’s Central Bank Is Working Hard to Stand Still (BBG)

While some of the biggest central banks are agonizing over changing direction, the People’s Bank of China is working hard to stay right where it is. That’s because, as the U.S. Federal Reserve or the European Central Bank are heading into phases of tighter policy, China’s monetary authority is engaged in an increasingly complex effort to preserve the status quo while the world changes around it. According to 60 % of economists in a Bloomberg survey conducted this month, the PBOC’s broad policy stance will remain “roughly the same” through the end of 2017. It’s how they maintain the hold, though, that matters. Through the use of a wide range of monetary instruments, the PBOC is attempting to meet two seemingly conflicting goals at once – weed out excessive borrowing in the financial system while ensuring credit to an economy that’s on a long-term slowdown.

The need to maintain the balance is especially acute amid the political sensitivity around the approaching leadership transition of the 19th Party Congress in the fall. “High leverage has put the central bank in a dilemma where easing could further expand the scale of debt and where tightening pushes up interest expenses and weighs on growth,” said Wen Bin at China Minsheng Banking in Beijing. “The PBOC is using open-market monetary tools to stay flexible and strike a balance.” Achieving those aims, without a change in the benchmark lending rate, in practice means constant fine-tuning of daily conditions in the inter-bank money market. Over the past year, the PBOC has poked and prodded traders using an array of lending and cash-absorbing instruments of different maturities. Here’s that process in charts:

Using different tenors to inject and withdraw funds from markets is the practical aspect of the PBOC’s stated policy of keeping liquidity “neither tight nor loose.” Yet at the same time, for much of the past year, gradually-rising interbank rates have been desirable amid a push to stabilize debt — crimping incentives to lend short-term within the financial system, while remaining wary of choking off credit to the real economy. The PBOC’s preference for longer-dated tools such as 28-day reverse repo has raised borrowing costs. Now, as the economy may be set for deceleration in the second half of the year and some progress in debt reduction has been achieved, use of longer-dated repurchase agreements has been pared back.

Read more …

“You need to either thoroughly refute every single argument against the narrative you’ve been spinning or admit publicly that you’ve been catastrophically wrong. ”

Pundits And Politicians Are Tacitly Admitting They Lied About Russia (M.)

It has been nearly three weeks since The Nation pushed an explosive memo from the Veteran Intelligence Professionals for Sanity into mainstream consciousness with an article detailing the evidence that the DNC leaks last year could not have been the result of a Russian hack. By continuing to ignore it, the US intelligence community and all the pundits and politicians who have advanced the Russian hacking narrative are tacitly admitting that they lied. The report is unequivocal. Not only could Russian hackers not have obtained the DNC emails in the way they are alleged to have obtained them, but metadata was in fact manipulated to implicate Russia in the leak. Since publication of the viral Nation article, even more evidence has come to light showing that a hack is far more improbable even than originally suspected. This means that there is currently more publicly-available evidence indicating that Russia did not hack the DNC than there is that it did.

These earth-shattering revelations have gone all but ignored by the mainstream media, which had until the report surfaced been pummelling the American psyche with relentless fearmongering about the Great Russian Menace. The unquestioned narrative that Russia attacked American democracy in what many establishment politicians have horrifyingly labeled an “act of war” quickly transformed into ridiculous unsubstantiated claims about the Kremlin having taken over the highest levels of the US government and McCarthyite witch hunts against anyone who questioned these baseless assertions. This fact-free hysteria was used to manufacture support for new cold war escalations which remain in place to this day, threatening the existence of all life on earth.

Far from addressing the massive, gaping plot holes that have suddenly emerged in its frenzied narrative, the mass media has all but ghosted from the scene. Russia gets an occasional mention now and again, but the fever-pitch shrieking panic has unquestionably been dialed down by several orders of magnitude. This is unacceptable. You don’t get to lie to the American people for nine months, terrify them with fact-free ghost stories that their nation has been taken over by a hostile foreign body, use their terror to manufacture support for a new cold war, and then change the subject to Nazis and Joe Arpaio as soon as evidence emerges that you’ve been reporting blatant falsehoods. That is not a thing. You need to either thoroughly refute every single argument against the narrative you’ve been spinning or admit publicly that you’ve been catastrophically wrong.

You need to either (A) prove that you have not knowingly and/or unknowingly deceived the world, or (B) do everything you can to fix the damage that you have done. Until the US intelligence community, the mainstream media, and the politicians who’ve been advancing this Russian hacking narrative do one of these two things, their silence on the matter should be interpreted as a tacit admission that they’ve been lying to us this entire time. After Iraq there was already no reason to give these institutions the benefit of the doubt, and since the VIPS report there is every reason in the world to believe that they’ve been lying to advance domestic and foreign agendas. They either refute the VIPS report in its entirety, or we must treat their refusal to do so as a tacit admission of nothing less than a crime against humanity.

Read more …

I like Taibbi. He’s a good writer. But he’s gotten awkwardly close to the whole anti-Trump frenzy. Suggesting that CNN has been covering Trump ‘responsibly’ is simply not credible. See article above. CNN et al go after Trump because it’s profitable in the echo chamber. Where it doesn’t matter whether what you say is true.

The Media Is the Villain – for Creating a World Dumb Enough for Trump (Taibbi)

No news director would turn off the feed in the middle of a Trump-meltdown. This presidency has become the ultimate ratings bonanza. Trump couldn’t do better numbers if he jumped off Mount Kilimanjaro carrying a Kardashian. This was confirmed this week by yet another shruggingly honest TV executive – in this case Tony Maddox, head of CNN International. Maddox said CNN is doing business at “record levels.” He hinted also that the monster ratings they’re getting have taken the sting out of being accused of promoting fake news. “[Trump] is good for business,” Maddox said. “It’s a glib thing to say. But our performance has been enhanced during this news period.” Maddox, speaking at the Edinburgh TV festival, added that most of the outlets that have been singled out by Trump are doing a swimming business.

“If you look at the groups that Trump has primarily targeted: CNN, The New York Times, The Washington Post, Saturday Night Live, Stephen Colbert,” he said, “every single one of those has seen a quite remarkable growth in their viewing figures, in their sales figures.” Everyone hisses whenever they hear quotes like these. They recall the infamous line from last year by CBS chief Les Moonves, about how Trump “may not be good for America, but he’s damn good for CBS.” Moonves was even cheekier than Maddox. He laughed and added, “The money’s rolling in, and this is fun. They’re not even talking about issues, they’re throwing bombs at each other, and I think the advertising reflects that.” For more than two years now, it’s been obvious that Donald Trump is a disaster on almost every level except one – he’s great for the media business.

Most of us who do this work have already gone through the process of working out just how guilty we should or should not feel about this. Many execs and editors – and Maddox seems to fall into this category – have convinced themselves that the ratings and the money are a kind of cosmic reward for covering Trump responsibly. But deep down, most of us know that’s a lie. Donald Trump gets awesome ratings for the same reason Fear Factor made money feeding people rat-hair tortilla chips: nothing sells like a freak show. If a meteor crashes into jello night at the Playboy mansion, it doesn’t matter if you send Edward R. Murrow to do the standup. Some things sell themselves.

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All you need is the power to print money.

The 5 Steps to World Domination (CHS)

1. Turn everything into a commodity that can be traded on the global market: land, leases on land, options to purchase land, houses, buildings, rooms in slums, labor, tools, robots, water, water rights, mineral rights, rights to air routes, ships, aircraft, political power, shares in corporations, government bonds, municipal bonds, corporate bonds, student loans that have been bundled into debt-based instruments, the income from city parking meters, electricity, software, advertising, marketing, media, social media, food, energy, insurance, gold, metals, credit, interest-rate swaps and last but not least, financial instruments that control and/or pyramid all the real-world goods and assets that have been commoditized (i.e. almost everything).

Why is this the essential first step in World Domination? Once something has been commoditized, it can be bought and sold in the global marketplace in fiat currencies–currencies that are not backed by any real-world asset and that can be created out of thin air by central and private banks. You see the dynamic, right? Create credit-currency out of thin air, and then use this “free money” to buy up the real world. Quite a trick, isn’t it? Get a means of exchange for essentially nothing (i.e. money at near-zero interest rates) and then trade this for assets that produce goods and services everyone else needs or wants. Now we understand steps 2 and 3:

2. Enable private banks to create money out of thin air via fractional reserve banking. You know the drill: banks can issue $15 in new loans for every $1 in cash they hold in reserve. (Depending on the current regulations, it might as little as $10 or as much as $35 that can be created and lent out for every $1 held in cash reserve.) In the current zero-interest rate environment, this new money can be borrowed for near-zero carrying costs by corporations and financiers.

3. Establish a central bank with essentially unlimited ability to bring money into existence and use it to backstop the private banking sector. If the private banks get in trouble, no problem, the central bank is there to bail them out with unlimited lines of credit and an unlimited ability to create new money.

4. Undermine/destroy local economies’ ability to organize production and consumption without using credit and fiat currencies (i.e. money controlled and issued by central and private banks). Trading goods on barter? Get rid of that. Using social ties rather than cash or bank credit to organize production and consumption? Eliminate that capability. Locally issued currencies? That’s against the law. Using cash? bad, very bad–everyone must use banks and bank credit instead. Once these four steps are in place, the 5th step is easy:

5. Buy up all the productive assets and income streams of the world with nearly free credit-money. No saver can compete with corporations and financiers with access to billions of dollars in nearly-free credit-money. It doesn’t matter if you earn $1,000 or $100,000 a year–you will be outbid.

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Too much focus on Buffett. Like there was on Greenspan.

Pure Rubbish? What The Buffett Indicator Is Really Predicting (Roberts)

While we are indeed currently in a very bullish trend of the market, there are two halves of every market cycle. “In the end, it does not matter IF you are ‘bullish’ or ‘bearish.’ The reality is that both ‘bulls’ and ‘bears’ are owned by the ‘broken clock’ syndrome during the full-market cycle. However, what is grossly important in achieving long-term investment success is not necessarily being ‘right’ during the first half of the cycle, but by not being ‘wrong’ during the second half.” Will valuations currently pushing the 3rd highest level in history, it is only a function of time before the second-half of the full-market cycle ensues. That is not a prediction of a crash. It is just a fact.

[..] valuations DO NOT predict market crashes. Valuations are predictive of future returns on investments from current levels. Period. I recently quoted Cliff Asness on this issue in particular: “Ten-year forward average returns fall nearly monotonically as starting Shiller P/E’s increase. Also, as starting Shiller P/E’s go up, worst cases get worse and best cases get weaker. If today’s Shiller P/E is 22.2, and your long-term plan calls for a 10% nominal (or with today’s inflation about 7-8% real) return on the stock market, you are basically rooting for the absolute best case in history to play out again, and rooting for something drastically above the average case from these valuations.” We can prove that by looking at forward 10-year total returns versus various levels of PE ratios historically.

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“Ordinarily, failure to raise the debt ceiling would lead to a government shut-down, including hurricane recovery operations, unless the president invoked some kind of emergency powers.”

When the Butterfly Flaps Its Wings (Jim Kunstler)

It remains to be seen what the impact will be from Mother Nature putting the nation’s fourth largest city out-of-business. And for how long? It’s possible that Houston will never entirely recover from Hurricane Harvey. The event may exceed the physical damage that Hurricane Katrina did to New Orleans. It may bankrupt large insurance companies and dramatically raise the risk of doing business anywhere along the Gulf and Atlantic coasts of the USA — or at least erase the perceived guarantee that losses are recoverable. It may even turn out to be the black swan that reveals the hyper-fragility of a US-driven financial system.

Houston also happens to be the center of the US oil industry. Offices can be moved elsewhere, of course, but not so easily the nine major oil refineries that sprawl between Buffalo Bayou over to Beaumont, Port Arthur, and then Lake Charles, Louisiana. Harvey is inching back out to the Gulf where it will inhale more energy over the warm ocean waters and then return inland in the direction of those refineries. The economic damage could be epic. Much of the supply for the Colonial Pipeline system emanates from the region around Houston, running through Atlanta and clear up to Philadelphia and New York. There could be lines at the gas stations along the eastern seaboard in early September.

The event is converging with the US government running out of money this fall without new authority to borrow more by congress voting to raise the US debt ceiling. Perhaps the emergency of Hurricane Harvey and its costly aftermath will bludgeon congress into quickly raising the debt ceiling. If that doesn’t happen, and the debt ceiling is not raised, the federal government might have to pretend that it can pay for emergency assistance to Texas and Louisiana. That pretense can only go so far before government contractors balk and maybe even walk.

Ordinarily, failure to raise the debt ceiling would lead to a government shut-down, including hurricane recovery operations, unless the president invoked some kind of emergency powers. That would be decisive action, but it could also be the beginning of something that looks like a full-out dictatorship. Powers assumed are often not surrendered when the original emergency is over. And what would the president use for money if a substantial enough number of congresspersons and senators are prompted by their distaste for Mr. Trump to drag out the process of financially re-liquefying the government? (And nevermind even passing a budget.)

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Kabuki theater for the home front. Empty nonsense.

France, Germany, Italy, Spain Agree on Plan to Stem Migration Flows (BBG)

France, Germany, Italy and Spain agreed a plan to stem migration across the Mediterranean at talks with Libya, Chad and Niger in Paris, as summit host President Emmanuel Macron called for asylum seekers to be processed on African soil. Safe zones should be set up in Chad and Niger to “identify” asylum seekers in Africa, under the supervision of the United Nations High Commissioner for Refugees, Macron told reporters after the talks in the Elysee Palace Monday. “There’s a lot of work to be done, but I think we have a framework in which we can move forward,” German Chancellor Angela Merkel said at the briefing.

Leaders said in a joint statement that they would work with countries of origin and transit to boost the fight against smuggler networks. France, Germany, Italy and Spain stressed their commitment “to stopping irregular migration flows well ahead of the Mediterranean coast.” In reaction to reports about poor humanitarian conditions in refugee camps in Libya, leaders also promised to set up “facilities with adequate humanitarian standards” for refugees stranded there. France, Germany and Spain remained committed to giving further help to Italy – which has often complained in the past that it was left alone to cope with the migrant flows – by stepping up relocations and appropriately staffing the European Union’s Frontex border management force, they said.

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Maybe Greece’s best hope is for Merkel to dump him.

Debt Cut For Greece Not On Agenda For Now, Schaeuble Says (R.)

Greece must press ahead with implementing its reforms-for-aid program and become more competitive, German Finance Minister Wolfgang Schaeuble was quoted as saying, adding that debt relief for Athens was “currently” not on the agenda. Eurozone finance ministers and the IMF reached an agreement on Greece in June, paving the way for new emergency loans for Athens while leaving the contentious issue of debt relief for later. Asked in an interview with the newspaper Mannheimer Morgen if he could envisage a partial cut in debt for Greece, Schaeuble said, “That’s currently not on the agenda at all.” Chancellor Angela Merkel and Schaeuble do not want to discuss any details of debt relief for Greece before federal elections on September 24, in which the far-right euro-skeptic AfD party is forecast to enter parliament for the first time.

Starting a discussion about debt relief would send the wrong signal to Athens at a time when the economy was doing better and recovering, Schaeuble told Mannheimer Morgen. “The country doesn’t need a debt cut now, but it must continually work on its competitiveness,” Schaeuble said. He pointed out that Greece’s borrowing costs for the next 10 to 15 years were already relatively low. “Above all, as long as member states are responsible for financial and economic policy, they must also bear the consequences of their own decisions themselves”, he said. Schaeuble, whose insistence on reforms to public finances in Athens have long made him a hate figure for many Greeks, has signaled his readiness to deepen eurozone integration as long as risks and liabilities arising from political decisions remain linked.

Merkel’s conservative Christian Democrats are leading the center-left Social Democrats by about 15 percentage points in opinion polls and are the heavy favorites to retain power after the election. Schaeuble, who has been finance minister since 2009 and will turn 75 on September 18, has signaled his willingness to continue as finance minister. But Merkel could be forced to sacrifice him to secure a coalition deal.

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Strange innuendo-laced piece from NYT. It’s all they do these days. “While the Europeans are acting towards Greece like medieval leeches, the Chinese keep bringing money..” Varoufakis made a deal with China in spring 2015. Merkel called Beijing to say: keep your hands off. That should have been part of this article.

Chastised by EU, a Resentful Greece Embraces China’s Cash and Interests (NYT)

After years of struggling under austerity imposed by European partners and a chilly shoulder from the United States, Greece has embraced the advances of China, its most ardent and geopolitically ambitious suitor. While Europe was busy squeezing Greece, the Chinese swooped in with bucket-loads of investments that have begun to pay off, not only economically but also by apparently giving China a political foothold in Greece, and by extension, in Europe. Last summer, Greece helped stop the European Union from issuing a unified statement against Chinese aggression in the South China Sea. This June, Athens prevented the bloc from condemning China’s human rights record. Days later it opposed tougher screening of Chinese investments in Europe.

Greece’s diplomatic stance hardly went unnoticed by its European partners or by the United States, all of which had previously worried that the country’s economic vulnerability might make it a ripe target for Russia, always eager to divide the bloc. Instead, it is the Chinese who have become an increasingly powerful foreign player in Greece after years of assiduous courtship and checkbook diplomacy. Among those initiatives, China plans to make the Greek port of Piraeus the “dragon head” of its vast “One Belt, One Road” project, a new Silk Road into Europe. When Germany treated Greece as the eurozone’s delinquent, China designated a recovery-hungry Greece its “most reliable friend” in Europe. “While the Europeans are acting towards Greece like medieval leeches, the Chinese keep bringing money,” said Costas Douzinas, the head of the Greek Parliament’s foreign affairs and defense committee and a member of the governing Syriza party.

China has already used its economic muscle to stamp a major geopolitical footprint in Africa and South America as it scours the globe for natural resources to fuel its economy. If China was initially welcomed as a deep-pocketed investor — and an alternative to America — it has faced growing criticism that it is less an economic partner than a 21st-century incarnation of a colonialist power. If not looking for natural resources in Europe, China has for years invested heavily across the bloc, its largest trading partner. Yet now concerns are rising that Beijing is using its economic clout for political leverage. Mr. Douzinas said China had never explicitly asked Greece for support on the human rights vote or on other sensitive issues, though he and other Greek officials acknowledge that explicit requests are not necessary. “If you’re down and someone slaps you and someone else gives you an alm,” Mr. Douzinas said, “when you can do something in return, who will you help, the one who helped you or the one who slapped you?”

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We need Kenya to show us how to do this?!

Kenya Gets World’s Toughest Plastic Bag Ban: 4 Years Jail Or $40,000 Fine (R.)

Kenyans producing, selling or even using plastic bags will risk imprisonment of up to four years or fines of $40,000 (£31,000) from Monday, as the world’s toughest law aimed at reducing plastic pollution came into effect. The east African nation joins more than 40 other countries that have banned, partly banned or taxed single use plastic bags, including China, France, Rwanda, and Italy. Many bags drift into the ocean, strangling turtles, suffocating seabirds and filling the stomachs of dolphins and whales with waste until they die of starvation. “If we continue like this, by 2050, we will have more plastic in the ocean than fish,” said Habib El-Habr, an expert on marine litter working with the UN environment programme in Kenya.

Plastic bags, which El-Habr says take between 500 to 1,000 years to break down, also enter the human food chain through fish and other animals. In Nairobi’s slaughterhouses, some cows destined for human consumption had 20 bags removed from their stomachs. “This is something we didn’t get 10 years ago but now it’s almost on a daily basis,” said county vet Mbuthi Kinyanjui as he watched men in bloodied white uniforms scoop sodden plastic bags from the stomachs of cow carcasses. Kenya’s law allows police to go after anyone even carrying a plastic bag. But Judy Wakhungu, Kenya’s environment minister, said enforcement would initially be directed at manufacturers and suppliers.[..] Kenya is a major exporter of plastic bags to the region.

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Aug 152017
 
 August 15, 2017  Posted by at 12:53 pm Finance Tagged with: , , , , , , ,  5 Responses »
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Salvador Dali Madrid. Drunk man 1922

 

Harvard professor and chess grandmaster Kenneth Rogoff has said some pretty out there stuff before, in his role as self-appointed crusader against cash, but apparently he’s not done yet. In fact, he might just be getting started. This time around he sounds like a crossover between George Orwell and Franz Kafka, with a serving of ‘theater of the absurd’ on top. Rogoff wants to give central banks total control over your lives. They must decide what you do with your money. First and foremost, they must make it impossible for you to save your money from their disastrous policies, so they are free to create more mayhem.

Prepare For Negative Interest Rates In The Next Recession Says Top Economist

Negative interest rates will be needed in the next major recession or financial crisis, and central banks should do more to prepare the ground for such policies, according to leading economist Kenneth Rogoff. Quantitative easing is not as effective a tonic as cutting rates to below zero, he believes. Central banks around the world turned to money creation in the credit crunch to stimulate the economy when interest rates were already at rock bottom.

Central banks create recessions and crises. Not people, and not economies. Central banks. The next recession, which is inevitable, that’s the one thing Rogoff has right, will come when the bubbles in housing, stocks, bonds, etc., created by central banks’ QE, ZIRP, NIRP, start to pop. And there’s nothing worse than giving central banks even more tools for creating crises. We should take away the tools they have now, not hand them more sledgehammers.

In a new paper published in the Journal of Economic Perspectives the professor of economics at Harvard University argues that central banks should start preparing now to find ways to cut rates to below zero so they are not caught out when the next recession strikes. Traditionally economists have assumed that cutting rates into negative territory would risk pushing savers to take their money out of banks and stuff the cash – metaphorically or possibly literally – under their mattress. As electronic transfers become the standard way of paying for purchases, Mr Rogoff believes this is a diminishing risk.

Risk? What risk? The risk of people doing with their money what they choose to do, doing what they think is best? Of people trying to save their savings from being burned by central bank policies? What kind of mind comes up with this nonsense? Who is Ken Rogoff to think that he knows better what you should do with the money you worked for than you yourself do? You’d be a fool not to protect you hard-earned earnings from negative interest rates. Rogoff therefore seems intent on creating nations full of fools.

“It makes sense not to wait until the next financial crisis to develop plans and, in any event, it is time for economists to stop pretending that implementing effective negative rates is as difficult today as it seemed in Keynes time”, he said. The growth of electronic payment systems and the increasing marginalisation of cash in legal transactions creates a much smoother path to negative rate policy today than even two decades ago. Countries can scrap larger denomination notes to reduce the likelihood of cash being held in substantial quantities, he suggests. This is also a potentially practical idea because cash tends now to be used largely for only small transactions. Law enforcement officials may also back the idea to cut down on money laundering and tax evasion.

What makes sense is to not create crises. What does not make sense is negative interest rates. Ultra low interest rates have already destroyed trillions in savings and pensions, and now Rogoff effectively says central banks should take this a step further, and target whatever it is you have left. This is insane megalomania. It’s communism in its worst possible form. Oh, and it’s outright theft. Of a form that’s far more insidious and harmful than money laundering.

The key consequence from an economic point of view is that forcing savers to keep cash in an electronic format would make it easier to levy a negative interest rate. “With today’s ultra-low policy interest rates – inching up in the United States and still slightly negative in the eurozone and Japan – it is sobering to ask what major central banks will do should another major prolonged global recession come any time soon,” he said, noting that the Fed cut rates by an average of 5.5 percentage points in the nine recessions since the mid-1950s, something which is impossible at the current low rate of interest, unless negative rates become an option. That would be substantially better than trying to use QE or forward guidance as central bankers have attempted in recent years.

Forcing savers to keep cash in an electronic format would make it easier to steal it. Central banks could dictate that you lose 5% of your money every year. Or at least, that’s what they think. They want you to spend your money, and they got just the way to force you to do that. Or so they think. Well, go ask Abe and Kuroda how that’s worked out in Japan lately. What actually happens is that when you start stealing people’s money, savings etc., they become afraid of losing the rest too, so they start looking for ways to save their savings, not spend them.

In that sense, Rogoff’s suggestions amount to terror, to terrorizing people into doing things that go against their very survival instincts. What gets people to spend money is if they don’t feel terror, when they see their money and savings grow by a few percent per year. That is the exact opposite of what Rogoff wants to do. When people ‘sit’ on their savings, they do so for good reasons. What do you think has happened to Japan?

“Alternative monetary policy instruments such as forward guidance and quantitative easing offer some theoretical promise for addressing the zero bound,” he said, in the paper which is titled ‘Dealing with Monetary Paralysis at the Zero Bound’. “But these policies have now been deployed for some years – in the case of Japan, for more than two decades – and at least so far, they have not convincingly shown an ability to decisively overcome the problems posed by the zero bound.”

No wait, Rogoff is right second time: indeed “they have not convincingly shown an ability to decisively overcome the problems”. Because they’re terribly wrong. Theoretical promise? That’s all? But that means you’re just experimenting with people’s lives and wellbeing. Who gave you that right?

It’s high time, even if it’s very late in the game, to take political power away from central banks- and thereby from the banks that own them. There is nothing worse for our societies than letting these people decide what you can and cannot do with our money. Because as long as they have that power, they will seek to expand it. To prop up their member banks at your expense. And there is only one possible end result: you’ll be left with nothing. They want it all.

Until we take that power away from them, please don’t talk to me about democracy. Talk to me about Orwell and Kafka instead.

 

 

 

Aug 042017
 
 August 4, 2017  Posted by at 8:34 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Acropolis and Temple of Jupiter Olympus Athens 1862

 

Australia Slams the Brakes on Property Investment (BBG)
Toronto Home Prices Suffer Worst Monthly Decline in 17 Years (BBG)
Toronto Housing Market Implodes: Prices Plunge Most On Record (ZH)
Euro Junk Bonds and “Reverse Yankees” Go Nuts (WS)
Global Inflation Hits Lowest Level Since 2009 (WSJ)
Japan Buries Our Most-Cherished Economic Ideas (BBG)
Britain’s Finance Sector Will Double In Size In 25 Years – Mark Carney (G.)
London’s “Land Banking” Ventures Expose Startling Wealth Inequality (O.)
Russian Ban On Turkish Tomatoes Bears Domestic Fruit (R.)
Trump Will Now Become the War President (Paul Craig Roberts)
IMF Admits Disastrous Love Affair With Euro and Immolation Of Greece (Tel)
Why Have No IMF Officials Been Prosecuted For Malpractice In Greece? (Bilbo)

 

 

It’s just words. The illusion of well-managed control. When property goes down, and it must at some point, it will take the entire Australia economy down with it.

Australia Slams the Brakes on Property Investment (BBG)

One of the key engines of Australia’s five-year housing boom is losing steam. Property investors, who have helped stoke soaring home prices in Australia, are being squeezed as regulators impose restrictions to rein in lending. The nation’s biggest banks have this year raised minimum deposits, tightened eligibility requirements and increased rates on interest-only mortgages – a form of financing favored by people buying homes to rent out or hold as an investment. Australia’s generous tax breaks for landlords, combined with record-low borrowing costs, have made the nation home to more than 2 million property investors. Demand from those buyers has contributed to a bull run that has catapulted Sydney and Melbourne into the ranks of the world’s priciest property markets. Now, signs are emerging that the curbs are starting to deter speculators – and home prices are finally starting to cool. [..]

The biggest banks have hiked rates on interest-only mortgages by an average of 55 basis points this year, according to Citigroup [..] ..property auction clearance rates in Sydney have held below 70% in seven of the past eight weeks, compared to as high as 81% in March before the curbs were imposed. And investor loans accounted for 37% of new mortgages in May, down from this year’s peak of 41% in January. That’s helping take the heat out of property prices, particularly in Sydney, the world’s second-most expensive housing market. Price growth in the city slowed to 2.2% in the three months through July, down from a peak of 5% earlier this year, CoreLogic said Tuesday. In Melbourne, rolling quarterly price growth has eased to 4.2%. “There have been some signs that conditions in the Sydney and Melbourne markets have eased a little of late,” the Reserve Bank of Australia said on Friday.

Now, with costs increasing, and price growth slowing, property may lose some of its luster as an investment asset. [That] changes “reduce investors’ ability to pay, and means they have to pay owner-occupier values rather than investor values,” said Angie Zigomanis, senior manager, residential property, at BIS Oxford Economics in Melbourne. The restrictions will take “some of the bubble and froth” out of the market, he said, forecasting median Sydney house prices will decline 5% by the end of mid-2019 as investors retreat.

[..] banks may need to get even tougher on lending standards in order to meet the regulator’s order to restrict interest-only loans to 30% of new residential loans by September. Interest-only loans are seen as more risky because borrowers aren’t paying down any principal and may look to sell en-masse if property prices decline.

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Bubble? Nah…

Toronto Home Prices Suffer Worst Monthly Decline in 17 Years (BBG)

The benchmark Toronto property price, which tracks a typical home over time, dropped 4.6% to C$773,000 ($613,000) from June. That’s the biggest monthly drop since records for the price index began in 2000, according to Bloomberg calculations, and brings prices down to roughly March levels. Prices are still up 18% from the same month a year ago, according to the Toronto Real Estate Board. Transactions tumbled 40% to 5,921, the biggest year-over-year decline since 2009, led by detached homes. The average price, which includes all property types, rose 5% to C$746,218 from July 2016. That compares with a 17% increase at this time last year.

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“..transactions tumbled 40.4%..”

Toronto Housing Market Implodes: Prices Plunge Most On Record (ZH)

Until mid 2017, it appeared that nothing could stop the Toronto home price juggernaut:

And yet, In early May we wrote that “The Toronto Housing Market Is About To Collapse”, when we showed the flood of new home listings that had hit the market the market, coupled with an extreme lack of affordability, which as we said “means homes will be unattainable to all but the oligarchs seeking safe-haven for their ‘hard’-hidden gains, prices will have to adjust rather rapidly.”

Exactly three months later we were proven right, because less than a year after Vancouver’s housing market disintegrated – if only briefly after the province of British Columbia instituted a 15% foreign buyer tax spooking the hordes of Chinese bidders who promptly returned after a several month hiatus sending prices to new all time highs – just a few months later it’s now Toronto’s turn. On Thursday, the Toronto Real Estate Board reported that July home prices in Canada’s largest city suffered their biggest monthly drop on record amid government efforts to cool the market and the near-collapse of Home Capital Group spooked speculators. The benchmark Toronto property price, while higher 18% Y/Y, plunged 4.6% to C$773,000 ($613,000) from June. That was biggest monthly drop since records for the price index began in 2000, and brought prices down in the metro area to March levels.

More troubling than the price drop, however, was the sudden paralysis in the market as buyers and sellers violently disagreed about fair clearing prices and transactions tumbled 40.4% to 5,921, the biggest year-over-year decline since 2009, led by the detached market segment.

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Wolf Richter with a good example of just how detructive Draghi’s -and other central bankers’- QE really is. The bonds may go nuts, but Draghi IS nuts. Or rather, Europeans are nuts not to stop him.

Euro Junk Bonds and “Reverse Yankees” Go Nuts (WS)

The ECB’s efforts to buy corporate bonds as part of its stupendous asset buying binge has not only pushed a number of government bond yields below zero, where investors are guaranteed a loss if they hold the bond to maturity, but it has also done a number – perhaps even a bigger one – on the euro junk-bond market. It has totally gone nuts. Or rather the humans and algorithms that make the buying decisions have gone nuts. The average junk bond yield has dropped to an all-time record low of 2.42%. Let that sink in for a moment. This average is based on a basket of below investment-grade corporate bonds denominated in euros. Often enough, the issuers are junk-rated American companies with European subsidiaries – in which case these bonds are called “reverse Yankees.”

These bonds include the riskiest bonds out there. Plenty of them will default, and losses will be painful, and investors – these humans and algos – know this too. This is not a secret. That’s why these bonds are rated below investment grade. But these buyers don’t mind. They’re institutional investors managing other people’s money, and they don’t need to mind. [..] The average yield of these junk bonds never dropped below 5% until October 2013. In the summer of 2012, during the dog days of the debt crisis when Draghi pronounced the magic words that he’d do “whatever it takes,” these bonds yielded about 9%, which might have been about right. Since then, yields have plunged (data by BofA Merrill Lynch Euro High Yield Index Effective Yield via St. Louis Fed). The “on the Way to Zero” in the chart’s title is only partially tongue-in-cheek:

The chart below gives a little more perspective on this miracle of central-bank market manipulation, going back to 2006. It shows the spike in yield to 25% during the US-engineered Financial Crisis and the comparatively mild uptick in yield during the Eurozone-engineered debt crisis:

How does this fit into the overall scheme of things? For example, compared to the US Treasury yield? US Treasury securities are considered the most liquid and the most conservative investments. They’re considered as close to a risk-free financial instrument as you’re going to get on this earth. Turns out, from November 2016 until now, the 10-year US Treasury yield has ranged from 2.14% to 2.62%, comfortably straddling the current average euro junk bond yield of 2.42%.

If you want to earn a yield of about 2.4%, which instrument would you rather have in your portfolio, given that both produce about the same yield, and given that one has a significant chance of defaulting and getting you stuck with a big loss, while the other is considered the safest most boring financial investment out there? The answer would normally be totally obvious, but not in the Draghi’s nutty bailiwick. That this sort of relentless and blind chase for yield – however fun it may be today – will lead to hair-raising losses later is a given. And we already know who will take those losses: The clients of these institutional investors, the beneficiaries of pension funds and life insurance retirement programs, the hapless owners of bond funds, and the like.

In terms of the broader economy: When no one can price risk anymore, when there’s in fact no apparent difference anymore between euro junk bonds and US Treasuries, then all kinds of bad economic decisions are going to be made and capital is going to get misallocated, and it’s going to be Draghi’s royal mess.

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Hint for central bankers: look at money velocity. People don’t spend, they borrow. Keyword: debt.

Global Inflation Hits Lowest Level Since 2009 (WSJ)

Inflation in the Group of 20 largest economies fell to its lowest level in almost eight years in June, deepening a puzzle confronting central banks as they contemplate removing post-crisis stimulus measures. The OECD said Thursday that consumer prices across the G-20—the countries that accounts for most of the world’s economic activity—were 2% higher than a year earlier. The last time inflation was lower was in October 2009, when it stood at 1.7%, as the world started to emerge from the sharp economic downturn that followed the global financial crisis. The contrast between then and now highlights the mystery facing central bankers in developed economies as they attempt to raise inflation to their targets, which they have persistently undershot in recent years.

According to central bankers, inflation is generated by the gap between the demand for goods and services and the economy’s ability to supply them. As the economy grows and demand strengthens, that output gap should narrow and prices should rise. Right now, the reverse appears to be happening. Across the G-20, economic growth firmed in the final three months of 2016 and stayed at that faster pace in the first three months of 2017. Growth figures for the second quarter are incomplete, but those available for the U.S., the eurozone and China don’t point to a slowdown. Indeed, Capital Economics estimates that on an annualized basis, global economic growth picked up to 3.7% in the three months to June from 3.2% in the first quarter.

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At what point are mainstream economists going to admit they have no clue as to what’s going on? It all sounds like if reality doesn’t fit their models, something must be wrong with reality.

Japan Buries Our Most-Cherished Economic Ideas (BBG)

Japan is the graveyard of economic theories. The country has had ultralow interest rates and run huge government deficits for decades, with no sign of the inflation that many economists assume would be the natural result. Now, after years of trying almost every trick in the book to reflate the economy, the Bank of Japan is finally bowing to the inevitable. The BOJ’s “dot plot” shows that almost none of the central bank’s nine board members believe that the country will reach its 2% inflation target. Accordingly, the bank has pushed back the date at which it expects to hit its 2% target. That’s a little comical, since by now it should be fairly obvious that the date will only get pushed back again and again. If some outside force intervenes to raise inflation to 2%, the BOJ will declare that it hit the target, but it’s pretty clear it has absolutely no idea how to engineer a deliberate rise in inflation.

The bank will probably keep interest rates at zero indefinitely, but if decades of that policy haven’t produced any inflation, what reason is there to think that decades more will do the trick? Some economists think more fiscal deficits could help raise inflation. That’s consistent with a theory called the “fiscal theory of the price level,” or FTPL. But a quick look at Japan’s recent history should make us skeptical of that theory – even as government debt has steadily climbed, inflation has stumbled along at close to 0%. Japan’s situation should also give pause to economists who want to resurrect the idea of the Phillips Curve, which purports to show a stable relationship between unemployment and inflation. Japan’s persistently low inflation comes even though essentially everyone in Japan who wants a job has one.

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Yeah sure, and then double again the next 25 years.

Britain’s Finance Sector Will Double In Size In 25 Years – Mark Carney (G.)

The governor of the Bank of England has predicted that the financial sector could double in size to be 20 times as big as GDP within the next 25 years, but warned that the government must hold its nerve and resist pressure to water down regulation after Brexit. Speaking to the Guardian to mark the 10th anniversary of the start of the global financial crisis in August 2007,[..] eant repeating the risky speculation of a decade ago. Carney dismissed suggestions that London could become a financial centre with only light-touch regulation – often dubbed Singapore-on-Thames – in order to attract business after the UK left the EU. He said the size of the financial sector would increase relative to the size of the economy if things went according to plan after Brexit and that meant there could be no going back to the lax regime that existed before 2007.

The Bank, he said, was aware that “we have a financial system that is ten times the size of this economy … It brings many strengths, it brings a million jobs, it pays 11% of tax revenue, it is the biggest export industry by some token … All good things. But it’s risky”. He went on: “We have a view… that post-Brexit the level of regulation will be at least as high as it currently is and that’s a level that in many cases substantially exceeds international norms. “There’s a reason for that, because we’re not going to to go the lowest common denominator in a system that is 10 times size of GDP. If the UK financial system thrives in a post-Brexit world, which is the plan, it will not be 10 times GDP, it will be 15 to 20 times GDP in another quarter of century because we will keep our market share of cross-border capital flows. Well then you really have to hold your nerve and keep the focus.”

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I told you: feudal. UK needs full reset.

London’s “Land Banking” Ventures Expose Startling Wealth Inequality (O.)

No place is feeling the bite of the UK housing crisis quite as savagely as London. While homelessness, social housing heartbreak and painfully high housing costs reveal the harsh reality of living in Britain’s capital, empty property numbers in London stand at their highest level in 20 years. Who are the culprits? Many would argue it’s the billionaires, whose “land banking” ventures are becoming ever more profitable. At a time when wealthy people purchase property and leave it empty, only to make a huge profit when they sell their investment, ordinary citizens are living in the throes of a 21st century housing crisis that is crippling the capital. Recent government figures show around 1.4 million homes have been lying vacant in the UK for at least six months – the highest level of “spare” homes in two decades.

At the same time, London has witnessed a staggering 456% increase in “land banking” over the last 20 years. Kensington and Chelsea – London’s richest borough, where the Grenfell Tower tragedy took place – has the highest number of empty homes. Land banking in London has long been exploited by the super-rich. In 2014, one-third of the mansions stood empty on Bishops Avenue, a single street in north London that has been dubbed “Billionaires Row,” which ranked as the UK’s second most expensive street with an estimated £350 million worth of empty properties. The famous row of mansions – believed to be owned by members of the Saudi royal family – has stood virtually unused since being bought by investors between 1989 and 1993.

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Putin says he likes globalization, but his country increasingly takes care of itself. The sanctions work to strengthen Russia, the opposite of what America hopes to achieve. Hopefully Russia doesn’t turn tomatoes into some large industrial thing.

Russian Ban On Turkish Tomatoes Bears Domestic Fruit (R.)

A ban on Turkish tomato imports that was motivated by geopolitics has inspired Russia to become self-sufficient in tomato production, a windfall for companies who invested in the technology that would increase year-round production. Russia has been ramping up production of meats, cheese and vegetables since it banned most Western food imports in 2014 as a retaliatory measure for sanctions meant to punish Russia’s support of rebels in eastern Ukraine and annexation of Crimea. After Turkey shot down a Russian jet near the Syrian border in November 2015, Moscow expanded the ban to include Turkish tomatoes, for which Russia was the biggest export market. Ties between Ankara and Moscow have since largely normalized but the ban remains in place and may not be lifted for another three to five years, officials have said.

That may be too late for Turkish exporters if Russian efforts to ramp up domestic production bear fruit. Greenhouse projects being built with state support are key to Russia’s plans to become self-sufficient for its 144 million population by 2020, industry players, analysts and officials say. Although Russia only imports about 500,000 tonnes of the 3.4 million tonnes of tomatoes consumed annually, the country’s notoriously harsh winters have limited its ability to ramp up to full capacity, IKAR agriculture consultancy said. Currently only 620,000 tonnes of production comes from “protected ground”, or greenhouses, IKAR said. The remainder comes from “open ground” productive only from June to September, and most of that comes from private plots maintained and used by individual families or sold at local farmers’ markets.

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This is what I wrote the other day I fear will happen if Americans don’t stop the demonization of Trump. Really, you should all think again, or you’ll find yourself in a war that nobody can oversee.

Trump Will Now Become the War President (Paul Craig Roberts)

President Trump has been defeated by the military/security complex and forced into continuing the orchestrated and dangerous tensions with Russia. Trump’s defeat has taught the Russians the lesson I have been trying to teach them for years, and that is that Russia is much more valuable to Washington as an enemy than as a friend. Do we now conclude with Russia’s Prime Minister Dmitry Medvedev that Trump is washed up and “utterly powerless?” I think not. Trump is by nature a leader. He wants to be out front, and that is where his personality will compel him to be. Having been prevented by the military/security complex, both US political parties, the presstitute media, the liberal-progressive-left, and Washington’s European vassals from being out front as a leader for peace, Trump will now be the leader for war. This is the only permissible role that the CIA and armaments industry will permit him to have.

Losing the chance for peace might cost all of us our lives. Now that Russia and China see that Washington is unwilling to share the world stage with them, Russia and China will have to become more confrontational with Washington in order to prevent Washington from marginalizing them. Preparations for war will become central in order to protect the interests of the two countries. The situation is far more dangerous than at any time of the Cold War. The foolish American liberal-progressive-left, wrapped up as they are in Identity Politics and hatred of “the Trump deplorables,” joined the military/security complex’s attack on Trump. So did the whores, who pretend to be a Western media, and Washington’s European vassals, not one of whom had enough intelligence to see that the outcome of the attack on Trump would be an escalation of conflict with Russia, conflict that is not in Europe’s business and security interests.

Washington is already raising the violence threshold. The same lies that Washington told about Saddam Hussein, Gadaffi, Assad, Iran, Serbia and Russia are now being told about Venezuela. The American presstitutes duly report the lies handed to them by the CIA just as Udo Ulfkotte and Seymour Hersh report. These lies comprise the propaganda that conditions Western peoples to accept the coming US coup against the democratic government in Venezuela and its replacement with a Washington-compliant government that will permit the renewal of US corporate exploitation of Venezuela.

As the productive elements of American capitalism fall away, the exploitative elements become its essence. After Venezuela, there will be more South American victims. As reduced tensions with Russia are no longer in prospect, there is no reason for the US to abandon its and Israel’s determination to overthrow the Syrian government and then the Iranian government. The easy wars against Iraq, Libya, and Somalia are to be followed by far more perilous conflict with Iran, Russia, and China This is the outcome of John Brennan’s defeat of President Trump.

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Two pieces on the IMF’s own internal report.

IMF Admits Disastrous Love Affair With Euro and Immolation Of Greece (Tel)

The IMF’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. This is the lacerating verdict of the IMF’s top watchdog on the fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions. “Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located” It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking breakdown in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.

The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde. It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way European Union insiders used the fund to rescue their own rich currency union and banking system. The three main bailouts for Greece, Portugal and Ireland were unprecedented in scale and character. The trio were each allowed to borrow over 2,000pc of their allocated quota – more than three times the normal limit – and accounted for 80pc of all lending by the fund between 2011 and 2014. In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive “ad-hoc task forces”. Mrs Lagarde herself is not accused of obstruction.

“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff,” it said. “The IMF remained upbeat about the soundness of the European banking system… this lapse was largely due to the IMF’s readiness to take the reassurances of national and euro area authorities at face value..” [..] “Before the launch of the euro, the IMF’s public statements tended to emphasise the advantages of the common currency,” it said. Some staff members warned that the design of the euro was fundamentally flawed but they were overruled.

[..] In Greece, the IMF violated its own cardinal rule by signing off on a bailout in 2010 even though it could offer no assurance that the package would bring the country’s debts under control or clear the way for recovery, and many suspected from the start that it was doomed. The organisation got around this by slipping through a radical change in IMF rescue policy, allowing an exemption (since abolished) if there was a risk of systemic contagion. “The board was not consulted or informed,” it said. The directors discovered the bombshell “tucked into the text” of the Greek package, but by then it was a fait accompli.

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Bill Mitchell read the whole thing.

Why Have No IMF Officials Been Prosecuted For Malpractice In Greece? (Bilbo)

I have just finished reading the 474-page Background Papers that the IEO released in 2016 and which formed the basis of its June 2016 Evaluation Report – The IMF and the Crises in Greece, Ireland, and Portugal. It is not a pretty story. It seems that the incompetence driven by the blind adherence to Groupthink that the earlier Reports had highlighted went a step further into what I would consider to be criminality plain and simple. The IEO found that IMF officials and economists violated the rules of their own organisation, hid documents, presumably to hide their chicanery and generally displayed a high level of incompetence including failing to under the implications of a common currency – pretty basic errors, in other words. The IEO Report sought to evaluate: “… the IMF’s engagement with the euro area during these crises in order to draw lessons and to enhance transparency..”

The period under review was 2010 to 2013, which covered the “2010 Stand-By Arrangement with Greece, the 2010 Extended Arrangement with Ireland, and the 2011 Extended Arrangement with Portugal.” The IEO noted that the IMF involvement with the Troika was quite different to its normal operations. 1. “the euro area programs were the first instances of direct IMF involvement in adjustment programs for advanced, financially developed, and financially open countries within a currency union”. 2. “they involved intense collaboration with regional partners who also were providing conditional financial assistance, and the modality of collaboration evolved in real time.” 3. “the amounts committed by the IMF … were exceptionally large … exceeded the normal limits of 200% of quota for any 12-month period or 600% cumulatively over the life of the program. In all three countries, access exceeded 2,000% of quota.”

So one would think that the IMF would have exercised especial care and been committed to transparency, given that for the “financial years 2011-14, these countries accounted for nearly 80% of the total lending provided by the IMF”. It didn’t turn out that way. Interestingly, the IEO for all its independence was set upon by “several Executive Directors and other senior IMF officials” at the outset of the evaluation process (when establishing the Terms of Reference), who claimed that the 2012 Bailout was just a “continuation of the 2010 SBA” and so it was not possible to evaluate them separately. In other words, the IMF was trying to close down assessment of its activities.

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Jul 162017
 
 July 16, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Piet Mondriaan The Grey Tree 1912

 

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)
Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)
How Brexit Is Set To Hurt Europe’s Financial Systems (R.)
Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)
Is Russiagate Really Hillarygate? (Forbes)
The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)
France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)
France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)
Is California Bailing Out Tesla through the Backdoor? (WS)
Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

 

 

No markets. No investors.

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)

Thanks, it seems, to a few short words from Janet Yellen, the world’s stock markets added over $1.5 trillion to wealthy people’s net worth this week, sending global market cap to record highs. The value of global equity markets reached a record high $76.28 trillion yesterday, up a shocking 18.6% since President Trump was elected. This is the same surge in global stocks that was seen as the market front-ran QE2 and QE3. This was the biggest spike in global equity markets since 2016.

For the first time since Dec 2007, the market value of global equity markets is greater than the world’s GDP…

Of course – the big question is – how long can ‘they’ keep this dream alive?

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“Actually, the longer it takes to hit, the better it is for us…”

Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)

The global dollar-based monetary system is in serious jeopardy, according to former Texas Congressman Ron Paul. And contrary to Fed Chairwoman Janet Yellen’s assurances that there won’t be another major crisis in our lifetime, the next economy-cratering fiat-currency crash could happen as soon as next month, Paul said during an interview with Josh Sigurdson of World Alternative media. Paul and Sigurdson also discussed false flag attacks, the dawn of a cashless society and the dangers of monetizing national debt. Paul started by saying Yellen’s attitude scares him because “central bankers are always wrong – especially before a bust.”

“There is a subjective element to when people lose confidence, and when is the day going to come when people realize we’re dealing with money that has no intrinsic value to it, we’re dealing with too much debt, too much bad investment and it will come to an end. Something that’s too good to believe usually is and it usually ends. One thing’s for sure, we’re getting closer every day and the crash might come this year, but it might come in a year or two.” “The real test is can it sustain unbelievable deficit financing and the accumulation of debt and it can’t. You can’t run a world like this, if that were the case Americans could just sit back and say “hey, everybody wants our money and will take our money.” Paul advised that, for those who are already girding for the crash by buying gold and silver and stocking their basements with provisions like canned food and bottled water, the rewards for their foresight will only grow with the passage of time.

“Actually, the longer it takes to hit, the better it is for us. The more we can get prepared personally, as well as warn other people, about what’s coming.” “It’s a sign that the authoritarians are clinging to power so they can collect the revenues collect the taxes and make sure you’re not getting around the system. That’s what the cashless society is all about. But it won’t work in fact it might be the precipitating factor that people will eventually lose confidence when the crisis hits. They say the crisis hasn’t come – welI in 2008 and 2009 we had a pretty major crisis and what we learned there is that the middle class got wiped out and the poor people got poorer and now there’s a lot of wealth going on but it’s still accumulating to the wealthy individual.” “People say it might not come for another ten years – well we don’t know whether that’s necessary but one thing that’s for sure when a government embarks on deficit financing and then monetizing the debt the value of commodities like gold and silver generally goes up.

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Anyone think the concentration of finance in the City is maybe not such a great idea? As, you know, for the people?

How Brexit Is Set To Hurt Europe’s Financial Systems (R.)

Interviews with scores of senior executives from big British and international banks, lawyers, academics, rating agencies and lobbyists outline some of the dangers for companies and consumers from potentially losing access to London’s markets. The EU needs London’s money, says Mark Carney, governor of the Bank of England. He calls Britain “Europe’s investment banker” and says half of all the debt and equity issued by the EU involves financial institutions in Britain. Rewiring businesses will be expensive, though estimates vary widely. Investment banks that set up new European outposts to retain access to the EU’s single market may see their EU costs rise by between 8 and 22%, according to one study by Boston Consulting Group.

A separate study by JP Morgan estimates that eight big U.S. and European banks face a combined bill of $7.5 billion over the next five years if they have to move capital markets operations out of London as a result of Brexit. Such costs would equate to an average 2% of the banks’ global annual expenses, JP Morgan said. Banks say most of those extra costs will end up being paid by customers. “If the cost of production goes up, ultimately a lot of our costs will get passed on to the client base,” said Richard Gnodde, chief executive of the European arm of Goldman Sachs. “As soon as you start to fragment pools of liquidity or fragment capital bases, it becomes less efficient, the costs can go up.”

UK-based financial firms are trying to shift some of their operations to Europe to ensure they can still work for EU clients, but warn such a rearrangement of the region’s financial architecture could threaten economic stability not only in Britain but also in Europe because so much European money flows through London. European countries, particularly France and Germany, don’t share these concerns, viewing Brexit as an opportunity to steal large swathes of business away from Britain and build up their own financial centres. Britain alone accounts for 5.4% of global stock markets by value, according to Reuters data. Valdis Dombrovskis, the EU financial services chief, said the EU will still account for 15% of global stock markets by value without Britain, and that measures were being taken to strengthen its capital markets. But he added: “Fragmentation is preventing our financial services sector from realising its full potential.”

Industry figures have similar concerns. Jean-Louis Laurens, a former senior Rothschild banker and now ambassador for the French asset management lobby, told Reuters: “If London is broken into pieces then it is not going to be as efficient. Both Europe and Britain are going to lose from this.” London is currently home to the world’s largest number of banks and hosts the largest commercial insurance market. About six trillion euros ($6.8 trillion), or 37%, of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris. And London dominates Europe’s 5.2 trillion euro investment banking industry.

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Familiar patteren: first blow a bubble, then warn about it.

Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)

British families are signing up for a lifetime of debt with almost one in seven borrowers now taking out mortgages of 35 years or more, official figures show. Rapid house price growth has encouraged borrowers to sign longer mortgage deals as a way of reducing monthly payments and easing affordability pressures. Bank of England data shows 15.75pc of all new mortgages taken out in the first quarter of 2017 were for terms of 35 years or more. While this is slightly down from the record high of 16.36pc at the end of 2016, it has climbed from just 2.7pc when records began in 2005. The steady rise has triggered alarm bells at the Bank, prompting regulators to warn that the trend risks storing up problem[s] for the future if lenders ignore the growing share of households prepared to borrow into retirement. Several lenders including Halifax, the UK’s biggest mortgage provider, and Nationwide have raised their borrowing age limits to 80 and 85 over the past year.

Bank figures show one in five mortgages are taken out for terms of between 30 and 35 years, from below 8pc in 2005, as the traditional 25-year mortgage becomes less popular. David Hollingworth, a director at mortgage broker London & Country, said the trend showed that an increasing share of borrowers were struggling with affordability pressures, and deciding that lengthening the term will offer leeway as house price growth continues to outpace pay rises. However, he said most borrowers were unlikely to stick with the same deal, with most having a desire to review that later and potentially peg [the extra interest costs] back . Mr Hollingworth added that longer mortgage terms were also better than interest-only deals that were prevalent before the credit crunch. The Bank noted in its latest financial stability report that there was little evidence that borrowers were signing up for longer mortgage deals to circumvent tougher borrowing tests for homeowners introduced in 2014.

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Fusion GPS.

Is Russiagate Really Hillarygate? (Forbes)

The most under covered story of Russia Gate is the interconnection between the Clinton campaign, an unregistered foreign agent of Russia headquartered in DC (Fusion GPS), and the Christopher Steele Orbis dossier. This connection has raised the question of whether Kremlin prepared the dossier as part of a disinformation campaign to sow chaos in the US political system. If ordered and paid for by Hillary Clinton associates, Russia Gate is turned on its head as collusion between Clinton operatives (not Trump’s) and Russian intelligence. Russia Gate becomes Hillary Gate. Neither the New York Times, Washington Post, nor CNN has covered this explosive story. Two op-eds have appeared in the Wall Street Journal. The possible Russian-intelligence origins of the Steele dossier have been raised only in conservative publications, such as in The Federalist and National Review.

The Fusion story has been known since Senator Chuck Grassley (R-Iowa) sent a heavily-footnoted letter to the Justice Department on March 31, 2017 demanding for his Judiciary Committee all relevant documents on Fusion GPS, the company that managed the Steele dossier against then-candidate Donald Trump. Grassley writes to justify his demand for documents that: “The issue is of particular concern to the Committee given that when Fusion GPS reportedly was acting as an unregistered agent of Russian interests, it appears to have been simultaneously overseeing the creation of the unsubstantiated dossier of allegations of a conspiracy between the Trump campaign and the Russians.”

Former FBI director, James Comey, refused to answer questions about Fusion and the Steele dossier in his May 3 testimony before the Senate Intelligence Committee. Comey responded to Lindsey Graham’s questions about Fusion GPS’s involvement “in preparing a dossier against Donald Trump that would be interfering in our election by the Russians?” with “I don’t want to say.” Perhaps he will be called on to answer in a forum where he cannot refuse to answer.

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And don’t think it’s over. The pension chips are yet to fall.

The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)

Those who wish to understand how things work in Chicago need read a single article that ties everything together:

“Teamsters Boss Indicted On Charges Of Extorting $100,000 From A Local Business. A politically connected Teamsters union boss was indicted Wednesday on federal charges alleging he extorted $100,000 in cash from a local business. John Coli Sr., considered one the union’s most powerful figures nationally, was charged with threatening work stoppages and other labor unrest unless he was given cash payoffs of $25,000 every three months by the undisclosed business. The alleged extortion occurred when Coli was president of Teamsters Joint Council 25, a labor organization that represents more than 100,000 workers in the Chicago area and northwest Indiana. Coli, 57, an early backer of Mayor Rahm Emanuel, was charged with one count of attempted extortion and five counts of demanding and accepting prohibited payment as a union official.”

[..] Former governor Rod Blagojevich is now in prison for a 14-year sentence. He was found guilty of 18 counts of corruption, including attempting to sell or trade an appointment to a vacant seat in the U.S. Senate. He faces another eight years in prison after an appeals court upheld the sentence in April of this year. No other state can match this claim: 4 OUT OF PREVIOUS 7 ILLINOIS GOVERNORS WENT TO PRISON The way Chicago “works” is the same way Illinois “works”. Corrupt politicians get in bed with corrupt union leaders and screw the taxpayers and businesses as much as they can. Sometimes they get caught. Teamster boss Coli just got caught after all these years of extortion. His deals with Mayor Emanuel screwed Chicago taxpayers. Emanuel promised reforms and transparency but reforms and transparency stop once campaign donations are sufficient enough.

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Macron plays Napoleon.

France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)

French President Emmanuel Macron said his defense chief has no choice but to agree with what he says, a weekly newspaper reported on Sunday, after his top general criticized spending cuts to this year’s budget. “If something opposes the military chief of staff and the president, the military chief of staff goes,” Macron, who as president is also the commander-in-chief of the armed forces, told Le Journal du Dimanche (JDD). Macron said on Thursday that he would not tolerate public dissent from the military after General Pierre de Villiers reportedly told a parliament committee he would not let the government “fuck with” him on spending cuts.

De Villiers still has Macron’s “full trust,” the president told JDD, provided the top general “knows the chain of command and how it works.” “No one deserves to be blindly followed,” De Villiers wrote in a message posted on his Facebook page on Friday. De Villiers’ last Facebook post is an open letter addressed to new military recruits that makes no mention of Macron. But it was perceived by French media as targeting the president’s earlier comments.

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Macron wants to be a global force too. While he has nothing to say in Europe.

France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)

France called on Saturday for a swift lifting of sanctions that target Qatari nationals in an effort to ease a month-long rift between the Gulf country and several of its neighbors. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt imposed sanctions on Qatar on June 5, accusing it of financing extremist groups and allying with the Gulf Arab states’ arch-foe Iran. Doha denies the accusations. “France calls for the lifting, as soon as possible, of the measures that affect the populations in particular, bi-national families that have been separated or students,” French Foreign Minister Jean-Yves Le Drian told reporters in Doha, after he met his counterpart Sheikh Mohammed bin Abdulrahman al-Thani. Le Drian was speaking alongside Sheikh Mohammed, hours after his arrival in Doha. He is the latest Western official to visit the area since the crisis began.

Later in the day he flew to Jeddah, where he repeated his concerns about the effects of the standoff in a televised press appearance with Saudi Foreign Minister Adel al-Jubeir. Jubeir said any resolution of the worst Gulf crisis in years should come from within the six-nation Gulf Cooperation Council. “We hope to resolve this crisis within the Gulf house, and we hope that wisdom prevails for our brothers in Qatar in order to respond to the demands of the international community – not just of the four countries,” he said. [..] Le Drian, who will visit the UAE and Gulf mediator Kuwait on Sunday, follows in the steps of other world powers in the region, including the United States, whose Secretary of State Rex Tillerson sought to find a solution to the impasse this week.

Officials from Britain and Germany also visited the region with the aim of easing the conflict, for which Kuwait has acted as mediator between the fending Gulf countries. In a joint statement issued after Tillerson and Sheikh Mohammed signed an agreement on Tuesday aimed at combating the financing of terrorism, the four Arab states leading the boycott on Qatar said the sanctions would remain in place.

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The Tesla tulip.

Is California Bailing Out Tesla through the Backdoor? (WS)

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout. Tesla will soon hit the limit of the federal tax rebates, which are good for the first 200,000 EVs sold in the US per manufacturer beginning in December 2009 (IRS explanation). In the second quarter after the manufacturer hits the limit, the subsidy gets cut in half, from $7,500 to $3,750; two quarters later, it gets cut to $1,875. Two quarters later, it goes to zero. Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins.

A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t. This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled. That’s what Tesla is facing next year in the US. In California, the largest EV market in the US, 2.7% of new vehicles sold in the first quarter were EVs, up from 0.4% in 2012, according to the California New Dealers Association. California is Tesla’s largest market.

Something big needs to be done to help the Bay Area company, which has lost money every single year of its ten years of existence. And taxpayers are going to be shanghaied into doing it. To make this more palatable, you have to dress this up as something where others benefit too, though the biggest beneficiary would be Tesla because these California subsidies would replace the federal subsidies when they’re phased out. It would be a rebate handled at the dealer, not a tax credit on the tax return. And it could reach “up to $30,000 to $40,000” per EV, state Senator Andy Vidak, a Republican from Hanford, explained in an emailed statement. This is how the taxpayer-funded rebates in the “California Electric Vehicle Initiative” (AB1184) would work, according to the Mercury News:

“The [California Air Resources Board] would determine the size of a rebate based on equalizing the cost of an EV and a comparable gas-powered car. For example, a new, $40,000 electric vehicle might have the same features as a $25,000 gas-powered car. The EV buyer would receive a $7,500 federal rebate, and the state would kick in an additional $7,500 to even out the bottom line.” And for instance, a $100,000 Tesla might be deemed to have the same features as a $65,000 gas-powered car. The rebate would cover the difference, minus the federal rebate (so $27,500). Because rebates for Teslas will soon be gone, the program would cover the entire difference – $35,000. This is where Senator Vidak got his “$30,000 to $40,000.”

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Money changes everything.

Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

The Brazilian environment ministry is proposing the release of 860,000 acres in the National Forest of Jamanxim for agricultural use, mining and logging. The government’s order was a compromise measure after protests from local residents and ecologists who claim that the bill could lead to further deforestation in the Pará area. If approved, the legislation will create a new protection area (APA) close to Novo Progresso. Around 27% of the national forest would be converted into an APA, the ministry said. Carlos Xavier, president of a lobbying group in Pará to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. According to the ministry, the bill includes stipulations to reduce conflicts over land, prevent deforestation and create jobs. The measures were criticised by environmental groups.

“The bill is seen as an amnesty for illegal occupation of the conservancy unit,” said Observatório do Clima on its website, claiming that the government “yielded to pressure” from the rural lobby. Carlos Xavier, president of a lobbying group in Para to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. In 2016, deforestation of the Amazon rose by 29% over the previous year, according to the government’s satellite monitoring, the biggest jump since 2008. Mongabay, an environmental science and conservation website, reports that experts using satellite images have identified illegal logging activities to the east of the BR-163 highway, in Pará state. The BR-163 protests involved stopping trucks from unloading grains at the riverside location of Miritituba, where barges carrying crops are transported en route to the export markets. ATP, the Brazilian private ports association, calculated that the highway protests would result in losses of $47m.

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Jul 112017
 
 July 11, 2017  Posted by at 9:39 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Max Ernst Santa Conversazione 1921

 

Trump Bump for President’s Media Archenemies Eludes Local Papers (BBG)
How Economics Became A Religion (Rapley)
The Breaking Point & Death Of Keynes (Roberts)
Central Banks’ Focus on Financial Stability Has Unintended Consequences (BBG)
Janet Yellen’s Complacency Is Criminal (Bill Black)
‘We’re Flowing Toward The Path Of 1928-29’ – Yusko (CNBC)
Fresh Fears Of UK Housing Market Collapse (Sun)
The European Union Has a Currency Problem (NI)
Schaeuble Says Italy Bank-Liquidation Aid Shows Rule Discord (BBG)
Is This the End of China’s Second Housing Bubble? (ET)
The World Is Facing A ‘Biological Annihilation’ Of Species (Ind.)

 

 

The echo chamber is highly profitable. Gossip sells. It’s not personal. It’s only business. And in many boardrooms the question these days is: Why are we not more like the New York TImes?

Trump Bump for President’s Media Archenemies Eludes Local Papers (BBG)

President Donald Trump loves to hurl his Twitter-ready insult at the New York Times: #failingnytimes. But in the stock market, the New York Times Co. has been looking like a roaring success lately, particularly by the standards of the beleaguered newspaper industry. Since Trump won the presidency in November, the publisher’s share price has soared 57%. Online subscriptions are up, bigly – about 19% in the first quarter alone. Scrutinizing the president turns out to be good business, at least for top national papers like the Times and the Washington Post. A different story is playing out for local publications, which are still suffering through the industry’s long decline and need to retain subscribers who are sympathetic to Trump.

Consider McClatchy Co., which owns about 30 papers, including the Miami Herald. Its shares have plummeted 31% since Election Day. Subscriptions have barely budged. The diverging fortunes in the industry have underscored what many in the traditional news business know only too well: Famous titles can lumber on as they grope for a digital future, but most local papers are fighting for survival. “For us in Texas, the bump has definitely been more muted because we’re not the primary source of news out of the White House,” said Mike Wilson, editor of the Dallas Morning News. “We serve a community with many deeply conservative pockets. That may be a different demographic from the New York Times and Washington Post audience.”

[..] The Washington Post, owned by Amazon.com founder Jeff Bezos, has more than 900,000 digital subscribers, including hundreds of thousands who signed up in the first quarter, according to a person familiar with the matter who asked not to be identified discussing private information. The newspaper declined to comment on its subscriber figures. The Post and the Times have been competing for scoops on the biggest story of the year: the Trump administration’s alleged ties to Russia. On several occasions, they’ve published blockbuster stories within hours of each other. Trump often attacks their coverage on Twitter, which seems to drive even more readers to subscribe.

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We adhere to the school of economics that suits the powerful best.

How Economics Became A Religion (Rapley)

Although Britain has an established church, few of us today pay it much mind. We follow an even more powerful religion, around which we have oriented our lives: economics. Think about it. Economics offers a comprehensive doctrine with a moral code promising adherents salvation in this world; an ideology so compelling that the faithful remake whole societies to conform to its demands. It has its gnostics, mystics and magicians who conjure money out of thin air, using spells such as “derivative” or “structured investment vehicle”. And, like the old religions it has displaced, it has its prophets, reformists, moralists and above all, its high priests who uphold orthodoxy in the face of heresy. Over time, successive economists slid into the role we had removed from the churchmen: giving us guidance on how to reach a promised land of material abundance and endless contentment.

For a long time, they seemed to deliver on that promise, succeeding in a way few other religions had ever done, our incomes rising thousands of times over and delivering a cornucopia bursting with new inventions, cures and delights. This was our heaven, and richly did we reward the economic priesthood, with status, wealth and power to shape our societies according to their vision. At the end of the 20th century, amid an economic boom that saw the western economies become richer than humanity had ever known, economics seemed to have conquered the globe. With nearly every country on the planet adhering to the same free-market playbook, and with university students flocking to do degrees in the subject, economics seemed to be attaining the goal that had eluded every other religious doctrine in history: converting the entire planet to its creed.

Yet if history teaches anything, it’s that whenever economists feel certain that they have found the holy grail of endless peace and prosperity, the end of the present regime is nigh. On the eve of the 1929 Wall Street crash, the American economist Irving Fisher advised people to go out and buy shares; in the 1960s, Keynesian economists said there would never be another recession because they had perfected the tools of demand management. The 2008 crash was no different. Five years earlier, on 4 January 2003, the Nobel laureate Robert Lucas had delivered a triumphal presidential address to the American Economics Association. Reminding his colleagues that macroeconomics had been born in the depression precisely to try to prevent another such disaster ever recurring, he declared that he and his colleagues had reached their own end of history:

“Macroeconomics in this original sense has succeeded,” he instructed the conclave. “Its central problem of depression prevention has been solved.”

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Will the last days of our economics coincide with the last days of our economic model? Will Keynes die in a collapse?

The Breaking Point & Death Of Keynes (Roberts)

Keynes contended that “a general glut would occur when aggregate demand for goods was insufficient, leading to an economic downturn resulting in losses of potential output due to unnecessarily high unemployment, which results from the defensive (or reactive) decisions of the producers.” In other words, when there is a lack of demand from consumers due to high unemployment then the contraction in demand would, therefore, force producers to take defensive, or react, actions to reduce output. In such a situation, Keynesian economics states that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth.

The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment. Unfortunately, as shown below, monetary interventions and the Keynesian economic theory of deficit spending has failed to produce a rising trend of economic growth.

Take a look at the chart above. Beginning in the 1950’s, and continuing through the late 1970’s, interest rates were in a generally rising trend along with economic growth. Consequently, despite recessions, budget deficits were non-existent allowing for the productive use of capital. When the economy went through its natural and inevitable slowdowns, or recessions, the Federal Reserve could lower interest rates which in turn would incentivize producers to borrow at cheaper rates, refinance activities, etc. which spurred production and ultimately hiring and consumption.

However, beginning in 1980 the trend changed with what I have called the “Breaking Point.” It’s hard to identify the exact culprit which ranged from the Reagan Administration’s launch into massive deficit spending, deregulation, exportation of manufacturing, a shift to a serviced based economy, or a myriad of other possibilities or even a combination of all of them. Whatever the specific reason; the policies that have been followed since the “breaking point” have continued to work at odds with the “American Dream,” and economic models.

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Central banks focus on their member banks.

Central Banks’ Focus on Financial Stability Has Unintended Consequences (BBG)

Central bankers are spending a lot of time talking about financial stability. So much so that many economists, strategists and investors are saying financial stability has become a de facto third mandate for policy makers along with price stability and full employment. This development, however, has the potential to bring about some unintended consequences such as central banks adopting a much shallower tightening path than they currently envision. It’s important to understand two things. First, in highly levered economies, like those we currently see in developed nations around the world, interest rates and financial stability are closely linked. That was evident in the recent “synchronized” global sell-off in the rates markets triggered by central banks signaling concern about relatively high asset prices brought on by artificially low borrowing costs, and their potential to foster financial instability.

Second, central banks have, perhaps paradoxically, contributed to financial instability by employing so-called forward guidance that provided investors with a sense of how long they would be keeping rates at record-low levels. So, with economies gradually recovering and employment generally robust, it’s understandable that investors would behave in a manner that suggests they expect favorable financial conditions to seemingly last in perpetuity. Consider the dollar. Its weakness against both developed and emerging-market currencies this year occurred even though expectations for stronger economic growth and fiscal stimulus rose. The decline in the value of the dollar value means the cost to borrow in the currency has dropped despite the Federal Reserve’s three interest-rate increases since mid-December.

It also means hedging costs in currencies ranging from the euro to the South Korean won are rising at a less-than-ideal time. That can be seen in cross-currency basis swap rates, which are essentially the cost to exchange a fixed-rate obligation for a floating-rate obligation. In the case of the won, the swap rate has turned more negative, suggesting a possible “shortage” of the currency to borrow in the interbank market as geopolitical tensions in the region reach levels not seen in years. And, the almost 8% appreciation in the euro in both nominal and real effective exchange rate terms has driven the cost to borrow in the shared currency higher as European Central Bank officials surprise markets by starting to talk about pulling back from unprecedented monetary easing measures.

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Looks like the world would have been much better off without central banks.

Janet Yellen’s Complacency Is Criminal (Bill Black)

[..] her inaction as Fed chairman has encouraged criminal behaviour. First, Yellen’s “lifetime” pronouncement in 2017 ignored Yellen’s pronouncements in 1996 – and how disastrously they fared in the most recent financial crisis. In 1996, Yellen gave a talk at a conference at the Levy Institute at Bard College, which Minsky attended. The Minneapolis Fed published her speech as an article entitled “The New Science of Credit Risk Management.” The speech was an ode to financial securitization and credit derivatives. The Minneapolis Fed, particularly in this era, was ultra-right wing in its economic and social views. Yellen’s piece is memorable for several themes. With the exception of two passages, it reads as gushing propaganda for the largest banks. It is relentlessly optimistic. Securitization and credit derivatives will reduce individual and systematic risk.

Yellen assures the reader that finance is highly competitive and that the banks will pass on the savings from reducing risk to even unsophisticated borrowers in the form of lower interest rates. The regulators should reduce capital requirements, particularly for credit instruments with high credit ratings. Banks now have a vastly more sophisticated understanding of their credit risks and manage them prudently. There is no discussion of perverse incentives even though bank CEOs were making them ever more perverse at an increasing rate. There is no discussion of the fate of the first collateralized debt obligations (CDOs). Michael Milken, a confessed felon, devised and sold the first CDO – backed by junk bonds. That disaster blew up five years before she gave her speech. At the time Yellen published her article the second generation of CDOs was becoming common.

That generation of CDOs was backed by a hodgepodge of risky loans. They blew up about four years after she gave her speech. The third wave of CDOs was backed by toxic mortgages, particularly endemically fraudulent “liar’s” loans. They blew up in 2008. Securitization contributed to the disaster. The Fed championed vastly lower capital requirements for banks – particularly he largest banks. Fortunately, the Federal Deposit Insurance Corporation (FDIC) fought a ferocious rearguard opposition that blocked this effort. The Fed succeeded, however, in allowing the largest banks to calculate their own capital requirements through proprietary risk models that (shock) massively understated actual risk. Bank CEOs used the lower capital requirements, the biased risk models, and the opaque CDOs to massively increase risk and predate on black and Latino home borrowers.

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We have a hard time remembering and learning.

‘We’re Flowing Toward The Path Of 1928-29’ – Yusko (CNBC)

Although the economy has been steady this year, at least one analyst has dire predictions, comparing the current period to the buildup to the Great Depression and warning that this fall is when things will come to a head. Mark Yusko, CEO of Morgan Creek Capital, has been predicting bad news for the economy since January and he is sticking by that, saying Monday on CNBC’s “Power Lunch” that he believes too much stimulus and quantitative easing has resulted in a “huge” bubble in U.S. stocks. “I have this belief that we’re flowing toward the path of 1928-29 when Hoover was president,” Yusko said. “Now Trump is president. Both were presidents with no experience who come in with a Congress that is all Republican, lots of big promises, lots of things that don’t happen and the fall is when people realize, ‘Wait, it hasn’t played out the way we thought.'”

He points to evidence of declining growth as well as that fall is a weak time traditionally for the U.S. economy as people return from vacation. “[By the fall], we’ll have a lot more evidence of declining growth. Growth has been slipping,” he said. However, it was not all gloom and doom as Yusko said the emerging markets were still strong places to invest. “Growth is where you want to invest,” he said. “All the growth is in the emerging markets, the developing world. It’s really tough if you look around the developed world.” he said profits in the United States are the same as they were in 2012. Yusko said at the beginning of the year “every single analyst” said emerging markets were going to underperform the U.S. “That hasn’t been the case,” he said. Indeed, in 2017 the iShares MSCI Emerging Markets ETF (EEM) has been up more than 18% while the S&P 500 index has risen more than 8%.

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“..the number of homes sold in May for less than the asking price rose to 77%.”

Fresh Fears Of UK Housing Market Collapse (Sun)

New signs of the housing market slipping are expected this week when one of the best lead indicators of house price movement is released. The UK Residential Market Survey from the Royal Institution of Chartered Surveyors is expected to show a decrease in the number of members reporting house price rises. It comes after last weekend, it was reported is on the edge of a property price crash which could be as bad as the collapse in the 1990s according to experts who are also warning property value could plunge by 40%. Ahead of this week’s survey, Howard Archer, chief economic adviser to consultancy EY Item Club, told the Mail on Sunday: ‘It may well be that heightened uncertainty after the General Election weighed down on an already fragile housing market in June.’

The expectation of a crash has raised alarms about whether we could see a return of “negative equity” which is when a house falls so much in value it is worth less than the mortgage. Around one million people were hit with negative equity in the 1990s, the Mail on Sunday has reported. Paul Cheshire, professor of Economic Geography at the London School of Economics, said: “We are due a significant correction in house prices. “I think we are beginning to see signs that correction may be starting.” Prices plunged by 37% in 1989 when the price boom fell apart. In its most recent figures, The National Association of Estate Agents reported the number of homes sold in May for less than the asking price rose to 77%. Prof Chesire added that falls in real incomes is also likely to spark for a fall in house prices.

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The EU has a power problem. Germany dictates all important decisions, and in its favor.

The European Union Has a Currency Problem (NI)

Donald Trump, for all his rhetorical clumsiness and intellectual limitations, still sometimes makes a valid point. He does when he says that Germany is “very bad on trade.” However much Berlin claims innocence and good intentions, the fact remains that the euro heavily stacks the deck in favor of German exporters and against others, in Europe and further afield. It is surely no coincidence that the country’s trade has gone from about balance when the euro was created to a huge surplus amounting at last measure to over 8% of the economy—while at the same time every other major EU economy has fallen into deficit. Nor could an honest observer deny that the bias distorts economic structures in Europe and beyond, perhaps most especially in Germany, a point Berlin also seems to have missed.

The euro was supposed to help all who joined it. When it was introduced at the very end of the last century, the EU provided the world with white papers and policy briefings itemizing the common currency’s universal benefits. Politically, Europe, as a single entity with a single currency, could, they argued, at last stand as a peer to other powerful economies, such as the United States, Japan and China. The euro would also share the benefits of seigniorage more equally throughout the union. Because business holds currency, issuing nations get the benefit of acquiring real goods and services in return for the paper that the sellers hold. But since business prefers to hold the currencies of larger, stronger economies, it is these countries that tend to get the greatest benefit. The euro, its creators argued, would give seigniorage advantages to the union as a whole and not just its strongest members.

All, the EU argued further, would benefit from the increase in trade that would develop as people worried less over currency fluctuations. With little risk of a currency loss, interest rates would fall, giving especially smaller, weaker members the advantage of cheaper credit and encouraging more investment and economic development than would otherwise occur. Greater trade would also deepen economic integration, allow residents of the union to choose from a greater diversity of goods and services, and offer the more unified European economy greater resilience in the face of economic cycles, whether they had their origins internally or from abroad. It was a pretty picture, but it did not quite work as planned. Instead of giving all greater general advantages, the common currency, it is now clear, locked in distorting and inequitable currency mispricings.

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Those rules only last until they get in the way of some greater good anyway.

Schaeuble Says Italy Bank-Liquidation Aid Shows Rule Discord (BBG)

German Finance Minister Wolfgang Schaeuble joined his counterparts from the Netherlands and Austria in calling for a review of European Union bank-failure rules after Italy won approval to pour as much as €17 billion ($19.4 billion) of taxpayers’ cash into liquidating two regional lenders. Schaeuble said Italy’s disposal of Banca Popolare di Vicenza and Veneto Banca revealed differences between the EU’s bank-resolution rules and national insolvency laws that are “difficult to explain.” That’s why finance ministers convening in Brussels on Monday have to discuss the Italian cases and consider “how this can be changed with a view to the future,” he told reporters in Brussels before the meeting.

Dutch Finance Minister Jeroen Dijsselbloem said the focus should be on EU state-aid rules for banks that date from 2013, before the resolution framework was put in place. Italy relied on these rules for its state-funded liquidation of the two Veneto banks and its plan to inject €5.4 billion into Banca Monte dei Paschi di Siena SpA. The EU laid down new bank-failure rules in the 2014 Bank Recovery and Resolution Directive after member states provided almost €2 trillion to prop up lenders during the financial crisis. The BRRD foresees small banks going insolvent like non-financial companies. Big ones that could cause mayhem would be restructured and recapitalized under a separate procedure called resolution, in which losses are borne by owners and creditors, including senior bondholders if necessary.

Elke Koenig, head of the euro area’s Single Resolution Board, said last week that the framework for failing lenders needs to be reviewed to “see how to align the rules better.” The EU commissioner in charge of financial-services policy, Valdis Dombrovskis, said that this could only happen once banks have built up sufficient buffers of loss-absorbing debt. The EU’s handling of the Italian banks was held up by U.S. Federal Reserve Bank of Minneapolis President Neel Kashkari as evidence that requiring banks to have “bail-in debt” doesn’t prevent bailouts. The idea that rules on loss-absorbing liabilities that can be converted to equity or written down to cover the costs of a bank collapse “rarely works this way in real life,” he wrote in an op-ed in the Wall Street Journal.

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“..the average Chinese would have had to spend more than 160 times his annual income to purchase an average housing unit at the end of 2016.”

Is This the End of China’s Second Housing Bubble? (ET)

When the economy started to cool in the beginning of 2016, China opened up the debt spigots again to stimulate the economy. After the failed initiative with the stock market in 2015, Chinese central planners chose residential real estate again. And it worked. As mortgages made up 40.5% of new bank loans in 2016, house prices were rising at more than 10% year over year for most of 2016 and the beginning of 2017. Overall, they got so expensive that the average Chinese would have had to spend more than 160 times his annual income to purchase an average housing unit at the end of 2016. Because housing uses a lot of human resources and raw material inputs, the economy also stabilized and has been doing rather well in 2017, according to both the official numbers and unofficial reports from organizations like the China Beige Book (CBB), which collects independent, on-the-ground data about the Chinese economy.

“China Beige Book’s new Q2 results show an economy that improved again, compared to both last quarter and a year ago, with retail and services each bouncing back from underwhelming Q1 performances,” states the most recent CBB report. However, because Beijing’s central planners must walk a tightrope between stimulating the economy and exacerbating a financial bubble, they tightened housing regulations as well as lending in the beginning of 2017. Research by TS Lombard now suggests the housing bubble may have burst for the second time after 2014. “We expect the latest round of policy tightening in the property sector to drive down housing sales significantly over the next six months,” states the research firm, in its latest “China Watch” report. One of the major reasons for the concern is increased regulation. Out of the 55 cities measured in the national property price index, 25 have increased regulation on housing purchases.

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The most tragic species.

“..Earth’s capacity to support life, including human life, has been shaped by life itself..”

The World Is Facing A ‘Biological Annihilation’ Of Species (Ind.)

The world is experiencing a “biological annihilation” of its animal species because of humans’ effect on the Earth, a new study has found. Researchers mapped 27,600 species of birds, amphibians, mammals and reptiles – nearly half of known terrestrial vertebrate species – and concluded the planet’s sixth mass extinction even was much worse than previously thought. They found the number of individual animals that once lived alongside humans had now fallen by as much as 50%, according to a paper in the journal Proceedings of the National Academy of Sciences. The study’s authors, Rodolfo Dirzo and Paul Ehrlich from the Stanford Woods Institute for the Environment, and Gerardo Ceballos, of the National Autonomous University of Mexico, said this amounted to “a massive erosion of the greatest biological diversity in the history of the Earth”.

The authors argued that the world cannot wait to address damage to biodiversity and that the window of time for effective action was very short, “probably two or three decades at most”. Mr Dirzo said the study’s results showed “a biological annihilation occurring globally, even if the species these populations belong to are still present somewhere on Earth”. The research also found more that 30% of vertebrate species were declining in size or territorial range. Looking at 177 well-studied mammal species, the authors found that all had lost at least 30% of the geographical area they used to inhabit between 1990 and 2015. And more than 40% of these species had lost more than 80% of their range. The authors concluded that population extinction were more frequent than previously believed and a “prelude” to extinction.

“So Earth’s sixth mass extinction episode has proceeded further than most assume,” the study said. About 41% of all amphibians are threatened with extinction and 26% of all mammals, according to the International Union for Conservation of Nature (IUCN), which keeps a list of threatened and extinct species. [..] “When considering the frightening assault on the foundations of human civilisation, one must never forget that Earth’s capacity to support life, including human life, has been shaped by life itself,” the paper stated.

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Jul 072017
 
 July 7, 2017  Posted by at 8:08 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Francis Bacon Triptych 1976

 

All Eyes On Trump-Putin Dynamics As They Meet For First Time At G20 (R.)
Deep State Begins Anti-Russia Media Blitz Ahead Of Trump-Putin Meeting
Anti-G20 Protesters Clash With Hamburg Police ‘Like Never Before’ (RT)
The Party Is Over: Central Banks Pull The Plug On Bond Market Rally (CNBC)
Central Bank Easy Money ‘Era Is Ending’ – Ray Dalio (CNBC)
Ray Dalio’s ‘Beautiful’ Deleveraging Delusion (ZH)
‘It’s Too Late’: 7 Signs Australia Can’t Avoid Economic Apocalypse (News)
World-Beating Wealth Props Up Qatar Against Arab Sanctions (R.)
Home Sales In Greater Toronto Area Plunged 37.3% Last Month (CP)
The Fast Track to “Carmageddon” (David Stockman)
Clinton, The IMF And Wall Street Journal Toppled Suharto (Hanke)
Our Political Parties Are Obsolete (CH Smith)
Cyprus Reunification Talks Collapse (R.)

 

 

If only they could have a decent conversation.

All Eyes On Trump-Putin Dynamics As They Meet For First Time At G20 (R.)

U.S. President Donald Trump and Russian President Vladimir Putin are set to size each other up in person for the first time on Friday in what promises to be the most highly anticipated meeting on the sidelines of the G20 summit. Trump has said he wants to find ways to work with Putin, a goal made more difficult by sharp differences over Russia’s actions in Syria and Ukraine, and allegations Moscow meddled in the 2016 U.S. presidential election. That means every facial expression and physical gesture will be analyzed as much as any words the two leaders utter as the world tries to read how well Trump, a real estate magnate and former reality television star, gets along with Putin, a former spy. The fear is that the Republican president, a political novice whose team is still developing its Russia policy, will be less prepared than Putin, who has dealt with the past two U.S. presidents and scores of other world leaders.

“There’s nothing … the Kremlin would like to see more than a (U.S.) president who will settle for a grip and a grin and walk away saying that he had this fabulous meeting with the Kremlin autocrat,” Representative Adam Schiff, the top Democrat on the House of Representatives’ Intelligence Committee, said in an interview on MSNBC. As investigations at home continue into whether there was any collusion between Trump’s presidential campaign and Russia the U.S. president has come under pressure to take a hard line against the Kremlin. Moscow has denied any interference and Trump says his campaign did not collude with Russia. On Thursday, Trump won praise from at least one Republican hawk in the U.S. Congress after his speech in Warsaw in which he urged Russia to stop its “destabilizing activities” and end its support for Syria and Iran.

“This is a great start to an important week of American foreign policy,” said Republican Senator Lindsey Graham, who has often been critical of Trump on security issues. But earlier in the day, Trump declined to say definitively whether he believed U.S. intelligence officials who have said that Russia interfered in the 2016 election. “I think it was Russia but I think it was probably other people and/or countries, and I see nothing wrong with that statement. Nobody really knows. Nobody really knows for sure,” Trump said at a news conference, before slamming Democratic former President Barack Obama for not doing more to stop hacking.

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So much for that decent conversation. James Clapper, who not long ago stated there is no proof of Russian election hacking, now claims that there is no proof of anyone BUT the Russians being involved.

Deep State Begins Anti-Russia Media Blitz Ahead Of Trump-Putin Meeting

It’s been relatively quiet in the last few weeks on the “the Russians did it, and Trump’s Putin’s best-buddy” propaganda-fest, but it appears the Deep State had three stories tonight – just hours ahead of Trump’s face-to-face with Putin – claim Russian hackers are targeting US nuclear facilities, the Russians are nonchalantly stepping up their spying, and that Russia alone interfered with the US election. With all eyes on the ‘handshake’ as Putin and Trump come face-to-face for the first time as world leaders, it seems the Deep State is desperately fearful of some rapprochement, crushing the need for NATO, and destroying the excuses for massive, unprecedented military-industrial complex spending.

And so, three stories (2 anonymously sourced and one with no facts behind it) in The New York Times (who recently retracted their “17 intelligence agencies” lie) and CNN (where do we start with these guys? let’s just go with full retraction of an anonymously sourced lie about Scaramucci and Kushner and the Russians) should stir up enough angst to ensure the meeting is at best awkward and at worst a lose-lose for Trump (at least in the eyes of the media). First off we have the ‘news’ that hackers have reportedly been breaking into computer networks of companies operating United States nuclear power stations, energy facilities and manufacturing plants, according to a new report by The New York Times.

“The origins of the hackers are not known. But the report indicated that an “advanced persistent threat” actor was responsible, which is the language security specialists often use to describe hackers backed by governments. The two people familiar with the investigation say that, while it is still in its early stages, the hackers’ techniques mimicked those of the organization known to cybersecurity specialists as “Energetic Bear,” the Russian hacking group that researchers have tied to attacks on the energy sector since at least 2012.” And Bloomberg piled on…”The chief suspect is Russia, according to three people familiar with the continuing effort to eject the hackers from the computer networks.” So that’s that 5 people – who know something – suspect it was the Russians that are hacking US nuclear facilities (but there’s no proof).

Next we move to CNN who claim a ‘current and former U.S. intelligence officials’ told them that Russian spies have been stepping up their intelligence gathering efforts in the U.S. since the election, feeling emboldened by the lack of significant U.S. response to Russian election meddling. “Russians have maintained an aggressive collection posture in the US, and their success in election meddling has not deterred them,” said a former senior intelligence official familiar with Trump administration efforts. “The concerning point with Russia is the volume of people that are coming to the US. They have a lot more intelligence officers in the US” compared to what they have in other countries, one of the former intelligence officials says.”

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Holding it in Hamburg is a conscious decision intended to show muscle, and the necessity to show that muscle. Do it in the middle of the Pacific and you can’t show off your new high tech water cannon.

Anti-G20 Protesters Clash With Hamburg Police ‘Like Never Before’ (RT)

An anti-G20 rally in Hamburg has erupted into a violent confrontation between police and protesters. Dozens of officers have been injured by rioters as sporadic clashes on the streets of the German city continued into the night. “There have been offenses committed by smaller groups [but] we now have the situation under control… I was there myself, I’ve seen nothing like that before,” Hamburg police spokesman Timo Zill told German broadcaster ZDF. The ‘Welcome to Hell’ anti-globalist rally started off relatively peacefully as activists marched through the streets chanting slogans and holding banners. Clashes begun in the early evening after roughly 1,000 anti-globalism activists, wearing face masks, reportedly refused to reveal their identity to the authorities.

According to an official police statement, the trouble started when officers tried to separate aggressive black-bloc rioters from peaceful protesters at the St. Pauli Fish Market but were met with bottles, poles and iron bars, prompting them to use justifiable force. Police used pepper-spray on rioting protesters. Water cannons were also deployed by authorities and several people seemed to be injured as a number of people were seen on the ground or with bloody faces being led away by police. Footage from the scene also showed columns of green and orange smoke rising above the crowds. At least 76 police officers were injured in the riots, most, though, suffered light injuries, Bild reports. Five of them were admitted to hospital, a police officer told AFP. One policeman suffered an eye injury after fireworks exploded in front of his face. The number of injured demonstrators has not yet been released by authorities, DW German notes.

As a result of the violence, organizers declared the protest over Thursday evening, but pockets of activists remained on the streets throughout the night. Police confirmed persistent sporadic attacks on security forces in the districts of St. Pauli and Altona. Damage to property has also been reported throughout the city. According to RT’s correspondent on the scene, Peter Oliver, one of the protesters’ grievances was that they received no clear directives from the police as to where they were allowed to march and found themselves kettled by officers in riot gear once they set off. “They are macing everyone,” one witness at the scene told RT. “As far as I could tell, they were attacking the demonstration with no reason.” “I’m from Hamburg, [and] I’ve never seen anything like this. We’ve had fights about squatted houses and all that, [but] I’ve never seen anything like that. The aggression, as far as I could tell, the purposelessness… my face hurts, I’ve got mace and everything, this is unbelievable.”

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Central bankers trying to deflect the blame.

The Party Is Over: Central Banks Pull The Plug On Bond Market Rally (CNBC)

Central banks are shutting down the music and turning on the lights after a near decade-long bond market party that resulted in ultra-low yields and low volatility. In the past two weeks, interest rates have been rising, at the prodding of the world’s central banks. Some bond strategists now see the possibility of a shift to a more fundamental-driven market, which could result in higher, more normal interest rate levels that will affect everything from home mortgages to commercial loans. That doesn’t mean the wake-up call will be a jolt, with rates snapping back violently or markets spinning out of control—though it could if rates begin to move too quickly. For now, market pros expect the rising interest rates of the past several weeks to be part of an orderly adjustment to a world in which central banks are preparing to end excessive easy policies.

The Federal Reserve is about to take the unprecedented step of reducing the balance sheet it built up to save the economy from the financial crisis. Since June 26, the U.S. 10- year yield has risen from 2.12% to Thursday’s high of 2.38%. The move has been global, after ECB President Mario Draghi last week pointed to a less risky outlook for the European economy, and Fed officials made consistently hawkish remarks. Some of those officials said they were even concerned that their policies created a too easy financial environment, meaning interest rates should be higher. The stock market caught wind of the rate move Thursday, and equities around the world responded negatively to rising yields. Bond strategists say if higher yields trigger a bigger sell off in stocks it could slow down the upward movement in interest rates, as investors will seek safety in bonds. Bond prices move opposite yields.

Friday’s June jobs report could be a moment of truth for the bond market. Strategists are looking to the wage gains in the report, expected at 0.3%. If they are as expected, the move higher in yields could continue. But a surprise to the upside could mean a much bigger move since it would signal a return of inflation. The Fed has said it is looking past the recent decline in inflation, but the market would become more convinced of the Fed’s rate-hiking intentions if it starts to rise.

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“..our responsibility now is to keep dancing but closer to the exit and with a sharp eye on the tea leaves..”

Central Bank Easy Money ‘Era Is Ending’ – Ray Dalio (CNBC)

Ray Dalio has declared the era of easy money is ending. The founder and chief investment officer of the world’s biggest hedge fund said Thursday in a commentary posted to LinkedIn that central bankers have “clearly and understandably” signaled the end of the nine-year era of monetary easing is coming. They are shifting strategy and are now focused on raising interest rates at a pace that keeps growth and inflation in balance, risking the next downturn if they get it wrong. “Recognizing that, our responsibility now is to keep dancing but closer to the exit and with a sharp eye on the tea leaves,” Dalio wrote.

In May, Dalio posted a commentary that said he was worried about the future, concerned that the magnitude of the next downturn could produce “much greater social and political conflict than currently exists.” On Thursday, he said the aggressive easing policies brought about “beautiful deleveragings,” and it was time to pause and thank the central bankers for pursuing them. “They had to fight hard to do it and have been more maligned than appreciated.” Dalio ends by saying he doesn’t see a big debt bubble about to burst, largely because of the balance sheet deleveraging that came about in the last few years. But, he said, “we do see an increasingly intensifying ‘Big Squeeze.'”

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“..the only reason the world is in its current abysmal socio-political and economic shape is due to the cumulative effect of their disastrous policies..”

Ray Dalio’s ‘Beautiful’ Deleveraging Delusion (ZH)

For some inexplicable reason, Ray Dalio still thinks the the world not only underwent a deleveraging, but that it was “beautiful.” Not only did McKinsey prove that to be completely false two years ago, but for good measure the IIF confirmed as much last week, when it revealed that global debt has hit a record $217 trillion, or 327% of GDP… while Citi’s Matt King showed that with no demand for credit in the private sector, central banks had no choice but to inject trillions to keep risk prices from collapsing.

And now, replacing one delusion with another, the Bridgewater head has penned an article in which he notes that as the “punch bowl” era is ending – an era which made Dalio’s hedge fund the biggest in the world, and richer beyond his wildest dreams – he would like to take the opportunity to “thanks the central bankers” who have ‘inexplicably’ been “more maligned than appreciated” even though their aggressive policies have, and here is delusion #1 again, “successfully brought about beautiful deleveragings.” “In my opinion, at this point of transition, we should savor this accomplishment and thank the policy makers who fought to bring about these policies. They had to fight hard to do it and have been more maligned than appreciated. Let’s thank them.” They fought hard to print $20 trillion in new money? Now that is truly news to us.

That said, we can see why Dalio would want to thank “them”: he wouldn’t be where he is, and his fund would certainly not exist today, if it weren’t for said central bankers who came to rescue the insolvent US financial system by sacrificing the middle class and burying generations under unrepayable debt. Still, some who may skip thanking the central bankers are hundreds of millions of elderly Americans and people worldwide also wouldn’t be forced to work one or more jobs well into their retirement years because monetary policies lowered the return on their savings to zero (or negative in Europe), as these same “underappreciated” central bankers created three consecutive bubbles, and the only reason the world is in its current abysmal socio-political and economic shape is due to the cumulative effect of their disastrous policies which meant creating ever greater asset and debt bubbles to mask the effects of the previous bubble, resulting in unprecedented wealth and income inequality, and which have culminated – most recently – with Brexit and Trump.

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Amen.

‘It’s Too Late’: 7 Signs Australia Can’t Avoid Economic Apocalypse (News)

Australia has missed its chance to avoid a potential “economic apocalypse”, according to a former government guru who says that despite his warnings there are seven new signs we are too late to act. The former economics and policy adviser has identified seven ominous indicators that a possible global crash is approaching – including a surge in crypto-currencies such as Bitcoin – and the window for government action is now closed. John Adams, a former economics and policy adviser to Senator Arthur Sinodinos and management consultant to a big four accounting firm, told news.com.au in February he had identified seven signs of economic Armageddon. He had then urged the Reserve Bank to take pre-emptive action by raising interest rates to prevent Australia’s expanding household debt bubble from exploding and called on the government to rein in welfare payments and tax breaks such as negative gearing.

Adams says he has for years been publicly and privately urging his erstwhile colleagues in the Coalition to take action but that since nothing has been done, the window has now closed and Australia is completely at the mercy of international forces. “As early as 2012, I have been publicly and privately advocating that Australian policy makers take pre-emptive policy action to deal with the structural imbalances within the Australian economy, especially Australia’s household debt bubble which in proportional terms is larger than the household debt bubbles of the 1880s or 1920s, the periods which preceded the two depressions experienced in Australian history,” he told news.com.au this week. “Unfortunately, the window for taking pre-emptive action with an orderly unwinding of structural macroeconomic imbalances has now closed.”

Adams has now turned on his former party and says both its most recent prime ministers have led Australia into a potential “economic apocalypse” and Treasurer Scott Morrison is wrong that we are heading for a “soft landing”. “The policy approach by the Abbott and Turnbull Governments as well as the Reserve Bank of Australia and the Australian Prudential Regulation Authority, which has been to reduce systemic financial risk through new macro-prudential controls, has been wholly inadequate,” he says. “I do not share the Federal Treasurer’s assessment that the economy and the housing market are headed for a soft landing. Data released by the RBA this week shows that the structural imbalances in the economy are actually becoming worse with household debt as a proportion of disposable income hitting a new record of 190.4%.

“Because of the failure of Australia’s political elites and the policy establishment, the probability of a disorderly unwinding, particularly of Australia’s household and foreign debt bubbles, have dramatically increased over the past six months and will continue to increase as global economic and financial instability increases. “Millions of ordinary, financially unprepared, Australians are now at the mercy of the international markets and foreign policy makers. Australian history contains several examples of where similar pre conditions have resulted in an economic apocalypse, resulting in a significant proportion of the Australian people being left economically destitute.”

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Sanctions don’t really work in this case.

World-Beating Wealth Props Up Qatar Against Arab Sanctions (R.)

A month after Saudi Arabia, the United Arab Emirates, Bahrain and Egypt severed diplomatic, trade and transport ties with Qatar, accusing it of backing terrorism, it is suffering from isolation but is nowhere near an economic crisis. The alliance against it, meanwhile, may not have options to inflict further damage. As the world’s top liquefied natural gas exporter, Qatar is so rich – at $127,660, its gross domestic product per capita in purchasing power terms is the highest of any country, according to the IMF – it can deploy money to counter almost any type of sanction. In the past month it has arranged new shipping routes to offset the closure of its border with Saudi Arabia, deposited billions of dollars of state money in local banks to shore them up, and drawn the interest of some of the West’s biggest energy firms by announcing a plan to raise its LNG output 30%.

The success of these initiatives suggests Qatar could weather months or years of the current sanctions if it has the political will to do so – and that further sanctions being contemplated by the alliance may not prove decisive. On Wednesday, the alliance said Qatar, which denies any support for terrorism, had missed a deadline to comply with its demands. Further steps against Doha will be taken in line with international law “at the appropriate time”, Saudi Foreign Minister Adel al-Jubeir said. Saudi media reported this week that the new sanctions would include a pull-out of deposits and loans from Qatar by banks in alliance states, and a “secondary boycott” in which the alliance would refuse to do business with firms that traded with Qatar. Those steps would cause further pain for Qatar, but not to the point of destabilizing its financial system or breaking the peg of its riyal currency to the U.S. dollar, senior Qatari businessmen and foreign economists said.

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“..a soft month for Toronto real estate market..”, “..a better supplied market and a moderating annual pace of price growth…”

Home Sales In Greater Toronto Area Plunged 37.3% Last Month (CP)

The number of homes sold last month in the Greater Toronto Area plunged a whopping 37.3% compared to the same month a year ago, the city’s real estate board said Thursday, weeks after Ontario introduced measures aimed at cooling the housing market. The Toronto Real Estate Board said 7,974 homes changed hands in June while the number of new properties on the market climbed 15.9% year over year to 19,614. The average price for all properties was $793,915, up 6.3% from the same month last year. In April, the Ontario government implemented rules intended to dampen Toronto’s heated real estate market, where escalating prices have concerned policy-makers at the municipal, provincial and federal levels.

Ontario’s measures, retroactive to April 21, include a 15% tax on foreign buyers in the Greater Golden Horseshoe region, expanded rent controls and legislation allowing Toronto and other cities to tax vacant homes. “We are in a period of flux that often follows major government policy announcements pointed at the housing market,” TREB president Tim Syrianos said in a statement. “On one hand, consumer survey results tell us many households are very interested in purchasing a home in the near future, but some of these would-be buyers seem to be temporarily on the sidelines waiting to see the real impact of the Ontario Fair Housing Plan. On the other hand, we have existing homeowners who are listing their home because they feel price growth may have peaked. The end result has been a better supplied market and a moderating annual pace of price growth.”

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60-odd years later, it’s still true: “As General Motors goes, so goes the nation.”

The Fast Track to “Carmageddon” (David Stockman)

Back in the 1950s when GM had 50% of the auto market they always said that, “As General Motors goes, so goes the nation.” That was obviously a tribute to GM’s economic muscle and its role as the driver of growth and rising living standards in post-war America’s booming economy. Those days are long gone for both GM and the nation. GM’s drastically reduced 20% market share of U.S. light vehicle sales in June was still an economic harbinger, albeit of a different sort. GM offered a record $4,361 of cash incentives during June. That was up 7% from last year and represented 12% of its average selling price of $35,650 per vehicle, also a record. But what it had to show for this muscular marketing effort was a 5% decline in year-over-year sales and soaring inventories. The latter was up 46% from last June.

My purpose is not to lament GM’s ragged estate, but to note that it — along with the entire auto industry — has become a ward of the Fed’s debt-fueled false prosperity. The June auto sales reports make that absolutely clear. In a word, consumers spent the month “renting” new rides on more favorable terms than ever before. But that couldn’t stop the slide of vehicle “sales” from its 2016 peak. In fact, June represented the 6th straight month of year-over-year decline. And the fall-off was nearly universal — with FiatChrysler down 7.4%, Ford and GM off about 5% and Hyundai down by 19.3%. The evident rollover of U.S. auto sales is a very big deal because the exuberant auto rebound from the Great Recession lows during the last six years has been a major contributor to the weak recovery of overall GDP.

In fact, overall industrial production is actually no higher today than it was in the fall of 2007. That means there has been zero growth in the aggregate industrial economy for a full decade. Real production in most sectors of the U.S. economy has actually shrunk considerably, but has been partially offset by a 15% gain in auto production from the prior peak, and a 130% gain from the early 2010 bottom. By comparison, the index for consumer goods excluding autos is still 7% below its late 2007 level. So if the so-called “recovery” loses its automotive turbo-charger, where will the growth come from?

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20th Anniversary, Asian Financial Crisis.

Clinton, The IMF And Wall Street Journal Toppled Suharto (Hanke)

On August 14, 1997, shortly after the Thai baht collapsed on July 2nd, Indonesia floated the rupiah. This prompted Stanley Fischer, then the Deputy Managing Director of the IMF and presently Vice Chairman of the U.S. Federal Reserve, to proclaim that “the management of the IMF welcomes the timely decision of the Indonesian authorities. The floating of the rupiah, in combination with Indonesia’s strong fundamentals, supported by prudent fiscal and monetary policies, will allow its economy to continue its impressive economic performance of the last several years.” Contrary to the IMF’s expectations, the rupiah did not float on a sea of tranquility. It plunged from a value of 2,700 rupiahs per U.S. dollar to lows of nearly 16,000 rupiahs per U.S. dollar in 1998. Indonesia was caught up in the maelstrom of the Asian Financial Crisis.

By late January 1998, President Suharto realized that the IMF medicine was not working and sought a second opinion. In February, I was invited to offer that opinion and was appointed as Suharto’s Special Counselor. Although I did not have any opinions on the Suharto government, I did have definite ones on the matter at hand. After nightly discussions at the President’s private residence, I proposed an antidote: an orthodox currency board in which the rupiah would be fully convertible into and backed by the U.S. dollar at a fixed exchange rate. On the day that news hit the street, the rupiah soared by 28% against the U.S. dollar on both the spot and one year forward markets. These developments infuriated the U.S. government and the IMF. Ruthless attacks on the currency board idea and the Special Counselor ensued. Suharto was told in no uncertain terms – by both the President of the United States, Bill Clinton, and the Managing Director of the IMF, Michel Camdessus – that he would have to drop the currency board idea or forego $43 billion in foreign assistance.

Economists jumped on the bandwagon, trotting out every imaginable half-truth and non-truth against the currency board idea. In my opinion, those oft-repeated canards were outweighed by the full support for an Indonesian currency board by four Nobel Laureates in Economics: Gary Becker, Milton Friedman, Merton Miller, and Robert Mundell. Also, Sir Alan Walters, Prime Minister Thatcher’s economic guru, a key figure behind the establishment of Hong Kong’s currency board in 1983, and my colleague and close collaborator, endorsed the idea of a currency board for Indonesia. Why all the fuss over a currency board for Indonesia? Merton Miller understood the great game immediately. As he said when Mrs. Hanke and I were in residence at the Shangri-La Hotel in Jakarta, the Clinton administration’s objection to the currency board was “not that it wouldn’t work, but that it would, and if it worked, they would be stuck with Suharto.”

Much the same argument was articulated by Australia’s former Prime Minister Paul Keating: “The United States Treasury quite deliberately used the economic collapse as a means of bringing about the ouster of Suharto.” Former U.S. Secretary of State Lawrence Eagleburger weighed in with a similar diagnosis: “We were fairly clever in that we supported the IMF as it overthrew (Suharto). Whether that was a wise way to proceed is another question. I’m not saying Mr. Suharto should have stayed, but I kind of wish he had left on terms other than because the IMF pushed him out.” Even Michel Camdessus could not find fault with these assessments. On the occasion of his retirement, he proudly proclaimed: “We created the conditions that obliged President Suharto to leave his job.”

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Hmm. Treating this is an American phenomenon is not useful. It’s global. And that has a lot to do with deteriorating economic conditions. Centralization is only accepted as long as it has tangible benefits for people.

Our Political Parties Are Obsolete (CH Smith)

History informs us that once something is obsolete, it can disappear far faster than anyone expected. While we generally think of obsoleted technologies vanishing, social and political systems can become obsolete as well. Should a poor soul who entered a deep coma a year ago awaken today, we must forgive his/her astonishment at the political wreckage left by the 2016 election. The Democratic Party, a mere year ago an absurdly over-funded machine confident in an easy victory in the presidential race, is now a complete shambles: its leadership in free-fall, its Fat-Cat donors disgusted, and its demented intoxication with pinning collaboration with Russia on the Trump camp eroding whatever feeble legacy legitimacy it still holds. What the party stands for is a mystery, as its Elites are clearly beholden to insiders, special interests and Corporate donors while glorifying the worst excesses of globalism and the National Security State’s endless war on civil liberties.

The newly awakened citizen would also marvel at the chaotic war zone of the Republican Party, in which the Insider Warlords are battling insurgent Outsiders, while the same Elites that fund the Democratic machine are wondering what they’re buying with their millions of dollars in contributions, for it’s unclear what the Republican Party stands for: it’s for Small Government, except when it’s for Bigger Government, which is 95% of the time; it’s for more law enforcement and the militarization of local police, and more intrusion into the lives of the citizenry; it’s for stricter standards for welfare, except for Corporate Welfare; it’s for tax reform, except the thousands of pages of give-aways, loopholes and tax breaks for the wealthy and corporations all remain untouched, and so on: a smelly tangle of special interests masked by a few sprays of PR air freshener to the millions left behind by the globalization that has so enriched Corporate America and the class of financier-owners, bankers, insiders and technocrats–the same group that funds and controls both political parties.

Political parties arose to consolidate centralized control of the central state. We have now reached the perfection of this teleology: the political elites and the financial elites are now one class. In our pay-to-play “democracy,” only the votes of wealth and institutional power count. As I have often noted here, the returns on centralization are diminishing to less than zero. The initial returns on centralizing capital, production and social-political power were robust, but now the centralized cartel-state is eating its own tail, masking its financial bankruptcy by borrowing from the future, and cloaking its political bankruptcy behind the crumbling facades of the legacy parties. Now that technology has enabled decentralized currency, markets and governance, the centralized political parties are obsolete.

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Erdogan was never going to withdraw his troops. That’s the whole story. Guterres just looks foolish.

Cyprus Reunification Talks Collapse (R.)

Talks to reunify the divided island of Cyprus collapsed in the early hours of Friday, U.N. Secretary General Antonio Guterres said after a stormy final session. “I’m very sorry to tell you that despite the very strong commitment and engagement of all the delegations and different parties … the conference on Cyprus was closed without an agreement being reached,” he told a news conference. The collapse marked a dramatic culmination of more than two years of a process thought to be the most promising since the island was split more than 40 years ago. Guterres had flown in on Thursday to press Greek Cypriot President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci to seal a deal reuniting the east Mediterranean island, while U.S. Vice President Mike Pence had phoned to urge them to “seize this historic opportunity”.

Diplomatic efforts to reunite Cyprus have failed since the island was riven in a 1974 Turkish army invasion triggered by a coup by Greek Cypriots seeking union with Greece. The week of talks in the Swiss Alps, hailed by the United Nations as “the best chance” for a deal, ground to a halt as the two sides failed to overcome final obstacles. Diplomats said Turkey had appeared to be offering little to Greek Cypriots wanting a full withdrawal of Turkish troops from the island, although the Greek Cypriots had indicated readiness to make concessions on Turkish Cypriot demands for a rotating presidency, the other key issue. Guterres finally called a halt at 2 a.m. after a session marred by yelling and drama, a source close to the negotiations said. “Unfortunately… an agreement was not possible, and the conference was closed without the possibility to bring a solution to this dramatic and long-lasting problem,” Guterres said.

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Jun 102017
 
 June 10, 2017  Posted by at 9:22 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Marshall Hirsh Rue de Steinkerque, Paris 1950

 

Central Banks Have Bought A Record $1.5 Trillion In Assets In 2017 (ZH)
Central Banks Are Poised to Start Rowing in One Direction Again (BBG)
US Household Net Worth Climbs to Record $94.8 Trillion (WSJ)
Trump Lawyer Doubles Down On Comey Perjury Accusation (ZH)
Britain’s Credit Rating At Risk After General Election Outcome (RT)
Jeremy Corbyn: 1, British Mainstream Media: 0 (McDonald)
Tories turn on Theresa (G.)
Who is the DUP? A Brief History of UK Parliament’s New Kingmaker (RT)
5 Things To Know About DUP Politicians And Science (New Scientist)
Without Glass-Steagall America Will Fail (PCR)
Breaking Up the Banks Is Easier Than You Might Think (Nomi Prins)
Australian Households’ Share Of National Economic Pie Nears 50-Year Low (G.)
How Germany’s Three-Tiered Banking System Works (HandelsBlatt)
Greek Pensions Not Enough To Cover Costs Of Medicines, Bills And Food (K.)

 

 

The crime of our times. There’s nobody to stop it.

Central Banks Have Bought A Record $1.5 Trillion In Assets In 2017 (ZH)

One month ago, when observing the record low vol coupled with record high stock prices, we reported a stunning statistic: central banks have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, “the largest CB buying on record” according to Bank of America. Today BofA’s Michael Hartnett provides an update on this number: he writes that central bank balance sheets have now grown to a record $15.1 trillion, up from $14.6 trillion in late April, and says that “central banks have bought a record $1.5 trillion in assets YTD.”

The latest data means that contrary to previous calculations, central banks are now injecting a record $300 billion in liquidity per month, above the $200 billion which Deutsche Bank recently warned is a “red-line” indicator for risk assets.

This, as we said last month, is why “nothing else matters” in a market addicted to what is now record central bank generosity. What is ironic is that this unprecedented central bank buying spree comes as a time when the global economy is supposedly in a “coordinated recovery” and when the Fed, and more recently, the ECB and BOJ have been warning about tighter monetary conditions, raising rates and tapering QE. To this, Hartnett responds that “Fed hikes next week & “rhetorical tightening” by ECB & BoJ beginning, but we fear too late to prevent Icarus” by which he means that no matter what central banks do, a final blow-off top in the stock market is imminent. He is probably correct, especially when looking at the “big 5” tech stocks, whose performance has an uncanny correlation with the size of the consolidated central bank balance sheet.

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There are actually still people who claim central banks have solved problems. They only made them worse, but with a time-lag.

Central Banks Are Poised to Start Rowing in One Direction Again (BBG)

[..] The shift has been gradual and often subtle, yet it marks a sea change. Largely in unison, central banks employed unprecedented, unconventional easing to force their economies back into gear after the global financial crisis spurred widespread unemployment and a decade of sub-par growth. In many, that involved large-scale asset purchase programs. In the euro area and Japan, it included negative rates. The Fed has been reducing accommodation on its own since December 2015. Now, others are beginning to discuss unwinding their policies, restoring a sense of togetherness. “We’re talking about a change from a situation where the central banks were basically pedal to the metal, full throttle, as much monetary stimulus as you could conceivably do,” said Jacob Funk Kirkegaard at the Peterson Institute for International Economics.

“Now, central banks in advanced economies are reacting to a recovering economy.” As hiring hums along and central banks tip-toe toward the exit, the Fed stands to benefit. The dollar has seen upward pressure as the U.S. central bank hikes and other monetary authorities ease, and a strong greenback means cheaper imports and lower inflation. The Fed’s preferred price index continues to undershoot its 2 percent goal. “You don’t want it falling out of bed, but dollar depreciation would lead to higher inflation in the U.S.,” Bryson said. “Frankly, I think the Fed wouldn’t be that unhappy to see higher inflation.” The change is also good news for the nations turning toward the exit, as it signals that business confidence is picking up, more people are working, and the specter of another economic dip is fading from view. “None of the big global central banks is looking to loosen policy,” said Andrew Kenningham at Capital Economics in London. “What has changed is that the fear of outright deflation, or entrenched low inflation, has now faded.”

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That’s not worth or wealth. That’s a bubble.

US Household Net Worth Climbs to Record $94.8 Trillion (WSJ)

The total net worth of U.S. households climbed by $2.3 trillion in the first quarter of 2017, reaching a record $94.8 trillion as the stock market soared and home prices climbed in many parts of the country. Household wealth in the stock market climbed by $1.3 trillion in the quarter, showing just how much the market’s climb to Dow 20000 and beyond has created a swell of wealth on American’s investment statements that is helping underpin consumer confidence. The figures are from a quarterly Federal Reserve report, known as the Flow of Funds, that tracks the aggregate wealth of all U.S. households and nonprofit organizations.

The report showed that the value of household real estate rose by about $500 billion in the quarter, reflecting a continuing increase in national home prices. The sum Americans held in savings accounts rose by about $100 billion in the quarter. Household debts increased by about $46 billion in the quarter. The $2.3 trillion increase, though large, isn’t without precedent. Such large increases were seen in the late 1990s when the stock market was also climbing rapidly, and in 2004 when both markets and home prices were climbing. The last time wealth increased so rapidly was late 2013.

During the 2007-09 recession, when the housing market and stock market both fell, households lost nearly $12 trillion in wealth. But in recent years, households in aggregate have regained that wealth and more as first the stock market, and then the housing market, began to rebound. The U.S. has about 126 million households, meaning the average net worth of U.S. households is about $750,000. The report provides no details of how that wealth is distributed between households. The figures aren’t adjusted for inflation.

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Always risky to tangle with top lawyers.

Trump Lawyer Doubles Down On Comey Perjury Accusation (ZH)

Yesterday, the Twittersphere lit up when Julie Davis of the New York Times sent out a tweet suggesting that Trump’s personal attorney, Marc Kasowitz, had potentially made a serious blunder in mixing up his timeline of when Comey first leaked details of his meetings with Trump to the Times. Here is what Kasowitz said yesterday: Although Mr. Comey testified he only leaked the memos in response to a tweet, the public record reveals that the New York Times was quoting from these memos the day before the referenced tweet, which belies Mr. Comey’s excuse for this unauthorized disclosure of privileged information and appears to entirely retaliatory. Davis, and most of the media, assumed that Kasowitz was referring to an article published on May 16th by the New York Times entitled “Comey Memo Says Trump Asked Him to End Flynn Investigation.”

Of course, given that Trump’s tweet about the Comey tapes was sent 4 days prior, it couldn’t have possibly been triggered by the the NYT’s May 16th story, as Kasowitz suggested, which led Ms. Davis of the Times to publish her ‘gotcha’ tweet. Unfortunately for Davis and the New York Times, Kasowitz has just released a clarifying statement which points out that he was never referring to the May 16th article in his statement yesterday, but rather an article published on May 11, the day before Trump’s tweet, entitled “In a Private Dinner, Trump Demanded Loyalty. Comey Demurred,” which seems to discuss, in detail, the same facts presented in Comey’s now infamous memos. Here is the full statement from Kasowitz:

Statement of Marc Kasowitz, Attorney to President Donald J. Trump:

“Numerous press stories have misreported that our statement yesterday incorrectly claimed that the New York Times was reporting details from Mr Comey’s memos the day before President Trump’s May 12, 2017 Tweet because, according to these reports, the first New York Times story to mention the memos specifically was May 16, 2017, which was after the Tweet. Our statement was accurate and was not referring to the May 16, 2017 story. Rather, Mr. Comey’s written statement, which he testified he prepared from his written memo, describes the details of the January dinner in virtually verbatim language as the New York Times May 11, 2017 story describing the same dinner. That story was the day before President Trump’s Tweet. It is obvious that whomever was the source for the May 11, 2017 New York Times story got that information from the memos or from someone reading or who had read the memos. This makes clear, as our statement said, that Mr Comey incorrectly testified that he never leaked the contents of the memo or details of the dinner before President Trump’s May ’12. 2017 Tweet.”

Meanwhile, a quick review of the New York Times’ May 11 story does seem to suggest that Kasowitz has a point as the language describing Trump’s January dinner with Comey is almost identical to the testimony he presented to Congress yesterday. Therefore, whoever supplied this ‘leak’ to the NYT’s was either in possession of Comey’s memos or had been read them verbatim shortly before they were relayed to the Times.

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A world of pain.

Britain’s Credit Rating At Risk After General Election Outcome (RT)

International rating agencies, closely monitoring the situation in the UK, have warned the country’s creditworthiness faces a downgrade after the Conservative Party’s failure to win a majority in Thursday’s general election. According to the agencies, the UK’s election result could delay negotiations with the European Union over its exit from the bloc and throws the future path of its economic policy into doubt. “In our view, the lack of a majority for any party is likely to delay Brexit negotiations, scheduled to start very soon,” said S&P in a statement, adding it doesn’t “exclude the possibility of another snap election.” “These considerations are reflected in our current negative outlook on the long-term ratings,” added the agency. S&P currently rates the UK at AA, with a negative outlook. The country was stripped of its triple-A rating immediately after the Brexit referendum last year. The negative outlook means Britain is at risk of future downgrades.

S&P’s sovereign chief ratings officer Moritz Kraemer told CNBC the assessment will depend “pretty much on the further outcome of the Brexit negotiations and the reality that the UK will face outside the EU, which is still uncertain.” Brexit negotiations are supposed to begin in less than two weeks. The UK holds the second highest rating Aa1 from another agency, Moody’s. It had held the rating since 2013 when it was downgraded from AAA due to sluggish growth prospects and fiscal challenges. The agency’s lead UK sovereign analyst Kathrin Muehlbronner said on Friday, “Moody’s is monitoring the UK’s process of forming a new government and will assess the credit implications in due course.” “As previously stated, the future path of the UK sovereign rating will be largely driven by two factors: first, the outcome of the UK’s negotiations on leaving the EU and the implications this has for the country’s growth outlook. Second, fiscal developments, given the country’s fiscal deficit and rising public debt,” she said.

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Very much the Guardian too.

Jeremy Corbyn: 1, British Mainstream Media: 0 (McDonald)

From it’s “The Sun Wot Won It” to a vacuum. The Labour Party’s surge this Thursday spells the end of the popular press’ ability to manipulate the outcome of elections. It also proves the relevance of alternative media in the internet age. It was June, 2015. And RT UK’s Afshin Rattansi was interviewing a man in a beige blazer about his unlikely bid to lead British Labour. His name was Jeremy Corbyn, and he spoke a lot of sense. Too much of it to win the leadership contest, it immediately appeared. Over the following weeks, Corbyn’s support increased, and the Labour-leaning mainstream media became more-and-more opposed to his candidacy. Particularly the Guardian, a newspaper which professes to be a leftist organ, but, in reality, will always favor liberal causes over those affecting the poor. [..] Here’s a selection of Guardian comment headlines from the past 24 months or so.

30 July 2015 – Michael White – “If Labour elects Jeremy Corbyn as leader, it will be the most reckless move since choosing the admirable but unworldly pacifist, George Lansbury, in 1932.”

25 June 2016 – Polly Toynbee – “Dismal, spineless, Jeremy Corbyn let us down again.”

28 June 2016 – Editorial – “The question is no longer whether his (Corbyn’s) leadership should end because at Westminster it already has. The challenge for the Labour left is to rescue something from it.”

14 December 2016 – Rafael Behr – “Jeremy Corbyn may be unassailable, but he is not leading Labour.”

11 January 2017 – Suzanne Moore – “Labour’s Corbyn reboot shows exactly why he has to go.”

1 March 2017 – Owen Jones – “Jeremy Corbyn says he is staying. That’s not good enough.”

5 May 2017 – Jonathan Freedland – “No more excuses: Jeremy Corbyn is to blame for this meltdown.” (almost a month before polling day).

Also, 5 May 2017 – Nick Cohen – “Corbyn & (John) McDonnell could limit a Tory landslide by resigning now. That they would rather die, shows the far left is an anti-Labour movement.” (ditto)

And let’s not forget The New Statesman, where Jason Cowley suggested, only on Tuesday, that Corbyn could be leading his party to “its worst defeat since 1935.” Two days before he delivered Labour’s biggest vote share increase since 1945.

And that was the election where Labour’s greatest ever chief, Clement Attlee, stunned a victorious Winston Churchill in the aftermath of World War Two. Or Cowley’s colleague, George Eaton, who told us in March: “Jeremy knows he can’t do the job…. senior figures from all parties discuss the way forward: a new Labour leader, a new party or something else?” Also, worth a mention in this social media era, are Twitter “freelancers” like the author JK Rowling. In September of last year, she described Corbyn as “Utterly deluded,” saying “I want a Labour govt (sic), to help people trapped where I was once trapped. Corbyn helps only Tories.”

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Turning on a dime. Lust for power does that.

Tories turn on Theresa (G.)

Theresa May is fighting for her future as prime minister, according to Britain’s newspapers, which have issued damning verdicts on the Conservatives’ failure to win a majority in the general election. The Sun and the Daily Mail, which heavily supported May and criticised Jeremy Corbyn in the runup to the election, said senior Conservatives had turned on the prime minister and that she could be forced to step down within six months. The Sun’s front page headline, over a photo of May eating chips, was “She’s had her chips”, while the Daily Mail said, “Tories turn on Theresa”. The Mail described the prime minister’s election campaign as “disastrous” and said the Conservatives had been “plunged into civil war”.

The Daily Telegraph and the Times, which, like the Sun and Mail, supported the Conservatives before the election, also warned that May’s future was at risk. The Times’ front page said: “May stares into the abyss.” The Guardian, which backed Labour, said May and the Conservatives had gone from “hubris to humiliation” during the election campaign. May was also criticised for looking to strike a deal with the DUP of Northern Ireland in order to form a government. The Daily Mirror accused May of forming a “Coalition of crackpots” and pointed out that the Northern Irish party opposes gay marriage and abortion. May’s setback will raise questions about the influence of newspapers on the electorate, given that the majority strongly backed her and the Conservatives.

The Guardian reported last week that some of the most shared articles on social media about the general election were from partisan blogs such as Another Angry Voice, The Canary and Evolve Politics, which backed Labour. The Sun had urged its readers not to “chuck Britain in the Cor-bin” in its last edition before the election, provoking a backlash on social media, while on Wednesday the Daily Mail devoted 13 pages to attacking Labour, Corbyn, Diane Abbott and John McDonnell under the headline “Apologists for terror”. The Sun is owned by Rupert Murdoch’s News Corp. John Prescott, the former deputy leader of Labour, tweeted on Thursday night that he had heard from a “very good source” that Murdoch had “stormed out” of the Times’s election party after seeing the exit poll, which predicted that the Conservatives would fail to win a majority.

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Theresa May’s desperate hunger for power endangers the peace process.

Who is the DUP? A Brief History of UK Parliament’s New Kingmaker (RT)

The Democratic Unionist Party (DUP) holds the key to Theresa May remaining in Downing Street but what do we know about this Protestant party drawn from the pro-union side of Northern Ireland’s deeply sectarian political spectrum? As Britons scramble to learn about the party that will prop up May’s mandate to execute Brexit, a swathe of the online conversation has focused on the party’s past comments on homophobia, Islam and creationism. The DUP was at the center of a bloody sectarian divide during Northern Ireland’s Troubles – a conflict involving rival paramilitary groups and the British Army which claimed more than 3,000 lives over 30 years. The Conservatives and the DUP won’t form a formal coalition government but the latter will support the government regardless.

“We want there to be a government. We have worked well with May. The alternative is intolerable. For as long as Corbyn leads Labour, we will ensure there’s a Tory PM,” a DUP source was cited as saying in by the Guardian. The party is the creation of firebrand Protestant Evangelical Minister Ian Paisley. Reverend Paisley also founded the Free Presbyterian Church of Ulster and was characterized by his entrenched Unionist views and his hostile opposition to the Catholic Church. In its early years, the party was heavily involved in a campaign against homosexuality and fiercely opposed gay rights. Paisley, who was famed for his extraordinarily fiery speeches, routinely preached against homosexuality and the party picketed gay rights events as part of their ‘Save Ulster from Sodomy’ campaign.

The campaign was ultimately unsuccessful as homosexuality was decriminalized in 1982. Paisley became infamous in 1988 when, as a member of the European Parliament for Northern Ireland, he caused uproar by interrupting an address by Pope John Paul II. During his protest he shouted: “I refuse you as Christ’s enemy and Antichrist with all your false doctrine,” while brandishing posters reading: “Pope John Paul II ANTICHRIST.”

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Backwaters.

5 Things To Know About DUP Politicians And Science (New Scientist)

Having failed to win an overall majority in the UK’s general election, Theresa May’s Conservative party is hoping to foster an informal coalition with Northern Ireland’s Democratic Unionist Party (DUP). Members of the party have taken controversial stances on everything from climate change to evolution, with one assembly member being unaware that heterosexual people can contract HIV. Here are five things you need to know when it comes to science and the DUP

Climate change The party has a history of speaking out against climate change. Senior member Sammy Wilson has called climate change a “con”, and described the Paris Agreement as “window dressing for climate chancers”. During his time as Northern Ireland’s environment minister, he said that people would eventually “look back at this whole climate change debate and ask ourselves how on Earth we were ever conned into spending billions of pounds” on the issue. It isn’t just Wilson though – in 2014, DUP ministers tried to oppose proposals to introduce local measures against climate change in Northern Ireland.

Abortion Northern Ireland remains the only part of the UK where women cannot access abortion unless their life is endangered by pregnancy – a legal situation that is incompatible with the European Convention on Human Rights, according to a Belfast High Court ruling in 2015. But on taking leadership of the party in 2016, Arlene Foster promised to block any attempt to change these laws, telling reporters “I would not want abortion to be as freely available here as it is in England.” Foster did, however, say she might consider an amendment in cases of rape. But the DUP’s Jim Wells – formerly the health minister for Northern Ireland – opposes abortion even in these circumstances.

Evolution DUP assembly member Thomas Buchanan has previously called for creationism to be taught in schools. In 2016, he voiced support for an evangelical Christian programme that offers “helpful practical advice on how to counter evolutionary teaching”. He has expressed a desire to see every school in Northern Ireland teaching creationism, describing evolution as a “peddled lie”. Buchanan told the Irish News “I’m someone who believes in creationism and that the world was spoken into existence in six days by His power,” adding that children had been “corrupted by the teaching of evolution”.

Green energy The DUP’s leader narrowly survived a no-confidence motion following a disastrous attempt to bolster green energy in Northern Ireland by providing subsidies for wood burners. Arlene Foster introduced the scheme in 2012 when she was head of the Department of Enterprise, Trade and Investment. The original budget was £25 million, but a lack of price controls meant that, over five years, almost £500 million went up in smoke.

HIV Last year, DUP assembly member Trevor Clarke admitted that he had thought only gay people could be infected with HIV, until a charity explained otherwise. He made the comments during a parliamentary debate around a campaign to “promote awareness and prevention” of HIV in Northern Ireland and to increase support for those living with HIV.

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“That any corporation is too big to fail is a contradiction of the justification of capitalism.”

Without Glass-Steagall America Will Fail (PCR)

Not only must Glass-Steagall be restored, but also the large banks must be reduced in size. That any corporation is too big to fail is a contradiction of the justification of capitalism. Capitalism’s justification is that those corporations that misuse resources and make losses go out of business, thus releasing the misused resources to those who can use them profitably. Capitalism is supposed to benefit society, not be dependent on society to bail it out. I was present when George Champion, former CEO and Chairman of Chase Manhattan Bank testified before the Senate Banking Committee against national branch banking. Champion said that it would result in the banks becoming too large and that the branches would suck savings out of local communities for investment in traded financial assets. Consequently, local communities would be faced with a dearth of loanable funds, and local businesses would die or not be born from lack of loanable funds.

I covered the story for Business Week. But despite the facts as laid out by the pre-eminent banker of our time, the palms had been greased, and the folly proceeded. As Assistant Secretary of the US Treasury in the Reagan Administration, I opposed all financial deregulation. Financial deregulation does nothing but open the gates to fraud and sharp dealing. It allows one institution, even one individual, to make a fortune by wrecking the lives of millions. The American public is not sufficiently sophisticated to understand these matters, but they know when they are hurting. Few in the House and Senate are sufficiently sophisticated to understand these matters, but they do know that to understand them is not conducive to having their palms greased. So how do the elected representatives manage to represent those who vote them into office? The answer is that they seldom do.

The question before Congress today is whether they will take the country down for the sake of campaign contributions and cushy jobs if they lose their seat, or will they take personal risks in order to save the country. America cannot survive if excessive risks and financial fraud can be bailed out by taxpayers. US Representatives Walter Jones and Marcy Kaptur and members of the House and staff on both sides of the aisle, along with former Goldman Sachs executive Nomi Prins and leaders of citizens’ groups, have arranged a briefing in the House of Representatives on June 14 about the importance of Glass-Steagall to the economic, political, and social stability of the United States. Let your representative know that you do not want the financial responsibility for the reckless financial practices of the big banks. Let your representative know also that you do not want big banks that dominate the financial arena. Let them know that you want the return of Glass-Steagall.

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“..a fresh bubble is inflating. This time, it’s not US subprime mortgages at the heart of a budding banking crisis, but $51 trillion in corporate debt in the form of bonds, loans, and related derivatives.”

Breaking Up the Banks Is Easier Than You Might Think (Nomi Prins)

Today, a fresh bubble is inflating. This time, it’s not US subprime mortgages at the heart of a budding banking crisis, but $51 trillion in corporate debt in the form of bonds, loans, and related derivatives. The credit ratings agency S&P Global Ratings has predicted that such debt could rise to $75 trillion by 2020 and the defaults on it are starting to increase in pace. Banks have profited by the short-term creation and trading of this corporate debt, propagating even greater risk. Should that bubble burst, it could make the subprime mortgage bubble of 2007 look like a relatively small-scale event. On the positive side, there’s a growing bipartisan alliance in Congress and outside it on restoring Glass-Steagall.

This increasingly wide-ranging consensus reaches from the AFL-CIO to the libertarian Mises Institute, in the Senate from John McCain to Elizabeth Warren, Bernie Sanders, and Maria Cantwell, and in the House of Representatives from Republicans Walter Jones and Mike Coffman to Democrats Marcy Kaptur and Tulsi Gabbard. In fact, just this week, Kaptur and Jones announced an amendment to the pending Financial Choice Act in the House of Representives, that would represent the first genuine attempt to bring to a vote the possibility of resurrecting the Glass-Steagall Act since its repeal. So, Donald, here’s the question: Where do you—the man who, in the course of a few weeks, embraced Middle Eastern autocrats, turned relations with key NATO allies upside down, and to the astonishment of much of the world, withdrew the United States from the Paris climate agreement—stand?

In just a few months in office, you’ve turned the White House into an outpost for your family business, but when it comes to the financial wellbeing of the rest of us, what will you do? Will you, in fact, protect us from another future meltdown of the financial system? It wouldn’t be that hard and you were clear enough on this issue in your election campaign, but does that even matter to you today? I noticed that recently, in an Oval Office interview with Bloomberg News, when asked about breaking up the banks, you said, “I’m looking at that right now. There’s some people that want to go back to the old system, right? So we’re going to look at that.”

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“..the downward trend in labour’s share of GDP over the past 40 years has been more marked in Australia than in those other economies, apart from New Zealand.”

Australian Households’ Share Of National Economic Pie Nears 50-Year Low (G.)

The share of national income going to Australian households is close to a 50-year low, and now “lies towards the bottom of the international ladder”, an economist has warned. Bureau of Statistics data show labour’s share of gross domestic product has fallen to 51.5%, down from 54.2% in the third quarter of last year. At the same time, the profit share of GDP has risen from 24.5% to a five-year high of 27.5%. Paul Dales from Capital Economics said Australian households had not seen “one cent” of the extra income generated by recent soaring commodity prices because “it’s all gone into the pocket of business”. He said the share of national income going to households was now “within a whisker” of a 50-year low and a meaningful cyclical or structural upturn in that share of income was “very unlikely” if jobs growth and wages growth remained so low.

“The share of the economic pie that households currently enjoy isn’t just small by Australia’s own standards, it’s also small by international standards,” Dales wrote in a note to clients. “As a share of GDP, the compensation of Australian employees lies towards the bottom of the international ladder. That’s not always been the case. “Back in 1975, Australia households received a bigger share of the economic pie than households in the US, France and New Zealand. Only in the UK did the compensation of employees account for a larger share of GDP. “But the downward trend in labour’s share of GDP over the past 40 years has been more marked in Australia than in those other economies, apart from New Zealand.” This trend in most economies was mainly because of structural changes that had reduced the bargaining power of employees, including globalisation, the increased flexibility of the labour market and technical innovation, which had flattened firms’ cost curves, Dales said.

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Source of stability?!

How Germany’s Three-Tiered Banking System Works (HandelsBlatt)

[..] In Germany today some 18 million people, or one in four adults, belong to a credit union. And the idea has spread. Some 800 million people around the world belong to cooperatives, and there are even about 6,000 scattered around the United States. Reinhard Siebel of Frankfurt’s Goethe University says that German credit unions have also inspired today’s micro-financing projects in developing countries. The savings banks in the second tier have been copied less and remain more uniquely German, although Cuba and Ireland are interested in importing the concept. They’re sometimes compared to savings-and-loans in the United States. But the difference is that Germany’s savings banks are publicly-owned – either by municipal governments in the case of local Sparkassen or by federal states in the case of the regional Landesbanken.

Credit unions and savings banks have a few things in common. Both are part of networks of cross-guarantees to protect savers in the event that one of them goes bust. And both have mandates that emphasize maximizing the welfare of their members or stakeholders rather than making profit. In the case of savings banks, this means giving back to the municipality that owns the bank. Savings banks typically sponsor local festivals, finance local hospitals and universities and so forth. All this might sound like a leftist dream – putting communities or democratically elected governments in charge of money-lending rather than greedy private bankers. Creating an altruistic financial system was indeed part of the founders’ motivation. But it hasn’t always played out in practice.

Take the 2008 financial crisis. Some of the culprits were private banks like Commerzbank and Deutsche Bank. But the state-backed Landesbanken had also strayed beyond their allegedly conservative remits, investing in shady American mortgage-backed securities and pouring money into Greece, Spain and Portugal during their boom years. Those exposures were considered risks to the whole banking system and therefore required billions in taxpayer bailouts. So being public instead of private didn’t make them better banks. In fact, it may have made them worse, argues Wilhelm Schmundt, a German financial analyst for the consultancy Bain & Company. He thinks the Landesbanken got in trouble precisely because they were being watched over by public officials who had no real expertise in banking.

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“There are pensioners whose original supplementary pensions came to €585.20 per month and today amount to just €138.80. This signifies a reduction of 78%.”

Greek Pensions Not Enough To Cover Costs Of Medicines, Bills And Food (K.)

Three in every four pensioners already find themselves financially crippled, while upcoming cuts to pensions combined with bailout interventions in their allowances are expected to lead to a total reduction of pensioners’ incomes by up to 70%. This is the conclusion of a survey conducted by the United Pensioners network, which paints a picture of pensioners today as poor, demoralized and disappointed. It adds that the pension most retirees receives doesn’t even cover the costs of spending on medications, bills and food. The head of the network, Nikos Hatzopoulos, notes that “the reductions that pensioners’ incomes have suffered are huge. It’s not just the cuts, it’s also the [social security] contribution hikes, tax hikes and all the levies that have impoverished the veterans of the work force.

Pensions corresponding to revenues withheld from a lifetime’s work have been turned into a mere gratuity through the bailout agreement regulations.” The network’s data are quite staggering: Some 1.5 million pensioners with annual incomes up to €4,500 have sunk into poverty while new cuts to current pension will in 2019 have led to a total loss of income of 70% since Greece entered the bailout mechanism in 2010. New main pensions will not exceed €655 per month for average-paid workers. At the same time supplementary pensions have been savaged, as the seven rounds of cuts inflicted on them average at 50% in total. There are pensioners whose original supplementary pensions came to €585.20 per month and today amount to just €138.80. This signifies a reduction of 78%. Of the total figure of 2.89 million pensioners, 2.15 million (or 74%) have to make ends meet on monthly pensions that do not exceed €1,000.

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Apr 022017
 
 April 2, 2017  Posted by at 2:29 pm Finance Tagged with: , , , , , , , , , ,  Comments Off on The American Dream, Twice Removed
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Vincent van Gogh Corridor In The Asylum 1889

 

Nicole Foss is in Christchurch, New Zealand right now for the Living Economies Expo, and sent me, I’m still in Athens, Greece, a piece written by yet another longtime Automatic Earth reader, Helen Loughrey (keep ’em coming!), who describes her efforts trying to find a rental home in Fairfield County, Connecticut.

The first thing that struck me is how effortless and global sending information has become (category things you know but that hit you anyway occasionally, which is a good thing). The second is that the fall-out of the financial crisis has followed the same path as the information ‘revolution’: that is, it’s spreading faster than wildfire.

And I can’t avoid linking that to earlier periods of American poverty (see the photos), times in which ‘leaders’ thought it appropriate to let large swaths of the population live in misery, so everyone else would think twice about raising their voices. A tried and true strategy.

But of course there are large differences as well today between the likes of Greece and Connecticut. In Athens, there’s a poverty problem. In Fairfield County, there’s a (fake) ‘wealth problem’. Ever fewer people can afford to buy a home, so the rental market is ‘booming’ so much many can’t even afford to rent.

We can summarize this as ‘The Ravages Of The Fed’, and its interest rate policies. Or as ‘The Afterburn of QE’. That way it’s more obvious that this doesn’t happen only in the US. Every country and city in the world in which central banks and governments have deliberately blown real estate bubbles, face the same issue. Toronto, Sydney, Hong Kong, Stockholm, you know the list by now.

Helen’s real-life observations offer a ‘wonderful’ picture of how the process unfolds. The demise of America comes in small steps. But it’s unstoppable. The same is true for every other housing bubble. When no-one can afford to buy a home anymore but a bunch of Russians and Chinese, rental prices surge. And then shortly after that the whole thing goes up in smoke.

Here’s Helen:

 

 

Helen Loughrey: I am getting a reminder about class systems and downward social drift while searching for a rental in Fairfield County, Connecticut.

First of all, I realize I am extremely lucky to be able to afford a home at all. More and more Americans increasingly cannot. I am very aware that my current socioeconomic status could be gone in an instant. And so I am more inclined to notice class issues. There, but for the grace of GDP, go I.

And as one who studies the economy, I know we are all destined to go ‘there’ in the not-so-distant future. Owners are downsizing to become tenants, occupancy rates may rise to depression era levels, and homelessness will continue to rise up through the social fabric like water wicking up a paper towel.  

This week, I rejected an unoccupied split level rental for the dilapidated condition of the heavily scuff-marked and dingy old wall paint and dirty carpets and peeling deck paint. The house screamed “I do not care about my tenants’ quality of life.” I told my real estate agent that it indicated the landlord would not be responsive to tenant needs. He replied, “Well, after all, it’s a *rental*.”

And that statement in its conventional wisdom summed up class assumptions: buyers deserve better than renters. Yet landlords expect renters to deposit $8,000 to $10,000 of their savings, to maintain excellent credit ratings, to pay more than they would for a monthly mortgage, and to increase payments over time by $100/month every year without commensurate capital improvements to maintain the quality of the premises.

I replied, “Well, renters are people too.” I was facing the fact that despite having been a conscientious homeowner and model tenant, I had lost significant socioeconomic status by becoming a renter.

 

Another anecdote: Our current rental is likewise being shown to potential tenants. This week an until-recently wealthy, brand new divorcée with a pre-teen visited while I was here. She needs to switch her daughter from private school to the public schools and to quickly obtain a separate town residence in order to register her daughter. 

I spiffed up the place for my landlord, put fresh flowers on every table, and told the prospect how marvelous it was to raise our daughter in this school district with the backyard pool available to her new friends, how the third bedroom was a cozy office/family room. She listened politely but she visibly recoiled at the drop in living standards that comes with renting after a divorce. Welcome to the Greenwich renters club, my dear.

 


Arthur Rothstein Low-cost housing. Saint Louis, Mo. 1936

 

I remember despairing in our 2013 rental search that we would not find a decent home by the time we had to register our daughter in the Greenwich school system. We had compromised on this residence. Granted, the New York regional prices are stratospheric compared to our southern Maryland experience. You must DOUBLE your housing costs and even then you get much less square footage for the money.

Second, even though Greenwich is notoriously about rich and famous estates in “back country”, nevertheless like any city there are a lot more resident middle class people in average homes and even less well-off poor living in lower quality public housing apartment complexes.

The options in our price range were deplorable when we arrived here. So we paid a lot more than we thought we could afford only to share a portion of a 1950’s era non-updated house with the resident owner living in the in-law apartment.

I tried not to compare it to the larger modern house we had owned in Maryland but on my depressed days, I let my mind wander through our old home for old times’ sake. (But even there during the real estate boom years, I remember thinking we could not afford to buy again in our own neighborhood.)

In 2013 we had offered less than the listed price for our current Greenwich rental but past the top of our affordability. We rationalized that there was a swimming pool bonus for our daughter to invite new friends over. Our offer was accepted. We incorrectly assumed that over the years, the monthly rent would not rise much.

The list price should have been a clue to us that the landlord would attempt to increase the price back to their higher monthly income expectations. Plus the landlord retired from his job and took out a home equity loan a year later.  

 


G. G. Bain Eviction in an East Side neighborhood of New York 1908

 

Four years later, the time has come for us to balk at any further increases. This 3 bedroom 2 bath “tear-down” house apartment now is listed at $5500 and in three years the landlord likely expects rent creep to provide the $6000 they want in monthly income. Well, good luck to the next tenant. So we are house-hunting again. We no longer require the public school system,  but since we are paying cash now for college, our options are still limited. (I could write another essay about skyrocketing college costs.)

We recently concluded that we are now priced-out of the Greenwich rental market for what we are seeking: my husband needs a home office. I want to get moving finally on a productive food garden and starting a Permaculture Design school home business.

Convincing a potential landlord to allow me to convert costly wasteful lawn space into productive perennial food garden space; and to accept all my pets, a well behaved 6 pound lapdog plus 24,000 to 140,000 honeybees …. does not endear me to the real estate agents here. (I could write another essay on entitled and controlling listing agents.)

Other factors also place upward pressure on rental pricing: The sales market is in a longterm slump. Fewer potential buyers qualify to enter the market because they have recently lost their life savings in the housing slump themselves or they are too young to have acquired any.

Bank lenders expect larger down payments than in the recent past, amounts which I expect will be forfeited to the banks anyway when the economy tanks and more “homeowners” are thrown out of work. (Tanked economy, thanks in part to those same banks betting their depositors money in declining real estate.)

Renters risk losing their deposits to unscrupulous thieving landlords but nothing beats a thieving bankster. That down payment you saved? Kiss it goodbye, you are very likely never getting it back. And banksters know this. It is why they demand high down payments.

They’re counting on the eventuality that a good portion of current mortgagees will have to forfeit in a depressed economy. But you would not know there is a sales market slump, let alone another looming crash, by reading glowing real estate -sponsored newspaper articles. It is no wonder many  sales are for cash not lien, to wealthy foreign buyers.

 


Carl Mydans Kitchen of Ozarks cabin purchased for Lake of the Ozarks project, Missouri 1936

 

Anyone buying housing today should expect an asset value loss to occur when the real estate market adjusts downward again. (Which is another reason we are not buying in this market.) However sellers, listening to advice from hopeful real estate agents and pollyannish economists, are holding out for *higher* prices to return.

They eventually remove their properties from the sales market in order to rent them after they still cannot find a buyer even though dropping the price continuously for two years. And because fewer people can afford buying than renting, the price of rentals is rising now while the price of real estate is dropping.

Landlords who are strapped with high mortgages from the boom years, and other landlords who may have owned their older houses outright but then took out home equity loans to finance eventual roofing or HVAC expenses, and even to afford replacement cars or family vacations, are placing expectations on their tenants to provide the income to pay for those bank loans.

Meanwhile town zoning laws still prevent the tenant cost savings of subletting; and prevent owners from contracting with simultaneous multiple tenants. Yet the pool from which to draw tenants who can afford a whole house or 3/4 of one is still shrinking.

Renters like us may eventually opt (and perhaps should be opting now) for smaller square footage multiple family apartment complexes. (But no food gardening amenities? Rental managers take note.) Whole houses, with high mortgages to cover, will remain vacant and become foreclosed.

And I get it, owning a mortgaged property is also costly. But while renters are seeing standards of living drop now, so too will landlords when their properties sit vacant due to aggregate inability of renters’ incomes to afford to support the mortgaged landlords in the manner to which they had once become accustomed.

There will be a resurgence in foreclosures. And then, if they are lucky to still have a job income, we’ll also welcome them to the renters club.